Document:

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                                                                  EXHIBIT 10.21

                              AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

CERTAIN INFORMATION IN THIS DOCUMENT THAT MEDCATH CORPORATION BELIEVES
CONSTITUTES "COMMERCIAL OR FINANCIAL INFORMATION" THAT IS "PRIVILEGED OR
CONFIDENTIAL" HAS BEEN OMITTED FROM THIS COPY OF THIS AGREEMENT AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. THE SYMBOL [***] HAS BEEN SUBSTITUTED AT THE POINTS IN THE DOCUMENT
WHERE THE PRIVILEGED OR CONFIDENTIAL INFORMATION HAS BEEN OMITTED.

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                               TABLE OF CONTENTS
                          TO THE AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

<TABLE>
<S>                                                                                                              <C>
ARTICLE I  DEFINITIONS............................................................................................2

ARTICLE II  FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY..................................................2
         SECTION 2.1. Company Formation; Effective Date...........................................................2
         SECTION 2.2. Name of Company.............................................................................3
         SECTION 2.3. Purposes and Investment Objectives..........................................................3
         SECTION 2.4. Statement of Philosophy and Values..........................................................4
         SECTION 2.5. Registered Agent and Office; Principal Place of Business....................................4
         SECTION 2.6. Commencement and Term.......................................................................4

ARTICLE III  MEMBERS AND CAPITAL CONTRIBUTIONS....................................................................5
         SECTION 3.1. Capital Contributions and Membership Interests of Members...................................5
         SECTION 3.2. Liability of Members - For Capital..........................................................5
         SECTION 3.3. Maintenance of Capital Accounts; Withdrawals of Capital; Withdrawals from the Company.......5
         SECTION 3.4. Interest on Capital Contributions or Capital Accounts.......................................5
         SECTION 3.5. Additional Funding..........................................................................5
         SECTION 3.6. Enforcement of Commitments..................................................................7

ARTICLE IV  NAMES AND ADDRESSES OF MEMBERS........................................................................7

ARTICLE V  MANAGEMENT OF THE COMPANY..............................................................................8
         SECTION 5.1. General Authority and Powers of the Managers................................................8
         SECTION 5.2. Restrictions on Authority of the Managers..................................................11
         SECTION 5.3. Duties of the Managers.....................................................................12
         SECTION 5.4. Delegation by the Manager..................................................................13
         SECTION 5.5. Right to Rely Upon the Authority of the Managers...........................................13
         SECTION 5.6. Company Expenses...........................................................................13
         SECTION 5.7. No Management by Members...................................................................15
         SECTION 5.8. Consent by Members to Exercise of Certain Rights and Powers by Managers....................15
         SECTION 5.9. Other Business of Members..................................................................15
         SECTION 5.10. Managers' Standard of Care................................................................17
         SECTION 5.11. Limitation of Liability...................................................................17
         SECTION 5.12. Indemnification of the Managers...........................................................17
         SECTION 5.13. Election and Replacement of Investor Manager..............................................18
         SECTION 5.14. Role of and Decisions by Investor Manager.................................................18
         SECTION 5.15. Purchase of Goods and Services from DTO Management........................................18
         SECTION 5.16. Decisions by Managers.....................................................................18
         SECTION 5.17. Guarantee Fee.............................................................................19
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<S>                                                                                                              <C>
ARTICLE VI  DISTRIBUTIONS AND ALLOCATIONS........................................................................19
         SECTION 6.1. Distributions of Cash Flow from Operations and Cash from Sales or Refinancing..............19
         SECTION 6.2. Profits....................................................................................20
         SECTION 6.3. Losses.....................................................................................20
         SECTION 6.4. Code Section 704(c) Tax Allocations........................................................20
         SECTION 6.5. Miscellaneous..............................................................................20
         SECTION 6.6. Special Allocations of Guarantee Fees......................................................21

ARTICLE VII  DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS...............................................21
         SECTION 7.1. No Termination by Certain Acts of Member...................................................21
         SECTION 7.2. Dissolution................................................................................21
         SECTION 7.3. Dissolution and Final Liquidation..........................................................22
         SECTION 7.4. Termination................................................................................23
         SECTION 7.5. Payment in Cash............................................................................23
         SECTION 7.6. Goodwill and Trade Name....................................................................23
         SECTION 7.7. Termination of Noncompetition Covenants....................................................24

ARTICLE VIII  REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND TRANSFER OF MEMBERS' MEMBERSHIP AND/OR
              ECONOMIC INTERESTS.................................................................................24
         SECTION 8.1. Manager - Transfers........................................................................24
         SECTION 8.2. Members' Right to Continue When Company has no Manager.....................................25
         SECTION 8.3. Relationship with Substitute Manager.......................................................25
         SECTION 8.4. Members Who Are Not Managers - Restriction on Transfer.....................................25
         SECTION 8.5. Condition Precedent to Transfer of Economic Interest and/or Membership Interest............26
         SECTION 8.6. Substitute Member - Conditions to Fulfill..................................................27
         SECTION 8.7. Allocations Between Transferor and Transferee..............................................27
         SECTION 8.8. Rights, Liabilities of, and Restrictions on Assignee.......................................28
         SECTION 8.9. Death of a Member..........................................................................28
         SECTION 8.10. Repurchase of Interests in Certain Event..................................................29
         SECTION 8.11. Permissible Transfers by Investor Members.................................................29

ARTICLE IX  RECORDS, ACCOUNTINGS AND REPORTS.....................................................................29
         SECTION 9.1. Books of Account...........................................................................29
         SECTION 9.2. Access to Records..........................................................................29
         SECTION 9.3. Bank Accounts and Investment of Funds......................................................30
         SECTION 9.4. Fiscal Year................................................................................30
         SECTION 9.5. Accounting Reports.........................................................................30
         SECTION 9.6. Tax Returns................................................................................30

ARTICLE X  MEETINGS AND VOTING RIGHTS OF MEMBERS.................................................................31
         SECTION 10.1. Meetings..................................................................................31
         SECTION 10.2. Voting Rights of Members..................................................................31
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<S>                                                                                                              <C>

ARTICLE XI  AMENDMENTS...........................................................................................32
         SECTION 11.1. Authority to Amend by the Managers........................................................32
         SECTION 11.2. Restrictions on Managers' Amendments: Amendments by Investor Members......................33
         SECTION 11.3. Amendments to Certificates................................................................33

ARTICLE XII  MISCELLANEOUS.......................................................................................33
         SECTION 12.1. Limited Power of Attorney.................................................................33
         SECTION 12.2. Waiver of Provisions......................................................................33
         SECTION 12.3. Interpretation and Construction...........................................................33
         SECTION 12.4. Governing Law.............................................................................34
         SECTION 12.5. Partial Invalidity........................................................................34
         SECTION 12.6. Binding on Successors.....................................................................34
         SECTION 12.7. Notices and Delivery......................................................................34
         SECTION 12.8. Counterpart Execution; Facsimile Execution................................................34
         SECTION 12.9. Statutory Provisions......................................................................34
         SECTION 12.10. Waiver of Partition......................................................................34
         SECTION 12.11. Change In Law............................................................................35
         SECTION 12.12. Investment Representations of the Members................................................35
         SECTION 12.13. Decisions by Investor Manager............................................................36
         SECTION 12.14. Referrals to Hospital and Ownership of Shares of Common Stock of
                        MedCath Incorporated.....................................................................36
         SECTION 12.15. Exhibits.................................................................................37
</TABLE>

                  EXHIBIT A:                 Information Exhibit.
                  EXHIBIT B:                   Glossary of Terms.
                  EXHIBIT C:          Development Budget Exhibit.
                  EXHIBIT D:              Regulatory Allocations.

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                              AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

         THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE OHIO SECURITIES ACT IN
RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT THE
SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE
OF REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.

         THIS AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") of
Heart Hospital of DTO, LLC (the "Company"), a North Carolina limited liability
company is made and entered into by and among DTO Management and the Investor
Members.

                                    RECITALS

         A.       On or about April 18, 1997, DTO Management and certain
Investor Members formed the Company in accordance with the original Operating
Agreement of the Company (the "Original Operating Agreement");

         B.       The Company was formed to develop, own and operate an acute
care hospital in or near Dayton, Ohio and to specialize in all aspects of
cardiology and cardiovascular care and surgery which DTO Management and the
Investor Manager may agree upon;

         C.       It is intended that the hospital will be a low-cost, high
quality provider of medical services within the Dayton, Ohio area in a manner
which is consistent with the national health care policy of lowering the costs
of health care;

         D.       The Capital Contributions and active involvement of the
Investor Members are necessary to enable the Company to achieve its objectives;

         E.       The Original Operating Agreement was amended by the First
Amendment to Operating Agreement of Heart Hospital of DTO, LLC to provide for,
among other things, the admission of Franciscan Health System of the Ohio
Valley, Inc. ("FHS") as a Member of the Company, and was subsequently amended
by the Second Amendment to Operating Agreement of Heart Hospital of DTO, LLC to
provide for, among other things, the substitution of

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ProWellness Health Management Systems, Inc. ("ProWellness"), a wholly owned
subsidiary of FHS, in place of FHS as a Member of the Company;

         F.       The Original Operating Agreement was subsequently amended by
a third Amendment to Operating Agreement of Heart Hospital of DTO, LLC dated
October 1, 2000 and a fourth Amendment to Operating Agreement of Heart Hospital
of DTO, LLC dated April 12, 2001;

         G.       ProWellness ceased to be a Member of the Company pursuant to
that certain Termination and Release Agreement dated October 1, 2000 by and
among the Company, DTO Management, FHS and ProWellness;

         H.       Certain Investor Members sold a portion of their Membership
Interests in the Company to DTO Management in connection with the public
offering of the common stock of MedCath Corporation, an Affiliate of DTO
Management, on or about July 24, 2001; and

         I.       The Members of the Company hereby desire to amend and restate
the Original Operating Agreement to reflect the termination of the membership
of ProWellness in the Company, to reflect the sale of a portion of some
Investor Members' Membership Interest to DTO Management and to incorporate the
terms of the previously approved amendments to the Original Operating
Agreement.

                                   ARTICLE I

                                  DEFINITIONS

         Unless otherwise indicated, capitalized words and phrases in this
Operating Agreement shall have the meanings set forth in the attached Glossary
of Terms.

                                   ARTICLE II

              FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

         SECTION 2.1.      Company Formation; Effective Date. The Company was
formed upon the filing of the Articles of Organization with the Secretary of
State of North Carolina in accordance with the provisions of the Act. Upon the
Effective Date of this Agreement, the original Members were admitted to the
Company as Members and the Persons who executed the Articles shall be withdrawn
as Members (unless they are listed on the Information Exhibit), all without the
necessity of any further act or instrument and without causing the dissolution
of the Company. DTO Management shall execute or cause to be executed all other
such certificates or documents, and shall do or cause to be done all such
filing, recording, or other acts, as may be necessary or appropriate from time
to time to comply with the requirements of law for the continuation and/or
operation of a limited liability company in the State of North Carolina, and
other documents to reflect the admission of additional Members to the Company.
Any costs incurred by DTO Management in connection with the foregoing shall be
reimbursed promptly

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upon the completion of such action. The Agreement was effective as of the date
(the "Effective Date") the Company was formed.

         SECTION 2.2.      Name of Company. The name of the Company is Heart
Hospital of DTO, LLC.

         SECTION 2.3.      Purposes and Investment Objectives. The principal
purposes of the Company are as follows:

                  (a)      To develop, own and operate the Hospital which would
         include, but not be limited to, the following:

                           (i)      Services and facilities to meet all
                  requirements of the State of Ohio, Medicare, the Joint
                  Commission on Accreditation of Healthcare Organizations
                  ("JCAHO") and other credentialing or licensing bodies or
                  agencies in order to have the Hospital licensed as a general
                  acute care hospital and to perform cardiology and
                  cardiovascular surgical services of every type or nature and
                  to be eligible to obtain appropriate reimbursements
                  therefore;

                           (ii)     Approximately 83,000 square feet in a
                  building to be constructed in accordance with plans and
                  specifications approved by the Company;

                           (iii)    Approximately 48 medical/surgical beds;

                           (iv)     3 heart catheterization laboratories with
                  available space for one additional heart catheterization lab;

                           (v)      3 heart surgical suites with space for the
                  development of one additional heart surgical suite;

                           (vi)     All appropriate support services and
                  systems;

                           (vii)    Appropriate Equipment and services with
                  respect to the facilities described above and as otherwise
                  reasonably necessary or appropriate for the diagnosis and
                  treatment of cardiovascular disease, including but not
                  limited to invasive and non-invasive cardiac testing,
                  interventional treatment including percutaneous transluminal
                  coronary angioplasty and atherectomy, and cardiac surgery
                  which would include, but not be limited to, bypass grafts and
                  valve surgery; and

                           (viii)   Satellite diagnostic cardiac centers
                  intended to be located in areas to the north and south of the
                  Hospital.

                  The above size, number and scope of facilities of the
         Hospital are only preliminary estimates. The Managers are authorized
         to finally make all determinations with respect thereto.

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                  (b)      To lease or acquire the real property, and if
         appropriate to construct a suitable building, in which the Hospital
         shall be located;

                  (c)      Any other purpose reasonably related to (a) and (b)
         above.

         SECTION 2.4.      Statement of Philosophy and Values. Notwithstanding
anything in this Agreement to the contrary, the Company and the Hospital shall
be operated in accordance with the following philosophy and values in all
material respects:

                  (a)      The Hospital shall seek to participate in all public
         health care financing programs applicable to its business including
         the Medicare and Medicaid programs:

                  (b)      The Managers shall adopt and oversee the adherence
         to the policies of the Company, as they may be reasonably amended from
         time to time, for providing care for those patients who are unable to
         pay for Hospital care;

                  (c)      The medical staff of the Hospital shall be open to
         any physician who meets the qualifications stated in the Bylaws, Rules
         and Regulations of the Medical Staff;

                  (d)      The Company shall adopt and adhere to a conflict of
         interest policy with respect to contracts between the Company and
         Members or Managers;

                  (e)      All medical decisions and all policies and
         procedures relating to the delivery of medical services at the
         Hospital shall be made by those physicians who are members of the
         medical staff of the Hospital as provided in the Bylaws, Rules and
         Regulations of the Medical Staff.

         SECTION 2.5.      Registered Agent and Office; Principal Place of
Business. The registered agent and office of the Company shall be as indicated
in the Articles of Organization, as amended from time to time. The principal
place of business of the Company shall be at such location in North Carolina as
selected by DTO Management from time to time. DTO Management shall promptly
notify the Members of any changes in the Company's registered agent, registered
office, or principal place of business.

         SECTION 2.6.      Commencement and Term. The Company commenced on the
filing of the Articles of Organization in the Office of the Secretary of State
of North Carolina, as required by Section 2.1 hereof, and shall continue until
December 31, 2037, unless sooner terminated or dissolved as provided herein;
provided, however, that the termination date may be extended for up to an
additional forty (40) years in five (5) year increments upon the election of
DTO Management. In the event DTO Management does not elect to extend the term
hereof, the Investor Manager may instead elect to extend the term hereof,
subject to DTO Management's consent which shall not be unreasonably withheld or
delayed.

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                                  ARTICLE III

                       MEMBERS AND CAPITAL CONTRIBUTIONS

         SECTION 3.1.      Capital Contributions and Membership Interests of
Members. DTO Management and the Investor Members own the Membership Interests
set forth on the Information Exhibit (Exhibit A) attached hereto. The Members
may be liable to the Company for amounts distributed to them as a return of
capital as provided by the Act. The Members shall not be required to contribute
any additional capital to the Company except as provided in Section 3.5.

         SECTION 3.2.      Liability of Members - For Capital. The liability of
each Member for capital shall be limited to the amount of its agreed Capital
Contribution as a Member as provided in Section 3.1 and Section 3.5, except
that the Members may be liable to the Company for amounts distributed to them
as a return of capital as provided by the Act. The Members shall not be
required to contribute any additional capital to the Company except as provided
in Section 3.5.

         SECTION 3.3.      Maintenance of Capital Accounts; Withdrawals of
Capital; Withdrawals from the Company. An individual Capital Account shall be
maintained for each Member in accordance with requirements of the Code and the
Regulations promulgated thereunder. No Member shall be entitled to withdraw or
to make demand for withdrawal of any part of its Capital Account or to receive
any distribution except as provided herein. Except as otherwise provided in
this Agreement, each Member shall look solely to the assets of the Company for
the return of its Capital Contributions and shall have no right or power to
demand or receive property other than cash from the Company. No Member shall
have priority over any other Member as to the return of its Capital
Contributions, distributions or allocations, except as provided in this
Agreement.

         Except as otherwise provided herein, a Member may not withdraw from
the Company without the written consent of DTO Management and the Supermajority
Vote of the Members and in no case shall a Member have the right to have its
Interest redeemed by the Company unless approved by DTO Management and by the
Supermajority Vote of the Members.

         SECTION 3.4.      Interest on Capital Contributions or Capital
Accounts. No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account. The preceding sentence shall not prevent the
Company from earning interest on its bank accounts and investments and
distributing such earnings to the Member in accordance with Articles VI and
VII.

         SECTION 3.5.      Additional Funding. If from time to time, DTO
Management reasonably determines that funds in addition to that contemplated by
Sections 3.1 and 3.2 are necessary or appropriate for the development or
operation of the Hospital, then:

                  (a)      Subject to the terms hereof, if additional funds are
         required by the Company to enable it to pay its liabilities during its
         development or startup phase, DTO Management agrees to loan the
         Company up to Three Million Dollars ($3,000,000) for such purpose at
         the Prime Rate plus one percent (1%) per annum which loan shall be

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         secured by the Company's assets. Interest on such loan shall be
         payable monthly and the principal shall be repaid as the Company has
         funds available therefore. Provided, however, if the Company's losses
         as calculated by the Company's accountants under Generally Accepted
         Accounting Principles ("GAAP") exceed the initial Capital
         Contributions made pursuant to Section 3.1, DTO Management shall not
         be required to make any such loan to the Company hereunder unless it
         is still needed after the Members and Economic Interest Holders make
         additional Capital Contributions pursuant to the terms of Section
         3.5(b)(ii) below.

                  (b)      Thereafter, if additional funds are required by the
         Company to enable it to pay its obligations, subject to the
         requirements set forth in (ii) below, then:

                           (i)      DTO Management shall use commercially
                  reasonable efforts to borrow such funds from a bank or other
                  lender on terms and conditions reasonably acceptable to DTO
                  Management, or DTO Management may, but shall not be required,
                  to loan such funds to the Company at the Prime Rate plus one
                  percent (1%) per annum which loan shall be secured by the
                  Company's assets. Interest shall be paid monthly in arrears
                  and principal shall be repaid as the Company has funds
                  available therefore. All loans obtained hereunder shall be
                  subject to the approval of the Investor Manager which
                  approval shall not be unreasonably withheld or delayed;

                           (ii)     If the Company has losses (after the
                  application of the delay in earning and accrual of the fees
                  provided for in Section 5.6(b)(ii), (iii) and (iv)) in excess
                  of the amount of the initial Capital Contributions, DTO
                  Management may from time to time, subject to the terms below,
                  upon at least fifteen (15) days prior written notice require
                  that the Members and Economic Interest Holders contribute
                  additional capital to the Company pro rata according to their
                  respective Membership Interests and Economic Interests,
                  provided however, a Member's or Economic Interest Holder's
                  maximum obligation for such additional Capital Contributions
                  shall be limited to an amount equal to two (2) times the
                  Member's initial Capital Contribution pursuant to Section 3.1
                  (or in the case of an Economic Interest Holder, the initial
                  Capital Contribution obligation under Section 3.1 of the
                  Person who first acquired that Economic Interest from the
                  Company). DTO Management shall determine from time to time
                  when such a mandatory Capital Contribution is needed and
                  shall give written notice to the Investor Members and the
                  Investor Manager of the need for the Capital Contribution.
                  This mandatory Capital Contribution shall be subject to the
                  consent of the Investor Manager; however, said consent may
                  not be unreasonably withheld by the Investor Manager. It is
                  further acknowledged and agreed that in the event that after
                  the Manager has fully advanced its loan pursuant to Section
                  3.5(a) that for any reason the Company requires additional
                  funds to meet debts that become due or because of a lack of
                  reasonable operating reserves, those shall be acceptable
                  reasons for the mandatory Capital Contribution which shall
                  not be objected to by the Investor Manager. Each Member's
                  additional obligations for mandatory Capital Contributions
                  shown on the Information Exhibit (Exhibit A) has been
                  adjusted proportionately to reflect the transfer of
                  Membership Interests by certain Investor Members to DTO
                  Management on or about July 24, 2001.

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                           (iii)    If additional Capital Contributions are
                  needed beyond the loans described in (a) and (b)(i) above and
                  beyond the mandatory amount indicated in (b)(ii) above, each
                  Member may elect whether or not to contribute its pro rata
                  portion thereof of these optional Capital Contributions. The
                  other Investor Members may elect to contribute optional
                  Capital Contributions not contributed by any Investor Member
                  hereunder. DTO Management may then elect to contribute
                  amounts which the Investor Members, in the aggregate, have
                  not so contributed as optional Capital Contributions.
                  Thereafter, DTO Management shall reasonably adjust the
                  percentage Membership Interest of each Member (based on the
                  relative aggregate Capital Contributions made by the Members
                  in accordance with this Agreement) in the event any Member
                  elected not to make optional Capital Contributions pursuant
                  to this Section 3.5 within; and

                           (iv)     If funds are not available in accordance
                  with (a) and (b), (i), (ii) or (iii) above, then DTO
                  Management may elect to dissolve the Company.

         SECTION 3.6.      Enforcement of Commitments. In the event any Members
(a "Delinquent Member") fail to make a mandatory Capital Contribution as
provided in Section 3.1 or Section 3.5 or an optional Capital Contribution as
agreed to by the Member under Section 3.5 (the "Commitment"), DTO Management
shall give the Delinquent Member a Notice of the failure to meet the
Commitment. If the Delinquent Member fails to perform the Commitment (including
any costs associated with the failure to meet the Commitment and interest on
such obligation at the Default Interest Rate) within ten (10) business days of
the giving of Notice, DTO Management may take such action, including but not
limited to enforcing the Commitment in the court of appropriate jurisdiction in
the state in which the principal office of the Company is located or the state
of the Delinquent Member's address as then reflected in the Agreement. Each
Member expressly agrees to the jurisdiction of such courts but only for the
enforcement of Commitments. The other Members may elect to contribute
additional amounts equal to any amount of the Commitment not contributed by
such Delinquent Member. The contributing Member shall be entitled at its
election to treat the amounts contributed pursuant to this Section either as a
Capital Contribution or as a loan from the contributing Member bearing interest
at the Default Rate secured by the Delinquent Member's Interest in the Company.
If the contributing Member elects to contribute such amount as a Capital
Contribution, the percentage Membership Interests of the Members shall be
adjusted proportionately. Until the contributing Member is fully repaid for
such loan made as a result of the default by the Delinquent Member and only if
the contributing Member agrees to accept repayment of such amount, the
contributing Member shall be entitled to all distributions to which the
Delinquent Member would have been entitled had such Commitment been fulfilled
thereby. Notwithstanding the foregoing, no Commitment or other obligation to
make an additional Capital Contribution may be enforced by a creditor of the
Company unless the Member expressly consents to such enforcement or to the
assignment of the obligation to such creditor.

                                   ARTICLE IV

                         NAMES AND ADDRESSES OF MEMBERS

         The names and addresses of the Members are as indicated on the
Information Exhibit, attached hereto and as amended from time to time.

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                                   ARTICLE V

                           MANAGEMENT OF THE COMPANY

         SECTION 5.1.      General Authority and Powers of the Managers. Except
as set forth in those provisions of this Agreement that specifically require
the vote, consent, approval or ratification of the Members, the Managers shall
have complete authority and exclusive control over the management of the
business and affairs of the Company. Subject to the terms and conditions of
this Agreement and except as otherwise provided herein, all Material Agreements
and Material Decisions with respect to the business and affairs of the Company
shall be approved or made by the Managers in accordance with Section 5.9(e) and
Section 5.15 hereof. No Member has the actual or apparent authority to cause
the Company to become bound in any contract, agreement or obligation, and no
Member shall take any action purporting to be on behalf of the Company. No
Manager shall cause the Company to become bound to any contract, agreement or
obligation, and no Manager shall take any other action on behalf of the
Company, unless such matter has received the vote, consent, approval or
ratification as required pursuant to this Agreement with respect to such matter
or except as provided below with respect to the authority and actions of DTO
Management.

         The day-to-day management of the business and affairs of the Company
shall be the responsibility of DTO Management, which management shall be
subject to decisions, guidelines and policies made or established by the
Managers hereunder, provided, however, decisions relating to medical and
clinical practice at the Hospital shall be made exclusively by the qualified
medical personnel of the Hospital. Subject in all cases to the foregoing, DTO
Management shall have the right and the power, if, as, and when it, from time
to time, deems necessary or appropriate on behalf of the Company, subject only
to the terms and conditions of this Agreement:

                  (a)      To negotiate and execute on behalf of the Company
         all documents, instruments and agreements reasonably necessary or
         appropriate to lease, acquire and/or construct the Hospital and/or the
         real property on which the Hospital is or will be located, and to
         borrow funds to finance such lease, acquisition and/or construction
         (it being acknowledged that the Hospital may be an existing building
         or may be a newly constructed building);

                  (b)      To prepare a budget for the development of the
         Hospital and thereafter, annual operating budgets;

                  (c)      To acquire the Equipment and enter into loans or
         other financing arrangements therefor;

                  (d)      To handle the negotiation and execution of all such
         other agreements regarding the purchase of goods or services for the
         Hospital;

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                  (e)      To establish procedures for quality assurance, peer
         review and granting privileges to physicians with other specialties at
         the Hospital, subject to the terms of the Hospital and medical staff
         bylaws adopted for the Hospital;

                  (f)      To expend all or portions of the Company's capital
         and income in furtherance of or relating to the Company's business and
         purposes, including, but not limited to, payment of all ongoing
         operational expenses, payment of commissions, organization expenses,
         professional fees, rental fees, and management fees, and to invest in
         short-term debt obligations (including, but not limited to,
         obligations of federal and state governments and their agencies,
         commercial paper, and certificates of deposit of commercial banks, or
         savings banks or savings and loan associations) such of the Company's
         funds as are temporarily not required for the development or operation
         of the Company and the payment of Company obligations; provided, that
         the Board of Directors shall establish cash management guidelines to
         be followed by DTO Management;

                  (g)      To employ or retain on such terms and for such
         compensation as DTO Management may reasonably determine, such persons,
         firms, or corporations as DTO Management may deem advisable, including
         without limitation qualified medical and other employees necessary or
         appropriate to operate the Hospital, attorneys, accountants, financial
         and technical consultants, supervisory managing agents, insurance
         brokers, brokers and loan brokers, appraisers, architects and
         engineers, who may also provide such services to DTO Management,
         provided that the selection of the senior administrator of the
         Hospital shall be a Material Decision;

                  (h)      To execute leases, deeds, contracts, rental
         agreements, construction contracts, sales agreements, and management
         contracts;

                  (i)      To exercise all rights, powers, and privileges of
         the Company as lessee with respect to the Hospital or rights held by
         the Company;

                  (j)      To consent to the modification, renewal, or
         extension of any obligations to the Company of any Person or of any
         agreement to which the Company is a party or of which it is a
         beneficiary;

                  (k)      To execute in furtherance of any or all of the
         purposes of the Company, any deed, lease, deed of trust, security
         interest, mortgage, promissory note, bill of sale, assignment,
         contract, or other instrument purporting to purchase or convey or
         encumber in whole or in part the Equipment or the Hospital or other
         real or personal property of the Company;

                  (l)      To prepay in whole or in part, refinance, recast,
         increase, modify, or extend any security interest, deed of trust, or
         mortgage affecting the Hospital and in connection therewith to execute
         any extensions or renewals thereof on the Hospital and to grant
         security interests in any of the Equipment or the Hospital;

                  (m)      To adjust, compromise, settle, or refer to
         arbitration any claim against or in favor of the Company, and to
         institute, prosecute, and defend any actions or proceedings relating
         to the Company, its business, and properties;

                                       9
<PAGE>
                  (n)      To acquire and enter into any contract of insurance
         which DTO Management deems necessary or appropriate for the protection
         of the Company and DTO Management, for the conservation of the Company
         or its assets, or for any purpose beneficial to the Company; however,
         neither DTO Management nor its Affiliates shall be compensated for
         providing insurance brokerage services relating to obtaining such
         insurance;

                  (o)      To prepare or cause to be prepared reports,
         statements, and other relevant information for distribution to the
         Members, including annual reports;

                  (p)      To open accounts and deposit and maintain funds in
         the name of the Company in banks or savings and loan associations;
         provided, however, that the Company's funds shall not be commingled
         with the funds of any other Person;

                  (q)      To cause the Company to make or revoke any of the
         elections referred to in Section 754 of the Internal Revenue Code of
         1986 as amended or any similar provisions enacted in lieu thereof;

                  (r)      To make all decisions related to generally accepted
         principles of accounting to be applied on a consistent basis and
         federal income tax elections;

                  (s)      To possess and exercise, subject to the restrictions
         contained in this Agreement, any and all of the rights, powers and
         privileges of a manager under the Act;

                  (t)      To execute, acknowledge, and deliver any and all
         documents or instruments in connection with any or all of the
         foregoing;

                  (u)      To modify or otherwise improve the Hospital, subject
         to the restrictions contained in this Agreement;

                  (v)      To manage, direct, and guide the operation of the
         Hospital including all necessary acts relating thereto, other than
         medical or clinical matters which shall be under the direction of the
         agreed upon qualified medical personnel;

                  (w)      To establish minimum insurance requirements for all
         physicians practicing at the Hospital;

                  (x)      To admit as Members additional investors who have
         been proposed for Member status by DTO Management and approved by the
         Investor Manager, which approval shall be given or withheld in the
         sole and absolute discretion of the Investor Manager;

                  (y)      To sell assets of the Company, subject to the
         restrictions contained in this Agreement;

                  (z)      Subject to the Governing Body and Medical Staff
         Bylaws, and with the written consent of the Investor Manager, to
         provide exclusive cardiology and

                                      10
<PAGE>
         cardiovascular surgery professional service agreements to Investor
         Members who will be integral to the successful development of the
         Hospital;

                  (aa)     Acquire equipment and other related tangible assets
         appropriate for the operation of a cardiac rehabilitation service from
         third parties or from Investor Members based on the fair market value
         therefor; and

                  (bb)     Develop and operate satellite cardiac centers at
         locations to the north and south of the Hospital as approved from time
         to time by the Investor Manager. These centers will each provide
         cardiac diagnostic and rehabilitative services. For the north
         location, DTO Management anticipates entering into an agreement, on
         behalf of the Company, not later than July 1, 1998, with the Dayton
         Heart Center, P.A. to sublease the second floor of the medical office
         building in Dayton at which the Dayton Heart Center, P.A. has its
         primary offices, and to lease certain cardiac rehabilitation equipment
         from the Dayton Heart Center, P.A. based upon such equipment's
         depreciated book value, at which location the Company would operate
         one of such satellite centers. Such agreements to be entered into by
         DTO Management on behalf of the Company with Dayton Heart Center, P.A.
         shall provide for the right of the Company to terminate such
         agreements in the event that the services of the Company at such
         satellite cardiac center are operating at a cash flow deficit at the
         end of the three month period of operations which commences with the
         opening of the Hospital.

         SECTION 5.2.      Restrictions on Authority of the Managers. The
Manager shall not do any of the following:

                  (a)      Act in contravention of this Agreement;

                  (b)      Act in any manner which would make it impossible to
         carry on the express business purposes of the Company;

                  (c)      Commingle the Company funds with those of any other
         Person;

                  (d)      Admit an additional Manager, except as provided in
         this Agreement;

                  (e)      Admit an additional Member, except as provided in
         this Agreement;

                  (f)      Alter the primary purposes of the Company as set
         forth in Section 2.3;

                  (g)      Possess any property or assign the rights of the
         Company in specific property for other than a Company purpose;

                  (h)      Employ, or permit the employ of, the funds or assets
         of the Company in any manner except for the exclusive benefit of the
         Company;

                  (i)      Make any payments of any type, directly or
         indirectly, to anyone for the referral of patients to the Hospital in
         order to use the Hospital or to provide other services payable by
         Medicare or Medicaid;

                                      11
<PAGE>
                  (j)      Sell all or substantially all of the assets of the
         Company or merge the Company with or into any other Entity without the
         approval of a Supermajority Vote of the Members;

                  (k)      Approve, repay, refinance or exercise any material
         rights with respect to any loans, leases or other financing provided
         by third parties to the Company without the approval of DTO Management
         and the Investor Manager which shall not be unreasonably withheld or
         delayed;

                  (l)      Waive or fail to enforce any material provision of
         the Agreement without the consent of DTO Management and the Investor
         Manager;

                  (m)      Enter into any agreement under which the Company is
         obligated to make any payment of any type or nature to any Investor
         Member or its affiliates without the consent of the DTO Management and
         the Investor Manager; or

                  (n)      Act in any manner which would cause the Company and
         the Hospital to violate the purposes set forth in Section 2.3(d)
         hereof.

         SECTION 5.3.      Duties of the Managers. Each Manager shall do the
following:

                  (a)      Diligently and faithfully devote such of its time to
         the business of the Company as may be necessary to properly conduct
         the affairs of the Company and, in the case of DTO Management, to
         perform the duties for which it will receive a Management Fee as
         provided in Section 5.6(b), or otherwise, however, each Manager shall
         not be required to devote its full time to such duties;

                  (b)      Use its best efforts to cause the Company to comply
         with such conditions as may be required from time to time to permit
         the Company to be classified for federal income tax purposes as a
         partnership and not as an association taxable as a corporation;

                  (c)      In the case of DTO Management file and publish all
         certificates, statements, or other instruments required by law for the
         formation and operation of the Company as a limited liability company
         in all appropriate jurisdictions;

                  (d)      In the case of DTO Management cause the Company to
         obtain and keep in force during the term of the Company fire and
         extended coverage and public liability and professional liability
         insurance with such issuers and in such amounts as DTO Management
         shall deem advisable, but in amounts not less (and deductible amounts
         not greater) than those customarily maintained with respect to the
         business equipment and property comparable to the Company's;

                  (e)      Have a fiduciary duty to conduct the affairs of the
         Company in the best interests of the Company and of the Members,
         including the safekeeping and use of all funds and assets, whether or
         not in its immediate possession and control, and it shall not employ
         or permit others besides Managers to employ such funds or assets in
         any manner except for the benefit of the Company; and

                                      12
<PAGE>
                  (f)      In the case of DTO Management, deliver to the
         Secretary of State of North Carolina for filing an annual statement in
         accordance with the Act and make any similar filings required under
         Ohio law.

         SECTION 5.4.      Delegation by the Manager. Subject to restrictions
otherwise provided herein, the Managers may at any time employ any other
Person, including Persons and Entities employed by, affiliated with, or related
to the Managers to perform services for the Company and its business, and may
delegate all or part of their authority or control to any such other Persons,
provided that such employment or delegation shall not relieve the Managers of
their respective responsibilities and obligations under this Agreement or under
the laws of the State of North Carolina nor will it make any such Person a
Member or Manager of the Company.

         SECTION 5.5.      Right to Rely Upon the Authority of the Managers.
Persons dealing with the Company may rely upon the representation of the
Managers that such Managers are managers of the Company and that such Managers
have the authority to make any commitment or undertaking on behalf of the
Company. No Person dealing with the Managers shall be required to determine its
authority to make any such commitment or undertaking. In addition, no purchaser
from the Company shall be required to determine the sole and exclusive
authority of any Manager to sign and deliver on behalf of the Company any
instruments of transfer with respect thereto or to see to the application or
distribution of revenues or proceeds paid or credited in connection therewith,
unless such purchaser shall have received written notice from the Company
affecting the same.

         SECTION 5.6.      Company Expenses.

                  (a)      In general, the Company's expenses shall be billed
         directly to and paid by the Company. The Company shall reimburse the
         Managers or their Affiliates for: (i) all Organization Expenses
         incurred by the Managers or their Affiliates in connection with the
         formation of the Company; (ii) the actual costs to the Managers or
         their Affiliates of goods, services, and materials used for and by the
         Company; and (iii) all reasonable travel and other out-of-pocket
         expenses incurred by the Managers in the development and management of
         the Company and its business. The parties specifically recognize that
         DTO Management and its Affiliates have incurred legal fees, filing
         fees, and other out-of-pocket costs for the benefit of the Company,
         including costs connected with the preparation of securities law and
         health care law compliance documentation and filings, real estate
         acquisition matters and formation and registration of the Company, and
         agree that DTO Management shall be reimbursed for these amounts. The
         reimbursement for expenses provided for in this Section 5.6(a) shall
         be made to the Managers or their Affiliates regardless of whether any
         distributions are made to the Members under Article VI and Article
         VII.

                  (b)      The Company shall also pay the following expenses of
         the Company:

                           (i)      All development and operational expenses of
                  the Company, which may include, but are not limited to: the
                  salary and related expenses of employees and staff of the
                  Hospital, all costs of borrowed money, taxes, and assessments
                  on the Hospital, and other taxes applicable to the Company;
                  expenses in connection with the acquisition, maintenance,
                  leasing, refinancing, operation, and disposition

                                      13
<PAGE>
                  of the Equipment, furniture and fixtures of the Hospital
                  (including legal, accounting, audit, commissions,
                  engineering, appraisal, and the other fees); and the
                  maintenance of the Hospital and its Equipment, which may be
                  performed by DTO Management or one of its Affiliates as long
                  as the charges to the Company for such service are no greater
                  than the charges for such service from a third party service
                  provider;

                           (ii)     In addition to reimbursements and other
                  amounts due hereunder, a Management Fee shall be paid to DTO
                  Management, which for periods prior to the opening of the
                  Hospital for business shall equal One Hundred Thousand
                  Dollars ($100,000.00) per year and shall first accrue
                  commencing with the month during which the Company receives
                  the Capital Contributions described in Section 3.1(b), and
                  shall be payable monthly on the last day of each month, and
                  for periods after the opening of the Hospital for business
                  shall equal two percent (2%) of the Hospital's net revenues
                  for a month, and shall be payable monthly on or before the
                  tenth (10th) day following the end of each month but which
                  amount shall be no less than One Hundred Fifty Thousand
                  Dollars ($150,000.00) per annum;

                           (iii)    An annual medical director's fee of Fifty
                  Thousand Dollars ($50,000) commencing with the beginning of
                  the design process for the Hospital which annual fee shall be
                  increased to One Hundred Thousand Dollars ($100,000)
                  commencing as of the date on which the first of the following
                  occurs: (X) the substantial completion of the construction of
                  the Hospital if the Hospital is to be located in a new
                  building (whether to be leased to or owned by the Company),
                  or (Y) the closing of the purchase of the real property in
                  which the Hospital is to be located if located in an existing
                  building (either by the Company or by a third party who shall
                  in turn lease such building to the Company) and shall be
                  payable monthly on the last day of each month, which fee
                  shall be increased annually by the Consumer Price Index
                  reasonably applied by DTO Management on January 1st of each
                  year;

                           (iv)     All fees and expenses paid to third parties
                  for accounting, legal, documentation, professional, and
                  reporting services to the Company, which may include, but are
                  not limited to: preparation and documentation of Company
                  bookkeeping, accounting and audits; preparation and
                  documentation of budgets, cash flow projections, and working
                  capital requirements; preparation and documentation of
                  Company state and federal tax returns; and taxes incurred in
                  connection with the issuance, distribution, transfer,
                  registration, and recordation of documents evidencing
                  ownership of a Membership Interest or Economic Interest in
                  the Company or in connection with the business of the
                  Company; expenses in connection with preparing and mailing
                  reports required to be furnished to the Members or Economic
                  Interest Owners for tax reporting or other purposes,
                  including reports, if any, that may be required to be filed
                  with any federal or state regulatory agencies, or expenses
                  associated with furnishing reports to Members which DTO
                  Management deems to be in the best interest of the Company;
                  expenses of revising, amending, converting, modifying, or
                  terminating the Company or this Agreement; costs incurred in
                  connection with any litigation

                                      14
<PAGE>
                  in which the Company is involved as well as any examination,
                  investigation, or other proceedings conducted by any
                  regulatory agency involving the Company; costs of any
                  computer equipment or services used for or by the Company;
                  and the costs of preparing and disseminating informational
                  material and documentation relating to a potential sale,
                  refinancing, or other disposition of the Hospital or the
                  Equipment; and

                           (v)      In the event that DTO Management and the
                  Investor Members reasonably agree that it would be beneficial
                  to the Company to have the advice of a third party consultant
                  when making a Material Decision, the reasonable expenses of
                  the third party consultant shall be an expense of the
                  Company.

                  (c)      Notwithstanding anything herein to the contrary, no
         amounts shall be earned, accrued or due from the Company under
         (b)(ii), (iii) or (iv) above to the extent that the Company has losses
         which (i) would be greater as a result of such amounts being earned,
         and (ii) which are resulting in additional Capital Contributions being
         required under Section 3.5(b)(ii).

         SECTION 5.7.      No Management by Members. Other than the Managers,
the Members shall take no part in, or at any time interfere in any manner with,
the management, conduct, or control of the Company's business and operations
and shall have no right or authority to act for or bind the Company except as
set forth in this Agreement. The rights and powers of such Members shall not
extend beyond those set forth in this Agreement and those granted under the
Articles of Organization and any attempt to participate in the control of the
Company in a manner contrary to the rights and powers granted herein and under
the Articles of Organization shall be null and void and without force and
effect. Subject to the decisions and judgment with respect to all professional
medical or clinical matters of qualified medical personnel, DTO Management, in
conjunction with the Investor Manager when applicable, shall have the right to
determine when and how the operations of the Company shall be conducted. The
exercise by any other Member of any of the rights granted to the Member
hereunder shall not be deemed to be taking part in the control of the business
of the Company and shall not constitute a violation of this Section.

         SECTION 5.8.      Consent by Members to Exercise of Certain Rights and
Powers by Managers. By its execution hereof, each Member expressly consents to
the exercise by the Managers of the rights, powers, and authority conferred on
the Managers by this Agreement.

         SECTION 5.9.      Other Business of Members.

                  (a)      Subject to (b) below, any Member, including any
         Manager, may engage independently or with others in other business
         ventures of every nature and description, including without limitation
         the purchase of medical equipment, the rendering of medical services
         of any kind, and the making or management of other investments and
         neither the Company nor any Member shall have any right by virtue of
         this Agreement or the relationship created hereby in or to such other
         ventures or activities or to the income or proceeds derived therefrom,
         and the pursuit of such ventures.

                                      15
<PAGE>
                  (b)      As long as any Member owns a Membership Interest in
         the Company, and for a period of five (5) years after a Member ceases
         for any reason to own a Membership Interest in the Company, neither a
         Member nor any of its respective Affiliates, shall hold, directly or
         indirectly, an investment, ownership or other beneficial interest in
         (i) any hospital or (ii) other Entity (including a sole
         proprietorship) which provides any of the following services or
         facilities: cardiac catheterization, angioplasty, peripheral
         angioplasty, atherectomy, stenting and PTCA or other cardiac surgical
         procedures or services ("Cardiac Services"), in any case within a
         fifty (50) mile radius of the Hospital provided however in all events
         Hamilton County, Ohio is expressly excluded from such territory (the
         "Territory"), provided that (i) no Member or Affiliate who is a
         physician shall be prohibited from maintaining his or her staff
         privileges at any other hospital and (ii) nothing herein shall
         prohibit a Member or Affiliate from owning up to three percent (3%) of
         the outstanding capital stock of a company whose stock is publicly
         traded and listed on a nationally recognized securities exchange or
         from investing in a publicly traded mutual fund. In addition, DTO
         Management or its Affiliates may separately operate a mobile
         catheterization laboratory within the Territory, but only if either
         DTO Management or an Affiliate thereof is providing such service
         pursuant to a lease of six (6) months or less to a provider who is
         already providing cath lab services or if the Investor Manager has
         elected not to have such service provided by the Company.

                  (c)      The Members, including the Managers, have reviewed
         the term and geographical restrictions included in Section 5.9(b), and
         in light of the interests of the parties hereto, agree that such
         restrictions are fair and reasonable.

                  (d)      If there is a breach or threatened breach of the
         provisions of this Section 5.9 of this Agreement, in addition to other
         remedies at law or equity, the non-breaching party shall be entitled
         to injunctive relief. The parties desire and intend that the
         provisions of this Section 5.9 shall be enforced to the fullest extent
         permissible under the law and public policies applied, but the
         unenforceability or modification of any particular paragraph,
         subparagraph, sentence, clause, phrase, word, or figure shall not be
         deemed to render unenforceable the remainder of this Section 5.9.
         Should any such paragraph, subparagraph, sentence, clause, phrase,
         word, or figure be adjudicated to be wholly invalid or unenforceable,
         the balance of this Section 5.9 shall thereupon be modified in order
         to render the same valid and enforceable and the unenforceable portion
         of this Section 5.9 shall be deemed to have been deleted from this
         Agreement.

                  (e)      The Company, the Managers and the Members agree that
         the benefits to any Member hereunder do not require, are not payment
         for, and are not in any way contingent upon the referral, admission or
         any other arrangement for the provision of any item or service offered
         by DTO Management or the Company to patients of such Member in any
         facility, laboratory, cardiac catheterization facility or other health
         care operation controlled, managed or operated by DTO Management or
         the Company and nothing herein is intended to prohibit any party from
         practicing medicine at any other facility.

                  (f)      If an Investor Member is a legal entity and not an
         individual, such Investor Member shall cause each of its existing and
         future Affiliates to agree in writing to be personally bound by the
         terms of this Section 5.9.

                                      16
<PAGE>
         SECTION 5.10.     Managers' Standard of Care. Each Manager shall act
in a manner it believes in good faith to be in the best interest of the Company
and with such care as an ordinarily prudent Person in a like position would use
under similar circumstances. In discharging its duties, each Manager shall be
fully protected in relying in good faith upon the records required to be
maintained under this Agreement and upon such information, opinions, reports
and statements by any of the other Managers, Members, or agents, or by any
other Person as to matters each Manager reasonably believes are within such
other Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, income or losses of the Company or any other facts pertinent to
the existence and amount of assets from which distributions to members might
properly be paid.

         Notwithstanding anything herein to the contrary, a Manager or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Member or
Manager in the outcome of any vote, decision or matter.

         SECTION 5.11.     Limitation of Liability. A Manager shall not be
liable to the Company, its Members, or other Managers for any action taken in
managing the business or affairs of the Company if it performs the duty of its
office in compliance with the standard contained in Section 5.10. No Manager
has guaranteed nor shall have any obligation with respect to the return of a
Member's Capital Contribution or share of income from the operation of the
Company. Furthermore, no Manager, its Affiliates or its employees
(collectively, its "Agents") shall be liable to the Company or to any Member
for any loss or damage sustained by the Company or any Member except loss or
damage resulting from gross negligence or intentional misconduct or knowing
violation of law or a transaction for which such Manager or Agent received a
personal benefit in violation or breach of the provisions of this Agreement.

         SECTION 5.12.     Indemnification of the Managers.

                  (a)      Each Manager and its Agents (as defined in Section
         5.11) shall be indemnified by the Company against any losses,
         judgments, liabilities, expenses, including attorneys' fees and
         amounts paid in settlement of any claims sustained by them arising out
         of any action or inaction of the Member or its Agents in its capacity
         as a Manager of the Company (or, in the case of an Agent, within the
         scope of the Manager's authority) to the fullest extent allowed by
         law, provided that the same were not the result of gross negligence or
         willful misconduct on the part of the Manager or an Agent and provided
         that the Manager or an Agent, in good faith, reasonably determined
         that such course of conduct was in the best interest of the Company;
         provided, however, that such indemnification and agreement to hold
         harmless shall be recoverable only out of Company assets. Subject to
         applicable law, the Company shall advance expenses incurred with
         respect to matters for which a Manager may be indemnified hereunder.

                  (b)      If at any time, the Company has insufficient funds
         to furnish indemnification as herein provided, it shall provide such
         indemnification if and as it generates sufficient funds and prior to
         any cash distributions, pursuant to Article VI or Article VII hereof,
         to the Members.

                                      17
<PAGE>
         SECTION 5.13.     Election and Replacement of Investor Manager. In
accordance with the procedures outlined in Section 10.1 herein, the Investor
Members shall elect an Investor Manager to serve for one year terms or until a
successor is duly elected. At any time, in accordance with Section 10.1, the
Investor Members may replace the Investor Manager and elect a new Investor
Manager.

         SECTION 5.14.     Role of and Decisions by Investor Manager.
Notwithstanding anything herein to the contrary, the Investor Manager shall
take no action nor make any decision on behalf of the Company except to the
extent it is expressly authorized to do so under this Agreement in its capacity
as Investor Manager.

         SECTION 5.15.     Purchase of Goods and Services from DTO Management.
Goods and services purchased from DTO Management or its Affiliates shall be of
substantially the same quality and price as could be obtained from an unrelated
third party.

         SECTION 5.16.     Decisions by Managers. Except as provided in this
Agreement, decisions and actions to be taken by the Managers shall be deemed to
have been made only upon the affirmative approval or consent of DTO Management
and the Investor Manager. In the event a decision, approval or consent is
requested of the Investor Manager by DTO Management, it shall be deemed to have
been affirmatively made if the Investor Manager fails to respond to any such
written request therefor within five (5) days of notice thereof by DTO
Management. Notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the Managers with respect to any loan,
lease or other similar financing of the development, construction or operation
of the Hospital or the Company's affairs, including without limitation the
decisions with respect to incurring any indebtedness or the refinancing
thereof, shall be made by DTO Management and shall be subject to the consent of
the Investor Manager, which consent shall not be unreasonably withheld;
provided, the application of the Company's funds toward the repayment of all or
a portion of any financing of the Company in excess of amounts then required to
be paid (i.e., voluntary prepayments) shall be made only with the consent of
DTO Management and the Investor Manager. The Investor Manager shall be deemed
to have specifically approved all expenditures proposed by DTO Management that
are substantially consistent with the Development Budget Exhibit or an approved
operating budget when funded from additional Capital Contributions made to the
Company by the Members pursuant to Section 3.5 above.

         The development and annual operating budgets to be proposed by DTO
Management shall be approved by the Managers as provided above subject to the
following:

                  (a)      The Investor Manager shall be deemed to have
         approved a development budget which is substantially consistent with
         the attached Development Budget Exhibit to this Agreement;

                  (b)      The Investor Manager shall not unreasonably withhold
         its approval of budgets which are within the reasonable revenue
         expectations of the Hospital and which are in compliance (both as to
         terms and availability of financing) with agreements with the
         Company's lenders and other parties providing financing to the
         Company; and

                                      18
<PAGE>
                  (c)      In the event that the Managers are unable to approve
         an annual budget, DTO Management shall be authorized to operate the
         Company under the previous year's budget increased by the greater of
         5% or the increase during the previous year in the Consumer Price
         Index for Medical Items until a new budget is approved.

         SECTION 5.17.     Guarantee Fee. In the event that any Member of the
Company or its Affiliates provide a guarantee of any indebtedness of the
Company which is acceptable to and required by the Company's lenders
("Guarantor Members") and such guarantees are not provided on a pro rata basis
by all other Members of the Company (the "Nonguarantor Members"), then the
Guarantor Members shall be paid an annual guarantee fee equal to (a) the amount
of such indebtedness which is guaranteed by the Guarantor Members or its
Affiliates, multiplied by (b) .0075, multiplied by (c) the percentage
Membership Interest in the Company owned by the Nonguarantor Members (the
"Guarantee Fee"). The Guarantee Fee shall be paid quarterly and the expense
thereof shall be allocated to the Nonguarantor Members as follows:

                  (a)      The Guarantee Fee shall be deducted from the Cash
         Distributions otherwise distributable to the Nonguarantor Members and
         shall be paid to the Guarantor Members;

                  (b)      To the extent that at the time such Guarantee Fee is
         due to be paid hereunder there are no anticipated Cash Distributions,
         then the Company shall pay such Guarantee Fee to the Guarantor Members
         and the amount of such payments shall be charged to the Capital
         Accounts of the Nonguarantor Members;

                  (c)      When Cash Distributions become available for
         distribution to the Members in the future, the Cash Distributions
         otherwise distributable to the Nonguarantor Members shall first be
         retained by the Company to the extent that amounts were previously
         charged to the Capital Accounts of the Nonguarantor Members in
         accordance with (b) above and any remaining Cash Distributions shall
         be distributed to the Members in accordance with Section 6.1.

                                   ARTICLE VI

                         DISTRIBUTIONS AND ALLOCATIONS

         SECTION 6.1.      Distributions of Cash Flow from Operations and Cash
from Sales or Refinancing. Prior to the dissolution of the Company, Cash Flow
from Operations and Cash from Sales or Refinancing, if any, remaining after
repayment of any amounts then due on loans made by the Members to the Company,
shall be distributed quarterly by the Managers as Cash Distributions according
to the relative percentage Membership Interests of the Members and Economic
Interest Owners; provided, however, that to the extent possible, any Guarantee
Fee shall be deducted from the Cash Distributions otherwise distributable to
the Nonguarantor Members and paid to the Guarantor Members as set forth in
Section 5.16. Notwithstanding anything herein to the contrary, no distributions
shall be made to Members if prohibited by the Act.

                                      19
<PAGE>
         SECTION 6.2.      Profits. Except as provided in the Regulatory
Allocations Exhibit and subject to Section 6.6, Profits shall be allocated as
follows:

                  (a)      First, to the Members who have been allocated Losses
         pursuant to Subsection 6.3(c) below until the cumulative Profits
         allocated pursuant to this Subsection 6.2(a) equal the cumulative
         prior allocations of Losses under that Subsection.

                  (b)      Next, to the Members who have been allocated Losses
         pursuant to Subsection 6.3(b) below until the cumulative Profits
         allocated pursuant to this Subsection 6.2(b) equal the cumulative
         prior allocations of Losses under that Subsection.

                  (c)      All remaining Profits shall be allocated to the
         Members in accordance with their percentage Membership Interests.

         SECTION 6.3.      Losses. Except as provided in the Regulatory
Allocations Exhibit and subject to Section 6.6, Losses shall be allocated as
follows

                  (a)      First, Losses shall be allocated to the Members with
         positive Adjusted Capital Account balances in proportion to those
         balances.

                  (b)      All remaining Losses shall be allocated to the
         Members in accordance with their percentage Membership Interests.

         SECTION 6.4.      Code Section 704(c) Tax Allocations. Income, gain,
loss, and deduction with respect to any property contributed to the capital of
the Company shall, solely for tax purposes, be allocated among the Members so
as to take account of any variation between the adjusted basis of such property
to the Company for federal income tax purposes and its initial Agreed Value
pursuant to any method allowable under Code Section 704(c) and the Regulations
promulgated thereunder.

         In the event the Agreed Value of any Company asset is adjusted after
its contribution to the Company, subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take into account any variation
between the adjusted basis of such asset for federal income tax purposes and
its Agreed Value pursuant to any method allowable under Code Section 704(c) and
the Regulations promulgated thereunder.

         Any elections or other decisions relating to allocations under this
Section shall be determined by DTO Management. Absent a determination by DTO
Management, the remedial allocation method under Regulation Section 1.704-3(d)
shall be used. Allocations pursuant to this Section are solely for purposes of
federal, state, and local taxes and shall not be taken into account in
computing any Member's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.

         SECTION 6.5.      Miscellaneous.

                  (a)      Allocations Attributable to Particular Periods. For
         purposes of determining Profits, Losses or any other items allocable
         to any period, such items shall be

                                      20
<PAGE>
         determined on a daily, monthly, or other basis, as determined by DTO
         Management using any permissible method under Code Section 706 and the
         Regulations thereunder.

                  (b)      Other Items. Except as otherwise provided in this
         Agreement, all items of Company income, gain, loss, deduction, credit
         and any other allocations not otherwise provided for shall be divided
         among the Members in the same proportion as they share Profits or
         Losses, as the case may be, for the year.

                  (c)      Tax Consequences; Consistent Reporting. The Members
         are aware of the income tax consequences of the allocations made by
         this Article and by the Regulatory Allocations and hereby agree to be
         bound by those allocations as reflected on the information returns of
         the Company in reporting their shares of Company income and loss for
         income tax purposes. Each Member agrees to report its distributive
         share of Company items of income, gain, loss, deduction and credit on
         its separate return in a manner consistent with the reporting of such
         items to it by the Company. Any Member failing to report consistently,
         and who notifies the Internal Revenue Service of the inconsistency as
         required by law, shall reimburse the Company for any legal and
         accounting fees incurred by the Company in connection with any
         examination of the Company by federal or state taxing authorities with
         respect to the year for which the Member failed to report
         consistently.

                  (d)      Economic Interest Owners. Each Economic Interest
         Owner shall be entitled to the distributions and allocations to which
         its predecessor in interest would have been entitled under this
         Article VI had it retained the Economic Interest acquired by the
         Economic Interest Owner.

         SECTION 6.6.      Special Allocations of Guarantee Fees. Any and all
deductions, losses or reductions to Capital Accounts attributable to the
payment by the Company of Guarantee Fees shall be allocated to the Nonguarantor
Members in accordance with their relative percentage Membership Interests.

                                  ARTICLE VII

             DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

         SECTION 7.1.      No Termination by Certain Acts of Member. Neither
the transfer of interest, withdrawal from the Company, bankruptcy, insolvency,
dissolution, liquidation or other disability, nor the legal incompetency of any
Member shall result in the termination or dissolution of the Company or affect
its continuance in any manner whatsoever.

         SECTION 7.2.      Dissolution. The Company shall be dissolved upon the
happening of any of the following events, whichever shall first occur:

                  (a)      The election by DTO Management to dissolve the
         Company in accordance with the terms of Section 3.5(c) hereof;

                                      21
<PAGE>
                  (b)      Intentionally omitted.

                  (c)      Upon the written agreement of DTO Management and the
         Investor Manager;

                  (d)      The expiration of the term of the Company as
         provided in Section 2.5 hereof;

                  (e)      The adjudication of bankruptcy of the Company;

                  (f)      Upon the written consent of a Supermajority Vote of
         the Members;

                  (g)      In accordance with Section 12.11 hereof; and

                  (h)      The entry of a decree of judicial dissolution or the
         administrative dissolution of the Company as provided in the Act.

         SECTION 7.3.      Dissolution and Final Liquidation.

                  (a)      Upon any dissolution of the Company, the Company
         shall not terminate, but shall cease to engage in further business
         except to the extent necessary to perform existing contracts and
         preserve the value of its assets. Its assets shall be liquidated and
         its affairs shall be wound up as soon as practical thereafter by the
         Managers, or if for any reason there is no Manager, by another Person
         designated by a Supermajority Vote of the Members. In winding up the
         Company and liquidating assets, the Managers, or other Person so
         designated for such purpose, may arrange, either directly or through
         others, for the collection and disbursement to the Members of any
         future receipts from the Hospital or other sums to which the Company
         may be entitled, and shall sell the Company's interest in the Hospital
         and the Equipment to any Person, including DTO Management or any
         Affiliate thereof, on such terms and for such consideration as shall
         be consistent with obtaining the fair market value thereof, as such
         fair market value is approved by a Supermajority Vote of the Members.

                  (b)      Upon any such dissolution and liquidation of the
         Company, the net assets, if any, of the Company available for
         distribution, including any cash proceeds from the liquidation of
         Company assets, shall be applied and distributed in the following
         manner or order, to the extent available:

                           (i)      To the payment of or creation of reserves
                  for all debts, liabilities, and obligations to all creditors
                  of the Company (other than the Members or their Affiliates)
                  and the expenses of liquidation;

                           (ii)     To the payment of all debts and liabilities
                  (including interest), and further including without
                  limitation any accrued but unpaid Guarantee Fees, owed to the
                  Members or their Affiliates as creditors; and

                                      22
<PAGE>
                           (iii)    The balance to the Members with positive
                  Capital Account balances after taking into account all other
                  adjustments during the Fiscal Year in which liquidation
                  occurs.

                  (c)      The Members shall look solely to the assets, if any,
         of the Company for any return of their Capital Contributions and, if
         the assets of the Company remaining after payment or discharge of the
         Company's debts and liabilities, or provision therefor, are
         insufficient to return all or any part of the Capital Contributions,
         no Member shall have any right of recourse against the Managers or
         other Members or to charge the Managers or other Members for any
         amounts except as provided herein and except to the extent otherwise
         provided by the Act and/or North Carolina law.

                  (d)      Upon such dissolution, reasonable time shall be
         allowed for the orderly liquidation of the assets of the Company and
         the discharge of liabilities to creditors so as to minimize the losses
         normally attendant to a liquidation.

                  (e)      The Capital Accounts of the Members, as adjusted,
         shall be utilized by the Company for the purpose of making
         distributions to those Members with positive balances in their
         respective Capital Accounts pursuant to Section 7.3(b). In making such
         distributions, the Managers or the Person winding up the affairs of
         the Company shall distribute all funds available for distribution to
         the Members and Economic Interest Owners (after establishing any
         reserves that the Managers deem or the Person winding up the affairs
         of the Company deems reasonably necessary pursuant to Section 7.3(b))
         prior to the later of (a) the end of the taxable year in which the
         event occurs which caused the termination and dissolution of the
         Company, or (b) ninety (90) days after the occurrence of such event.
         The Managers in their sole discretion, or the Person winding up the
         affairs of the Company, in its discretion, may elect to have the
         Company retain any installment obligations owed to the Company until
         collected in full so long as any portion of the reserves which are
         later determined to be unnecessary, and all collections on such
         installment obligations which are not deemed to be reasonably
         necessary by the Managers or the Person winding up the affairs of the
         Company to add to such reserves are distributed as soon as practicable
         in accordance with the provisions of Section 7.3(b) as modified by
         this Section.

                  (f)      Each Economic Interest Owner shall be entitled to
         the distributions to which its predecessor in interest would have been
         entitled pursuant to this Article VII had it retained the Economic
         Interest acquired by the Economic Interest Owner.

         SECTION 7.4.      Termination. Upon completion of the dissolution,
winding up, distribution of the liquidation proceeds and any other Company
assets, the Company shall terminate.

         SECTION 7.5.      Payment in Cash. Any payments made to any Member
pursuant to this Article VII shall be made only in cash.

         SECTION 7.6.      Goodwill and Trade Name. Upon the dissolution of the
Company, the firm or trade name of the Company and any goodwill associated
therewith shall become the sole property of DTO Management, provided that
distributions and allocations otherwise due to DTO

                                      23
<PAGE>
Management shall not be reduced as a result of DTO Management becoming entitled
to such assets.

         SECTION 7.7.      Termination of Noncompetition Covenants. Upon the
later of the dissolution of the Company and the completion of the liquidation
process, the Members shall have no continuing liability, or obligation under
Section 5.9(b) except that Section 5.9(b) shall continue to be binding upon a
Member whose breach of this Agreement caused a dissolution of the Company and
any actions for a breach of this Agreement, including a breach of Section
5.9(b), shall not be impaired by the dissolution or completed liquidation.

                                  ARTICLE VIII

         REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND TRANSFER OF
                 MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS

         SECTION 8.1.      Manager - Transfers.

                  (a)      Except as provided in this Section 8.1, without the
         consent of a Majority Vote of Investor Members, DTO Management shall
         not voluntarily withdraw from the Company as a Member at any time
         prior to its termination, or transfer or assign any of its rights and
         duties as a Manager, provided that DTO Management may assign its
         Membership Interest in the Company and its rights to be a Manager to
         any party who purchases all or substantially all of MedCath
         Corporation's or MedCath Incorporated's and their subsidiaries' assets
         or capital stock if such purchaser assumes in writing the obligations
         of DTO Management hereunder or to a party under control of, common
         control, or which controls, DTO Management. DTO Management may also
         assign its Membership Interest in the Company and its rights to be a
         Manager to a financial institution as collateral security for
         repayment of indebtedness for borrowed funds by MedCath Corporation,
         MedCath Incorporated or their Affiliates. In the event that DTO
         Management desires to sell any Membership Interest and such sale is
         not in connection with the sale of all or substantially all of the
         assets or capital stock of MedCath Corporation or MedCath Incorporated
         and their subsidiaries, then the other Members shall first have an
         option to purchase such Membership Interest in accordance with the
         Right of First Refusal provided in Section 8.4. If upon any transfer
         of DTO Management's Membership Interest, DTO Management is not
         permitted to assign its rights as Manager under this Section 8.1(a),
         DTO Management shall not continue as Manager after said transfer, and
         the provisions of Section 8.2 shall apply.

                  (b)      The Investor Manager may not assign its rights to be
         a Manager herein. Upon the withdrawal or resignation of the Investor
         Manager elected by the Investor Members, a substitute therefor, who
         must be an Investor Member, may be elected by a Majority Vote of
         Investor Members.

                  (c)      Any resignation or withdrawal by a Manager as a
         manager shall not constitute such Manager's withdrawal as a Member.

                  (d)      The Manager will not, without the consent of the
         Investor Manager, pledge the assets of the Hospital except for the
         benefit of the Hospital.

                                      24
<PAGE>
         SECTION 8.2.      Members' Right to Continue When Company has no
Manager. If at any time there is no remaining Manager, a meeting of the Members
shall be held at the principal place of business of the Company within
forty-five (45) days after the happening of such event to consider whether to
continue the Company on the same terms and conditions as are contained in this
Agreement (except that the Managers may be different) and to select a Manager
for the Company, or whether to wind up the affairs of the Company, liquidate
its assets and distribute the proceeds therefrom in accordance with Article VII
hereof. The Company may be continued and a new Manager (who accepts such
appointment) selected by the Members within ninety (90) days of the occurrence
of the event described in Section 7.2(b) with respect to the last Manager. The
new Manager shall execute, acknowledge, file or record (as appropriate)
Articles of Organization and an Operating Agreement, or amendments to those
documents, and such other documents as may be required by the Act. The
continuance of the Company pursuant to the terms of this Section 8.2 is
conditioned upon (i) any amendment required by the Act of the Articles of
Organization to reflect the foregoing change and, if applicable, compliance by
the Company with any notice provisions of the Act and (ii) delivery to the
withdrawing Manager of an indemnification agreement by the Company, in form and
substance reasonably satisfactory to the withdrawing Manager, indemnifying and
holding the withdrawing Manager harmless against all future liabilities of the
Company.

         SECTION 8.3.      Relationship with Substitute Manager. The
relationship of the Members to any Person that has either acquired the
Membership Interest of DTO Management or has been elected as a successor
Manager as provided herein shall be governed by this Agreement. If such Person
was not previously a Manager, then such Person, as Substitute Manager, shall
have all the rights and powers of its predecessor Manager under this Agreement;
provided, such Person assumes in writing the obligations of such Manager under
this Agreement and any arising thereafter, and accepts and adopts all the terms
and provisions of this Agreement in writing. The withdrawing Manager shall be
liable for all of its covenants and obligations under this Agreement for all
periods prior to its withdrawal until such liability is assumed by a Substitute
Manager.

         SECTION 8.4.      Members Who Are Not Managers - Restriction on
Transfer. Except as otherwise set forth in this Section or in this Agreement,
no Economic Interest and/or Membership Interest of an Investor Member or any
portion thereof, shall be validly sold or assigned whether voluntarily,
involuntarily or by operation of law, and no purported assignee shall be
recognized by the Company for any purpose, unless such Economic Interest and/or
Membership Interest shall have been transferred in accordance with the
provisions of this Agreement and in compliance with such additional
restrictions as may be imposed by DTO Management to comply with requirements
imposed by any federal or state securities regulatory authority and unless DTO
Management's consent is obtained. In no event, however, shall an Investor
Member transfer or sell all or any of its Economic Interest and/or Membership
Interest to any party which, if a Member, would be in violation of Section
5.9(b) hereof. Except as otherwise set forth in this Section or in this
Agreement, an Investor Member may transfer, sell or assign its entire Economic
Interest and/or Membership Interest if it has received the approval of DTO
Management, not to be unreasonably withheld, provided however: (a) the Company
first for a period of fifteen (15) days, and thereafter the other Members for a
period of fifteen (15) days shall have the right, but not the obligation, to
purchase all, but not less than all, of the Economic Interest and/or Membership
Interest proposed to be transferred, which right shall be

                                      25
<PAGE>
exercisable on the terms and for the purchase price set forth in writing in a
bona fide offer made for the Interests by a third-party (the "Right of First
Refusal"), and (b) there shall have been filed with the Company a duly executed
and acknowledged counterpart of the instrument making such assignment signed by
both the assignor and assignee and such instrument evidences the written
acceptance by the assignee of all of the terms and provisions of the Agreement,
represents that such assignment was made in accordance with all applicable laws
and regulations and the assignee shall have represented to the Company in
writing that it meets the investor suitability standards established by the
appropriate state of residence, or, in the absence thereof, the investor
suitability standards established by the Company. DTO Management shall use
reasonable care to determine that transfers are in accordance with applicable
laws and regulations, including obtaining an opinion of counsel to that effect.
Any Member who is not a Manager that assigns all its Membership Interest shall
cease to be a Member of the Company. Any Membership Interests acquired by the
Company pursuant to Section 8.4 shall, subject to applicable law, be re-offered
by the Company to suitable investors.

         Any dissolution, liquidation, merger (unless Members or their
Affiliates as of the Effective Date and existing prior to such merger own at
least fifty-one percent (51%) of the surviving entity after the merger or
unless both parties to such merger are majority owned by parties who are
Members or their Affiliates as of the Effective Date and prior to such merger)
or sale of a Member or of ProWellness which is an Entity (a sale shall include
a transfer of fifty percent (50%) or more of its ownership interests or of
fifty (50%) percent or more of its assets or any other transaction or series of
related transactions intended to accomplish, in substance, a sale of such
Entity) shall constitute an offer by such Member, to sell such Member's
Interest pursuant to Section 8.4 for the Formula Purchase Price (as defined in
Section 8.9 below). The Members who are Entities as of the Effective Date have
provided copies to DTO Management of the documents and agreements related to
the creation and governance thereof. These documents and agreements have not
been amended since they were provided to DTO Management and shall not be
amended without DTO Management's written consent. The restriction of the
foregoing sentence shall not apply to Entities which have historically been
dedicated solely to the practice of medicine and continue to be dedicated
solely to the practice of medicine in the future.

         Notwithstanding anything herein to the contrary, in the event that no
later than December 31, 2001 MedCath Holdings, Inc. ("MHI") or one of MHI's
Affiliates conducts an underwritten public offering of the common stock of MHI
or its Affiliate pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect, and MHI or MHI's Affiliate offers
shares of its common stock or cash to any Member in exchange for such Member's
Membership Interest or a portion thereof (the "Exchange"), MHI and its
Affiliates and the Member may, notwithstanding the terms of this Agreement,
engage in such Exchange upon such terms as the Member and MHI or MHI's
Affiliate may mutually agree, and the Exchange shall not be subject to any
restrictions on the transfer of Membership Interests or rights of first refusal
of the Company or of any other Member set forth in this Agreement, including,
but not limited to, those restrictions set forth in this Section 8.4.

         SECTION 8.5.      Condition Precedent to Transfer of Economic Interest
and/or Membership Interest. Notwithstanding anything herein to the contrary, no
transfer of an Economic Interest and/or Membership Interest may be made if such
transfer (a) constitutes a violation of the registration provisions of the
Securities Act of 1933, as amended, or the registration provisions of any
applicable state securities laws; (b) if after such transfer the

                                      26
<PAGE>
Company will not be classified as a partnership for federal income tax
purposes; and (c) if when taken together with other prior transfers, results in
a "termination" of the Company for federal income tax purposes. The Company may
require, as a condition precedent to transfer of an Economic Interest and/or
Membership Interest, delivery to the Company, at the proposed transferor's
expense, of an opinion of counsel satisfactory (both as to the counsel and
substance of the opinion) to DTO Management that the transfer will not violate
any of the foregoing restrictions.

         SECTION 8.6.      Substitute Member - Conditions to Fulfill. No
assignee of a Member's Membership Interest in the Company shall have the right
to become a Substitute Member in place of its assignor unless, in addition to
any other requirement herein, all of the following conditions are satisfied:

                  (a)      The Company has waived its right pursuant to Section
         8.4 to purchase the Membership Interest held by the assignee;

                  (b)      The duly executed and acknowledged written
         instrument of assignment which has been filed with the Company sets
         forth that the assignee becomes a Substitute Member in place of the
         assignor;

                  (c)      The assignor and assignee execute and acknowledge
         such other instruments as DTO Management may deem reasonably necessary
         or desirable to effect such admission, including, but not limited to,
         the written acceptance and adoption by the assignee of the provisions
         of this Agreement;

                  (d)      The written consent of DTO Management and the
         Investor Manager to such substitution is obtained, which consent may
         be reasonably withheld by DTO Management and the Investor Manager; and

                  (e)      The payment by the assignee of all costs to the
         Company associated with the transaction, including but not limited to
         legal fees, transfer fees, and filing fees.

         SECTION 8.7.      Allocations Between Transferor and Transferee. Upon
the transfer of a Member's Economic Interest or Membership Interest, all items
of income, gain, loss, deduction and credit attributable to the Economic
Interest or Membership Interest so transferred shall be allocated between the
transferor and the transferee in such manner as the transferor and transferee
agree at the time of transfer; provided such allocation does not violate
federal or state income tax law. If DTO Management, in its sole discretion,
deems such laws violated, then such allocation shall be made pro rata for the
fiscal year based upon the number of days during the applicable fiscal year of
the Company that the Economic Interest or Membership Interest so transferred
was held by the transferor and transferee, without regard to the results of
Company activities during the period in which each was the holder, or in such
other manner as DTO Management deems necessary to comply with federal or state
income tax laws. Distributions as called for by this Agreement shall be made to
the holder of record of the Economic Interest or Membership Interest on the
date of distribution. Notwithstanding anything contained in this Agreement to
the contrary, both the Company and DTO Management shall be entitled to treat
the assignor of any assigned Economic Interest or Membership Interest as the
absolute owner thereof in all respects, and shall incur no liability for
distributions made in good faith to such assignor in

                                      27
<PAGE>
reliance on the Company records as they exist until such time as the written
assignment has been received by, and recorded on the books of the Company. For
purposes of this Article VIII, the effective date of an assignment of any
Economic Interest or Membership Interest shall be the last day of the month
specified in the written instrument of assignment.

         SECTION 8.8.      Rights, Liabilities of, and Restrictions on
Assignee. No assignee of a Member's Economic Interest or Membership Interest
shall have the right to participate in the Company, inspect the books of
account of the Company or exercise any other right of a Member unless and until
admitted as a Substitute Member. Notwithstanding DTO Management's failure or
refusal to admit an assignee as a Substitute Member, such assignee shall be
entitled to receive the share of income, credit, gain, expense, loss and
deduction and cash distributions provided hereunder that is assigned to it,
and, upon demand, may receive copies of all reports thereafter delivered
pursuant to the requirements of this Agreement; provided, the Company shall
have first received notice of such assignment and all required consents thereto
shall have been obtained and other conditions precedent to transfer thereof
shall have been satisfied. The Company's tax returns shall be prepared to
reflect the interests of assignees as well as Members.

         SECTION 8.9.      Death of a Member. If any Member is an individual,
heirs of such a Member shall be entitled to inherit the Membership Interests of
a deceased Member, provided that upon a Member's death such interests shall be
automatically converted to an Economic Interest only in the Company until such
heir agrees in writing to all of the terms and conditions of this Agreement and
such other reasonable terms as may be established by DTO Management as a
condition to such heir becoming a Member, in which event such interest shall
again become a Membership Interest in the Company. Notwithstanding the previous
sentence, within one hundred twenty (120) days of the Company first learning of
the death of a Member, the Company shall have the option to purchase the
Membership Interest of the deceased Member, and the estate of the deceased
Member shall be obligated to sell such Membership Interest to the Company, in
accordance with the terms of this Section 8.9. The Company may exercise its
option by giving written notice thereof to the estate of the deceased Member,
or the appropriate representative thereof, within such one hundred twenty (120)
day period. The purchase price for such Membership Interest shall equal five
(5) multiplied by the net income (as reasonably determined by the Company's
accountants) of the Company for the twelve (12) month period ending as of the
calendar quarter most recently ended prior to the death of such Member
multiplied by the percentage Membership Interest of such Member in the Company
(the "Formula Purchase Price"). The purchase price shall be paid (the "Payment
Method") in three (3) equal annual installments, the first third of which shall
be paid upon the determination of the purchase price and the remaining two (2)
installments of which shall be paid on the first and second anniversary of such
date. The outstanding amounts due from the Company to the estate of the
deceased Member shall bear interest at Prime Rate as of the date of such
Member's death. Accrued interest shall be paid as of the dates payments of
principal are due as provided above. If the Investor Member is an Entity, the
agreements for the formation and the governance of such Entity shall provide
for the disposition of the membership interest of a deceased member of the
Investor Member Entity, which disposition shall be subject to DTO Management's
approval.

                                      28
<PAGE>
         SECTION 8.10.     Repurchase of Interests in Certain Event.

                  (a)      In the discretion of DTO Management, the Company
         may, but is not obligated to, repurchase a Member's Economic Interest
         or Membership Interest upon such Member's breach of the Member's
         obligations contained in Article III, Sections 5.9, 8.1(b), 8.4, 8.9,
         12.1 and 12.11 of this Agreement.

                  (b)      Each Member agrees to sell its Membership Interest
         to the Company in the event DTO Management elects to exercise the
         right of repurchase granted under Section 8.10(a) and the purchase
         price shall the lower of (x) the Capital Contributions of the Member
         less all amounts distributed to such Member by the Company, (y) the
         fair market value of such Member's Membership Interest determined by
         an independent appraiser reasonably selected by DTO Management, and
         (z) the formula Purchase Price; provided however, in the event that
         the Company elects to purchase any Membership Interest due to a
         Member's failure to make a required Capital Contribution pursuant to
         Section 3.5, the purchase price therefor shall be determined solely
         under (x) above.

         SECTION 8.11.     Permissible Transfers by Investor Members.
Notwithstanding anything in this Agreement to the contrary, an Investor Member
may elect within ninety (90) days of acquiring a Membership Interest in the
Company to assign its Membership Interest to a corporation, limited liability
company or limited partnership formed and maintained for the purpose of holding
such Membership Interest, or for additional purposes approved by DTO Management
by advance written consent, if such assignee is owned by the Investor Member or
such assignee's owners are substantially identical to the owners of such
Investor Member as long as such assignee and its Affiliates agree in writing to
be bound by all the terms and conditions of this Agreement and DTO Management
first approves in writing the terms of all documents creating and constituting
such Entity.

                                   ARTICLE IX

                        RECORDS, ACCOUNTINGS AND REPORTS

         SECTION 9.1.      Books of Account. At all times during the
continuance of the Company, DTO Management shall maintain or cause to be
maintained true and full financial records and books of account showing all
receipts and expenditures, assets and liabilities, income and losses, and all
other records necessary for recording the Company's business and affairs
including those sufficient to record the allocations and distributions required
by the provisions of this Agreement.

         SECTION 9.2.      Access to Records. The books of account and all
documents and other writings of the Company, including the Articles of
Organization and any amendments thereto, shall at all times be kept and
maintained by DTO Management or, if required by law, at the registered office
of the Company. Each Member or its designated representatives shall, upon
reasonable notice to DTO Management, have access to such financial books,
records and documents during reasonable business hours and may inspect and make
copies of any of them.

                                      29
<PAGE>
         SECTION 9.3.      Bank Accounts and Investment of Funds.

                  (a)      DTO Management shall open and maintain, on behalf of
         the Company, a bank account or accounts in a federally insured bank or
         savings institution as it shall determine, in which all monies
         received by or on behalf of the Company shall be deposited. All
         withdrawals from such accounts shall be made upon the signature of
         such Person or Persons as DTO Management may from time to time
         designate.

                  (b)      Any funds of the Company which DTO Management may
         determine are not currently required for the conduct of the Company's
         business may be deposited with a federally insured bank or savings
         institution or invested in short-term debt obligations (including
         obligations of federal or state governments and their agencies,
         commercial paper, certificates of deposit of commercial banks, savings
         banks or savings and loan associations) as shall be determined by DTO
         Management in its sole discretion.

         SECTION 9.4.      Fiscal Year. The Fiscal Year and accounting period
of the Company shall end on September 30 of each year.

         SECTION 9.5.      Accounting Reports. As soon as reasonably
practicable after the end of each fiscal year but in no event later than 120
days after the end thereof, each Member shall be furnished an annual accounting
showing the financial condition of the Company at the end of such fiscal year
and the result of its operations for the fiscal year then ended, which annual
accounting shall be prepared on an accrual basis in accordance with generally
accepted accounting principles applied on a consistent basis and shall be
delivered to each of the Members promptly after it has been prepared. It shall
include a balance sheet as of the end of such Fiscal Year and statements of
income and expense, each Member's equity, and cash flow for such Fiscal Year.
The Company shall be audited on an annual basis by a firm of independent
certified public accountants engaged by DTO Management on behalf of the
Company. The report shall set forth the distributions to the Members for such
Fiscal Year and shall separately identify distributions from (i) operating
revenue during such Fiscal Year, (ii) operating revenue from a prior period
which had been held as reserves, (iii) proceeds from the sale or refinancing of
the Equipment, and (iv) unexpended proceeds received from the sale of
Membership Interests. Following the opening of the Hospital, DTO Management
shall also cause to be prepared and distributed to the Members quarterly
financial statements following DTO Management's public announcement of its
results for such quarter in a form and containing such information as
reasonably determined by DTO Management.

         SECTION 9.6.      Tax Returns. DTO Management shall cause income tax
returns for the Company to be prepared, at Company expense, and timely filed
with the appropriate authorities. As soon as is reasonably practicable, and in
any event on or before the expiration of 75 days following the end of each
Fiscal Year, each Member shall be furnished with a statement to be used in the
preparation of the Member's tax returns, showing the amounts of any Profits or
Losses allocated to the Member, and the amount of any distributions made to the
Member, pursuant to this Agreement, along with a reconciliation of the annual
report with information furnished to Members for income tax purposes.

                                      30
<PAGE>
                                   ARTICLE X

                     MEETINGS AND VOTING RIGHTS OF MEMBERS

         SECTION 10.1.     Meetings.

                  (a)      Meetings of the Members of the Company for any
         purpose may be called by DTO Management, the Investor Manager or by
         Investor Members holding in the aggregate ten percent (10%) of the
         Membership Interests. Such request shall state the purpose of the
         proposed meeting and the matters proposed to be acted upon thereat.
         Such meetings shall be held in the Dayton, Ohio area.

                  (b)      A notice of any such meeting shall be given by mail,
         not less than fifteen (15) days nor more than sixty (60) days before
         the date of the meeting, to each Member at its address as specified in
         Section 12.7. Such notice shall be in writing, and shall state the
         place, date and hour of the meeting, and shall indicate that it is
         being issued at or by the direction of DTO Management or by the
         Investor Members, as the case may be. The notice shall state the
         purpose or purposes of the meeting. If a meeting is adjourned to
         another time or place, and if any announcement of the adjournment of
         time or place is made at the meeting, it shall not be necessary to
         give notice of the adjourned meeting.

                  (c)      Each Member may authorize any Person or Persons to
         act for the Member by proxy in all matters in which a Member is
         entitled to participate, whether by waiving notice of any meeting, or
         voting or participating at a meeting. Every proxy must be signed by
         the Member or its attorney-in-fact. No proxy shall be valid after the
         expiration of eleven months from the date thereof unless otherwise
         provided in the proxy. Every proxy shall be revocable at the pleasure
         of the Member executing it.

         SECTION 10.2.     Voting Rights of Members.

                  (a)      Each Member shall take no part in or interfere in
         any manner with the control, conduct or operation of the Company, and
         shall have no right or authority to act for or bind the Company except
         as provided herein. Votes or decisions, to the extent taken or to be
         made, of the Members may be cast at any duly called meeting of the
         Company or in writing within ten (10) days after written request
         therefor. Each Member shall be entitled to the number of votes equal
         to the percentage Membership Interest of such Member.

                  (b)      No Member shall have the right or power to vote to:
         (i) withdraw or reduce the Member's Capital Contributions except as a
         result of the dissolution and liquidation of the Company or as
         otherwise provided by law or this Agreement; (ii) bring an action for
         partition against the Company; (iii) cause the termination and
         dissolution of the Company by court decree or otherwise, except as set
         forth in this Agreement; or (iv) demand or receive property other than
         cash in return for its Capital Contributions.

                                      31
<PAGE>
                                   ARTICLE XI

                                   AMENDMENTS

         SECTION 11.1.     Authority to Amend by the Managers. Except as
otherwise provided by Section 11.2, this Agreement and the Articles of
Organization of the Company may be amended by DTO Management with the approval
of the Investor Manager which approval shall not be unreasonably withheld or
delayed:

                  (a)      To admit additional Members or Substitute Members
         but only in accordance with and if permitted by the other terms of
         this Agreement;

                  (b)      To preserve the legal status of the Company as a
         limited liability company under the Act or other applicable state or
         federal laws if such does not change the substance hereof, and the
         Company has obtained the written opinion of its counsel to that
         effect;

                  (c)      To cure any ambiguity, to correct or supplement any
         provision herein which may be inconsistent with any other provision
         herein, to clarify any provision of this Agreement, or to make any
         other provisions with respect to matters or questions arising under
         this Agreement which will not be inconsistent with the provisions of
         this Agreement;

                  (d)      To satisfy the requirements of the Code and
         Regulations with respect to limited liability companies or of any
         federal or state securities laws or regulations, provided such
         amendment does not adversely affect the Membership Interests of
         Members and is necessary or appropriate in the written opinion of
         counsel and any amendment under this subsection (d) shall be effective
         as of the date of this Agreement;

                  (e)      To the extent that it can do so without materially
         reducing the economic return on investment in the Company to any
         Member, to satisfy any requirements of federal or state legislation or
         regulations, court order, or action of any governmental administrative
         agency with respect the operation or ownership of the Hospital;

                  (f)      Subject to the terms of Section 2.5, to extend the
         term of the Company; and

                  (g)      Upon written notice to all Members, DTO Management
         may elect to expand the number of Managers up to nine (9) so that the
         Managers can serve as the governing body of the Hospital. In such
         event, the Managers shall include, in addition to DTO Management or
         its designee, the president or chief executive officer of the Hospital
         who shall be designated by DTO Management and four (4) additional
         Managers elected from time to time by the Investor Members one of whom
         must be the medical director of the hospital. The remaining Managers
         shall be elected from time to time by DTO Management. DTO Management
         may delegate to such governing body such duties and responsibilities
         of DTO Management as DTO Management deems necessary or appropriate.
         Notwithstanding the foregoing, in the event the number of Managers is
         expanded, the Investor Members shall continue to have the right to
         elect Investor

                                      32
<PAGE>
         Managers who shall be designated to make decisions which are
         specifically authorized to be made by the Investor Manager under this
         Agreement and DTO Management shall continue to have the right to make
         decisions with respect to matters which are reserved for DTO
         Management under this Agreement at the time the number of Managers is
         so expanded.

         SECTION 11.2.     Restrictions on Managers' Amendments: Amendments by
Investor Members. Except as provided in Section 11.1, amendments to this
Agreement shall be made only upon the consent of DTO Management and with a
Majority Vote of Investor Members. Except as set forth in this Section 11.2, no
amendment shall be made pursuant to Section 11.1 which would materially and
adversely affect the federal income tax treatment to be afforded each Member,
materially and adversely affect the Membership Interests and liabilities of
each Member as provided herein, materially change the purposes of the Company,
extend or otherwise modify the term of the Company, or materially change the
method of allocations and distributions as provided in Article VI and Article
VII.

         SECTION 11.3.     Amendments to Certificates. In making any amendments
to this Agreement, there shall be prepared, executed and filed for recording by
DTO Management such documents amending the Articles of Organization as required
under the Act.

                                  ARTICLE XII

                                 MISCELLANEOUS

         SECTION 12.1.     Limited Power of Attorney. Upon the execution
hereof, each Member hereby irrevocably constitutes and appoints DTO Management
as its true and lawful attorney in the Member's name and on the Member's behalf
to take and perform at any time all such action which DTO Management is
expressly authorized to perform under this Agreement, administrative actions
which a Member is expressly required to perform under this Agreement, or
actions required or reasonably necessary following the breach of this Agreement
by a Member provided said breach remains uncured for a continuous period of
fifteen (15) days after written notice by DTO Management to the breaching
Member.

         SECTION 12.2.     Waiver of Provisions. The waiver of compliance at
any time with respect to any of the provisions, terms or conditions of this
Agreement shall not be considered a waiver of such provision, term or condition
itself or of any of the other provisions, terms or conditions hereof.

         SECTION 12.3.     Interpretation and Construction. This Agreement
contains the entire agreement among the Members and any modification or
amendment hereto must be accomplished in accordance with the provisions of
Article XI and Article XII. Where the context so requires, the masculine shall
include the feminine and the neuter, and the singular shall include the plural.
The headings and captions in this Agreement are inserted for convenience and
identification only and are in no way intended to define, limit or expand the
scope and intent of this Agreement or any provision thereof. The references to
Section and Article in this Agreement are to the Sections and Articles of this
Agreement.

                                      33
<PAGE>
         SECTION 12.4.     Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of North Carolina,
exclusive of its conflict of law rules.

         SECTION 12.5.     Partial Invalidity. In the event that any part or
provision of this Agreement shall be determined to be invalid or unenforceable,
the remaining parts and provisions of said Agreement which can be separated
from the invalid or unenforceable provision and shall continue in full force
and effect.

         SECTION 12.6.     Binding on Successors. The terms, conditions and
provisions of this Agreement shall inure to the benefit of, and be binding upon
the parties hereto and their respective heirs, successors, distributees, legal
representatives, and assigns. However, none of the provisions of this Agreement
shall be for the benefit of or enforceable by any creditors of the Company.

         SECTION 12.7.        Notices and Delivery.

                  (a)      To Members. Any notice to be given hereunder at any
         time to any Member or any document reports or returns required by this
         Agreement to be delivered to any Member, may be delivered personally
         or mailed to such Member, postage prepaid, addressed to the Member at
         such times as the Member shall by notice to the Company have
         designated as the Member's address for the mailing of all notices
         hereunder or, in the absence of such notice, to the address set forth
         in Article IV hereof. Any notice, or any document, report or return so
         delivered or mailed shall be deemed to have been given or delivered to
         such Member at the time it is mailed, as the case may be.

                  (b)      To the Company. Any notice to be given to the
         Company hereunder shall be delivered personally or mailed to the
         Company, by certified mail, postage prepaid, addressed to the Company
         at its registered office. Any notice so delivered or mailed shall be
         deemed to have been given to the Company at the time it is delivered
         or mailed, as the case may be.

         SECTION 12.8.     Counterpart Execution; Facsimile Execution. This
Agreement may be executed in any number of counterparts with the same effect as
if all of the Members had signed the same document. Such executions may be
transmitted to the Company and/or the other Members by facsimile and such
facsimile execution shall have the full force and effect of an original
signature. All fully executed counterparts, whether original executions or
facsimile executions or a combination, shall be construed together and
constitute one and the same agreement.

         SECTION 12.9.     Statutory Provisions. Any statutory reference in
this Agreement shall include a reference to any successor to such statute
and/or revision thereof.

         SECTION 12.10.    Waiver of Partition. Each party does hereby waive
any right to partition or the right to take any other action which might
otherwise be available to such party for the purpose of severing its
relationship with the Company or such party's interest in the assets held by
the Company from the interests of other Members until the end of the term of
both this Company and any successor company formed pursuant to the terms
hereof.

                                      34
<PAGE>
         SECTION 12.11.    Change In Law. If due to any new law, rule or
regulation, or due to an interpretation or enforcement of any existing law,
rule or regulation, health care counsel reasonably selected by DTO Management
determines in writing that it is reasonably likely that the relationships
established between any of the parties to this Agreement including any of their
Affiliates and/or successors or assigns will not comply with any law, rule,
regulation or interpretation thereof ("Applicable Law"), then the parties
hereto hereby agree first, to negotiate in good faith to restructure the
relationships established under this Agreement so as to bring them into
compliance with such applicable laws while at the same time preserving the
material benefits of each of the parties hereto. In the event that a specific
proposal for the restructuring of this Agreement is approved by DTO Management
and a Majority Vote of Investor Members, such restructured agreement shall
become binding upon all Members of the Company. Second, in the event that
within forty-five (45) days following the Company's receipt of legal advice in
writing from such health care counsel regarding Applicable Law the parties
hereto are unable to negotiate an acceptable restructuring of their
relationship, then DTO Management shall have the option, within the following
forty-five (45) day period, to purchase the Membership Interests of some or all
of the Investor Members whose ownership is involved with such noncompliance
with Applicable Law for a purchase price equal to the greater of: (a) the
Formula Purchase Price or (b) the amount of the Capital Contributions made by
each such Member to the Company together with interest thereon computed at the
Prime Rate as of the date of this Agreement from the date of such contribution
through the date upon which DTO Management pays all amounts due under the terms
of this Section 12.11. For these purposes, distributions to the Members by the
Company after the effective date of this Agreement (and whether before or after
health care counsel determined there was a problem under an Applicable Law or
before or after the exercise of the purchase option) shall be treated as
payments by DTO Management. Such purchase price shall be paid in accordance
with the Payment Method. Third, in the event that DTO Management does not
exercise its option to purchase Membership Interests of a Member whose
ownership causes the Company not to be in compliance with Applicable Law, such
Members may elect in writing within the following forty-five (45) day period,
to require that the Company be dissolved, in which event the Company shall be
dissolved in accordance with the terms of this Agreement.

         SECTION 12.12.    Investment Representations of the Members.

                  (a)      Each Member or individual executing this Agreement
         on behalf of an Entity which is a Member hereby represents and
         warrants to the Company and to the Members that such Member has
         acquired such Member's Membership Interest in the Company for
         investment solely for such Member's own account with the intention of
         holding such Membership Interest for investment, without any intention
         of participating directly or indirectly in any distribution of any
         portion of such Membership Interest, including an Economic Interest,
         and without the financial participation of any other Person in
         acquiring such Membership Interest in the Company.

                  (b)      Each Member or individual executing this Agreement
         on behalf of an entity which is a Member hereby acknowledges that such
         Member is aware that such Member's Membership Interest in the Company
         has not been registered (i) under the Securities Act of 1933, as
         amended (the "Federal Act"), (ii) under applicable Ohio securities
         laws, or (iii) under any other state securities laws. Each Member or
         individual executing this Agreement on behalf of an Entity which is a
         Member further understands

                                      35
<PAGE>
         and acknowledges that his representations and warranties contained in
         this Section are being relied upon by the Company and by the Members
         as the basis for the exemption of the Members' Membership Interest in
         the Company from the registration requirements of the Federal Act and
         from the registration requirements of applicable Ohio securities laws
         and all other state securities laws. Each Member or individual
         executing this Agreement on behalf of an Entity which is a Member
         further acknowledges that the Company will not and has no obligation
         to recognize any sale, transfer, or assignment of all or any part of
         such Member's Membership Interest, including an Economic Interest in
         the Company to any Person unless and until the provisions of this
         Agreement hereof have been fully satisfied.

                  (c)      Each Member or individual executing this Agreement
         on behalf of an Entity which is a Member hereby acknowledges that
         prior to his execution of this Agreement, such Member received a copy
         of this Agreement and that such Member has examined this Agreement or
         caused this Agreement to be examined by such Member's representative
         or attorney. Each Member or individual executing this Agreement on
         behalf of an Entity which is a Member hereby further acknowledges that
         such Member or such Member's representative or attorney is familiar
         with this Agreement and with the Company's business plans. Each Member
         or individual executing this Agreement on behalf of an Entity which is
         a Member acknowledges that such Member or such Member's representative
         or attorney has made such inquiries and requested, received, and
         reviewed any additional documents necessary for such Member to make an
         informed investment decision and that such Member does not desire any
         further information or data relating to the Company or to the Members.
         Each Member or individual executing this Agreement on behalf of an
         Entity which is a Member hereby acknowledges that such Member
         understands that the purchase of such Member's Membership Interest in
         the Company is a speculative investment involving a high degree of
         risk and hereby represents that such Member has a net worth sufficient
         to bear the economic risk of such Member's investment in the Company
         and to justify such Member's investing in a highly speculative venture
         of this type.

         SECTION 12.13.    Decisions by Investor Manager. Each of the Investor
Members hereby authorize the Investor Manager to make the decisions to be made
by the Investor Manager hereunder and hereby release and hold harmless the
Investor Manager from any and all claims, liabilities, losses or damages which
any of them may have now or in the future resulting from any decision made by
the Investor Manager hereunder unless due to the gross negligence or willful
misconduct of the Investor Manager.

         SECTION 12.14.    Referrals to Hospital and Ownership of Shares of
Common Stock of MedCath Incorporated. Each Investor Member agrees that if in
the reasonable opinion of health care counsel to DTO Management, referrals of
patients to the Hospital by the Investor Member or ownership of shares of
common stock in MedCath Corporation or MedCath Incorporated by the Investor
Member would cause or constitute a violation of any federal or state law, rule
or regulation, then, as applicable,

                  (a)      the Investor Member shall not refer patients to the
         Hospital; or

                                      36
<PAGE>
                  (b)      the Investor Member shall not acquire, nor continue
         to own any of shares of common stock of MedCath Corporation or MedCath
         Incorporated.

         SECTION 12.15.    Exhibits. The Exhibits to this Agreement, each of
which is incorporated by reference, are:

         EXHIBIT A:        Information Exhibit.
         EXHIBIT B:        Glossary of Terms.
         EXHIBIT C:        Development Budget Exhibit.
         EXHIBIT D:        Regulatory Allocations.

         IN WITNESS WHEREOF, pursuant to Section 11.2, this Agreement has been
executed on the following execution pages upon the consent of DTO Management
and a Majority Vote of Investor Members, to be effective both as to all Members
and their Affiliates as of September 6, 2002.

                   [EXECUTIONS APPEAR ON THE FOLLOWING PAGES]

                                      37
<PAGE>
              CONSENT TO AMENDED AND RESTATED OPERATING AGREEMENT

         The undersigned Members of Heart Hospital of DTO, LLC hereby approves
and consents to the Amended and Restated Operating Agreement of Heart Hospital
of DTO, LLC attached hereto.

                                    DTO MANAGEMENT, INC.

                                    By: /s/ Ken Howell
                                       ----------------------------------------
                                    Title: Vice President/Ken Howell
                                          -------------------------------------

                                      38
<PAGE>
              CONSENT TO AMENDED AND RESTATED OPERATING AGREEMENT

         The undersigned Members of Heart Hospital of DTO, LLC hereby approves
and consents to the Amended and Restated Operating Agreement of Heart Hospital
of DTO, LLC attached hereto.

                                     [***]

[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.

                                      39
<PAGE>
                                   EXHIBIT A
                                     TO THE
                              AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

                              INFORMATION EXHIBIT

<TABLE>
<CAPTION>
                                         Maximum
                                        Mandatory
                                        Additional
                                          Capital                   Percentage
Name                                  Contributions              Membership Interest*
----                                  -------------              -------------------
<S>                                   <C>                        <C>
DTO Management, Inc.                      $[***]                        66.50%
10720 Sikes Place, Suite 300
Charlotte, NC 28277

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%
</TABLE>

                                      A-1
<PAGE>
<TABLE>
<CAPTION>
                                         Maximum
                                        Mandatory
                                        Additional
                                          Capital                   Percentage
Name                                  Contributions              Membership Interest*
----                                  -------------              -------------------
<S>                                   <C>                        <C>
[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%

[***]                                    $ [***]                        [***]%
</TABLE>

[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.

                                      A-2
<PAGE>
                                   EXHIBIT B
                                     TO THE
                              AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

                               GLOSSARY OF TERMS

         As used in this Agreement, the following terms shall have the
following definitions (unless otherwise expressly provided herein).

         "Act" means the North Carolina Limited Liability Company Act, as in
effect in North Carolina and set forth at N.C. Gen. Stat.ss.ss. 57C-1-01
through 57C-10-07 (or any corresponding provisions of succeeding law).

         "Adjusted Capital Account" means, with respect to any Member or
Economic Interest Owner, such Person's Capital Account (as defined below) as of
the end of the relevant Fiscal Year increased by any amounts which such Person
is obligated to restore, or is deemed to be obligated to restore pursuant to
the next to last sentences of Regulations Section 1.704-2(g)(1) (share of
minimum gain) and Regulations Section 1.704-2(i)(5) (share of member
nonrecourse debt minimum gain) and decreased by the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

         "Affiliate" means with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such Person; or (iii) Entity or holder
of ten percent (10%) or more of the outstanding voting securities or of an
equity interest of any Entity, controlling, controlled by, or under common
control with such Person.

         "Agreed Value" means with respect to any noncash asset of the Company
an amount determined and adjusted in accordance with the following provisions:

         (a)      The initial Agreed Value of any noncash asset contributed to
the capital of the Company by any Member shall be its gross fair market value,
as agreed to by the contributing Member and the Company.

         (b)      The initial Agreed Value of any noncash asset acquired by the
Company other than by contribution by a Member shall be its adjusted basis for
federal income tax purposes.

         (c)      The initial Agreed Values of all the Company's noncash
assets, regardless of how those assets were acquired, shall be reduced by
depreciation or amortization, as the case may be,

                                      B-1
<PAGE>
determined in accordance with the rules set forth in Regulations Section
1.704-1(b)(2)(iv)(f) and (g).

         (d)      The Agreed Values, as reduced by depreciation or
amortization, of all noncash assets of the Company, regardless of how those
assets were acquired, shall be adjusted from time to time to equal their gross
fair market values, as agreed to by the Members in writing, as of the following
times:

                  (i)      the acquisition of a Membership Interest or an
         additional Membership Interest in the Company by any new or existing
         Member in exchange for more than a de minimis Capital Contribution;

                  (ii)     the distribution by the Company of more than a de
         minimis amount of money or other property as consideration for all or
         part of a Membership Interest in the Company; and

                  (iii)    the termination of the Company for federal income
         tax purposes pursuant to Code Section 708(b)(1)(B).

         If, upon the occurrence of one of the events described in (i), (ii) or
(iii) above the Members do not agree in writing on the gross fair market values
of the Company's assets, it shall be deemed that the fair market values of all
the Company's assets equal their respective Agreed Values immediately prior to
the occurrence of the event and thus no adjustment to those values shall be
made as a result of such event.

         "Agreement" means this Amended and Restated Operating Agreement, as
amended from time to time.

         "Articles of Organization" means the Articles of Organization of the
Company, as filed with the Secretary of State of North Carolina as the same may
be amended from time to time.

         "Capital Account" means with respect to each Member or assignee an
account maintained and adjusted in accordance with the following provisions:

         (a)      Each Person's Capital Account shall be increased by Person's
Capital Contributions, such Person's distributive share of Profits, any items
in the nature of income or gain that are allocated pursuant to the Regulatory
Allocations and the amount of any Company liabilities that are assumed by such
Person or that are secured by Company property distributed to such Person.

         (b)      Each Person's Capital Account shall be decreased by the
amount of cash and the Agreed Value of any Company property distributed to such
Person pursuant to any provision of this Agreement, such Person's distributive
share of Losses, any items in the nature of loss or deduction that are
allocated pursuant to the Regulatory Allocations, and the amount of any
liabilities of such Person that are assumed by the Company or that are secured
by any property contributed by such Person to the Company.

                                      B-2
<PAGE>
         In the event any Membership Interest is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
Membership Interest.

         In the event the Agreed Values of the Company assets are adjusted
pursuant to the definition of Agreed Value contained in this Agreement, the
Capital Accounts of all Members shall be adjusted simultaneously to reflect the
aggregate adjustments as if the Company recognized gain or loss equal to the
amount of such aggregate adjustment.

         The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such regulations. In the event DTO Management shall
determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto, are computed to comply with such
Regulation, DTO Management may make such modification, provided that it is not
likely to have a material effect on the amounts distributable to any Member
pursuant to Articles VI or VII hereof upon the dissolution of the Company. In
the event DTO Management shall determine such adjustments are necessary or
appropriate to comply with Regulations Section 1.704-1(b)(2)(iv), DTO
Management shall adjust the amounts debited or credited to Capital Accounts
with respect to (i) any property contributed by the Members or distributed to
the Members and (ii) any liabilities secured by such contributed or distributed
property or assumed by the Members. DTO Management shall also make any other
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b). In the
event any Membership Interest in the Company is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
Membership Interest.

         "Capital Contribution" means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.

         "Cash Distributions" means net cash distributed to Members resulting
from Cash Flow from Operations or Cash from Sales or Refinancing, but shall not
include cash payments made to DTO Management as its Management Fee for services
or any amount in repayment of loans made by the Members to the Company.

         "Cash Flow from Operations" means net cash funds provided from
operations, exclusive of Cash from Sales or Refinancing, of the Company or
investment of any Company funds, without deduction for depreciation, but after
deducting cash funds used to pay or establish a reserve for expenses, debt
payments, capital improvements, and replacements and for such other items as
DTO Management reasonably determines to be necessary or appropriate; provided,
without the consent of the Investor Manager, DTO Management shall not use such
net cash funds for the early repayment of Company debt.

         "Cash from Sales or Refinancing" means the net cash proceeds received
by the Company from or as a result of any Sale or Refinancing of property after
deducting (i) all expenses

                                      B-3
<PAGE>
incurred in connection therewith, (ii) any amounts applied by DTO Management in
its sole and absolute discretion toward the payment of any indebtedness and
other obligations of the Company then due and payable, including payments of
principal and interest on mortgages, (iii) the payment of any other expenses or
amounts owed by the Company to other parties to the extent then due and
payable, and (iv) the establishment of any reserves deemed necessary by DTO
Management in its sole and absolute discretion. If the proceeds of any sale or
refinancing are paid in more than one installment, each such installment shall
be treated as a separate Sale or Refinancing for the purposes of this
definition.

         "Code" means the Internal Revenue Code of 1986, as amended from time
to time. Any reference herein to a specific section(s) of the Code shall be
deemed to include a reference to any corresponding provision of future law.

         "Company" means and shall refer to Heart Hospital of DTO, LLC, which
was created upon the filing of the Articles of Organization with the Office of
the Secretary of State of North Carolina, to be operated under the name Heart
Hospital of DTO, LLC, a North Carolina limited liability company, and to
continue under this Agreement, as amended from time to time.

         "Default Rate" means a per annum rate of return on a specified
principal sum, compounded monthly, equal to the greater of (a) the Prime Rate
plus 500 basis points, or (b) 18%, but in no event greater than the highest
rate allowed by law.

         "DTO Management" means and shall refer to DTO Management, Inc., which
shall serve as a Manager of the Company.

         "Economic Interest" means and shall refer to that portion of the
Membership Interest of a Member in the economic rights and benefits of the
Company, including but not limited to all Profits, Losses and Cash
Distributions. Such an Economic Interest will be measured by an amount equal to
the Member's percentage Membership Interest in the Company as the same may be
adjusted from time to time.

         "Economic Interest Owner" means a Person who has validly acquired a
Member's Economic Interest as permitted under this Agreement but who has not
become a Member. Such Person shall be entitled to the allocations of Profits
and Losses and Cash Distributions under Article VI and VII to which the
previous owner of the Economic Interest would have been entitled had such
previous owner retained the Economic Interest. Unless and until such Economic
Interest Holder is admitted as a Substitute Member, it shall be a mere assignee
of a Member.

         "Effective Date" means the date on which the Company's Articles of
Organization were filed with the Secretary of State of North Carolina in
accordance with the Act.

         "Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.

                                      B-4
<PAGE>
         "Equipment" means the appropriate equipment and supplies required from
time to time in connection with the development and operation of the Hospital.

         "Fiscal Year" means, with respect to the first year of the Company,
the period beginning upon the formation of the Company and ending on the next
September 30, with respect to subsequent years of the Company, the twelve month
period beginning October 1 and ending September 30, and, with respect to the
last year of the Company, the portion of the period beginning October 1 and
ending with the date of the final liquidating distributions.

         "Hospital" means an acute care hospital specializing in all aspects of
cardiology and cardiovascular care and surgery in Dayton, Ohio, as further
described in Section 2.3 of the Agreement.

         "Investor Manager" means an individual elected by the Investor Members
in accordance with Section 5.13 who shall serve as a Manager of the Company.

         "Investor Members" means the Members other than DTO Management and its
Affiliates admitted as investors in the Company in accordance with the terms
hereof.

         "Majority Vote of Investor Members" means and shall refer to the
affirmative vote, approval or consent of Investor Members holding a majority of
the percentage Membership Interests held by the Investor Members in the
aggregate.

         "Manager" or "Managers" means and shall refer to one or more managers
designated pursuant to this Agreement. Pursuant to this Agreement and the
Articles of Organization, no Member shall automatically be a manager by virtue
of such Person's status as a Member. Subject to Section 11.1(g) hereof, the
Managers of the Company shall be DTO Management and the Investor Manager. The
powers, rights and duties of each Manager to manage the affairs of the Company
are specified or designated in this Agreement.

         "Management Fee" means the amounts payable to DTO Management pursuant
to Section 5.6(b)(ii) for services rendered in managing the operations of the
Company.

         "Material Agreement" means any binding agreement which may not be
canceled upon less than ninety (90) days notice and which calls for the
expenditure of funds, or involves an obligation for financing, in excess of
$100,000 exclusive of agreements or obligations contemplated by any budget,
development plan, financing or construction contract approved by the Managers
or agreements incurred in the ordinary course of business such as employment
agreements, purchases of supplies and routine services and the like. Upon ten
(10) days advance written notice to DTO Management, the Investor Manager may
notify DTO Management that the threshold amount for purposes of this definition
of Material Agreement shall be reduced from $100,000 to $75,000. The reduced
threshold amount shall not apply to expenditures or contracts which were
already approved, under negotiation, or completed by DTO Management as Manager
as of the date of said notice.

                                      B-5
<PAGE>
         "Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts, the execution of exclusive contracts to provide physician services
to the Hospital, and if requested by the Investor Manager in the future, the
purchase by the Company of goods and services from DTO Management other than
for repayment of loans, amounts set forth in an approved budget, reimbursement
for personnel who work full time at the Hospital, those expenditures governed
by Sections 5.6(b), or expenditures pursuant to Section 5.15 which do not
exceed $25,000 in the aggregate.

         "Member" means and shall refer to the organizers of the Company
(unless or until any such organizer has withdrawn) and each of the Persons
identified as "Members" in the then applying Information Exhibit attached
hereto and incorporated herein by this reference. If a Person is already a
Member immediately prior to the purchase or other acquisition by such Person of
an Economic Interest or Membership Interest, such Person shall have all the
rights of a Member with respect to such purchased or otherwise acquired
Membership Interest or Economic Interest, as the case may be.

         "Membership Interest" means all of a Member's rights in the Company,
including without limitation the Member's share of Profits, Losses, Cash
Distributions and other benefits of the Company, any right to vote, any right
to participate in the management of the business and affairs of the Company,
including the right to vote on, consent to, or otherwise participate in any
decision or action of or by the Members granted pursuant to this Agreement or
the Act. The percentage Membership Interest of each Member and other related
information shall be listed on the Information Exhibit. The percentage
Membership Interests generally shall be based upon the pro rata Capital
Contribution of each Member.

         "Original Operating Agreement" means the Company's original Operating
Agreement executed by DTO Management and certain Investor Members on or about
April 18, 1997.

         "Organization Expenses" means those expenses incurred, either by the
Company, on behalf of the Company or for which the Company has agreed to make
reimbursement, in connection with the formation of the Company including such
expenses as: (i) registration fees, filing fees, and taxes; and (ii) legal fees
incurred in connection with any of the foregoing.

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

         "Prime Rate" means the rate of interest as of the relevant day or time
period as announced by Bank of America, N.A. or its successor in interest from
time to time as its prime or reference rate.

         "Profits and Losses" means, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be

                                      B-6
<PAGE>
stated separately pursuant to Code Section 703(a)(l) shall be included in
taxable income or loss), with the following adjustments:

         (a)      Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses shall
be added to such taxable income or loss;

         (b)      Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses, shall be subtracted from such taxable income or
loss;

         (c)      Gain or loss resulting from dispositions of Company assets
shall be computed by reference to the Agreed Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Agreed Value.

         "Refinancing" means any borrowing incurred or made to recapitalize the
Company or the equity investment in, or to refinance any loan used to finance
the acquisition of property.

         "Regulations" means rules, orders, and regulations issued pursuant to
or under the authority of the Code and shall include revisions to and
succeeding provisions as appropriate.

         "Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section 1.704-1(b)(2)(ii)(d), and the
safe-harbor rules for allocations attributable to nonrecourse liabilities
prescribed in Regulations Section 1.704-2.

         "Sale" means the sale, exchange, involuntary conversion (other than a
casualty followed by reconstruction), condemnation, or other disposition of
property by the Company, except for dispositions of inventory items and
personal property in the ordinary course of business and in connection with the
replacement of such property.

         "Substitute Manager" means a manager who succeeds either DTO
Management or the Investor Manager with all of the specific rights and powers
of such Manager under this Agreement.

         "Substitute Member" means an assignee of a Member who has been
admitted to the Company and granted all the rights of a Member in place of its
assignor pursuant to the provisions of this Agreement. A Substitute Member,
upon its admission as such, shall replace and succeed to the rights,
privileges, and liabilities of the Member from whom it acquired its interest in
the Company, to the extent of the Economic Interest assigned.

         "Supermajority Vote of the Members" means and shall refer to the
affirmative vote, approval or consent of Members holding sixty-seven percent
(67%) of the percentage Membership Interests held by the Members in the
aggregate.

                                      B-7
<PAGE>
                                   EXHIBIT C
                                     TO THE
                              AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

                           DEVELOPMENT BUDGET EXHIBIT

                   [SEE ATTACHED CAPITAL EXPENSE INFORMATION]

                                      C-1
<PAGE>
                           HEART HOSPITAL OF DTO, LLC
                                CAPITAL EXPENSES

FACILITY SIZE

         Total Beds            36 occ. beds    = 75% of capacity     40 beds
         Total Square Feet     1,200 sqft/bed  +5,000 add'l sqft     53,000

<TABLE>
<CAPTION>
CAPITAL EXPENSES                                                    TOTAL             DEPRECIATION &                INTEREST
                                                                    AMOUNT            AMORTIZATION                  EXPENSE
                                                                                   ----------------------     ---------------------
                                                                                    TERM          AMOUNT       RATE         AMOUNT

<S>                             <C>             <C>              <C>              <C>          <C>             <C>       <C>
Property:
    Building Construction                       $[***]           $      [***]     40 years     $     [***]
    Land                        11.00 acres     @[***]           $      [***]      0 years     $        0
    Architectural Fees          7% of constr.                    $      [***]     40 years     $     [***]
    Interest During Constr.     9 months        @10.0%           $      [***]     40 years     $     [***]
         Total Property                                          $      [***]                                   13.0%    $     [***]

Equipment:                        Capacity

    Cath Labs                   1000/lab/yr     3 lab(s)         $      [***]
    Operating Rooms             400/OR/yr       3 OR(s)          $      [***]
    Angiography Suite                                            $      [***]
    CVRU/Recovery                                                $      [***]
    Radiology & Laboratory                                       $      [***]
    Patient Care                                                 $      [***]
    Other Departments                                            $      [***]
         Total Equipment                                         $      [***]      7 years     $     [***]      11.0%    $     [***]

Startup Costs:
    Loan Acquisition Costs:
      Loan Commitment Fee                       2% of loan amt   $      [***]      7 years     $     [***]      13.0%    $     [***]
      Legal Fees                                                 $      [***]      5 years     $     [***]      13.0%    $     [***]
                                                                 $      [***]

Pre-Opening Costs:                                               $ 3,500,000        2 years    $1,750,000       11.0%    $  385,000

TOTALS                                                           -----------                   ----------                ----------
                                                                 $27,101,128                   $3,508,248                $3,249,151
</TABLE>

[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.

                                      C-2
<PAGE>
                                   EXHIBIT D
                                     TO THE
                              AMENDED AND RESTATED
                              OPERATING AGREEMENT
                                       OF
                           HEART HOSPITAL OF DTO, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY

                             REGULATORY ALLOCATIONS

         This Exhibit contains special rules for the allocation of items of
Company income, gain, loss and deduction that override the basic allocations of
Profits and Losses in the Agreement to the extent necessary to cause the
overall allocations of items of Company income, gain, loss and deduction to
have substantial economic effect pursuant to Regulations Section 1.704-1(b) and
shall be interpreted in light of that purpose. Subsection (a) below contains
special technical definitions. Subsections (b) through (h) contain the
Regulatory Allocations themselves. Subsections (i), (j) and (k) are special
rules applicable in applying the Regulatory Allocations.

         (a)      Definitions Applicable to Regulatory Allocations. For
purposes of the Agreement, the following terms shall have the meanings
indicated:

                  (i)      "Company Minimum Gain" means the same as the meaning
         of "partnership minimum gain" set forth in Regulations Section
         1.704-2(d), and is generally the aggregate gain the Company would
         realize if it disposed of its property subject to Nonrecourse
         Liabilities in full satisfaction of each such liability, with such
         other modifications as provided in Regulations Section 1.704-2(d). In
         the case of Nonrecourse Liabilities for which the creditor's recourse
         is not limited to particular assets of the Company, until such time as
         there is regulatory guidance on the determination of minimum gain with
         respect to such liabilities, all such liabilities of the Company shall
         be treated as a single liability and allocated to the Company's assets
         using any reasonable basis selected by DTO Management.

                  (ii)     "Member Nonrecourse Deductions" means losses,
         deductions or Code Section 705(a)(2)(B) expenditures attributable to
         Member Nonrecourse Debt under the general principles applicable to
         "partner nonrecourse deductions" set forth in Regulations Section
         1.704-2(i)(2).

                  (iii)    "Member Nonrecourse Debt" means any Company
         liability with respect to which one or more but not all of the Members
         or related Persons to one or more but not all of the Members bears the
         economic risk of loss within the meaning of Regulations Section
         1.752-2 as a guarantor, lender or otherwise.

                  (iv)     "Member Nonrecourse Debt Minimum Gain" means the
         minimum gain attributable to Member Nonrecourse Debt as determined
         pursuant to Regulations

                                      D-1
<PAGE>
         Section 1.704-2(i)(3). In the case of Member Nonrecourse Debt for
         which the creditor's recourse against the Company is not limited to
         particular assets of the Company, until such time as there is
         regulatory guidance on the determination of minimum gain with respect
         to such liabilities, all such liabilities of the Company shall be
         treated as a single liability and allocated to the Company's assets
         using any reasonable basis selected by DTO Management.

                  (v)      "Nonrecourse Deductions" means losses, deductions,
         or Code Section 705(a)(2)(B) expenditures attributable to Nonrecourse
         Liabilities (see Regulations Section 1.704-2(b)(1)). The amount of
         Nonrecourse Deductions for a Fiscal Year shall be determined pursuant
         to Regulations Section 1.704-2(c), and shall generally equal the net
         increase, if any, in the amount of Company Minimum Gain for that
         taxable year, determined generally according to the provisions of
         Regulations Section 1.704-2(d), reduced (but not below zero) by the
         aggregate distributions during the year of proceeds of Nonrecourse
         Liabilities that are allocable to an increase in Company Minimum Gain,
         with such other modifications as provided in Regulations Section
         1.704-2(c).

                  (vi)     "Nonrecourse Liability" means any Company liability
         (or portion thereof) for which no Member bears the economic risk of
         loss under Regulations Section 1.752-2.

                  (vii)    "Regulatory Allocations" means allocations of
         Nonrecourse Deductions provided in Paragraph (b) below, allocations of
         Member Nonrecourse Deductions provided in Paragraph (c) below, the
         minimum gain chargeback provided in Paragraph (d) below, the member
         nonrecourse debt minimum gain chargeback provided in Paragraph (e)
         below, the qualified income offset provided in Paragraph (f) below,
         the gross income allocation provided in Paragraph (g) below, and the
         curative allocations provided in Paragraph (h) below.

         (b)      Nonrecourse Deductions. All Nonrecourse Deductions for any
Fiscal Year shall be allocated to the Members in accordance with their
percentage Membership Interests.

         (c)      Member Nonrecourse Deductions. All Member Nonrecourse
Deductions for any Fiscal Year shall be allocated to the Member who bears the
economic risk of loss under Regulations Section 1.752-2 with respect to the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable.

         (d)      Minimum Gain Chargeback. If there is a net decrease in
Company Minimum Gain for a Fiscal Year, each Member shall be allocated items of
Company income and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Member's share of such net decrease in Company Minimum
Gain, determined in accordance with Regulations Section 1.704-2(g)(2) and the
definition of Company Minimum Gain set forth above. This provision is intended
to comply with the minimum gain chargeback requirement in Regulations Section
1.704-2(f) and shall be interpreted consistently therewith.

         (e)      Member Nonrecourse Debt Minimum Gain Chargeback. If there is
a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt for

                                      D-2
<PAGE>
any Fiscal Year, each Member who has a share of the Member Nonrecourse Debt
Minimum Gain attributable to such Member Nonrecourse Debt as of the beginning
of the Fiscal Year, determined in accordance with Regulations Section
1.704-2(i)(5), shall be allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Member's
share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Regulations
Sections 1.704-2(i)(4) and (5) and the definition of Member Nonrecourse Debt
Minimum Gain set forth above. This Paragraph is intended to comply with the
member nonrecourse debt minimum gain chargeback requirement in Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

         (f)      Qualified Income Offset. In the event any Member unexpectedly

receives any adjustments, allocations, or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income, and gain for such year) shall be allocated to
such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, any deficit in such Member's Adjusted Capital
Account created by such adjustments, allocations or distributions as quickly as
possible.

         (g)      Gross Income Allocation. In the event any Member has a
deficit in its Adjusted Capital Account at the end of any Fiscal Year, each
such Member shall be allocated items of Company gross income and gain, in the
amount of such Adjusted Capital Account deficit, as quickly as possible.

         (h)      Curative Allocations. When allocating Profits and Losses
under Article VI, such allocations shall be made so as to offset any prior
allocations of gross income under Paragraph (g) above to the greatest extent
possible so that overall allocations of Profits and Losses shall be made as if
no such allocations of gross income occurred.

         (i)      Ordering. The allocations in this Exhibit to the extent they
apply shall be made before the allocations of Profits and Losses under Article
VI and in the order in which they appear above.

         (j)      Waiver of Minimum Gain Chargeback Provisions. If DTO
Management determines that (i) either of the two minimum gain chargeback
provisions contained in this Exhibit would cause a distortion in the economic
arrangement among the Members, (ii) it is not expected that the Company will
have sufficient other items of income and gain to correct that distortion, and
(iii) the Members have made Capital Contributions or received net income
allocations that have restored any previous Nonrecourse Deductions or Member
Nonrecourse Deductions, then DTO Management shall have the authority, but not
the obligation, after giving notice to the Members, to request on behalf of the
Company the Internal Revenue Service to waive the minimum gain chargeback or
member nonrecourse debt minimum gain chargeback requirements pursuant to
Regulations Sections 1.704-2(f)(4) and 1.704-2(i)(4). The Company shall pay the
expenses (including attorneys' fees) incurred to apply for the waiver. DTO
Management shall promptly copy all Members on all correspondence to and from
the Internal Revenue Service concerning the requested waiver.

                                      D-3
<PAGE>
         (k)      Code Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be specially
allocated to the Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.

        [THE REMAINDER OF THIS PAGE INTENTIONALLY HAS BEEN LEFT BLANK.]

                                      D-4<PAGE>
                                                                     EXHIBIT 4.1

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

                             NEW VALLEY CORPORATION
           (doing business in New Jersey as New Valley Realty Company)

                                 LOAN AGREEMENT

                            Dated: December 13, 2002

                                 $40,500,000.00

               HSBC REALTY CREDIT CORPORATION (USA), AS LENDER AND
                          AS ADMINISTRATIVE AGENT, AND
   EACH OF THE LENDERS THAT IS A SIGNATORY HERETO UNDER THE CAPTION "LENDERS"
     ON THE SIGNATURE PAGES HEREOF AND EACH ELIGIBLE ASSIGNEE THAT BECOMES A
         "LENDER" AFTER THE DATE HEREOF PURSUANT TO SECTION 12.06 HEREOF

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

                              Location of Premises:

            Street Address:                100-150 College West Road
            Town of:                       Plainsboro
            County of:                     Middlesex
            State of:                      New Jersey
            Block:                         3
            Lots:                          1.61 and 1.62

<PAGE>

                  THIS LOAN AGREEMENT (this "Agreement") dated December 13, 2002
is made and entered into by and between NEW VALLEY CORPORATION (doing business
in New Jersey as New Valley Realty Company), a Delaware corporation having an
address at 100 S.E. Second Street, Miami, Florida 33131 ("Borrower"), each of
the lenders that is a signatory hereto under the caption "Lenders" on the
signature pages hereof and each Eligible Assignee (as hereinafter defined) that
becomes a "Lender" after the date hereof pursuant to Section 12.06 hereof
(individually, a "Lender" and, collectively, the "Lenders" and HSBC REALTY
CREDIT CORPORATION (USA), as Administrative Agent (in such capacity, together
with its successors in such capacity, "Administrative Agent"), having an office
on the date hereof at 452 Fifth Avenue, New York, New York 10018.

                  Borrower is simultaneously herewith purchasing the fee
interest in certain premises located as set forth on the cover hereof, known as
100-150 College Road West, Princeton, New Jersey, and the Improvements located
thereon (collectively, the "Project"). Borrower has requested that the Lenders
make certain loans to Borrower to partially finance the Borrower's purchase of
the Project, which loans are to be secured by a mortgage on the Project, and the
Lenders are prepared to make such loans subject to and in accordance with the
terms and conditions hereof. Accordingly, the parties hereto agree as follows:

         SECTION 1. DEFINITIONS.

                  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 iv, the singular to have the same
meanings when used in the plural and vice versa):

                  "ADJUSTED LIBOR RATE" means an interest rate equal to two
(2.00%) percent in excess of the LIBOR Rate, as determined by the Administrative
Agent, pursuant to, and in accordance with the provisions of this Agreement.

                  "ADMINISTRATIVE AGENT" is defined in the introduction hereto.

                  "AFFILIATE" means, (a) with respect to a corporation, any
officer or director thereof and any Person that is, directly or indirectly, the
legal or beneficial owner of or otherwise controls more than ten percent (10%)
of any class of shares or other equity security of such Person, or any Person
that directly or indirectly controls or is controlled by or is under common
control with such Person and (b) with respect to a partnership or venture, any
general partner, general partner of a general partner, partnership with a common
general partner or co-venturer thereof, or any sponsor of such partnership, as
that term is used in any offering memorandum prepared in respect to any federal
or state securities laws or the rules or regulations issued pursuant thereto, or
any Person that, directly or indirectly, controls or is controlled by or is
under common control with such partnership or venture and, if any general
partner or general partner of a general partner or co-venturer is a corporation,
any Person that is an Affiliate as defined in clause (a) above of such
corporation. "Control" of a Person (including the correlative meanings of
"controls", "controlled by" and "under common control with") means effective
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.

                                      -1-
<PAGE>

                  "APPLICABLE LENDING OFFICE" means, for each Lender, the
"Lending Office" of such Lender (or of an Affiliate of such Lender) designated
on the signature page hereof or in the applicable Assignment and Assumption
Agreement or such other office of such Lender (or of an Affiliate of such
Lender) as such Lender may from time to time specify to Administrative Agent and
Borrower as the office by which its Loans are to be made and maintained.

                  "ASSIGNMENT AND ASSUMPTION AGREEMENT" means an Assignment and
Assumption Agreement, substantially in the form of Exhibit A, pursuant to which
a Lender assigns and an Eligible Assignee assumes rights and obligations in
accordance with Section 12.06 of this Agreement.

                  "ASSIGNMENT OF LEASES AND RENTS" means the Assignment of
Leases and Rents dated the date hereof executed by the Borrower to the
Administrative Agent, as the same may be modified or amended from time to time.

                  "BASIC DOCUMENTS" means, collectively, this Agreement, the
Notes, the Mortgage, and the Assignment of Leases and Rents now or hereafter
delivered.

                  "BEST KNOWLEDGE OF BORROWER" means the actual knowledge of the
individuals who, in a management or supervisory capacity, are actively involved
in the day to day operations of the Project.

                  "BORROWING" means each borrowing of Loans hereunder.

                  "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in New York City are authorized or
required by law to close.

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

                  "COMMITMENT" means, as to each Lender, the obligation of such
Lender to make Loans on and subject to the terms and conditions hereof in an
aggregate amount equal to the amount set forth opposite the name of such Lender
on the signature pages hereof under the caption "Commitment".

                  "DEFAULT" means an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.

                  "DOLLARS" and "$" mean lawful money of the United States of
America.

                  "ELIGIBLE ASSIGNEE" means any commercial bank, savings bank or
financial institution having total assets in excess of $20,000,000,000 or any
other commercial bank, savings bank, financial institution or other Person
designated as an Eligible Assignee by Administrative Agent.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, together with the regulations promulgated
and rulings issued thereunder.

                                      -2-
<PAGE>

                  "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" is defined in Section 9 hereof.

                  "GOVERNMENTAL AUTHORITY" means any arbitrator, court,
governmental department, commission, board, bureau, agency or instrumentality,
whether local, state, federal or foreign having jurisdiction.

                  "INTEREST DETERMINATION DATE" shall mean a LIBOR Business Day
that is two (2) LIBOR Business Days prior to the commencement of the applicable
LIBOR Interest Period.

                  "LENDER" is defined in the first paragraph of this Agreement.

                  "LIBOR BUSINESS DAY" means any day on which commercial banks
are generally open for business as contemplated by this Agreement in New York
City and London, England and, as to any payments or notices in respect of a
LIBOR Loan, on which dealings in Dollar deposits are carried out in the London
interbank market.

                  "LIBOR INTEREST PERIOD" means each period commencing on a
LIBOR Business Day and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as Borrower may select
pursuant to written or telephonic notification to the Administrative Agent in
accordance with the terms of Section 3.03 of this Agreement. If a LIBOR Interest
Period would otherwise end on a date that is not a LIBOR Business Day, such
LIBOR Interest Period shall instead end on the next LIBOR Business Day as
determined by the Administrative Agent in accordance with the then current
banking practice in New York or London; provided, that (i) if such next LIBOR
Business Day falls in the next calendar month, such LIBOR interest Period shall
end on the preceding LIBOR Business Day, and (ii) if such LIBOR Interest Period
begins on a day for which there is no numerically corresponding day m the
calendar month at the end of such LIBOR Interest Period, such LIBOR interest
Period shall end on the last LIBOR Business Day of such calendar month. In any
event, the selection of a LIBOR Interest Period that would mature after (i) the
Maturity Date, or (ii) a date on which the Borrower is required, or has notified
the Administrative Agent of its intention, to pay all or any portion of the
outstanding principal balance of the Loans, shall not be permitted hereunder
(provided, however, that the monthly Amortization Payments provided for in this
Agreement shall not be deemed to preclude the selection of a LIBOR Interest
Period that would mature after the date of such monthly payments).

                  "LIBOR LOAN" means, at any time, a Loan bearing interest at
the Adjusted LIBOR Rate.

                                      -3-
<PAGE>

                  "LIBOR RATE" means, for any LIBOR Interest Period, the rate
determined by the Administrative Agent to be equal to the quotient obtained by
dividing (i) the rate per annum at which deposits for U.S. Dollars in an amount
approximately equal to the then aggregate outstanding principal balance of the
Loans are being offered to U.S. banks by one or more prime banks in the London
interbank market for such LIBOR Interest Period as determined by Administrative
Agent, in its discretion, based upon reference to the "British Bankers"
Association Interest Settlement Rates" for deposits in Dollars on any
information vending service as may be from time to time be nominated by the
British Bankers' Association for the purpose of displaying such rate (currently
displayed on the Reuters Service at screen "LIBOR", the Bloomberg Service at
page "BBAM 1" and the Telerate Service at page "3750") at or about 11:00 a.m.
London time (or as soon thereafter as practicable) on the date that is two (2)
LIBOR Business Days prior to the first day of such interest Period by (ii) 1
minus the Reserve Requirement for such interest Period, and rounding the
quotient upward to the nearest 1/16 of 1%. In the event that such rate is
unavailable, the LIBOR Rate shall be determined on such basis as Administrative
Agent shall reasonably select, following consultation with the Lenders.
Administrative Agent's determination of such rate shall be conclusive and
binding on Borrower absent manifest error.

                  "LIEN" means, 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 Basic 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" means a loan made by a Lender to Borrower pursuant to
Section 2.01(a)

                  "MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the Project or the ownership or operation thereof, (b) the ability of
Borrower to perform its payment obligations hereunder or under any of the other
Basic Documents or its obligations under the Mortgage with respect to
maintenance of insurance or maintenance of the Project, (c) the validity or
enforceability of any of the Basic Documents, or (d) the rights and remedies of
Administrative Agent and the Lenders under any of the Basic Documents.

                  "MATURITY DATE" means the fourth anniversary of the date of
this Agreement; provided, that if such day is not a Business Day, the Maturity
Date shall be the immediately preceding Business Day.

                  "MORTGAGE" means the mortgage and security agreement dated the
date hereof from Borrower, as mortgagor, to Administrative Agent, as mortgagee,
as the same may be modified or amended from time to time.

                  "MORTGAGED PROPERTY" is defined in the Mortgage.

                  "NOTE" and "NOTES" are defined in Section 2.07 hereof.

                  "PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

                                      -4-
<PAGE>

                  "PERMITS" means, as of any date, all certificates, permits,
licenses and other governmental approvals, including, without limitation,
building permits and certificates of occupancy, necessary or required under
applicable law as of such date in connection with the ownership, development,
use, sale, occupancy and operation of the Project.

                  "PERSON" means any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture, trust,
mutual fund, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof).

                  "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.

                  "PREMISES" means the real property described on Schedule A to
the Mortgage and located as indicated on the cover hereof, upon all or part of
which the Improvements (as such term is defined in the Mortgage) are located.

                  "PRIME BASED RATE" means the fluctuating interest rate equal
to one quarter of one (0.25%) percent in excess of the Prime Rate.

                  "PRIME RATE" means, for any day, the rate of interest for such
day from time to time announced by HSBC Bank USA at its office at 452 Fifth
Avenue, New York, New York, as its prime rate (being a base rate for calculating
interest on certain loans), each change in any interest rate hereunder based on
the Prime Rate to take effect at the time of such change in the Prime Rate. The
Borrower acknowledges that the Prime Rate may not necessarily represent the
lowest rate charged by HSBC Bank USA to its customers. The Borrower acknowledges
that neither Administrative Agent nor HSBC Bank USA is required to notify
Borrower of any changes in the Prime Rate.

                  "PRIME RATE LOAN" means, at any time, a Loan bearing interest
at the Prime Based

                  "PROJECT" is defined in the Recitals hereto.

                  "PROPERTY" means all property of any kind whatsoever, whether
real, personal or mixed and whether tangible or intangible and any right or
interest therein.

                  "REGISTER" is defined in Section 12.06(c) hereof.

                  "REGULATORY CHANGE" means any change after the date of this
Agreement in Federal, state or foreign law or regulations (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) applying to a class of banks, including any of the Lenders, or the
adoption or making after such date of any interpretation, directive or request
applying to a class of banks, including any of the Lenders, of or under any
Federal, state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.

                                      -5-
<PAGE>

                  "REQUIRED LENDERS" means Lenders having at least 66-2/3% of
the aggregate unpaid principal amount of the Loans.

                  "RESERVE REQUIREMENT" means, for any LIBOR Interest Period,
the rate at which reserves (including, without limitation, any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D of the Board of Governors of the Federal
Reserve System by member banks of the Federal Reserve System in New York City
with deposits exceeding one billion Dollars against "Eurocurrency liabilities"
(as such term is used in said Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall include any other reserves required to
be maintained by such member banks by reason of any Regulatory Change with
respect to (i) any category of liabilities that includes deposits by reference
to which the LIBOR Rate is to be determined as provided in the definition of
"LIBOR Rate" in this Section 1.01, or (ii) any category of extensions of credit
or other assets that includes the Loans.

                  "SECURITY DOCUMENTS" means, collectively, the Mortgage, the
Assignment of Leases and Rents, and all Uniform Commercial Code financing
statements filed with respect to the security interests in personal property and
fixtures created pursuant to the Mortgage.

                  In addition, capitalized terms not otherwise defined herein
shall have the means ascribed thereto in the Mortgage.

         SECTION 2. THE COMMITMENT, LOANS AND NOTES.

                  2.01. THE LOANS.

                  (a) Each Lender severally agrees, on and subject to the terms
and conditions of this Agreement, to make term loans to Borrower (each, a "Loan"
and, collectively, the "Loans") in one disbursement to be made on the date
hereof, in the principal amount of the Commitment(s) of such Lender and, as to
all Lenders, in an aggregate principal amount of FORTY MILLION FIVE HUNDRED
THOUSAND ($40,500,000.00) DOLLARS.

                  (b) The proceeds of the Loans shall be applied by Borrower to
purchase the Project and neither Administrative Agent nor any Lender shall have
any responsibility as to the use of any such proceeds. Borrower covenants and
agrees that in no event shall proceeds of the Loan, or any part thereof, be
used, directly or indirectly, for any other purpose, for any illegal purpose or
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying "margin stock" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, or in connection with any hostile
acquisition or for any illegal purpose.

                  (c) The Loans will be made upon satisfaction of the conditions
precedent set forth in Section 6.01 hereof.

                  (d) Each Borrowing shall be made from the Lenders on a pro
rata basis in proportion to the amounts of their respective Commitments. No
Lender shall have any obligation to advance any amount hereunder in excess of
the amount of its Commitment.

                  2.02. INTENTIONALLY OMITTED.

                                      -6-
<PAGE>

                  2.03. SEVERAL OBLIGATIONS; CERTAIN REMEDIES INDEPENDENT. Each
of the respective amounts payable to each Lender by Borrower at any time
hereunder and under the Notes shall be a separate and independent debt and it
shall not be necessary for any other Lender or Administrative Agent to consent
to, or be joined as an additional party in, any proceedings to recover the
payment of any overdue amounts. Notwithstanding the foregoing provisions of this
Section 2.03, neither Administrative Agent nor any Lender shall commence any
action or proceeding to enforce any Note, unless all of the Notes are sought to
be enforced in the same action or proceeding. Nothing in the preceding sentence
shall modify the definition of the term "Required Lenders" or modify in any
other manner the number or percentage of the Lenders required to make any
determinations or waive any rights hereunder or the authority of the Required
Lenders, pursuant to Section 9 hereof, to require Administrative Agent to take
certain actions with respect to all of the Commitments and all of the Loans at
the request of the Required Lenders.

                  2.04. FEES. In consideration of Administrative Agent's
entering into this Agreement, Borrower shall pay a non-refundable commitment fee
of $202,500.00. By paying such fee to Administrative Agent, Borrower shall not
be liable to the Lenders, and the Lenders hereby release Borrower from any such
liability, with respect to such commitment fee.

                  2.05. CONDITIONS PRECEDENT AND THIRD PARTIES. No Person shall
be a third party beneficiary of any provision of this Agreement or any other
Basic Document or of the right of the Lenders to require or to waive the
satisfaction of conditions precedent hereunder in connection with the making of
any Loans other than the Lenders and Administrative Agent.

                  2.06. INTENTIONALLY OMITTED.

                  2.07. NOTES. The Loan or Loans, as the case may be, of each
Lender shall be evidenced by a separate promissory note or notes, as the case
may be, of Borrower payable to such Lender in the principal amount equal to the
amount of such Lender's Commitment (each such note, as the same may hereafter be
amended, modified, extended, severed, assigned, substituted, renewed or restated
from time to time in accordance with the terms of this Agreement, including,
without limitation, any substitute notes pursuant to Section 12.06, each, a
"Note" and collectively, the "Notes"), which shall be substantially in the form
of Schedule I hereto and otherwise duly completed. In case of any loss, theft,
destruction or mutilation of any Lender's Note, Borrower shall, upon its receipt
of an affidavit of an officer of such Lender as to such loss, theft, destruction
or mutilation and an appropriate indemnification, execute and deliver a
replacement Note to such Lender in the same principal amount and otherwise of
like tenor as the lost, stolen, destroyed or mutilated Note.

         SECTION 3. PAYMENTS OF PRINCIPAL AND INTEREST; YIELD PROTECTION

                  3.01. PRINCIPAL AT MATURITY. Borrower agrees to pay
Administrative Agent, for the pro rata account of the Lenders, the entire
outstanding principal amount of the Loans, together with all accrued and unpaid
interest hereunder and under the Notes, and all other cost and charges under the
Basic Documents, and each Loan shall mature, on the Maturity Date.

                                      -7-
<PAGE>

                  3.02. AMORTIZATION PAYMENTS. In addition to the interest
payments required to be made hereunder and under the Notes, as provided below,
Borrower shall pay to Administrative Agent, for the pro rata account of the
Lenders, the sum of $53,645.00 on February 1, 2003 and on the first day of each
and every month thereafter (if any such day is not a Business Day, such payment
shall be due and payable on the first Business Day immediately prior thereto)
until the Maturity Date, when the remaining principal balance of the Loans, all
accrued and unpaid interest hereunder (and under the Notes) and all costs and
charges hereunder and under the Basic Documents shall be due and payable (each
such payment is defined as an "Amortization Payment"). Each Amortization Payment
shall be applied in reduction of the outstanding principal amount of the Loans.

                  3.03. INTEREST; LATE CHARGES; OTHER COSTS.

                  (a) The Loans shall bear interest on the unpaid balance from
and after the date hereof at the Prime Based Rate until Borrower shall have
effectively exercised its first LIBOR Option hereunder (i.e., the interest rate
converts from the Prime Based Rate to the Adjusted LIBOR Rate), which
Administrative Agent and Borrower acknowledge will be on or about December 18,
2002. The Loans, unless otherwise provided herein, shall bear interest on the
unpaid principal balance from the date hereof until maturity (whether by
acceleration or otherwise) at an interest rate equal to the Adjusted LIBOR Rate,
as determined by the Administrative Agent pursuant to, and in accordance with,
the provisions of this Agreement. Interest shall be calculated for each day at
1/360th of the applicable per annum rate, which will result in a higher
effective annual rate. In no event shall interest under this Note exceed the
maximum rate of interest authorized by applicable law.

                  (b) Borrower agrees to pay to Administrative Agent, for the
pro rata account of the Lenders, interest on the unpaid principal amount of each
Loan, in arrears, on January 1, 2003 and on the first day of each and every
month thereafter through and including the Maturity Date, when the remaining
principal balance of the Loans, all accrued and unpaid interest hereunder (and
under the Notes), and all costs and charges hereunder and under the Basic
Documents shall be due and payable.

                  (c) Borrower agrees that if any payment due hereunder
(including, but not limited to, the entire principal balance under the Loans if
accelerated or otherwise matured) is not paid when due, and the applicable
notice and/or grace period, if any, with respect to such payment shall have
expired, or if any other Event of Default shall have occurred and be continuing,
then the Loans shall bear interest at a per annum rate of four (4.00%) percent
in excess of the interest rate that was payable hereunder immediately prior to
the expiration of such notice and/or grace period (or due date of such payment
if no grace period is applicable) or the occurrence of such Event of Default, as
the case may be ("Default Rate"), from the due date of such payment to and
including the date when paid, or from the occurrence of the default giving rise
to the Event of Default to and including the date when such Event of Default
shall have been cured (which cure must be consented to by the Administrative
Agent if the Loans shall have been duly accelerated as a result of the Event of

                                      -8-
<PAGE>

Default), as the case may be, but in no event shall such interest exceed the
maximum rate of interest authorized by applicable law. The Default Rate shall be
subject to increase or decrease based upon the Prime Rate from and after the
expiration of the LIBOR Interest Period in effect at the time the Default Rate
is first implemented. For example, if the Loans were accelerated during a LIBOR
Interest Period, the principal balance would bear interest at six (6.00%)
percent per annum in excess of the LIBOR Rate then in effect until the end of
the applicable LIBOR Interest Period and immediately thereafter the Loans would
bear interest at a fluctuating interest rate equal to four and one quarter
(4.25%) percent in excess of the Prime Rate. Borrower agrees to pay to
Administrative Agent, on demand and from time to time, for the pro rata account
of the Lenders, any and all interest payable at the Default Rate.

                  (d) Borrower agrees that if any payment due hereunder, whether
principal, interest or otherwise, made after the applicable grace period, if
any, provided in Section 2.01(a) of the Mortgage, shall be accompanied by a late
payment charge of four (4.00%) percent of the amount so due, which shall be due
with such late payment. Borrower agrees to pay to Administrative Agent such late
payment charge, for the pro rata account of the Lenders.

                  (e) If the payment of any interest and any other charges
hereunder or under the Notes is in excess of the maximum rate permitted by law
in commercial loan transactions between parties of the character of the parties
hereto, then ipso facto the obligations of the Borrower to make such payment
shall be reduced to the highest rate authorized under applicable law and all
prior payments in excess of such highest rate shall be applied and shall be
deemed to have been payments in reduction of the principal sum of the Loans.

                  (f) Borrower shall have the option to select from time to
time, pursuant to, in accordance with, and subject to the provisions of this
Agreement, that the entire outstanding principal balance of the Loans accrue
interest at an Adjusted LIBOR Rate ("LIBOR Option"). Borrower's selection shall
be exercised by making a written or telephonic request to Administrative Agent
for a LIBOR Rate, which must be received by Administrative Agent on or prior to
the applicable Interest Determination Date and must designate the proposed LIBOR
Interest Period and the proposed commencement date of the LIBOR Interest Period
("Borrowing Date"). Any request made by Borrower to have the aggregate
outstanding principal balance of the Loans accrue interest based upon a LIBOR
Rate shall be irrevocable after the applicable Interest Determination Date and
Borrower shall be bound therewith. Administrative Agent shall not incur any
liability to Borrower in acting upon telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Borrower.
Borrower agrees to indemnify Administrative Agent and the Lenders and hold
Administrative Agent and the Lenders harmless from any and all claims, losses,
costs and expenses incurred or suffered by Administrative Agent and the Lenders
in good faith reliance by the Administrative Agent on the telephone requests or
instructions from any representative of Borrower. Upon the expiration of a LIBOR
Interest Period under this Agreement, unless Borrower shall have designated (in
accordance with the terms of this Agreement) a proposed LIBOR Interest Period to
take effect immediately upon the end of the then current LIBOR Interest Period,
the interest rate with respect to the Loans shall automatically convert to an
Adjusted LIBOR Rate based upon a new LIBOR Interest Period of equal (or
approximately equal) duration as the then-expiring LIBOR Interest Period, as
determined by Administrative Agent as of the date that is two LIBOR Business

                                      -9-
<PAGE>

Days prior to the last day of the expiring LIBOR Interest Period; provided,
however, if Borrower's LIBOR Option is no longer permitted or is otherwise
unavailable for the reasons set forth in subparagraphs (i), (ii) and (iii) of
subsection 3.03(g) below, then the interest rate shall automatically convert to
the Prime Based Rate (or shall continue at the Default Rate if an Event of
Default has occurred and is continuing) at the end of the then current LIBOR
Interest Period. Administrative Agent's calculation of the interest rate
hereunder shall be conclusive in the absence of manifest error.

                  (g) Borrower shall not have the LIBOR Option if Administrative
Agent shall have determined (which determination shall be final, conclusive and
binding absent manifest error) that: (i) quotations of interest rates for the
relevant deposits referred to in the definition of "LIBOR Rate" in Section 1.01
hereof are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for any LIBOR Loan as
provided herein, or (ii) the Required Lenders determine and notify
Administrative Agent that by reason of circumstances affecting the London
interbank market the relevant rates of interest referred to in the definition of
"LIBOR Rate" in Section 1.01 hereof upon the basis of which the rate of interest
for the LIBOR Loan for such Interest Period is to be determined are not likely
to adequately cover the cost to the Lenders of making or maintaining a LIBOR
Loan for such LIBOR Interest Period, or (iii) an Event of Default shall have
occurred and be continuing. Administrative Agent, as soon as possible after
making such determination, shall give telephonic or written notice to Borrower
that Borrower no longer has the LIBOR Option and the Lenders shall be under no
obligation to make any LIBOR Loan(s). If, however, the circumstances referred to
in this subsection cease to exist, Administrative Agent shall thereafter give
telephonic or written notice to Borrower of such change in circumstances, and
Borrower shall again have the LIBOR Option, subject to the provisions of this
paragraph.

                  (h) Notwithstanding anything herein contained to the contrary,
if during any LIBOR Interest Period, Administrative Agent shall have reasonably
determined (which determination shall be final, conclusive and binding), that
(i) any change in any law, regulation or official directive, or in the
interpretation thereof deemed to be binding by Administrative Agent in its
reasonable judgment, by any governmental body charged with the administration
thereof, shall make it unlawful for Administrative Agent or any Lender to fund
or maintain funding in Euro-dollars of the principal amount of any LIBOR or
otherwise to give effect to Administrative Agent's and Lenders' obligations to
offer the LIBOR Option, or (ii)the continuation of any LIBOR Loan would cause
Administrative Agent or any Lender severe hardship as a result of a contingency
occurring after the date of this Loan Agreement that materially and adversely
affects the London interbank market (such as, but not limited to, disruptions
resulting from political or economic events) then in either such event (x)
Administrative Agent may by telephonic or written notice to Borrower declare
that Administrative Agent's and Lenders' obligation to provide the LIBOR Option
to be immediately terminated, (y) the availability of the LIBOR Option hereunder
shall forthwith cease to be in effect, and interest on the outstanding principal
balance of this Note shall, from and after the date of the notice set forth in
subparagraph (x) above, be calculated and payable at the Prime Based Rate
(subject to increase to the Default Rate if an Event of Default shall have
occurred and be continuing); and (z) Borrower shall indemnify Administrative
Agent and the Lenders against any loss, expense, penalty or other charge
suffered by it in liquidating prior to maturity such LIBOR deposits obtained
pursuant to the terms of this Loan Agreement. No failure on the part of

                                      -10-
<PAGE>

Administrative Agent to demand compensation, for the pro rata account of the
Lenders, for any such increased costs shall constitute a waiver of
Administrative Agent's right to demand such compensation at any time during the
term of this Agreement. The good faith determination by Administrative Agent of
the amount of any such loss, expense, penalty or other charge ("Change in Law
Costs") shall be deemed conclusive in the absence of manifest error. Borrower
shall pay such Change In Law Costs to the Administrative Agent, for the pro rata
account of the Lenders, on demand. In the event the Change in Law Costs, as
computed in accordance with the provisions of this paragraph, shall exceed the
maximum amount permissible by law, the amount of the Change in Law Costs shall
be reduced to such maximum permissible amount.

                  (i) If, for any reason, (i) Borrower shall make a repayment to
Administrative Agent of all or any portion of any LIBOR Loan prior to the
expiration of the applicable LIBOR Interest Period, other than a monthly
Amortization Payment as provided herein, or (ii) demand for repayment of LIBOR
Loans, as provided for hereunder or under the Mortgage, shall be made, then, in
each and every case, Borrower agrees to indemnify Administrative Agent and
Lenders against, and to pay, on demand, directly to Administrative Agent, for
the pro rata account of the Lenders, any loss, cost, or expense suffered or
incurred by Administrative Agent or Lenders as a result of any and all of such
events, including without limitation (A) any loss, expense, penalty or other
charge incurred or suffered by Administrative Agent or Lenders during the period
from the date of Administrative Agent's receipt of such early repayment to the
last LIBOR Business Day of the proposed, or actual, LIBOR Interest Period in
question; but only if, and to the extent that, the rate of interest obtainable
by Administrative Agent and the Lenders with respect to each LIBOR Loan upon the
redeployment of funds in an amount equal to each such Lender's repayment (for
the period from the date of Administrative Agent's receipt of such early
repayment to the last LIBOR Business Day of the proposed, or actual, LIBOR
interest Period in question) is less than the applicable LIBOR Rate that would
have been paid during such actual, or proposed, LIBOR interest Period, and (B)
any loss, expense, penalty or other charge suffered or incurred by
Administrative Agent or any Lender in liquidating deposits prior to maturity in
amounts that correspond to such repayment (collectively, "Liquidation Fee"). In
the event the Liquidation Fee as computed in accordance with the provisions of
this paragraph, shall exceed the maximum amount permissible by law, the amount
of the Liquidation Fee shall be reduced to such maximum permissible amount. No
failure on the part of Administrative Agent to demand compensation for any such
increased costs for the pro rata account of the Lenders, shall constitute a
waiver of Administrative Agent's right to demand such compensation at any time
during the term of this Note. The good faith determination by Administrative
Agent of the amount of any such Liquidation Fee shall be conclusive in the
absence of manifest error.

                  (j) Borrower hereby agrees to reimburse directly to
Administrative Agent, for the pro rata account of the Lenders, all of
Administrative Agent's, and each such Lender's, costs and expenses in complying
with all applicable laws, executive orders, and regulations of the governments
of the United States and the United Kingdom and of any regulatory or
administrative agency thereof (including, without limitation, The Bank of
England and the Board of Governors of the Federal Reserve System) or any change
therein or in the interpretation thereof, that impose, modify or deem applicable
any reserve or asset or special deposit requirements on deposits obtained in the
London interbank market in respect of the unpaid principal amount of any LIBOR
Loan, or which subject Administrative Agent and/or any Lender to any tax with
respect to any LIBOR Loan or change the basis of taxation of payments to
Administrative Agent and/or any Lender of principal, interest or fees payable
under any LIBOR Loan (except for any tax, or changes in the rate of tax, on
Administrative Agent's and/or any Lender's net income or profits imposed by the
United States or any other government having jurisdiction or any political
subdivision or taxing authority thereof). The cost to Administrative Agent
and/or any Lender in complying with laws, executive orders or regulations that
impose, modify or deem applicable any reserve, asset or special deposit
requirements on deposits in the London interbank market shall be computed by
determining the amount by which such requirements effectively increase
Administrative Agent's and/or each Lender's cost of making and maintaining
deposits attributable to the unpaid principal balance or any LIBOR Loan and by
computing the additional interest which would have been owing to Administrative
Agent and/or such Lender if such effective increase had been added to the LIBOR

                                      -11-
<PAGE>

Rate for purposes of determining the LIBOR Rate during the applicable LIBOR
Interest Period. Upon notice from Administrative Agent that there has been a
change in such reserve requirements, Borrower agrees to pay to Administrative
Agent, on demand, for the pro rata account of each Lender, as applicable, such
additional sums as will compensate Administrative Agent and each such Lender for
the effect of any change in such reserve requirements. No failure on the part of
Administrative Agent to demand compensation for any increased cost in any LIBOR
Interest Period shall constitute a waiver of Administrative Agent's right to
demand such compensation, for the pro rata account of each Lender, as
applicable, at any time during the term of this Agreement. Administrative
Agent's determination of the amount of such costs ("Reserve Costs") shall be
conclusive in the absence of manifest error. If the Reserve Costs as computed in
accordance with the provisions of this paragraph shall exceed the maximum amount
permissible by law, the amount of the Reserve Costs shall be reduced to such
maximum permissible amount.

                  (k) If any law, regulation or guideline or any change therein
or interpretation or application thereof by any regulatory body, court,
administrative or governmental authority charged with the interpretation or
administration thereof, or compliance with any request, directive, ruling,
decree, judgment or recommendation of any regulatory body, court, administrative
or governmental authority now existing or hereafter adopted (whether or not
having the force of law) imposes, modifies or deems applicable any capital
adequacy, increased capital adequacy or similar requirement and the result is to
increase the cost of, or reduce the rate of return on, any Lender's capital as a
consequence of such Lender's obligations hereunder, Administrative Agent (after
being notified by such Lender) shall notify the Borrower of such fact by
telephone or in writing. Upon such notice from Administrative Agent that there
has been a change in such capital adequacy requirements, Borrower agrees to, and
shall, pay to Administrative Agent, for the account of the applicable Lenders,
on demand, such additional sums as will compensate such Lenders for the effect
of any change in such capital adequacy requirements. No failure on the part of
Administrative Agent to demand compensation for any such increased costs shall
constitute a waiver of Administrative Agent's right to demand such compensation,
for the pro rata account of the applicable Lenders, at any time during the term
of this Agreement. Each Lender's good faith determination of the amount of such
costs ("Capital Adequacy Costs") shall be conclusive in the absence of manifest
error. If the Capital Adequacy Costs as computed in accordance with the
provisions of this paragraph shall exceed the maximum amount permissible by law,
the amount of Capital Adequacy Costs shall be reduced to such maximum
permissible amount.

                  (l) Any Lender may wish to purchase one or more deposits in
order to fund or maintain its funding of the outstanding principal balance of a
LIBOR Loan during any LIBOR Interest Period in question; it being understood
that the provisions of this Agreement relating to such funding are included only
for the purpose of determining the rate of interest to be paid and any amounts
owing to Lenders hereunder with respect to the Liquidation Fee, Reserve Costs,
Capital Adequacy Costs and Change in Law Costs (each "Funding Cost" and,
collectively, "Funding Costs") and any other amounts payable hereunder. The

                                      -12-
<PAGE>

Lenders shall be entitled to fund and maintain its funding of the principal
amount of such Lenders' LIBOR Loan in any manner it sees fit, but all such
determinations hereunder shall be made based on the assumption that the Lender
had actually funded and maintained the outstanding principal balance of its
LIBOR Loan at the LIBOR Rate applicable during such LIBOR Interest Period
through the purchase of deposits in an amount equal to such outstanding
principal balance and having a maturity corresponding to such LIBOR Interest
Period in accordance with this Agreement. In determining the amount of Funding
Costs, of any, due from time to time from Borrower to Administrative Agent, for
the pro rata account of the Lenders, if any cost or expense is included in more
than one type of Funding Cost, such cost or expense shall not be included in any
other type of Funding Cost (i.e., Borrower shall not be charged twice for the
same Funding Cost).

                  (m) Any notices under this Section 3.03 that are permitted to
be made by telephone, shall be made as follows:

                  (i) if to Administrative Agent, by calling Christopher A.
Whyte at telephone number 212-525-1143 or such other persons as may be hereafter
designated by Administrative Agent; and

                  (ii) if to Borrower, by calling Richard J. Lampen at telephone
number 305-579-8000, or such other persons as may be hereafter designated by
Borrower.

                  3.04. PREPAYMENTS. Borrower shall have the right, upon not
less than ten (10) days' advance written notice to the Administrative Agent,
which notice shall be irrevocable, to prepay the principal of the Loans in whole
or in multiples of $1,000,000.00 at any time, without any premium or penalty
other than any Liquidation Fee (as itemized by the Administrative Agent to the
Borrower) due in connection with any prepayment of principal that was a LIBOR
Loan; provided, however, such prepayment must be accompanied by all accrued and
unpaid interest on the principal so prepaid to the date of such prepayment and
all other amounts then due under this Agreement (including any Funding Costs, as
itemized by Administrative Agent to Borrower). If a partial prepayment is made,
there will be no change in the due dates or the amounts of the monthly
Amortization Payments.

         SECTION 4. PAYMENTS; COMPUTATIONS; ETC.

                  4.01. PAYMENTS.

                  (a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by Borrower under
this Agreement and the Notes and all payments to be made by Borrower under any
other Basic Document shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, and flee and clear of, and without
deduction or withholding for, any taxes, levies, imposts, duties, fees, charges,
withholdings, restrictions or conditions of any nature whatsoever, to
Administrative Agent at its office at 452 Fifth Avenue, New York, New York (or
such other location in New York State as Administrative Agent may direct), not

                                      -13-
<PAGE>

later than 12:00 noon New York time on the date when due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day).

         (b) Each payment received by Administrative Agent under this Agreement
for account of any Lender shall be paid by Administrative Agent promptly to such
Lender, in immediately available funds, for account of such Lender's Applicable
Lending Office. Borrower shall not be liable to any Lender for any amount paid
by Borrower to Administrative Agent for the account of any of the Lenders in the
event that Administrative Agent fails to pay such amount to the Lenders in
accordance with the terms of this Agreement.

         (c) If the due date of any payment under this Agreement or the Notes
would otherwise fall on a day that is not a Business Days such date shall be
extended to the next succeeding Business Day, and interest (at the interest rate
applicable to such payment as of its originally scheduled due date) shall be
payable for any principal so extended for the period of such extension.

         (d) Borrower shall have no obligation to cause, or liability for the
failure of, Administrative Agent or any of the Lenders to perform their
respective obligations under this Agreement.

         4.02. PRO RATA TREATMENT. Except to the extent otherwise provided
herein, (a) the Loans shall be made by the Lenders pro rata according to the
amounts of their respective Commitments; (b) each payment or prepayment of
principal of the Loans shall be made for account of the Lenders pro rata in
accordance with the respective unpaid principal amounts of the Loans held by
them; and (c) each payment of interest on the Loans shall be made for account of
the Lenders pro rata in accordance with the respective amounts of interest on
such Loans then due and payable to them.

         4.03. INTENTIONALLY OMITTED.

         4.04. INTENTIONALLY OMITTED.

         4.05. INTENTIONALLY OMITTED.

         4.06. SET-OFF.

         (a) Borrower agrees that, in addition to (and without limitation of)
any right of set-off, banker's lien or counterclaim any Lender may otherwise
have, each Lender shall be entitled, at its option, to offset balances held by
it for account of Borrower at any of its offices, in Dollars or in any other
currency, against any principal of or interest on the Loan(s) or any other
amount payable to such Lender hereunder that is not paid when due (regardless of
whether such balances are then due to Borrower), in which case it shall promptly
notify Borrower and Administrative Agent thereof; provided, that such Lender's
failure to give such notice shall not affect the validity thereof.

         (b) If any Lender shall obtain from Borrower payment of any principal
of or interest on its Loan or payment of any other amount under this Agreement
through the exercise of any right of set-off, Banker's lien or counterclaim or
similar right or otherwise (other than from Administrative Agent as provided

                                      -14-
<PAGE>

herein), and, as a result of such payment, such Lender shall have received a
percentage of the principal of or interest on such Loan or such other amounts
then due hereunder by Borrower to such Lender in excess of its pro rata share
thereof, it shall promptly purchase from such other Lenders participations in
(or, if and to the extent specified by such Lender, direct interests in) the
Loans or such other amounts, respectively, owing to such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Lenders shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Lender in obtaining or preserving such excess payment)
pro rata in accordance with the unpaid principal of and/or interest on the Loans
or such other amount respectively, owing to each of the Lenders. To such end all
the Lenders shall make appropriate adjustments among themselves (by the resale
of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. Borrower shall have no liability or responsibility for
the performance by the respective Lenders of their obligations under this
Section 4.06(b).

         (c) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Borrower.

         SECTION 5. INTENTIONALLY OMITTED.

         SECTION 6. CONDITIONS PRECEDENT.

                  6.01. CONDITIONS PRECEDENT TO INITIAL BORROWING.

                  (a) The obligation of the Lenders to make their respective
Loans on the occasion of the initial Borrowing is subject to the conditions
precedent that Administrative Agent shall have received the following documents,
each of which shall be satisfactory to Administrative Agent in form and
substance:

                  (i) ORGANIZATIONAL DOCUMENTS. Copies, certified by Borrower to
be complete and accurate, of the certificate of incorporation and by-laws, and
of such other documents as shall evidence the existence and good standing of
Borrower, and the due authorization of the making and performance by Borrower of
this Agreement and each other Basic Document to which it is a party.

                  (ii) LEGAL OPINION. An opinion of special counsel to Borrower
in form and substance satisfactory to the Administrative Agent. Borrower hereby
instructs such counsel to deliver such opinion to the Lenders and Administrative
Agent.

                  (iii) NOTES. The Notes, dated the date of the initial
Borrowing, duly completed and executed by Borrower.

                  (iv) MORTGAGE. The Mortgage, dated the date of the initial
Borrowing, duly completed and executed by Borrower in recordable form.

                                      -15-
<PAGE>

                  (v) TITLE POLICY. American Land Title Association, extended
coverage, loan policy of title insurance on Form 1970 (Rev. 10-17-84) in a form
satisfactory to Administrative Agent.

                  (vi) SURVEY. An updated land survey, prepared by a licensed
surveyor acceptable to Administrative Agent showing such matters as may be
required by Administrative Agent with respect to the Project, certified by the
surveyor and otherwise satisfactory to Administrative Agent and the Title
Company and adequate for the Title Company to remove the general survey
exception from the Title Policy.

                  (vii) FINANCING STATEMENTS. Appropriately completed Uniform
Commercial Code financing statements to perfect the security interests created
pursuant to the Mortgage as first priority security interests.

                  (viii) INSURANCE. Certificates of insurance evidencing the
existence of all insurance required to be maintained by Borrower pursuant to
Section 1.9 of the Mortgage.

                  (ix) ENVIRONMENTAL SURVEY. One or more Phase I environmental
survey and assessments with respect to the Project, in form and substance
satisfactory to Administrative Agent.

                  (x) PROPERTY CONDITION SURVEY. A property condition survey
with respect to the Project, satisfactory to Administrative Agent.

                  (xi) APPRAISAL. An appraisal with respect to the Project,
prepared by an Appraiser at Borrower's expense and satisfactory to
Administrative Agent, which appraisal demonstrates that the loan to value ratio
does not exceed 75%.

                  (xii) TAXES. Evidence that all property taxes with respect to
the Project which are due and payable have been paid.

                  (xiii) UCC, TAX AND JUDGMENT SEARCHES. Evidence that searches
of the public records disclose no conditional sales contracts, chattel
mortgages, leases of personality, financing statements, Liens, taxes (except for
taxes not yet due and payable) or judgments filed or recorded against Borrower
or the Project or in respect of any other property interests covered or to be
covered by the Lien of the Mortgage, other than those granted by Borrower to
Administrative Agent or contemplated by this Agreement.

         SECTION 7. REPRESENTATIONS AND WARRANTIES.

         Borrower represents and warrants to Administrative Agent and the
Lenders that, as of the date hereof:

                  7.01. EXISTENCE; BENEFICIAL OWNERSHIP. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware; and Borrower has all requisite power, and has all material
governmental licenses, authorizations, consents and approvals, necessary to own
its assets and carry on its business substantially as now being or as proposed

                                      -16-
<PAGE>

to be conducted and is qualified to do business and is in good standing in each
location where such qualification is necessary to carry on its business.

                  7.02. FINANCIAL CONDITION. The financial statements heretofore
furnished to Administrative Agent are, as of the dates specified therein,
complete and correct in all material respects and fairly present the financial
condition of Borrower, and are prepared in accordance with generally accepted
accounting principles applied on a consistent basis. Borrower does not have on
the date hereof any contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments that in each case are known to Borrower, and which, in
the opinion of Borrower, are reasonably likely to result in a Material Adverse
Effect, except as referred to or reflected or provided for in said balance
sheets or financial statements as at said dates and except for the purchase and
financing of the Project. There has been no material adverse change in the
financia1 condition of Borrower from that reflected on the financial statements
of Borrower previously delivered to Administrative Agent.

                  7.03. LITIGATION. There are no legal or arbitral proceedings,
or any proceedings by or before any Governmental Authority, now pending or (to
the best of the knowledge of Borrower) threatened against the Project or
Borrower that are reasonably likely to have a Material Adverse Effect.

                  7.04. NO BREACH. The making and performance by Borrower of
this Agreement, the Notes and the other Basic Documents to which it is a party
do not and will not result in a breach of the certificate of incorporation or
by-laws of Borrower or any applicable law or regulation, or any order, writ,
injunction or decree of any Governmental Authority, or any agreement or
instrument to which Borrower is a party or by which it or any of its Property is
bound or to which it is subject, or constitute a default thereunder, or (except
for the Liens created pursuant to the Security Documents) result in the creation
or imposition of any Lien upon any Property of Borrower.

                  7.05. ACTION. Borrower has all necessary corporate power to
make and perform this Agreement, the Notes and each of the other Basic Documents
to which it is a party; the making and performance by Borrower of said documents
have been duly authorized by all necessary corporate action; and this Agreement
has been duly and validly executed and delivered by Borrower and constitutes,
and the Notes, and each of the other Basic Documents to which it is a party when
executed and delivered, will constitute, its legal, valid and binding
obligation, enforceable against Borrower in accordance with its terms, except as
such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium 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).

                  7.06. APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority are necessary
for the making or performance by Borrower of this Agreement, the Notes or any of
the other Basic Documents.

                                      -17-
<PAGE>

                  7.07. USE OF CREDIT. Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying margin
stock within the meaning of Regulations U and X of the Board of Governors of the
Federal Reserve System, and no part of the proceeds of the Loans will be used by
Borrower to buy or carry any such margin stock.

                  7.08. ERISA. Each Plan is in compliance in all material
respects with the currently applicable provisions of ERISA and the Code.

                  7.09. TAXES. All federal, state and local tax returns required
to be filed by Borrower have been filed, and all federal, state income or other
taxes, assessments or fees imposed upon Borrower and/or any of the Mortgaged
Property, which are due and payable, have been paid.

                  7.10. INVESTMENT COMPANY ACT. Borrower is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.

                  7.11. PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not 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.

                  7.12. MATERIAL AGREEMENTS. Borrower has provided copies of all
material contracts relating to ownership, operation and maintenance of the
Project to Administrative Agent, it being understood that, for the purposes of
this Section 7.12, "material contracts" shall not in any event include (i) any
agreement for the purchase or leasing of services, supplies, furniture,
fixtures, equipment or similar items in the ordinary course of business, (ii)
any agreement with respect to the advertising or marketing of the Project, (iii)
any other agreement entered into in the ordinary course of business which (a) is
either terminable by Borrower on not more than thirty (30) days' notice or is to
be fully performed by the parties thereto within one year and (b) requires
aggregate payments by Borrower not in excess of $500,000, and (iv) any other
agreement entered into in the ordinary course of business which requires
aggregate annual payments not in excess of $500,000.

                  7.13. CONDEMNATION. No condemnation or eminent domain
proceeding has been commenced or, to the best knowledge of Borrower, is
threatened against the Mortgaged Property or any portion thereof.

                  7.14. PERMITS. Except as previously disclosed to
Administrative Agent in writing, Borrower has all material Permits required to
be obtained as of the date of this Agreement with respect to use, occupancy and
operation of the Project; all of the foregoing are in full force and effect and
not subject to any pending actions or proceedings for revocation, amendment,
release, suspension, forfeiture or the like; no appeals with respect to same are
pending from any order, decision or determination; and the present and/or
contemplated use, occupancy and operation of the Project does not conflict with
or violate any such Permit.

                  7.15. INSURANCE. The insurance policies required by Section
1.9 of the Mortgage are in full force and effect and all premiums payable in
respect thereof have been paid to date.

                                      -18-
<PAGE>

                  7.16. OWNERSHIP. Borrower is lawfully seized and possessed of
a good and marketable fee simple title in and to the Project free and clear of
all Liens except for Permitted Exceptions.

                  7.17. INTENTIONALLY OMITTED.

                  7.18. MATERIAL ADVERSE EFFECT. No event or circumstance has
occurred that could or might have a Material Adverse Effect.

                  7.19. NO PRIOR LIENS. Borrower has entered into no contract or
arrangement of any kind the performance of which by the other party thereto
would give rise to a lien on the Mortgaged Property prior to the Mortgage.

                  7.20. FLOOD ZONE. No part of the Mortgaged Property is located
in an area designated by the Federal Emergency Management Agency as having
special flood hazards.

         SECTION 8. COVENANTS OF BORROWER.

                  Borrower covenants and agrees with the Lenders and
Administrative Agent that, so long as any principal of or interest on the Loans
is outstanding and until payment in full of all amounts payable by Borrower
under this Agreement and the other Basic Documents:

                  8.01. FINANCIAL STATEMENTS, ETC. Borrower shall deliver or
cause to be delivered to Administrative Agent the financial statements and
operating reports in accordance with Section 1.11 of the Mortgage.

                  8.02. LITIGATION. Borrower shall promptly give to
Administrative Agent notice of all legal or arbitral proceedings, and of all
proceedings by or before any Governmental Authority, and any material
development in respect of such legal or other proceedings, affecting Borrower or
the Project, except proceedings which, if adversely determined, would not have a
Material Adverse Effect. Without limiting the generality of the foregoing,
Borrower shall give to Administrative Agent prompt notice of the assertion of
any claim or notice by any Governmental Authority or the commencement or written
threat of commencement of any action or proceeding by any Person with respect to
any alleged violation of or non-compliance by Borrower or the Project with any
Environmental Laws or any material Permits pertaining to the Project.

                  8.03. MORTGAGE COVENANTS. Borrower shall, for the benefit of
the Administrative Agent and the Lenders, comply with all covenants contained in
the Mortgage.

         SECTION 9. EVENTS OF DEFAULT.

                  If one or more of the following events (each being herein
called an "Event of Default") shall happen, that is to say:

                  (a) Borrower shall default in the payment when due of any
principal of, or interest on, the Loans or in the payment when due of any fee or
any other amount payable hereunder or under any other Basic Document and such
default shall continue past any notice and/or grace period provided in Section
2.01(a) of the Mortgage; or

                                      -19-
<PAGE>

                  (b) an "Event of Default" shall have occurred under the
Mortgage, including without limitation, the "Events of Default" listed in
Section 2.l(a)-(q) of the Mortgage.

THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (c) or (d) and (f) of the Mortgage, Administrative Agent may and shall,
upon request of the Required Lenders, by notice to Borrower, declare the
Commitments to be terminated forthwith, whereupon the Commitments shall be
terminated, and/or Administrative Agent may and shall, upon request of the
Required Lenders, declare the principal amount then outstanding of, and the
accrued interest on, the Notes and all other amounts payable by Borrower
hereunder and under the Notes (including, without limitation, the applicable
Funding Costs) 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 Borrower;
(2) in the case of the occurrence of an Event of Default referred to in clause
(c), (d) and (f) of the Mortgage, the Commitments shall automatically be
terminated and the principal amount then outstanding of, and the accrued
interest on, the Notes and all other amounts payable by Borrower hereunder and
under the Notes (including, without limitation, the applicable Funding Costs)
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 Borrower; and (3) Administrative Agent may and shall, upon
the request of the Required Lenders, exercise such rights and remedies available
under this Agreement, the Notes, and the Security Documents or under applicable
law, for the pro rata benefit of the Lenders, which Administrative Agent deems
appropriate under the circumstances in order to enforce such documents.

         SECTION 10. INTENTIONALLY OMITTED.

         SECTION 11. ADMINISTRATIVE AGENT.

                  11.01. APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
appoints and authorizes Administrative Agent to act as its agent hereunder and
under the Security Documents with such powers as are specifically delegated to
Administrative Agent by the terms of this Agreement and the Security Documents,
together with such other powers as are reasonably incidental thereto, including,
without limitation, the power to execute all documents, filings and notices
relating to the transactions contemplated by the Security Documents.
Administrative Agent (which term as used in this sentence and in Section 11.06
and the first sentence of Section 11.07 hereof shall include reference to its
affiliates and its own and its affiliates' respective officers, directors,
employees and agents):

                  (a) shall have no duties or responsibilities except those
expressly set forth in this Agreement, and shall not by reason of this Agreement
be a trustee for or partner of any Lender or to have assumed any relationship of
agency, trust or partnership with Borrower;

                  (b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, the Security
Documents or the Notes or any other document referred to or provided for herein

                                      -20-
<PAGE>

or for any failure by Borrower or any other Person to perform any of its
obligations hereunder or thereunder;

                  (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and

                  (d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other document or instrument referred
to or provided for herein or in connection herewith, except for its failure to
exercise the same diligence and standard of care that is customarily used by
Administrative Agent with respect to similar loans held by Administrative Agent
solely for its own account (the "Standard of Care").

Administrative Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith, subject to the Standard of Care.
Administrative Agent shall take, or refrain from taking, such actions as may be
directed in writing by the Required Lenders provided that (i) such actions are
not contrary to the provisions of this Agreement or contrary to applicable law,
rule or regulation, and (ii) it shall receive further assurances to its
satisfaction from the Lenders of their indemnification obligations under Section
11.06 hereof against any and all liability and expense that may be incurred by
it by reason of taking or refraining to take any such action.

                  11.02. RELIANCE BY AGENT. Administrative Agent shall be
entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex,
telegram or cable) reasonably believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel and other experts selected by
Administrative Agent. As to any matters not expressly provided for by this
Agreement, Administrative Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder in accordance with instructions given by
the Required Lenders, and such instructions of the Required Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders. If Administrative Agent shall request instruction from the Lenders with
respect to any act or action (including failure to act) in connection with this
Agreement, the Notes, the Security Documents or any other document related
thereto, Administrative Agent shall be entitled to refrain from such act or
taking such action unless and until Administrative Agent shall have received
instructions from all of the Lenders, or all of the Required Lenders (as
applicable), and Administrative Agent shall not incur liability to any Person by
so refraining.

                  11.03. RELIANCE BY BORROWER. Unless an Event of Default shall
have occurred and remains uncured, Borrower shall have no obligation to give
notices to, furnish financial or other information to, or otherwise deal
directly with, any Lender, but may deal solely with Administrative Agent and no
Lender shall have any right to deal directly with Borrower under this Agreement
or any of the other Basic Documents. The Administrative Agent shall not have any
liability or, as the case may be, any duty or obligation, to Borrower on account
of any failure of any Lender to perform, or the delay of any Lender in the
performance of, any of its respective obligations under this Agreement, the
Security Documents or any of the other documents in connection herewith.

                                      -21-
<PAGE>

                  11.04. DEFAULTS. Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than a failure to
make a payment of principal of or interest on the Loans) unless Administrative
Agent has actual knowledge thereof or has received notice from a Lender or
Borrower specifying such Default and stating that such notice is a "Notice of
Default". In the event that Administrative Agent has actual notice of a Default
or receives such a notice of the occurrence of a Default, Administrative Agent
shall give prompt notice thereof to the Lenders. Administrative Agent shall
(subject to Section 11.08 hereof) take such action with respect to such Default
as shall be directed by the Required Lenders; provided, that unless and until
Administrative Agent shall have received such directions, Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default as it shall deem advisable in the best
interest of the Lenders except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with the consent or
upon the authorization of the Required Lenders or all of the Lenders. No Lender
shall, individually, commence or maintain an action against Borrower with
respect to the Loan or this Agreement, it being understood that any such action
shall be taken only by Administrative Agent on behalf of all Lenders as
Administrative Agent may be directed hereunder.

                  11.05. RIGHTS AS A LENDER. With respect to its Commitment and
the Loans made by it, HSBC Realty Credit Corporation (USA) (and any successor
acting as Administrative Agent) in its capacity as a Lender hereunder shall have
the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not acting as Administrative Agent, and the term "Lender"
or "Lenders" shall, unless the context otherwise indicates, include
Administrative Agent in its individual capacity. HSBC Realty Credit Corporation
(USA) (and any successor acting as Administrative Agent), HSBC Bank USA, and its
affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with Borrower and its Affiliates and
subsidiaries as if it were not acting as Administrative Agent, and HSBC Realty
Credit Corporation (USA) (and any such successor), HSBC Bank USA and its
affiliates may accept fees and other consideration from Borrower for services in
connection with this Agreement or otherwise without having to account for the
same to the Lenders.

                  11.06. INDEMNIFICATION. The Lenders agree to indemnify
Administrative Agent (to the extent not reimbursed under Section 12.03 hereof,
but without limiting the obligations of Borrower under said Section 12.03)
ratably in accordance with the aggregate principal amount of the Loans held by
the Lenders (or, if no Loans are at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against Administrative Agent (including by any Lender) arising
out of or by reason of any investigation in or in any way relating to or arising
out of this Agreement or any other documents contemplated by or referred to
herein or the transactions contemplated hereby (including, without limitation,
the costs and expenses that Borrower is obligated to pay under Section 12.03
hereof, but excluding, unless an Event of Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance

                                      -22-
<PAGE>

of its agency duties hereunder) or the enforcement of any of the terms hereof or
of any such other documents, or the acquisition or disposition of any part of
the Mortgaged Property or any other collateral for Borrower's obligations to the
Lenders or the making of advances pursuant to Section 1.10 of the Mortgage;
provided, that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the party to be
indemnified.

                  11.07. NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
agrees that it has, independently and without reliance on Administrative Agent
or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of Borrower, its own analysis
of the Project, and its own decision to enter into this Agreement and that it
will, independently and without reliance upon Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement, the Notes and the other Basic Documents.
Administrative Agent shall not be required to keep itself informed as to the
performance or observance by Borrower of this Agreement or the Notes or any
other document referred to or provided for herein or to inspect the properties
or books of Borrower. Copies of all reports and other documents expressly
required to be furnished to Administrative Agent hereunder shall be forwarded by
Administrative Agent to each of the Lenders, provided, however, that except for
such reports and other documents, Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of Borrower that may
come into the possession of Administrative Agent or any of its affiliates.

                  11.08. FAILURE TO ACT. Except for action expressly required of
Administrative Agent hereunder, Administrative Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall receive
further assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.06 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.

                  11.09. RESIGNATION OR REMOVAL OF AGENT. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, (i) Administrative Agent may resign at any time by giving notice thereof
to the Lenders and Borrower, (ii) Administrative Agent may be removed at any
time with or without cause by the Required Lenders and (iii) Administrative
Agent may be removed by Lenders holding at least 50% of the aggregate unpaid
principal amount of the Loans (the "Majority Lenders") in the event of
Administrative Agent's gross negligence or willful misconduct or a material
breach by Administrative Agent in the performance of its obligations under the
terms of this Agreement, which gross negligence, willful misconduct or material
breach is not cured or discontinued by Administrative Agent with reasonable
promptness following its receipt of written notice of such breach from one of
the Lenders. Upon any such resignation or removal, the Required Lenders (or, in
the case of a removal under clause (iii) of this Section 11.09, the Majority
Lenders) shall have the right to appoint a successor Administrative Agent, which
successor Administrative Agent shall be approved by Borrower (such approval not
to be unreasonably withheld or delayed and provided, however, that if an Event
of Default shall exist, no such consent of Borrower shall be required). If no
successor Administrative Agent shall have been so appointed by the Required
Lenders (or, in the case of a removal under clause (iii) of this Section 11.09,
the Majority Lenders) or shall have accepted such appointment within thirty (30)
days after the retiring Administrative Agent's giving of notice of resignation
or the Required Lenders' or the Majority Lenders', as the case may be, removal
of the retiring Administrative Agent, then the retiring Administrative Agent

                                      -23-
<PAGE>

may, on behalf of the Lenders, appoint a successor Administrative Agent, which
shall be a bank or other financial institution that has an office in New York,
New York and that has a combined capital and surplus of at least $50,000,000 and
that shall be approved by Borrower (such approval not to be unreasonably
withheld or delayed and provided, however, that if an Event of Default shall
exist, no such consent of Borrower shall be required). Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After any retiring Administrative
Agent's resignation or removal hereunder as Administrative Agent, the provisions
of this Section 11 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Administrative
Agent.

                  11.10. BORROWER NOT LIABLE FOR INTERCREDITOR MATTERS. Borrower
shall not be liable for nor shall its rights be impaired or its obligations
increased by reason of any failure by Administrative Agent to perform any of its
obligations to the Lenders or any failure by any Lender to perform its
obligations to Administrative Agent or any other Lender. Borrower shall have no
duty to inquire as to the performance by or satisfaction of any obligation of
Administrative Agent to the Lenders or any obligation of any Lender to
Administrative Agent or any other Lender. Without limiting the foregoing,
Borrower shall have no obligation to see to the proper application of any
payment made by Borrower to Administrative Agent.

                  11.11. SECURITY DOCUMENTS. Each Lender and Borrower agrees
that the Liens granted to the Administrative Agent pursuant to the Security
Documents shall be granted to Administrative Agent for the pro rata benefit of
the Lenders, and each Lender shall have an undivided interest therein equal to
its pro rata amount of the Loans.

                  11.12. APPLICATION OF MONEY. All moneys realized by the
Administrative Agent from any payment or other recovery from Borrower, under the
Security Documents, or otherwise in connection with the Loans, shall be
distributed and applied by the Administrative Agent and the Lenders against the
following in the following priority: first, to costs and expenses of the
Administrative Agent or any Lender which are reimbursable by Borrower pursuant
to this Agreement, the Notes and any Security Document; second, to interest on
the Notes and fees payable to the Lenders and the Administrative Agent pursuant
to this Agreement; third, to the unpaid principal balances of the Notes; and
fourth, any remaining moneys shall be paid over to such other Person as is
entitled thereto. If any payments and/or recoveries applied from time to time
are not sufficient to pay in full all items described in one of the above levels
of priority, such payments and/or recoveries will be distributed and shared
ratably by the Lenders and the Administrative Agent based on the aggregate of
such items in such level of priority owed to the Lenders and the Administrative
Agent. The Administrative Agent is authorized to deduct from the portion of any
such payments or recoveries to be distributed to a Lender the amount of any
payment due from such Lender to the Administrative Agent and to retain for
itself the amount so deducted.

         SECTION 12. MISCELLANEOUS.

                                      -24-
<PAGE>

                  12.01. WAIVER. No failure on the part of Administrative Agent
or any Lender or Borrower 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 Notes or any of the other Basic Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Notes or any of the other Basic Documents
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.

                  12.02. NOTICES. All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers or consents under, this Agreement)
shall be given or made in writing (including, without limitation, by telex or
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 telex
or telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid, provided, however, that
any notice that is a notice of Default or Event of Default shall be given by
certified or registered mail, return receipt requested, addressed as aforesaid,
and shall be deemed to have been duly given when received or when receipt or
delivery is refused.

                  12.03. EXPENSES, ETC.

                  (a) Borrower agrees to pay or reimburse Administrative Agent
and the Lenders on demand for paying (i) all reasonable out-of-pocket costs and
expenses of Administrative Agent (including, without limitation, the reasonable
fees and actual expenses of its attorneys) in connection with (x) the
negotiation, preparation, execution and delivery of this Agreement and the other
Basic Documents and the making of the Loans hereunder and (y) the negotiation
and preparation of any modification, supplement or waiver of any of the terms of
this Agreement or any of the other Basic Documents (whether or not consummated);
(ii) all reasonable out-of-pocket costs and expenses of Administrative Agent
(including, without limitation, reasonable counsels' fees and expenses) in
connection with (x) any Default and any enforcement or collection proceedings
resulting therefrom or in connection with the negotiation of any restructuring
or "work-out" (whether or not consummated) of the obligations of Borrower
hereunder and (y) the enforcement of this Section 12.03; (iii) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
Federal, New York State or local governmental or revenue authority in respect of
this Agreement or any of the other Basic Documents or any other document
referred to herein or therein (but not including any income or franchise tax)
and all costs, expenses, taxes, assessments and other charges heretofore or at
any time hereafter properly incurred with respect to any filing, registration,
recording or perfection of any security interest contemplated by any Basic
Document or any other document referred to therein; (iv) all costs, expenses and
other charges in respect of title insurance procured with respect to the Liens
created pursuant to the Mortgage; and (v) all fees and disbursements of each
title company, engineer, surveyor and environmental engineering concern referred
to in this Agreement. Additionally, Borrower agrees that upon me request of

                                      -25-
<PAGE>

Administrative Agent, at the direction of the Required Lenders, the Borrower
shall consent to any reasonable amendments or modifications to this Agreement
and the Basic Documents that are merely required to facilitate the sale by a
Lender that is a party to this Agreement on the date hereof (hereinafter
"Original Lender") to an Eligible Assignee pursuant to 12.06 of this Agreement.
Borrower further covenants and agrees to pay all of Original Lender's actual
out-of-pocket costs and expenses of any such sales (including Original Lender's
reasonable legal fees and disbursements); provided however, that such
out-of-pocket costs and expenses (including Original Lender's reasonable legal
fees and disbursements) shall not exceed $15,000.00 ("Syndication Expense Cap")
in the aggregate with respect to any one or more sales.

                  (b) Borrower hereby agrees to indemnify Administrative Agent
and each Lender and their respective affiliates and directors, officers,
employees, attorneys and agents from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages or reasonable and documented
expenses incurred by any of them (excluding consequential damages) arising out
of or by reason of any investigation, litigation or other proceedings relating
to the Loans or the Project or the use by Borrower of the proceeds of any of the
Loans, including, without limitation, the fees and disbursements of counsel
incurred in connection with any such litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence, bad faith or willful misconduct of the Person to
be indemnified).

                  12.04. AMENDMENTS, ETC. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by Borrower and
Administrative Agent and any provision of this Agreement may be waived by
Administrative Agent; provided, that (a) no modification, supplement or waiver
shall, unless by an instrument signed by all of Lenders or by Administrative
Agent acting with the consent of all of the Lenders: (i) increase, or extend the
term of the Commitments, (ii) extend the date fixed for the payment of principal
of or interest on any Loan or any fee hereunder, (iii) reduce the amount of any
such payment of principal, (iv) reduce the rate at which interest is payable
thereon or any fee is payable hereunder, (v) alter the terms of this Section
12.04, (vi) release the collateral provided for in the Mortgage, or (vii) modify
the definition of the term "Required Lenders" or modify in any other manner the
number or percentage of the Lenders required to make any determinations or
receive any rights hereunder or to modify any provision hereof, (b) any
modification or supplement of Section 12 hereof, or of any of the rights or
duties of Administrative Agent hereunder, shall require the consent of
Administrative Agent, and (c) Administrative Agent will not execute or consent
to any modification, supplement or waiver that affects the rights or obligations
of the Lenders in any material, adverse respect without the consent of the
Required Lenders.

                  12.05. 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.

                  12.06. ASSIGNMENTS AND PARTICIPATIONS.

                  (a) Borrower may not assign any of its rights or obligations
hereunder without the prior written consent of all of the Lenders and
Administrative Agent.

                                      -26-
<PAGE>

                  (b) Each Lender may, in accordance with applicable law and
without the prior written consent of Borrower but with the prior written consent
of Administrative Agent, assign its Loans and its Commitment or any portion
thereof to an Eligible Assignee; PROVIDED, that

                  (i) except in the case of an assignment to one of the other
Lenders and except to the extent Administrative Agent shall otherwise consent,
any such partial assignment shall be in an amount at least equal to
$5,000,000.00; and

                  (ii) upon each such assignment, the assignor and assignee
shall each execute, acknowledge and deliver to Borrower and Administrative Agent
an Assignment and Assumption, in the form of Exhibit A hereto, which shall
provide for the assignment by the assignor to the assignee, in accordance with
this Agreement, of the assignor's rights and under this Agreement and the
assumption by the assignee of all of the assignor's obligations under this
Agreement.

Upon execution and delivery by the assignor and the assignee to Borrower and
Administrative Agent of such Assignment and Assumption, and upon consent thereto
by Administrative Agent, the assignee shall have, to the extent of such
assignment (unless otherwise consented to by Administrative Agent), the
obligations, rights and benefits of a Lender hereunder holding the Commitment
and Loans (or portion thereof) assigned to it and specified in such Assignment
and Assumption (in addition to the Commitment and Loans, if any, theretofore
held by such assignee) and the assigning Lender shall, to the extent of such
assignment, be released from the Commitment (or portion thereof) so assigned.
Upon its receipt of an Assignment and Assumption complying with the foregoing
and executed by an assigning Lender and an Eligible Assignee together with
payment by the assigning Lender of an assignment fee of $5,000.00,
Administrative Agent shall (i) promptly accept such Assignment and Assumption;
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register (as hereinafter defined) and give
notice of such acceptance and recordation to the Lenders and Borrower.
Notwithstanding anything to the contrary contained herein, Borrower shall not be
obligated to pay to any Lender (or any assignee of any Lender) any Funding Costs
greater than the amount Borrower would have been obligated to pay such Lender if
such Lender had not made any assignment of its rights under this Agreement,
unless such assignment is made at a time when the circumstances giving rise to
such greater payments did not exist. Upon the consummation of any assignment
pursuant to this paragraph, substitute notes, in substantially the form of
Schedule II, shall be issued to the assigning Lender (in the case of a partial
assignment) and such assignee by Borrower, in exchange for the return of the
assigning Lender's original Note. All such substitute notes shall constitute
"Notes" and the obligations evidenced by such substitute notes shall constitute
obligations secured by the Mortgage. In connection with Borrower's execution of
substitute notes as aforesaid, Borrower shall deliver to Administrative Agent
such evidence of the due authorization, execution and delivery of the substitute
notes and any related documents as Administrative Agent may reasonably request.

                  (c) Administrative Agent shall maintain at the address of
Administrative Agent referred to in Section 12.02 hereof a copy of each
Assignment and Assumption delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Commitment of,
and principal amounts of the Loans owing to, each Lender from time to time.
Borrower, Administrative Agent and the Lenders shall treat each Person whose
name is recorded in the Register as the owner of a Loan or other obligations
hereunder as the owner thereof for all purposes of this Agreement,

                                      -27-
<PAGE>

notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder shall be effective only upon appropriate entries with
respect thereto being made in the Register. The Register shall be available for
inspection by Borrower, Administrative Agent or any Lender at any reasonable
time and from time to time upon reasonable prior notice.

                  (d) A Lender may, in accordance with applicable law, sell or
agree to sell to one or more other financial institutions (each a "Participant")
a participation in all or any part of any Loans held by it, or in its
Commitment; provided, that such Participant shall not have any rights or
obligations under this Agreement (the Participant's rights against such Lender
in respect of such participation to be those set forth in the agreement executed
by such Lender in favor of the Participant). All amounts payable by Borrower to
any Lender for Funding Costs in respect of Loans held by it, and its Commitment,
shall be determined as if such Lender had not sold or agreed to sell any
participations in such Loan and Commitment, and as if such Lender were funding
each of such Loan and Commitment in the same way that it is funding the portion
of such Loan and Commitment in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder except that such 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 such Lender's
Commitment, (ii) extend the date fixed for the payment of principal of or
interest on the related Loans or any portion of any fee hereunder payable to the
Participant, (iii) reduce the amount of any such payment of principal, (iv)
release any collateral provided for in the Mortgage, or (v) reduce the rate at
which interest is payable thereon to a level below the rate at which the
Participant is entitled to receive such interest.

                  (e) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.06, any Lender may
(without notice to, or consent of, Borrower, Administrative Agent or any other
Lender and without payment of any fee) assign and pledge all or any portion of
its Loans or Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
Operating Circular issued by such Federal Reserve Bank.

                  (f) A Lender may furnish any information concerning the
Project or Borrower obtained by such Lender hereunder from time to time to
assignees and participants (including prospective assignees and participants).

                  (g) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.06, any Lender may
(without notice or consent of Borrower, Administrative Agent or any other Lender
and without payment of any fee) change the booking office of its Loans or Notes.

                  12.07. SURVIVAL. The obligations of Borrower (i) to pay
Funding Costs, and (ii) under 12.03 hereof, shall survive the repayment of the
Loans and termination of the Commitments.

                                      -28-
<PAGE>

                  12.08. 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.

                  12.09. 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.

                  12.10. GOVERNING LAW; SUBMISSION TO JURISDICTION;
SEVERABILITY. This Agreement and the Note shall be governed by, and construed in
accordance with, the law of the State of New York. Each of Borrower,
Administrative Agent and the Lenders hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York state court sitting in New York City for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. Each of Borrower, Administrative Agent
and the Lenders further agrees that service of process may be made by certified
mail, return receipt requested, to its address for notices on the signature page
hereof or in any other manner permitted by law. Each of Borrower, Administrative
Agent and the Lenders hereby waives any objection to such service. Each of
Borrower, Administrative Agent and the Lenders irrevocably waives, to the
fullest extent permitted by applicable law, any objection which 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. Any provision of this Agreement or any of the
other Basic Documents which is prohibited or unenforceable in any jurisdiction
shall be ineffective in such jurisdiction, but only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof or thereof. This Agreement and the other Basic Documents constitute the
entire agreement with respect to the subject matter hereof.

                  12.11. WAIVER OF JURY TRIAL. BORROWER, ADMINISTRATIVE AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVE, 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 OR THE OTHER BASIC DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

                  12.12. AGREEMENT TO CONTROL. In the event of any conflicts or
inconsistencies between this Agreement and one or more of the other Basic
Documents, the provisions of this Agreement shall control, and such other Basic
Document or Basic Documents shall, to the extent of any such conflicts or
inconsistencies, be deemed to be modified to comport with the provisions of this
Agreement.

                  12.13. NON-RECOURSE. THE LIABILITY OF THE BORROWER UNDER THIS
LOAN AGREEMENT SHALL BE LIMITED AS PROVIDED IN SECTION 3.21 OF THE MORTGAGE.

                  12.14. VERIFICATION OF FACTS. Any condition of this Agreement
which requires the submission of evidence of the existence or non-existence of a
specified fact or facts implies as a condition the existence or non-existence,
as the case may be, of such fact or facts, and Administrative Agent shall, at
all times, be free independently to establish to its satisfaction and in its
absolute discretion such existence or non-existence.

                            [Signature Pages Follow]

                                      -29-
<PAGE>

                  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.

                                   NEW VALLEY CORPORATION (doing business in New
                                   Jersey as New Valley Realty Company)

                                   By: /s/ BENNETT P. BORKO
                                      ------------------------------------------
                                        Bennett P. Borko
                                        Assistant Secretary

                                   Address for Notices:

                                   100 S.E. Second Street
                                   Miami, Florida 33131
                                   Attention: Richard J. Lampen, Executive Vice
                                              President and General Counsel
                                   Telephone: (305) 579-8000
                                   Facsimile: (305) 579-8009

                                   HSBC REALTY CREDIT CORPORATION (USA),
                                   as Administrative Agent

                                   By: /s/ CHRISTOPHER A. WHYTE
                                      ------------------------------------------
                                        Christopher A. Whyte
                                        Vice President

                                   ADDRESS FOR NOTICES:
                                   -------------------

                                   452 Fifth Avenue
                                   New York, New York 10018
                                   Attention: Mr. Christopher A. Whyte,
                                              Vice President
                                   Telecopier No.: (212) 525-8496
                                   Telephone No.:  (212) 525-1143

                                      -30-
<PAGE>

COMMITMENT                       "LENDERS"
----------

$40,500,000.00                   HSBC REALTY CREDIT CORPORATION (USA)

                                 By: /s/ CHRISTOPHER A. WHYTE
                                    -------------------------------------------
                                      Christopher A. Whyte
                                      Vice President

                                 LENDING OFFICE:
                                 --------------

                                 452 Fifth Avenue
                                 New York, New York 10018

                                 ADDRESS FOR NOTICES:
                                 -------------------

                                 452 Fifth Avenue
                                 New York, New York 10018
                                 Attention: Mr. Christopher A. Whyte, V.P.
                                 Telecopier No.: (212) 525-8496
                                 Telephone No.: (212) 525-1143

                                      -31-
<PAGE>

                                                                      SCHEDULE 1

                                 [FORM OF NOTE]

$[__________]                                                _________,2002
                                                             New York, New York

                  FOR VALUE RECEIVED, NEW VALLEY CORPORATION, a Delaware
corporation (doing business in New Jersey as New Valley Realty Company)
("Borrower"), hereby promises to pay to the order of
_______________________________________ (the "Lender"), the principal amount of
[___________ ] in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Loan Agreement, and to pay interest on the unpaid principal amount
hereof, in like money and funds, for the period commencing on the date hereof
until such principal amount shall be paid in full, at the rates per annum and on
the dates provided in the Loan Agreement. Any amount of principal hereof that is
not paid when due, whether at stated maturity, by acceleration or otherwise,
shall bear interest from the date when due until paid in full at the Default
Rate.

                  All sums payable hereunder are payable at the office of the
Administrative Agent, as agent and for the account of the Lender, located at 452
Fifth Avenue, New York, New York 10018, Attention: Christopher A. Whyte, or at
such other address as the Administrative Agent may direct in writing.

                  This Note is one of the Notes referred to in the Loan
Agreement dated as of December 13, 2002 (as amended from time to time, the "Loan
Agreement") by and between Borrower, each of the lenders party thereto and HSBC
Realty Credit Corporation (USA), as Administrative Agent, and evidences a Loan
made by the Lender thereunder. Terms used but not defined in this Note have the
respective meanings assigned to them in the Loan Agreement.

                  The date, amount, interest rate and duration of any LIBOR
interest Period (if applicable) of the principal amount evidenced hereby, and
each payment made on account thereof, shall be recorded by the Lender on its
books and, prior to any transfer of this Note, endorsed by the Lender on the
schedule attached hereto or any continuation thereof PROVIDED, that the failure
of the Lender to make any such recordation or endorsement shall not affect the
obligations of Borrower to make a payment when due of any amount owing under the
Loan Agreement or hereunder in respect of the principal amount evidenced hereby.

                  This Note evidences borrowing under the Loan Agreement, to
which reference is made with respect to rights of acceleration of the maturity
of this Note upon the occurrence of certain events, prepayment of the Loan upon
the terms and conditions specified therein and certain other rights. This Note
is secured by the Mortgage and the Assignment of Leases and Rents and the
liability of the Borrower under this Note shall be limited as provided in
Section 3.21 of the Mortgage.

                  Borrower waives diligence, presentment, protest and demand,
and also notice of protest, demand, dishonor and nonpayment of this Note. No
failure by the holder hereof to exercise, and no delay in exercising, any right
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by the holder of any right or power hereunder preclude any

                                      -32-
<PAGE>

other or further exercise thereof or the exercise of any other right or power.
The rights and remedies of the holder as herein specified are cumulative and not
exclusive of any other rights or remedies which the holder may otherwise have.

                  This Promissory Note shall be governed by and construed in
accordance with the law of the State of New York.

                           NEW VALLEY CORPORATION (doing
                           business in New Jersey as New Valley Realty Company)

                           By:
                              --------------------------------------------------
                                Bennett P. Borko
                                Assistant Secretary

                                      -33-
<PAGE>

                                SCHEDULE OF LOAN

                  This Note evidences Loans made under the within described Loan
Agreement to Borrower, on the date, in the principal amount, bearing interest at
the rates and having LIBOR Interest Periods of the duration's set forth below,
subject to the payments, conversion and prepayments of principal set forth
below:

<TABLE>
<CAPTION>

                                                      DURATION OF     AMOUNT PAID,
                                                         LIBOR          PREPAID,          UNPAID
                      PRINCIPAL                         INTEREST      CONTINUED OR       PRINCIPAL      NOTATION
    DATE MADE      AMOUNT OF LOAN    INTEREST RATE       PERIOD         CONVERTED         AMOUNT        MADE BY
    ---------      --------------    -------------   -------------   -------------      ----------      -------
<S>                <C>                <C>             <C>             <C>                <C>             <C>

</TABLE>

                                      -34-
<PAGE>

                                                                     SCHEDULE II

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

                           DATE: __________ __, 200__

                  This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is
dated as of this ______ day of ___________, ________, and is made by and between
("Assignor") and ("Assignee").

                              PRELIMINARY STATEMENT

                  Assignor is a party to that certain Loan Agreement dated
December 13, 2002 (the Loan Agreement, as the same may be amended, supplemented,
restated or otherwise modified from time to time shall be referred to herein as
the "Loan Agreement") by and among New Valley Corporation (doing business in New
Jersey as New Valley Realty Company), a Delaware corporation ("Borrower"), HSBC
Realty Credit Corporation (USA), a Delaware corporation, as Administrative Agent
("Administrative Agent"), and the lenders named therein (collectively,
"Lenders"). Pursuant to the Loan Agreement, Lender agreed to make a loan of
______ Dollars ($_____. 00) ("Loan") to Borrower. Assignee desires to purchase
from Assignor an undivided interest in the Loan under the terms and conditions
set forth herein. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Loan Agreement.

                                    AGREEMENT

                  Assignor and Assignee, in consideration of the matters
described in the foregoing Preliminary Statement, which are incorporated herein,
and in consideration of the mutual covenants and agreements and provisions
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, do hereby covenant and agree as
follows:

                  1. ASSIGNMENT AND ASSUMPTION. Assignor hereby sells and
assigns to Assignee, and Assignee hereby purchases and assumes from Assignor, an
undivided interest in and to the Loan, the Loan Agreement, and the Basic
Documents (the Loan Agreement and the Basic Documents are collectively referred
to herein as the "Loan Documents") an undivided interest in and to Assignor's
rights and obligations thereunder, which interest shall equal a percentage of
____% of the Loan and a corresponding Commitment in the amount of $______, such
that after giving effect to this assignment (i) Assignee shall hold a ___% of
all Loans and a Commitment in the amount of $___________, together with the
outstanding rights and obligations under the Loan Documents in connection with
such Commitment, and (ii) Assignor shall hold a ____% of all Loans and a
Commitment in the amount of $_________________.

                  2. EFFECTIVE DATE. The effective date of this Agreement
("Effective Date") shall be _________,200__, which shall be no earlier than
three (3) Business Days prior to receipt by the Administrative Agent of a fully
executed copy of this Agreement. As of the Effective Date (i) Assignee shall
have the rights and obligations of a Lender under the Loan Documents with

                                      -35-
<PAGE>

respect to the rights and obligations assigned to Assignee hereunder, and the
assumption of such obligations by Assignee inuring to the direct benefit of
Borrower, and (ii) Assignor shall relinquish its rights and be released from its
corresponding obligations under the Loan Documents with respect to the rights
and obligations assigned to Assignee hereunder.

                  3. PAYMENT OBLIGATIONS. On the Effective Date, Assignee shall
pay to Assignor the outstanding principal balance in respect of the interest
purchased hereunder. Accrued and unpaid interest shall be prorated when received
from the Borrower. Assignee shall not be entitled to any interest or fees, of
any nature, paid by the Borrower to Assignor pursuant to the Loan Agreement and
the other Loan Documents or otherwise owed to Assignor prior to the Effective
Date.

                  4. REPRESENTATIONS OF ASSIGNOR; LIMITATIONS ON ASSIGNOR'S
LIABILITY. Assignor represents and warrants that (a) it is the legal and
beneficial owner of the interest being assigned by it hereunder, and (b) that
such interest is free and clear of any adverse pledge, security interest, claim
or other lien or encumbrance. It is understood and agreed that the assignment
and assumption hereunder are made without recourse to Assignor and that Assignor
makes no other representation or warranty of any kind to Assignee. Neither
Assignor, nor any of its officers, directors, employees, agents or attorneys
shall be responsible for (i) the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectability of any Loan Document,
including without limitation, documents granting Assignor and the other Lenders
a security interest ha and to the Project, (ii) any representation, warranty or
statement made in or in connection with any of the Loan Documents, (iii) the
financial condition or creditworthiness of the Borrower, (iv) the performance
of, or compliance with, any of the terms or provisions of any of the Loan
Documents, (v) inspecting any of the property, books or records of the Borrower,
(vi) the validity, enforceability, perfection, priority, condition, value or
sufficiency of any collateral securing or purporting to secure the Loan, or
(vii) any mistake, error of judgment, or action taken or omitted to be taken in
connection with the Loan or the Loan Documents. This Section shall survive the
assignment of the interest assigned herein.

                  5. REPRESENTATIONS AND COVENANTS OF ASSIGNEE. Assignee (i)
confirms that it has received a copy of the Loan Agreement, together with copies
of such financial statements, Loan Documents and other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into this Agreement, (ii) agrees that it will, independently and without
reliance upon Administrative Agent, Assignor or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Documents, (iii) appoints and authorizes the Administrative Agent to
take such action on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, (iv) agrees for
the benefit of Borrower and the other Lenders that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents
are required to be performed by it as a Lender, (v) agrees that its payment
instructions and notice instructions are as set forth in Schedule 1, (vi)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as defined

                                      -36-
<PAGE>

under ERISA and that its rights, benefits and interests in and under the Loan
Documents will not be "plan assets" under ERISA, and (vii) attaches the forms
prescribed by the Internal Revenue Service of the United States certifying that
Assignee is entitled to receive payments under the Loan Documents without
deduction or withholding of any United States federal income taxes.

                  6. SUBSEQUENT ASSIGNMENTS. After the Effective Date, Assignee
shall have the right pursuant to the terms of the Loan Agreement to assign the
rights that are assigned to the Assignee, provided that any such subsequent
assignment does not violate any of the terms and conditions of the Loan
Agreement or any of the other Loan Documents or any law, rule, regulation,
order, writ, judgment, injunction or decree and that any consent required under
the terms of the Loan Documents has been obtained.

                  7. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understandings between the parties hereto supersedes all prior
agreements and understandings between the parties hereto relating to the subject
matter hereof, and cannot be amended or modified other than pursuant to a
writing signed the parties hereto.

                  8. GOVERNING LAW. This Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of New York.

                  9. NOTICES. Notices shall be given under this Agreement in the
manner set forth in the Loan Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -37-
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized officers as of the date first above written.

ASSIGNOR:

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

ASSIGNEE:

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

CONSENTED TO:                           HSBC REALTY CREDIT
                                        CORPORATION (USA),
                                        as Administrative Agent

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

                                      -38-

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