-----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, IlfVpw+i20ugAGjIohduTkQ5NzH0uhT3ef1vIaysmBicFqDnTyKuX04c7xfdltT1 3puePoYRsNWEYNC/cxdHNw== 0000033939-95-000006.txt : 19951119 0000033939-95-000006.hdr.sgml : 19951119 ACCESSION NUMBER: 0000033939-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORUM GROUP INC CENTRAL INDEX KEY: 0000033939 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SOCIAL SERVICES [8300] IRS NUMBER: 610703072 STATE OF INCORPORATION: IN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06350 FILM NUMBER: 95592563 BUSINESS ADDRESS: STREET 1: 8900 KEYSTONE CROSSING STE 200 STREET 2: P O BOX 40498 CITY: INDIANAPOLIS STATE: IN ZIP: 46240-0498 BUSINESS PHONE: 3178460700 MAIL ADDRESS: STREET 1: 8900 KEYSTONE CROSSING STE 200 STREET 2: PO BOX 40498 CITY: INDIANAPOLIS STATE: IN ZIP: 46240-0498 FORMER COMPANY: FORMER CONFORMED NAME: EXCEPTICON INC DATE OF NAME CHANGE: 19810909 FORMER COMPANY: FORMER CONFORMED NAME: GUARDIAN CARE CORP DATE OF NAME CHANGE: 19720615 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1995 Commission File Number 0-6350 FORUM GROUP, INC. (Exact name of registrant as specified in its charter) Indiana 61-0703072 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11320 Random Hills Road, Suite 400 Fairfax, Virginia 22030 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 703-277-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes X No ----- ----- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: Yes X No ----- ----- The number of shares outstanding of the registrant's common stock as of November 6, 1995 was 22,514,209. INDEX FORUM GROUP, INC., AND SUBSIDIARIES PART I. FINANCIAL INFORMATION PAGE - ----------------------------- ---- Item 1. Financial Statements (Without Audit) Condensed consolidated balance sheets -- September 30 and March 31, 1995 3 Condensed consolidated statements of operations -- Three and six months ended September 30, 1995 and 1994 5 Condensed consolidated statements of cash flows -- Six months ended September 30, 1995 and 1994 7 Notes to condensed consolidated financial statements -- September 30, 1995 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 26 Item 4. Submission Of Matters to a Vote of Security Holders 27 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 29 - ---------- EXHIBIT INDEX 30 - ------------- -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Without Audit) September 30, March 31, 1995 1995 ------------- ------------ (in thousands) ASSETS ------ Current Assets: Cash and cash equivalents $ 37,851 $ 30,228 Accounts receivable, less allowances for doubtful accounts of $620 and $487, respectively 8,915 7,992 Notes and other receivables 6,160 4,603 Prepaids and other current assets 3,463 4,851 ---------- ---------- Total Current Assets 56,389 47,674 ---------- ---------- Restricted Cash 18,849 13,098 Property and equipment: Land and improvements 51,860 49,737 Buildings and leasehold improvements 279,567 263,411 Furniture and equipment 20,943 18,780 Construction in progress 16,113 5,249 ---------- ---------- 368,483 337,177 Less accumulated depreciation and amortization 25,014 19,820 ---------- ---------- Property and Equipment, net 343,469 317,357 Investments: Greenville Retirement Community, L.P. 3,138 3,331 Other 1,808 1,531 ---------- ---------- Net Investments 4,946 4,862 ---------- ---------- Deferred costs, net of accumulated amortization of $1,186 and $1,948, respectively 8,571 12,778 Other assets 28,668 2,577 Excess of cost over net assets of business acquired, net of accumulated amortization of $37 and $0, respectively 1,054 -0- ---------- ---------- Total Assets $ 461,946 $ 398,346 ---------- ---------- -3- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Without Audit) September 30, March 31, 1995 1995 ------------- ------------ (in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current portion of long-term debt $ 56,710 $ 5,275 Accounts payable 4,471 3,846 Accrued expenses 18,238 15,295 Resident deposits and refundable resident fees 18,438 19,609 ---------- ---------- Total Current Liabilities 97,857 44,025 Long-term debt, less current portion payable within one year 260,319 264,761 Deferred income 7,627 7,294 ---------- ---------- TOTAL LIABILITIES 365,803 316,080 Other partners' equity 17,649 16,600 Shareholders' equity: Common stock, no par value - authorized 48,000 shares, issued 22,500 70,147 67,927 Accumulated earnings (deficit) 8,347 (2,261) ---------- ---------- Total Shareholders' Equity 78,494 65,666 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 461,946 $ 398,346 ---------- ---------- See Notes to Condensed Consolidated Financial Statements. -4- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Without Audit) Three Months Ended Six Months Ended September 30, September 30, ------------------- ------------------- 1995 1994 1995 1994 ------------------- ------------------- (in thousands except per share amounts) Revenues: Net operating revenues $ 47,635 $ 36,188 $ 92,917 $ 62,931 Management fees 350 508 703 1,603 Investment and other income 751 817 1,557 1,069 -------- -------- -------- -------- TOTAL REVENUES 48,736 37,513 95,177 65,603 -------- -------- -------- -------- Costs and expenses: Operating expenses 33,192 23,998 64,312 42,188 General and administrative expenses 2,971 1,739 5,861 3,321 Relocation costs 315 -0- 577 -0- Litigation expense 19 -0- 48 -0- Depreciation and amortization 2,906 2,052 5,695 3,579 -------- -------- -------- -------- TOTAL COSTS AND EXPENSES 39,403 27,789 76,493 49,088 -------- -------- -------- -------- 9,333 9,724 18,684 16,515 Interest expense (7,632) (5,778) (14,630) (10,434) Gains from sales of cooperative memberships 10,798 4,197 10,798 4,197 -------- -------- -------- -------- Income before minority interests, income taxes and extraordinary charge 12,499 8,143 14,852 10,278 Minority interests (162) (138) (350) (197) -------- -------- -------- -------- Income before income taxes and extraordinary charge 12,337 8,005 14,502 10,081 Income taxes 2,287 2,000 2,587 2,000 -------- -------- -------- -------- Income before extraordinary charge 10,050 6,005 11,915 8,081 Extraordinary charge - early extinguishment of debt, net of income tax benefit (1,307) -0- (1,307) -0- -------- -------- -------- -------- NET INCOME 8,743 6,005 10,608 8,081 -------- -------- -------- -------- ACCUMULATED DEFICIT AT BEGINNING OF PERIOD (396) (12,413) (2,261) (14,489) -------- -------- -------- -------- ACCUMULATED EARNINGS (DEFICIT) AT END OF PERIOD $ 8,347 $ (6,408) $ 8,347 $ (6,408) -------- -------- -------- -------- See Notes to Condensed Consolidated Financial Statements. -5- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Without Audit) Three Months Ended Six Months Ended September 30, September 30, ------------------- ------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (in thousands except per share amounts) Net Income $ 8,743 $ 6,005 $ 10,608 $ 8,081 -------- -------- -------- -------- Average number of common and common equivalent shares outstanding 23,562 22,920 23,561 22,846 -------- -------- -------- -------- Per common and common equivalent share (primary and fully diluted): Income before extraordinary charge $ 0.43 $ 0.26 $ 0.51 $ 0.35 Extraordinary charge (0.06) 0.00 (0.06) 0.00 -------- -------- -------- -------- Net income $ 0.37 $ 0.26 $ 0.45 $ 0.35 -------- -------- -------- -------- See Notes to Condensed Consolidated Financial Statements. -6- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Without Audit) Six Months Ended September 30, ------------------------- 1995 1994 ---------- ---------- (in thousands) Cash flows from operating activities: Net income $ 10,608 $ 8,081 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,695 3,579 Amortization of deferred costs 1,182 1,208 Other partners' and interest in losses of consolidated companies 350 197 Net income of investments on the equity method (196) (118) Other accrued revenues and expenses, net (186) (129) Tax benefit recorded as additional shareholders' equity 2,100 -0- Non-cash portion of extraordinary charge 1,509 -0- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 21,062 12,818 ---------- ---------- Cash flows from investing activities: Purchases of retirement communities and businesses (18,618) (4,787) Additions to property and equipment (14,403) (3,070) Net proceeds from sales of investment in Rancho San Antonio Retirement Housing Corporation -0- 8,713 Notes, investments and other receivables (15,702) 151 Other 1,024 331 ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (47,699) 1,338 ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 154,705 407 Payments on long-term debt (107,721) (1,752) Proceeds from issuance of common stock and warrants, net -0- 5,155 Deferred financing and other costs (5,874) (1,386) Distributions to other partners (155) (155) Resident deposits and restricted cash (6,695) (486) ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 34,260 1,783 ---------- ---------- Net increase in cash and cash equivalents 7,623 15,939 Cash and cash equivalents at beginning of period 30,228 18,331 ---------- ---------- Cash and cash equivalents at end of period $ 37,851 $ 34,270 ---------- ---------- See Notes to Condensed Consolidated Financial Statements. -7- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) September 30, 1995 Note A - Basis of Presentation - ------------------------------ The balance sheet at March 31, 1995 has been derived from the audited financial statements at that date included in the Annual Report on Form 10-K of Forum Group, Inc. ("Forum Group") filed with the Securities and Exchange Commission for the fiscal year ended March 31, 1995 (the "1995 10-K"). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The statements have been prepared using the accounting policies described in the consolidated financial statements of Forum Group included in the 1995 10-K. The unaudited condensed consolidated financial statements include all adjustments which are necessary, in the opinion of management, to present fairly, in all material respects, the Company's financial position and results of operations for the applicable periods. Operating results for the six-month period ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ending March 31, 1996 and these financial statements should be read in conjunction with the 1995 10-K. Certain amounts in the fiscal year 1995 condensed consolidated financial statements have been reclassified to conform to the fiscal year 1996 presentation. -8- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) September 30, 1995 Note B - Changes In Consolidation - --------------------------------- Forum Retirement Partners, L.P. ("Forum Partners") is a publicly traded limited partnership which owns nine retirement communities. Forum Group is the parent company of Forum Retirement, Inc., Forum Partners' general partner (the "General Partner"), and has a long-term management agreement with Forum Partners. In addition, Forum Group has a substantial beneficial interest in Forum Partners. Prior to August 1, 1994, this beneficial interest was less than 50%, and Forum Group's investment in Forum Partners was accounted for on the equity method. Through the acquisition of additional partnership units, Forum Group's beneficial interest in Forum Partners increased to 56.4% on August 1, 1994. Accordingly, as of that date, the assets, liabilities and financial results of Forum Partners were included in the consolidated financial statements of Forum Group. During October, 1994 Forum Group increased its beneficial interest to 62.1%. The following pro forma amounts summarize the effect on the condensed consolidated statement of operations for the six months ended September 30, 1994, as if Forum Group's beneficial interest in Forum Partners was 62.1% on April 1, 1994: Six Months Ended September 30, 1994 -------------------- (in thousands except per share amount) Total revenues $79,895 ------- Net income $ 8,407 ------- Net income per common and common equivalent share $ .37 ------- In an effort to increase its equity interest in Forum Partners, Forum Group has commenced a tender offer for any and all outstanding preferred depositary units (the "Units") representing preferred limited partners' interests in Forum Partners not already owned by it at $2.83 per Unit in cash. The tender offer is presently scheduled to expire at 12:00 Midnight, New York City time, on December 1, 1995, unless extended. -9- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) September 30, 1995 Note C - Other Investments - -------------------------- Forum Group has a 50% beneficial interest in Greenville Retirement Community, L.P. ("GRP"), a limited partnership which owns the Stonegates retirement community in Wilmington, Delaware ("Stonegates"). Summary financial information for GRP as of and for the six months ended September 30, 1995 is as follows (in thousands): Net property $ 19,912 Other assets 1,263 --------- 21,175 Less liabilities 22,917 --------- Net deficit $ (1,742) --------- Revenues $ 3,437 Costs and expenses 3,008 --------- Net income $ 429 --------- Forum Group has entered into a co-investment agreement with National Guest Homes, L.L.C. ("NGH"), a developer of assisted living facilities targeted toward middle-income senior citizens. Forum Group's investment in projects under construction is included in the consolidated financial statements of Forum Group. Forum Group's investment in Forum - NGH Operations I, L.L.C. ("NGH Operations"), a manager of assisted living facilities, is accounted for on the cost method. Note D - Long Term Debt - ----------------------- On September 1, 1995, FGI Financing I Corporation ("FFI") and Forum Ohio Healthcare, Inc. (collectively with FFI, the "Forum Pool Borrowers"), both wholly owned subsidiaries of Forum Group, obtained a non-recourse mortgage loan totaling $124.7 million. The loan is secured by first and second liens on eight Forum Group retirement centers (the "Forum Pool Properties"). The loan has cross-default and cross-collateral provisions. The proceeds were used to repay existing indebtedness of $106.0 million, loan closing costs, funding of the initial capital reserve account and general corporate purposes. The loan requires monthly payments based on a 25-year term and bears interest at a fixed rate of 10.008% until September 2003, at which time the rate increases to the greater of 15.008% or the 10-year Treasury rate plus 5%. The loan matures in September 2020 but is open to prepayment without penalty on and after September 2003. Prior to that time, after October 1997, the loan is pre-payable subject to a yield maintenance -10- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) September 30, 1995 premium. Because the interest rate on the loan increases significantly in September 2003, it is anticipated that the loan will be prepaid or refinanced by September 2003. As part of the original floating rate debt financing that was repaid with the proceeds of the loan described in the preceding paragraph, FFI entered into an interest rate cap agreement with a notional amount equal to $93.3 million, which expires in March 2001. The agreement entitles FFI to receive the amount, if any, by which one-month LIBOR exceeds 4.625% on a notional amount of $93.3 million through expiration. The interest rate cap agreement is included in other assets, and was amortized to interest expense over the term of the agreement until September 1, 1995. The interest rate cap agreement was not terminated upon refinancing of the underlying debt on September 1, 1995. The market value and unamortized cost of the interest rate cap agreement at that date was $7.3 million and $5.7 million, respectively. The difference between market value and the unamortized cost of the interest rate cap was recorded as a component of the extraordinary loss on extinquishment of debt, net of deferred taxes of $0.3 million. As of September 30, 1995, the interest rate cap is recorded in other assets at a market value of $7.4 million. The change in market value subsequent to September 1, 1995 is recorded as other income. As noted above, Forum Group extinguished $106.0 million of debt prior to its scheduled maturity. In connection with this transaction, Forum Group incurred an extraordinary loss on extinguishment of debt of $2.6 million, net of deferred income tax benefits of $0.6 million. Partially offsetting this loss was the extraordinary gain of $1.2 million, net of deferred income taxes of $0.3 million, as a result of recording the interest rate cap agreement at market value upon extinguishment of the underlying debt. Pursuant to a separate credit agreement, during the period from September 1, 1995 to September 1, 1999, Forum Group may borrow up to $50.0 million to fund a portion of the expansions to the properties collaterallizing the above-described mortgage loan. Note E - Commitments and Contingencies - -------------------------------------- For information concerning certain legal proceedings involving Forum Group, see (i) Item 3 and Note 5 of the Notes to Consolidated Financial Statements contained in Item 8 of Part I of the 1995 10-K, (ii) Item 1 of Part II of the Quarterly Report on Form 10-Q of Forum Group for the quarter ended June 30, 1995, and (iii) Item 1 of Part II of this report. Such information is incorporated herein by reference. Note F - Subsequent Event - ------------------------- On October 31, 1995, Forum Group entered into a binding agreement to acquire two assisted living and dementia-related senior housing -11- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) September 30, 1995 communities in the Northwestern United States in January, 1996 for approximately $11.6 million. A third community in the Northwestern United States currently under construction will also be acquired in October, 1997, for an amount defined in the agreement once stabilized occupancy has been established. Management of these assets will be provided by the seller on a fee basis. The agreement also provides for participation, on a joint venture basis, for the construction of between 5 and 10 new communities in the Northwestern United States and the right to develop the concept nationally. -12- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES The following discussion and analysis covers any material changes in financial condition since March 31, 1995 and any material changes in the results of operations for the three and six months ended September 30, 1995 as compared to the same periods in 1994. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 1995 10-K. Results Of Operations - --------------------- Forum Group provides senior housing and healthcare services in 14 states through the operation of 40 retirement communities ("RCs"). Forum Group operates (i) fourteen RCs, including one nursing facility owned or leased by Forum Group and one health center leased by Forum Group ("Owned Communities"), (ii) four RCs owned by partnerships which are not wholly owned by Forum Group but which are consolidated for financial reporting purposes (the "Consolidated Partnership Communities"), (iii) nine RCs owned by Forum Partners (discussed below) which are consolidated for financial reporting purposes, (iv) five RCs pursuant to separate contracts Forum Group acquired in May 1995 and one RC which opened in July, owned by a partnership which is not wholly owned but which is consolidated for financial reporting purposes, and (v) seven RCs owned by entities which are not consolidated for financial reporting purposes (the "Unconsolidated Communities"), one owned by GRP, one owned by Rancho San Antonio Retirement Housing Corporation ("RSARHC") and five operated by Forum-NGH Operations in which entity Forum Group has a majority non-voting interest. In addition, Forum Group presently has two RCs under construction and two non-performing first mortgage loans on RCs located in Florida which were acquired in June, 1995. Certain summary financial information for the Owned Communities, Forum Partners, the Consolidated Partnership Communities, and other corporate operations ("Corporate Operations") is presented below. The results of Forum Partners' operations were not consolidated for financial reporting purposes prior to August 1, 1994 (see Note B of Notes to Condensed Consolidated Financial Statements). Accordingly, the periods in which the financial results of Forum Partners are included in the Condensed Consolidated Financial Statements of Forum Group are not comparable to prior periods. Effective August 1, 1994, Forum Group purchased additional Units in Forum Partners to exceed a 50% equity ownership interest, and the operations of Forum Partners are consolidated into Forum Group's consolidated financial statements from that date. Forum Partners owns and operates nine RCs which were 94% occupied as of September 30, 1995. Pro forma consolidated operating results as if Forum Partners' results were consolidated from April 1, 1994 based upon Forum Group's 62.1% equity ownership of Forum Partners as of August 1, 1994 are as presented in the following table for the three and six months ended September 30, 1994. The pro forma data are presented for illustrative purposes only and are not necessarily indicative of what Forum Group's actual results of operations would have been had Forum Group owned 62.1% of the equity interest in Forum Partners throughout the period presented. In an effort to increase its equity -13- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES interest in Forum Partners, Forum Group has commenced a tender offer for any and all outstanding preferred depositary Units representing preferred limited partners' interests in Forum Partners not already owned by it at $2.83 per unit in cash. The tender offer is presently scheduled to expire at 12:00 Midnight, New York City time, on December 1, 1995, unless extended. See Note B of Notes to Condensed Consolidated Financial Statements included elsewhere herein for additional information relating to Forum Partners. As presented in the following tables, EBITDA (defined as earnings before interest, taxes, depreciation, amortization and extraordinary charges) reflects Forum Group's ability to satisfy principal and interest obligations with respect to its indebtedness and to provide cash for other purposes. EBITDA does not represent and should not be considered as an alternative to net income or cash flow as determined pursuant to generally accepted accounting principles. -14- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Three Months Ended September 30, 1995 ------------------------------------- ($ in millions) ---------------------------Actual---------------------------- (a) Consolidated Owned Forum Partnership Corporate Communities Partners Communities Operations Consolidated ----------- ----------- ------------ ---------- ------------ Total Revenues $26.4 $12.5 $ 7.5 $2.3 $48.7 Operating Expenses 17.8 9.2 4.3 1.9 33.2 General and Administrative Expenses - .1 - 2.9 3.0 Relocation Costs - - - .3 .3 EBITDA (b) 8.6 3.2 3.2 (2.8) 12.2 Gains from Sales of Cooperative Memberships - - - 10.8 10.8 Depreciation and Amortization (1.4) (.7) (.5) (.3) (2.9) Interest Expense (4.7) (1.2) (1.5) (.2) (7.6) Minority Interests - - - (.2) (.2) Income Taxes - - - (2.3) (2.3) Extraordinary loss, net of income taxes - - - (1.3) (1.3) Net Income 8.7 - ---------------- (a) Effective August 1, 1994, Forum Group purchased additional Units in Forum Partners to exceed a 50% equity ownership interest, and its operations are consolidated into Forum Group's consolidated financial statements from that date. (b) After $.3 million of non-recurring expenses. See "Relocation Costs" at page 20 for a discussion of this item. -15- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Six Months Ended September 30, 1995 ----------------------------------- ($ in millions) ---------------------------Actual---------------------------- (a) Consolidated Owned Forum Partnership Corporate Communities Partners Communities Operations Consolidated ----------- ----------- ------------ ---------- ------------ Total Revenues $50.8 $24.9 $15.0 $4.5 $95.2 Operating Expenses 34.3 18.1 8.7 3.2 64.3 General and Administrative Expenses - 0.3 - 5.6 5.9 Relocation Costs - - - 0.6 0.6 EBITDA (b) 16.5 6.5 6.3 (4.9) 24.4 Gains from Sales of Cooperative Memberships - - - 10.8 10.8 Depreciation and Amortization (2.7) (1.5) (1.0) (0.5) (5.7) Interest Expense (8.3) (2.5) (3.1) (0.7) (14.6) Minority Interests - - - (0.4) (0.4) Income Taxes - - - (2.6) (2.6) Extraordinary loss, net of income taxes - - - (1.3) (1.3) Net Income 10.6 - ---------------- (a) Effective August 1, 1994, Forum Group purchased additional Units in Forum Partners to exceed a 50% equity ownership interest, and its operations are consolidated into Forum Group's consolidated financial statements from that date. (b) After $.6 million of non-recurring expenses. See "Relocation Costs" at page 20 for a discussion of this item. -16- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Three Months Ended September 30, 1994 ------------------------------------- ($ in millions) ------------------------Actual--------------------------- (a) Consolidated (a) Owned Forum Partnership Corporate Pro Forma Communities Partners Communities Operations Consolidated Consolidated ----------- -------- ------------ ---------- ------------ ------------ Total Revenues $21.3 $8.0 $7.0 $1.2 $37.5 $41.3 Operating Expenses 14.1 5.8 3.9 0.2 24.0 27.0 General and Administrative Expense - - - 1.7 1.7 1.7 Relocation Costs - - - - - - EBITDA 7.2 2.2 3.1 (0.7) 11.8 12.6 Gains from Sales of Cooperative Memberships - - - 4.2 4.2 4.2 Depreciation and Amortization(1.1) (0.5) (0.5) - (2.1) (2.2) Interest Expense (3.4) (0.8) (1.4) (0.2) (5.8) (6.2) Minority Interests - - - (0.1) (0.1) (0.2) Income Taxes - - - (2.0) (2.0) (2.1) Extraordinary loss, net of income taxes - - - - - - Net Income 6.0 6.1 - ---------------- (a) Effective August 1, 1994, Forum Group purchased additional Units in Forum Partners to exceed a 50% equity ownership interest, and its operations are consolidated into Forum Group's consolidated financial statements from that date. Pro forma operating results are shown as if Forum Partners' results of operations were consolidated from April 1, 1994. -17- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Six Months Ended September 30, 1994 ----------------------------------- ($ in millions) ------------------------Actual--------------------------- (a) Consolidated (a) Owned Forum Partnership Corporate Pro Forma Communities Partners Communities Operations Consolidated Consolidated ----------- -------- ------------ ---------- ------------ ------------ Total Revenues $42.3 $8.0 $13.7 $1.6 $65.6 $79.9 Operating Expenses 27.9 5.8 8.0 0.5 42.2 53.1 General and Administrative Expense - - - 3.3 3.3 3.5 Relocation Costs - - - - - - EBITDA 14.4 2.2 5.7 (2.2) 20.1 23.3 Gains from Sales of Cooperative Memberships - - - 4.2 4.2 4.2 Depreciation and Amortization(2.1) (0.5) (1.0) - (3.6) (4.7) Interest Expense (6.6) (0.8) (2.6) (0.4) (10.4) (12.0) Minority Interests - - - (0.2) (0.2) (0.3) Income Taxes - - - (2.0) (2.0) (2.1) Extraordinary loss, net of income taxes - - - - - - Net Income 8.1 8.4 - ---------------- (a) Effective August 1, 1994, Forum Group purchased additional Units in Forum Partners to exceed a 50% equity ownership interest, and its operations are consolidated into Forum Group's consolidated financial statements from that date. Pro forma operating results are shown as if Forum Partners' results of operations were consolidated from April 1, 1994. -18- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Owned Communities. Total revenues for the three and six months ended September 30, 1995 increased by $5.1 million (24%) from $21.3 million to $26.4 million, and by $8.5 million (20%) from $42.3 million to $50.8 million, respectively, as compared to the same period of the previous year. This increase was primarily attributable to increases in rental rates, additional ancillary services and the acquisition in August 1994, January 1995 and May 1995 of three RCs, Tiffany House ("Tiffany"), The Forum at Fountainview ("Fountainview") and The Forum at the Woodlands ("Woodlands"), respectively. Combined occupancy, excluding Tiffany, Fountainview and Woodlands, averaged 94.7% at September 30, 1995 compared to 93.9% at September 30, 1994. Operating expenses for the three and six months ended September 30, 1995 at the Owned Communities increased by $3.7 million (26%), from $14.1 million to $17.8 million, and by $6.4 million (23%) from $27.9 million to $34.3 million, respectively, as compared to the three- and six-month periods ended September 30, 1994. (General and Administrative expenses ("G&A") for the Owned Communities were included in operating expenses.) This increase was primarily attributable to additional ancillary services, normal inflationary increases and the acquisition of Tiffany, Fountainview and Woodlands. EBITDA for the three and six months ended September 30, 1995 from the Owned Communities increased by $.5 million (19%), from $7.2 million to $8.6 million, and by $1.9 million (15%) from $14.4 million to $16.5 million, respectively, as compared to the same periods ended September 30, 1994. Consolidated Partnership Communities. Total revenues for the three and six months ended September 30, 1995 increased by $.5 million (7%), from $7.0 million to $7.5 million, and by $1.3 million (9%) from $13.7 million to $15.0 million, respectively, as compared to the same period of the previous year. This increase was primarily attributable to favorable changes in occupancy, increased utilization of ancillary healthcare services and increases in residency fees and charges. Combined occupancy increased from 93.9% at September 30, 1994 to 94.4% at September 30, 1995. Operating expenses for the Consolidated Partnership Communities for this three and six months ended September 30, 1995 increased by $.4 million (10%), from $3.9 million to $4.3 million, and by $.7 million (9%) from $8.0 million to $8.7 million, respectively, as compared to the three and six months ended September 30, 1994. (G&A for the Owned Communities are included in operating expenses.) The increase in expenses was primarily attributable to the increase in occupancy, increased utilization of ancillary healthcare services and normal inflationary increases. EBITDA for the Consolidated Partnership Communities for the three and six months ended September 30, 1995 increased by $.1 million (3%), from $3.1 million to $3.2 million, and by $.6 million (11%) from $5.7 million to $6.3 million, respectively, as compared to the three months ended September 30, 1994. Pro Forma. On a pro forma basis, assuming that Forum Partners' results of operations were consolidated for the three and six months ended September 30, 1994 (rather than from August 1, 1994, the actual date of consolidation), total revenues for the three and six months ended September 30, 1995 increased by $7.4 million (17%), from $41.3 million to $48.7 million, and by $15.3 million (19%) from $79.9 million to $95.2 -19- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES million, respectively, as compared to the three and six months ended September 30, 1994. This increase was primarily attributable to increases in occupancy, rental rates, additional ancillary services and the acquisition of Tiffany, Fountainview and Woodlands. Operating expenses for the three and six months ended September 30, 1995 increased by $6.2 million (23%), from $27.0 million to $33.2 million, and by $11.2 million (21%), from $53.1 million to $64.3 million, as compared to the same periods of the previous year; G&A for the three and six months ended September 30, 1995 increased by $1.3 million (76%), from $1.7 million to $3.0 million and by $2.4 million (69%) from $3.5 million to $5.9 million, respectively, as compared to the same periods of the previous year. The increase in operating expenses was primarily attributable to additional ancillary services, normal inflationary increases and the acquisition of Tiffany, Fountainview and Woodlands. The increase in G&A was primarily attributable to the factor described under the caption "General and Administrative Expenses" below. EBITDA for the three and six months ended September 30, 1995 decreased and increased by $.4 million (3%), from $12.6 million to $12.2 million, and by $1.1 million (5%) from $23.3 million to $24.4 million, respectively, as compared to the same periods of the previous year. Unconsolidated Entities. Forum Group's equity in the earnings of unconsolidated entities is reflected as Other income. Changes in Forum Group's equity in the aggregate net earnings of Forum Partners and GRP were not material to Forum Group's consolidated results of operations for the three and six months ended September 30, 1995. Due to the changes in financial statement presentation regarding Forum Partners (see Note B of Notes to Condensed Consolidated Financial Statements), the equity adjustment for that entity is not comparable between fiscal periods. Consolidated Items. The following is a discussion of certain consolidated items: General and Administrative Expenses. For the three and six months ended September 30, 1995, consolidated G&A increased by $1.3 million (76%), from $1.7 million to $3.0 million, and by $2.6 million (79%) from $3.3 million to $5.9 million, respectively, compared to the same periods of the previous year. This increase was primarily attributable to increased home office staff costs to manage recent and projected growth through acquisitions and development. Relocation Costs. During the three and six months ended September 30, 1995, expenses of $.3 million and $.6 million, respectively, were incurred in conjunction with the relocation of Forum Group's headquarters from Indianapolis, Indiana to Fairfax, Virginia. Additional relocation expenses are currently expected to be approximately $1.0 million. The relocation is expected to benefit the Company as a result of future growth and development targeted along the East Coast corridor, potential acquisitions and the ability to attract exceptional talent necessary to meet the Company's expected growth. -20- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Gains From Sale Of Cooperative Memberships. The operating results of Rancho San Antonio Retirement Housing Corporation ("Rancho San Antonio"), a cooperative corporation which owns an RC in Cupertino, California, were included in the consolidated financial statements of Forum Group through July 31, 1993 because Forum Group owned a majority of the cooperative memberships. Effective August 1, 1993, due to continued sales of cooperative memberships, Forum Group no longer owned in excess of 50%, and accordingly, the financial statements of Rancho San Antonio were no longer consolidated into Forum Group's financial statements from that date. Sales of cooperative memberships have totaled $115 million through September 30, 1995, and profits of these sales are recognized using the cost recovery method. In August 1994, all of Forum Group's costs were recovered through sale of memberships, and the investment was reduced to zero. Remaining membership sales are recognized as gains from sales of cooperative memberships. Proceeds from future sales of memberships are estimated to approximate $4.0 million. For the three months ended September 30, 1995, thirty-one memberships were sold and $10.8 million of gains were recognized. Litigation Expenses. Litigation expenses were not material to Forum Group's results of operations for the three and six months ended September 30, 1995 and 1994. Depreciation. For the three and six months ended September 30, 1995, consolidated depreciation expense increased by $.8 million and $2.1 million, compared to the previous fiscal period. This increase reflects property additions, the August 1, 1994 consolidation of Forum Partners for financial statement purposes and the acquisition of Tiffany, Fountainview and Woodlands. Interest Expense. Consolidated interest expense increased by $1.8 million, from $5.8 million to $7.6 million, and by $4.2 million from $10.4 million to $14.6 million, respectively, during the three and six months ended September 30, 1995, as compared to the same periods of the previous year. This change was primarily attributable to changes in average borrowing costs and increased indebtedness incurred to finance acquisitions. Minority Interests. There were no changes in the minority interests' elimination for the three and six months ended September 30, 1995 compared to the same periods in the previous year. Taxes. Due to the utilization of net operating loss carryforwards, Forum Group had a $.2 million federal income tax liability at September 30, 1995 related to fiscal year 1996 estimated tax liability. Notes and other receivables include federal income taxes receivable of $1.2 million at September 30, 1995 related to fiscal year 1995 tax return. As of March 31, 1995, net operating loss carryforwards for tax purposes were estimated to be approximately $158.0 million before the application of certain net operating loss carryforward limitations. As a result of these limitations, Forum Group expects the utilization of net operating loss carryforwards will be limited to approximately $33.0 million. These -21- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES net operating loss carryforwards will expire in varying amounts through fiscal year 2009. For financial reporting purposes, any future benefit of net operating loss carryforwards and net deferred tax assets arising prior to the reorganization plan (April 2, 1992) will be reported as additional shareholders' equity. The maximum future tax benefit to be recognized through shareholders' equity was estimated to be approximately $30.0 million at March 31, 1995. Extraordinary Loss. On September 1, 1995, the Company extinguished $106 million of debt prior to its scheduled maturity. In connection with this transaction, the Company incurred an extraordinary loss of $2.6 million, net of $.6 million of income tax benefit. The interest rate cap agreement related to part of the underlying extinguished debt was not terminated. The difference between the market value of $7.3 million and the unamortized cost of $5.7 million, net of taxes of $.3 million, was netted with the extraordinary loss. Net Income/Loss Per Share. The three and six months ended September 30, 1995 produced net income of $8.7 million ($0.37 per Common Share) and $10.6 million ($0.45 per Common Share) compared to net income of $6.0 million ($0.26 per Common Share) and $8.1 million ($0.35 per Common Share) for the comparable periods in 1994. All per share data are based upon the weighted average number of shares outstanding for the relevant periods. Financial Condition - ------------------- Liquidity And Capital Resources. At September 30, 1995, Forum Group had cash and cash equivalents of $37.9 million, accounts receivable of $8.9 million, notes and other receivables of $6.2 million, prepaid and other current assets of $3.5 million, and current liabilities of $97.9 million (including $56.7 million of indebtedness due within one year). Forum Group believes that its liquidity and the capital resources available to it are adequate to meet its foreseeable working capital and strategic growth requirements. The negative working capital at September 30, 1995 includes approximately $50.3 of debt which is currently due or matures during May, 1996. As discussed under "Capital Structure" on page 24, Forum Group believes it has the available cash on hand to extinguish amounts currently due and adequate debt capacity to extend the $50.3 million. Forum Group is currently evaluating available alternatives with respect to extinguishing or extending maturing obligations. Forum Group has adopted a growth-oriented strategic plan which contemplates the acquisition of businesses and assets as well as additional capital investment in its existing properties. Forum Group's acquisition strategy is designed to add additional properties in strategically located markets, to establish joint ventures to develop or acquire properties or businesses in the senior housing sector and to pursue other opportunities relating to senior service, including home health care and other home or community-based services to the seniors' market. -22- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Forum Group also intends to seek to expand its existing properties through additional capital investment. Forum Group's expansion strategy is intended to modify the use of, or add capacity to, existing facilities without incurring substantial land acquisition and common area build-out costs, and to take advantage of other existing infrastructure investment and personnel in place. There necessarily can be no assurance that additional material acquisitions or expansions will be completed or, if so, as to the timing or terms thereof. On October 31, 1995, Forum Group entered into a binding agreement to acquire two assisted living and dementia-related senior housing communities in the Northwestern United States in January, 1996. A third community in the Northwestern United States currently under construction will also be acquired in October, 1997, for an amount defined in the agreement once stabilized occupancy has been established. Management of these assets will be provided by the seller on a fee basis. The agreement also provides for participation, on a joint venture basis, for the construction of between 5 and 10 new communities in the Northwestern United States and the right to develop the concept nationally. Management believes that satisfactory sources of capital are available to meet all funding obligations with respect to this acquisition. Forum Group has an interest rate cap agreement with a notional amount of $93.3 million which was not terminated upon refinancing of the underlying debt in September, 1995. The interest rate cap had a market value of approximately $6.1 million as of November 1, 1995. Management is currently evaluating alternatives with respect to this agreement. See Note E of Notes to Condensed Consolidated Financial Statements included elsewhere herein for additional information relating to this agreement. Forum Group is currently a party to a loan facility providing for up to $100 million of acquisition financing. The unutilized amount of this facility at November 1, 1995 was $70.1 million. At the option of Forum Group, each borrowing under the facility may be converted to a ten-year term loan after 18 months from the date of the borrowing. During the 18- month period, Forum Group may repay the indebtedness using proceeds from other financing sources, if any such financing becomes available on more favorable terms. Absent conversion or refinancing, interest on the acquisition loan is payable monthly in arrears at LIBOR plus 5.425% (including service costs and other fees of 2.075%). Forum Group has an option permitting it to increase the borrowings against the properties acquired if the debt service coverage computed on a trailing 12-month basis exceeds certain thresholds, in which event the increased borrowings could be used to fund Forum Group's growth or for other corporate purposes. While Forum Group believes that the existing acquisition facility, together with its other capital resources, are sufficient to finance its acquisition and capital investment strategy over the intermediate term, Forum Group is also exploring the possible modification or replacement of, or supplements to, that facility and other possible financings and refinancings in order to provide greater financial flexibility. -23- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Capital Structure. Forum Group's total long-term debt was $317 million as of September 30, 1995, including $123.8 million of debt of Consolidated Partnership Communities which was non-recourse to Forum Group, Inc. Of the remaining $193.2 million, $170.1 million was non- recourse to Forum Group. The current portion of long-term due within one year at September 30, 1995 was $56.7 million. Of this total, indebtedness of up to $50.3 million is currently due or matures during May, 1996. Forum believes it has available cash on hand to extinguish amounts currently due and adequate debt capacity to extend the $50.3 million. Forum is presently evaluating available alternatives with respect to extinguishing or extending maturing obligations. Total long- term indebtedness excludes $4.2 million of GRP debt, $0.5 million of which is recourse to Forum Group, Inc. On September 1, 1995, the Forum Pool Borrowers obtained a non-recourse mortgage loan totaling $124.7 million. The loan is secured by first and second liens on the Forum Pool Properties. The loan has cross-default and cross-collateral provisions. The proceeds were used to repay existing indebtedness of $106.0 million, loan closing costs, funding of the initial capital reserve account and general corporate purposes. See Note D to the Notes to Condensed Consolidated Financial Statements. Pursuant to a separate credit agreement, during the period from September 1, 1995 to September 1, 1999, Forum Group may borrow up to $50 million to fund a portion of the expansions to the properties collaterallizing the above-described mortgage loan. See Note D to the Notes to Condensed Consolidated Financial Statements. Forum Group will continue to monitor conditions in the bank lending and capital markets and, if appropriate in light of then-current market conditions, Forum Group's then-existing capital structure and requirements, Forum Group's growth strategy and other factors determined to be relevant, may enter into one or more capital arrangements. Such arrangements could include one or more issuances of indebtedness or other financings. Although Forum Group intends to actively consider the financing alternatives that may be available to it, there can be no assurance that any such transactions will be completed or, if so, as to the timing or terms thereof. Cash Flow. Operating activities for the six months ended September 30, 1995 provided $21.1 million of cash compared to $12.8 million of cash provided by operating activities during the same period of the previous year, due principally to improved operating results. Investing activities used $47.7 million of cash during the six months ended September 30, 1995, compared to $1.3 million of cash provided by investing activities during the same period of the previous year, due principally to the purchase of two non-performing first mortgage loans on RCs, acquisition of an RC and other businesses and additions to property and equipment, including construction in progress. -24- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM GROUP, INC. AND SUBSIDIARIES Financing activities provided $34.3 million of cash during the six months ended September 30, 1995, compared to $1.8 million of cash provided by financing activities during the same period of the previous year, due principally to the proceeds from long-term debt used to finance acquisition of an RC and the purchase of two non-performing first mortgage loans. -25- PART II. OTHER INFORMATION -------------------------- FORUM GROUP, INC. AND SUBSIDIARIES September 30, 1995 ITEM 1. LEGAL PROCEEDINGS - -------------------------- On May 7, 1992, Charles S. Maddock, a resident of Stonegates, a condominium RC in Greenville, Delaware, instituted an action against Greenville Retirement Community, L.P. ("GRP"), the developer and managing agent of, and owner of the service units (i.e., nursing, kitchen and dining facilities) at Stonegates, in the Court of Chancery of the State of Delaware in and for New Castle County (the "State Court Action"). Forum Group is the sole general partner of, and the owner of a 50% beneficial interest in, GRP. Forum Group is also the operator and manager of Stonegates pursuant to an operation and management agreement with GRP under which, among other things, GRP delegated to Forum Group all of GRP's duties and responsibilities as managing agent of Stonegates. Mr. Maddock alleges that certain of the organizational documents of Stonegates violate state law and that GRP and Forum Group have breached their responsibilities under such documents. Mr. Maddock sought various forms of injunctive and declaratory relief and damages. On August 21, 1992, Forum Group instituted an action (the "Bankruptcy Court Action") in the bankruptcy court (the "Bankruptcy Court") with jurisdiction over Forum Group's reorganization plan (the "Reorganization Plan") alleging that the relief requested in the State Court Action effectively asserts a claim against Forum Group, the assertion of which is barred under the terms of the Reorganization Plan, and requesting injunctive relief preventing the further prosecution of the State Court Action. On December 13, 1994, Mr. Maddock and Forum Group entered a stipulation in the Bankruptcy Court providing that Mr. Maddock will be enjoined from asserting claims based upon acts or omissions of Forum Group or GRP occurring prior to April 2, 1992 (the effective date of the Reorganization Plan). The stipulation does not bar the assertion of a claim arising after April 2, 1992 from either a new cause of action or a new breach of any continuing agreement. On August 9, 1995 Mr. Maddock was granted a motion to amend his complaint in the State Court Action. This amended complaint (i) asserts claims only with respect to matters accruing after the effective date of the Reorganization Plan, (ii) adds Forum Group as a defendant, and (iii) adds a new claim asserting that GRP and Forum Group conspired to violate federal anti-trust laws. Forum Group believes that there are substantial defenses to Mr. Maddock's claims; however, there necessarily can be no assurance as to the outcome of these proceedings. -26- PART II. OTHER INFORMATION -------------------------- FORUM GROUP, INC. AND SUBSIDIARIES September 30, 1995 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- (a) The annual meeting of shareholders of Forum Group was held on September 13, 1995. (b) The shareholders voted on the following items at the meeting: (i) The shareholders approved the election of directors to serve until the 1996 annual meeting of shareholders of Forum Group, with the votes for such election as follows: Nominee Votes For Votes Withheld Laurence M. Berg 21,022,190 13,710 Peter P. Copses 21,022,190 13,710 Daniel A. Decker 21,022,184 -0- James E. Eden 21,022,191 13,709 Mark L. Pacala 21,022,184 13,716 Kurt C. Read 21,022,190 13,710 Antony P. Ressler 21,022,190 13,710 Robert A. Whitman 21,022,191 13,709 Margaret A. Wylde 21,022,191 13,709 (ii) The shareholders ratified the appointment of KPMG Peat Marwick LLP as independent accountants to audit the consolidated financial statements of Forum Group for the year ended March 31, 1996. The votes for ratification were 21,024,570, the votes against ratification were 2,829, the votes abstained were 8,501 and there were no broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- (a) Exhibits: --------- 10.1 Loan Agreement, dated as of September 1, 1995, by and among FGI Financing I Corporation, Forum Ohio Healthcare, Inc. and Nomura Asset Capital Corporation. 10.2 Credit Agreement, dated as of September 1, 1995, by and between Forum Group, Inc. and Nomura Asset Capital Corporation. 99.1 Item 3 and Note 5 of the Notes to Consolidated Financial Statements contained in Item 8 of Part I of Forum Group, Inc.'s Annual Report on Form 10-K for the year ended March 31, 1995 (incorporated by reference thereto). 99.2 Item 1 of Part II of Forum Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (incorporated by reference thereto). (b) Reports on Form 8-K: NONE -------------------- -27- PART II. OTHER INFORMATION -------------------------- FORUM GROUP, INC. AND SUBSIDIARIES September 30, 1995 Items 2, 3 and 5 have been omitted from this Part II as inapplicable or not required under the applicable instructions. -28- SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FORUM GROUP, INC. Date: November 14, 1995 By: /s/ Richard A. Huber -------------------------------- Richard A. Huber Vice President-Operations Finance -29- EXHIBIT INDEX ------------- DESCRIPTION Exhibit No.: ------------ 10.1 Loan Agreement, dated as of September 1, 1995, by and among FGI Financing I Corporation, Forum Ohio Healthcare, Inc. and Nomura Asset Capital Corporation. 10.2 Credit Agreement, dated as of September 1, 1995, by and between Forum Group, Inc. and Nomura Asset Capital Corporation. 99.1 Item 3 and Note 5 of the Notes to Consolidated Financial Statements contained in Item 8 of Part I of Forum Group, Inc.'s Annual Report on Form 10-K for the year ended March 31, 1995 (incorporated by reference thereto). 99.2 Item 1 of Part II of Forum Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (incorporated by reference thereto). -30- EX-10.1 2 LOAN AGREEMENT Dated as of September 1, 1995 by and among FGI FINANCING I CORPORATION and FORUM OHIO HEALTHCARE, INC. as Borrower and NOMURA ASSET CAPITAL CORPORATION as Lender TABLE OF CONTENTS Page ---- ARTICLE I CERTAIN DEFINITIONS 1 Section 1.1. Definitions 1 ARTICLE II GENERAL TERMS 33 Section 2.1. Amount of the Loan 33 Section 2.2. Use of Proceeds 33 Section 2.3. Security for the Loan 33 Section 2.4. Borrower's Notes 33 Section 2.5. Principal and Interest 34 Section 2.6. Voluntary Prepayment 35 Section 2.7. Mandatory Prepayment 36 Section 2.8. Application of Payments 38 Section 2.9. Method and Place of Payment 38 Section 2.10. Taxes 38 Section 2.11. Release of Collateral 39 Section 2.12. Central Cash Management 39 Section 2.13. Security Agreement 47 Section 2.14. Supplemental Mortgage Affidavits 52 Section 2.15. Securitization 53 ARTICLE III CONDITIONS PRECEDENT 54 Section 3.1. Conditions Precedent to Effectiveness and Disbursement of the Loan 54 Section 3.2. Acceptance of Borrowings 58 Section 3.3. Form of Loan Documents and Related Matters 59 ARTICLE IV REPRESENTATIONS AND WARRANTIES 59 Section 4.1. Borrower Representations 59 Section 4.2. Survival of Representations 70 ARTICLE V AFFIRMATIVE COVENANTS 70 Section 5.1. Borrower Covenants 70 ARTICLE VI NEGATIVE COVENANTS 84 Section 6.1. Borrower Negative Covenants 84 ARTICLE VII DEFAULTS 87 Section 7.1. Event of Default 87 Section 7.2. Remedies 90 Section 7.3. Remedies Cumulative 91 ARTICLE VIII MISCELLANEOUS 92 Section 8.1. Survival 92 Section 8.2. Lender's Discretion 92 Section 8.3. Governing Law 92 Section 8.4. Modification, Waiver in Writing. 94 Section 8.5. Delay Not a Waiver 94 Section 8.6. Notices 94 SECTION 8.7. TRIAL BY JURY 95 Section 8.8. Headings 95 Section 8.9. Assignment 95 Section 8.10. Severability 96 Section 8.11. Preferences 96 Section 8.12. Waiver of Notice 96 Section 8.13. Remedies of Borrower 96 Section 8.14. Exculpation 97 Section 8.15. Exhibits Incorporated 99 Section 8.16. Offsets, Counterclaims and Defenses 99 Section 8.17. No Joint Venture or Partnership 99 Section 8.18. Waiver of Marshalling of Assets Defense 99 Section 8.19. Waiver of Counterclaim 99 Section 8.20. Conflict; Construction of Documents 100 Section 8.21. Brokers and Financial Advisors 100 Section 8.22. Counterparts 100 Section 8.23. Estoppel Certificates 100 Section 8.24. Payment of Expenses 101 Section 8.25. Bankruptcy Waiver 101 Section 8.26. Indemnification 102 Section 8.27. Entire Agreement 103 Section 8.28. Cross Collateralization 103 Section 8.29. [Intentionally Deleted] 103 Section 8.30. Defeasance 103 SECTION 8.31. FINAL AGREEMENT 106 SECTION 8.32. NON-STANDARD TERMS; NO UNWRITTEN ORAL AGREEMENTS 106 Exhibits A - Allocated Loan Amounts B - Assignment of Management Agreement and Agreements Affecting Real Estate (Form) C - Assignment of Leases and Rents (Form) D - Collection Account Banks E - Manager's Subordination (Form) F - Engineering Reports G - Environmental Reports H - Individual Properties I - Environmental Guaranty and Indemnity Agreement (Form) J - Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Form) K - Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (Form) L - Promissory Note (Form) M - Letter of Instructions and Acknowledgement (Form) N - Required Debt Service Payment Certificate (Form) O - Cash Collateral Account Agreement (Form) P - True Sale/Nonconsolidation Opinion of Jones, Day, Reavis & Pogue (Form) Q - Intentionally Deleted R - Financing Statements S - Opinion of Jones, Day, Reavis & Pogue (Form) T - Intentionally Deleted U - Opinion of Real Estate Counsel (Form) V - Lien Search Reports W - Litigation X - Numbers of Nursing Beds, Assisted Living Units and Independent Living Units Y - Content of Quarterly Financial Information (Form) Z - Officer's Certificate (Form) AA - Prohibited Transferees BB - Second Assignment of Agreements (Form) CC - Second Assignment of Leases (Form) DD - Second Mortgage (Form) EE - Second Deed of Trust (Form) FF - Knightsbridge Cash Collateral Agreement (Form) GG - Securitization Indemnity Schedules 1 - Capital Reserve Amounts 2 - Initial Capital Requirements LOAN AGREEMENT THIS LOAN AGREEMENT, made as of September 1, 1995, is by and among NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation, having an address at 2 World Financial Center, Building B, New York, New York 10281-1198 ("Lender") and FGI FINANCING I CORPORATION ("FFC"), a Delaware corporation and FORUM OHIO HEALTHCARE, INC. ("FOH"; FFC and FOH, collectively, "Borrower"), an Ohio corporation, each having an address at 11320 Random Hills Road, Suite 400, Fairfax, Virginia 22030 ("Borrower"). RECITALS WHEREAS, Borrower desires to obtain a loan (the "Loan") from Lender in the aggregate amount of $124,666,650 (the "Loan Amount"); WHEREAS, Lender is unwilling to make the Loan unless Borrower joins in the execution and delivery of this Agreement, the Notes and the other Loan Documents (all of the foregoing capitalized terms as hereinafter defined) which shall establish the terms and conditions of the Loan; WHEREAS, Borrower and Lender contemplate that Lender's interest in and to the Loan may be assigned by Lender to Trustee for the benefit of all Certificateholders in connection with the Securitization (all of the foregoing capitalized terms as hereinafter defined); and WHEREAS, Borrower has agreed to establish certain accounts and to grant to Servicer (as hereinafter defined), initially on behalf of Lender and after the Securitization Closing Date on behalf of the Certificateholders, a security interest therein upon the terms and conditions of the security agreement set forth in Section 2.13. NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereby covenant, agree, represent and warrant as follows: ARTICLE I CERTAIN DEFINITIONS Section 1.1. Definitions. For all purposes of this Agreement: 2 (1) the capitalized 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; (2) all accounting terms have the meanings assigned to them in accordance with generally accepted accounting principles in effect on the date hereof; (3) 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 (4) the following terms have the following meanings: "Account Collateral" has the meaning specified in Section 2.13(a). "Accounts" means, with respect to each Borrower, any of such Borrower's rights to payment for goods sold or leased or for services rendered arising from the operation of such Borrower's Individual Property or Individual Properties, as the case may be, and not evidenced by an Instrument, including, without limitation, all accounts and accounts receivable arising from the operation of such Individual Property or Individual Properties, as the case may be, now existing or hereafter coming into existence, and all Proceeds thereof. In addition to the foregoing, the term "Accounts" shall include the meaning such term has in the New York Uniform Commercial Code. "Accrued Interest" has the meaning specified in Section 2.5(c). "Additional Interest" means, for the applicable period, the amount by which interest calculated on the Principal Indebtedness at the Revised Interest Rate exceeds interest calculated on the Principal Indebtedness at the Base Interest Rate. "Adjusted Net Cash Flow" means for any period (and calculated either for an Individual Property or the Individual Properties) the Net Cash Flow for such period reduced by (i) an allowance for Capital Reserve Amounts in the per annum amounts shown on Schedule 1 attached hereto, (ii) annual management fees equal to the greater of (x) actual management fees paid pursuant to the Management Agreement with respect to the Individual Properties and (y) 5% of Gross Revenue, to the extent that such costs have not been included in Operating Expenses, and (iii) an amount necessary to reflect a 5% vacancy factor if the actual vacancy factor is less than 5%. All calculations of Adjusted Net 3 Cash Flow shall be based on Net Cash Flow for the prior 12-month period, taking into account only the Individual Properties constituting the Mortgaged Property at the time the calculation is made. "Affiliate" of any specified Person means any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "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 "controlling" and "controlled" have the meanings correlative to the foregoing. "Agreement" means this Loan Agreement, as the same may from time to time hereafter be modified, supplemented or amended. "Allocated Loan Amount" means the portion of the Loan Amount allocated to each Individual Property as set forth in Exhibit A attached hereto, as such amounts shall be adjusted from time to time as hereinafter set forth. Upon each adjustment in the amount of Principal Indebtedness due to a regular monthly payment of principal pursuant to Section 2.5(b), each Allocated Loan Amount shall be decreased by an amount equal to the product of (i) the amount of such principal payment and (ii) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to the adjustment in question) and the denominator of which is the total of all Allocated Loan Amounts prior to the adjustment to the Principal Indebtedness resulting in the recalculation of the Allocated Loan Amount. When the Principal Indebtedness is reduced as a result of Lender's receipt of Net Proceeds or Loss Proceeds with respect to a Taking or casualty affecting 100% of an Individual Property, the Allocated Loan Amount for the Individual Property with respect to which the Net Proceeds or Loss Proceeds were received shall be reduced to zero (such Allocated Loan Amount being referred to as the "Withdrawn Allocated Amount"), and each other Allocated Loan Amount shall (i) if the Withdrawn Allocated Amount exceeds the Net Proceeds or Loss Proceeds (such excess being referred to as the "Proceeds Deficiency"), be increased by an amount equal to the product of (1) the Proceeds Deficiency and (2) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to the adjustment in question) and the denominator of which is the aggregate of all of the Allocated Loan Amounts other than the Withdrawn Allocated Amount or (ii) if the Net Proceeds or Loss Proceeds are greater than or equal to the Withdrawn Allocated Amount, remain unadjusted. 4 "Annual Budget" has the meaning specified in Section 5.1(Q)(x). "Approved Annual Budget" has the meaning specified in Section 5.1(Q)(x). "Assignment of Agreements" means, with respect to an Individual Property, a first priority Assignment of Management Agreement and Agreements Affecting Real Estate, in the form attached hereto as Exhibit B, dated as of the Closing Date, from the relevant Borrower, as assignor, to Lender, as assignee, assigning to Lender (to the extent set forth in the Assignment of Agreements) such Borrower's interest in and to all contracts between such Borrower and third parties in connection with the management and operation of the Individual Property, including, without limitation, the Management Agreement, any agreements with design professionals, all agreements, allocations and rights with all utility services affecting the Individual Property and all development agreements and Permits, as the same may hereafter from time to time be supplemented, amended, modified or extended by one or more written agreements supplemental thereto, and "Assignments of Agreements" means all such instruments collectively. "Assignment of Leases" means, with respect to an Individual Property, a first priority Assignment of Leases and Rents, substantially in the form attached hereto as Exhibit C, dated as of the Closing Date, from the relevant Borrower, as assignor, to Lender, as assignee, with respect to an Individual Property, assigning to Lender such Borrower's interest in and to the Leases and the Rents with respect to such Individual Property as collateral security for the Loan, as the same may hereafter from time to time be supplemented, amended, modified or extended by one or more agreements supplemental thereto, and "Assignments of Leases" means all such instruments collectively. "Bank" means LaSalle National Bank or any successor bank hereafter selected by Lender in accordance with the terms hereof. "Base Interest Rate" means 10.008% per annum. "Base Monthly Debt Service Amount" means initially (i) $949,423.80 per month with respect to FFC's Note and (ii) $187,865.92 with respect to FOH's Note; provided, however, that the Base Monthly Debt Service Amount shall be recalculated by Lender effective as of the next Payment Date following each prepayment of a portion of the Loan in accordance with Section 2.5(a). 5 "Basic Carrying Costs" means the following costs with respect to the Mortgaged Property: (i) real property taxes and assessments applicable to the Individual Properties, (ii) insurance premiums for policies of insurance required to be maintained by Borrower pursuant to this Agreement or the other Loan Documents and (iii) at Lender's option, the rent payments required under Section 5 of the Knightsbridge Lease. "Basic Carrying Costs Monthly Installment" means Lender's good faith estimate of 1/12th of the annual amount of Basic Carrying Costs. Should the Basic Carrying Costs for the current Fiscal Year or payment period not be ascertainable at the time a monthly deposit is required to be made, the Basic Carrying Costs Monthly Installment shall be Lender's good faith estimate based on 1/12th of the aggregate Basic Carrying Costs for the prior Fiscal Year or payment period with reasonable adjustments. As soon as the Basic Carrying Costs are fixed for the current Fiscal Year or period, the next ensuing Basic Carrying Costs Monthly Installment shall be adjusted to reflect any deficiency or surplus in prior Basic Carrying Costs Monthly Installments. "Basic Carrying Costs Sub-Account" means the Sub- Account of the Cash Collateral Account established and maintained pursuant to Section 2.12 relating to the payment of Basic Carrying Costs. "Benchmark Rate" means 6.358% per annum. "Borrower" has the meaning specified in the first paragraph of this 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 (x) New York State, (y) a state in which Servicer or any Collection Account Bank is located or (z) the state in which the Corporate Trust Office is located are authorized or obligated by law, governmental decree or executive order to be closed. "Capital Improvement Costs" means costs incurred by Borrower in connection with capital improvements to the Individual Properties. "Capital Reserve Amount" means the amount of the annual replacement reserve for capital expenditures which may be increased by Borrower but may not be less than the amount shown for each Individual Property on Schedule 1 attached hereto. "Capital Reserve Monthly Installment" means an amount equal to 1/12th of the Capital Reserve Amount. 6 "Capital Reserve Sub-Account" means the Sub-Account of the Cash Collateral Account established and maintained pursuant to Section 2.12 relating to the payment of Capital Improvement Costs. "Cash Collateral Account" has the meaning specified in Section 2.12(b). "CC Account Agreement" has the meaning specified in Section 2.13(c). "Certificate" has the meaning specified in the Pooling and Servicing Agreement. "Certificateholder" means the Person in whose name a Certificate is registered pursuant to the Pooling and Servicing Agreement. "Closing Date" means the date on which this Agreement shall become effective pursuant to Section 3.1. "Code" means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury Regulations. "Collateral" means, collectively, the Land, Improvements, Equipment, Rents, Accounts (including rights to payment from patients or private insurers arising from the operation of each Individual Property, and, to the extent permitted by applicable law, all rights to payment from Medicare and Medicaid programs or similar state or federal programs, boards, bureaus or agencies), General Intangibles, Instruments, Inventory, Money, Permits (to the full extent assignable), the Knightsbridge Cash Collateral, and all Proceeds, all whether now owned or hereafter acquired and all other property which is or hereafter may become subject to a Lien in favor of Lender as security for the Loan. Following a defeasance pursuant to Section 8.30, Collateral shall also include the pledged U.S. Obligations. "Collateral Security Instrument" means any right, document or instrument, other than a Mortgage or a Second Mortgage, given as security for the Loan (including, without limitation, the Assignments of Leases, the Second Assignments of Leases, the Assignments of Agreements, the Second Assignments of Agreements, the Manager's Subordination and the Knightsbridge Cash Collateral Agreement), as same may be supplemented, amended, extended or modified from time to time. 7 "Collection Account" has the meaning specified in Section 2.12(a). "Collection Account Bank" means the applicable bank for each Individual Property listed on Exhibit D attached hereto and any successor bank hereafter selected by Borrower and approved by Lender in accordance with the terms hereof. "Condemnation Proceeds" has the meaning specified in Section 2.12(h). "Contingent Obligation" means any obligation (other than Borrower's obligations under the Loan Documents) of Borrower 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, without limitation, 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 of 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 of such primary obligation against loss in respect thereof, except indemnities required by Stewart Title Guaranty Company in connection with the issuance of the Title Insurance Policies. 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 (taking into account the non- recourse or limited recourse nature of such Contingent Obligation, if applicable) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming Borrower is required to perform thereunder) as determined by Lender in good faith (taking into account the non- recourse or limited recourse nature of such Contingent Obligation, if applicable). "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be principally administered. "Current Month" has the meaning specified in Section 2.12(g). "Debt Service" means, for any period, the principal (exclusive of the 100% Excess Cash Flow payable pursuant to 8 Section 2.5(c)), and interest payments at the Base Interest Rate that would be due and payable in accordance with the Notes and this Agreement during such period. "Debt Service Coverage Ratio" means as of any date (and calculated either for an Individual Property or for the Individual Properties as a whole) the quotient obtained by dividing Adjusted Net Cash Flow for the specified period by the Imputed Debt Service for such period. All calculations of Debt Service Coverage Ratios shall be made by Borrower, subject to verification by Lender and KPMG Peat Marwick LLP or another accounting firm acceptable to Lender (any "Big Six" accounting firm being deemed acceptable to Lender). "Debt Service Payment Sub-Account" means the Sub- Account of the Cash Collateral Account established and maintained pursuant to Section 2.12 relating to the payment of Debt Service. "Deed of Trust Trustee" means each of the trustees, if any, under the Mortgages. "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 Collateral" has the meaning specified in Section 8.14. "Default Rate" means the per annum interest rate equal to the lesser of (i) the Maximum Amount or (ii) the sum of 5% plus the greater of (A) the Base Interest Rate or (B) the Prepayment Treasury Rate. "Defeasance Date" has the meaning specified in Section 8.30. "Defeasance Deposit" means an amount equal to the total cost incurred or to be incurred in the purchase by Borrower of non-callable U.S. Treasuries necessary to meet the Scheduled Defeasance Payments. "Eligible Account" means an account that is either at a Collection Account Bank or: (i) an account maintained with a federal or state chartered depository institution or trust company, the long-term unsecured debt obligations of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the long-term unsecured debt obligations of such holding company) are rated by the Rating Agencies in the highest rating category at all times of deposit therein, or, if such depository institution or trust 9 company (or holding company) does not have a long-term unsecured debt rating, the short-term unsecured debt obligations of such depository institution or trust company (or holding company), as the case may be, are rated by the Rating Agencies as A-1+, (ii) a segregated trust account maintained with the trust department of a federal or state chartered depository institution or trust company acting in its fiduciary capacity which institution or trust company is subject to regulations regarding fiduciary funds on deposit substantially similar to 12 C.F.R. 9.10 (b), or (iii) after the Securitization Closing Date, an account in any other insured depository institution reasonably acceptable to Servicer and the Trustee if the maintenance of such account in such institution will not result in the downgrading or withdrawal of the ratings then assigned to the Certificates by each Rating Agency as evidenced in writing. The Collection Accounts existing as of the Closing Date shall be deemed to be Eligible Amounts. "Engineer" means (i) an engineer who prepared an Engineering Report described on Exhibit F attached hereto or (ii) any reputable Independent engineer licensed as such in the applicable state. "Engineering Reports" means the property condition reports with respect to each Individual Property delivered to Lender in connection with the Loan, as described on Exhibit F attached hereto, and any amendments or supplements thereto delivered to Lender. "Environmental Claim" means any written request for information by a Governmental Authority, or any written notice, notification, claim, administrative, regulatory or judicial action, suit, judgment, demand or other written communication by any Person or Governmental Authority alleging or asserting liability with respect to either Borrower or any Individual Property, whether for damages, contribution, indemnification, cost recovery, compensation, injunctive relief, investigatory, response, remedial or cleanup costs, damages to natural resources, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, Use or Release into the environment of any Hazardous Substance originating at or from, or otherwise affecting, an Individual Property, (ii) any fact, circumstance, condition or occurrence forming the basis of any violation, or alleged violation, of any Environmental Law by either Borrower or otherwise affecting an Individual Property or (iii) any alleged injury or threat of injury to health, safety or the environment by either Borrower or otherwise affecting an Individual Property. "Environmental Laws" means any and all applicable federal, state, local and foreign laws, rules or regulations, any 10 judicial or administrative orders, decrees or judgments thereunder, and any permits, approvals, licenses, registrations, filings and authorizations, in each case as in effect as of the date hereof and as amended from time to time, relating to the protection of human health or the environment, or the Release or threatened Release of Hazardous Substances into the indoor or outdoor environment including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata or otherwise relating to the Use of Hazardous Substances. "Environmental Reports" means the environmental audit reports with respect to each Individual Property delivered to Lender in connection with the Loan, as described on Exhibit G attached hereto, and any amendments or supplements thereto delivered to Lender. "Equipment" means, with respect to each Borrower, all fixtures, appliances, machinery, furniture, furnishings, decorations, tools and supplies now owned or hereafter acquired by Borrower and located upon the Land or the Improvements and used in connection with the present or future operation and occupancy of the Land and the Improvements, including, but not limited to, all beds, linen, radios, televisions, carpeting, telephones, cash registers, computers, lamps, glassware, rehabilitation equipment, restaurant and kitchen equipment, and any other building equipment, including, but not limited to, all heating, lighting, incinerating, waste removal and power equipment, engines, pipes, tanks, motors, conduits, switchboards, security and alarm systems, plumbing, lifting, cleaning, fire prevention, fire extinguishing, refrigeration, ventilating and communications apparatus, air cooling and air conditioning apparatus, escalators, elevators, ducts and compressors, materials and supplies, and all other machinery, apparatus, equipment, fixtures and fittings now owned or hereafter acquired by such Borrower, any portion thereof or any appurtenances thereto, together with all additions, replacements, parts, fittings, accessions, attachments, accessories, modifications and alterations of any of the foregoing to the extent relating to such Borrower's Individual Property, provided, however, that, with respect to any items which are leased and not owned by a Borrower, the Equipment shall include the leasehold interest only of such Borrower together with any options to purchase any of said items and any additional or greater rights with respect to such items which such Borrower may hereafter acquire. "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 11 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. "Event of Default" has the meaning specified in Section 7.1. "Excess Cash Flow" has the meaning specified in Section 2.12(g)(ii) "FGI" means Forum Group, Inc., an Indiana corporation which, directly or through one or more subsidiaries, is the beneficial owner of all of the issued and outstanding shares of capital stock of Borrower. "Finder" has the meaning specified in Section 8.21. "Fiscal Year" means the 12-month period ending on March 31st of each year or such other fiscal year of Borrower as Borrower may select from time to time with the prior consent of Lender (which consent shall not be unreasonably withheld). "FFC" has the meaning specified in the first paragraph of this Agreement. "FOH" has the meaning specified in the first paragraph of this Agreement. "GAAP" means generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "General Intangibles" means, with respect to each Borrower, all intangible personal property of such Borrower arising out of or directly relating to such Borrower's Individual Properties (other than Accounts, Rents, Instruments, Inventory, Money and Permits), including, without limitation, things in action, settlements, judgments, contract rights, rights to performance (including, without limitation, rights under warranties), refunds of real estate taxes and assessments and other rights to payment of Money, copyrights, trademarks and patents now existing or hereafter in existence. In addition to 12 the foregoing, the term "General Intangibles" shall include the meaning such term has in the New York Uniform Commercial Code. "Governmental Authority" means any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any Person with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Gross Revenue" means, with respect to an Individual Property or all of the Individual Properties, the total dollar amount of all income and receipts whatsoever received by Borrower in the ordinary course of its business with respect to such Individual Property or Individual Properties, including all Rents, Money and Proceeds of any Accounts. "Guarantor" means FGI, as guarantor under the Indemnity Agreement. "Hazardous Substance" means, collectively, (i) any petroleum or petroleum products or waste oils, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in drinking water, and lead-based paint, the presence, generation, use, transportation, storage or disposal of which (x) is regulated or could lead to liability under any Environmental Law or (y) is subject to notice or reporting requirements under any Environmental Law, (ii) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or words of similar import under any Environmental Law and (iii) any other chemical or any other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Impositions" means all taxes (including, without limitation, all ad valorem, sales (including those imposed on lease rentals), use, single business, gross receipts, value added, intangible transaction privilege, privilege, license or similar taxes), assessments (including, without limitation, to the extent not discharged prior to the date hereof, all assessments for public improvements or benefits, whether or not commenced or completed within the term of the Related Mortgage), ground rents, water, sewer or other rents and charges, excises, levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other 13 governmental charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character in respect of an Individual Property or any Rents and Accounts (including all interest and penalties thereon), which at any time prior to, during or in respect of the term hereof may be assessed or imposed on or in respect of or be a lien upon (i) a Borrower (including, without limitation, all income, franchise, single business or other taxes imposed on such Borrower for the privilege of doing business in the jurisdiction in which such Individual Property, or any other collateral delivered or pledged to Lender in connection with the Loan, is located) or Lender, (ii) an Individual Property, or any other collateral delivered or pledged to Lender in connection with the Loan, or any part thereof or any Rents therefrom or any estate, right, title or interest therein, or (iii) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with such Individual Property or the leasing or use of such Individual Property or any part thereof, or the acquisition or financing of the acquisition of such Individual Property by Borrower. Nothing contained in this Agreement shall be construed to require Borrower to pay any tax, assessment, levy or charge imposed on Lender, Servicer or any Certificateholder in the nature of a franchise, capital levy, estate, inheritance, succession, income or net revenue tax. "Improvements" means, with respect to each Individual Property, all buildings, structures and improvements of every nature whatsoever now or hereafter situated on, placed or constructed upon the Land, including, but not limited to, to the extent of a Borrower's interest therein, 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 apparatus which are or shall be attached to the Land or said buildings, structures or improvements. "Imputed Debt Service" means for any period (and calculated either for an Individual Property based on its Allocated Loan Amount or for the Individual Properties as a whole based on the Principal Indebtedness then outstanding) the aggregate amount of principal (exclusive of the 100% Excess Cash Flow payable pursuant to Section 2.5(c)) and interest payments at the Base Interest Rate (excluding for purposes of such calculations for the Individual Properties, as a whole, any Scheduled Defeasance Payments) that would be due and payable during the applicable period calculated using a debt constant of 10.947% per annum as calculated in Section 2.5(a). 14 "Indebtedness" means the Principal Indebtedness, together with all accrued and unpaid interest (including, without limitation, Additional Interest and Accrued Interest) thereon and all other obligations and liabilities due or to become 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 hereunder or pursuant to the Notes or any of the other Loan Documents. "Indemnified Parties" has the meaning specified in Section 8.26. "Indemnity Agreement" means that certain Environmental Guaranty and Indemnity Agreement, in the form attached hereto as Exhibit I, dated as of the Closing Date, from Guarantor to Lender. "Independent" means, when used with respect to any Person, a Person who (i) does not have any direct financial interest or any material indirect financial interest in either Borrower or in any Affiliate of either Borrower, and (ii) is not connected with either Borrower or any Affiliate of either Borrower as an officer, employee, promoter, underwriter, trustee, partner, or person performing similar functions; provided, however, a director will not be deemed to be not Independent solely because such director is also a director of an Affiliate of either Borrower. "Individual Property" means the Land, the Improvements and the Equipment (to the extent same shall be deemed to be fixtures) encumbered by a Related Mortgage. All of the "Individual Properties" collectively comprise the Mortgaged Property. The Individual Properties are described on Exhibit H attached hereto. "Initial Capital Requirement" means $24,000, which is the sum of the amounts specified in the Engineering Reports as being necessary to complete the deferred maintenance items identified therein, as specified for each Individual Property on Schedule 2 attached hereto. "Instruments" means, with respect to each Borrower, all instruments, chattel paper, documents or other writing obtained by such Borrower from or in connection with the operation of such Borrower's Individual Properties evidencing a right to the payment of Money, including, without limitation, all notes, drafts, acceptances, documents of title, and policies and certificates of insurance, including, but not limited to, liability, hazard, rental and credit insurance, guarantees and securities, now or hereafter received by such Borrower or in 15 which such Borrower has or acquires an interest pertaining to the foregoing. In addition to the foregoing, "Instruments" shall include the meaning such term has in the New York Uniform Commercial Code. "Insurance Proceeds" has the meaning specified in Section 2.12(h). "Insurance Requirements" means all material terms of any insurance policy required pursuant to this Agreement, Mortgage or a Second Mortgage and all material regulations and then current standards applicable to or affecting the applicable Individual Property or any part thereof or any use or condition thereof, which may, at any time, be recommended by the Board of Fire Underwriters, if any, having jurisdiction over such Individual Property, or such other body exercising similar functions. "Interest Accrual Period" means, with respect to a Payment Date, the period commencing on and including the 11th day of the month of the prior Payment Date (or, in the case of the first Payment Date, the Closing Date) and ending on and including the 10th day of the month of the current Payment Date; provided, however, that no Interest Accrual Period shall extend beyond the Maturity Date. "Interim Servicing Agreement" means an Interim Servicing Agreement entered into by and between Lender and Servicer with respect to the servicing of the Loan, as the same may be amended from time to time. "Inventory" means, with respect to each Borrower, all goods now owned or hereafter acquired by such Borrower intended for sale or lease, or to be furnished under contracts of service by such Borrower in connection with such Borrower's Individual Properties, including, without limitation, all inventories of food, beverages and other comestibles held by such Borrower for sale or use at or from such Borrower's Individual Properties, and soap, paper supplies, medical supplies, drugs (excluding pharmaceuticals requiring a license to distribute or sell) and all other such goods, wares, merchandise and materials and supplies of every nature held by such Borrower for sale to or for consumption by guests or patients of such Borrower's Individual Properties and all such other goods returned to or repossessed by such Borrower. In addition to the foregoing, the term "Inventory" shall include the meaning such term has in the New York Uniform Commercial Code. "Knightsbridge Cash Collateral" means $26,325,000. 16 "Knightsbridge Cash Collateral Agreement" means the Cash Collateral and Security Agreement, in the form attached hereto as Exhibit GG, dated as of the Closing Date, between FOH and Lender relating to the Knightsbridge Cash Collateral. "Knightsbridge Cash Collateral Sub-Account" means the Sub-Account of the Cash Collateral Account established and maintained pursuant to Section 2.12 relating to the Knightsbridge Cash Collateral. "Knightsbridge Facility" means FOH's Individual Property located at 4590 Knightsbridge Boulevard, Columbus, Ohio. "Knightsbridge Lease" means that certain Amended and Restated Ground Lease dated as of November 1, 1988 between Richard L. Zimmerman, as landlord, and FOH, as tenant covering the Knightsbridge Facility. "Knightsbridge Loan" means that certain loan in the original principal amount of $15,066,010.15 as evidenced by that certain First Amended and Restated Mortgage Note, dated April 1, 1992, made by FOH to Teachers Insurance and Annuity Association of America ("Teachers") and secured by, among other things, (i) that certain Open-End Mortgage Deed and Security Agreement, dated June 18, 1990, by Forum to Teachers, recorded on June 18, 1990 in the Recorder's Office of Franklin County, Ohio in Official Record 15358, page B-02, and (ii) that certain Assignment and Security Agreement, dated June 18, 1990, from Forum to Teachers, recorded on June 18, 1990 in the Recorder's Office of Franklin County, Ohio in Official Record 15358, page D-16, both as amended by that certain First Amendment to Open-End Mortgage Deed and Security Agreement and to Assignment and Security Agreement, dated as of April 1, 1992, by and between Forum and Teachers, recorded on April 10, 1992 in the Recorder's Office of Franklin County, Ohio in Official Record 19126, page G-02. "Land" has the meaning specified in the Mortgages and the Second Mortgages. "Leases" means, with respect to each Borrower, all leases and other agreements or arrangements with or assumed by such Borrower as landlord affecting the use or occupancy of all or any portion of such Borrower's Individual Property now in effect or hereafter entered into (including, without limitation, lettings, subleases, licenses, concessions, tenancies and other occupancy agreements with or assumed by such Borrower as landlord covering or encumbering all or any portion of such Borrower's Individual Property), together with any guarantees, supplements, amendments, modifications, extensions and renewals of the same, 17 and all additional remainders, reversions and other rights and estates appurtenant thereto. "Legal Requirements" means all governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting either an applicable Individual Property or any part thereof or the construction, use, alteration or operation thereof, or any part thereof, enacted and in force as of the relevant date, and all Permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to either Borrower, at any time in force affecting such Individual Property or any part thereof, including, without limitation, any which may (i) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (ii) in any way limit the use and enjoyment thereof. "Lender" has the meaning specified in the first paragraph of this Agreement. "Letters of Instructions" has the meaning specified in Section 2.12(b). "Lien" means any mortgage, deed of trust, lien (statutory or other), pledge, hypothecation, assignment, preference, priority, security interest or any other encumbrance or charge on or affecting an Individual Property or any portion thereof or either Borrower, or any interest therein, 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 Uniform Commercial Code or comparable law of any other jurisdiction, domestic or foreign, and mechanic's, materialmen's and other similar liens and encumbrances. "Loan" has the meaning specified in the Recitals hereto. "Loan Amount" has the meaning specified in the Recitals hereto. "Loan Documents" means this Agreement, the Notes, the Mortgages, the Second Mortgages, the Assignments of Leases, the Second Assignments of Leases, the Assignment of Agreements, the Second Assignments of Agreements, the Indemnity Agreement, the Manager's Subordination and all other agreements, instruments, certificates and documents delivered by or on behalf of either Borrower or any Affiliate to evidence or secure the Loan or 18 otherwise in satisfaction of the requirements of this Agreement, the Mortgages, the Second Mortgages or the other documents listed above. "Loss Proceeds" has the meaning specified in Section 2.12(h). "Losses" has the meaning specified in Section 8.26. "Management Agreement" means those certain Management Agreements between Manager and FFC and FOH, respectively, pertaining to the management of, the Individual Properties. "Manager" means FGI, or any permitted successor or assignee, as manager of an Individual Property or all of the Individual Properties, as the case may be. "Manager's Subordination" means the Manager's Consent and Subordination of Management Agreement, in the form attached hereto as Exhibit E, dated as of the Closing Date, executed by Manager, the Borrower and Lender. "Material Adverse Effect" means a material adverse effect upon (i) the business or the financial position or results of operation of Borrower, (ii) the ability of either Borrower to perform, or of Lender to enforce, any of the Loan Documents or (iii) the value of (x) the Collateral taken as a whole or (y) any Individual Property. "Maturity Date" means September 11, 2020 with respect to FFC's Note and September 11, 2018 with respect to FOH's Note, or such earlier date resulting from acceleration. "Maximum Amount" means the maximum rate of interest designated by applicable Legal Requirements. "Money" means, with respect to each Borrower, all of such Borrower's rights, now or hereafter acquired in all moneys, cash, rights to deposit or savings accounts, credit card receipts or other items of legal tender obtained from or for use in connection with the operation of such Borrower's Individual Properties. "Monthly Statement" has the meaning specified in Section 2.12(g)(ii)(A). "Mortgage" means, with respect to an Individual Property, a first priority Mortgage, Assignment of Rents, Security Agreement and Fixture Filing or Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, substantially in the form attached hereto as Exhibit J and 19 Exhibit K, respectively, dated as of the Closing Date, granted by the relevant Borrower to Lender (or, in the case of a Deed of Trust, to Deed of Trust Trustee for the benefit of Lender) with respect to such Individual Property as security for the Loan, as same may hereafter from time to time be supplemented, amended, modified or extended by one or more written agreements supplemental thereto, but shall exclude any such instrument released by Lender pursuant to Section 2.11, and "Mortgages" means all such instruments collectively. "Mortgaged Property" means all the Individual Properties encumbered by the Mortgages or Second Mortgages then outstanding. "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. "NACC" means Nomura Asset Capital Corporation. "Net Cash Flow" means for any trailing 12 calendar month period (and calculated either for an Individual Property or for the Individual Properties as a whole) the excess, if any, of Operating Income for such period over Operating Expenses for such period. "Net Proceeds" means (i) either (x) the purchase price (at foreclosure or otherwise) actually received by Lender from a third party purchaser with respect to one or more Individual Properties as a result of the exercise by Lender of its rights, powers, privileges and other remedies after the occurrence of an Event of Default or (y) in the event that Lender is the purchaser at foreclosure of one or more of such Individual Properties, the fair market value of such Individual Properties, as determined by Lender in good faith, or at Borrower's request and expense, an appraiser, in either case less (ii) all reasonable costs and expenses, including, without limitation, all attorneys' fees and disbursements and any closing costs, brokerage fees, sheriff's or marshall's commissions or the like, if applicable, incurred by Lender in connection with the exercise of such remedies; provided, however, that such costs and expenses shall not be deducted to the extent such amounts previously have been added to the Indebtedness in accordance with the terms of the Mortgages and the Second Mortgages or applicable law. "Non-Prepayment Period" means the period commencing on the Closing Date through and including the first to occur of (i) the second anniversary of the Securitization Closing Date, or (ii) the third anniversary of the Closing Date. 20 "Notes" means and refers to the promissory notes, each in the form attached hereto as Exhibit L, dated the Closing Date, made by each Borrower to Lender pursuant to this Agreement, as such notes may be modified, amended, supplemented, extended or consolidated, and any note(s) issued in exchange therefor or in replacement thereof. "Officer's Certificate" means a certificate delivered to Lender by Borrower which is signed by an authorized officer of Borrower. "Operating Expenses" means, for any period, all expenditures by Borrower required to be expensed under GAAP during such period in connection with the ownership, operation, maintenance, repair or leasing of the Individual Properties (or of an Individual Property), including, without limitation: (i) expenses in connection with the cleaning, repair and maintenance of the Individual Properties (or of an Individual Property); (ii) wages, benefits, payroll taxes, uniforms, insurance costs and all other related expenses for employees of Borrower or any Affiliate engaged in the repair, operation and maintenance of the Individual Properties (or of an Individual Property) and service to patients; (iii) any management fees and expenses incurred with respect to the Individual Properties (or of an Individual Property); (iv) the cost of all electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any other energy, utility or similar item and overtime services; (v) the cost of cleaning supplies; (vi) Impositions (other than income taxes); (vii) business interruption, liability, casualty and fidelity insurance premiums (which, in the case of any policies covering more than one Individual Property, shall be allocated among the Individual Properties pro rata in proportion to the insured value of the Individual Properties covered by such policies); (viii) legal, accounting and other professional fees and expenses incurred in connection with the ownership and operation of the Individual Properties (or of an Individual 21 Property) including, without limitation, collection costs and expenses; (ix) costs and expenses of security and security systems provided to and/or installed and maintained with respect to the Individual Properties (or an Individual Property); (x) trash removal and exterminating costs and expenses; (xi) advertising and marketing costs; (xii) costs of environmental audits and monitoring, environmental remediation work or any other expenses incurred with respect to compliance with Environmental Laws; and (xiii) all other ongoing expenses which in accordance with GAAP should be included in Borrower's annual financial statements as operating expenses of the Individual Properties (or of an Individual Property). Notwithstanding the foregoing, Operating Expenses shall not include (w) any Capital Improvement Costs, (x) depreciation, amortization and other non-cash charges, (y) any extraordinary items or (z) Debt Service and other payments in connection with the Indebtedness. Operating Expenses shall be calculated on the accrual basis of accounting and in accordance with GAAP. "Operating Income" means, for any period, all regular ongoing income of Borrower during such period from the Permitted Investments or the operation of the Individual Properties (or of an Individual Property), including, without limitation: (i) all amounts payable to Borrower by any Person as Rent relating to the Individual Properties (or an Individual Property); (ii) business interruption proceeds; and (iii) all other amounts which in accordance with GAAP are included in Borrower's annual financial statements as operating income of the Individual Properties (or of an Individual Property). Notwithstanding the foregoing, Operating Income shall not include (v) any condemnation or insurance proceeds (other than business interruption proceeds or condemnation proceeds with respect to a temporary taking and, in either such case, only to the extent 22 allocable to such period or other applicable reporting period), (w) any proceeds resulting from the sale, exchange, transfer, financing or refinancing of all or any portion of one or more Individual Properties, (x) any Rent attributable to a Lease prior to the date on which the actual payment of Rent is required to be made thereunder, (y) any item of income otherwise includable in Operating Income but paid directly to a Person other than Borrower, or (z) security deposits received from tenants until forfeited. Operating Income shall be calculated on the accrual basis of accounting and in accordance with GAAP. "Optional Prepayment Date" means September 11, 2003. "Other Borrowings" means, with respect to a Borrower, without duplication (but not including the Indebtedness or any deferred fees payable in connection with the Transactions) (i) all indebtedness of such Borrower for borrowed money or for the deferred purchase price of property or services, (ii) all indebtedness of such Borrower evidenced by a note, bond, debenture or similar instrument, (iii) the face amount of all letters of credit issued for the account of such Borrower and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all indebtedness of such Borrower secured by a Lien on any property owned by such Borrower whether or not such indebtedness has been assumed and (v) all Contingent Obligations of such Borrower. "Payment Date" means, for each month, the eleventh day of such month or if, in any such case, such day is not a Business Day, the first Business Day following such day. The first Payment Date shall be September 11, 1995. "PBGC" means the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Permits" means, with respect to an Individual Property, all licenses, permits, allocations, authorizations, approvals and certificates obtained by or in the name of, or assigned to, Borrower and used in connection with the ownership, operation, use or occupancy of such Individual Property, including, without limitation, building permits, 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 by or in the name of, or assigned to Borrower from any Governmental Authority or private Person concerning ownership, operation, use or occupancy of such Individual Property. "Permitted Encumbrances" means, with respect to an Individual Property, collectively, (i) the Lien created by the 23 Related Mortgage or the other Loan Documents of record, (ii) all Liens and other matters disclosed in the Title Insurance Policy concerning such Individual Property or any part thereof, (iii) Liens, if any, for Impositions imposed by any Governmental Authority not yet due or delinquent or being contested in good faith and by appropriate proceedings in accordance with Section 2.06(b) of the Mortgages or Second Mortgages, (iv) any mechanics' and materialmen's Liens deleted from the exceptions to, or affirmatively insured against collection with respect to, the Individual Property under the applicable Title Insurance Policy, (v) without limiting the foregoing, any and all governmental, public utility and private restrictions, covenants, reservations, easements, licenses or other agreements of an inconsequential nature which may hereafter be granted by a Borrower and which do not affect (x) the marketability of title to such Borrower's Individual Property, (y) the fair market value thereof, or (z) the use or operation thereof as of the Closing Date, (vi) deposits or pledges to secure obligations under worker's compensation, social security or similar laws, or under unemployment insurance, made in the ordinary course of Borrower's business, (vii) rights of existing and future tenants and residents as tenants and residents, as the case may be, only pursuant to Leases and (viii) Liens permitted pursuant to Section 6.1(C). "Permitted Investments" means any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Lender, Servicer, Trustee or any of their respective Affiliates: (i) direct obligations of, or obligations fully guaranteed as to payment of principal and interest by, (x) 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, or (y) FHLMC, FNMA, the Federal Farm Credit System or the Federal Home Loan Banks provided that each Rating Agency, with respect to clause (y), confirms in writing, that such purchase will not cause a downgrade, qualification or withdrawal of the then current ratings assigned to the Certificates then outstanding; (ii) repurchase agreements on obligations specified in clause (i) maturing not more than two months from the date of acquisition thereof, provided, however, that, the long- term unsecured obligations of the party agreeing to repurchase such obligations are rated by each Rating Agency in its highest rating category and the short-term debt obligations of the party agreeing to repurchase are rated at least Duff-1+, F-1+ and S&P-A-1; 24 (iii) general obligations of or obligations guaranteed by any State of the United States or the District of Columbia receiving the highest long-term unsecured debt rating by the Rating Agencies, or such lower rating as will not result in a downgrade, qualification or withdrawal of the rating then assigned to the Certificates by any Rating Agency as evidenced in writing; (iv) securities bearing interest or sold at a discount that are issued by any corporation incorporated under the laws of the United States of America or any State thereof or the District of Columbia and rated by the Rating Agencies in their highest long-term unsecured rating categories; provided, however, that securities issued by any such corporation will not be Permitted Investments to the extent that investment therein will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Cash Collateral Account to exceed 20% of the aggregate principal amount of all Permitted Investments held in the Cash Collateral Account; (v) commercial or finance company paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) that is rated by the Rating Agencies in their highest short-term unsecured debt rating, and is issued by a corporation the outstanding senior long-term debt obligations of which are rated by the Rating Agencies in their highest rating available in their long-term unsecured debt ratings, or such lower rating as will not result in a downgrade, qualification or withdrawal of the rating then assigned to the Certificates by any Rating Agency as evidenced in writing; (vi) guaranteed reinvestment agreements acceptable to the Rating Agencies issued by any bank, insurance company or other corporation rated in the highest long-term unsecured rating levels by the Rating Agencies throughout the duration of such agreements, or such lower rating as will not result in a downgrade, qualification or withdrawal of the rating then assigned to the Certificates by any Rating Agency as evidenced in writing; (vii) units of taxable money market funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have been designated in writing 25 by the Rating Agencies as Permitted Investments with respect to this definition; (viii) any other demand, money market or time deposit, or any other obligation, security or investment which each Rating Agency confirms in writing will not result in a downgrade, withdrawal or qualification of the then current ratings assigned to the Certificates then outstanding; and (ix) prior to the Securitization Closing Date, any other demand, money market or time deposit, or any other obligation, security or investment, that may be acceptable to Lender and Borrower; provided, however, that no instrument or security shall be a Permitted Investment if (x) such instrument or security evidences a right to receive only interest payments, (y) the right to receive principal and interest payments derived from the underlying investment provide a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment or (z) such investment does not mature by the day required pursuant to the terms of the Loan Documents (and, if not specified, by the Maturity Date). "Person" means any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, 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. "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. "Pooling and Servicing Agreement" means that certain Pooling and Servicing Agreement to be entered into by and among Lender, as depositor, Servicer, as servicer, and Trustee, as trustee, on the Securitization Closing Date. "Premium Period" means the period commencing on the day after the expiration of the Non-Prepayment Period and continuing through and including the day preceding the Optional Prepayment Date. 26 "Prepayment Treasury Rate" means the yield, calculated by linear interpolation (rounded to three decimal places) of the yields of United States Treasury Constant Maturities with terms (one longer and one shorter) most nearly approximating that of noncallable United States Treasury obligations having maturities as close as possible to ten years from (i) a prepayment or (ii) the occurrence of a payment default which requires the payment of Default Interest pursuant to the terms of this Agreement, as applicable, as determined by Lender on the basis of Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Governmental Security/Treasury Constant Maturities, or other recognized source of financial market information selected by Lender for the week prior to the prepayment date. "Principal Indebtedness" means the Loan Amount, initially, as adjusted by each increase or decrease in the principal amount of the Loan outstanding, whether as a result of prepayment or otherwise. "Proceeds" means all of Borrower's rights, now or hereafter acquired, in all proceeds, Rents, profits, products, Accounts, chattel paper, deposit accounts, Instruments, Equipment, Inventory, consumer goods, farm products, documents, General Intangibles and other proceeds whether cash or non-cash, movable or immovable, tangible or intangible (including Insurance Proceeds and Condemnation Proceeds) from the Collateral, including, without limitation, those from the sale, exchange, transfer, collection, loss, damage, disposition, substitution or replacement of any of the Collateral and all income, gain, credit, distributions and similar items from or with respect to the Collateral. In addition to the foregoing, "Proceeds" shall also include the meaning as such term has in the New York Uniform Commercial Code. "Proceeds Deficiency" has the meaning specified in the definition of "Allocated Loan Amount". "Rating Agencies" means at least two of Fitch Investors Service, L.P., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Standard & Poor's Rating Group, or any successor thereto, and any other nationally recognized financial rating agency which may hereafter be engaged by Lender, or its designees, to rate the Certificates. "Recourse Distributions" has the meaning specified in Section 8.14. "Reimbursement Contracts" means all third party reimbursement contracts with respect to the Individual Properties 27 which are now or hereafter in effect with respect to patients qualifying for coverage under the same, including Medicare and Medicaid, and any successor program or other similar reimbursement programs and private insurance agreements. "Related Mortgage" means, with respect to a particular Individual Property, the Mortgage and Second Mortgage encumbering such Individual Property. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Substances through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Release Price" has the meaning specified in Section 2.7(a). "Remedial Work" has the meaning specified in Section 5.1(D)(i). "REMIC" means "real estate mortgage investment conduit" for federal income tax purposes. "REMIC Trust" means the trust fund created pursuant to the Pooling and Servicing Agreement or that portion thereof for which a REMIC election is made under the Code. "Rents" means, with respect to each Individual Property, all rents (whether denoted as base rent, advance rent, minimum rent, percentage rent, additional rent or otherwise), issues, income, royalties, profits, revenues, proceeds, bonuses, deposits (whether denoted as security deposits or otherwise), termination fees, rejection damages, buy-out fees and any other fees made or to be made in lieu of rent to a Borrower, any award made hereafter to a Borrower in any court proceeding involving any tenant, lessee, licensee or concessionaire under any of the Leases in any bankruptcy, insolvency or reorganization proceedings in any state or federal court, and all other payments, rights and benefits of whatever nature from time to time due to a Borrower under the Leases, including, without limitation, (i) rights to payment earned under the Leases, (ii) any payments or rights to payment with respect to conference facilities, dining or bar facilities, parking facilities or other facilities in any way contained within or associated with such Individual Property, and (iii) all other income, consideration, issues, accounts, profits or benefits of any nature arising from the possession, use and operation of such Individual Property. 28 "Required Debt Service Payment" has the meaning specified in Section 2.12(f). "Revised Interest Rate" means the sum of (i) the greater of (A) the Base Interest Rate or (B) the Treasury Rate on the applicable Optional Prepayment Date plus (ii) 5%. "Scheduled Defeasance Payments" means: (a) with respect to a defeasance of the Loan in whole if defeasance is required pursuant to Section 2.6, payments on or prior to, but as close as possible to, (i) each scheduled Payment Date, after the Defeasance Date through and including the Optional Prepayment Date, upon which interest payments or interest and principal payments are required under this Agreement and in amounts equal to the scheduled payments due on such dates under this Agreement and (ii) the Optional Prepayment Date, of the then unpaid principal balance of the Loan and any accrued and unpaid interest thereon; or (b) with respect to any defeasance of the Loan in part if defeasance is required pursuant to Section 2.6, payments on or prior to, but as close as possible to, (i) each scheduled Payment Date after the Defeasance Date and through and including the Optional Prepayment Date, of a proportionate share (based on the Principal Indebtedness immediately prior to the Defeasance Date represented by the amount of principal defeased) of the Base Monthly Debt Service Amounts and (ii) the Optional Prepayment Date, of the then unpaid portion of the amount of the principal so defeased and any accrued and unpaid interest thereon; or (c) with respect to any defeasance of a portion of the Loan pursuant to Section 2.7(a), payments on or prior to, but as close as possible to, (i) each scheduled Payment Date after the Defeasance Date and through and including the Optional Prepayment Date of a proportionate share (based on the percentage determined by dividing the Release Price by the Principal Indebtedness immediately prior to the Defeasance Date) of the Base Monthly Debt Service Amounts and (iii) the Optional Prepayment Date, of the then unpaid portion of the Release Price and any accrued and unpaid interest thereon. "Second Assignment of Agreements" means, with respect to an Individual Property, an Assignment of Management Agreement and Agreements Affecting Real Estate in the form attached hereto as Exhibit BB, dated as of the Closing Date, from the relevant Borrower, as assignor, to Lender, as assignee, assigning to 29 Lender (to the extent set forth in the Second Assignment of Agreements) such Borrower's interest in and to all contracts made between Borrower and third parties in connection with the management and operation of the Individual Property, including, without limitation, the Management Agreement, any agreements with design professionals, all agreements, allocations and rights with all utility services affecting the Individual Property and all development agreements and Permits, as the same may hereafter from time to time be supplemented, amended, modified or extended by one or more written agreements supplemental thereto, and "Second Assignments of Agreements" means all such instruments collectively. "Second Assignment of Leases" means, with respect to an Individual Property, an Assignment of Leases and Rents in the form attached hereto as Exhibit CC, dated as of the Closing Date, from the relevant Borrower, as assignor, to Lender, as assignee, assigning to Lender such Borrower's interest in and to Leases and Rents with respect to such Individual Property as collateral security for the Loan, as the same may hereafter from time to time be supplemented, amended, modified or extended by one or more written agreements supplemental thereto, and "Second Assignments of Leases" means all such instruments collectively. "Second Mortgage" means, with respect to an Individual Property, a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing or Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, in the form attached hereto as Exhibit DD and Exhibit EE, respectively, dated as of the Closing Date, granted by the relevant Borrower to Lender (or in the case of a Deed of Trust to a Deed of Trust Trustee for the benefit of Lender) with respect to such Facility as security for the Loan, as the same may hereafter from time to time be supplemented, amended, modified or extended by one or more written agreements supplemental thereto, but shall exclude any such instrument released by Lender pursuant to Section 2.11 and "Second Mortgages" means all such instruments collectively. "Securitization" has the meaning specified in Section 2.15. "Securitization Closing Date" means the date on which the Pooling and Servicing Agreement is executed and delivered and the Securitization is effected. "Security Agreement" has the meaning specified in Section 8.30. "Security Deposit Accounts" has the meaning specified in Section 2.12(a). 30 "Servicer" means Pacific Mutual Life Insurance Company, a California corporation, any Person appointed as servicer under the Pooling and Servicing Agreement or such Person's successor as servicer. "Single-Purpose Entity" means a Person, other than an individual, which (i) is formed or organized solely for the purpose of holding, directly or indirectly, an ownership interest in the Mortgaged Property, (ii) does not engage in any business unrelated to the Mortgaged Property, (iii) does not have any assets other than those related to its interest in the Mortgaged Property or any indebtedness other than as permitted by this Agreement, the Mortgages or the other Loan Documents, (iv) has its own separate books and records and has its own accounts (other than the Collection Accounts and the Cash Collateral Account), in each case which are separate and apart from the books and records and accounts (except as set forth above) of any other Person, (v) if a corporation, has an Independent director (mutually acceptable to Borrower and Lender; the present Independent director being acceptable to Borrower and Lender), (vi) does not commingle its assets with the assets of any other Person, (vii) does not guarantee the obligations of any other Person (other than as provided in the Loan Documents) and (viii) holds itself out as being a Person separate and apart from any other Person. "Sub-Account" has the meaning specified in Section 2.12(c). "Survey" means a certified title survey of an Individual Property prepared by a registered Independent surveyor satisfactory to Lender and the company issuing the Title Insurance Policy for that Individual Property. "Taking" means a taking or voluntary conveyance during the term hereof of all or part of an Individual Property, or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any condemnation or other eminent domain proceeding by any Governmental Authority affecting an Individual Property or any portion thereof whether or not the same shall have actually been commenced. "Tax Fair Market Value" means the fair market value of an Individual Property, and (x) shall not include the value of any personal property or other property that is not an "interest in real property" within the meaning of Treasury Regulation 1.860G-2 and 1.856-3(c), and (y) shall be reduced by the "adjusted issue price" (within the meaning of Code 1272(a)(4)) of any indebtedness, other than the Loan, secured by a Lien 31 affecting the Individual Property, which Lien is prior to or on a parity with the Liens created under the Related Mortgage. "Title Insurance Policies" means the loan policies of title insurance issued by Stewart Title Guaranty Company with respect to each Individual Property and insuring the first priority lien in favor of Lender created by the Related Mortgage, subject only to the Permitted Encumbrances for that Individual Property and containing such endorsements and affirmative assurances as Lender shall reasonably require. "Transaction Costs" means all costs and expenses paid or payable by Borrower relating to the Transactions, including, without limitation, the fee payable to the Finder as described in Section 8.21, appraisal fees, legal fees and accounting fees and the costs and expenses described in Section 8.24. "Transactions" means each of the transactions contemplated by the Loan Documents. "Transfer" means any transfer, sale, assignment or conveyance of an Individual Property. "Treasury Rate" means the yield, calculated by linear interpolation (rounded to three decimal places) of the yields of United States Treasury Constant Maturities with terms (one longer and one shorter) most nearly approximating that of noncallable United States Treasury obligations having maturities as close as possible to (i) the last day of the Premium Period in the case of the determination of a Yield Maintenance Premium or (ii) 10 years from the Optional Prepayment Date in the case of the determination of the Revised Interest Rate, as determined by Lender on the basis of Federal Reserve Statistical Release H.15- Selected Interest Rates under the heading U.S. Governmental Security/Treasury Constant Maturities, or other recognized source of financial market information selected by Lender for the week prior to the prepayment date or the Optional Prepayment Date, as applicable. "Treasury Regulations" means the United States Department of Treasury regulations issued pursuant to the Code in temporary or final form. "Trustee" means any Person appointed as trustee under the Pooling and Servicing Agreement or its successor in interest. "UCC Searches" has the meaning specified in Section 3.1(F). 32 "Use" means, with respect to any Hazardous Substance, the generation, manufacture, processing, distribution, handling, use, treatment, recycling or storage of such Hazardous Substance or transportation to or from the property of such Person of such Hazardous Substance. "Yield Maintenance Premium" means, with respect to any prepayment (but not with respect to a defeasance pursuant to Section 8.30) pursuant to Sections 2.6 or 2.7(a), the amount computed as follows: (i) If the Prepayment Treasury Rate at the time of prepayment is less than or equal to the Benchmark Rate, the Yield Maintenance Premium shall equal the sum of (i) the amount calculated by discounting monthly to net present value the product of (A) 8.3333% and (B) the Base Interest Rate less the sum of (x) Treasury Rate plus (y) 1.50% and (C) the amount prepaid, for the period from the month in which the prepayment date occurs through the end of the Premium Period using a discount rate equal to the sum of (x) the Treasury Rate plus (y) 1.50%, plus (ii) 2% of the amount being prepaid; provided, however, if any such prepayment occurs after the first 12 months of the Premium Period, the Yield Maintenance Premium shall equal clause (i) only. (ii) If (A) the prepayment occurs during the first three years of the Premium Period and (B) the Prepayment Treasury Rate at the time of prepayment is greater than the Benchmark Rate but less than the Benchmark Rate plus 1.50%, the Yield Maintenance Premium shall be computed as follows: Prepayment Yield Date Maintenance (Months after Premium Non-Prepayment (As % of Period) Prepayment) 1-12 11.5% 13-18 9.5% 19-24 9.0% 25-30 8.0% 31-36 7.0% (iii) Notwithstanding anything to the contrary, if a Securitization has not occurred on or prior to December 15, 1995, the Yield Maintenance Premium shall be 33 calculated as if a Securitization occurred on December 15, 1995. ARTICLE II GENERAL TERMS Section 2.1. Amount of the Loan. On the Closing Date, subject to the terms and conditions of this Agreement, Lender shall lend to Borrower the Loan Amount. After any Principal Indebtedness is repaid, Lender shall have no obligation to re- advance the amount repaid. Section 2.2. Use of Proceeds. (a) Proceeds of the Loan shall be used for the following purposes: (i) to repay all existing indebtedness on the Mortgaged Property and all related costs and expenses of such repayment, (ii) to pay the Finder the Finder's fee, (iii) to pay to Lender the financing and Securitization fees and to pay or reimburse all other Transaction Costs, (iv) to fund the Capital Reserve Sub-Account in the amount of the Initial Capital Requirement and (v) to fund the Knightsbridge Cash Collateral Sub-Account. There is no restriction on the use of any proceeds in excess of the amounts described in clauses (i), (ii), (iii), (iv) and (v). (b) The Knightsbridge Cash Collateral shall be disbursed from the proceeds of the Loan directly into the Knightsbridge Cash Collateral Sub-Account and held therein in accordance with the terms and provisions of the Knightsbridge Cash Collateral Agreement. Any proceeds of the Loan in excess of the amounts described in Section 2.2(a) shall be paid to FFC. Section 2.3. Security for the Loan. The Notes and Borrower's obligations hereunder and under the other Loan Documents shall be secured by (a) the Mortgages and the Second Mortgages, (b) the Assignments of Leases and the Second Assignments of Leases, (c) the Assignments of Agreements and the Second Assignments of Agreements, (d) the Knightsbridge Cash Collateral Agreement and (e) the security interests and Liens granted in this Agreement and in the other Loan Documents. Section 2.4. Borrower's Notes. (a) Borrower's obligation to pay the principal of and interest on the Loan and the Yield Maintenance Premium, if any, shall be evidenced by the Notes, duly executed and delivered by FFC and FOH. The Notes shall be payable as to principal, interest and Yield Maintenance Premium, if any, as specified in this Agreement, with a final maturity on the Maturity Date. All outstanding Indebtedness shall be paid by Borrower on the Maturity Date. 34 (b) Lender is hereby authorized, at its option, (i) to endorse on a schedule attached to each Note (or on a continuation of such schedule attached to each Note and made a part thereof) an appropriate notation evidencing the date and amount of each payment of principal, interest and Yield Maintenance Premium, if any, in respect thereof, and/or (ii) to record the Allocated Loan Amounts and such payments in its books and records. Such schedule and/or such books and records, as the case may be, shall, absent manifest error, constitute prima facie evidence of the accuracy of the information contained therein. Section 2.5. Principal and Interest. (a) Interest on the Loan and the Notes shall accrue at a rate per annum equal to (i) the Base Interest Rate on the Principal Indebtedness commencing upon the Closing Date and continuing through and including the day prior to the Optional Prepayment Date and (ii) the Revised Interest Rate on the Principal Indebtedness and any Accrued Interest commencing upon the Optional Prepayment Date and continuing through the Maturity Date; provided, however, the Base Monthly Debt Service Amount shall not be reamortized as a result of the Revised Interest Rate. For each Interest Accrual Period, interest at the Base Interest Rate shall be computed on the actual number of days elapsed, based on a 360-day year (i.e., interest for each day during which any part of the Loan is outstanding shall be computed at said rate divided by 360) and the remaining amount of the monthly installment shall be applied to principal. Upon a prepayment pursuant to Section 2.6, 2.7 or 2.12(i), the amount of the Base Monthly Debt Service Amount shall be reduced proportionately (based on the percentage (expressed as a decimal) obtained by dividing the amount of principal prepaid by the Principal Indebtedness prior to such prepayment). (b) Commencing with the Payment Date on October 11, 1995, and on each and every Payment Date thereafter until and including the Optional Prepayment Date, the principal of and interest on the Notes shall be payable in monthly installments equal to the Base Monthly Debt Service Amount; provided, however, that additional payments of (i) $290,278.29 with respect to FFC's Note and (ii) $56,295.00 with respect to FOH's Note shall be due on the September 11, 1995 Payment Date constituting interest on the loan proceeds disbursed by Lender on the Closing Date. (c) Commencing on the first Payment Date after the Optional Prepayment Date, and on each and every Payment Date thereafter, the principal of and interest on the Notes shall be payable in monthly installments equal to the sum of (i) the Base Monthly Debt Service Amount plus (ii) 100% of the amount of Excess Cash Flow attributable to the Mortgaged Properties for the calendar month preceding the calendar month in which such Payment 35 Date occurs, such additional payment of Excess Cash Flow to be applied, first, to the Principal Indebtedness, second, to Additional Interest accrued from and including the last Payment Date, and third, to the Accrued Interest, if any. To the extent the monthly amount of Excess Cash Flow is insufficient to fully pay any such Additional Interest on any Payment Date, such Additional Interest shall be deferred and added to any Additional Interest previously deferred pursuant to this sentence and remaining unpaid (collectively, the "Accrued Interest"). Amounts payable from Excess Cash Flow pursuant to this Section 2.5(c) shall not be included in determinations of Required Debt Service Payments, nor shall failure to pay Additional Interest or Accrued Interest prior to the Maturity Date constitute an Event of Default or give rise to Default Interest or late payment premiums. (d) The entire outstanding principal balance of the Loan (including, without limitation, any unpaid Additional Interest and Accrued Interest), together with all accrued but unpaid interest thereon, shall be due and payable to Lender on the Maturity Date. (e) Any interest (other than Additional Interest or Accrued Interest) or principal installment not paid on the Payment Date therefor or any portion of such installment paid from funds from a Sub-Account other than the Debt Service Payment Sub-Account on the Payment Date therefor will bear interest at the Default Rate from the Payment Date until such amount is paid. Any payment required pursuant to Section 7.1(iii) to satisfy a deficiency in the Cash Collateral Account not paid to Lender when due will bear interest at the Default Rate from the date due until such amount is paid. Borrower shall be deemed to have made a monthly payment of principal and interest if the funds necessary to make such payment are available in the Debt Service Sub-Account. Section 2.6. Voluntary Prepayment or Defeasance. (a) The Loan may not be prepaid in whole or in part during the Non- Prepayment Period, except as provided in the Knightsbridge Cash Collateral Agreement. During the Premium Period, Borrower (or either one or both of FFC or FOH with respect to their respective Notes and Individual Properties) shall have the right to prepay the Loan in whole or in part pursuant to Section 2.6(b) or obtain the release of one or more of the Mortgaged Properties by defeasance as provided in Section 8.30. On or after the Optional Prepayment Date, the Borrower (or either one or both of FFC or FOH with respect to their respective Notes and Individual Properties) may voluntarily prepay the Loan in whole or in part without any Yield Maintenance Premium or any other premium or penalty. 36 (b) Borrower (or either one or both of FFC or FOH with respect to their respective Notes and Individual Properties) may prepay the Loan in whole or in part during the Premium Period; provided, however, that (A) if at the time of the applicable prepayment (i) the Prepayment Treasury Rate is less than or equal to the Benchmark Rate or (ii) provided the prepayment occurs within the first three years of the Premium Period, the Prepayment Treasury Rate is greater than the Benchmark Rate but less than the Benchmark Rate plus 1.50%, any such prepayment shall include the applicable Yield Maintenance Premium and (B) if at the time of the proposed prepayment (i) the Prepayment Treasury Rate is equal or greater than the Benchmark Rate plus 1.50% or (ii) the Prepayment Treasury Rate is greater than the Benchmark Rate and the proposed prepayment occurs after the first three years of the Premium Period, Borrower, FFC and FOH cannot prepay the Loan and can only obtain the release of one or more of the Mortgaged Properties by defeasance as provided in Section 8.30. (c) In the event of any such voluntary prepayment, Borrower shall give Lender written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay, which notice shall be given at least ten Business Days prior to the date upon which prepayment is to be made and shall specify the date and the amount of such prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein (unless such notice is revoked by Borrower prior to the date specified therein in which event Borrower shall immediately reimburse Lender for any costs incurred in connection with the giving of such notice and its revocation). (d) Any voluntary prepayment of the Loan in whole or in part or any mandatory prepayment of a portion of the Loan pursuant to Section 2.7(a) (other than a defeasance pursuant to Section 8.30) is required to be made on a Payment Date. Section 2.7. Mandatory Prepayment or Defeasance. (a) Borrower may Transfer any Individual Property at any time after the commencement of the Premium Period (including during the Optional Prepayment Period); provided, however, that (i) Borrower shall have given Lender at least 10 Business Days' prior written notice of the Transfer, (ii) the Debt Service Coverage Ratio of the remaining Individual Properties (considered as a whole) would not be less than the greater of (A) 1.4OX or (B) the Debt Service Coverage Ratio of all Individual Properties (including the Individual Property to be transferred) (considered as a whole) calculated immediately prior to the Transfer, (iii) Lender shall have received an Officer's Certificate certifying that the Principal Indebtedness, after deducting the Release Price, will not, on the related prepayment date, exceed 125% of the sum of 37 the Tax Fair Market Values of the remaining Individual Properties as of the Securitization Closing Date, (iv) no Default or Event of Default shall have occurred and be continuing, (v) Lender shall have received from Borrower financial statements, calculations and other backup information with respect to the matters referred to in clauses (ii) and (iii) above, all in form and substance reasonably satisfactory to Lender and accompanied by an Officer's Certificate stating that such statements, calculations and information are true, correct and complete in all material respects, and (vi) upon the date of the consummation of any such Transfer (which must be a Payment Date or the Defeasance Date if Section 8.30 is applicable), Borrower shall (x) Pay to Lender an amount equal to the product of any accrued and unpaid interest at the Base Interest Rate and a fraction the numerator of which is the applicable Release Price and the denominator of which is the Principal Indebtedness immediately prior to the applicable prepayment date) and (y) prepay (including any applicable Yield Maintenance Premium on the Release Price) or, if Section 8.30 is applicable, defease a principal portion of the Loan in an amount equal to 125% of the Allocated Loan Amount for such Individual Property (the "Release Price") (unless such notice is revoked by Borrower prior to the date specified therein in which event Borrower shall immediately reimburse Lender for any reasonable costs incurred in connection with the giving of such notice and its revocation). On or after the Optional Prepayment Date, the conditions of this Section 2.7(a) shall apply to a Transfer of any Individual Property, except that clause (vi) will be modified as follows: "(vi) upon the date of the consummation of any such transfer (which must be a Payment Date), Borrower shall prepay a principal portion of the Loan in an amount equal to 125% of the Allocated Loan Amount for such Individual Property (the "Release Price") and pay an amount equal to the product of (x) the sum of any accrued and unpaid Additional Interest plus the Accrued Interest and (y) a percentage equal to the Release Price divided by the Principal Indebtedness." (b) If Borrower is required by Lender under the provisions of a Mortgage to prepay the Loan or any portion thereof in the event of damage, destruction or a Taking of an Individual Property, Servicer shall prepay a portion of the Loan by advancing the Loss Proceeds from the Cash Collateral Account and applying such Loss Proceeds to (i) principal up to the Allocated Loan Amount for such Individual Property and (ii) either (x) interest on such principal amount to the immediately succeeding Payment Date or (y) accrued interest on such principal amount, if such payment is made on a Payment Date. No Yield Maintenance Premium shall be applicable in the event of any prepayment pursuant to this Section 2.7(b). 38 (c) Upon prepayment of the Loan in full, Borrower shall pay to Lender, in addition to the amounts specified in Section 2.6 or this Section 2.7, as applicable, any other amounts then due and payable to Lender pursuant to the Loan Documents. All prepayments made pursuant to Section 2.6 or this Section 2.7 shall be applied in accordance with the provisions of Section 2.8. Section 2.8. Application of Payments. All proceeds (including any Net Proceeds) of any repayment, including prepayments and payments of Excess Cash Flow, of the Loan shall be applied to pay: first, any reasonable out-of-pocket costs and expenses of Lender (including the fees and charges of the Bank) arising as a result of such repayment; second, any accrued and unpaid interest at the Base Interest Rate then payable with respect to the Loan or the portion thereof being repaid; third, the Yield Maintenance Premium, if any, on the Loan or the portion thereof being repaid; fourth, the outstanding principal amount of the Loan or the portion thereof being repaid; fifth, currently accruing Additional Interest; sixth, Accrued Interest; and seventh, any other amounts due and owing under the Loan Documents. Any partial prepayment of principal made pursuant to Sections 2.5(c) from payments of Excess Cash Flow, shall be applied to principal payments thereafter required in the inverse order of their maturity and the Base Monthly Debt Service Payment shall not be changed. Section 2.9. Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 12:00 noon, New York City 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 shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. (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 setoff or counterclaims. Section 2.10. Taxes. All payments made by Borrower under this Agreement 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 39 Governmental Authority (other than taxes imposed on the income of Lender). Section 2.11. Release of Collateral. (a) Notwith- standing any other provision of this Agreement or any other Loan Document, upon a prepayment with respect to any Individual Property as described in Section 2.12(i) or Section 2.03(d) of the Mortgages or a defeasance or prepayment pursuant to Section 2.7(a), Lender shall, simultaneously with such payment, release the Lien of the Related Mortgages and the related Assignment of Leases, Second Assignment of Leases, Assignment of Agreements, Second Assignment of Agreements and UCC-1 financing statements and any other Liens in favor of Lender relating to such Individual Property and shall release to Borrower any portion of the Sub-Accounts relating to such Individual Property. (b) If Lender (i) receives Loss Proceeds with respect to any Individual Property (x) in the event of a Taking or casualty affecting 100% of such Individual Property or (y) in an amount equal to or exceeding the sum of the Allocated Loan Amount for such Individual Property and accrued and unpaid interest thereon and (ii) applies such Loss Proceeds to reduce the Indebtedness in accordance with Section 2.7(b), Lender shall simultaneously with such application release the Lien of the Related Mortgages and the related Assignment of Leases, Second Assignment of Leases, Assignment of Agreements, Second Assignment of Agreements and UCC-1 financing statements and any other Liens in favor of Lender relating to such Individual Property and shall release to Borrower any portion of the Sub-Accounts relating to such Individual Property. (c) Upon repayment of the Loan and all other amounts due hereunder and under the Loan Documents in full in accordance with the terms hereof and thereof or defeasance of the Loan in whole as described in Section 8.30, Lender shall, as promptly as possible after such payment, release its Liens with respect to all Collateral, provided, however, that Lender shall have no obligation to release any Lien with respect to Collateral prior to the end of the Non-Prepayment Period except as provided in Section 2.11(b), Section 2.12(i) or Section 2.03(d) of the Mortgages. Section 2.12. Central Cash Management. (a) Collection and Security Deposit Accounts. Borrower hereby acknowledges and agrees that all of the Rents (other than security deposits from tenants or occupants of the Individual Properties), Money and Proceeds received from Accounts derived from the Individual Properties shall be utilized first (i) to pay all amounts to become due and payable under the Notes by funding the Debt Service Payment Sub-Account to the extent required pursuant to 40 Section 2.12(g)(i)(A), (ii) to fund the Basic Carrying Costs Sub- Account to the extent required pursuant to Section 2.12(g)(i)(B), (iii) to fund the Capital Reserve Sub-Account to the extent required pursuant to Section 2.12(g)(i)(C), and (iv) to pay all Operating Expenses. For each Individual Property, Borrower shall open and maintain at the specified Collection Account Bank a demand deposit account (a "Collection Account") and a second demand deposit account that is fully segregated and distinct from the Collection Account (a "Security Deposit Account"). Each Collection Account and each Security Deposit Account shall be assigned a separate and unique identification number by the Collection Account Banks and shall be opened and maintained in the name "FGI Financing I Corporation and Forum Ohio Healthcare, Inc. as Debtor and Pacific Mutual Life Insurance Company (as servicer) as Secured Party pursuant to the Loan Agreement dated as of September 1, 1995". All payments constituting Rent (other than security deposits from tenants) or made with respect to Accounts shall be payable to Manager. Manager shall collect all such Rents, Money and Proceeds received from Accounts and shall endorse all checks and deposit all such funds, within one Business Day after receipt thereof, directly into the Collection Account for the Individual Property. All security deposits shall be payable to Manager. Manager shall collect all security deposits with respect to an Individual Property and shall endorse all checks and deposit all such funds within one Business Day after receipt thereof, directly into the Security Deposit Account for the Individual Property. Borrower may designate a new financial institution to serve as a Collection Account Bank hereunder as provided in Section 2.13(1). Each Collection Account shall at all times be an Eligible Account. Borrower shall have no right of withdrawal from the Collection Accounts or the Security Deposit Accounts except that, prior to a Collection Account Bank's receipt of notice of the occurrence of an Event of Default from Servicer (given at the request of Lender), Borrower may withdraw funds from the applicable Security Deposit Account to refund or apply security deposits as required by the Leases or by applicable Legal Requirements, and, after delivery of such notice, Lender, on written request from Borrower with appropriate supporting materials, will direct the Collection Account Banks to release funds from the Security Deposit Accounts to refund security deposits as required by the Leases or by applicable Legal Requirements. (b) Cash Collateral Account. Pursuant to the Letters of Instructions delivered to the Collection Account Banks (the "Letters of Instruction"), Borrower has authorized and directed the Collection Account Banks to transfer on a daily basis all funds deposited in the Collection Accounts for the Individual Properties in excess of $10,000 to account no. 67-7392-70-6 at the 135 South LaSalle Street, Chicago, Illinois branch of the 41 Bank entitled "Pacific Mutual Life Insurance Company (as servicer) as Secured Party pursuant to a Loan Agreement dated as of September 1, 1995 among FGI Financing I Corporation, Forum Ohio Healthcare, Inc., Nomura Asset Capital Corporation" (the "Cash Collateral Account"). Lender may elect to change the financial institution at which the Cash Collateral Account shall be maintained; provided, however, that Lender shall give Borrower and each Collection Account Bank not fewer than 30 days' prior notice of each change and the financial institution to which the Cash Collateral Account may be transferred shall be subject to Borrower's reasonable approval. The Cash Collateral Account shall at all times be an Eligible Account. Borrower has established the Cash Collateral Account in the name of Servicer, and the Cash Collateral Account shall be under the sole dominion and control of Servicer. Borrower shall have no right of withdrawal in respect of the Cash Collateral Account. (c) Establishment of Sub-Accounts. The Cash Collateral Account shall contain the Debt Service Payment Sub- Account, the Basic Carrying Costs Sub-Account, the Capital Reserve Sub-Account and the Knightsbridge Cash Collateral Sub- Account, each of which accounts (individually, a "Sub-Account" collectively, the "Sub-Accounts") shall be either a separate Eligible Account to which certain funds shall be allocated and from which disbursements shall be made pursuant to the terms of this Agreement or a ledger entry under the Cash Collateral Account. (d) Permitted Investments. Upon the request of Borrower (which request may be made one time per month), Lender shall direct the Bank to invest and reinvest any balance in the Cash Collateral Account from time to time in Permitted Investments as instructed by Borrower; provided, however, that (i) if Borrower fails to so instruct Lender, or upon the occurrence of an Event of Default, Lender may direct the Bank to invest and reinvest such balance in Permitted Investments as Lender shall determine in its sole discretion, (ii) the maturities of the Permitted Investments on deposit in the Cash Collateral Account shall, to the extent such dates are ascertainable, be selected and coordinated to become due not later than the day before any disbursements from the applicable Sub-Accounts must be made, (iii) all such Permitted Investments shall be held in the name and be under the sole dominion and control of Servicer, and (iv) no Permitted Investment shall be made unless Servicer shall retain a perfected first priority Lien in such Permitted Investment securing the Indebtedness and all filings and other actions necessary to ensure the validity, 42 perfection, and priority of such Lien have been taken. It is the intention of the parties hereto that the entire amount deposited in the Cash Collateral Account (or as much thereof as Lender may reasonably arrange to invest) shall at all times be invested in Permitted Investments, and that the Cash Collateral Account shall be a so-called "zero balance" account. All funds in the Cash Collateral Account that are invested in a Permitted Investment are deemed to be held in the Cash Collateral Account for all purposes of this Agreement and the other Loan Documents. Neither Lender nor any of its agents, including Servicer, shall have any liability for any loss in investments of funds in the Cash Collateral Account that are invested in Permitted Investments (unless invested contrary to Borrower's request prior to an Event of Default) and no such loss shall affect Borrower's obligation to fund, or liability for funding, the Cash Collateral Account and each Sub-Account, as the case may be. Borrower agrees that Borrower shall include all such earnings on the Cash Collateral Account as income of Borrower for federal and applicable state tax purposes. (e) Interest on Accounts. All interest paid or other earnings on the Permitted Investments made hereunder shall be deposited into the Cash Collateral Account and shall be subject to allocation and distribution like any other monies deposited therein, except that any interest earned with respect to the Knightsbridge Cash Collateral Sub-Account shall remain in such Sub-Account until disbursed in accordance with the Knightsbridge Cash Collateral Agreement. (f) Payment of Debt Service, Basic Carrying Costs and Capital Improvement Costs. Not later than three Business Days before each Payment Date during the term of the Loan, Lender or Servicer shall deliver to Borrower a certificate in the form attached hereto as Exhibit N, setting forth (i) the Debt Service, excluding any Scheduled Defeasance Payments pursuant to Section 8.30, that will be payable to Lender on such Payment Date (the "Required Debt Service Payment") and (ii) whether sufficient funds exist in the Cash Collateral Account to fund the Debt Service Payment Sub-Account, the Basic Carrying Costs Sub-Account and the Capital Reserve Sub-Account in the required amounts. If any such certificate states that the funds then allocated to the Sub-Accounts are less than the amount of funds which are required to be on deposit therein on such Payment Date, Borrower shall be obligated to deposit funds (in addition to Rents, Money and Proceeds received from Accounts) into the Cash Collateral Account in the amount of such deficiency, and failure to make such deposit by 12:00 noon, New York City time, on such Payment date shall be an Event of Default hereunder. 43 (i) Payment of Debt Service. At or before 12:00 noon, New York City time, on each Payment Date during the term of the Loan, Servicer shall transfer from the Debt Service Payment Sub-Account an amount equal to the Required Debt Service Payment for such Payment Date (x) if on or prior to the Securitization Closing Date, to the account of Servicer established under the Interim Servicing Agreement, or (y) if after the Securitization Closing Date, to the account of Servicer established under the Pooling and Servicing Agreement, or such other account designated by Servicer in accordance with the Pooling and Servicing Agreement. Borrower shall be deemed to have timely made the Required Debt Service Payment pursuant to Section 2.9 regardless of the time Servicer makes such transfer as long as sufficient funds are then on deposit in the Debt Service Payment Sub- Account. (ii) Payment of Basic Carrying Costs. At least five Business Days prior to the date that payment of any Basic Carrying Cost would become delinquent and not more frequently than once each month, Borrower shall notify Lender and Servicer in writing and request that Servicer pay such Basic Carrying Cost on behalf of Borrower on or prior to the delinquency date thereof. Together with each such request, Borrower shall furnish Lender and Servicer copies of bills and other documentation as may be reasonably required by Lender or Servicer to establish that such Basic Carrying Cost is then due. Servicer shall make such payments out of the Basic Carrying Cost Sub-Account before same shall become due or delinquent to the extent that there are funds available in the Basic Carrying Cost Sub-Account and Lender and Servicer have received appropriate documentation to establish the amount(s) due and the due date(s). (iii) Payment of Capital Improvement Costs. Not more frequently than once each month and provided that no Event of Default has occurred and is continuing, upon Borrower's written request Servicer shall transfer funds to Borrower then allocated to the Capital Reserve Sub-Account for payment of Capital Improvement Costs. Together with each such request, Borrower shall furnish Lender and Servicer with an Officer's Certificate detailing the work performed, certifying the completion thereof and certifying that the attached invoices relate to the work performed and have been paid or will be paid from the funds transferred pursuant to such request. In addition, Borrower shall submit such other documentation as may be reasonably required by Lender or Servicer to establish that such Capital Improvement Costs are then due, which may include lien releases. 44 (iv) Use of Knightsbridge Cash Collateral. The Knightsbridge Cash Collateral shall be disbursed by Servicer pursuant to the terms and provisions of the Knightsbridge Cash Collateral Agreement. (g) Monthly Funding of Sub-Accounts. (i) During each month in the term of the Loan (each, the "Current Month") commencing with September 1995 and continuing through the day prior to the Optional Prepayment Date, all funds then in the Collection Accounts in excess of $10,000 shall be transferred to the Cash Collateral Account pursuant to the Letters of Instructions referred to in Section 2.12(b), and Servicer shall allocate all funds then on deposit in the Cash Collateral Account among the Sub-Accounts as follows and in the following priority: (A) first, to the Basic Carrying Costs Sub-Account, until the amount required to pay the rent under the Knightsbridge Lease for the next succeeding Current Month is being held in the Basic Carrying Costs Sub-Account; (B) second, to the Debt Service Payment Sub-Account, until an amount equal to the Required Debt Service Payment for the Payment Date occurring in the month following the Current Month has been allocated to the Debt Service Payment Sub-Account; (C) third, to the Basic Carrying Costs Sub-Account, until an amount equal to the balance of the Basic Carrying Costs Monthly Installment for the Current Month has been allocated to the Basic Carrying Costs Sub-Account and amounts required to pay the Basic Carrying Costs due in the next succeeding Current Month are being held in the Basic Carrying Costs Sub-Account; and (D) fourth, to the Capital Reserve Sub-Account, until an amount equal to the Capital Reserve Monthly Installment for the Current Month has been allocated to the Capital Reserve Sub-Account. Prior to the Optional Prepayment Date, and provided that (1) no Event of Default has occurred and is continuing and (2) Lender has received all financial information described in Section 5.1(Q) for the most recent periods for which the same are due, (x) Lender or, upon the request of Lender, Servicer on Lender's behalf shall notify Borrower as soon as reasonably practicable after the minimum amounts set forth in clauses (A), (B), (C) and (D) above have been deposited in the Cash Collateral Account and allocated as aforesaid and that Servicer will disburse any funds received in the Collection Accounts for the balance of such Current Month to Borrower and (y) Lender agrees that in each 45 Current Month any amounts deposited into or remaining in the Cash Collateral Account after the minimum amounts set forth in clauses (A), (B), (C) and (D) above have been allocated with respect to the Current Month and any periods prior thereto shall be disbursed by wire transfer (at Borrower's expense) (I) as soon as practicable thereafter to the following account: Fifth Third Bank of Central Indiana, Account No.: 747-60301, ABA No.: 074908594, Account Name: FGI Financing I Corporation, or such other account that Borrower may request and (II) therafter to such account during such Current Month not less frequently than once per week. Borrower shall use any funds distributed to Borrower (or to Manager) pursuant to the foregoing to first pay all Operating Expenses, and then for any purpose, including, without limitation, dividends or other distributions. If an Event of Default has occurred and so long as it is continuing, if so elected by Lender, Servicer or Trustee, any amounts deposited into or remaining in the Cash Collateral Account after Servicer has allocated minimum amounts as hereinabove provided shall be for the account of Lender and may be withdrawn by Lender to be applied to amortize the principal amount of the Loan in the inverse order of its maturity. (ii) From and after the Optional Prepayment Date, in each Current Month, all funds in the Collection Accounts in excess of $10,000 shall be transferred to the Cash Collateral Account and applied by Servicer as follows (A) to the allocation to the Sub-Accounts of the minimum amounts set forth in clauses (A), (B), (C) and (D) of paragraph (i), and (B) provided that (1) no Event of Default has occurred and is continuing and (2) Lender has received all financial information described in Section 5.1(Q) for the most recent periods for which the same is due, amounts required to pay Operating Expenses and Capital Improvement Costs (other than Capital Improvement Costs to be paid from funds in the Capital Reserve Sub-Account) in the Current Month (as set forth for such month in the Approved Annual Budget or as otherwise requested by Borrower and approved by Lender in its sole discretion) shall be disbursed once a week to an account specified by Borrower and used by Borrower to pay such Operating Expenses and Capital Improvement Costs. All other amounts transferred to the Cash Collateral Account in such Current Month shall constitute "Excess Cash Flow" for such month and shall be applied to the payment of principal and interest as provided in Section 2.5(c) on the Payment Date in the next Current Month. (h) Loss Proceeds. In the event of a casualty or Taking with respect to an Individual Property, unless pursuant to the Related Mortgages the proceeds, net of Borrower's reasonable collection costs approved by Lender, received under any insurance policy required to be maintained by Borrower ("Insurance 46 Proceeds") or the proceeds, net of Borrower's reasonable collection costs approved by Lender, in respect of any Taking ("Condemnation Proceeds"), as the case may be, are to be made available to Borrower for restoration, Lender and Borrower shall cause all such Insurance Proceeds or Condemnation Proceeds (collectively, "Loss Proceeds") to be paid directly to the Cash Collateral Account whereupon Lender or Servicer, as the case may be, shall apply same to reduce the Indebtedness in accordance with Section 2.7(b). If Lender agrees or is required pursuant to the provisions hereof or of the Related Mortgages to make Loss Proceeds available for restoration, (i) all Insurance Proceeds received in respect of business interruption coverage and (ii) any Condemnation Proceeds received in connection with a temporary Taking shall be maintained in the Cash Collateral Account, to be applied by Lender in the same manner as Rent received from Manager with respect to the operation of such Individual Property; provided, further, that in the event that the Insurance Proceeds of any such business interruption insurance policy or Condemnation Proceeds of such temporary Taking are paid in a lump sum in advance, Lender shall hold such Insurance Proceeds or Condemnation Proceeds in a segregated interest-bearing escrow account at the Bank, shall estimate, in Lender's reasonable discretion, the number of months required for Borrower to restore the damage caused by the casualty to such Individual Property or that such Individual Property will be affected by such temporary Taking, as the case may be, shall divide the aggregate business interruption Insurance Proceeds or Condemnation Proceeds in connection with such temporary Taking by such number of months, and shall disburse from such escrow account into the Cash Collateral Account each month during the performance of such restoration or pendency of such temporary Taking such monthly installment of said Insurance Proceeds or Condemnation Proceeds. In the event that Insurance Proceeds or Condemnation Proceeds are to be applied toward restoration, Lender shall hold such funds in a segregated interest-bearing escrow account at the Bank and shall disburse same in accordance with the provisions of the Related Mortgages. If any Loss Proceeds are received by Borrower, such Loss Proceeds shall be received in trust for Lender, shall be segregated from other funds of Borrower, and shall be forthwith paid to the Cash Collateral Account or paid to Lender to hold in a segregated interest-bearing escrow account, in each case to be applied or disbursed in accordance with the foregoing, except as provided to the contrary in Sections 2.05(e) and 2.12(c) of the Related Mortgages. Any Loss Proceeds made available to Borrower for restoration in accordance herewith, to the extent not used by Borrower in connection with, or to the extent they exceed the cost of such restoration, shall be released to Borrower; provided, however, from and including the Optional Prepayment Date, such excess proceeds shall be applied by Servicer in accordance with Section 2.8. 47 (i) Payment of Basic Carrying Costs. Except to the extent that Lender is obligated to pay Basic Carrying Costs from the Basic Carrying Costs Sub-Account pursuant to the terms of Section 2.12(f), Borrower shall pay all Basic Carrying Costs with respect to Borrower and each Individual Property in accordance with the provisions of the Related Mortgage, subject, however, to Borrower's rights to contest payment of same in accordance with the Related Mortgage. Borrower's obligation to pay (or cause Lender to pay) Basic Carrying Costs pursuant to this Agreement shall include, to the extent permitted by applicable law, Impositions resulting from future changes in law which impose upon Lender or any Deed of Trust Trustee an obligation to pay any property taxes or other Impositions or which otherwise adversely affect Lender's or the Deed of Trust Trustee's interests. (In the event such a change in law prohibits Borrower from assuming liability for payment of any such Imposition, the Allocated Loan Amount and accrued and unpaid interest thereon with respect to the affected Individual Property shall, at the option of Lender, become due and payable, without payment of the Yield Maintenance Premium, on the date that is 120 days after such change in law and failure to pay such amounts on the date due shall be an Event of Default.) All funds deposited in the Cash Collateral Account relating to the Basic Carrying Costs shall be held by Lender pursuant to the provisions of this Agreement and shall be applied in payment of the foregoing charges when and as payable, provided that no Event of Default shall have occurred and be continuing. Should an Event of Default occur, the proceeds on deposit in the Basic Carrying Costs Sub-Account may be applied by Lender in payment of any Basic Carrying Costs for all or any portion of the Mortgaged Property as Lender in its sole discretion may determine; provided, however, that after the Securitization Closing Date Lender shall not apply the proceeds of the Basic Carrying Costs Sub-Account as aforesaid unless Lender receives notice from Servicer or becomes aware that Servicer shall not be advancing such shortfall pursuant to the terms of the Pooling and Servicing Agreement; and provided, further, that no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided. (j) The Bank's Reliance. The Bank may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. The Bank may rely on notice from Lender as to the occurrence of an Event of Default. Section 2.13. Security Agreement. (a) Pledge of Accounts. To secure the full and punctual payment and performance of all of the Indebtedness, Borrower hereby sells, assigns, conveys, pledges and transfers to Servicer on behalf of 48 Lender (and after the Securitization Closing Date to Lender or its assigns on behalf of the Certificateholders), and grants to Servicer on behalf of Lender (and after the Securitization Closing Date to Lender or its assigns on behalf of the Certificateholders) a first and continuing security interest in and to, the following property, whether now owned or existing or hereafter acquired or arising and regardless of where located (collectively, the "Account Collateral"): (i) all of Borrower's right, title and interest in the Collection Accounts and all Money, if any, from time to time deposited or held in each Collection Account; (ii) all of Borrower's right, title and interest in the Security Deposit Accounts and all Money, if any, from time to time deposited or held in each Security Deposit Account; (iii) all of Borrower's right, title and interest in the Cash Collateral Account and all Money and Permitted Investments, if any, from time to time deposited or held in the Cash Collateral Account; (iv) all interest, dividends, Money, Instruments and other property from time to time received, receivable or otherwise payable in respect of, or in exchange for, any of the foregoing; and (v) to the extent not covered by clauses (i), (ii), (iii) or (iv) above, all proceeds (as defined under the Uniform Commercial Code of the applicable jurisdiction) of any or all of the foregoing. (b) Representations and Covenants. Borrower represents and covenants that (i) all Rents, Money and Proceeds received from Accounts in excess of $10,000 (other than tenant security deposits and other than funds received by Borrower or Manager from the Cash Collateral Account) shall be deposited into the Collection Accounts; (ii) other than the Collection Accounts and the Security Deposit Accounts there are no other accounts currently maintained by Borrower or any Manager for the collection of Rents, Money or Proceeds received from Accounts; (iii) as long as any portion of the Indebtedness is outstanding, Borrower shall not open (nor permit Manager to open) any other account for the collection of Rents, Money or Proceeds received from Accounts, other than such replacement Collection Accounts as may be established pursuant to Section 2.13(l); (iv) all security deposits posted by tenants shall be deposited in the Security Deposit Accounts; (v) there are no other accounts currently maintained by Borrower or any Manager for the collection and management of such security deposits; and (vi) as long as any 49 portion of the Indebtedness is outstanding, Borrower shall not open (nor permit Manager to open) any other account for the collection and management of such security deposits, other than such replacement Security Deposit Accounts as may be established pursuant to Section 2.13(l). The Collection Accounts and the Security Deposit Accounts shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other banking authority or Governmental Authority, as may now or hereafter be in effect, and to the rules, regulations and procedures of the Collection Account Bank relating to demand deposit accounts from time to time in effect. (c) Instructions and Agreements. Borrower has submitted to each Collection Account Bank a Letter of Instructions, and each Collection Account Bank has executed and returned the acknowledgement of instructions and notice that is a part of its Letter of Instructions. Borrower, Servicer, Lender and the Bank have also executed and delivered that certain Cash Collateral Account Agreement dated as of the date hereof (the "CC Account Agreement"), the form of which is attached hereto as Exhibit O. Borrower agrees that prior to the payment in full of the Indebtedness, the CC Account Agreement shall be irrevocable by Borrower without the prior written consent of Lender. The Cash Collateral Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other banking authority or Governmental Authority, as may now or hereafter be in effect and the rules, regulations and procedures of the Bank relating to demand deposit accounts from time to time in effect. All statements relating to the Cash Collateral Account shall be issued by the Bank as provided in the CC Account Agreement. (d) Financing Statements; Further Assurances. Borrower has executed and delivered to Lender for filing a financing statement or statements in connection with the Account Collateral in the form required to properly perfect Servicer's security interest in the Account Collateral to the extent that it may be perfected by such a filing. Borrower agrees that at any time and from time to time, at the expense of Borrower, Borrower shall promptly execute and deliver all further instruments, and take all further action, that Lender may reasonably request, in order to perfect and protect the pledge and security interest granted or purported to be granted hereby, or to enable Servicer to exercise and enforce Servicer's rights and remedies hereunder with respect to, any Account Collateral. (e) Transfers and Other Liens. Borrower agrees that it will not sell or otherwise dispose of any of the Account Collateral other than pursuant to the terms hereof, or create or 50 permit to exist any Lien upon or with respect to all or any of the Account Collateral, except for the Lien granted to Servicer under this Agreement. (f) Servicer's Right to Perform. If Borrower fails to perform any covenant or obligation contained in this Agreement and such failure shall continue for a period of five Business Days after Borrower's receipt of written notice thereof from Servicer, Servicer may, but shall have no obligation to, itself perform, or cause performance of, such covenant or obligation, and the reasonable expenses of Servicer incurred in connection therewith shall be payable by Borrower to Servicer upon demand. Notwithstanding the foregoing, Servicer shall have no obligation to send notice to Borrower of any such failure unless directed to do so by Lender. (g) Servicer's Reasonable Care. Beyond the exercise of reasonable care in the custody thereof, Servicer shall not have any duty as to any Account Collateral or any income thereon in its possession or control or in the possession or control of any agents for, or of Servicer, or the preservation of rights against any Person or otherwise with respect thereto. Servicer shall be deemed to have exercised reasonable care in the custody of the Account Collateral in its possession if the Account Collateral is accorded treatment substantially equal to that which Servicer accords its own property, it being understood that Servicer shall not be liable or responsible for (i) any loss or damage to any of the Account Collateral, or for any diminution in value thereof from a loss of, or delay in Servicer's acknowledging receipt of, any wire transfer from the Collection Account Banks or (ii) any loss, damage or diminution in value by reason of the act or omission of Servicer or Lender, or Servicer's or Lender's agents, employees or bailees, except to the extent that such loss or damage or diminution in value results from Servicer's gross negligence or willful misconduct or the gross negligence or willful misconduct of any such agent, employee or bailee of Servicer. (h) Remedies. The rights and remedies provided in this Section 2.13 are cumulative and may be exercised independently or concurrently, and are not exclusive of any other right or remedy provided at law or in equity. No failure to exercise or delay by Servicer or Lender in exercising any right or remedy hereunder or under the Loan Documents or the Manager's Subordination shall impair or prohibit the exercise of any such rights or remedies in the future or be deemed to constitute a waiver or limitation of any such right or remedy or acquiescence therein. 51 (i) No Waiver. Every right and remedy granted to Servicer under this Agreement or by law may be exercised by Servicer at any time and from time to time, and as often as Servicer may deem it expedient. Any and all of Servicer's rights with respect to the pledge and security interest granted hereunder shall continue unimpaired, and Borrower shall be and remain obligated in accordance with the terms hereof, notwithstanding (i) any proceeding of Borrower under the United States Bankruptcy Code or any bankruptcy, insolvency or reorganization laws or statutes of any state, (ii) the release or substitution of Account Collateral at any time, or of any rights or interests therein or (iii) any delay, extension of time, renewal, compromise or other indulgence granted by Servicer in the event of any Default with respect to the Account Collateral or otherwise hereunder. No delay or extension of time by Servicer in exercising any power of sale, option or other right or remedy hereunder, and no notice or demand which may be given to or made upon Borrower by Servicer, shall constitute a waiver thereof, or limit, impair or prejudice Servicer's right, without notice or demand, to take any action against Borrower or to exercise any other power of sale, option or any other right or remedy. (j) Servicer Appointed Attorney-In-Fact. Borrower hereby irrevocably constitutes and appoints Servicer as Borrower's true and lawful attorney-in-fact, with full power of substitution, at any time after the occurrence and during the continuation of an Event of Default, to execute, acknowledge and deliver any instruments and to exercise and enforce every right, power, remedy, option and privilege of Borrower with respect to the Account Collateral, and do in the name, place and stead of Borrower, all such acts, things and deeds for and on behalf of and in the name of Borrower with respect to the Account Collateral, which Borrower could or might do or which Lender may deem necessary or desirable to more fully vest in Servicer the rights and remedies provided for herein with respect to the Account Collateral and to accomplish the purposes of this Agreement. The foregoing powers of attorney are irrevocable and coupled with an interest. (k) Continuing Security Interest; Termination. This Section 2.13 shall create a continuing pledge of and security interest in the Account Collateral and shall remain in full force and effect until payment or defeasance in full of the Indebtedness. Upon payment or defeasance in full of the Indebtedness, Borrower shall be entitled to the return, upon its request and at its expense, of such of the Account Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof, and Servicer shall execute such instruments and documents as may be reasonably requested by Borrower to evidence 52 such termination and the release of the pledge and lien hereof, provided, however, that Borrower shall pay on demand all of Servicer's expenses in connection therewith. (l) Replacement of a Collection Account Bank. As long as no Event of Default shall have occurred and be continuing, Borrower shall have the right at any time to designate a successor Collection Account Bank to hold one or more of the Collection Accounts or the Security Deposit Accounts upon 30 days' prior written notice to Servicer, and Servicer's approval of the successor, which approval shall not be unreasonably withheld or delayed. In the event that the rating of long-term unsecured debt obligations of any Collection Account Bank issued by a Rating Agency is withdrawn or reduced to a rating of BBB or lower, Borrower shall be obligated to promptly select a new Collection Account Bank and, upon approval of such selection by Servicer, to establish and maintain all the Collection Accounts and the Security Deposit Accounts previously held at such Collection Account Bank at said successor. Any successor selected hereunder shall be a financial institution within reasonable proximity of the Individual Property related to such Collection Account and such Security Deposit Account and capable of offering Eligible Accounts. No such designation shall become effective until Borrower has (i) delivered to the successor Collection Account Bank a written letter of instructions substantially equivalent to the Letter of Instructions and (ii) delivered to Servicer evidence satisfactory to Servicer that such instructions have been delivered to the successor Collection Account Bank and acknowledged by such successor's execution of an acknowledgement of instructions and notice substantially in the form included in the Letter of Instructions and such financing statements as may be necessary or appropriate have been prepared, executed and delivered to a filing agency. (m) Servicer's Reliance. Servicer may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. Servicer may rely on notice from Lender or Servicer as to the occurrence of an Event of Default. Section 2.14. Supplemental Mortgage Affidavits. The Lien created by each Mortgage is intended to encumber the Individual Property described therein to the full extent of all the relevant Borrower's obligations under such Borrower's Note. The Lien created by each Second Mortgage is intended to encumber the Individual Property described therein to the full extent of the excess of the Indebtedness over the amount secured by relevant Mortgage. As of the Closing Date, Borrower has paid all 53 state, county and municipal recording and all other taxes imposed upon the execution and recordation of the Mortgages and the Second Mortgages in the applicable states. If at any time Lender determines, based on applicable law, that Lender is not being afforded the maximum amount of security available from any Individual Property as a direct, or indirect, result of applicable taxes not having been paid with respect to the Related Mortgage, Borrower agrees that Borrower will execute, acknowledge and deliver to Lender, immediately upon Lender's request, supplemental affidavits increasing the amount of Indebtedness for which all applicable taxes have been paid to an amount determined by Lender to be equal to the lesser of (a) the greater of the fair market value of such Individual Property (i) as of the Closing Date and (ii) as of the date such supplemental affidavits are to be delivered to Lender, and (b) the amount of the Indebtedness, and Borrower shall, on demand, pay any such additional taxes. Section 2.15. Securitization. Borrower hereby acknowledges that Lender, any of its Affiliates, its successors or assigns, may securitize the Loan through the issuance of the Certificates, which will be rated by the Rating Agencies (the "Securitization"). Borrower agrees that it will cooperate fully with Lender and the Rating Agencies in connection with the Securitization including, but not limited to, by (a) amending this Agreement and the other Loan Documents, and executing such additional documents, as requested by the Rating Agencies, provided that any such amendment (or additional documentation) does not materially adversely affect the rights, or materially increase the obligations, of Borrower under the Loan Documents; (b) reviewing the portion of the offering documents describing the Loan, Borrower, the Individual Properties, Manager, including, without limitation, the sections entitled "Special Considerations", "Description of the Mortgage Loan" and "The Underlying Mortgaged Properties", "The Manager", "The Borrower" and "Certain Legal Aspects of the Mortgage Loan" (and any other sections reasonably requested), (c) providing such information as may be requested in connection with the preparation of a private placement memorandum or a registration statement required to privately place or publicly distribute the Certificates in a manner which does not conflict with federal or state securities laws by (i) providing such information as may be requested in connection therewith and (ii) acting reasonably and promptly in connection with its review and approval of the relevant portions of the offering documents; (d) causing to be rendered an opinion letter in substantially the form attached hereto as Exhibit P (subject to changes in law or fact after the date hereof and further subject to changes reasonably requested by the Rating Agencies (to the extent such changes are consistent with applicable law or facts)) and an opinion letter from each real 54 estate counsel to Borrower in substantially the form attached hereto as Exhibit U (subject to changes in law or fact after the date hereof); and (e) re-making the representations and warranties contained in the Loan Documents as of the Securitization Closing Date, modified to reflect any changes in knowledge, fact or law. Borrower agrees to pay its pro rata share (based on the percentage of the aggregate loan amount included in the Securitization represented by the principal amount of this Loan) of the reasonable third party fees and expenses in connection with the Securitization, including, but not limited to, legal fees and disbursements, third-party due diligence expenses, Rating Agency fees and expenses, the costs of providing appraisals, environmental reports and engineering reports as required by the Rating Agencies, and any servicing, Trustee or special servicing fees and expenses, provided, however, that the expenses to be reimbursed by Borrower shall not exceed 0.875% of the portion of the Loan Amount included in such Securitization. In connection with the Securitization, Lender intends to use the Engineering Reports and the Environmental Reports, updated as necessary due to the age of such Reports, to the extent permitted by the Rating Agencies. On or prior to the Securitization Closing Date, Borrower shall execute and deliver to Lender an instrument substantially in the form attached hereto as Exhibit GG (subject, however, to such reasonable changes as Lender or the Rating Agencies shall request). ARTICLE III CONDITIONS PRECEDENT Section 3.1. Conditions Precedent to Effectiveness and Disbursement of the Loan. This Agreement shall become effective, and the Loan shall be made, on the date that all of the following conditions shall have been satisfied (or waived in accordance with Section 8.4) (the "Closing Date"): (A) Loan Documents. (i) Loan Agreement. Borrower shall have executed and delivered this Agreement to Lender. (ii) Notes. FFC and FOH each shall have executed and delivered to Lender the Notes. (iii) Mortgages. FFC shall have executed and delivered the Mortgages and Second Mortgages with respect to its Individual Properties to Lender, and the Mortgages and Second Mortgages shall have been filed of record in the appropriate filing offices in each of the jurisdictions in 55 which the Individual Properties are located or irrevocably delivered to a title agent for such recordation. (iv) Assignments of Agreements. FFC shall have executed and delivered the Assignments of Agreements and Second Assignments of Agreements with respect to its Individual Properties to Lender, and the Assignments of Agreements and Second Assignments of Agreements shall have been irrevocably delivered to a title agent for recordation. (v) Assignments of Leases. FFC shall have executed and delivered the Assignments of Leases and Second Assignments of Leases with respect to its Individual Properties to Lender and the Assignments of Leases and Second Assignments of Leases shall have been filed of record in the appropriate filing offices in each of the jurisdictions in which the Individual Properties are located or irrevocably delivered to a title agent for such recordation. (vi) CC Account Agreement. Borrower and Bank shall have executed the CC Account Agreement and delivered to Lender a copy thereof. (vii) Letters of Instructions. FFC or FOH and a Collection Account Bank shall have executed a Letter of Instructions and delivered to Lender a copy thereof. (viii) Financing Statements. FFC and FOH shall have executed and delivered all financing statements specified on Exhibit R attached hereto to Lender and such financing statements shall have been filed of record in the appropriate filing offices in each of the jurisdictions in which the Individual Properties are located and all other appropriate jurisdictions or irrevocably delivered to a title agent for such recordation. (ix) Indemnity Agreement. FGI shall have executed and delivered to Lender the Indemnity Agreement. (x) Manager's Subordination. Manager, FOH and FFC shall have executed and delivered to Lender the Manager's Subordination. (xi) Knightsbridge Cash Collateral Agreement. FOH shall have executed and delivered the Knightsbridge Cash Collateral and Security Agreement to Lender and the Knightsbridge Cash Collateral shall have been deposited in the Knightsbridge Cash Collateral Sub-Account. 56 (B) Opinions of Counsel. Lender shall have received from Jones, Day, Reavis & Pogue, special counsel to Borrower and Guarantor, its legal opinion in substantially the form attached hereto as Exhibit S; and from each real estate counsel to Borrower, its legal opinion in substantially the form attached hereto as Exhibit U. Each of such legal opinions will be addressed to Lender, dated the Closing Date, and in form and substance satisfactory to Lender and its counsel. Borrower hereby instructs such counsel to deliver to Lender such opinions addressed to Lender. (C) Corporate Documents. Lender shall have received with respect to each of FFC, FOH and FGI its certificate of incorporation, as amended, modified or supplemented to the Closing Date, certified to be true, correct and complete by the appropriate Secretary of State as of a date not more than 60 days prior to the Closing Date, together with a good standing certificate from such Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which each such entity is required to be qualified to transact business, each to be dated a date not more than 60 days prior to the Closing Date. (D) Certified Resolutions, etc. Lender shall have received a certificate of the secretary or assistant secretary of each of FFC, FOH and FGI dated the Closing Date, certifying (i) the names and true signatures of its incumbent officers authorized to sign the applicable Loan Documents, (ii) its by- laws as in effect on the Closing Date, (iii) the resolutions of its board of directors (or authorized committee) approving and authorizing the execution, delivery and performance of all Loan Documents executed by it, and (iv) that there have been no changes in its certificate of incorporation since the date of the most recent certification thereof by the appropriate Secretary of State. (E) Insurance. Lender shall have received certificates of insurance demonstrating insurance coverage in respect of each of the Individual Properties of types, in amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth in the Related Mortgages. Such certificates, except with respect to the Knightsbridge Facility, shall indicate that Lender and Servicer are named additional insured as their interests may appear and shall contain a loss payee endorsement in favor of Lender and Servicer with respect to the property policies required to be maintained under the Mortgages. All insurance policies required to be maintained hereunder shall be maintained throughout the term of this Agreement in the types and amounts required under the Mortgages. 57 (F) Lien Search Reports. Lender shall have received satisfactory (i.e., showing no Liens other than Permitted Encumbrances) reports of UCC (collectively, the "UCC Searches"), tax lien, judgment and litigation searches conducted by a search firm acceptable to Lender with respect to the Collateral, FFC, FOH and FGI, such searches to be conducted in each of the locations set forth on Exhibit V attached hereto. (G) Title Insurance Policies. Lender shall have received commitments (in form and substance satisfactory to Lender) to issue the Title Insurance Policies; provided, however, no Title Insurance Policy shall be issued with respect to the Knightsbridge Facility until the time Lender receives the Related Mortgage with respect to the Knightsbridge Facility pursuant to the Knightsbridge Cash Collateral Agreement. (H) Financial Statements. Lender shall have received the audited consolidated financial statements of FGI for the fiscal year ending March 31, 1995, and the unaudited consolidated financial statements of FGI for the three-month periods ended on June 30, 1995. All audited financial statements must have been prepared by a "Big Six" certified public accounting firm or other firm acceptable to Lender in its sole discretion. (I) Environmental Matters. Lender shall have received Environmental Reports, acceptable to Lender, with respect to each of the Individual Properties, such Environmental Reports to be conducted by Independent environmental engineers acceptable to Lender. (J) Consents, Licenses, Approvals, etc. 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 validity and enforceability, of the Loan Documents, and such consents, licenses and approvals shall be in full force and effect. (K) Additional Matters. Lender shall have received such other Permits, certificates (including certificates of occupancy (or their equivalent) for each Individual Property), opinions, documents and instruments (including letters from the appropriate Governmental Authorities regarding the zoning of each Individual Property and evidence that utility services are available for each Individual Property and that each Individual Property is subject to separate tax assessment) relating to the Loan as may have been reasonably requested by Lender, and all corporate and other proceedings, all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection 58 with the Loan shall be satisfactory in form and substance to Lender. (L) Representations and Warranties. The representations and warranties herein and in the other Loan Documents shall be true and correct in all material respects on such date both before and after giving effect to the making of the Loan. (M) No Default or Event of Default. No Default with respect to the payment of money or Event of Default shall have occurred and be continuing on the Closing Date either before or after giving effect to the making of the Loan. (N) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued, and no litigation shall be pending or threatened, which in the good faith judgment of Lender would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making or repayment of the Loan or the consummation of the Transactions. (O) Surveys. Lender shall have received a Survey with respect to each Individual Property. (P) Engineering Reports. Lender shall have received the Engineering Reports, acceptable to Lender, with respect to the Individual Properties, such Engineering Reports to be prepared by Independent Engineers acceptable to Lender. (Q) Transaction Costs. Borrower shall have paid (or agreed to pay at closing from the proceeds of the Loan) all Transaction Costs for which bills have been submitted. (R) Estoppel Certificate. FOH shall have delivered an estoppel certificate from the landlord under the Knightsbridge Lease in form and substance satisfactory to Lender. (S) Appraisals. Lender shall have received an appraisal with respect to each Individual Property in form and substance satisfactory to Lender. Section 3.2. Acceptance of Borrowings. The acceptance by FFC and FOH of the proceeds of the Loan shall constitute a representation and warranty by FFC and FOH to Lender that all of the conditions required to be satisfied under this Article III in connection with the making of the Loan have been satisfied or waived in accordance with Section 8.4. 59 Section 3.3. Form of Loan Documents and Related Matters. The Notes 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 satisfactory in form and substance to Lender in its sole discretion (unless the form thereof is prescribed herein). ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1. Borrower Representations. Borrower represents and warrants that: (A) Organization. FFC (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware, (ii) has the requisite corporate power and authority to own its properties (including, without limitation, the Mortgaged Property) and to carry on its business as now being conducted and is qualified to do business in every jurisdiction in which an Individual Property is located, and (iii) has the requisite corporate power to execute and deliver, and perform its obligations under this Agreement, its respective Note, the Mortgages, the Second Mortgages and all of the other Loan Documents to which it is a party. FOH (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Ohio, (ii) has the requisite corporate power and authority to own its properties (including, without limitation, the Mortgaged Property) and to carry on its business as now being conducted and is qualified to do business in every jurisdiction in which an Individual Property is located, and (iii) has the requisite corporate power to execute and deliver, and perform its obligations under this Agreement, its respective Note, the Mortgages, the Second Mortgages and all of the other Loan Documents to which it is a party. (B) Authorization. The execution and delivery by FFC and FOH of this Agreement, the Notes, the Mortgages, the Second Mortgages and each of the other Loan Documents, Borrower's performance of its obligations thereunder and the creation of the security interests and liens provided for in this Agreement and the other Loan Documents (i) have been duly authorized by all requisite corporate action on the part of FFC and FOH, (ii) will not violate any provision of any Legal Requirements, any order of any court or other Governmental Authority, the certificate of incorporation or by-laws of FFC or FOH or any indenture or material agreement or other instrument to which FFC or FOH is a party or by which FFC or FOH is bound, and (iii) will not be in 60 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 FFC or FOH pursuant to, any such indenture or material agreement or instrument. Other than those obtained or filed on or prior to the Closing Date, neither FFC nor FOH is required to obtain any consent, approval or authorization from, 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 this Agreement, the Note, the Mortgages, the Second Mortgages or the other Loan Documents. (C) Litigation. Except for claims that are fully covered by valid policies of insurance held by FFC or FOH, and except as set forth on Exhibit W, 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 either FFC or FOH, threatened against FFC and FOH or any Individual Property, which actions, suits or proceedings, if determined against FFC, FOH or any Individual Property might result in a Material Adverse Effect or a lower reimbursement rate under the Reimbursement Contracts. (D) Agreements. Neither FFC nor FOH is a party to any agreement or instrument or subject to any restriction which is reasonably likely to have a Material Adverse Effect. Neither FFC nor FOH is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which it or any Individual Property owned or leased by it is bound. (E) Title to the Mortgaged Property. FFC owns good, marketable and insurable fee simple title to its Individual Properties, free and clear of all Liens, other than the Permitted Encumbrances applicable to that Individual Property. FOH owns a good, marketable and insurable leasehold interest in its Individual Property, free and clear of all Liens, other than the Permitted Encumbrances applicable to that Individual Property and the Knightsbridge Loan. There are no outstanding options to purchase or rights of first refusal affecting any Individual Property other than rights or options held by FFC or FOH and the option applicable to the Individual Property known as Park Lane as described in the commitment for the Park Lane Title Insurance Policy. (F) No Bankruptcy Filing. Neither FFC nor FOH is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation 61 of all or a major portion of FFC's or FOH's assets or property, and neither FFC nor FOH has knowledge of any Person contemplating the filing of any such petition against it. (G) Full and Accurate Disclosure. No statement of fact made by or on behalf of Borrower in this Agreement or in any of the other Loan Documents 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 adversely affects, nor as far as Borrower can foresee, might adversely affect, any Individual Property or the business, operations or condition (financial or otherwise) of Borrower. (H) Location of Chief Executive Offices. The location of Borrower's principal place of business and chief executive office is 11320 Random Hills Road, Suite 400, Fairfax, Virginia 22030. (I) Compliance. Except for matters set forth in the Engineering Reports described on Exhibit F attached hereto and in the "Summary" sections of the Environmental Reports described on Exhibit G attached hereto and except for matters described in Section 4.1(P) (as to which the provisions of Section 4.1(P) shall apply), Borrower, each Individual Property and Borrower's use thereof and operations thereat comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes. 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 have a Material Adverse Effect. (J) Use of Proceeds; Margin Regulations. Borrower will use the proceeds of the Loan for the purposes described in Section 2.2. No part of the proceeds of the Loan will be used by Borrower for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements. (K) Financial Information. All historical financial data concerning Borrower or the Individual Properties that has been delivered by Borrower to Lender is true, complete and correct in all material respects. Since the delivery of such data, except as otherwise disclosed in writing to Lender, there has been no material adverse change in the financial position of 62 either FFC or FOH or the Individual Properties, or in the results of operations of either FFC or FOH. Borrower has not incurred any obligation or liability, contingent or otherwise, not reflected in such financial data which might materially adversely affect its business operations or any Individual Property. (L) Condemnation. No Taking has been commenced or, to Borrower's knowledge, is contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. (M) Other Mortgage Debt. Except for the debt to be repaid from the proceeds of the Loan, including the Knightsbridge Loan, Borrower has not borrowed or received other debt financing whether unsecured or secured by any Individual Property or any part thereof. (N) ERISA. Each Plan, and, to the knowledge of Borrower, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, its terms and the applicable provisions of ERISA, the Code and any other federal or state law, and no event or condition has occurred and is continuing as to which Borrower would be under an obligation to furnish a report to Lender under Section 5.1(U)(i). (O) Utilities and Public Access. Each Individual Property has adequate rights of access to public ways and is served by adequate water, sewer, sanitary sewer and storm drain Individual Properties. Except as otherwise disclosed by the Surveys, all public utilities necessary to the continued use and enjoyment of each Individual Property as presently used and enjoyed are located in the public right-of-way abutting the premises, and all such utilities are connected so as to serve such Individual Property without passing over other property. All roads necessary for the full utilization of each Individual Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities or are the subject of access easements for the benefit of the Individual Property. (P) Environmental Compliance. Except for matters set forth in the "Summary" sections of the Environmental Reports described on Exhibit G attached hereto (true, correct and complete copies of which have been provided to Lender by Borrower): (i) Borrower is in compliance with all applicable Environmental Laws, which compliance includes, but is not limited to, the possession by Borrower of all environmental, 63 health and safety permits, licenses and other governmental authorizations required in connection with the ownership and operation of the Individual Property under all Environmental Laws, except where the failure to comply with such laws is not reasonably likely to result in a Material Adverse Effect. (ii) There is no Environmental Claim pending or, to Borrower's knowledge, threatened, and no penalties arising under Environmental Laws have been assessed, against Borrower or against any Person whose liability for any Environmental Claim Borrower has or may have retained or assumed either contractually or by operation of law, and no investigation or review is pending or, to the knowledge of Borrower, threatened by any Governmental Authority, citizens group, employee or other Person with respect to any alleged failure by Borrower or the Individual Property to have any environmental, health or safety permit, license or other authorization required under, or to otherwise comply with, any Environmental Law or with respect to any alleged liability of Borrower for any Use or Release of any Hazardous Substances. (iii) To the knowledge of Borrower after due inquiry, there have been and are no past or present Releases of any Hazardous Substance that are reasonably likely to form the basis of any Environmental Claim against Borrower or, to Borrower's knowledge, against any Person whose liability for any Environmental Claim Borrower has or may have retained or assumed either contractually or by operation of law. (iv) To the knowledge of Borrower after due inquiry, without limiting the generality of the foregoing, there is not present at, on, in or under the Individual Property, PCB- containing equipment, asbestos or asbestos containing materials, underground storage tanks or surface impoundments for Hazardous Substances, lead in drinking water (except in concentrations that comply with all Environmental Laws), or lead-based paint. (v) No liens are presently recorded with the appropriate land records under or pursuant to any Environmental Law with respect to the Individual Property and, to Borrower's knowledge, no Governmental Authority has been taking or is in the process of taking any action that could subject the Individual Property to Liens under any Environmental Law. (vi) There have been no environmental investigations, studies, audits, reviews or other analyses conducted by or 64 that are in the possession of Borrower in relation to an Individual Property which have not been made available to Lender. (Q) Solvency. None of the transactions contemplated hereby will be or have been made with an actual intent to hinder, delay or defraud any present or future creditors of FFC or FOH, and, giving effect to the transactions contemplated hereby, the fair saleable value of either Borrower's assets exceeds and will, immediately following the making of the Loan, exceed such Borrower's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. Each Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. The fair saleable value of either Borrower's assets is and will, immediately following the making of the Loan, be greater than such Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured. Either Borrower's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Neither Borrower intends to, nor believes 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 such Borrower). (R) Not Foreign Person. Borrower is not a "foreign person" within the meaning of 1445(f)(3) of the Code. (S) Single-Purpose Entity. (i) FFC at all times since its formation has been, and will continue to be, a duly formed and existing Delaware corporation and a Single-Purpose Entity. FOH is a duly formed and existing Ohio corporation and a Single-Purpose Entity. FFC is duly qualified as a foreign corporation in each jurisdiction in which an Individual Property owned by FFC is located. (ii) FFC at all times since its formation has complied, and will continue to comply, with the provisions of its certificate of incorporation and its by-laws and the laws of the State of Delaware relating to corporations. FOH at all times since its formation has complied, and will continue to comply, with the provisions of its certificate of incorporation and its by-laws and the laws of the State of Ohio relating to corporations. 65 (iii) All customary formalities regarding the corporate existence of each of FFC and FOH have been observed at all times since its formation and will continue to be observed. (iv) Each of FFC and FOH has at all times since its formation accurately maintained, and will continue to accurately maintain, its financial statements, accounting records and other corporate documents separate from those of its shareholders, Affiliates of its shareholders and any other Person. Neither FFC nor FOH has at any time since its formation commingled, and neither FFC or FOH will commingle, its assets with those of its shareholders, any Affiliates of its shareholders, or any other Person. Each of FFC and FOH has at all times since its formation accurately maintained, and will continue to accurately maintain, its own bank accounts and separate books of account. (v) Each of FFC has at all times since its formation paid, and FFC and FOH will continue to pay, its own liabilities from its own separate assets. (vi) Each of FFC and FOH has at all times since its formation identified itself, and will continue to identify itself, in all dealings with the public, under its own name and as a separate and distinct entity. Neither FFC nor FOH has at any time since its formation identified itself, and neither FFC nor FOH will identify itself, as being a division or a part of any other entity. Neither FFC nor FOH has at any time since its formation identified, and neither FFC nor FOH will identify its shareholders or any Affiliates of its shareholders, as being a division or part of it. (vii) Each of FFC and FOH has been at all times since its formation and will continue to be adequately capitalized in light of the nature of its business. (viii) FFC has not at any time since its formation assumed or guaranteed, and neither FFC nor FOH will assume or guarantee, the liabilities of its shareholders (or any predecessor corporation), any Affiliates of its shareholders, or any other Persons, except for liabilities relating to the Individual Properties and except as permitted by or pursuant to this Agreement. FFC has not at any time since its formation acquired, and will not acquire, obligations or securities of its shareholders (or any predecessor corporation), or any Affiliates of its shareholders. Neither FFC nor FOH has at any time since its formation made, and neither FFC nor FOH will make, loans to its shareholders (or any predecessor corporation), or any Affiliates of its shareholders. 66 (ix) Neither FFC nor FOH has at any time since its formation entered into and was not a party to, and neither FFC nor FOH will enter into or be a party to, any transaction with its shareholders (or any predecessor corporation) or any Affiliates of its shareholders except in the ordinary course of business of FFC or FOH, as the case may be, on terms which are no less favorable to FFC or FOH, as the case may be, than would be obtained in a comparable arm's length transaction with an unrelated third party. (T) No Joint Assessment; Separate Lots. Borrower shall not suffer, permit or initiate the joint assessment of any Individual Property (i) with any other real property constituting a separate tax lot, and (ii) with any portion of the Individual Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to the Individual Property as a single lien. Each Individual Property is comprised of one or more parcels, each of which constitutes a separate tax lot and none of which constitutes a portion of any other tax lot. (U) Assessments. Except as disclosed in the Title Insurance Policies, there are no pending or, to the knowledge of Borrower, proposed special or other assessments for public improvements or otherwise affecting any Individual Property, nor, to the knowledge of Borrower, are there any contemplated improvements to any Individual Property that may result in such special or other assessments. (V) Mortgage and Other Liens. Each Mortgage creates a valid and enforceable first mortgage Lien on the Individual Property described therein, as security for the repayment of the Indebtedness, subject only to the Permitted Encumbrances applicable to that Individual Property. Each Second Mortgage creates a valid and enforceable second mortgage Lien on the Individual Property described therein, as security for the repayment of the Indebtedness, subject only to the Permitted Encumbrances applicable to that Individual Property. Each Collateral Security Instrument establishes and creates a valid, subsisting and enforceable Lien on and a security interest in, or claim to, the rights and property described therein. All property covered by any Collateral Security Instrument is subject to a Uniform Commercial Code financing statement filed and/or recorded, as appropriate, (or irrevocably delivered to a title agent for such recordation or filing) in all places necessary to perfect a valid first priority lien with respect to the rights and property that are the subject of such Collateral Security Instrument to the extent governed by the Uniform Commercial Code. All continuations and any assignments of any such financing 67 statements have been or will be timely filed or refiled, as appropriate, in the appropriate recording offices. (W) Enforceability. The Notes, each Mortgage, each Second Mortgage and each other Loan Document executed by FFC or FOH in connection therewith, including, without limitation, any Collateral Security Instrument, is the legal, valid and binding obligation of FFC and/or FOH, as the case may be, enforceable against FFC and/or FOH, as the case may be, in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and other limitations on creditors' rights generally and to equitable principles and the other matters described in the opinions delivered pursuant to Section 3.1(B). The Notes, each such Mortgage, each such Second Mortgage and the other Loan Documents executed by Borrower are, as of the date hereof, not subject to any right of rescission, set-off, counterclaim or defense by FFC or FOH, including the defense of usury, nor will the operation of any of the terms of the Notes, each such Mortgage, each such Second Mortgage and other Loan Documents executed by Borrower, or the exercise of any right thereunder, render the Mortgages or the Second Mortgages unenforceable against FFC or FOH, as the case may be, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense by FFC or FOH, as the case may be, including the defense of usury, and neither FFC nor FOH has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. (X) Permitted Encumbrances. The Permitted Encumbrances do not cause a Material Adverse Effect. (Y) No Prior Assignment. As of the date hereof, (i) Lender is the assignee of Borrower's interest under the Leases and (ii) there are no prior assignments of the Leases or any portion of the Rent due and payable or to become due and payable which are presently outstanding, except for assignments relating to the indebtedness being paid with the proceeds of the Loan. (Z) Bed Capacity. Neither FFC, FOH nor Manager has granted to any third party the right to reduce the number of licensed beds in any Individual Property or to apply for approval to move the right to any and all of the licensed beds to any other location. (AA) Compliance with Nursing Home Laws. To the extent required, each Individual Property is duly licensed as a skilled and intermediate care nursing home under the applicable laws of the state where it is located. The licensed bed capacity of each Individual Property as set forth in Exhibit X attached hereto is 68 true and correct. FFC, FOH and Manager are in compliance in all material respects with the applicable provisions of nursing home, nursing or assisted living laws, rules and regulations to which their respective Individual Properties are subject. All Reimbursement Contracts are in full force and effect with respect to the Individual Properties. Borrower and Manager are current in payment of all so-called provider specific taxes or other assessments with respect to such Reimbursement Contracts. (BB) Use of Individual Properties. Each Individual Property is used exclusively as a skilled nursing home, assisted living Individual Property and/or congregate care Individual Property and uses ancillary thereto. (CC) Certificate of Occupancy. FFC and FOH have obtained all Permits necessary to use and operate their respective Individual Properties for the use described in Section 4.1(BB). The use being made of each Individual Property is in conformity in all material respects with the certificate of occupancy and/or Permits for such Individual Property and any other restrictions, covenants or conditions affecting such Individual Property. (DD) Flood Zone. Except as shown on the Surveys, none of the Individual Properties is located in a flood hazard area as defined by the Federal Insurance Administration. (EE) Physical Condition. Each Individual Property is free of structural defects and all building systems contained therein are in good working order in all material respects subject to ordinary wear and tear, except as disclosed in the Engineering Reports described on Exhibit F. (FF) Tax Fair Market Value. As of the Closing Date, (i) the Tax Fair Market Value of each Individual Property is equal to or greater than the Allocated Loan Amount for such Individual Property and (ii) the Tax Fair Market Value of the Mortgaged Property is equal to or exceeds the Principal Indebtedness. (GG) Security Deposits. All security deposits with respect to the Individual Properties on the date hereof have been transferred to the Security Deposits Accounts on the date hereof, and FFC and FOH are each in compliance with all Legal Requirements relating to such security deposits as to which failure to comply is reasonably likely to have a Material Adverse Effect. (HH) Intellectual Property. Except to the extent that any misrepresentation of the following would not have a Material 69 Adverse Effect, all material trademarks, trade names and service marks that either FFC or FOH owns or has pending, or under which it is licensed, are in good standing and uncontested. There is no right under any trademark, tradename or servicemark necessary to the business of either FFC or FOH as presently conducted or as either FFC or FOH contemplates conducting its business. Neither FFC nor FOH has infringed, is infringing, and neither FFC nor FOH has received notice of infringement with respect to asserted trademarks, tradenames and servicemarks of others. To the knowledge of FFC and FOH, there is no infringement by others of its material trademarks, tradenames and servicemarks. (II) Investment Company Act; Public Utility Holding Company Act. Neither FFC nor FOH is (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of 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. (JJ) Corporate Structure; Capitalization. (i) The authorized capital stock of FFC consists of 100 shares of common stock, par value $.01 per share, of which 50 shares are issued and outstanding and preferred stock is to be issued to Lender after the date hereof pursuant to a Credit Agreement dated as of the date hereof between FGI and Lender. Each outstanding share of common stock is owned of record and beneficially by FGI. (ii) The authorized capital stock of FOH consists of 750 shares of common stock, without par value, of which 500 shares are issued and outstanding and preferred stock is to be issued to Lender after the date hereof pursuant to a Credit Agreement dated as of the date hereof between FGI and Lender. Each outstanding share of common stock is owned of record and beneficially by FGI. (KK) No Defaults. No Default or Event of Default exists under or with respect to any Loan Document. (LL) Labor Matters. Borrower is not a party to any collective bargaining agreements. (MM) Knightsbridge Lease. The Knightsbridge lease is in full force and effect and there are no defaults thereunder and no event has occurred or is occurring which after notice or passage of time or both will result in any default. 70 Section 4.2. Survival of Representations. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents are made as of the Closing Date (except as expressly otherwise provided) and shall survive the delivery of the Notes and making of the Loan and continue for as long as any amount remains owing to Lender under this Agreement, the Notes or any of the other Loan Documents; provided, however, that the representations set forth in Section 4.1(P) shall survive in perpetuity. 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 (or with respect to a particular Individual Property, the earlier release of its Related Mortgages): (A) Existence; Compliance with Legal Requirements; Insurance. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence, rights, licenses, Permits and franchises necessary for the conduct of its business and comply in all material respects with all Legal Requirements and Insurance Requirements applicable to it and each Individual Property. 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 and keep each Individual Property in good repair, working order and condition, except for reasonable wear and use, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgages. Borrower shall keep each Individual Property insured at all times, by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in the Mortgages (it being agreed that any reference therein to a rating by Fitch shall also require an equivalent rating by Standard & Poors Rating Group). Notwithstanding anything contained in the Mortgages, in each case, however, if no providers of such insurance are rated as required in the Mortgages, the requirement for such rating shall be that rating by the Rating Agencies, as confirmed by the Rating Agencies in writing, which will not cause the downgrading or 71 withdrawl of the rating of any class of Certificates then outstanding. (B) Impositions and Other Claims. Borrower shall 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, all as more fully provided in, and subject to any rights to contest contained in, the Mortgages. (C) Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened (in writing) against FFC or FOH or the Mortgage Property which is reasonably likely to have a Material Adverse Effect. (D) Environmental Remediation. (i) If any investigation, site monitoring, cleanup, removal, restoration or other remedial work of any kind or nature is required pursuant to an order or directive of any Governmental Authority or under any applicable Environmental Law (collectively, the "Remedial Work"), because of or in connection with the current or future presence, suspected presence, Release or suspected Release of a Hazardous Substance on, under or from an Individual Property or any portion thereof, Borrower shall promptly commence and diligently prosecute to completion all such Remedial Work. In all events, such Remedial Work shall be commenced within 30 days after any demand therefor by Lender or such shorter period as may be required under any applicable Environmental Law; provided, however, that Borrower shall not be required to commence such Remedial Work within the above specified time periods: (x) if prevented from doing so by any Governmental Authority, (y) if commencing such Remedial Work within such time periods would result in Borrower or such Remedial Work violating any Environmental Law or (z) if Borrower, at its expense and after prior notice to Lender, is contesting by appropriate legal, administrative or other proceedings conducted in good faith and with due diligence the need to perform Remedial Work, as long as (1) Borrower is permitted by the applicable Environmental Laws to delay performance of the Remedial Work pending such proceedings, (2) neither the Individual Property nor any part thereof or interest therein will be sold, forfeited or lost if Borrower performs the Remedial Work being contested, and Borrower would have the opportunity to do so, in the event of Borrower's failure to prevail in the contest, (3) Lender would not, by virtue of such permitted contest, be exposed to any risk of any civil liability for which Borrower has 72 not furnished additional security as provided in clause (4) below, or to any risk of criminal liability, and neither the Individual Property nor any interest therein would be subject to the imposition of any lien for which Borrower has not furnished additional security as provided in clause (4) below, as a result of the failure to perform such Remedial Work and (4) Borrower shall have furnished to Lender additional security in respect of the Remedial Work being contested and the loss or damage that may result from Borrower's failure to prevail in such contest in such amount as may be reasonably requested by Lender. (ii) If requested by Lender, all Remedial Work under clause (i) above shall be performed by contractors, and under the supervision of a consulting Engineer, each approved in advance by Lender which approval will not be unreasonably withheld or delayed. All costs and expenses reasonably incurred in connection with such Remedial Work shall be paid by Borrower. If Borrower does not timely commence and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to), upon 30 days prior written notice to Borrower of its intention to do so, cause such Remedial Work to be performed. Borrower shall pay or reimburse Lender on demand for all Advances (as defined in the Mortgages) and expenses (including reasonable attorneys' fees and disbursements, but excluding internal overhead, administrative and similar costs of Lender) reasonably relating to or incurred by Lender in connection with monitoring, reviewing or performing any Remedial Work in accordance herewith, together with interest thereon at the Default Rate from the date of demand by Lender. (iii) Borrower shall not commence any Remedial Work under clause (i) above, nor enter into any settlement agreement, consent decree or other compromise relating to any Hazardous Substances or Environmental Laws which is reasonably likely to have a Material Adverse Effect. Notwithstanding the foregoing, if the presence or threatened presence of Hazardous Substances on, under or about any Individual Property poses an immediate threat to the health, safety or welfare of any Person or the environment, or is of such a nature that an immediate response is necessary, Borrower may complete all necessary Remedial Work. In such events, Borrower shall notify Lender as soon as practicable and, in any event, within three Business Days, of any action taken. 73 (E) Environmental Matters; Inspection. (i) Borrower shall not authorize a Hazardous Substance to be present on, under or to emanate from an Individual Property, or migrate from adjoining property controlled by Borrower onto or into an Individual Property, except under conditions permitted by applicable Environmental Laws and, in the event that such Hazardous Substances are present on, under or emanate from an Individual Property, or migrate onto or into an Individual Property, Borrower shall cause the removal or remediation of such Hazardous Substances, in accordance with this Agreement and Environmental Laws. Borrower shall use best efforts to prevent, and to seek the remediation of, any migration of Hazardous Substances onto or into any Individual Property from any adjoining property. (ii) Upon reasonable prior written notice, Lender shall have the right at all reasonable times to enter upon and inspect all or any portion of any Individual Property, provided that such inspections shall not unreasonably interfere with the operation or the tenants, residents or occupants of such Individual Property. If Lender suspects that Remedial Work may be required, Lender may select a consulting Engineer to conduct and prepare reports of such inspections. Borrower shall be given a reasonable opportunity to review any reports, data and other documents or materials reviewed or prepared by the Engineer, and to submit comments and suggested revisions or rebuttals to same. The inspection rights granted to Lender in this Section 5.1(E) shall be in addition to, and not in limitation of, any other inspection rights granted to Lender in this Agreement, and shall expressly include the right (if Lender suspects that Remedial Work may be required) to conduct soil borings, establish ground water monitoring wells and conduct other customary environmental tests, assessments and audits. (iii) Borrower agrees to bear and shall pay or reimburse Lender on demand for all sums advanced and expenses incurred (including reasonable attorneys' fees and disbursements, but excluding internal overhead, administrative and similar costs of Lender) reasonably relating to, or incurred by Lender in connection with, the inspections and reports described in this Section 5.1(E) (to the extent such inspections and reports relate to any Individual Property) in the following situations: (x) If Lender has reasonable grounds to believe, at the time any such inspection is ordered, 74 that there exists an occurrence or condition that could lead to an Environmental Claim; (y) If any such inspection reveals an occurrence or condition that could lead to an Environmental Claim; or (z) If an Event of Default with respect to any Individual Property exists at the time any such inspection is ordered, and such Event of Default relates to any representation, covenant or other obligation pertaining to Hazardous Substances, Environmental Laws or any other environmental matter. (F) Environmental Notices. Borrower shall promptly provide notice to Lender of: (i) any Environmental Claim asserted by any Governmental Authority with respect to any Hazardous Substance on, in, under or emanating from any Individual Property, which could reasonably be expected to impair the value of Lender's security interests hereunder or have a Material Adverse Effect; (ii) any proceeding, investigation or inquiry commenced or threatened in writing by any Governmental Authority, against Borrower, with respect to the presence, suspected presence, Release or threatened Release of Hazardous Substances from or onto, in or under any property not owned by Borrower, including, without limitation, proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. 9601, et seq., which could reasonably be expected to impair the value of Lender's security interests hereunder or have a Material Adverse Effect; (iii) all Environmental Claims asserted or threatened against Borrower, against any other party occupying any Individual Property or any portion thereof which become known to Borrower or against such Individual Property, which could reasonably be expected to impair the value of Lender's security interests hereunder or have a Material Adverse Effect; (iv) the discovery by Borrower of any occurrence or condition on any Individual Property or on any real property adjoining or in the vicinity of such Individual Property which could reasonably be expected to lead to an Environmental Claim against Borrower or Lender which such 75 Environmental Claim is reasonably likely to have a Material Adverse Effect; and (v) the commencement or completion of any Remedial Work. (G) Copies of Notices. Borrower shall transmit to Lender copies of any citations, orders, notices or other written communications received from any Person and any notices, reports or other written communications submitted to any Governmental Authority with respect to the matters described in Section 5.1(F). (H) Environmental Claims. Lender and/or, to the extent authorized by Lender, Deed of Trust Trustee, Trustee and/or Servicer, may join and participate in, as a party if Lender so determines, any legal or administrative proceeding or action concerning an Individual Property or any portion thereof under any Environmental Law, if, in Lender's reasonable judgment, the interests of Lender, Deed of Trust Trustee, Trustee or Servicer will not be adequately protected by Borrower. Borrower agrees to bear and shall pay or reimburse Lender, Deed of Trust Trustee, Trustee and/or Servicer, on demand for all reasonable sums advanced and expenses incurred (including reasonable attorneys' fees and disbursements, but excluding internal overhead, administrative and similar costs of Lender, Deed of Trust Trustee, Trustee and Servicer) incurred by Lender, Deed of Trust Trustee, Trustee and/or Servicer, in connection with any such action or proceeding. (I) Indemnification. Borrower agrees to indemnify, reimburse, defend, and hold harmless Lender, Deed of Trust Trustee, Servicer and Trustee for, from, and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties, consequential damages, reasonable attorneys' fees, disbursements and expenses, and reasonable consultants' fees, disbursements and expenses (but excluding internal overhead, administrative and similar costs of Lender, Deed of Trust Trustee, Servicer and Trustee), asserted against, resulting to, imposed on, or incurred by Lender, Deed of Trust Trustee, Servicer, and Trustee, directly or indirectly, in connection with any of the following, except to the extent same are directly and solely caused by Lender's, Deed of Trust Trustee's, Servicer's, or Trustee's negligence or willful misconduct: (i) events, circumstances, or conditions which could, or do, form the basis for an Environmental Claim; 76 (ii) any Environmental Claim against any Person whose liability for such Environmental Claim Borrower has or may have assumed or retained either contractually or by operation of law; or (iii) the breach of any representation, warranty or covenant set forth in Section 4.1(P) and Sections 5.1(D) through 5.1(I), inclusive. The indemnity provided in this Section 5.1(I) shall not be included in any exculpation of Borrower or Guarantor from personal liability provided in this Agreement or in any of the other Loan Documents. Nothing in this Section 5.1(I) shall be deemed to deprive Lender of any rights or remedies provided to it elsewhere in this Agreement or the other Loan Documents or otherwise available to it under law. (J) Access to Individual Properties. Borrower shall permit agents, representatives and employees of Lender to inspect each Individual Property or any part thereof at such reasonable times as may be requested by Lender upon reasonable advance notice, subject, however, to the rights of the tenants, occupants and residents of the Individual Property. (K) Notice of Default. Borrower shall promptly advise Lender of any material adverse change in Borrower's condition, financial or otherwise, or of the occurrence of any Event of Default, or of the occurrence of any Default. (L) Cooperate in Legal Proceedings. Except with respect to any claim by Borrower against Lender, Borrower shall cooperate fully 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 Lender, at its election, from participating in any such proceedings. (M) Perform Loan Documents. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions required to be observed, performed or satisfied by it, and shall pay when due all costs, fees and expenses required to be paid by it, under the Loan Documents executed and delivered by Borrower. (N) Insurance Benefits. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully or equitably payable to Lender in connection with each Individual Property, and Lender shall be reimbursed for any expenses reasonably incurred in connection therewith 77 (including attorneys' fees and disbursements and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of a fire or other casualty affecting such Individual Property or any part thereof, but excluding internal overhead, administrative and similar costs of Lender) out of such Insurance Proceeds, all as more specifically provided in the Mortgages. (O) Further Assurances. Borrower shall, at Borrower's sole cost and expense: (i) upon Lender's request therefor given from time to time (but, other than in connection with the Securitization, in no event more often than once every two years during the term of this Agreement), pay for (a) reports of UCC, tax lien, judgment and litigation searches with respect to Borrower and (b) searches of title to each Individual Property, each such search to be conducted by search firms designated by Lender in each of the locations designated by Lender; (ii) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished pursuant to the terms of the Loan Documents; (iii) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary, to evidence, preserve and/or protect the Collateral at any time securing or intended to secure the Notes, as Lender may reasonably require; and (iv) do and execute all and such further lawful and reasonable 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 reasonably require from time to time. (P) Management of Mortgaged Property. Each of the Individual Properties will be managed at all times by Manager pursuant to the Management Agreement until terminated as herein provided. Pursuant to the Manager's Subordination, Manager has agreed that the Management Agreement is subject and subordinate in all respects to the Liens of the Mortgages. The Management Agreement, as it pertains to the Individual Properties, may be terminated by Lender upon 30 days prior written notice to Borrower and Manager (i) upon the occurrence of an Event of 78 Default of the type described in clause (i) or (ii) of Section 7.1, or (ii) if Manager commits any act which would permit termination under the Management Agreement. Borrower may from time to time appoint a successor manager to manage the Individual Properties or any of the Individual Properties with Lender's prior written consent, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, any successor property manager selected hereunder by Lender or Borrower to serve as Manager shall be a reputable management company having at least seven years' experience in the management of skilled nursing homes, assisted living Individual Properties and/or congregate care Individual Properties (as the case may be) in the state in which the Individual Property is located, and shall, if after the Securitization Closing Date, (i) have qualifications such that the then current ratings of no class of the Certificates would be downgraded or withdrawn by the Rating Agencies upon such an appointment and (ii) be reasonably acceptable to Servicer. Borrower further covenants and agrees that Manager (including any successor property manager serving as Manager) shall at all times during the term of the Loan maintain worker's compensation insurance as required by Governmental Authorities. (Q) Financial Reporting. (i) Borrower shall keep and maintain or shall cause to be kept and maintained on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis reasonably acceptable to Lender) consistently applied, books, records and accounts reflecting in reasonable detail all of the financial affairs of Borrower and all items of income and expense in connection with the operation of each Individual Property and in connection with any services, equipment or furnishings provided in connection with the operation of each Individual Property, whether such income or expense may be realized by Borrower or by any other Person whatsoever. Lender shall have the right from time to time at all times during normal business hours upon reasonable prior written notice to Borrower to examine such books, records and accounts at the office of Borrower or other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence of an Event of Default with respect to Borrower or any Individual Property, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to such Individual Property, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender's interest. 79 (ii) Borrower shall furnish to Lender annually, within 90 days following the end of each Fiscal Year, a complete copy of Borrower's financial statement audited by an Independent certified public accountant acceptable to Lender (Lender hereby agreeing that any "Big Six" certified public accounting firm or Kenneth Leventhal & Company shall be acceptable to Lender) in accordance with GAAP (or such other accounting basis reasonably acceptable to Lender) consistently applied covering Borrower's financial position and results of operations, including consolidated and consolidating balance sheets for each Individual Property, for such Fiscal Year and containing a statement of revenues and expenses, a statement of assets and liabilities and a statement of Borrower's equity. Together with Borrower's annual financial statements, Borrower shall furnish to Lender an Officer's Certificate certifying as of the date thereof (x) that the annual financial statements present fairly in all material respects the results of operations and financial condition of Borrower all in accordance with GAAP consistently applied, and (y) whether there exists an Event of Default or Default, and if such Event of Default or Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy same. (iii) Borrower shall furnish to Lender, within 45 days following the end of each Fiscal Year quarter, in the form attached hereto as Exhibit Y, (x) a true, complete and correct cash flow statement with respect to each Individual Property for that quarter, and (y) census information for each Individual Property as of the end of that quarter in sufficient detail to show by patient-mix (i.e., private, Medicare, Medicaid (if applicable) and V.A.), the average monthly census of the Individual Property and statements of occupancy rates, together with an Officer's Certificate in substantially the form attached hereto as Exhibit Z. (iv) Borrower shall furnish to Lender, within 45 days after the end of each Fiscal Year quarter, an aged accounts receivable report from each Individual Property in sufficient detail to show amounts due from each class of patient-mix by the account age classifications of 30 days, 60 days, 90 days, 120 days, and over 120 days, accompanied by an Officer's Certificate. (v) Borrower shall furnish to Lender, within three Business Days after the receipt by Borrower or an Individual Property, any and all written notices (regardless of form) from any licensing and/or certifying agency that the 80 Individual Property's license or the Medicare or Medicaid certification of the Individual Property is being revoked or suspended, or that action is pending or being considered to revoke or suspend the Individual Property's license or such certification. (vi) Borrower shall furnish to Lender, within ten days after the date of the required filing of cost reports for each Individual Property with the Medicaid agency or the date of actual filing of such cost report of the Individual Property with such agency, whichever is earlier, a complete and accurate copy of the annual Medicaid cost report for each Individual Property, which will be prepared by Manager or by an Independent certified public accountant or by an experienced cost report preparer acceptable to Lender (any "Big Six" accounting firm and Kenneth Leventhal & Co. being deemed acceptable to Lender), and promptly furnish Lender any amendments filed with respect to such reports and all responses, audit reports or inquiries with respect to such reports. (vii) Borrower shall furnish to Lender copies of all SEC filings by FFC, FOH or FGI, other than Registration Statements on Form S-8 and reports under Sections 13(d) and 16(a) of the Securities Exchange Act of 1934, as amended. (viii) Borrower shall furnish to Lender, within 15 Business Days after request, such further information with respect to the operation of any Individual Property and the financial affairs of Borrower as may be reasonably requested by Lender, including all business plans prepared for Borrower. (ix) Borrower shall furnish to Lender, within 15 Business Days after request, such further information regarding any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA as may be reasonably requested by Lender. (x) If the Loan is not repaid on the Optional Prepayment Date, for (i) the period commencing on the Optional Prepayment Date and continuing through the end of the Borrower's current Fiscal Year and (ii) the Fiscal Year commencing on April 1, 2004 and for each fiscal year thereafter, Borrower shall submit to Lender for Lender's written approval an annual budget (in the case of clause (i), limited to the period set forth therein; each of such budgets being, an "Annual Budget") for each of the Individual Properties not later than thirty (30) days prior to the commencement of such Fiscal Year (the Optional 81 Prepayment Date in the case of clause (i)), in form and substance reasonably satisfactory to Lender setting forth in reasonable detail budgeted monthly amounts for Operating Income, Operating Expenses, Capital Improvement Costs and Excess Cash Flow for such Individual Properties. If Lender objects to the proposed Annual Budget submitted by Borrower, Lender shall advise Borrower of such objections within fifteen (15) Business Days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objection) and Borrower shall promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower of any objections to such revised Annual Budget with ten (10) Business Days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objection) and Borrower shall promptly revise the same in accordance with the process described in this sentence until Lender approves an Annual Budget. Each such Annual Budget approved by Lender in accordance the terms hereof shall hereinafter be referred to as an "Approved Annual Budget". Until such time that Lender approves a proposed Annual Budget, the most recently Approved Annual Budget, if any, shall apply or, in the case of the period covered by clause (i), Operating Expenses and Capital Improvement Costs shall not exceed the amounts actually spent in the same month of the prior Fiscal Year, provided, however, that such Approved Annual Budget shall be adjusted to reflect actual increases in Basic Carrying Costs. (xi) After the Securitization Closing Date, Borrower shall also furnish to the Rating Agencies a copy of each report, statement and other information provided to Lender under this Section 5.1(Q). (R) Conduct of Business. Borrower shall cause the operation of each Individual Property to be conducted at all times in a manner consistent with at least the level of operation of such Individual Property as of the date hereof, including, without limitation, the following: (i) to maintain or cause to be maintained the standard of care for the patients of each Individual Property at all times at a level necessary to insure a level of quality care for the patients of such Individual Property not lower than that existing on the Closing Date; (ii) to operate or cause to be operated each Individual Property in a prudent manner in compliance in all material respects with applicable Legal Requirements and Insurance Requirements relating thereto and cause all licenses, Permits, Reimbursement Contracts and any other agreements 82 necessary for the continued use and operation of each Individual Property or as may be necessary for participation in the Medicare, Medicaid or other applicable reimbursement programs to remain in effect; and (iii) to maintain or cause to be maintained sufficient Inventory and Equipment of types and quantities at each Individual Property to enable Borrower or Manager to operate such Individual Property. (S) Periodic Surveys. Borrower shall furnish (or cause Manager to furnish) to Lender within ten Business Days after receipt, a copy of any Medicare, Medicaid or other licensing agency annual licensing certificate, survey or report and any statement of deficiencies, and within the time period required by the particular agency for furnishing a plan of correction also furnish or cause to be furnished to Lender a copy of the plan of correction generated from such survey or report for the Individual Property, and correct or cause to be corrected any deficiency, the curing of which is a condition of continued licensure or for full participation in Medicare and Medicaid for existing patients or for new patients to be admitted with Medicare or Medicaid coverage, by the date required for cure by such agency (plus extensions granted by such agency). (T) Future Representation as to Loan to Value Ratio. If the Loan is significantly modified within the meaning of Section 1.8606-2(b) of the Treasury Regulations prior to the Securitization Closing Date, Borrower will, if requested by Lender, represent that the Allocated Loan Amounts do not exceed 125% of the respective Tax Fair Market Values of each of the Individual Properties as of the date of such significant modification. (U) ERISA. Borrower shall deliver to Lender as soon as possible, and in any event within ten 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): (i) any reportable event, as defined in Section 4043(c) 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 83 ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, 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; (ii) 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 Plan; (iii) 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; (iv) 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; (v) 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 within 30 days; (vi) 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 (vii) the imposition of a lien or a security interest in connection with a Plan. (V) Knightsbridge Lease. FOH shall (i) observe and perform the obligations imposed upon the tenant under the Knightsbridge Lease and shall not do or permit to be done 84 anything to impair the value of the Knightsbridge Lease as security for the Debt; (ii) promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder; and (iii) give Lender prompt notice of the commencement of any arbitration or appraisal proceeding under the Knightsbridge Lease and keep Lender fully advised with respect thereto. ARTICLE VI NEGATIVE COVENANTS Section 6.1. Borrower Negative Covenants. Borrower covenants and agrees that, until payment in full of the Indebtedness (or, with respect to any particular Individual Property, the earlier release of the Related Mortgages), it will not do or permit, directly or indirectly, any of the following unless Lender consents thereto in writing: (A) Liens on the Mortgaged Property. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Lien with respect to any Individual Property, except: (i) Liens in favor of Lender and (ii) the Permitted Encumbrances. (B) Transfers. Except as expressly permitted by or pursuant to this Agreement or the Mortgages, allow any Transfer to occur, terminate the Management Agreement, or enter into a management contract with respect to any Individual Property. After the Securitization Closing Date, allow a transfer of the outstanding capital stock of either FFC or FOH; provided, however, the owners of the outstanding capital stock of either FFC or FOH may transfer their stock in FFC or FOH, as the case may be; provided, further, however, if such Transfer will result in FGI and its Affiliates covered by the non-consolidation opinion given in connection with the Securitization owning, directly or indirectly, less than 50% of the outstanding stock of FFC or FOH immediately after such Transfer, such Transfer may be made only if (i) if the Rating Agencies shall so require, such transferee shall have delivered to the Rating Agencies on the date of transfer a substantive non-consolidation opinion satisfactory to Lender, its counsel and the Rating Agencies from such transferee's counsel, (ii) each Rating Agency confirms in writing that such Transfer will not result in a qualification, downgrade or withdrawal of the then current ratings on any class of the Certificates, (iii) any other requirements of the Rating Agencies in connection with such transfer are satisfied and (iv) on or prior to the Transfer date, Borrower shall pay Lender a one- time transfer fee equal to 1% of the Principal Indebtedness and 85 all reasonable costs and expenses incurred by Lender incurred by Lender in connection with such Transfer, including reasonable attorneys' fees and disbursements. (C) Other Borrowings. Incur, create, assume, become or be liable in any manner with respect to Other Borrowings, except that either FFC or FOH may incur secured or unsecured indebtedness relating solely to financing or leasing of Equipment and costs associated with such indebtedness (x) which does not exceed $300,000 in aggregate at any Individual Property or $2,000,000 in the aggregate at all the Individual Properties, and (y) the proceeds of which are not distributed to Borrower except as reimbursement for monies expended by Borrower to fund the financing or leasing of such Equipment. (D) Dissolution. Dissolve, terminate, liquidate, merge with or consolidate into another Person, except as expressly permitted pursuant to the certificate of incorporation of Borrower; provided, however, that the surviving Person(s) must be a Single-Purpose Entity. (E) Change In Business. Cease to be a Single-Purpose Entity, or 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. (F) Debt Cancellation. Cancel or otherwise forgive or release any material claim or debt owed to FFC or FOH by any Person, except for adequate consideration or in the ordinary course of FFC's or FOH's business. (G) Affiliate Transactions. Enter into, or be a party to, any transaction with an Affiliate of FFC or FOH, except in the ordinary course of business and on terms which are no less favorable to FFC or FOH, as the case may be, 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 $250,000, are fully disclosed to Lender in advance; provided, however, that Lender hereby agrees that, provided no Event of Default shall have occurred and be continuing with respect to Borrower or any Individual Property, and subject to the provisions of Sections 5.1(P) and 5.1(Q), nothing contained in the foregoing shall prohibit payment by FFC or FOH of any fees or expenses to Manager in accordance with the terms of the Management Agreement, and Lender hereby consents to Manager serving as manager of the Individual Properties; provided, further, however, that the management fee charged by 86 Manager shall not be more than the amounts provided for in the Management Agreement as of the date hereof. (H) Creation of Easements. Create, or permit any Individual Property or any part thereof to become subject to, any easement, license or restrictive covenant, other than a Permitted Encumbrance. Lender agrees that it will join in and subordinate the Liens of the Mortgages to any easement, license or restrictive covenant (i) which arises after the date hereof and (ii) that Lender, (A) in Lender's reasonable discretion, deems to constitute a Permitted Encumbrance or (B) in Lender's sole discretion, deems not to adversely affect the value of an Individual Property. (I) Misapplication of Funds. Distribute any Rents, Money or Proceeds received from Accounts in violation of the provisions of Section 2.12, or fail to deliver any security deposit to Manager for deposit into the Security Deposit Accounts, fail to deposit (if required to deposit) in the applicable Collection Account any Rents, Money or Proceeds received by FFC, FOH or Manager from any source other than the Cash Collateral Account or misappropriate any security deposit or portion thereof. (J) Certain Restrictions. Enter into any agreement which expressly restricts the ability of FFC or FOH to enter into amendments, modifications or waivers of any of the Loan Documents. (K) Assignment of Licenses and Permits. Assign or transfer any of its interest in any Permits, certificates of need, or Reimbursement Contracts (including rights to payment thereunder) pertaining to any Individual Property, or assign, transfer or remove or permit any other Person to assign, transfer or remove any records pertaining to any Individual Property including, without limitation, patient records, medical and clinical records (except for removal of records (i) in the ordinary course of business, (ii) as directed by the patients owning such records or (iii) pursuant to court order or Legal Requirements) without Lender's prior written consent, which consent may be granted or refused in Lender's sole discretion. (L) Place of Business. Change its chief executive office or its principal place of business without giving Lender at least 30 days' prior written notice thereof and promptly providing Lender such information as Lender may reasonably request in connection therewith. (M) Leases. Enter into, amend or cancel Leases, except as permitted by or pursuant to the Mortgages and the 87 Second Mortgages. With respect to the Knightsbridge Lease, FOH shall not (i) amend or modify such lease without Lender's prior consent, (ii) execute any assignment of its interest in the Knightsbridge Lease; or (iii) cancel or terminate the Knightsbridge Lease without Lender's prior written consent. 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 on any Payment Date the funds in the Debt Service Payment Sub-Account are insufficient to pay the Required Debt Service Payment due on such Payment Date; (ii) if Borrower fails to pay any of the outstanding Indebtedness on the Maturity Date; (iii) if on the date any payment of a Basic Carrying Cost would become delinquent, the funds in the Basic Carrying Costs Sub-Account required to be reserved pursuant to Section 2.12(g), if any, together with any funds in the Cash Collateral Account not allocated to another Sub-Account (excluding all funds which are utilized in the calculation in clause (i) above to prevent the determination of an Event of Default thereunder) are insufficient to make such payment; (iv) the occurrence of the event identified in Sections 2.12(f), 2.12(g) or 2.12(i) as constituting an "Event of Default"; (v) if Borrower fails to pay any other amount payable 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, and such failure continues for 30 days after Lender delivers written notice thereof to Borrower; (vi) if any representation or warranty made herein or in any other Loan Document, or in any report, certificate, financial statement or other Instrument, agreement or document furnished by Borrower in connection with this Agreement, the Notes or any other Loan Document executed and delivered by Borrower, shall be false in any material 88 respect as of the date such representation or warranty was made; (vii) if FFC, FOH or Guarantor makes an assignment for the benefit of creditors; (viii) if a receiver, liquidator or trustee shall be appointed for FFC, FOH or Guarantor or if FFC, FOH or Guarantor shall be adjudicated a 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, FFC, FOH or Guarantor or if any proceeding for the dissolution or liquidation of FFC, FOH or Guarantor shall be instituted; provided, however, that if such appointment, adjudication, petition or proceeding was involuntary and not consented to by FFC, FOH or Guarantor as the case may be, upon the same not being discharged, stayed or dismissed within 90 days, or if FFC, FOH or Guarantor shall generally not be paying its debts as they become due; (ix) if FFC or FOH attempts to delegate its obligations or assign its rights under this Agreement, any of the other Loan Documents or any interest herein or therein, or if any Transfer occurs other than in accordance with Section 6.1(B), the Mortgages, the Second Mortgages or any other Loan Document; (x) if any provision of the certificate of incorporation or the by-laws of FFC or FOH affecting the purpose for which such entity is formed is amended or modified in any material respect which may adversely affect Lender, Servicer, Trustee or any of the Certificateholders (or in any respect, if such amendment or modification amends any provision relating to FFC's or FOH's status as a Single- Purpose Entity), or if FFC or FOH or any of their stockholders fails to perform or enforce the provisions of such organizational documents or attempts to dissolve FFC or FOH, or if Borrower breaches any of its representations, warranties or covenants set forth in Sections 4.1(S) or 6.1(E); (xi) if an Event of Default as defined or described in the Notes, the Mortgages, the Second Mortgages or any other Loan Document occurs, whether as to Borrower or any Individual Property or all or any portion of the Mortgaged Property; 89 (xii) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement, the Notes, the Mortgages, the Second Mortgages or the other Loan Documents, for ten days after notice to Borrower from Lender or its successors or assigns, in the case of any Default which can be cured by the payment of a sum of money (other than Events of Default pursuant to clauses (i), (ii), (iii) and (iv) above as to which no grace period is applicable), or for 30 days after notice from Lender or its successors or assigns, in the case of any other Default (unless otherwise provided herein or in such other Loan Document); provided, however, that if such non- monetary Default is susceptible of cure but cannot reasonably be cured within such 30 day period and provided further that Borrower shall have commenced to cure such Default within such 30 day period and thereafter diligently and expeditiously proceeds to cure the same, such 30 day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, but in no event shall such period exceed 180 days after the original notice from Lender; (xiii) if FFC or FOH fails to correct within the time deadline set by any Medicare, Medicaid or licensing agency, any deficiency that justifies either of the following actions by such agency with respect to one of its Individual Properties: (x) a termination of FFC's or FOH's Medicare contract, Medicaid contract or nursing home license; or (y) a ban on new admissions generally or on admission of patients otherwise qualified for Medicare or Medicaid coverage with respect to either FFC's or FOH's respective Individual Properties; (xiv) if the Loan Amount exceeds 125% of the Tax Fair Market Value of the Mortgaged Property as of the Closing Date, unless (x) REMIC status is maintained or regained due to corrective actions taken by Borrower within any applicable cure period under the Code or otherwise, and (y) Borrower furnishes Lender with an opinion of outside counsel reasonably acceptable to Lender stating that the REMIC Trust is a valid REMIC for federal income tax purposes; (xv) if an event or condition specified in Section 5.1(U) 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, FFC, FOH or any ERISA Affiliate shall incur or 90 in the opinion of Lender shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would constitute, in the determination of Lender, a Material Adverse Effect; (xvi) if FOH shall default under the Knightsbridge Lease beyond any applicable grace period; (xvii) if FOH shall default under the Knightsbridge Loan beyond any applicable grace period; (xviii) if an Event of Default shall occur under the Knightsbridge Cash Collateral Agreement; or (xix) if Borrower fails to pay any of (A) the Finder's Fee on the Closing Date or (B) Excess Cash Flow when due in accordance with Section 2.5(c) then, upon the occurrence of any such Event of Default and at any time thereafter, Lender or its successors or assigns, may, in addition to any other rights or remedies available to it pursuant to this Agreement, the Note, the Mortgages and the other Loan Documents, or at law or in equity, take such action, without notice or demand, as Lender or its successors or assigns, deems advisable to protect and enforce its rights against Borrower and in and to all or any portion of the Mortgaged Property, including, without limitation, declaring the entire Indebtedness to be immediately due and payable and may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and/or the Mortgaged Property, including, without limitation, all rights or remedies available at law or in equity. Section 7.2. Remedies. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers and other remedies available to Lender against Borrower under this Agreement, the Notes, the Mortgages, the Second Mortgages or any of the other Loan Documents executed by or with respect to Borrower, or at law or in equity may be exercised by Lender at any time and from time to time, 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 any Individual Property or all or any portion of the Mortgaged Property. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise 91 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. (b) In the event of the foreclosure or other action by Lender to enforce its remedies in connection with one or more of the Individual Properties or all or any portion of the Mortgaged Property, whether such foreclosure sale (or other remedy) yields Net Proceeds in an amount less than, equal to or more than the Allocated Loan Amount of such Individual Property or Mortgaged Property, Lender shall apply all Net Proceeds received to repay the Indebtedness in accordance with Section 2.8, Allocated Loan Amounts shall be adjusted (or not adjusted) in accordance with the definition of "Allocated Loan Amount", the Indebtedness shall be reduced to the extent of such Net Proceeds and the remaining portion of the Indebtedness shall remain outstanding and secured by the Mortgages and the other Loan Documents, it being understood and agreed by Borrower that Borrower is liable for the repayment of all the Indebtedness and that any "excess" foreclosure proceeds are part of the cross-collateralized and cross-defaulted security granted to Lender pursuant to the Mortgages; provided, however, that any Note shall be deemed to have been accelerated only to the extent of the Net Proceeds actually received by Lender with respect to any Individual Property and applied in reduction of the Indebtedness evidenced by such Note in accordance with the provisions of the Note, after payment by Borrower of all transaction costs and expenses and costs of enforcement. 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 pursuant to this Agreement or the other Loan Documents executed by or with respect to Borrower, 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 sole 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. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim, in connection with the foreclosure of a Mortgage on an Individual Property, to the 92 extent necessary to foreclose on other parts of the Mortgaged Property. ARTICLE VIII MISCELLANEOUS Section 8.1. Survival. 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, the making by Lender of the Loan and the execution and delivery by FFC and FOH to Lender of the Notes, and shall continue in full force and effect as long as any portion of the Indebtedness is outstanding and unpaid; provided, however, that upon a prepayment with respect to a particular Individual Property as described in Section 2.7(a) and upon satisfaction of the other conditions set forth in Section 2.11, Borrower shall be released of all liability under this Agreement (other than any liability with respect to environmental matters arising under Sections 4.1(P) or 5.1(D) - (I), inclusive, hereof), the Related Mortgages, the applicable Assignments of Lease, and the other Loan Documents insofar as they concern such Individual Property. 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, the Mortgages, the Second Mortgages 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, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Section 8.3. Governing Law. (a) This Agreement was negotiated in New York, and made by Lender and accepted by Borrower in the State of New York, and the proceeds of the Notes delivered pursuant hereto were disbursed from New York, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in 93 all respects, including, without limitation, matters of construction, validity and performance, 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 performed in such State and any applicable law of the United States of America, except that at all times the provisions for the creation, perfection and enforcement of the liens and security interests created pursuant to the Mortgages and the other Loan Documents shall be governed by and construed according to the law of the State in which the applicable Individual Property is located, it being understood that, to the fullest extent permitted by law of such States, the law of the State of New York shall govern the validity and the enforceability of all Loan Documents, and the Indebtedness or obligations arising hereunder or thereunder. 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 laws of the State of New York pursuant to 5-1401 of the New York General Obligations Law. (b) Any legal suit, action or proceeding against Lender or Borrower arising out of or relating to this Agreement shall be instituted in any federal or state court in New York, New York, pursuant to 5-1402 of the New York General Obligations Law, 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 Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, Attention: Robert A. Profusek, Esq., 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 in New York, New York, and agrees that service of process upon said agent at said address (or at such other office in New York, New York as may be designated by Borrower from time to time in accordance with the terms hereof) with a copy to Borrower at its principal executive offices, Attention: General Counsel, 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 in the State of New York. 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 with an office in New York, New York (which office shall be designated as the address for service of process), and (iii) shall promptly designate such 94 a substitute if its authorized agent ceases to have an office in New York, New York 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 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, or any other instrument given as security therefor, 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) certified or registered United States mail, postage prepaid, or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answerback acknowledged), addressed if to Lender at its address set forth on the first page hereof, Attention: Sheryl McAfee, if to Servicer at 700 Newport Center Drive, Newport Beach, California 92660, Attention: Michelle A. Curran,, and if to Borrower at its 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 Lender shall be delivered to Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan 95 Plaza, New York, New York 10005, Attention: Geoffrey K. Hurley and Servicer, at the address set forth in the Pooling and Servicing Agreement, and a copy of all notices, consents, approvals and requests directed to Borrower (other than statements setting forth the monthly amount payable under the Note) shall be delivered to Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, Attention: Robert A. Profusek, Esq. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day. 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. SECTION 8.7. TRIAL BY JURY. EACH OF FFC, FOH AND LENDER, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS. EACH OF FFC, FOH AND LENDER AGREES THAT THE OTHER PARTIES HERETO MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF ITS KNOWING, VOLUNTARY AND BARGAINED AGREEMENT IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN FFC, FOH AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 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 this Agreement and/or any of the other Loan Documents and the obligations hereunder to any Person, except that the Notes and, in connection with the initial offering under the Securitization only, the Certificates may not be assigned, transferred or sold to any Person listed on Exhibit AA attached hereto or their Affiliates. The parties hereto acknowledge that Lender expects to sell, transfer and assign this Agreement, the Notes, the Mortgages, the Second Mortgages and the other Loan Documents to Trustee on the Securitization Closing Date. All references to "Lender" hereunder shall be deemed to include the assigns of Lender and the parties hereto acknowledge that actions taken by Lender hereunder may be taken by (x) Servicer on Lender's behalf (to the extent provided in the Interim Servicing Agreement) or (y) after the Securitization Closing Date, by 96 Servicer pursuant to the Pooling and Servicing Agreement on behalf of Trustee. Following the assignment of this Agreement, the Notes, the Mortgages, the Second Mortgages and the other Loan Documents by NACC in connection with the Securitization, in addition to providing notices to Lender's assignee in accordance with instructions received from such assignee, Borrower shall continue to send copies of all notices and other communications (including, without limitation, reports under Section 5.1(Q)) to NACC at the address set forth in Section 8.6 or to such other address as may be designated by NACC pursuant to Section 8.6. Borrower shall not be entitled to assign its rights under this agreement. 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. To the extent Borrower makes a payment or payments to Lender for Borrower's benefit, which payment or 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 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. Borrower shall not 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 and except with respect to matters for which Borrower is 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, including, without limitation, Servicer, has acted unreasonably or unreasonably delayed acting in any case where by law or under 97 this Agreement, the Notes, the Mortgages, the Second Mortgages or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents, including, without limitation, Servicer, shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Section 8.14. Exculpation. Notwithstanding anything herein or in any other Loan Document to the contrary, except as otherwise set forth in this Section 8.14 to the contrary, Lender shall not enforce the liability and obligation of either Borrower to perform and observe the obligations contained in this Agreement, the Notes, the Mortgages, the Second Mortgages or any of the other Loan Documents executed and delivered by either Borrower by any action or proceeding wherein a money judgment shall be sought against either Borrower or its shareholders, except that Lender may bring a foreclosure action, action for specific performance, or other appropriate action or proceeding (including, without limitation, to obtain a deficiency judgment) solely for the purpose of enabling Lender to realize upon (i) either Borrower's interest in the Mortgaged Property, (ii) the Rents and Accounts arising from the Individual Properties to the extent (x) received by either Borrower or Manager after the occurrence of an Event of Default or (y) distributed to either Borrower or its shareholders during or with respect to any period for which Lender did not receive the full amounts it was entitled to receive as prepayments of the Loan pursuant to Sections 2.7(c) or (d) (all Rents and Accounts covered by clauses (x) and (y) being hereinafter referred to as the "Recourse Distributions") and (iii) any other collateral given to Lender under the Loan Documents ((i), (ii) and (iii), collectively, the "Default Collateral"); provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of any such Default Collateral. The provisions of this Section 8.14 shall not, however, (a) impair the validity of the Indebtedness evidenced by the Notes or in any way affect or impair the Liens of the Mortgages, the Second Mortgages or any of the other Loan Documents or the right of Lender to foreclose the Mortgages or the Second Mortgages following an Event of Default; (b) impair the right of Lender to name either Borrower as a party defendant in any action or suit for judicial foreclosure and sale under any of the Mortgages or the Second Mortgages; (c) affect the validity or enforceability of the Notes, the Mortgages, the Second Mortgages or the other Loan Documents; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the right of Lender to bring suit for actual damages, 98 losses and costs resulting from fraud or intentional misrepresentation by either Borrower or any other Person in connection with this Agreement, the Notes, the Mortgages, the Second Mortgages or the other Loan Documents; (f) impair the right of Lender to obtain the Recourse Distributions received by either Borrower, including, without limitation, the right to proceed against such Borrower's shareholders to the extent any such Recourse Distributions have actually theretofore been distributed to such Borrower's shareholders; (g) impair the right of Lender to bring suit with respect to either Borrower's misappropriation of security deposits or Rents collected more than one month in advance; (h) impair the right of Lender to obtain Insurance Proceeds or Condemnation Proceeds due to Lender pursuant to the Mortgages or the Second Mortgages; (i) impair the right of Lender to enforce the provisions of Sections 4.1(P) or 5.1(D)-(I) even after repayment in full of the Indebtedness; (j) prevent or in any way hinder Lender from exercising, or constitute a defense, or counterclaim, or other basis for relief in respect of the exercise of, any other remedy against any or all of the collateral securing the Notes as provided in the Loan Documents; (k) impair the right of Lender to bring suit with respect to any misapplication of any funds; (l) impair the right of Lender to enforce the Indemnity Agreement even after repayment in full of the Indebtedness; or (m) impair the right of Lender to sue for, seek or demand a deficiency judgment against either Borrower solely for the purpose of foreclosing the Mortgaged Property or any part thereof, or realizing upon the Default Collateral; provided, however, that any such deficiency judgment referred to in this clause (m) shall be enforceable against either Borrower only to the extent of any of the Default Collateral. The provisions of this Section 8.14 shall be inapplicable to either Borrower if any petition for bankruptcy, reorganization or arrangement pursuant to federal or state law shall be filed by, consented to or acquiesced in by or with respect to Borrower, or if either Borrower shall institute any proceeding for the dissolution or liquidation of itself, or if either Borrower shall make an assignment for the benefit of creditors, in which event Lender shall have recourse against all of the assets of either Borrower and the interests in either Borrower owned by, and the Recourse Distributions received by, either Borrower's shareholders (but excluding the other assets of either Borrower's shareholders to the extent Lender would not have had recourse against such assets other than in accordance with the provisions of this Section 8.14). Notwithstanding the foregoing, in the event an Individual Property is released from the lien created by the Related Mortgage, Borrower shall be released in all respects from any further liability with respect to the Loan other than any further liability for certain kinds of environmental matters arising under Sections 4.1(P) or 5.1(D)-(I) as the same applies to such Individual Property. 99 Section 8.15. Exhibits Incorporated. The information set forth on the cover, heading and recitals hereof, and the Exhibits 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 8.16. Offsets, Counterclaims and Defenses. Any assignee of Lender's interest in and to this Agreement, the Notes, the Mortgages, the Second Mortgages and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to this Agreement, the Notes, the Mortgages, the Second Mortgages and the other Loan Documents which Borrower may otherwise have against any assignor or this Agreement, the Notes, the Mortgages, the Second Mortgages and the other Loan Documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon this Agreement, the Notes, the Mortgages, the Second Mortgages 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 8.17. 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 nor to grant Lender any interest in the Mortgaged Property other than that of mortgagee or lender. Section 8.18. Waiver of Marshalling of Assets Defense. To the fullest extent Borrower may legally do so, Borrower waives all rights to a marshalling of the assets of Borrower, FGI and Persons with interests in Borrower, and of the Mortgaged Property, 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 Individual Property for the collection of the Indebtedness without any prior or different resort for collection, or the right of Lender or Deed of Trust Trustee to the payment of the Indebtedness out of the Net Proceeds of the Individual Property in preference to every other claimant whatsoever. Section 8.19. Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than compulsory 100 counterclaim, in any action or proceeding brought against it by Lender or its agents, including, without limitation, Servicer. Section 8.20. Conflict; Construction of Documents. In the event of any conflict between the provisions of this Agreement and the provisions of the Notes, the Mortgages, the Second Mortgages 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 8.21. 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 except for Nomura Securities International, Inc. (the "Finder"). Borrower agrees to pay all amounts required to be paid to the Advisor pursuant to that certain engagement letter dated August 23, 1995 between Borrower, Forum Ohio Healthcare, Inc., FGI and the Finder. Borrower and Lender hereby agree to indemnify and hold each other and Servicer 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 (other than the Finder) that such Person acted on behalf of the indemnifying party in connection with the transactions contemplated herein. The provisions of this Section 8.21 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness. Section 8.22. 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 8.23. Estoppel Certificates. Borrower and Lender each hereby agree at any time and from time to time upon not less than 15 days prior written notice by Borrower or Lender to execute, acknowledge and deliver to the party specified in such notice, a statement, in writing, certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that the same, as modified, is in full force and effect and stating the modifications hereto), and stating whether or not, to the knowledge of such certifying party, any Default or Event of Default has occurred and is then continuing, and, if so, specifying each such Default or Event of Default; provided, however, that it shall be a condition precedent to Lender's obligation to deliver the statement pursuant to this Section 8.23, that Lender shall have received, 101 together with Borrower's request for such statement, an Officer's Certificate stating that no Default or Event of Default exists as of the date of such certificate (or specifying such Default or Event of Default). Section 8.24. Payment of Expenses. Borrower shall, whether or not the Transactions are consummated, pay on demand all Transaction Costs, which shall include, without limitation, (a) reasonable out-of-pocket costs and expenses of Lender 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, without limitation, fees and expenses for title and lien searches and filing and recording fees, third party due diligence expenses of up to $2,000 for each Individual Property plus travel expenses, accounting firm fees, costs of the Environmental Reports (and an environmental consultant), and the Engineering Reports), (iii) the negotiation, preparation, execution and delivery of any amendment, waiver or consent relating to any of the Loan Documents, (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 and (v) the Securitization, (b) the reasonable fees, expenses and disbursements of counsel to Lender in connection with all of the foregoing, (c) after the Securitization Closing Date, the cost of an annual rating review by the Rating Agencies and all fees of Trustee, and (d) all fees of Servicer and Bank. Prior to retention of third parties, Lender shall consult with Borrower regarding the services required and the third parties selected to assure that costs will be reasonable in scope and amount. 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, in the event Borrower shall (i) file with any bankruptcy court of competent jurisdiction or be the subject of any petition under Title 11 of the U.S. Code, as amended, (ii) be the subject of any order for relief issued under Title 11 of the U.S. Code, as amended, (iii) file or be the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or law relating to bankruptcy, insolvency or other relief of debtors, (iv) have sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator or (v) be 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, 102 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 shall be modified and annulled as to Lender, so as to permit Lender to exercise any and all of its 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 8.25. Section 8.26. Indemnification. Borrower shall indemnify, defend and hold harmless Lender, and each of its directors, officers, employees, attorneys, agents (including, without limitation, Servicer), successors and assigns (the "Indemnified Parties"), from and against all damages, liabilities, claims, actions, penalties and fines (collectively and severally, "Losses") which may be imposed upon, asserted against or incurred or paid by any of them resulting from the claims of any third party (other than Borrower) relating to or arising out of (i) the Mortgaged Property prior to any Indemnified Party asserting control thereover, any of the Loan Documents, except for (A) Losses caused by the gross negligence or willful misconduct of any Indemnified Party, or (B) any Losses relating to a Securitization, such type of Losses to be indemnified by Borrower only to the extent provided in Section 2.15. Borrower shall reimburse each Indemnified Party for any expenses (including the reasonable attorneys' fees and disbursements) reasonably incurred in connection with the investigation of, preparation for or defense of any actual or threatened claim, action or proceeding arising from any Losses subject to indemnity (including any such costs of responding to discovery requests or subpoenas), regardless of whether Lender or such other Indemnified Party is a party thereto. With reference to the provisions set forth above in this Section 8.26 for payment by Borrower of reasonable attorneys' fees incurred by the Indemnified Parties in any action or claim brought by a third party, Borrower shall diligently defend such Indemnified Party and diligently conduct such defense, and, provided Borrower demonstrates to the reasonable satisfaction of the applicable Indemnified Party its ability to pay for any settlement amount agreed to by Borrower, Borrower may settle any such action or claim or consent to an entry of any judgment related thereto without the prior written consent of any Indemnified Party to the extent such judgment or claim is for the payment of money. If the Indemnified Party desires to engage separate counsel, it may do so at its own expense; provided, however, that such limitation on the obligation of Borrower to pay the fees of separate counsel for such Indemnified Party shall not apply if such Indemnified Party has retained such separate counsel because of a reasonable 103 belief (based upon reasonable inquiry) that Borrower is not diligently defending it and/or not diligently conducting the defense and so notifies Borrower. The Loan shall not be considered to have been paid in full unless all obligations of Borrower under this Section 8.26 shall have been fully performed (except for contingent indemnification obligations for which no claim has actually been made pursuant to this Agreement). Section 8.27. 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. Section 8.28. Cross Collateralization. Without limitation of any other right or remedy provided to Lender in this Agreement or any of the other Loan Documents, FFC and FOH covenant and agree that 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 marshall 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 in satisfaction of the Loan and (v) its Individual Properties shall be security for the performance of all obligations of Borrower hereunder and under the other Loan Documents. Section 8.29. [Intentionally Deleted]. Section 8.30. Defeasance. (a) In the event that prior to the Optional Prepayment Date, either Borrower exercises its option to defease its Note pursuant to Section 2.6 or is obligated to make a mandatory defeasance pursuant to Section 2.7(a), such Borrower shall defease the Loan in compliance with the following conditions precedent: (i) the delivery by such Borrower of not less than 10 Business Days' prior written notice to Lender specifying a regularly scheduled Payment Date (the "Defeasance Date") on 104 which the Defeasance Deposit is to be made and the principal amount to be prepaid by defeasance; (ii) the payment to Lender of all scheduled interest at the Base Interest Rate and principal payments due and unpaid on the Defeasance Date; (iii) with respect to defeasance of the Loan in whole pursuant to Section 2.6 only, the payment to Lender of all other sums due under the applicable Note, the Mortgages, the Second Mortgages and the other Loan Documents; (iv) with respect to defeasance of the Loan pursuant to Section 2.7(a) only, payment of all other amounts due under the Related Mortgages; (v) the payment to Lender of the Defeasance Deposit on the Defeasance Date; and (vi) the delivery to Lender of: (A) a security agreement, in form and substance reasonably satisfactory to Lender, creating a first priority lien on the Defeasance Deposit and the U.S. Treasuries purchased on behalf of either Borrower with the Defeasance Deposit in accordance with this provision of this Section 8.30 (the "Security Agreement"); (B) with respect to defeasance of the Loan in whole pursuant to Section 2.6 only, releases for each of the Individual Properties from the Liens of the Related Mortgages, the Assignments of Leases, the Second Assignments of Leases, the Assignments of Agreements, the Second Assignments of Agreements and UCC-1 financing statements (for execution by Lender) in forms appropriate for the jurisdiction in which each Individual Property is located; (C) with respect to defeasance of the Loan pursuant to Section 2.7(a) only, the releases described in Section 2.11(a) (for execution by Lender) in forms appropriate for the jurisdiction in which the applicable Individual Property is located; (D) an Officer's Certificate certifying that the requirements set forth in this Section 8.30 have been satisfied; 105 (E) an opinion of counsel for Borrower in form satisfactory to Lender stating, among other things, that (1) Lender has a perfected first priority security interest in the Defeasance Deposit and the U.S. Treasuries purchased by Lender on behalf of Borrower and (2) any REMIC formed pursuant to the Securitization will not fail to maintain its REMIC status for federal income tax purposes as a result of such defeasance; and (F) such other certificates, documents or instruments as Lender may reasonably request, including, without limitation, those reasonably required in connection with a Securitization, including, without limitation, notice to the Rating Agencies of any defeasance as well as any other notice reasonably required in connection with such defeasance. In connection with the conditions set forth above, Borrower hereby appoints Lender as its agent and attorney-in- fact for the purpose of using the Defeasance Deposit to purchase noncallable U.S. Treasuries which provide Scheduled Defeasance Payments, and Lender shall upon receipt of the Defeasance Deposit purchase such U.S. Treasuries on behalf of Borrower. Borrower, pursuant to the Security Agreement or other appropriate document, shall authorize and direct that the payments received from the U.S. Treasuries shall be made directly to Lender and applied to satisfy the obligations of Borrower under the Note. (b) With respect to defeasance of the Loan in whole pursuant to Section 2.6, upon compliance with the requirements of Section 8.30(a), (i) the Mortgaged Property shall be released from the liens of the Related Mortgages, the Assignments of Leases, the Second Assignments of Leases, the Assignments of Agreements, the Second Assignments of Agreement and the UCC-1 financing statements and (ii) the pledged U.S. Treasuries shall be the sole source of collateral securing the Note. With respect to a defeasance of the Loan pursuant to Section 2.7(a), upon compliance with the requirements of Section 8.30(a) the applicable Individual Property or Properties shall be released pursuant to Section 2.11(a). (c) Any portion of the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Treasuries required by Section 8.30(a) above or to satisfy the other requirements of Section 8.30(a) shall be remitted to Borrower. 106 (d) Borrower shall have the right to assign to Lender (or, at Lender's option, to Lender's designee or nominee) and Lender (or such designee or nominee) shall have the obligation to assume, the obligations under the Loan Documents relating to the principal amount so defeased. SECTION 8.31. FINAL AGREEMENT. THIS AGREEMENT, TOGETHER WITH ALL OTHER WRITTEN AGREEMENTS BETWEEN BORROWER AND LENDER, IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND LENDER, AND SUCH WRITTEN CREDIT AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT OR OF A CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER. SECTION 8.32. NON-STANDARD TERMS; NO UNWRITTEN ORAL AGREEMENTS. ANY ADDITIONAL NON-STANDARD TERMS OF THE CREDIT AGREEMENT BETWEEN BORROWER AND LENDER, INCLUDING THE REDUCTION TO WRITING OF A PREVIOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER, ARE SET FORTH IN THE SPACE BELOW (IF NONE, WRITE "NONE"): NONE. NO UNWRITTEN ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER EXISTS. FGI FINANCING I CORPORATION NOMURA ASSET CAPITAL CORPORATION By: /s/ Kurt C. Read By: /s/ C. M. Tierney _______________________ _________________________ Name: Kurt Read C. M. Tierney Title: Vice President Vice President FORUM OHIO HEALTHCARE, INC. By: /s/ Kurt C. Read ______________________ Name: Kurt Read Title: Vice President [Signature Page Follows] 107 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. LENDER: NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation By: /s/ Christopher M. Tierney ______________________ Christopher M. Tierney Vice President BORROWER: FGI FINANCING I CORPORATION, a Delaware corporation By: /s/ Kurt C. Read _______________________ Name: Kurt Read Title: Vice President FORUM OHIO HEALTHCARE, INC., an [Ohio] corporation By: /s/ Kurt C. Read _______________________ Name: Kurt Read Title: Vice President EX-10.2 3 ************************************************************ FORUM GROUP, INC., as Borrower _____________________________ CREDIT AGREEMENT Dated as of September 1, 1995 ______________________________ NOMURA ASSET CAPITAL CORPORATION, as Lender ************************************************************ TABLE OF CONTENTS Page ---- Section 1. Definitions and Accounting Matters 1 1.01 Certain Defined Terms 1 1.02 Accounting Terms and Determinations 17 Section 2. The Loan, Advances, Note and Prepayments 18 2.01 The Loan 18 2.02 Advances 18 2.03 Note 18 2.04 Optional Prepayments 19 2.05 Mandatory Prepayment 19 Section 3. Payments of Principal, Interest and Exit Fee 19 3.01 Repayment of the Loan 19 3.02 Interest 19 3.03 Cash Management. 20 3.04 Security Agreement 20 Section 4. Payments; Computations; Etc. 21 4.01 Payments 21 4.02 Computations 22 4.03 Minimum Amounts 22 4.04 Certain Notices 22 4.05 Set-off 23 4.06 Illegality 23 4.07 Compensation 23 Section 5. Conditions Precedent 24 5.01 Closing Date 24 5.02 Initial and Subsequent Advances 25 Section 6. Representations and Warranties 26 6.01 Corporate Existence 26 6.02 Financial Condition 27 6.03 Litigation 27 6.04 No Breach 27 6.05 Action 28 6.06 Approvals 28 6.07 Use of Credit 28 6.08 ERISA 28 6.09 Taxes 29 6.10 Investment Company Act 29 6.11 Public Utility Holding Company Act 29 6.12 Ownership of Stock or Partnership Interests 29 6.13 Environmental Matters 30 6.14 FGI SEC Reports 32 6.15 Agreements 32 6.16 No Bankruptcy Filing 32 6.17 Location of Chief Executive Offices 33 6.18 Compliance 33 (i) Section 7. Covenants of the Borrower 33 7.01 Financial Statements Etc. 33 7.02 Litigation; Environmental Claims 36 7.03 Existence, Etc. 37 7.04 Prohibition of Fundamental Changes 38 7.05 Limitation on Liens 38 7.06 Place of Business 38 7.07 Perform Loan Documents 38 7.08 Dividend Payments 39 7.09 Sale or Transfer of Facilities 39 7.10 Replacement of Manager 39 7.11 No Sale of Stock or Partnership Interests 39 7.12 Limitation on Issuance of Preferred Stock; Cooperation with Rating Agencies 39 7.13 Use of Proceeds 40 7.14 Cooperate in Legal Proceedings 40 7.15 Further Assurances 40 Section 8. Events of Default 40 Section 9. Subordination. 43 9.01 Subordination to Senior Indebtedness 43 9.02 Borrower Not To Make Payments in Certain Circumstances 44 9.03 Subordination in the Event of Acceleration, Dissolution, Liquidation or Reorganization 45 9.04 Lender to Be Subrogated to Rights of Holders of Senior Indebtedness 46 9.05 Obligations of the Borrower Unconditional 46 9.06 Subordination Rights Not Impaired by Acts or Omissions of Borrower or Holders of Senior Indebtedness 47 9.07 Further Assurances with Respect to Subordination 47 9.08 Limitation on Subordination 47 9.09 Certain Definitions 48 Section 10. Miscellaneous 48 10.01 Waiver 48 10.02 Notices 48 10.03 Expenses, Etc. 49 10.04 Amendments, Etc. 50 10.05 Successors and Assigns 50 10.06 Assignments and Participations 50 10.07 Survival 51 10.08 Captions 52 10.09 Counterparts 52 10.10 Governing Law; Submission to Jurisdiction 52 10.11 Waiver of Jury Trial 52 10.12 Treatment of Certain Information 52 10.13 Brokers and Financial Advisors 53 10.14 Lender's Discretion 53 10.15 Severability 53 10.16 Preferences 53 10.17 Waiver of Notice 54 10.18 Remedies of Borrower 54 (ii) 10.19 Waiver of Marshalling of Assets Defense 54 10.20 Waiver of Counterclaim 54 10.21 FINAL AGREEMENT 54 10.22 Tax Treatment 55 EXHIBIT A - Form of Note EXHIBIT B - FFC Loan Agreement (without exhibits) EXHIBIT C - Prohibited Transferees EXHIBIT D - Form of Nonconsolidation Opinion EXHIBIT E - FRP Loan Agreement (without exhibits) (iii) THIS CREDIT AGREEMENT dated as of September 1, 1995, is made by and between FORUM GROUP, INC., an Indiana corporation (the "Borrower"), having an address at 11320 Random Hills Road, Suite 400, Fairfax, Virginia 22030 and NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation (the "Lender"), having an address at 2 World Financial Center, Building B, New York, New York 10281-1198. RECITALS: The Borrower has requested that the Lender make from time to time loans (each an "Advance"; collectively, the "Loan") to the Borrower in an aggregate principal amount not exceeding $50,000,000 (the "Loan Amount") and the Lender is prepared to make such Advances upon the terms and conditions hereof. Accordingly, the parties hereto agree as follows: Section 1. Definitions and Accounting Matters. 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Account Collateral" shall have the meaning provided in Section 3.04 hereof. "Actual Excess Cash Flow" shall mean, with respect to the month immediately preceding a Payment Date on which a Mandatory Payment is due, (a) Adjusted Net Cash Flow minus (b) Facility Owner Debt Service minus (c) Debt Service of the Loan for the immediately following Payment Date. "Adjusted Net Cash Flow" shall mean, at any date of determination and with respect to the Collateral Facilities, the sum of (a) with respect to the Subsidiary Facilities, "Adjusted Net Cash Flow" (as such term is defined in the FFC Loan Agreement) with respect to the immediately preceding month and (b) with respect to any Approved Facilities, a term having substantially the same meaning with respect to a comparable time period contained in an Approved Facility Loan Agreement. "Advance" shall have the meaning provided in the Recitals hereto. "Advance Termination Date" shall mean September 1, 1999. -2- "Affiliate" of any specified Person shall mean any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "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 "controlling" and "controlled" have the meaning correlative to the foregoing. "Agreement" shall mean this Credit Agreement, as the same may from time to time hereafter be modified, supplemented or amended. "Annualized NOI" shall mean, at any date of determination and with respect to the Collateral Facilities, the amount equal to the sum of (a) Adjusted Net Cash Flow, calculated for the twelve months ended on the last day of the preceding calendar quarter and based on the financial statements delivered to the Lender for such quarter and (b) if written approval is received from the Lender by the Borrower, which approval is in the Lender's sole discretion and may be conditioned on, among other things, satisfactory security arrangements, 50% of the annualized management fees of the Borrower from the Collateral Facilities. "Approved Facilities" shall mean (i) the facilities owned by FRPI as of the date hereof and (ii) any facilities owned by an Affiliate of the Borrower which the Lender, in its sole discretion, approves as acceptable for inclusion as Collateral Facilities for purposes of calculating the Quarterly Test (thereby enabling the Borrower to increase the principal amount of outstanding Advances) and regarding which the following actions are taken for the benefit of the Lender: (a) the delivery of Preferred Stock issued by the owner of such facility (or, in the case of facilities owned by FRPI, Preferred Stock issued by either FRPI or FRP); and (b) the implementation of a cash management arrangement established by the owner of such facility similar in substance to the arrangement provided for in Section 3.03 hereof. Upon written notice from the Lender that such facility is acceptable (in the case of facilities described in clause (ii) above only) and the provisions of clauses (a) and (b) above having been satisfied, such facility shall be included as a Collateral Facility hereunder. "Approved Facility Loan Agreement" shall mean (i) the FRP Loan Agreement and (ii) any loan agreement between the owner -3- of an Approved Facility (other than FRPI) and the Lender or an Affiliate of the Lender. "Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "Business Day" shall mean any day other than (i) a Saturday or a Sunday, and (ii) a day on which federally insured depository institutions in (x) New York or (y) the state in which the Collateral Agent is located are authorized or obligated by law, governmental decree or executive order to be closed. When used with respect to the determination of LIBOR, "Business Day" shall mean a day on which banks are open for dealing in foreign currency and exchange in London. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Closing Date" shall mean September 1, 1995. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collection Accounts" shall mean, at any date of determination, (a) with respect to Subsidiary Facilities, "Collection Accounts" (as such term is defined in the FFC Loan Agreement) and (b) with respect to any Approved Facilities, any term having substantially the same meaning contained in an Approved Facility Loan Agreement. "Collection Banks" shall mean, at any date of determination, (a) with respect to Subsidiary Facilities, "Collection Banks" (as such term is defined in the FFC Loan Agreement) and (b) with respect to any Approved Facilities, any term having substantially the same meaning contained in an Approved Facility Loan Agreement. "Collateral Agent" shall mean the banking institution at which the Lender establishes the Pledge Account. "Collateral Facilities" shall mean, collectively, Subsidiary Facilities and Approved Facilities. -4- "Debt Service" shall mean, for any Payment Date, the principal, if any, and interest payments that would be due and payable on the Loan in accordance with the Note on such Payment Date or otherwise in respect of the monthly period immediately preceding such Payment Date. "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "Default Interest Period" shall mean, during any period while any principal of any Advance or any other amount under this Agreement, the Note or any other Loan Document is not paid when due, each successive period within such period as the Lender shall from time to time choose; provided that the first Default Interest Period shall commence as of the date on which such principal or other amount became due and each succeeding Default Interest Period shall commence upon the expiry of the immediately preceding Default Interest Period. "Default Rate" shall mean, with respect to any Default Interest Period, the per annum interest rate equal to the lesser of (i) the maximum interest rate permitted by Legal Requirements and (ii) the sum of LIBOR determined as of the immediately preceding Interest Determination Date plus the Pricing Spread plus 3%. "Dollars" and "$" shall mean lawful money of the United States of America. "Environmental Claim" shall mean, with respect to any Person, any written notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such first Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of -5- Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" shall mean any and all Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as in effect on the relevant date, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment (including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean 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 the 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 the Borrower is a member. "Event of Default" shall have the meaning provided in Section 8 hereof. "Exit Fee" shall mean the fee, if any, payable by the Borrower to the Lender pursuant to Section 3.01 hereof in an amount equal to the product of (i) $1,400,000 multiplied by (ii) the quotient of (A) $70,000,000 minus the Permanent Financing Amount, but not less than zero, divided by (B) $70,000,000. "Facility Owner" shall mean (i) FFC, (ii) FOH and (iii) any owner of an Approved Facility, as applicable. "Facility Owner Debt Service" shall mean, at any date of determination and with respect to the Collateral Facilities, the sum of (a) with respect to the Subsidiary Facilities, the amount of "Debt Service" (as such term is defined in the FFC Loan Agreement) which shall be due on the immediately succeeding "Payment Date" (as such term is defined in the FFC Loan -6- Agreement) and (b) with respect to any Approved Facilities, the amount of a term having substantially the same meaning contained in an Approved Facility Loan Agreement. "FFC" shall mean FGI Financing I Corporation, a Delaware corporation and a wholly owned subsidiary of the Borrower. "FFC Loan Agreement" shall mean the Loan Agreement dated as of the date hereof, by and among FFC, FOH and the Lender, a copy of which is attached hereto as Exhibit B. "FGI SEC Reports" shall have the meaning provided in Section 6.02 hereof. "FOH" shall mean Forum Ohio Healthcare, Inc., an Ohio corporation and a wholly owned subsidiary of the Borrower. "Finder" shall have the meaning provided in Section 10.13 hereof. "FRI" shall mean Forum Retirement, Inc., a Delaware corporation and a wholly owned subsidiary of the Borrower. "FRP" shall mean Forum Retirement Partners, L.P., a Delaware limited partnership, the general partner of which is FRI and the limited partners of which include the Borrower. "FRP Loan Agreement" shall mean the Loan Agreement dated as of December 28, 1993 by and between FRP and the Lender, a copy of which is attached hereto as Exhibit E. "FRPI" shall mean FRP Financing I, Limited Partnership, a Delaware limited partnership, the general partner of which is FRI and the sole limited partner of which is FRP. "GAAP" shall mean United States generally accepted accounting principles as in effect on the Closing Date applied on a basis consistent with those that, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. In the event of a change in United States generally accepted accounting principles after the Closing Date (a "GAAP Change"), Borrower and the Lender shall endeavor to agree upon appropriate amendments to the Loan Documents that would leave the parties in the same relative economic position, giving effect to such GAAP Change, in which they would have been had such GAAP -7- Change not become effective. Pending such agreement, the GAAP Change will not be effective for any purpose of this Agreement. "Governmental Authority" means any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any Person with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" shall mean, without duplication, a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposits or the guarantee of accounts payable in the ordinary course of business. The amount of any Guarantee shall equal the amount of the obligation so guaranteed or otherwise supported. The terms "Guarantee" and "Guaranteed" used as a verb shall have correlative meanings. "Hazardous Material" shall mean, collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Indebtedness" shall mean, with respect to any Person but without duplication: (a) obligations created, issued or -8- incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person (other than in respect of workers' compensation or employee benefits); (e) Capital Lease Obligations of such Person; and (f) any Guarantee by such Person of any obligation referred to in clauses (a) through (e). "Interest Accrual Period" shall mean, with respect to a Payment Date, the period commencing on and including the preceding Payment Date (or in the case of the first Payment Date, the initial date upon which an Advance is made hereunder) and ending on and including the day preceding the Payment Date; provided, however, that no Interest Accrual Period shall extend beyond the day preceding the Maturity Date. "Interest Determination Date" shall mean, with respect to any Interest Reset Date, the date which is two Business Days prior to such Interest Reset Date. "Interest Reset Date" shall mean, with respect to the period for which LIBOR has last been calculated, the eleventh day of the calendar month in which such period for which LIBOR has last been calculated ends, provided, however, that the first Interest Reset Date shall be the date on which the initial Advance is made hereunder. "Legal Requirements" means all governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities (including without limitation Environmental Laws) applicable to a referenced Person (whether now or hereafter enacted and in force), and all permits, licenses and authorizations and regulations relating thereto. "LIBOR" shall mean, with respect to any Interest Reset Date, the rate (expressed as a percentage per annum) for deposits in U.S. Dollars for a 30-day, 60-day or 90-day period, as -9- selected by Borrower in accordance with Section 4.02, that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the applicable Interest Determination Date for such Interest Reset Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on the applicable Interest Determination Date, LIBOR will be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. Dollars for a 30-day, 60-day or 90-day period, as selected by Borrower in accordance with Section 4.02, that appear on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on such Interest Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on such Interest Determination Date, Lender will request the principal London 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 30-day, 60-day or 90-day period, as selected by Borrower in accordance with Section 4.02, as of 11:00 a.m. London time, on such Interest Determination Date for amounts of not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Lender will 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 30-day, 60-day or 90-day period, as selected by the Borrower, as of approximately 11:00 a.m., New York City time on the applicable Interest Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR will be the arithmetic mean of such rates. If fewer than two rates are so provided, then LIBOR will be LIBOR in effect on the preceding Interest Reset Date. "Lien" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Loan Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "Loan Amount" shall have the meaning provided in the Recitals hereto. -10- "Loan Documents" shall mean, collectively, this Agreement, the Note and the Security Documents. "Loan" shall have the meaning provided for in the Recitals hereto. "Mandatory Payment" shall mean, with respect to any Payment Date: (a) during the Non-Prepayment Period, if the Borrower has used less than 100% of the proceeds of the Advances for the purpose of completing expansions of Collateral Facilities, the greater of: (x) the product of (A) .75 and (B) Actual Excess Cash Flow, and (y) the lesser of (i) the Principal Amortization Amount for such Payment Date (calculated pursuant to the Quarterly Test on the related Test Date on which such Quarterly Test was not satisfied) and (ii) Actual Excess Cash Flow; or (b) during the Non-Prepayment Period, if the Borrower has used 100% of the proceeds of the Advances for the purpose of completing expansions of Collateral Facilities, or after the Non-Prepayment Period, Actual Excess Cash Flow. "Margin Stock" shall mean "margin stock" within the meaning of Regulations G, T, U and X. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, financial position or results of operations of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform, or the Lender to enforce, any of the Loan Documents, or (c) the ability of the Borrower to make timely payment of the principal of or interest on the Advances or other amounts payable in connection therewith. "Maturity Date" shall mean January 1, 2001. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA. "Non-Prepayment Period" shall have the meaning ascribed to such term in the FFC Loan Agreement. -11- "Note" shall mean the promissory note provided for by Section 2.03 hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Operating Expense Amount" shall mean the sum of the following as determined in good faith by the Borrower with respect to the month in which such amount is being calculated: (i) the amount of "Operating Expenses" (as defined in the FFC Loan Agreement and (ii) the amount of a term having substantially the same meaning contained in any Approved Facility Loan Agreement. "Outstanding Principal Cap" shall mean the following Dollar amounts determined in accordance with the following schedule: Period Outstanding Principal Cap ------ ------------------------- Closing Date through September, 30, 1995 $3,000,000 October 1, 1995 through December 31, 1995 $8,000,000 January 1, 1996 through March 31, 1996 $18,000,000 April 1, 1996 through June 30, 1996 $28,000,000 July 1, 1996 through September 30, 1996 $38,000,000 October 1, 1996 through December 31, 1996 $45,000,000 January 1, 1997 and thereafter $50,000,000 "Payment Date" shall have the meaning provided in Section 3.02 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCB's" shall have the meaning ascribed to such term in the definition of "Hazardous Materials." "Permanent Financing Amount" shall mean, at any date of determination, the aggregate original principal amount of permanent financing provided by the Lender or any of its Affiliates (or any syndicate of lenders for which the Lender or any of its Affiliates acts as agent) to the Borrower or any Affiliate thereof after the Closing Date (other than pursuant to this Agreement or the FFC Loan Agreement) and secured by any Collateral Facilities (or, to the extent not included in the Collateral Facilities, any facilities of FRPI). The Lender shall determine in good faith the amount of permanent financing with a -12- maturity of a significant duration, using commercial mortgage finance industry standards. "Permitted Junior Securities" shall have the meaning provided in Section 9.03(b) hereof. "Person" shall mean any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or maintained by the Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Pledge Account" shall have the meaning provided in Section 3.03 hereof. "Preferred Stock" shall mean preferred stock of a Facility Owner, having in the aggregate the following terms and provisions: (a) a cumulative cash dividend payable on each Payment Date; (b) a dividend rate equal to the interest rate on the Loan reduced by the amount of interest actually so paid thereunder; (c) a liquidation preference equal to the principal amount of the Advances from time to time outstanding, accrued and unpaid interest thereon and all other amounts due under the Loan Documents; (d) mandatory redemptions in an amount equal to the outstanding principal amount of the Loan, at a redemption price equal to such principal amount; (e) upon the occurrence and during the continuance of a Triggering Event, voting rights in favor of the Lender to elect not less than a majority of the board of directors; (f) prior to such time as a Triggering Event occurs, express terms negating dividend, liquidation preference, mandatory redemption and voting rights specified in (a)-(e) above; -13- (g) terms providing that the issuer of the Preferred Stock shall not issue any other class of preferred stock or other equity interest with a liquidation preference senior to the Preferred Stock of such issuer to any Person or any additional Preferred Stock to any Person (other than the Lender); and (h) terms providing that such issuer of the Preferred Stock shall not incur any Indebtedness or Liens other than those expressly permitted by this Agreement, the FFC Loan Agreement or the Approved Facility Loan Agreements or approved by the Lender in writing in its sole discretion. Any Preferred Stock issued by a corporation may take the form of a master share of such preferred stock issued on the initial Advance Date with respect to the applicable Facility Owner. Notwithstanding the foregoing, (i) in the event an owner of an Approved Facility (other than FRPI) shall take the form of a limited liability company or limited partnership, then references to "Preferred Stock" shall mean special membership interests or special limited partnership interests, respectively, of such owner which have the same terms and provisions as those set forth above and (ii) in the case of FRPI, "Preferred Stock" shall mean special limited partnership interests of either FRPI or FRP. "Preferred Stock Terms" shall mean (i) in the case of a Facility Owner which is a corporation, a certificate of designation, amendment to the certificate of incorporation or other corporate action which implements the terms and provisions of the Preferred Stock or (ii) in the case of a Facility Owner which is a limited liability company or limited partnership, provisions of or amendments to the operating agreement or limited partnership agreement, respectively, which implement such terms and provisions. "Pricing Spread" shall mean 5.00% per annum. "Prohibited Transferees" shall mean the Persons listed on Exhibit C hereto. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Quarterly Funding Cap" shall mean the following Dollar amounts determined in accordance with the following schedule: -14- Period Quarterly Funding Cap ------ --------------------- Closing Date through September 30, 1995 $ 3,000,000 October 1, 1995 through December 31, 1995 $ 5,000,000 January 1, 1996 through March 31, 1996 $10,000,000 April 1, 1996 through June 30, 1996 $10,000,000 July 1, 1996 through September 30, 1996 $10,000,000 October 1, 1996 through December 31, 1996 $ 7,000,000 January 1, 1997 through March 31, 1997 and each subsequent calendar quarter through the Advance Termination Date $ 5,000,000 "Quarterly Test" shall mean the test used to determine whether the Borrower may receive an Advance or Advances during the applicable three month period under Section 5.02 or shall make Mandatory Payments pursuant to Section 2.05. The methodology of the Quarterly Test is to be performed, with respect to the current Test Date, as follows: I. Determine Annualized NOI of the Collateral Facilities. II. Divide Annualized NOI of the Collateral Facilities by twelve to determine gross monthly net operating income ("Gross Monthly NOI"). III. Subtract Facility Owner Debt Service from Gross Monthly NOI to determine net monthly net operating income ("Net Monthly NOI"). IV. Subtract the interest component of Debt Service on the Loan (calculated assuming the interest rate in effect for such month equals the Treasury Rate plus 5.0% (the "Test Rate")) which shall be due on the immediately succeeding Payment Date from Net Monthly NOI to determine excess cash flow ("Excess Cash Flow"). -15- V. Multiply Excess Cash Flow by .75 to determine the principal amortization amount ("Principal Amortization Amount"). VI. Repeat steps I through V for the 35 (if paragraph (a) below applies) or 47 (if paragraph (b) below applies) following monthly periods assuming that (i) the Principal Amortization Amount for each preceding period is applied to reduce the outstanding principal amount of the Loan and (ii) Gross Monthly NOI and the Test Rate remain constant. The Quarterly Test shall be satisfied for the applicable Test Date: (a) if, during the Non-Prepayment Period, the Borrower has used less than 100% of the proceeds of the Advances for the purpose of completing expansions of the Collateral Facilities, or if, after the Non-Prepayment Period, the sum of the 36 Principal Amortization Amounts calculated in accordance with the above methodology is equal to or greater than the outstanding principal amount of the Loan; or (b) if, during the Non-Prepayment Period, the Borrower has used 100% of the proceeds of the Advances for the purpose of completing expansions of the Collateral Facilities, the sum of the 48 Principal Amortization Amounts calculated in accordance with the above methodology is equal to or greater than the outstanding principal amount of the Loan. "Rating Agencies" shall have the meaning provided in the FFC Loan Agreement or any Approved Facility Loan Agreement, as applicable. "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, (including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata). "Reuters Screen LIBO Page" shall mean the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on the service for the purpose of displaying interbank rates from London in U.S. Dollars). -16- "Security Documents" shall mean, collectively, all Uniform Commercial Code financing statements to be filed with respect to the security interests in the Pledge Account created pursuant to Section 3.04. "Senior Indebtedness" shall mean principal of, premium, if any, and accrued and unpaid interest (including, without limitation, interest at the contract rate subsequent to the commencement of any bankruptcy, insolvency or similar proceeding with respect to the Borrower), fees, expenses and all other obligations on or with respect to all Indebtedness of the Borrower or any of its Subsidiaries; provided, however, that there shall be excluded from such term (a) any of the Indebtedness evidenced by this Agreement, the Note or any other Loan Document or (b) Indebtedness, if any, which, by the terms of the instrument evidencing such Indebtedness or pursuant to which it is issued, ranks equally with or is expressly made junior and subordinate in right of payment to the Subordinated Amounts. "Subordinated Amounts" shall have the meaning provided in Section 9.01. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Subsidiary Facilities" shall mean the "Individual Properties" (as defined in the FFC Loan Agreement). "Telerate Page 3750" shall mean 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). -17- "Test Date" shall mean March 1, June 1, September 1 and December 1 of each calendar year, commencing December 1, 1995. "Treasury Rate" shall mean the yield on the U.S. Treasury issue (primary issue) with a maturity date closest to, but not earlier than, the third anniversary of the date on which such rate is calculated with such yield being based on the bid price for such issue as published in The Wall Street Journal in New York, New York on the date of calculation (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published). In the event The Wall Street Journal is no longer published or ceases to publish the bid price for such U.S. Treasury issues, the Lender shall select a comparable publication to determine the Treasury Rate. "Triggering Event" shall mean the occurrence of an Event of Default under this Agreement and the principal amount and accrued interest on the Loan becoming due and payable (by acceleration or otherwise). 1.02 Accounting Terms and Determinations. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lender hereunder shall (unless otherwise disclosed to the Lender in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lender hereunder (which, prior to the delivery of the first financial statements under Section 7.01 hereof, shall mean the unaudited financial statements as at June 30, 1995). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with those used in the preparation of the latest annual or quarterly financial statements furnished to the Lender pursuant to Section 7.01 hereof. (b) The Borrower shall deliver to the Lender at the same time as the delivery of any annual or quarterly financial statement under Section 7.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles -18- employed in the preparation of the next preceding annual or quarterly financial statements and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. Section 2. The Loan, Advances, Note and Prepayments. 2.01 The Loan. The Lender agrees, on the terms and conditions of this Agreement, to make Advances to the Borrower in Dollars during the period from and including the Closing Date to but excluding the Advance Termination Date in an aggregate principal amount up to but not exceeding the Loan Amount; provided that the Lender shall not be required to make any Advance which would cause either (x) the aggregate principal amount of the Advances made during any calendar quarter to exceed the applicable Quarterly Funding Cap or (y) the outstanding aggregate principal amount of the Loan at any time to exceed the applicable Outstanding Principal Cap. 2.02 Advances. The Borrower shall give the Lender written notice of each Advance hereunder as provided in Section 4.04 hereof. The Borrower may request no more than three Advances in any three month period following a Test Date. The Borrower shall certify as to the satisfaction or failure of the Quarterly Test on each Test Date. On the date specified for each Advance hereunder, the Lender shall, subject to the terms and conditions of this Agreement, make available to the Borrower, in immediately available funds, in an account of the Borrower designated by the Borrower in the related notice of Advance, the amount of such Advance minus the reasonable fees and disbursements of counsel to the Lender. 2.03 Note. (a) The Loan shall be evidenced by a single promissory note of the Borrower substantially in the form of Exhibit A hereto, dated the date hereof, payable to the Lender. (b) The date and amount of each Advance made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of the Note, endorsed by the Lender on the schedule attached to the Note or any continuation thereof; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing hereunder or under the Note in respect of the Loan. -19- (c) The Lender shall not be entitled to have the Note substituted or exchanged for any reason, except in connection with a permitted assignment of the Loan and Note pursuant to Section 10.06 hereof (and, if requested by the Lender, the Borrower agrees to so exchange the Note). 2.04 Optional Prepayments. Subject to Section 4.03 hereof, the Borrower shall have the right to prepay the Loan at any time or from time to time (without penalty or premium), provided that the Borrower shall give the Lender notice of each such prepayment as provided in Section 4.04 hereof (and, subject to the terms hereof, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder). 2.05 Mandatory Prepayment. In the event that the Quarterly Test is not satisfied on any Test Date, the Borrower shall make a principal payment equal to the Mandatory Payment to the Lender on each Payment Date thereafter until the subsequent Test Date; provided, however, that the obligation to make a Mandatory Payment shall cease upon the Borrower having prepaid the principal amount of the Loan outstanding by an amount such that the Quarterly Test would have been satisfied on such preceding Test Date. On each Payment Date on which the Borrower makes a Mandatory Payment, the Borrower shall deliver to the Lender a statement describing in reasonable detail the calculation of the principal amount of the Loan paid. Section 3. Payments of Principal, Interest and Exit Fee. 3.01 Repayment of the Loan. The Borrower hereby promises to pay to the Lender the entire outstanding principal amount of the Loan, and the Loan shall mature, on the Maturity Date. In addition, the Borrower shall pay to the Lender (a) any Mandatory Payments when due as required by Section 2.05 and (b) the Exit Fee on the Maturity Date. 3.02 Interest. The Borrower hereby promises to pay to the Lender interest on the unpaid principal amount of each Advance for the period from and including the date of such Advance to but excluding the date such Advance shall be paid in full, at a rate per annum equal to LIBOR plus the Pricing Spread. Notwithstanding the foregoing, the Borrower hereby promises to pay to the Lender interest at the applicable Default Rate on any principal of any Advance and on any other amount payable by the Borrower hereunder or under the Note that shall not be paid in -20- full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Advance shall be payable monthly in arrears on the 11th day of the month following the initial Advance made hereunder, and on the eleventh day of each and every month thereafter, unless, in any such case, such day is not a Business Day, in which event such interest shall be payable on the first Business Day following such date (such date for any particular month, the "Payment Date"), except that interest payable at the Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Lender shall give notice thereof to the Borrower. 3.03 Cash Management. Commencing on the date of the initial Advance hereunder, the Borrower shall cause each Facility Owner to direct each of the Collection Banks pursuant to a letter of instructions, upon receipt by the Collection Banks of the notice given each month pursuant to Section 2.12(b) of the FFC Loan Agreement (or, with respect to an Approved Facility, any comparable notice given pursuant to the related Approved Facility Loan Agreement), to transfer no later than 3:00 p.m. on a daily basis any amounts in the Collection Accounts (i) first to an account designated by the Borrower until an amount equal to the Operating Expense Amount for such month has been transferred to such account and (ii) then to an account at the Collateral Agent (regarding which the Lender shall have provided the Borrower the identity of the Collateral Agent and the account number) (the "Pledge Account") until the earlier of (a) the first day of the succeeding month or (b) the date upon which an amount has been deposited in the Pledge Account sufficient to pay Debt Service (including the Mandatory Payment, if any) for the succeeding Payment Date. In the event that sufficient funds shall have been deposited in the Pledge Account to satisfy Debt Service (including the Mandatory Payment, if any) for the succeeding Payment Date prior to the first day of the succeeding month, Borrower shall cause each Facility Owner to direct the Collection Banks to transfer any amounts deposited in the Collection Accounts to an account designated by Borrower until the first day of the succeeding month. 3.04 Security Agreement. To secure the full and punctual payment of the Loan, the Borrower hereby pledges to the Lender, and grants to the Lender a first and continuing security interest in and to, the following property, whether now owned or existing or hereafter acquired or arising and regardless of where located (collectively, the "Account Collateral"): -21- (i) all of Borrower's right, title and interest in the Pledge Account and all moneys, securities, instruments and other amounts, if any, from time to time deposited or held in the Pledge Account; (ii) all interest, dividends, money, instruments and other property from time to time received, receivable or otherwise payable in respect of, or received in exchange for, any of the foregoing; and (iii) to the extent not covered by clauses (i) or (ii) above, all proceeds (as defined under the Uniform Commercial Code of the applicable jurisdiction) of any or all of the foregoing. Section 4. Payments; Computations; Etc. 4.01 Payments. (a) Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to the Lender not later than 12:00 noon, New York City 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 shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. (b) All payments made by Borrower hereunder shall be made irrespective of, and without any deduction for, any set-offs or counterclaims. Notwithstanding anything to the contrary contained herein or in any other Loan Document, to the extent that any payment or distribution is at any time made under or on account of any of the Preferred Stock, the aggregate amount due or to become due under this Agreement and the Note shall be reduced by an amount equal to the amount of such payment or the fair value of such distribution. (c) All proceeds of any repayment, including prepayments, of the Loan shall be applied to pay: first, any reasonable out-of-pocket costs and expenses of Lender arising as a result of such repayment; second, any accrued and unpaid interest then payable with respect to the Loan or the portion thereof being repaid; third, if applicable, Default Rate interest, if any, on the Loan; fourth, the outstanding principal amount of the Loan or the portion thereof being repaid and fifth, any other amounts due and owing under the Loan Documents. -22- (d) If the due date of any payment under this Agreement or the Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 Computations. (a) Interest on Advances shall be computed on the basis of a year of 360 days and actual days elapsed (i.e., interest for each day during which the Advances are outstanding shall be computed at said rate divided by 360). (b) Borrower shall notify Lender in writing by 3:00 p.m. (New York time) on each Interest Determination Date whether LIBOR shall be calculated on the basis of a 30-day, 60- day or 90-day period provided that in no event shall Borrower select a period which extends beyond the Maturity Date; provided, further, that upon the occurrence and during the continuance of an Event of Default hereunder, Lender shall determine such basis. In the event Borrower fails to notify Lender in accordance with the immediately preceding sentence, LIBOR shall be calculated on the same basis as during the immediately prior Interest Accrual Period. 4.03 Minimum Amounts. Except for Mandatory Payments made pursuant to Section 2.05 hereof, each Advance and partial prepayment of principal of Advances shall be in an amount at least equal to $100,000. 4.04 Certain Notices. Notices by the Borrower to the Lender of Advances and optional prepayments of Advances shall be effective only if received by the Lender not later than 10:00 a.m. New York time on the number of Business Days prior to the date of the relevant Advance or prepayment specified below: Number of Business Notice Days Prior ------ ---------- Advances 5 Prepayment of Advances 2 Each such notice of borrowing or optional prepayment shall specify the amount (subject to Section 4.03 hereof) of each Advance to be borrowed or prepaid and the date of Advance or optional prepayment (which shall be a Business Day). Notices of Advances shall be irrevocable; notices of prepayment shall also be irrevocable except that such notices may be conditioned upon the receipt of proceeds of any financing or sale. -23- 4.05 Set-off. The Borrower agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim the Lender may otherwise have, the Lender shall be entitled, at its option (to the fullest extent permitted by law), to set off and apply any deposit (general or special, time or demand, provisional or final), or other indebtedness, held by it for the credit or account of the Borrower at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of the Advances or any other amount payable to the Lender hereunder, that is not paid when due (regardless of whether such deposit or other indebtedness are then due to the Borrower), in which case it shall promptly notify the Borrower thereof. 4.06 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for the Lender to honor its obligation to make future Advances hereunder, then the Lender shall promptly notify the Borrower thereof and the Lender's obligation to make Advances shall be suspended until such time as the Lender may again make and maintain Advances. 4.07 Compensation. The Borrower shall pay to the Lender, upon the request of the Lender, such amount or amounts calculated in accordance with this Section 4.07 to compensate it for any loss, cost or expense attributable to: (a) any payment or mandatory or optional prepayment of an Advance on a date other than the last day of the Interest Accrual Period for such Advance; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 5 hereof to be satisfied) to borrow an Advance on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Such compensation shall be an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued on the principal amount so paid, prepaid or not borrowed for the period from the date of such payment, prepayment or failure to borrow to the last day of the then current Interest Accrual Period for such Advance (or, in the case of a failure to borrow, the Interest Accrual Period for such Advance that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Advance provided for herein over (ii) the amount of interest that otherwise would have -24- accrued on such principal amount at a rate per annum equal to the interest component of the amount the Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by the Lender, or if the Lender shall cease to make such bids, the equivalent rate, as reasonably determined by the Lender, derived from Telerate Page 3750, Reuters LIBO Page or other publicly available source as described in the definition of "LIBOR" in Section 1.01 hereof). Section 5. Conditions Precedent. 5.01 Closing Date. The obligation of the Lender to execute and deliver this Agreement hereunder is subject to the conditions precedent that the Lender shall have received the following documents, each of which shall be satisfactory to the Lender in form and substance: (a) Corporate Documents. Certified copies of the charter and by-laws (or equivalent documents) of the Borrower and of all corporate authority for the Borrower (including, without limitation, board of director or executive committee resolutions and evidence of the incumbency, including specimen signatures, of officers) with respect to the execution, delivery and performance of the Loan Documents and each other document to be delivered by the Borrower from time to time in connection herewith and the Advances hereunder (and the Lender may conclusively rely on such certificate until it receives notice in writing from the Borrower to the contrary). (b) Officer's Certificate. A certificate of a senior officer of the Borrower, dated the Closing Date, to the effect set forth in the first sentence of Section 5.02 hereof (except as to 5.02(c)). (c) Opinion of Counsel to the Borrower. An opinion, dated the Closing Date, of Jones, Day, Reavis & Pogue, counsel to the Borrower, covering such matters as the Lender may reasonably request (and the Borrower hereby instructs such counsel to deliver such opinion to the Lender). (d) Note. The Note, duly completed and executed. (e) Other Documents. Such other documents as the Lender or special New York counsel to the Lender may reasonably request. -25- The obligation of the Lender to execute and deliver this Agreement is also subject to the payment or provision for payment by the Borrower of such fees as the Borrower shall have agreed to pay or deliver to the Lender in connection herewith (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Lender), in connection with the negotiation, preparation, execution and delivery of this Agreement and the Note and the other Loan Documents and the making of the Advances hereunder (to the extent that statements for such fees and expenses have been delivered to the Borrower). 5.02 Initial and Subsequent Advances. The obligation of the Lender to make any Advance to the Borrower upon the occasion of each Advance hereunder (including the initial Advance) is subject to the further conditions precedent that, both immediately prior to the making of such Advance and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; (b) the representations and warranties made by the Borrower in Section 6 hereof, and in each of the other Loan Documents, shall be true and correct in all material respects on and as of the date of the making of such Advance with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (c) the Quarterly Test shall have been satisfied as of the most recent Test Date; and (d) no law or regulation shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued, and no litigation shall be pending or, to the knowledge of the executive officers of the Borrower, threatened, which would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making or repayment of the Loan or the consummation of this Agreement. Each notice of Advance by the Borrower hereunder shall constitute a certification by the Borrower to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Borrower otherwise notifies the Lender in writing prior to the date of such Advance, as of the date of such -26- Advance). The obligation of the Lender to make each Advance hereunder is also subject to the delivery to the Lender of the following documents prior to the making of such Advance: (a) Preferred Stock of each Facility Owner (or, if applicable hereunder, of FRP) registered in the name of the Lender together with a copy of the applicable Preferred Stock Terms (except to the extent that Preferred Stock of such Facility Owner (or, if applicable hereunder, of FRP) shall have theretofore been delivered to the Lender hereunder); (b) concurrently with each delivery of Preferred Stock pursuant to clause (a) above, an opinion of counsel to the Borrower addressed to the Lender to the effect that (i) the Preferred Stock so delivered to the Lender is duly authorized, validly issued, fully paid and non-assessable (to the extent applicable) and (ii) in the event that the Borrower becomes a debtor under the Bankruptcy Code, such Preferred Stock would not be determined to constitute property of the Borrower's estate under Section 541 of the Bankruptcy Code; and (c) with respect to the initial Advance only, (i) an opinion of counsel to the Borrower addressed to the Lender, to the effect that to the knowledge of such counsel the issuance of the shares of Preferred Stock so delivered to the Lender do not violate any agreements to which any Facility Owner is a party and (ii) a nonconsolidation opinion of counsel to the Borrower addressed to the Rating Agencies and the Lender in substantially the form attached as Exhibit D hereto. Section 6. Representations and Warranties. The Borrower represents and warrants to the Lender that: 6.01 Corporate Existence. The Borrower and each Facility Owner is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each Facility Owner (a) has all requisite corporate or partnership power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as now being or as proposed to be conducted and (b) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where -27- failure so to qualify is reasonably likely to (either individually or in the aggregate) have a Material Adverse Effect. 6.02 Financial Condition. The Borrower has delivered to the Lender the audited consolidated financial statements of the Borrower, and the unaudited consolidated financial statements of the Borrower required to be delivered pursuant to Section 7.01 hereof. All audited financial statements have been prepared by a "Big Six" accounting firm, Kenneth Leventhal & Company or another firm acceptable to the Lender in its sole discretion. Since the delivery of such data, except as otherwise disclosed in writing to the Lender, there has been no change in the financial position of the Borrower or its Subsidiaries or in the results of operations of the Borrower or its Subsidiaries which change is reasonably likely to have a Material Adverse Effect. No Facility Owner has incurred any obligation or liability, contingent or otherwise, not reflected in such financial data or in the materials which the Borrower periodically files with the Securities and Exchange Commission (the "FGI SEC Reports") which is reasonably likely to have a Material Adverse Effect. 6.03 Litigation. Except as disclosed in the FGI SEC Reports, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the executive officers of the Borrower) threatened against the Borrower or any Facility Owner that, if adversely determined, is reasonably likely to (either individually or in the aggregate) have a Material Adverse Effect. 6.04 No Breach. None of the execution and delivery of this Agreement and the Note and the other Security Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Borrower, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which the Borrower is a party or by which it or any Property of any Facility Owner is bound or to which any Facility Owner is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to Section 3.04 hereof) result in the creation or imposition of any Lien upon any Property of Facility Owner pursuant to the terms of any such agreement or instrument. -28- 6.05 Action. The Borrower has all necessary corporate power and authority to execute, deliver and perform its obligations under each of the Loan Documents. The execution, delivery and performance by the Borrower of each of the Loan Documents have been duly authorized by all necessary corporate action on its part. This Agreement has been duly and validly executed and delivered by the Borrower and constitutes, and each of the Note and the other Loan Documents when executed and delivered (in the case of the Note, for value) will constitute, its valid and binding obligation, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 6.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are a condition to the execution, delivery or performance by the Borrower of this Agreement or any of the other Loan Documents or for the legality, validity or enforceability hereof or thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 6.07 Use of Credit. None of the Borrower or any Facility Owner is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of the Advances hereunder will be used to buy or carry any Margin Stock. 6.08 ERISA. The assets of the Borrower are not "plan assets" under regulations currently promulgated under ERISA. As of the date of each Advance, each Plan covering employees of the Borrower or any Facility Owner, and, to the knowledge of the executive officers of Borrower, each Multiemployer Plan covering employees of the Borrower or any Facility Owner, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Borrower would be under an obligation to furnish a report to the Lender under Section 7.01(e) hereof; provided, however, that with respect to the Borrower only, this representation and warranty shall apply -29- only to the extent, if any, that a failure of the subject matter of such representation and warranty to be true and correct would result in joint and several liability with the Borrower on the part of any Facility Owner. 6.09 Taxes. The Borrower and any Facility Owner (x) are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Borrower is the "common parent" (within the meaning of Section 1504 of the Code) of such group, (y) have filed or had filed on their behalf all Federal income tax returns and all other material tax returns that are required to be filed by them prior to the date of each Advance and (z) have paid all taxes shown to be due pursuant to such returns or pursuant to any valid assessment received by any of them; provided, however, that with respect to the Borrower only, this representation and warranty shall apply only to the extent, if any, that a failure of the subject matter of such representation and warranty to be true and correct would result in joint and several liability with the Borrower on the part of any Facility Owner. 6.10 Investment Company Act. None of the Borrower or any Facility Owner is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 6.11 Public Utility Holding Company Act. None of the Borrower or any Facility Owner is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 6.12 Ownership of Stock or Partnership Interests. Except for any Preferred Stock issued in accordance herewith (and any limited partnership interests in FRP not owned by the Borrower), each Facility Owner is a direct or indirect wholly owned subsidiary of the Borrower. All of the outstanding Preferred Stock is duly authorized, validly issued, fully paid and nonassessable (to the extent applicable), without any personal liability attaching to the ownership thereof, and has not been issued in violation of any preemptive rights of stockholders or partners, and is owned of record by the Lender (except to the extent that the Lender shall have effected a change in such record ownership subsequent to the delivery thereof to the Lender hereunder), free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts imposed by or resulting from any action of Borrower or its Affiliates. Except for the -30- contemplated issuance of Preferred Stock in accordance with the provisions hereof, there is no commitment, plan or arrangement to issue, and no outstanding option, warrant or other right calling for the issuance of, any Preferred Stock or any security or other instrument which by its terms is convertible into, exercisable for or exchangeable for such Preferred Stock. 6.13 Environmental Matters. Each Facility Owner has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each Facility Owner is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith is not reasonably likely to (either individually or in the aggregate) have a Material Adverse Effect. In addition, except as disclosed in writing to the Lender (whether before or after the date hereof): (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the knowledge of the executive officers of the Borrower, threatened by any governmental or other entity with respect to any alleged failure by any Facility Owner to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of any Facility Owner or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials generated by any Facility Owner. (b) No Facility Owner owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and -31- (i) no PCB's are present at any site or facility now owned, operated or leased by any Facility Owner; (ii) no asbestos or asbestos-containing materials is present at any site or facility owned, operated or leased by any Facility Owner; (iii) there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility owned, operated or leased by any Facility Owner; (iv) no Hazardous Materials have been Released at, on or under any site or facility owned, operated or leased by any Facility Owner in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials have been otherwise Released at, on or under any site or facility owned, operated or leased by any Facility Owner that would (either individually or in the aggregate) have a Material Adverse Effect. (c) No Facility Owner has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that are reasonably likely to lead to Environmental Claims against any Facility Owner. (d) No Hazardous Material generated by any Facility Owner has been recycled, treated, stored, disposed of or Released by any Facility Owner at any location except in conformity with applicable Environmental Law. (e) No written notification of a Release of a Hazardous Material has been filed by or on behalf of any Facility Owner and no site or facility owned, operated or leased by any Facility Owner is listed or proposed for -32- listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (f) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by any Facility Owner, and no government action has been taken or is in process that is reasonably likely to subject any such site or facility to such Liens and no Facility Owner would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (g) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of any Facility Owner in relation to facts, circumstances or conditions at or affecting any site or facility owned, operated or leased by any Facility Owner and that is reasonably likely to result in a Material Adverse Effect have been made available to the Lender. 6.14 FGI SEC Reports. The FGI SEC Reports filed since January 1, 1994 complied as to form with all Legal Requirements applicable to them. Except for matters disclosed in a subsequent FGI SEC Report, no FGI SEC Report filed since January 1, 1994, as of the date of filing thereof, contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.15 Agreements. No Facility Owner is (x) a party to any agreement or instrument or subject to any restriction which is reasonably likely to have a Material Adverse Effect or (y) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which it is bound which default is reasonably likely to have a Material Adverse Effect. 6.16 No Bankruptcy Filing. The Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of the Borrower's assets or Property, and the Borrower has no knowledge of any Person contemplating the filing of any such petition against it. -33- 6.17 Location of Chief Executive Offices. The location of the Borrower's principal place of business and chief executive office is 11320 Random Hills Road, Suite 400, Fairfax, Virginia 22030 or such other address as may be specified in a notice given in accordance with Section 7.06. 6.18 Compliance. Each Facility Owner (x) complies with all applicable Legal Requirements except for such failures to comply which (individually or in the aggregate) are not reasonably likely to have a Material Adverse Effect and (y) 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 have a Material Adverse Effect. Section 7. Covenants of the Borrower. The Borrower covenants and agrees with the Lender that, so long as any Advance is outstanding and until payment in full of all amounts payable by the Borrower hereunder: 7.01 Financial Statements Etc. The Borrower shall deliver to the Lender: (a) as soon as available and in any event within 45 calendar days after the end of each quarterly fiscal period of each fiscal year of the Borrower ending after the date hereof, consolidated statements of income, retained earnings and cash flows of the Borrower and of each Facility Owner for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets of the Borrower and of each Facility Owner as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding periods in the preceding fiscal year (except that, in the case of balance sheets, such comparison shall be to the last day of the prior fiscal year), accompanied by a certificate of a senior financial officer of the Borrower, which certificate shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of the Borrower and such Facility Owner, as the case may be, in conformity with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments and the absence of notes, schedules and other items customarily omitted from interim period financial statements); -34- (b) as soon as available and in any event within 90 calendar days after the end of each fiscal year of the Borrower ending after the date hereof, consolidated statements of income, retained earnings and cash flows of the Borrower and of each Facility Owner for such fiscal year and the related consolidated balance sheets of the Borrower and of each Facility Owner as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied (i) in the case of said consolidated statements and balance sheet of the Borrower, by an opinion thereon of Kenneth Leventhal & Company or another independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of the Borrower as at the end of, and for, such fiscal year in conformity with GAAP and (ii) in the case of said consolidated statements and balance sheets of a Facility Owner, by a certificate of a senior financial officer of the Borrower, which certificate shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of such Facility Owner, as at the end of, and for, such fiscal year in conformity with GAAP; (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, that the Borrower shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange (other than registration statements on Form S-8 or similar forms and reports under Sections 13(d) and 16(a) of the Securities and Exchange Act of 1934, as amended); (d) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days, after an executive officer of the Borrower knows 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 the Borrower setting forth details respecting such event or condition and the action, if any, that the Borrower or its ERISA Affiliate proposes to take with respect thereto (and a -35- copy of any report or notice required to be filed with or given to the PBGC by the Borrower or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which the 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 (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, 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; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Borrower or an ERISA Affiliate to terminate any Plan; (iii) the institution by the 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 the Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the 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 the 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; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce -36- Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) 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 the Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) promptly after any executive officer of the Borrower knows that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Borrower has taken or proposes to take with respect thereto; and (g) from time to time such other information regarding the financial condition, operations, business or prospects of the Borrower or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as the Lender may reasonably request. The Borrower will furnish to the Lender, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Borrower to the effect that, to the knowledge of such officer after due inquiry, no Default has occurred and is continuing (or, if any Default is known by such officer to have occurred and to be continuing, describing the same in reasonable detail and describing the action that the Borrower has taken or proposes to take with respect thereto). 7.02 Litigation; Environmental Claims. The Borrower will promptly give to the Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Borrower or any of its Subsidiaries, except proceedings that, if adversely determined, are not reasonably likely to (either individually or in the aggregate) have a Material Adverse Effect. Without limiting the generality of the foregoing, the Borrower will give to the Lender notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, any Facility Owner and notice of any alleged violation of or non-compliance with any Environmental Laws or any -37- permits, licenses or authorizations, other than any Environmental Claim or alleged violation that, if adversely determined, is not reasonably likely to (either individually or in the aggregate) have a Material Adverse Effect. 7.03 Existence, Etc. The Borrower will: (a) preserve and maintain its legal existence and will cause any Facility Owner to preserve and maintain its respective legal existence and material rights, privileges, licenses and franchises (provided that nothing in this Section 7.03 shall prohibit any transaction not prohibited by Section 7.04 hereof); (b) and will cause any Facility Owner to comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements is reasonably likely to (either individually or in the aggregate) have a Material Adverse Effect; provided, however, that the Borrower's obligations as to its compliance with such requirements as aforesaid shall be limited to those requirements that, if not complied with by the Borrower, would result in joint and several liability with the Borrower on the part of any Facility Owner; (c) and will cause any Facility Owner to, pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; provided, however, that the Borrower's obligations to pay and discharge such taxes, assessments, charges or levies shall apply as aforesaid only to such taxes, assessments, charges or levies that, if not paid and discharged by the Borrower, would result in joint and several liability with the Borrower on the part of any Facility Owner; (d) cause any Facility Owner to maintain its respective material Properties used in their respective businesses in good working order and condition, ordinary wear and tear excepted; -38- (e) and will cause any Facility Owner to, keep records and books of account in conformity with GAAP consistently applied; and (f) will cause any Facility Owner to, permit representatives of the Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of the Properties of any Facility Owner, and to discuss its business and affairs with its officers, all to the extent reasonably requested by the Lender. 7.04 Prohibition of Fundamental Changes. The Borrower will not (i) liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or (ii) permit any Facility Owner to (x) enter into any transaction of merger or consolidation or amalgamation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), (y) convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests, but excluding (a) obsolete or worn-out Property, tools or equipment no longer used or useful in its business, (b) any inventory or other Property sold or disposed of in the ordinary course of business and on ordinary business terms and (c) any transaction permitted by Section 7.09), or (z) make any material change in the nature of its business objectives, purposes or operations. 7.05 Limitation on Liens. The Borrower will not, nor will it permit any Facility Owner to, create or incur any Lien upon any of the Preferred Stock. 7.06 Place of Business. The Borrower shall not change its chief executive office or its principal place of business without giving the Lender at least 30 calendar days' prior written notice thereof and promptly providing the Lender such information as the Lender may reasonably request in connection therewith. 7.07 Perform Loan Documents. The Borrower shall observe, perform and satisfy or cause any Facility Owner to observe, perform and satisfy all the terms, provisions, covenants and conditions required to be observed, performed or satisfied by it. -39- 7.08 Dividend Payments. The Borrower shall cause each Facility Owner to declare dividends or make other distributions each month in an amount equal to the amount transferred by the Collection Banks to the Pledge Account pursuant to Section 3.03 hereof. 7.09 Sale or Transfer of Facilities. The Borrower will not permit any Facility Owner to sell or transfer any of the Collateral Facilities without, in any such case, the prior written consent of the Lender, unless immediately following such sale or transfer of the Quarterly Test would be satisfied (based on a 36-month amortization). 7.10 Replacement of Manager. Subject to the rights of the Lender or its assignee under the FFC Loan Agreement or any Approved Facility Loan Agreement and subject to the prior approval of the Rating Agencies, the Lender shall have the right to designate a replacement manager for the Collateral Facilities following the occurrence of an Event of Default of the type described in clause (a) of Section 8 hereof. Such designation right may be exercised by the Lender only upon 30 calendar days' prior written notice to the Borrower, given after the occurrence of such an Event of Default. Any successor manager so designated by the Lender shall satisfy the criteria specified in Section 5.1(P) of the FFC Loan Agreement or comparable provision of an Approved Facility Loan Agreement. 7.11 No Sale of Stock or Partnership Interests. The Borrower will not sell, pledge, convey, assign its interest in or otherwise transfer its ownership of the capital stock or partnership interests of a Facility Owner, without in any such case the prior written consent of the Lender. 7.12 Limitation on Issuance of Preferred Stock; Cooperation with Rating Agencies. Prior to the repayment of the Loan in full, (i) the Borrower shall not permit any Facility Owner to issue Preferred Stock or any other equity interest with a liquidation preference senior to the Preferred Stock of such Facility Owner to any Person, other than the Lender and (ii) with respect to FRPI, in the event the Preferred Stock shall be issued by FRP, the Borrower shall not permit FRPI to issue Preferred Stock or any other equity interest with a liquidation preference. The Borrower shall cooperate fully with the Lender with respect to the implementation of changes to the Preferred Stock Terms requested by the Rating Agencies in connection with a securitization of the mortgage loans executed pursuant to the FFC Loan Agreement or any Approved Facility Loan Agreement; provided, however, that no such changes shall materially adversely affect -40- the rights or materially increase the obligations of Borrower under the Loan Documents or of any Facility Owner or FRP under the terms of any such Preferred Stock. 7.13 Use of Proceeds. The Borrower shall use at least 80% of the aggregate proceeds of the Advances hereunder for expansions of the Collateral Facilities (in compliance with all applicable legal and regulatory requirements, including, without limitation, Regulations G, T, U and X and the Securities Act of 1933 and the Securities Exchange Act of 1934 and the regulations thereunder). The Borrower shall use any proceeds of the Advances which are not used for such expansions for any general corporate purpose of the Borrower and its Subsidiaries permitted by law and in such event shall notify the Lender promptly of such use of proceeds. 7.14 Cooperate in Legal Proceedings. Except with respect to any claim by the Borrower against the Lender, the Borrower shall cooperate fully with the Lender with respect to any proceedings before any Governmental Authority which may in any way affect the rights of the Lender hereunder or any rights obtained by the Lender under any of the Loan Documents and, in connection therewith, not prohibit the Lender, at its election, from participating in any such proceedings. 7.15 Further Assurances. The Borrower shall, at the Borrower's sole cost and expense: (i) execute and deliver or cause to be executed and delivered to the Lender such documents, instruments, certificates and other writings, and do such other acts necessary, to evidence, preserve and/or protect the Lien on the Pledge Account, as the Lender may reasonably require (including, without limitation, executing and delivering UCC filing statements); and (ii) do and execute or cause to be done and executed all and such further lawful and reasonable 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 the Lender shall reasonably require from time to time. Section 8. Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: -41- (a) The Borrower shall default in the payment when due (whether at stated maturity or upon mandatory or optional prepayment) of any principal of or interest on any Advance, any fee or any other amount payable by it hereunder or under any other Loan Document; or (b) The Borrower shall default in the payment when due of any principal of or interest on any of its other Indebtedness (other than any nonrecourse Indebtedness) aggregating $5,000,000 or more, or any other event specified in any note, agreement, indenture or other document evidencing or relating to any of the Borrower's other Indebtedness (other than any nonrecourse Indebtedness) aggregating $5,000,000 shall occur, and such payment default or other event shall result in such Indebtedness becoming due prior to its stated maturity; or (c) Any representation, warranty or certification made or deemed made herein or in any other Loan Document (or in any modification or supplement hereto or thereto) by the Borrower, or any certificate furnished to the Lender pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time made or furnished; or (d) The Borrower shall default in the performance of any of its obligations under any of Sections 7.01(f), 7.04, 7.05, 7.06, 7.09, 7.11 or 7.12 hereof or any of the material terms or provisions of the Preferred Stock shall not be observed; or (e) The Borrower shall default in the performance of any of its other obligations in this Agreement or any other Loan Document and such default shall continue unremedied for a period of thirty or more days after notice thereof to the Borrower by the Lender; provided, however, that if such non- monetary default is susceptible of cure but cannot reasonably be cured within such 30-day period and the Borrower shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such default, but in no event shall such period exceed 180 days after the original notice from Lender; or (f) The Borrower shall admit in writing its inability to pay its debts as such debts become due; or -42- (g) The Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a material part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (h) A proceeding or case shall be commenced, without the application or consent of the Borrower, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Borrower or of all or any substantial part of its Property or (iii) similar relief in respect of the Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more calendar days; or an order for relief against the Borrower shall be entered in an involuntary case under the Bankruptcy Code; or (i) A final judgment or judgments for the payment of money of $5,000,000 or more in the aggregate (exclusive of judgment amounts covered by insurance) or of $10,000,000 or more in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against any Facility Owner and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 calendar days from the date of entry thereof and any Facility Owner shall not, within said period of 30 calendar days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or -43- (j) an "Event of Default" (as defined in the FFC Loan Agreement or any Approved Facility Loan Agreement) shall occur and shall result in the Indebtedness under the FFC Loan Agreement or any Approved Facility Loan Agreement becoming due prior to its stated maturity; or (k) An event specified in Section 7.01(e) hereof 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, any Facility Owner shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or the PBGC (or any combination of the foregoing) that (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect; or (l) The Lien created pursuant to Section 3.04 hereof shall at any time not constitute a valid and perfected Lien on the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein) in favor of the Lender, free and clear of all other Liens, or the enforceability thereof shall be contested by the Borrower; THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (g) or (h) of this Section 8 with respect to the Borrower, the Lender may, by notice to the Borrower, terminate the Loan and/or declare the principal amount then outstanding of, and the accrued interest on, the Advances and all other amounts payable by the Borrower hereunder and under the Note to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; and (2) in the case of the occurrence of an Event of Default referred to in clause (g) or (h) of this Section 8 with respect to the Borrower, the Loan shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Advances and all other amounts payable by the Borrower hereunder and under the Note shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. Section 9. Subordination. 9.01 Subordination to Senior Indebtedness. Notwithstanding anything to the contrary contained in this -44- Agreement, the Note or any other Loan Document (but subject to Section 9.08), the rights of the Lender with respect to the payment of amounts due under this Agreement, the Note or any other Loan Document (collectively, the "Subordinated Amounts") shall be junior and subordinate, to the extent and in the manner provided in this Section 9, to the prior payment in full of Senior Indebtedness. The Borrower shall give prompt written notice to the Lender of any default or other event which would prohibit the making of any payment on account of any Subordinated Amount pursuant to the provisions of this Section 9. 9.02 Borrower Not To Make Payments in Certain Circumstances. (a) Upon the occurrence of any default in payment of the principal of or premium, if any, or interest on any Senior Indebtedness (whether at maturity, upon acceleration or otherwise), then, subject to delivery of notice to the Lender by the Borrower or the holder of such Senior Indebtedness, unless and until such default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment in cash, property or securities, by set-off or otherwise, shall be made or agreed to be made by the Borrower or the Lender on account of any Subordinated Amount. (b) Upon the occurrence of an event of default (other than in circumstances in which the terms of Section 9.02(a) hereof are applicable) with respect to any Senior Indebtedness as a result of which the holders thereof are entitled, under the terms of such Senior Indebtedness, to accelerate the maturity thereof, upon written notice thereof given to the Borrower by any holder or holders of such Senior Indebtedness or their agents, representatives or trustees, then, subject to delivery of notice to the Lender by the Borrower or the holder of such Senior Indebtedness, unless and until such event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment in cash, property or securities, by set-off or otherwise, shall be made or agreed to be made by the Borrower or the Lender on account of any Subordinated Amount. (c) In the event that, notwithstanding the provisions of Section 9.02(a) or (b) hereof, any payment shall be made on account of any Subordinated Amount in contravention of Section 9.02(a) or (b) hereof, then, in any such case, except in the case of any such default which shall have been cured or waived or shall have ceased to exist, such payment shall (except to the extent consisting of Permitted Junior Securities) be held for the benefit of, and shall be paid over and delivered to, the holders of such Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior -45- Indebtedness held by them, as such respective amounts are set forth in a written notice to the Lender from the Borrower) or their representatives, agents or trustees, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. 9.03 Subordination in the Event of Acceleration, Dissolution, Liquidation or Reorganization. Upon (i) any amount being declared due and payable or automatically becoming due and payable pursuant to Section 8 hereof or (ii) any distribution of assets of the Borrower in any dissolution, winding up, liquidation (total or partial) or similar proceeding relating to the Borrower (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): (a) the holders of Senior Indebtedness shall first be entitled to receive payment in full of all Senior Indebtedness (or to have such payment duly provided for in a manner satisfactory to them) before the Lender is entitled to receive any direct or indirect payment in cash, property or securities, by set-off or otherwise, on account of any Subordinated Amount; (b) any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities (other than securities (herein called "Permitted Junior Securities") of the Borrower as reorganized or readjusted or of the Borrower or any other company, trust or corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinate, at least to the extent provided in this Section 9 with respect to the Subordinated Amounts to the payment of all Senior Indebtedness at the time outstanding and to the payment of all securities issued in exchange therefor to the holders of the Senior Indebtedness at the time outstanding), to which the Lender would be entitled but for the provisions of this Section 9 shall be paid by the liquidating trustee or agent or other person making such payment or distribution directly to the holders of the Senior Indebtedness or their agents, representatives or trustees (pro rata as to each such holder, agent, representative or trustee on the basis of the respective amounts of unpaid Senior Indebtedness held or represented by each), to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or -46- distribution or provision therefor to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing provisions of this Section 9.03, any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities (other than Permitted Junior Securities) shall be received by the Lender on account of any Subordinated Amount before all Senior Indebtedness is paid in full in accordance with its terms, or effective provision made for its payment, such payment or distribution shall be received and held for the benefit of and paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their agents, representatives or trustees (pro rata as provided in Section 9.03(b) hereof) for application to the payment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. 9.04 Lender to Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the Lender shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Borrower applicable to the Senior Indebtedness until all Subordinated Amounts shall be paid in full, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of the Borrower or by or on behalf of the Lender by virtue of this Section 9 which otherwise would have been made to the Lender shall, as between the Borrower and the Lender, be deemed to be payment by the Borrower to or on account of Senior Indebtedness, it being understood that the provisions of this Section 9 are intended solely for the purpose of defining the relative rights of the Lender, on the one hand, and the holders of Senior Indebtedness, on the other hand. 9.05 Obligations of the Borrower Unconditional. Nothing contained in this Section 9 is intended to or shall impair, as between the Borrower and the Lender, the obligation of the Borrower, which is absolute and unconditional, to pay to the Lender all Subordinated Amounts as and when the same shall become due and payable, or is intended or shall affect the relative rights of the Lender and creditors of the Borrower other than the holders of Senior Indebtedness, nor, except as expressly provided in this Section 9, shall anything herein prevent the Lender from exercising all remedies otherwise permitted by applicable law -47- upon default under this Agreement, the Note or any other Loan Document, subject to the rights, if any, under this Section 9 of the holders of Senior Indebtedness, in respect of cash, property or securities of the Borrower received upon the exercise of any such remedy. Upon any distribution of assets of the Borrower referred to in this Section 9, the Lender shall be entitled to rely upon any order or decree by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending or a certificate of the liquidating trustee or agent or other person making any distribution to the Lender for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Borrower, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 9. Nothing contained in this Section 9 or elsewhere in this Agreement is intended to or shall affect the obligation of the Borrower to make, or prevent the Borrower from making, at any time except as specifically provided in Sections 9.02 and 9.03 hereof, payments at any time in respect of the Subordinated Amounts. 9.06 Subordination Rights Not Impaired by Acts or Omissions of Borrower or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Borrower or by any act or failure to act by any such holder, or by any noncompliance by the Borrower with the terms of this Agreement, the Note or any other Loan Document, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. 9.07 Further Assurances with Respect to Subordination. At any time or from time to time upon the request of any holder of Senior Indebtedness or its representative, agent or trustee, the Lender shall execute and deliver such further documents and do such other acts and things as any such holder, representative, agent or trustee may reasonably request to effect fully the subordination of the Subordinated Amounts to such Senior Indebtedness to the extent and in the manner provided in this Section 9. 9.08 Limitation on Subordination. Nothing in this Section 9 shall affect, impair or subordinate the Lender's rights in the Account Collateral, or its rights to receive and retain the Account Collateral and to apply the same to the payment of the Subordinated Amounts, it being expressly understood and -48- agreed that the Lender is entitled to an unsubordinated first priority security interest in the Account Collateral pursuant to Section 3.04 hereof. None of the provisions hereof shall limit in any way the Lender's ability to enforce its rights in the Account Collateral and the Preferred Stock. 9.09 Certain Definitions. For purposes of this Section 9, the term "Lender" means the initial Lender and any successor or assign thereof. Section 10. Miscellaneous. 10.01 Waiver. No failure on the part of the Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or the Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or the Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. The Borrower irrevocably waives, to the fullest extent permitted by applicable law, any claim that any action or proceeding commenced by the Lender relating in any way to this Agreement should be dismissed or stayed by reason, or pending the resolution, of any action or proceeding commenced by the Borrower relating in any way to this Agreement whether or not commenced earlier. To the fullest extent permitted by applicable law, the Borrower shall take all measures necessary for any such action or proceeding commenced by the Lender to proceed to judgment prior to the entry of judgment in any such action or proceeding commenced by the Borrower. 10.02 Notices. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof); or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed -49- notice, upon receipt, in each case given or addressed as aforesaid. 10.03 Expenses, Etc. The Borrower agrees to pay or reimburse (or make provision therefor) the Lender for: (a) all reasonable out-of-pocket costs and expenses of the Lender (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Lender) in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and the making of the Advances hereunder and (ii) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Loan Documents (whether or not consummated) or any document prepared pursuant to Section 9.07; (b) all reasonable out-of-pocket costs and expenses of the Lender (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom, (including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 10.03; and (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Loan Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Security Document or any other document referred to therein. The Borrower hereby agrees to indemnify the Lender and its directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the Advances hereunder or any actual or proposed use by the Borrower of the proceeds of any of the Advances hereunder (including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings) (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of -50- the gross negligence or willful misconduct of the Person to be indemnified). Without limiting the generality of the foregoing, the Borrower will indemnify the Lender from, and hold the Lender harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Borrower or any of its Subsidiaries (or any predecessor in interest to the Borrower or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased at any time by the Borrower or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials at or from any such site or facility, excluding any such Release or threatened Release that shall occur during any period when the Lender shall be in possession of any such site or facility following the exercise by the Lender of any of its rights and remedies hereunder or under any of the Security Documents, but including any such Release or threatened Release occurring during such period that is a continuation of conditions previously in existence, or of practices employed by the Borrower and its Subsidiaries, at such site or facility. 10.04 Amendments, Etc. No provision of this Agreement may be modified or supplemented except by an instrument in writing signed by the Borrower and the Lender. 10.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 10.06 Assignments and Participations. (a) The Borrower may not assign any of its rights or obligations hereunder or under the Note without the prior consent of the Lender. (b) The Lender may assign the Loan and the Note; provided, however, the Lender may not, without the prior written consent of the Borrower, assign (x) its obligation hereunder to make Advances to the Borrower or (y) the Loan or the Note to a Prohibited Transferee. Upon execution and delivery by the assignee to the Borrower of an instrument in writing pursuant to which the assignee agrees to become the "Lender" hereunder, and upon consent thereto by the Borrower to the extent required above, the assignee shall have (unless otherwise provided in such -51- assignment with the consent of the Borrower) the obligations, rights and benefits of the Lender hereunder in respect of the Loan and Advances theretofore held by the Lender, and the assigning Lender shall be released from the Loan; provided, that the Borrower shall in no event be required to recognize multiple lenders under this Agreement. (c) The Lender may sell or agree to sell to one or more other Persons (each a "Participant") a participation in all or any part of any Advances, or in the Loan; provided, that such Participant shall not have any rights or obligations under this Agreement or the Note or any other Loan Document (the Participant's rights against the Lender in respect of such participation to be those set forth in the agreements executed by the Lender in favor of the Participant); and provided, further, that no Prohibited Transferee may be a Participant. In no event shall the Lender agree with the Participant to take or refrain from taking any action hereunder or under any other Loan Document except that the Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term of the Loan, (ii) extend the date fixed for the payment of principal of or interest on the related Advance or Advances or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal or (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee. (d) The Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of the Lender from time to time to assignees and participants (including prospective assignees and participants). 10.07 Survival. The obligations of the Borrower under Section 10.03 hereof shall survive the repayment of the Advances and the termination of this Agreement. In addition, each representation and warranty made, or deemed to be made by a notice of any Advance, herein or pursuant hereto shall survive the making of such representation and warranty, and the Lender shall not be deemed to have waived, by reason of making any Advance, any Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that the Lender may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Advance was made. -52- 10.08 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 10.09 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 10.10 Governing Law; Submission to Jurisdiction. This Agreement and the Note shall be governed by, and construed in accordance with, the law of the State of New York, without giving effect to the conflict of law principles thereof. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and of any other appellate court in the State of New York, for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 10.11 Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.12 Treatment of Certain Information. The Borrower acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrower or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by the Lender or by one or more subsidiaries or affiliates of the Lender and the Borrower hereby authorizes the Lender to share any information delivered to the Lender by the Borrower and its Subsidiaries pursuant to this Agreement, or in connection with the decision of the Lender to enter into this Agreement, to any such subsidiary or affiliate, but only in connection with the delivery of such services directly to the Borrower or its Subsidiaries. Such authorization shall survive the repayment of the Advances and the termination of the Loan. -53- 10.13 Brokers and Financial Advisors. The Borrower and the 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 except for Nomura Securities International, Inc. (the "Finder"). Borrower agrees to pay all amounts required to be paid to the Finder pursuant to that certain letter agreement dated August 23, 1995, between Borrower and the Finder. Borrower and Lender hereby agree to indemnify and hold the other 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 (other than the Finder) that such Person acted on behalf of the indemnifying party in connection with the transactions contemplated herein. The provisions of this Section 10.13 shall survive the expiration and termination of this Agreement and the repayment of the Loan. 10.14 Lender's Discretion. Whenever pursuant to this Agreement, the Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to the Lender, the decision of the Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of the Lender and shall be final and conclusive. 10.15 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. 10.16 Preferences. To the extent the Borrower makes a payment or payments to the Lender for the Borrower's benefit, which payment or 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 satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by the Lender. -54- 10.17 Waiver of Notice. The Borrower shall not be entitled to any notices of any nature whatsoever from the 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 the Lender to the Borrower and except with respect to matters for which the Borrower is 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. 10.18 Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its agents has acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents the Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, the Borrower agrees that neither the Lender nor its agents, Servicer, shall be liable for any monetary damages, and the Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether the Lender has acted reasonably shall be determined by an action seeking declaratory judgment. 10.19 Waiver of Marshalling of Assets Defense. To the fullest extent the Borrower may legally do so, the Borrower waives all rights to a marshalling of the assets of the Borrower and Persons with interests in Borrower, 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 the Lender under the Loan Documents to a sale of the assets of the Borrower for the collection of the Loan without any prior or different resort for collection, or the right of Lender to the payment of the Loan out of the Proceeds in preference to every other claimant whatsoever. 10.20 Waiver of Counterclaim. The Borrower hereby waives the right to assert a counterclaim, other than compulsory counterclaim, in any action or proceeding brought against it by the Lender or its agents. 10.21 FINAL AGREEMENT. THIS AGREEMENT, TOGETHER WITH ALL OTHER WRITTEN AGREEMENTS BETWEEN BORROWER AND LENDER, IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN THE BORROWER -55- AND THE LENDER, AND SUCH WRITTEN CREDIT AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT OR OF A CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN THE BORROWER AND THE LENDER. 10.22 Tax Treatment. It is the intention of the parties that the Advances constitute indebtedness of the Borrower for purposes of applicable federal, state and local tax laws and that the sole relationship resulting from the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby be, for purposes of all such laws, solely that of debtor and creditor. -56- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. BORROWER: FORUM GROUP, INC. By /s/ Kurt C. Read _________________________ Title: Vice President Address for Notices: 11320 Random Hills Road Suite 400 Fairfax, Virginia 22030 Attention: Dennis L. Lehman Telecopier No.: 703-277-7080 Telephone No.: 703-277-7036 LENDER: NOMURA ASSET CAPITAL CORPORATION By /s/ Ray Anthony _________________________ Title: Vice President Address for Notices: 2 World Financial Center Building B New York, New York 10281-1198 Attention: Ray Anthony Telecopier No.: 212-667-1014 Telephone No.: 212-667-1850 EX-27 4
5 1,000 6-MOS MAR-31-1996 SEP-30-1995 37,851 0 9,535 620 0 56,389 368,483 25,014 461,946 97,857 317,029 78,494 0 0 17,649 461,946 0 95,177 0 76,493 0 0 14,630 14,502 2,587 11,915 0 (1,307) 0 10,608 .45 .45
-----END PRIVACY-ENHANCED MESSAGE-----