TERM LOAN AND SECURITY AGREEMENT
dated as of March 21, 2014, with
an Effective Date of March 27, 2014
by and between
DIVERSICARE ROSE TERRACE, LLC,
as Borrower
and
THE PRIVATEBANK AND TRUST COMPANY,
as Lender

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TERM LOAN AND SECURITY AGREEMENT
This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of March 21,
2014, with an effective date of March 27, 2014, is by and between DIVERSICARE
ROSE TERRACE, LLC, a Delaware limited liability company (“Borrower”), and THE
PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“Lender”).
RECITALS
WHEREAS, Borrower is, or as of the date hereof shall be, the owner of certain
improved real estate located at 30 Hidden Brook Way, Culloden, Cabell County,
West Virginia 25510, as more fully described on Exhibit A attached hereto and
made a part hereof (the “Real Property”), which Real Property is improved with a
ninety (90) bed skilled nursing facility (the “Facility”).
WHEREAS, Borrower has requested that Lender provide Borrower with a term loan in
the original maximum principal amount of Eight Million and No/100 Dollars (the
“Term Loan”), which Term Loan shall be for the purpose of acquiring the Real
Property and all improvements located thereon.
WHEREAS, Lender is willing to make such Term Loan to Borrower, upon the terms
and provisions and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, and
of the Term Loan to be made to or for the benefit of Borrower by Lender, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto (intending to be legally bound) hereby
agree as follows:
1.DEFINITIONS.
1.1    General Terms. When used herein, the following terms shall have the
following meanings:
“Acquisition” means Borrower’s acquisition of the Real Property.
“Acquisition Agreement” means the purchase option contained in the existing
lease agreement between Borrower, as tenant, and Seller, as landlord, granting
Borrower the right to purchase the Real Estate.
“Acquisition Documents” means, collectively, the Acquisition Agreement, bill of
sale, assignment and assumption agreement, special warranty deed, and any and
all of the other documents, instruments and agreements executed or delivered in
connection therewith or otherwise in connection with the Acquisition.
“Adjusted EBITDA” means the sum of (a) EBITDA, and (b) the amounts deducted (or
less amounts added) in computing EBITDA for the period for (i) the non-cash
provision (benefit) for self-insured professional and general liability
expenses, (ii) non-cash rent expense, (iii) non-cash stock based compensation
expense, (iv) non-cash debt retirement, and (v) all other non-cash

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expenses reasonably approved by Lender, less (c) the Cash Cost of Self-Insured
Professional and General Liability.
“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling (including, without limitation, all shareholders,
members, directors, partners, managers, and officers of such Person), controlled
by, or under direct or indirect common control with, such Person. A Person shall
be deemed to control another Person if such first Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such other Person, whether through ownership of voting securities,
by contract or otherwise; provided, however, Lender shall not be deemed an
Affiliate of any Credit Party.
“Agreement” means this Term Loan and Security Agreement, as the same may be
restated, modified, supplemented or amended from time to time.
“Applicable Base Rate Margin” means, with respect to Base Rate Loans, one
hundred fifty (150) basis points.
“Applicable Libor Margin” means, with respect to Libor Loans, an amount equal to
four hundred fifty (450) basis points.
“Appraisal” means a complete, self-contained appraisal of the Real Property
performed in accordance with FIRREA and Lender’s appraisal requirements by an
independent appraiser MAI licensed in the state in which the Real Property is
located and selected and retained by Lender.
“Asset Disposition” means the sale, lease, assignment or other transfer for
value of greater than Fifty Thousand and No/100 Dollars ($50,000.00) by Borrower
to any Person of any personal property of Borrower, other than (a) the sale of
any personal property asset which is to be replaced, and is in fact replaced,
within sixty (60) days thereof with another of equal or substantially similar
value and used in the ordinary course of business of Borrower, (b) the sale or
lease of Inventory in the ordinary course of business, (c) sales in the ordinary
course of business of personal property that is obsolete, unmerchantable or
otherwise unsalable, unusable or unnecessary to Borrower’s business, and (d)
sales, leases or assignments of personal property between one Borrower to
another Borrower.
“Assignment of Rents and Leases” means that certain Assignment of Rents and
Leases dated of even date herewith made by Borrower in favor of Borrower, with
respect to the Real Property, in form and substance reasonably satisfactory to
Lender, as the same may be amended, supplemented, and modified from time to
time.
“Bank Product” means any service provided to, facility extended to, or
transaction entered into with, any Credit Party by Lender or its Affiliates
consisting of, (a) deposit accounts, (b) cash and treasury management services,
including, controlled disbursement, lockbox, electronic funds transfers
(including, book transfers, fedwire transfers, ACH transfers), online reporting
and other services relating to accounts maintained with Lender or its
Affiliates, (c) debit cards, purchase cards, and credit cards, (d) Hedging
Agreements, or (e) so long as prior written notice thereof is provided by Lender
(or its Affiliate) providing such service, facility or transaction and Lender
consents in

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writing to its inclusion as a Bank Product, any other service provided to,
facility extended to, or transaction entered into with, any Credit Party by
Lender or its Affiliates.
“Bank Product Agreements” means those agreements entered into from time to time
between any Credit Party and Lender or its Affiliates in connection with the
obtaining of any of the Bank Products, including, without limitation, Hedging
Agreements.
“Bank Product Obligations” means all obligations, liabilities, reimbursement
obligations, contingent reimbursement obligations, fees, or expenses owing by
any Credit Party to Lender or its Affiliates pursuant to or evidenced by a Bank
Product Agreement and irrespective of whether for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, and including all such amounts that a Credit Party is
obligated to reimburse to Lender as a result of Lender purchasing participations
or executing indemnities or reimbursement obligations with respect to the Bank
Products provided to the Credit Parties pursuant to the Bank Product Agreements.
“Base Rate” means the corporate base rate of interest per annum identified from
time to time by Lender, as its base or prime rate, which rate shall not
necessarily be the lowest rate of interest which Lender charges its customers.
Any change in the Base Rate shall be effective as of the effective date of such
change.
“Base Rate Loan” means a Loan that bears interest at an interest rate based upon
the Base Rate.
“Blocked Persons List” shall have the meaning ascribed to such term in Section
7.24 hereof.
“Borrower Cash Management Program” means the business practice of Borrower
whereby cash receipts for Borrower are transferred/swept into a central
concentration account and all cash disbursements are funded by transfers from
such central concentration account.
“Borrowing Date” means a date on which a Libor Loan is made hereunder.
“Business Day” means (a) with respect to any borrowing, payment or rate
selection of Libor Loans, a day other than Saturday or Sunday on which banks are
open for business in Chicago, Illinois and on which dealings in United States
dollars are carried on in the London interbank market, and (b) for all other
purposes, a day other than Saturday or Sunday on which banks are open for
business in Chicago, Illinois.
“Capital Expenditures” means, as to any Person, any and all expenditures of such
Person for fixed or capital assets, including, without limitation, the
incurrence of Capitalized Lease Obligations, all as determined in accordance
with GAAP, except that Capital Expenditures shall not include (i) expenditures
for fixed or capital assets to the extent such expenditures are paid for or
reimbursed from the proceeds of insurance, condemnation awards and other
settlements in respect of lost, destroyed, damaged, condemned or stolen assets,
(ii) expenditures for assets purchased substantially concurrently with the
trade-in of existing assets to the extent of the trade-in credit thereof; and
(iii) any incurrence of Indebtedness comprising the purchase price for the
acquisition,

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whether by purchase, merger, consolidation or otherwise, by Borrower of the
assets of, or the equity interest in, a Person or a division, line of business
or other business unit of a Person engaged in a business of the type conducted
by Borrower as of the date hereof or in a business reasonably related thereto.
“Capitalized Lease Obligations” means any amount payable with respect to any
lease of any tangible or intangible property (whether real, personal or mixed),
however denoted, which either (a) is required by GAAP to be reflected as a
liability on the face of the balance sheet of the lessee thereunder, or (b)
based on actual circumstances existing and ascertainable, either at the
commencement of the term of such lease or at any subsequent time at which any
property becomes subject thereto, can reasonably be anticipated to impose on
such lessee substantially the same economic risks and burdens, having regard to
such lessee’s obligations and the lessor’s rights thereunder both during and at
the termination of such lease, as would be imposed on such lessee by any lease
which is required to be so reflected or by the ownership of the leased property.
For avoidance of doubt, prepaid leases shall not be deemed “Capital Lease
Obligations” except to the extent required under GAAP.
“Cash Cost of Self-Insured Professional and General Liability” means the total
cash expenditures associated with professional and general liability related
settlements, legal fees and administration costs for the Facility.
“CERCLA” means the Comprehensive Environmental Release Compensation and
Liability Act, 42 U.S.C. § 9601 et seq., as amended.
“Certificates” shall have the meaning ascribed to such term in Section 5.1(e)(7)
hereof.
“CHAMPUS” means the Civilian Health and Medical Program of the Uniformed
Service, a part of TRICARE, a medical benefits program supervised by the U.S.
Department of Defense.
“Closing Date” means March 27, 2014.
“Closing Fee” shall have the meaning ascribed to such term in Section 2.12
hereof.
“CMS” means the Centers for Medicare and Medicaid Services of HHS and any Person
succeeding to the functions thereof.
“Collateral” shall have the meaning ascribed to such term in Section 6.1 hereof.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et
seq.), as amended from time to time, and any successor statute.
“Compliance Certificate” shall have the meaning ascribed to such term in Section
8.1(b) hereof.
“CON” shall have the meaning ascribed to such term in Section 10.1 hereof.

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“Credit Party” means Borrower and each other Person that is or becomes primarily
or secondarily liable for the Liabilities, whether as a principal, surety,
guarantor, endorser or otherwise.
“Credit Termination Date” means the earlier of (i) the Stated Maturity Date,
(ii) such other date on which the Term Loan Commitment shall terminate pursuant
to Section 11.2 hereof, or (iii) such other date as is mutually agreed in
writing between Borrower and Lender.
“Deed of Trust” means that certain Deed of Trust, Assignment of Leases and
Rents, Security Agreement and Fixture Filing dated of even date herewith made by
Borrower to Daniel Kohn, as trustee to and for the benefit of Lender, granting
and conveying to Lender a first deed of trust Lien on the Real Property, as the
same may be amended, restated, supplemented or modified from time to time.
“Default” means an event, circumstance or condition which through the passage of
time or the service of notice or both would (assuming no action is taken to cure
the same) mature into an Event of Default.
“Default Rate” shall have the meaning ascribed to such term in Section 2.4(a)
hereof.
“Deposit Accounts” means any deposit, securities, operating, lockbox, blocked or
cash collateral account, together with any funds, instruments or other items
credited to any such account from time to time, and all interest earned thereon.
“Diversicare Leasing” means Diversicare Leasing Corp., a Tennessee corporation,
and the sole member of Borrower.
“Duly Authorized Officer” means the Chief Executive Officer, the President, the
Chief Operating Officer, the Chief Financial Officer and the Assistant Secretary
of the sole member of Borrower.
“EBITDA” means with respect to Borrower, for any period of determination, the
net earnings of Borrower before nonrecurring items (in accordance with GAAP and
as reasonably agreed to by Lender), interest, taxes, depreciation, and
amortization (including amortized transaction expense), all as determined in
accordance with GAAP, consistently applied.
“Environmental Indemnity Agreement” means that certain Environmental Indemnity
Agreement of even date herewith made by Borrower in favor of Lender, in form and
substance acceptable to Lender, as the same may be amended or modified from time
to time.
“Environmental Laws” means all federal, state, local, and foreign statutes,
regulations, ordinances, and similar provisions having the force or effect of
law, all judicial and administrative orders and determinations, and all common
law concerning public health and safety, worker health and safety, pollution, or
protection of the environment, including all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances,
or wastes, chemical substances, or mixtures, pesticides, pollutants,

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contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, including, without limitation,
the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., as
amended; CERCLA; the Toxic Substance Act, 15 U.S.C. § 2601 et seq., as amended;
the Clean Water Act, 33 U.S.C. § 466 et seq., as amended; the Clean Air Act, 42
U.S.C. § 7401 et seq., as amended; state and federal superlien and environmental
cleanup programs; and U.S. Department of Transportation regulations.
“Environmental Notice” means any summons, citation, directive, information
request, notice of potential responsibility, notice of violation or deficiency,
order, claim, complaint, investigation, proceeding, judgment, letters or other
communication, written or oral to Borrower or any officer thereof, actual or
threatened, from the United States Environmental Protection Agency or other
federal, state or local agency or authority, or any other entity or individual,
public or private, concerning any intentional or unintentional act or omission
which involves Management of Hazardous Substances on or off the property of
Borrower which could result in Borrower incurring a material liability or which
could have a Material Adverse Effect, or the imposition of any Lien on property,
or any alleged violation of or responsibility under Environmental Laws which
could result in Borrower incurring a material liability or which could have a
Material Adverse Effect, and, after due inquiry and investigation, any knowledge
of any facts which could give rise to any of the foregoing.
“Equipment” means “equipment” as defined in the Code, including, without
limitation, any and all of Borrower’s machinery, equipment, vehicles, fixtures,
furniture, computers, appliances, tools, and other tangible personal property
(other than Inventory), whether located on Borrower’s premises or located
elsewhere, together with any and all accessions, parts and appurtenances
thereto, whether presently owned or hereafter acquired by Borrower.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
together with the regulations thereunder.
“ERISA Affiliate” means any corporation, trade or business, which together with
Borrower would be treated as a single employer under Section 4001 of ERISA.
“Event of Default” shall have the meaning ascribed to such term in Section 11.1
hereof.
“Excluded Swap Obligation” means any Swap Obligation that arises from any
guaranty or collateral pledge with respect to the Liabilities that becomes
impermissible under the Commodity Exchange Act or any rule, regulation or order
of the Commodity Futures Trading Commission (or the application or official
interpretation of any thereof) by virtue of any guarantor’s or pledgor’s failure
for any reason not to constitute an “eligible contract participant” as defined
in the Commodity Exchange Act at the time any applicable guaranty or pledge
agreement or similar collateral document becomes effective with respect to such
related Swap Obligation, but such exclusion shall only be effective for so long
as it would otherwise be so impermissible.
“Facility” shall have the meaning ascribed to such term in the Recitals.

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“Financing Agreements” means any and all agreements, instruments, certificates
and documents, including, without limitation, security agreements, loan
agreements, notes, guarantees, keep well agreements, landlord waivers,
mortgages, deeds of trust, subordination agreements, intercreditor agreements,
pledges, powers of attorney, consents, assignments, collateral assignments,
perfection certificates, interest rate protection agreements, reimbursement
agreements, contracts, notices, leases, subordination and attornment agreement,
collateral assignments of key man life insurance policies, financing statements
and all other written matter (including, without limitation, this Agreement, the
Term Loan Note, the Deed of Trust, the Assignment of Rents and Leases, the
Environmental Indemnity Agreement, the Subordination of Management Agreement,
the Certificates, each Hedging Agreement and any other Bank Product Agreement),
in each case evidencing, securing or relating to the Loan and the Liabilities,
whether heretofore, now, or hereafter executed by or on behalf of Borrower, any
Affiliate, or any other Person, and delivered to or in favor of Lender, together
with all agreements and documents referred to therein or contemplated thereby,
as each may be amended, modified or supplemented from time to time.
“FIRREA” means the Financial Institutions Reform, Recovery And Enforcement Act
of 1989, as amended from time to time.
“Fiscal Quarter” means the three (3) month period ending on March 31, June 30,
September 30 and December 31 of each calendar year.
“Fiscal Year” means the twelve (12) month period commencing on January 1 and
ending on December 31 of each calendar year.
“Fixed Charge Coverage Ratio” means, on any date of determination, the ratio of
(a) Adjusted EBITDA for the period of twelve (12) consecutive months then ended,
to (b) Fixed Charges, for Borrower, all as determined in accordance with GAAP,
consistently applied.
“Fixed Charges” means, for any period of determination, the sum of, without
duplication: (a) regularly scheduled payments of principal with respect to all
Indebtedness for borrowed money; plus (b) cash interest expense of Borrower for
its Indebtedness that has been paid during such period (including, without
limitation, interest attributable to issued and outstanding Letters of Credit);
plus (c) Net Capital Expenditures; plus (d) cash rent expense that has been paid
during such period; plus (e) dividends on stock; plus (f) cash paid income taxes
of Borrower during such period, all of the foregoing as determined in accordance
with GAAP, consistently applied.
“GAAP” means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board (or any successor authority) that are
applicable to the circumstances as of the date of determination.
“General Intangibles” means “general intangibles” as defined in the Code,
including, without limitation, any and all general intangibles, choses in
action, causes of action, rights to the payment of money (other than Accounts),
and all other intangible personal property of Borrower of every kind and nature
wherever located and whether currently owned or hereafter acquired by Borrower
(other than Accounts), including, without limitation, corporate or other
business records, inventions,

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designs, patents, patent applications, service marks, service mark applications,
trademark applications, brand names, trade names, trademarks and all goodwill
symbolized thereby and relating thereto, trade styles, trade secrets,
registrations, domain names, websites, computer software, advertising materials,
distributions on certificated and uncertificated securities, investment
property, securities entitlements, goodwill, operational manuals, product
formulas for industrial processes, blueprints, drawings, copyrights, copyright
applications, rights and benefits under contracts, licenses, license agreements,
permits, approvals, authorizations which are associated with the operation of
Borrower’s business and granted by any Person, franchises, customer lists,
deposit accounts, tax refunds, tax refund claims, and any letters of credit,
guarantee claims, security interests or other security held by or granted to
Borrower to secure payment by an Account Debtor of any of Borrower’s Accounts,
and, to the maximum extent permitted by applicable Law, any recoveries or
amounts received in connection with any litigation or settlement of any
litigation.
“Governing Documents” shall have the meaning ascribed to such term in Section
9.14 hereof.
“Governmental Approvals” means, collectively, all consents, licenses, and
permits and all other authorizations or approvals required from any Governmental
Authority to operate the Facility.
“Governmental Authority” means and includes any federal, state, District of
Columbia, county, municipal, or other government and any political subdivision,
department, commission, board, bureau, agency or instrumentality thereof,
whether domestic or foreign.
“Hazardous Substances” means hazardous substances, materials, wastes, and waste
constituents and reaction by-products, pesticides, oil and other petroleum
products, and toxic substances, including, without limitation, asbestos and
PCBs, as those terms are defined pursuant to Environmental Laws.
“Healthcare Laws” means all applicable Laws relating to the possession, control,
warehousing, marketing, sale and distribution of pharmaceuticals, the operation
of medical or senior housing facilities (such as, but not limited to, nursing
homes, skilled nursing facilities, rehabilitation hospitals, intermediate care
facilities, assisted living and adult care facilities), patient healthcare,
patient healthcare information, patient abuse, the quality and adequacy of
medical care, rate setting, equipment, personnel, operating policies, fee
splitting, including, without limitation, (a) all federal and state fraud and
abuse laws, including, but not limited to the federal Anti-Kickback Statute (42
U.S.C. §1320a-7b(6)), the Stark Law (42 U.S.C. §1395nn), the civil False Claims
Act (31 U.S.C. §3729 et seq.); (b) TRICARE; (c) CHAMPUS, (d) Medicare; (e)
Medicaid; (f) HIPAA; (g) quality, safety and accreditation standards and
requirements of all applicable state laws or regulatory bodies; (h) all laws,
policies, procedures, permits, requirements, certifications, and regulations
pursuant to which licenses, approvals and accreditation certificates are issued
in order to operate medical, senior housing facilities, assisted living
facilities, or skilled nursing facilities; and (i) any and all other applicable
health care laws, regulations, manual provisions, policies and administrative
guidance, each of (a) through (i) as may be amended from time to time.
“Hedging Agreement” means any interest rate, currency or commodity swap
agreement, cap agreement or collar agreement, and any other agreement or
arrangement designed to protect a

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Person against fluctuations in interest rates, currency exchange rates or
commodity prices, in each case in form and substance satisfactory to Lender, as
the same may be amended or modified from time to time; provided, Borrower will
only enter into any such Hedging Agreement with PrivateBank or another Lender
reasonably approved by Lender.
“HHS” means the United States Department of Health and Human Services and any
Person succeeding to the functions thereof.
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996,
as the same may be amended, modified or supplemented from time to time, and any
successor statute thereto, and any and all rules or regulations promulgated from
time to time thereunder.
“Indebtedness” with respect to any Person means, as of the date of determination
thereof, (a) all of such Person’s indebtedness for borrowed money, (b) all
indebtedness of such Person or any other Person secured by any Lien with respect
to any property or asset owned or held by such Person, regardless whether the
indebtedness secured thereby shall have been assumed by such Person or such
Person has become liable for the payment thereof, (c) all Capitalized Lease
Obligations of such Person and obligations or liabilities created or arising
under conditional sale or other title retention agreement with respect to
property used and/or acquired by Borrower even though the rights and remedies of
the lessor, seller and/or lender thereunder are limited to repossession of such
property, (d) all unfunded pension fund obligations and liabilities, (e) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (f) all obligations in respect of letters of credit, whether or not
drawn, and bankers’ acceptances issued for the account of such Person, (g)
deferred and/or accrued taxes and all unfunded pension fund obligations and
liabilities, (h) all guarantees by such Person, or any undertaking by such
Person to be liable for, the debts or obligations of any other Person, described
in clauses (a) through (h), (i) any Stock of such Person, whether or not
mandatorily redeemable, that under GAAP is characterized as debt, whether
pursuant to Financial Accounting Standards Board Issuance No. 150 or otherwise,
and (j) all Bank Product Obligations of such Person.
“Indemnified Liabilities” shall have the meaning ascribed to such term in
Section 12.16 hereof.
“Indemnified Parties” shall have the meaning ascribed to such term in Section
12.16 hereof.
“Intellectual Property” means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names, and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,

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formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases, and related documentation), (g) all material advertising and
promotional materials, (h) all other proprietary rights, and (i) all copies and
tangible embodiments thereof (in whatever form or medium).
“Inventory” means “inventory” as defined in the Code, including, without
limitation, any and all inventory and goods of Borrower, wheresoever located,
whether now owned or hereafter acquired by Borrower, which are held for sale or
lease, furnished under any contract of service or held as raw materials,
work-in-process or supplies, and all materials used or consumed in Borrower’s
business, and shall include such property the sale or other disposition of which
has given rise to Accounts and which has been returned to or repossessed or
stopped in transit by Borrower.
“Laws” means, collectively, all federal, state and local laws, statutes, codes,
ordinances, orders, rules and regulations, including judicial opinions or
presidential authority in the applicable jurisdiction and Healthcare Laws and
Environmental Laws, now or hereafter in effect, and in each case as amended or
supplemented from time to time.
“Leases” means all leases, subleases, licenses, concessions and other agreements
(written or oral), including all amendments, extensions, renewals, guaranties,
and other agreements with respect thereto, pursuant to which Borrower holds any
leased real property.
“Lender Parties” shall have the meaning ascribed to such term in Section 12.23
hereof.
“Liabilities” means any and all of Borrower’s Indebtedness, liabilities and
obligations, to Lender under this Agreement (whether relating to the Loan or
otherwise and including, without limitation, all of Borrower’s Bank Product
Obligations) or each Hedging Agreement (but excluding any Excluded Swap
Obligation), the Term Note, and any and all other Financing Agreements to which
Borrower is a party, and any refinancings, substitutions, extensions, renewals,
replacements and modifications for or of any or all of the forgoing, of any and
every kind and nature, whether heretofore, now or hereafter owing, arising, due
or payable and howsoever evidenced, created, incurred, acquired, or owing,
whether primary, secondary, direct, indirect, contingent, absolute, fixed or
otherwise (including, without limitation, payments of or for principal,
interest, default interest, reimbursement obligations, interest rate hedging
obligations, fees, costs, expenses, and/or indemnification, and obligations of
performance, and the Closing Fee, any other fee due or payable to Lender in
connection with any Financing Agreement, and all Bank Product Obligations, and
any interest that accrues after commencement of any insolvency or bankruptcy
proceeding regardless of whether allowed or allowable in whole or in part as a
claim in any such insolvency or bankruptcy proceeding) and whether arising or
existing under written agreement, oral agreement, or by operation of law.
“Libor Base Rate” means a rate of interest equal to (a) the per annum rate of
interest at which United States dollar deposits in an amount comparable to the
amount of the relevant Libor Loan and for a period equal to the Libor Interest
Period are offered in the London Interbank Eurodollar market at 11:00 A.M.
(London time) two (2) Business Days prior to the commencement of such

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Libor Interest Period (or three (3) Business Days prior to the commencement of
such Libor Interest Period if banks in London, England were not open and dealing
in offshore United States dollars on such second preceding Business Day), as
displayed in the Bloomberg Financial Markets system (or other authoritative
source selected by Lender in its sole discretion) or, if the Bloomberg Financial
Markets system or another authoritative source is not available, as the Libor
Base Rate is otherwise determined by Lender in its sole and absolute discretion,
divided by (b) a number determined by subtracting from 1.00 the then stated
maximum reserve percentage for determining reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D), such rate to remain fixed for such Libor Interest Period.
Lender’s determination of the Libor Base Rate shall be conclusive, absent
manifest error.
“Libor Interest Period” means, with respect to any Libor Loan, successive one
(1) month periods, provided, however, that: (a) each Libor Interest Period
occurring after the initial Libor Interest Period of any Libor Loan shall
commence on the day on which the preceding Libor Interest Period for such Libor
Loan expires, with interest for such day to be calculated at the Libor Rate in
effect for the new Libor Interest Period; (b) whenever the last day of any Libor
Interest Period would otherwise occur on a day other than a Business Day, the
last day of such Libor Interest Period shall be extended to occur on the next
succeeding Business Day; (c) whenever the first day of any Libor Interest Period
occurs on a date for which there is no numerically corresponding date in the
month in which such Libor Interest Period terminates, such Libor Interest Period
shall end on the last day of such month, unless such day is not a Business Day,
in which case the Libor Interest Period shall terminate on the first Business
Day of the following month.
“Libor Loan” means a Loan which bears interest at a Libor Rate.
“Libor Rate” means, with respect to a Libor Loan for the relevant Libor Interest
Period, the sum of the Libor Base Rate applicable to that Libor Interest Period,
plus the Applicable Libor Margin.
“Licenses” shall have the meaning ascribed to such term in Section 10.1 hereof
“Lien” means any lien, security interest, mortgage, pledge, hypothecation,
collateral assignment, or other charge, encumbrance or preferential arrangement,
including, without limitation, the retained security title of a conditional
vendor or lessor.
“Loan Account” shall have the meaning ascribed to such term in Section 2.2
hereof.
“Loan” means the Term Loan, and, if applicable, any and all other advances made
by Lender to Borrower pursuant to the terms of this Agreement or any other
Financing Agreement.
“Manage” or “Management” means to generate, handle, manufacture, process, treat,
store, use, re-use, refine, recycle, reclaim, blend or burn for energy recovery,
incinerate, accumulate speculatively, transport, transfer, dispose of, release,
threaten to release or abandon Hazardous Substances.

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“Management Agreement” means that certain Management Agreement between (i)
Manager and Borrower for the operation and management of the Facility and (ii)
Manager and Diversicare Therapy Services, LLC, for bookkeeping, accounting,
payroll, billing and management of its contract therapy services.
“Manager” means Diversicare Management Services Co., a Tennessee corporation
“Material Adverse Change” or “Material Adverse Effect” means, with respect to
any event, act, condition or occurrence of whatever nature (including any
adverse determination in any litigation, arbitration, or governmental
investigation or proceeding), whether singly or in conjunction with any other
event or events, act or acts, condition or conditions, occurrence or
occurrences, whether or not related, any of the following: (a) a material
adverse change in, or a material adverse effect upon, the financial condition,
operations, business or properties of the Credit Parties, taken as a whole, (b)
a material adverse change in, or a material adverse effect upon, the rights and
remedies of Lender under any Financing Agreement or the ability of the Credit
Parties, taken as a whole, to perform their payment or other obligations under
any Financing Agreement to which they are parties, (c) a material adverse change
in, or a material adverse effect upon, the legality, validity or enforceability
of any Financing Agreement, (d) a material adverse change in, or a material
adverse effect upon, the existence, perfection or priority of any security
interest granted in any Financing Agreement or the value of any material
Collateral not resulting from any action or inaction by Lender, or (e) any
liability of the Credit Parties, or any one or more of them, in excess of Five
Hundred Thousand and No/100 Dollars ($500,000.00) in the aggregate as a result
the final adjudication of one or more violations of any Healthcare Law which
remains unpaid for a period of thirty (30) days, unless such liability is being
contested or appealed by appropriate proceedings and Borrower has established
appropriate reserves adequate for payment in the event such appeal or contest is
ultimately unsuccessful, provided further that in the event such contest or
appeal is ultimately unsuccessful, Borrower shall pay the assessment no later
than the deadline set forth by the applicable agency.
“Maximum Term Facility” means an amount equal to Eight Million and No/100
Dollars ($8,000,000.00).
“Medicaid” mean collectively all federal statutes (whether set forth in Title
XIX of the Social Security Act or elsewhere) affecting the health insurance
program established by Title XIX of the Social Security Act (42 U.S.C. §§ 1396,
et seq.), together with all applicable provisions of all rules, regulations,
manuals, final orders and administrative, reimbursement and other applicable
guidelines of all governmental authorities, including HHS, CMS or the Office of
the Inspector General of HHS, or any Person succeeding to the functions of any
of the foregoing (whether or not having the force of law).
“Medicare” mean collectively all federal statutes (whether set forth in Title
XVIII of the Social Security Act or elsewhere) affecting the health insurance
program for the aged and disabled established by Title XVIII of the Social
Security Act (42 U.S.C. § 1395, et seq.), together with all applicable
provisions of all rules, regulations, manuals, final orders and administrative,
reimbursement and other applicable guidelines of all governmental authorities,
including HHS,

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CMS or the Office of the Inspector General of HHS, or any Person succeeding to
the functions of any of the foregoing (whether or not having the force of law).
“Multiemployer Plan” shall have the meaning ascribed to such term in Section
7.18 hereof.
“Net Capital Expenditures” means Capital Expenditures minus the sum of (a) any
financing used in connection with such expenditures (including, without
limitation, any financing of capital improvements provided by a landlord and
recovered through rental payments), and (b) amounts actually incurred in
connection with Capital Expenditures made in connection with the Facility.
“OFAC Lists” means, collectively, the Specially Designated Nationals and Blocked
Persons List maintained by the Office of Foreign Asset Control, the Department
of the Treasury pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079
(Sept. 25, 2001) and/or any other list of terrorists or terrorist organizations
maintained pursuant to any of the rules and regulations of or by the Office of
Foreign Asset Control, the Department of the Treasury or pursuant to any other
applicable Executive Orders, as such lists may be amended or supplemented from
time to time.
“Participant” shall have the meaning ascribed to such term in Section 12.15(c)
hereof.
“Patriot Act” shall have the meaning ascribed to such term in Section 8.16
hereof.
“Payment In Full” means (a) the indefeasible payment in full in cash of all
Loans and other Liabilities, other than contingent indemnification obligations
for which no claims have been asserted, and (b) the termination of the Term Loan
Commitment in accordance with the terms and conditions hereof.
“PBGC” shall have the meaning ascribed to such term in Section 7.18 hereof.
“Permitted Liens” shall have the meaning ascribed to such term in Section 9.1
hereof.
“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, limited liability company, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, provincial, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
“Plan” shall have the meaning ascribed to such term in Section 7.18 hereof.
“Prohibited Transaction” shall have the meaning ascribed to such term in ERISA.
“Rate Option” means the Libor Rate or the Base Rate.
“Real Property” shall have the meaning ascribed to such term in the Recitals.
“Release” means any actual or threatened spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of Hazardous Substances into the environment, as “environment” is
defined in CERCLA.

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“Released Parties” shall have the meaning ascribed to such term in Section 12.23
hereof.
“Releasing Parties” shall have the meaning ascribed to such term in Section
12.23 hereof.
“Respond” or “Response” means any action taken pursuant to Environmental Laws to
correct, remove, remediate, cleanup, prevent, mitigate, monitor, evaluate,
investigate or assess the Release of a Hazardous Substance.
“Restricted Agreements” means, collectively, the Management Agreement, each
agreement, document or instrument entered into in connection with (directly or
indirectly) Borrower Cash Management Program, the Acquisition Documents, and any
other agreement, document or instrument between or among the Credit Parties and
any agreement, document or instrument pertaining to (directly or indirectly) any
of the foregoing.
“Restrictions” shall have the meaning ascribed to such term in Section 10.2
hereof.
“Revolving Loan Agreement” means that certain Amended and Restated Revolving
Loan and Security Agreement dated as of April 30, 2013, by and among Borrower,
certain Affiliates of Borrower, Lender, as the administrative agent and as a
lender thereunder, and the remaining Lenders (as defined in such Revolving Loan
Agreement), as the same may be restated, modified, supplemented or amended from
time to time.
“Seller” means Milton Holdings LLC.
“Service Fee” shall have the meaning ascribed to such term in Section 8.9
hereof.
“Solvent” means, with respect to any Person on a particular date, that on such
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
an unreasonably small capital. The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can be reasonably be expected
to become an actual or matured liability, but shall not include incurred but not
reported professional liability claims.
“Stated Maturity Date” means March 27, 2015.
“Stock” shall mean all certificated and uncertificated shares, stock, options,
warrants, general or limited partnership interests, membership interests or
units, limited liability company interests, participation or other equivalents
(regardless of how designated) of or in a corporation, partnership, limited
liability company or equivalent entity whether voting or nonvoting, including
common stock, preferred stock, or any other “equity security” (as such term is
defined in Rule 3a11‑1 of the

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General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934).
“Subordinated Debt” means any and all Indebtedness owing by Borrower to a third
party that has been subordinated to the Liabilities in writing on terms and
conditions satisfactory to Lender in its sole and absolute discretion.
“Subordination Agreement” means, collectively, any subordination agreements
entered into from time to time by holders of Subordinated Debt and Lender, each
in form and substance satisfactory to Lender in its sole and absolute
discretion, each as the same may be modified, supplemented, amended or restated
from time to time.
“Subordination of Management Agreement” means that certain Subordination of
Management Agreement of even date herewith made by the Manager in favor of
Lender, in form and substance reasonable satisfactory to Lender, as the same may
be modified, restated, supplemented or amended from time to time in accordance
with the terms thereof.
“Subsidiary” means, with respect to any Person, (i) any corporation of which an
aggregate of more than fifty percent (50%) of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (ii) any partnership or
limited liability company in which such Person or one or more Subsidiaries of
such Person has an equity interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%) or of which any such Person is a general partner, managing member or
manager or may exercise the powers of a general partner, managing member or
manager.
“Swap Obligation” means any Hedging Agreement or related obligation that
constitutes a “swap” within the meaning of section 1a(47) of the Commodity
Exchange Act.
“Tax Code” shall have the meaning ascribed to such term in Section 7.18 hereof.
“Taxes” shall have the meaning ascribed to such term in Section 3.3 hereof.
“Tenant” means any tenant, resident or occupant under any Lease.
“Term Loan” shall have the meaning ascribed to such term in the Recitals.
“Term Note” shall have the meaning ascribed to such term in Section 2.1 hereof.
“Term Loan Commitment” means Lender’s commitment to make the Term Loan under
this Agreement.

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“TRICARE” means the medical program for active duty members, qualified family
members, CHAMPUS eligible retirees and their family members and survivors, of
all uniformed services.
“Uniform Commercial Code” or “UCC” or “Code” means the Uniform Commercial Code
as the same may, from to time, be in effect in the State of Illinois; provided,
however, that if, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to, Lender’s
Lien on the Collateral is governed by the Uniform Commercial Code as in effect
in a jurisdiction other than the State of Illinois, the term “Uniform Commercial
Code” or “UCC” or “Code” shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions of this Agreement or the
other Financing Agreements relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions; provided
further that, to the extent that the Uniform Commercial Code of a particular
jurisdiction is used to define a term herein or in any Financing Agreement and
such term is defined differently in different Articles or Divisions of such
Uniform Commercial Code, then the definition of such term contained in Article
or Division 9 of such Uniform Commercial Code shall control.
1.2    Interpretation.
(a)    All accounting terms used in this Agreement or the other Financing
Agreements shall have, unless otherwise specifically provided herein or therein,
the meaning customarily given such term in accordance with GAAP, and all
financial computations thereunder shall be computed, unless otherwise
specifically provided therein, in accordance with GAAP consistently applied;
provided, however, that all financial covenants and calculations in the
Financing Agreements shall be made in accordance with GAAP as in effect on the
Closing Date unless Borrower and Lender shall otherwise specifically agree in
writing. That certain items or computations are explicitly modified by the
phrase “in accordance with GAAP” shall in no way be construed to limit the
foregoing. Unless otherwise specified, references in this Agreement or any of
the attachments hereto or appendices hereof to a Section, subsection or clause
refer to such Section, subsection or clause as contained in this Agreement. The
words “herein,” “hereof” and “hereunder” and other words of similar import refer
to this Agreement as a whole, including all exhibits attached hereto, as the
same may from time to time be amended, restated, modified or supplemented, and
not to any particular section, subsection or clause contained in this Agreement
or any such exhibit.
(b)    Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words “including”, “includes” and
“include” shall be deemed to be followed by the words “without limitation”; the
word “or” is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the
Financing Agreements) or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations. Whenever any provision in any Financing
Agreement refers to

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the knowledge (or an analogous phrase) of Borrower, except as otherwise
expressly provided for herein, such words are intended to signify that a Duly
Authorized Officer of Borrower has actual knowledge or awareness of a particular
fact or circumstance or that a prudent individual in the position of such Duly
Authorized Officer of Borrower, would reasonably be expected to have known or
been aware of such fact or circumstance in the course of performing his or her
duties.
2.    TERM LOAN COMMITMENT; INTEREST; FEES.
2.1    Term Loan. On the terms and subject to the conditions set forth in this
Agreement, and provided there does not then exist a Default or an Event of
Default, Lender agrees to make in U.S. Dollars the Term Loan in one advance to
Borrower on the Closing Date in the amount of the Maximum Term Facility. Any
amounts paid or applied to the principal balance of the Term Loan (whether by
mandatory prepayment or otherwise) may not be reborrowed hereunder.
(c)    The advance to Borrower under this Section 2.1 shall be deposited, in
immediately available funds, in Borrower’s demand deposit account with Lender,
or in such other account as Borrower designates in writing with Lender’s
approval.
(d)    The Term Loan shall be evidenced by a separate term loan note
(hereinafter, as the same may be amended, restated, modified or supplemented
from time to time, and together with any renewals or extensions thereof or
exchanges or substitutions therefor, called the “Term Loan Note”), duly executed
and delivered by Borrower, substantially in the form set forth in Exhibit B
attached hereto, with appropriate insertions, dated the Closing Date, payable to
the order of Lender, in the principal amount equal to the Maximum Term Facility.
THE PROVISIONS OF THE TERM LOAN NOTE NOTWITHSTANDING, THE TERM LOAN THEN
OUTSTANDING SHALL BECOME IMMEDIATELY DUE AND PAYABLE ON UPON THE EARLIEST TO
OCCUR OF (X) STATED MATURITY DATE; (Y) THE ACCELERATION OF THE LIABILITIES
PURSUANT TO SECTION 11.2 HEREOF; AND (Z) TERMINATION OF THIS AGREEMENT (WHETHER
BY PREPAYMENT OR OTHERWISE) IN ACCORDANCE WITH ITS TERMS.
(e)    Accrued interest on the Term Loan shall be due and payable and shall be
made by Borrower to Lender in accordance with Section 2.5 hereof. Monthly
interest payments on the Term Loan shall be computed using the interest rate(s)
then in effect and based on the outstanding principal balance of the Term Loan.
Upon maturity, the outstanding principal balance of the Term Loan shall be
immediately due and payable, together with any remaining accrued interest
thereon.
2.2    Borrower’s Loan Account. Lender shall maintain a loan account (the “Loan
Account”) on its books for Borrower in which shall be recorded (a) the Loan made
by Lender to Borrower pursuant to this Agreement, (b) all payments made by
Borrower on the Loan, and (c) all other appropriate debits and credits as
provided in this Agreement, including, without limitation, all fees, charges,
expenses and interest. All entries in the Loan Account shall be made in
accordance with Lender’s customary accounting practices as in effect from time
to time. Borrower promises to pay the amount reflected as owing by Borrower
under its Loan Account and all of its other obligations hereunder as such
amounts become due or are declared due pursuant to the terms of this Agreement.
Notwithstanding the foregoing, the failure so to record any such amount or any

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error in so recording any such amount shall not limit or otherwise affect
Borrower’s obligations under this Agreement or under the Term Loan Note to repay
the outstanding principal amount of the Loan together with all interest accruing
thereon.
2.3    Statements. The Loan to Borrower, and all other debits and credits
provided for in this Agreement, shall be evidenced by entries made by Lender in
its internal data control systems showing the date, amount and reason for each
such debit or credit. Until such time as Lender shall have rendered to Borrower
written statements of account as provided herein, the balance in the Loan
Account, as set forth on Lender’s most recent computer printout, shall be
rebuttably presumptive evidence of the amounts due and owing Lender by Borrower.
From time to time Lender shall render to Borrower a statement setting forth the
balance of the Loan Account, including principal, interest, expenses and fees.
Each such statement shall be subject to subsequent adjustment by Lender but
shall, absent manifest errors or omissions, be presumed correct and binding upon
Borrower.
2.4    Interest. (a) Borrower agrees to pay to Lender interest on the daily
outstanding principal balance of (i) the Base Rate Loans at the Base Rate from
time to time in effect, plus the Applicable Base Rate Margin, and (ii) the Libor
Loans at the Libor Rate; provided, however, that notwithstanding any other term
or provision of this Agreement to the contrary, immediately following the
occurrence and during the continuance of an Event of Default, Borrower agrees to
and shall pay to Lender interest on the outstanding principal balance of the
Loan at the per annum rate of two percent (2.0%) plus the rate otherwise payable
hereunder with respect to such Loans (the “Default Rate”).
(b)    Accrued interest on each Base Rate Loan shall be payable in arrears on
the first calendar day of each month and at maturity commencing on May 1, 2014,
commencing with the first day of the calendar month after the initial
disbursement of such loan; provided however, accrued interest on each Libor Loan
shall be payable on the last day of the Libor Interest Period relating to such
Libor Loan and at maturity, commencing with the first such last day of the
initial Libor Interest Period. Monthly interest payments on the Loan shall be
computed using the interest rate then in effect and based on the outstanding
principal balance of the Loans. Upon maturity, the outstanding principal balance
of the Loan shall be immediately due and payable, together with any remaining
accrued interest thereon. Interest shall be computed on the basis of a year of
three hundred sixty (360) days for the actual number of days elapsed (which
results in more interest being paid than if computed on the basis of a 365-day
year). If any payment of principal of, or interest on, the Term Loan Note falls
due on a day that is not a Business Day, then such due date shall be extended to
the next following Business Day, and additional interest shall accrue and be
payable for the period of such extension.
2.5    Method for Making Payments. All payments of principal, interest, fees and
costs and expenses (including, without limitation, pursuant to Section 12.2)
hereunder shall be paid by automatic debit from Borrower’s concentration
account, wire transfer, check or in coin or currency which, at the time or times
of payment, is the legal tender for public and private debts in the United
States of America and shall be made at such place as Lender may from time to
time appoint or direct in the payment invoice or otherwise in writing, and in
the absence of such appointment or direction,

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then, not later than 1:00 p.m. (Chicago time) on the date of payment, at the
offices of Lender at 120 South LaSalle Street, Chicago, Illinois 60603, Attn:
Commercial Loan Department. Payment made by check shall be deemed paid on the
date two Business Days after Lender receives such check; provided, however, that
if such check is subsequently returned to Lender unpaid due to insufficient
funds or otherwise, the payment shall not be deemed to have been made and shall
continue to bear interest until collected. If at any time requested by Borrower
(including via electronic transmission), principal, interest, fees and costs and
expenses (including, without limitation, pursuant to Section 12.2) hereunder
owed to Lender from time to time will be deducted by Lender automatically on the
due date or date declared due from Borrower’s concentration account with Lender.
Borrower shall maintain sufficient funds in the account on the dates Lender
enters debits authorized hereby. If there are insufficient funds in the
concentration account on the date Lender enters any debit authorized hereby, the
debit will be reversed. Borrower may terminate this direct debit arrangement at
any time by sending written notice to Lender at the address specified above.
Notwithstanding the foregoing in this Section, Borrower hereby irrevocably
authorizes and instructs Lender after the occurrence and during the continuance
of any Default or Event of Default to direct debit any of Borrower’s operating
accounts with Lender for all principal, interest, costs, and any and all fees,
costs and expenses due hereunder or pursuant hereto with respect to the Loan and
the Liabilities (including, without limitation, reasonable attorneys’ fees).
Payments made after 1:00 p.m. (Chicago time) shall be deemed to have been made
on the next succeeding Business Day.
2.6    Term of this Agreement. Borrower shall have the right to terminate this
Agreement (subject to survival of Sections 12.9 and 12.16 and any other term
hereof surviving by its terms hereof) following prepayment of all of the
Liabilities as provided under Section 2.10 hereof; provided, however, that (a)
all of Lender’s rights and remedies under this Agreement, and (b) the Liens
created under Section 6.1 hereof and under any of the other Financing
Agreements, shall survive such termination until Payment in Full. In addition,
the Liabilities may be accelerated as set forth in Section 11.2 hereof. Upon the
effective date of termination, all of the Liabilities shall become immediately
due and payable on a joint and several basis without notice or demand.
Notwithstanding any termination, until Payment in Full, Lender shall be entitled
to retain its Liens in and to all existing and future Collateral.
2.7    Optional Prepayment of Loan. Borrower may, at its option, permanently
prepay, at any time during the term of this Agreement the Loan or any portion
thereof but in minimum amounts of no less than Five Hundred Thousand Dollars
($500,000), subject to the following condition: not less than ten (10) days
prior to the date upon which Borrower desires to make any such prepayment,
Borrower shall deliver to Lender a written notice of its intention to prepay all
or such portion of the Loan, which notice shall be revocable (provided, that any
and all costs or expenses incurred or suffered by Lender as a result of the
revocation of notice by Borrower shall be borne solely by Borrower) and state
the amount of the prepayment and the prepayment date.
2.8    Limitation on Charges. It being the intent of the parties that the rate
of interest and all other charges to Borrower be lawful, if for any reason the
payment of a portion of the interest or other charges otherwise required to be
paid under this Agreement would exceed the limit which Lender may lawfully
charge Borrower, then the obligation to pay interest or other charges shall
automatically be reduced to such limit and, if any amounts in excess of such
limit shall have been

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paid, then such amounts shall at the sole option of Lender either be refunded to
Borrower or credited to the principal amount of the Liabilities (or any
combination of the foregoing) so that under no circumstances shall the interest
or other charges required to be paid by Borrower hereunder exceed the maximum
rate allowed by applicable Laws, and Borrower shall not have any action against
Lender for any damages arising out of the payment or collection of any such
excess interest.
2.9    Method of Selecting Rate Options; Additional Provisions Regarding Libor
Loans. Borrower may select a Libor Rate with respect to a Loan as provided in
this Section 2.9; provided, however, that with respect to each and all Libor
Loans made hereunder (i) the initial advance shall be in an amount not less than
One Hundred Thousand and No/100 Dollars ($100,000.00) and in integral multiples
of Fifty Thousand and No/100 Dollars ($50,000.00) thereafter; and (ii) there
shall not exist at any one time outstanding more than five (5) separate tranches
of Libor Loans. Loans shall bear interest at the Base Rate plus the Applicable
Base Rate Margin unless Borrower provides a Borrowing Notice to Lender in form
and substance reasonably acceptable to Lender, signed by a Duly Authorized
Officer on behalf of Borrower, irrevocably electing that all or a portion of the
Loans are to bear interest at a Libor Rate (the “Borrowing Notice”). The
Borrowing Notice shall be delivered to Lender not later than two (2) Business
Days before the Borrowing Date for each Libor Loan, specifying:
(a)    The Borrowing Date, which shall be a Business Day, of such Loan;
(b)    The type and aggregate amount of such Loan;
(c)    The Rate Option selected for such Loan; and
(d)    The Libor Interest Period applicable thereto.
Each Libor Loan shall bear interest from and including the first day of the
Libor Interest Period applicable thereto to (but not including) the last day of
such Libor Interest Period at the interest rate determined as applicable to such
Libor Loan. If at the end of an Libor Interest Period for an outstanding Libor
Loan, Borrower has failed to select a new Rate Option or to pay such Libor Loan,
then such Loan shall be automatically converted to a Base Rate Loan on and after
the last day of such Libor Interest Period until paid or until the effective
date of a new Rate Option with respect thereto selected by Borrower. An
outstanding Base Rate Loan may be converted to a Libor Loan at any time subject
to the notice provisions applicable to the type of Loan selected. Borrower may
not select a Libor Rate for a Loan if there exists a Default or Event of
Default. Borrower shall select Libor Interest Periods with respect to Libor
Loans so that such Libor Interest Period does not expire after the end of the
Credit Termination Date..
2.10    Setoff. (a) Other than with respect to the “Government Blocked Account”
described and defined in the Revolving Loan Agreement with respect to which
Lender has and does hereby waive all rights of setoff in accordance with Section
2.1 of the Revolving Loan Agreement, Borrower agrees that Lender has all rights
of setoff and banker’s liens provided by applicable law. Borrower agrees that,
if at any time (i) any amount owing by it under this Agreement or any Financing
Agreement is then due and payable to Lender, or (ii) or an Event of Default
shall have occurred and be continuing, then Lender, in its sole discretion, may
set off against and apply to the payment of

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any and all Liabilities, any and all balances, credits, deposits, accounts or
moneys of Borrower then or thereafter with Lender, other than the Government
Blocked Account.
(b)    Without limitation of Section 2.10(a) hereof, Borrower agrees that, upon
and after the occurrence of any Event of Default, Lender is hereby authorized,
at any time and from time to time, without prior notice to Borrower (provided,
however, prior to an Event of Default Lender shall use reasonable efforts to
provide notice of any such action within a reasonable time thereafter but Lender
shall not be liable for any failure to provide such notice), (i) to set off
against and to appropriate and apply to the payment of any and all Liabilities
any and all amounts which Lender is obligated to pay over to Borrower (whether
matured or unmatured, and, in the case of deposits, whether general or special,
time or demand and however evidenced), and (ii) pending any such action, to the
extent necessary, to deposit such amounts with Lender as Collateral to secure
such Liabilities and to dishonor any and all checks and other items drawn
against any deposits so held as Lender in its sole discretion may elect.
(c)    The rights of Lender under this Section 2.10 are in addition to all other
rights and remedies which Lender may otherwise have in equity or at law.
2.11    Termination of Term Loan Commitment. On the date on which the Term Loan
Commitment terminates pursuant to Section 11.2 hereof, the Loan and other
Liabilities shall become immediately due and payable, without presentment,
demand or notice of any kind.
2.12    Closing Fee. On the Closing Date, Borrower shall pay to Lender a
one-time closing fee of Twenty Thousand and No/100 Dollars ($20,000.00) in
immediately available funds, which fee shall be nonrefundable and deemed fully
earned as of such date (“Closing Fee”).
2.13    Late Charge. If any installment of principal or interest due hereunder
shall become overdue for five (5) days after the date when due, Borrower shall
pay to Lender on demand a “late charge” of five cents ($.05) for each dollar so
overdue in order to defray part of the increased cost of collection occasioned
by any such late payment, as liquidated damages and not as a penalty.
2.14    Mandatory Prepayments. Upon receipt by Borrower of the proceeds of any
(a) Asset Disposition, or (b) sale or issuance of any Stock of Borrower
(excluding (i) any issuance of Stock pursuant to any employee, officer or
director option program or agreement, benefit plan or compensation program or
agreement, or (ii) any issuance of Stock pursuant to the exercise of options or
warrants, or (iiii) any issuance in connection with any dividend reinvestment
plan or direct stock purchase plan, if applicable), in each case, Borrower shall
prepay the outstanding principal amount of the Liabilities in an amount equal to
one hundred percent (100%) of the cash proceeds of such transaction net of (A)
the direct reasonably and actually incurred costs relating thereto, such as
sales commissions and legal, accounting and investment banking fees and
out-of-pocket costs, and (B) taxes paid or reasonably estimated by Borrower to
be payable as a result thereof. Nothing contained in this Section 2.14 shall be
construed to permit Borrower to consummate any transaction in violation of any
other provision contained in this Agreement, including, without limitation,
Section 9.6 hereof.
3.    CHANGE IN CIRCUMSTANCES.

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3.1    Yield Protection. If, after the date of this Agreement (for purposes of
this Agreement, the Dodd-Frank Wall Street Reform and Consumer Protection Act
and all guidelines and regulations adopted in connection therewith are deemed to
have been adopted after the date hereof), the adoption of any law or any
governmental or quasi-governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or any change therein, or
any change in the interpretation or administration thereof, or the compliance of
Lender therewith, or Regulation D of the Board of Governors of the Federal
Reserve System,
(a)    subjects Lender to any tax, duty, charge or withholding on or from
payments due from Borrower (excluding taxation of the overall net income or
receipts of Lender or any branch profits taxes), or changes the basis of
taxation of payments to Lender in respect of the Loan or other amounts due it
hereunder, or
(b)    imposes, modifies, or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, Lender
(other than reserves and assessments taken into account in determining the
interest rate applicable to Libor Loans), or
(c)    imposes any other condition the result of which is to increase the cost
to Lender of making, funding or maintaining advances or reduces any amount
receivable by Lender in connection with advances, or requires Lender to make any
payment calculated by reference to the amount of advances held or interest
received by it, by an amount deemed material by Lender, or
(d)    affects the amount of capital required or expected to be maintained by
Lender or any corporation controlling Lender and Lender determines the amount of
capital required is increased by or based upon the existence of this Agreement
or its obligation to make the Loan hereunder or of commitments of this type,
then, within three (3) Business Days of demand by Lender, Borrower agrees to pay
Lender that portion of such increased expense incurred (including, in the case
of clause (d), any reduction in the rate of return on capital to an amount below
that which it could have achieved but for such law, rule, regulation, policy,
guideline or directive and after taking into account Lender’s policies as to
capital adequacy) or reduction in an amount received which Lender determines is
attributable to making, funding and maintaining the Loan.
3.2    Availability of Rate Options. If Lender determines that maintenance of
any Libor Loans would violate any applicable law, rule, regulation or directive
of any government or any division, agency, body or department thereof, whether
or not having the force of law, Lender shall suspend the availability of the
Libor Rate option and Lender shall require any Libor Loans outstanding to be
promptly converted to a Base Rate Loan subject to Borrower’s compliance with
Section 3.4 hereof; or if Lender determines that (i) deposits of a type or
maturity appropriate to match fund Libor Loans are not available, Lender shall
suspend the availability of the Libor Rate after the date of any such
determination, or (ii) the Libor Rate does not accurately reflect the cost of
making a Libor Loan, then, if for any reason whatsoever the provisions of
Section 3.1 hereof are inapplicable, Lender shall, at its option, suspend the
availability of the Libor Rate after the date of any such determination or
permit (solely in the case of clause (ii)) Borrower to pay Lender for any
increased cost Lender may incur.

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3.3    Taxes. All payments by Borrower under this Agreement shall be made free
and clear of, and without deduction for, any present or future income, excise,
stamp or other taxes, fees, levies, duties, withholdings or other charges of any
nature whatsoever, now or hereafter imposed by any taxing authority, other than
franchise taxes and taxes imposed on or measured by Lender’s net income or
receipts or branch profits taxes (such non-excluded items being called “Taxes”).
If any withholding or deduction from any payment to be made by Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then Borrower shall:
(c)    pay directly to the relevant authority the full amount required to be so
withheld or deducted;
(d)    promptly forward to Lender an official receipt or other documentation
satisfactory to Lender evidencing such payment to such authority; and
(e)    pay to Lender such additional amount or amounts as is necessary to ensure
that the net amount actually received by Lender will equal the full amount
Lender would have received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against Lender with respect to any
payment received by Lender hereunder, Lender may pay such Taxes and Borrower
agrees to promptly pay such additional amounts (including, without limitation,
any penalties, interest or expenses) as is necessary in order that the net
amount received by Lender after the payment of such Taxes (including, without
limitation, any Taxes on such additional amount) shall equal the amount Lender
would have received had not such Taxes been asserted.
The provisions of and undertakings of Borrower set out in this Section 3.3 shall
survive the satisfaction and payment of the Liabilities of Borrower and the
termination of this Agreement.
3.4    Funding Indemnification. If any payment of a Libor Loan occurs on a date
that is not the last day of the applicable Libor Interest Period, whether
because of acceleration, prepayment, or otherwise, or a Libor Loan is not made
on the date specified by Borrower, Borrower shall indemnify Lender for any loss
or cost incurred by it resulting therefrom, including, without limitation, any
loss or cost in liquidating or employing deposits acquired to fund or maintain
the Libor Loan.
3.5    Lender Statements. Lender shall deliver a written statement to Borrower
as to the amount due, if any, under Sections 3.1, 3.3 or 3.4 hereof. Such
written statement shall set forth in reasonable detail the calculations upon
which Lender determined such amount and shall be final, conclusive and binding
on Borrower in the absence of demonstrable error. Unless otherwise provided
herein, the amount specified in the written statement shall be payable on demand
after receipt by Borrower of the written statement.
3.6    Basis for Determining Interest Rate Inadequate or Unfair. If with respect
to any Libor Interest Period: (a) Lender reasonably determines, which
determination shall be binding and conclusive on Borrower, that by reason of
circumstances affecting the interbank Libor Base market adequate and reasonable
means do not exist for ascertaining the applicable Libor Base Rate; or

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(b) Lender reasonably determines that the Libor Base Rate will not adequately
and fairly reflect the cost to Lender of maintaining or funding the Loan or any
portion thereof for such Libor Interest Period, or that the making or funding of
Libor Loans has become impracticable as a result of an event occurring after the
date of this Agreement which in the opinion of Lender adversely affects such
Loan, then, in either case, so long as such circumstances shall continue:
(i) Lender shall not be under any obligation to make, maintain, convert into or
continue Libor Loans and (ii) on the last day of the then current Libor Interest
Period for each Libor Loan, each such Loan shall, unless then repaid in full,
automatically convert to a Base Rate Loan. Each affected Lender shall promptly
give Borrower written notice of any determination made by it under this Section
accompanied by a statement setting forth in reasonable detail the basis of such
determination.
3.7    Illegality. If any applicable law or regulation, or any interpretation
thereof by any court or any governmental or other regulatory body charged with
the administration thereof, should make it unlawful for Lender or its lending
office to make, maintain or fund any Libor Loan, then the obligation of Lender
to make, convert into or continue such Libor Loan shall, upon the effectiveness
of such event, be suspended for the duration of such unlawfulness, and on the
last day of the current Libor Interest Period for such Libor Loan (or, in any
event, if Lender so request, on such earlier date as may be required by the
relevant law, regulation or interpretation), the Libor Loans shall, unless then
repaid in full, automatically convert to Base Rate Loans.
3.8    Right of Lender to Fund through Other Offices. Lender may, if it so
elects, fulfill its commitment as to any Libor Loan by causing a foreign branch
or Affiliate of Lender to make such Loan; provided that such election shall not
increase the costs to Borrower hereunder and that in such event for the purposes
of this Agreement such Loan shall be deemed to have been made by Lender and the
obligation of Borrower to repay such Loan shall nevertheless be to Lender and
shall be deemed held by it, to the extent of such Loan, for the account of such
branch or Affiliate.
3.9    Discretion of Lender as to Manner of Funding; No Match Funding.
Notwithstanding any provision of this Agreement to the contrary, Lender shall be
entitled to fund and maintain its funding of its portion of the Loan in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder shall be made as if Lender had actually
funded and maintained each Libor Loan during each Libor Interest Period for such
Loan through the purchase of deposits having a maturity corresponding to such
Libor Interest Period and bearing an interest rate equal to the Libor Rate for
such Libor Interest Period.
3.10    Further Documentation; Loss of Note. If any further documentation or
information is (a) required by Lender or any prospective transferee in
connection with selling, transferring, delivering, assigning, or granting a
participation in the Loan (or transferring the servicing of the Loan), or
(b) deemed necessary or appropriate by Lender to correct patent mistakes in the
Financing Agreements, Borrower shall provide, or cause to be provided to Lender,
and, in the case of (b), unless such patent mistake is due to the gross
negligence, willful misconduct or illegal activity of Lender at Borrower’s cost
and expense, such documentation or information as Lender or any prospective
transferee may reasonably request. Upon notice from Lender of the loss, theft,
or destruction of the Term Loan Note and upon receipt of indemnity reasonably
satisfactory to Borrower from the applicable Lender, or in the case of
mutilation of the Term Loan Note, upon surrender of

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the mutilated Term Loan Note, Borrower shall promptly make and deliver a new
promissory note of like tenor in lieu of the then to be superseded Term Loan
Note.
4.    ATTORNEY-IN-FACT.
4.1    Appointment of Lender as Borrower’s Attorney-in-Fact. Borrower hereby
irrevocably designates, makes, constitutes and appoints Lender (and all Persons
designated by Lender in writing to Borrower) as Borrower’s true and lawful
attorney-in-fact, and authorizes Lender, in Borrower’s or Lender’s name, after
an Event of Default has occurred and is continuing to do the following: (a) at
any time, (i) endorse Borrower’s name upon any items of payment or proceeds
thereof and deposit the same in Lender’s account on account of Borrower’s
Liabilities, and (ii) do all other acts and things which are necessary, in
Lender’s reasonable discretion, to fulfill Borrower’s obligations under this
Agreement. Borrower hereby ratifies and approves all acts under such power of
attorney and neither Lender nor any other Person acting as Borrower’s attorney
hereunder will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law made in good faith except as result of its gross
negligence, willful misconduct or illegal activity as finally determined in a
non-appealable judicial proceeding. The appointment of Lender (and any of
Lender’s officers, employees or agents designated by Lender) as Borrower’s
attorney, and each and every one of Lender’s rights and powers, being coupled
with an interest, are irrevocable until all of the Liabilities have been fully
repaid and this Agreement shall have expired or been terminated in accordance
with the terms hereunder. Without restricting the generality of the foregoing,
after an Event of Default has occurred and is continuing, Borrower hereby
appoints and constitutes Lender its lawful attorney-in-fact with full power of
substitution in the Real Property to advance funds in excess of the face amount
of the Term Loan Note, to pay, settle or compromise all existing bills and
claims, which may be liens or security interests, or to avoid such bills and
claims becoming liens against the Collateral; to execute all applications and
certificates in the name of Borrower prosecute and defend all actions or
proceedings in connection with the Collateral (including any Leases pertaining
to Real Property); and to do any and every act which Borrower might do in its
own behalf; it being understood and agreed that this power of attorney shall be
a power coupled with an interest and cannot be revoked.
5.    CONDITIONS OF LOAN.
5.1    Conditions to Loan. Notwithstanding any other term or provision contained
in this Agreement, Lender’s obligation to make the Term Loan hereunder is
subject to the satisfaction of each of the following conditions precedent:
(f)    Borrower’s Request. Lender shall have received, (i) with respect to a
request by Borrower for a Base Rate Loan, by no later than 11:00 a.m. (Chicago
time) on the day on which such Loan is requested to be made hereunder, a
telephonic request from any Person who Lender reasonably believes is authorized
by Borrower to make a borrowing request on behalf of Borrower, for a Loan in a
specific amount, and (ii) with respect to a request by Borrower for a Libor
Loan, by no later than 1:00 p.m. (Chicago time) two (2) Business Days prior to
the day on which a Libor Loan is requested, the Borrowing Notice required under
Section 2.9 hereof. In addition, each request for a Loan shall be accompanied or
preceded by all other documents not previously delivered as required to be
delivered to Lender under Section 5.1(e) hereof, and a request for any Revolving

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Loan shall be accompanied or preceded by a Borrowing Base Certificate from
Borrower, signed by a Duly Authorized Officer on behalf of Borrower, in form and
substance reasonably satisfactory to Lender. Lender shall have no liability to
Borrower or any other Person as a result of acting on any telephonic request
that Lender believes in good faith to have been made by any Person authorized by
Borrower to make a borrowing request on behalf of Borrower.
(g)    No Default. Neither a Default nor an Event of Default shall have occurred
or be in existence.
(h)    Representations and Warranties. All of the representations and warranties
contained in the Financing Agreements to which Borrower is a party and in this
Agreement (including, without limitation, those set forth in Section 7 hereof),
are true and correct.
(i)    Fees and Expenses. Borrower shall have paid all fees owed to Lender and
reimburse Lender for all costs, disbursements, fees and expenses due and payable
hereunder on or before the Closing Date, including, without limitation, all fees
and costs identified in Section 12.2(a) hereof.
(j)    Documents. Lender shall have received all of the following, each duly
executed and delivered and dated the Closing Date, or such earlier date as shall
be satisfactory to Lender, each in form and substance reasonably satisfactory to
Lender in its sole determination:
(1)    Financing Agreements. This Agreement, the Term Loan Note, the Deed of
Trust, the Assignment of Rents and Leases, the Environmental Indemnity
Agreement, the Subordination of Management Agreement, and such other Financing
Agreements as Lender may require.
(2)    Resolutions; Incumbency and Signatures. Copies of resolutions of the
Board of Directors of the sole member of Borrower, authorizing or ratifying the
execution, delivery and performance by Borrower of this Agreement, the Financing
Agreements to which Borrower is a party and any other document provided for
herein or therein to be executed by Borrower, certified by a Duly Authorized
Officer. A certificate of a Duly Authorized Officer certifying the names of the
officers of Borrower authorized to make a borrowing request and sign this
Agreement and the Financing Agreements to which Borrower is a party, together
with a sample of the true signature of each such officer; Lender may
conclusively rely on each such certificate until formally advised by a like
certificate of any changes therein.
(3)    Consents. Certified copies of all documents evidencing any necessary
consents and governmental approvals, if any, with respect to this Agreement, the
Financing Agreements, and any other documents provided for herein or therein to
be executed by Borrower.
(4)    Opinions of Counsel. An opinion of Harwell Howard Hyne Gabbert & Manner,
the legal counsel to Borrower, and a local counsel opinion in the jurisdiction
where the Facility is located with respect to the Deed of Trust, each in form
and substance reasonably satisfactory to Lender.

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(5)    Certain Restricted Agreements. Correct and complete copies of the fully
executed Management Agreement, the Acquisition Documents, the nursing home
license of Borrower, and any other Restricted Agreement, together with all
applicable amendments thereto.
(6)    Financial Condition Certificate. A Financial Condition Certificate, in
form and substance reasonably satisfactory to Lender, signed on behalf of
Borrower by a Duly Authorized Officer of Borrower.
(7)    Governing Documents and Good Standings. Lender shall have received (i)
copies, certified as correct and complete by the state of organization of
Borrower, of the certificate of incorporation, certificate of formation or
certificate of limited liability partnership, as applicable, of Borrower and
Diversicare Leasing, with any amendments to any of the foregoing, (ii) copies,
certified as correct and complete by an authorized officer, member or partner of
Borrower, of all other documents necessary for performance of the obligations of
Borrower under this Agreement and the other Financing Agreements, and (iii)
certificates of good standing for Borrower, Diversicare Leasing and Manager
issued by the state of organization of Borrower, Diversicare Leasing and Manager
and certificates of authority to do business by the state in which the Facility
is located for each of Borrower and Manager (such certificates set forth in (i)
through (iii), the “Certificates”).
(8)    UCC Financing Statements; Termination Statements; UCC Searches. A UCC
Financing Statement naming Borrower as debtor and Lender as secured party with
respect to the Collateral, together with such UCC termination statements
necessary to release all Liens (other than Permitted Liens) and other rights in
favor of any Person in any of the Collateral except Lender, and other documents
as Lender deems necessary or appropriate, shall have been filed in all
jurisdictions that Lender deems necessary or advisable. UCC tax, lien,
bankruptcy, pending suit and judgment searches for Borrower and each dated a
date reasonably near to the Closing Date in all jurisdictions deemed necessary
by Lender, the results of which shall be satisfactory to Lender in its sole and
absolute determination.
(9)    Insurance Certificates. Certificates from Borrower’s insurance carriers
evidencing that all required insurance coverage is in effect, each designating
Lender as an additional insured and “lender’s loss payee” thereunder (and any
reasonably required endorsements thereof).
(10)    Certificate of Occupancy. To the extent available, a true and complete
copy of each certificate of occupancy with respect to the Facility.
(11)    Environmental Assessment. A Phase I environmental report of the Real
Property addressed to Lender prepared by an environmental audit firm reasonably
acceptable to Lender, the form and results of which shall be satisfactory to
Lender in its sole and absolute determination.
(12)    Title Insurance. A title insurance policy in the form of ALTA Form
Mortgagee Title Insurance Policy shall be issued by an insurer (reasonably
acceptable to Lender) in favor of Lender for the Real Property. The title
insurance policy shall contain such endorsements

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as deemed appropriate by Lender that are available in the State where the Real
Property is located. Copies of all documents of record concerning the Real
Property as identified on the commitment for the ALTA Policy referred to above.
(13)    Survey. An ALTA plat of survey shall be prepared on the Real Property
(certified to the 2011 ALTA standards).
(14)    Appraisal. An Appraisal prepared by an independent appraiser of the Real
Property engaged by Lender, which appraisal shall satisfy the requirements of
the FIRREA, if applicable, and shall evidence compliance with the supervisory
loan-to-value limits set forth in the Federal Deposit Insurance Corporation
Improvement Act of 1991 (including a loan-to-value ratio on a “stabilized value”
not to exceed 80%). Such appraisal (and the results thereof) shall be
satisfactory to Lender in its sole and absolute determination.
(15)    Flood Insurance. A flood insurance policy concerning the Real Property,
reasonably satisfactory to Lender, as required by the Flood Disaster Protection
Act of 1973.
(16)    Property Condition Report. A Property Condition Report for the Real
Property, the form, substance and results of which shall be satisfactory to
Lender in its sole and absolute determination.
(17)    Bylaws and Operating Agreements. Correct and complete certified copies
of the Bylaws and the duly executed Limited Liability Company Agreement (as
applicable) of Borrower and Diversicare Leasing, as amended.
(18)    Other. Lender shall have received, in form and substance reasonably
satisfactory to Lender, all certificates, orders, authorities, consents,
affidavits, schedules, instruments, agreements, financing statements, and other
documents which are provided for hereunder or under or in connection with any
Financing Agreement, which Lender may reasonably request on or prior to the
Closing Date.
(k)    Field Examinations. At Lender’s sole option, Lender shall have completed
its field examinations of Borrower’s books and records, assets, and operations
which examinations will be satisfactory to Lender in its sole and absolute
discretion.
(l)    Certificate. Lender shall have received a certificate signed on behalf of
Borrower by a Duly Authorized Officer and dated the Closing Date certifying
satisfaction of the conditions specified in this Section 5.
(m)    Closing Fee. Borrower shall have paid Lender the Closing Fee.
(n)    Bank Meetings. Borrower’s senior management shall have made themselves
and Borrower’s facilities reasonably available (through scheduled bank meetings,
company visits, or other venues) to Lender and its representatives.

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(o)    Acquisition Agreement. The closing of the transaction contemplated by the
Acquisition Agreement (including all material conditions precedent thereto,
including, without limitation, the obtaining of any and all consents and
approvals) shall occur in accordance with its terms concurrently with the
transactions contemplated by this Agreement.
(p)    Solvency. On the Closing Date, Borrower is Solvent.
(q)    No Material Adverse Change. No Material Adverse Change, as reasonably
determined by Lender, in the business, assets, liabilities, properties,
condition (financial or otherwise), prospects or results of operations of
Borrower shall have occurred from December 31, 2013, through the Closing Date.
(r)    Litigation. There shall not have been instituted or threatened, from
December 31, 2013, through the Closing Date, as reasonably determined by Lender,
any litigation or proceeding in any court or administrative forum to which
Borrower is, or is threatened to be, a party which has, or is reasonably likely
to result in, a Material Adverse Change.
(s)    Minimum Underwritten EBITDA. There shall be minimum underwritten EBITDA
for Borrower of no less than One Million One Hundred Thousand and No/100 Dollars
($1,100,000.00).
6.    COLLATERAL.
6.1    Security Interest. As security for the prompt and complete payment and
performance of all of the Liabilities when due or declared due, Borrower hereby
grants, pledges, conveys and transfers to Lender a continuing security interest
in and to all of Borrower’s right, title and interest in and to the following
property and interests in property, whether now owned or existing or hereafter
owned, arising or acquired, and wheresoever located (collectively, the
“Collateral”): (a) all of Borrower’s accounts receivable, including, without
limitation, Accounts and Health-Care-Insurance Receivables (each as defined in
the Code), (b) all of Borrower’s General Intangibles, including, without
limitation, General Intangibles related to accounts receivable and money; (c)
all of Borrower’s Deposit Accounts and other deposit accounts (general or
special) with, and credits and other claims against Lender or any other
financial institution with which Borrower maintains deposits; (d) all of
Borrower’s contracts, licenses, chattel paper, instruments, notes, letters of
credit, contract rights, bills of lading, warehouse receipts, shipping
documents, permits, tax refunds, documents and documents of title, and all of
Borrower’s Tangible Chattel Paper, Documents, Electronic Chattel Paper,
Letter-of-Credit Rights, letters of credit, Software, Supporting Obligations,
Payment Intangibles, and Goods (each as defined in the Code); (e) all of
Borrower’s Inventory and Equipment and motor vehicles and trucks; (f) all of
Borrower’s monies, and any and all other property and interests in property of
Borrower, including, without limitation, Investment Property, Instruments,
Security Entitlements, Uncertificated Securities, Certificated Securities,
Chattel Paper, and Financial Assets (each as defined in the Code), now or
hereafter coming into the actual possession, custody or control of Lender or any
agent or Affiliate thereof in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or otherwise),
and, independent of and in addition to Lender’s rights of setoff (which Borrower
acknowledges), the balance of any account or any amount that may be owing from
time to time by Lender to

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Borrower; (g) all insurance proceeds of or relating to any of the foregoing
property and interests in property, and any key man life insurance policy
covering the life of any officer or employee of Borrower; (h) all proceeds and
profits derived from the operation of Borrower’s business; (i) all of Borrower’s
books and records, computer printouts, manuals and correspondence relating to
any of the foregoing and to Borrower’s business; and (j) all accessions,
improvements and additions to, substitutions for, and replacements, products,
profits and proceeds of any of the foregoing.
Lender acknowledges that it will not have control over or right of setoff
against the Government Blocked Account (as defined in the Revolving Loan
Agreement) solely to the extent such control or right of setoff is or would be
prohibited by applicable Healthcare Laws; provided, however, that as soon as any
such prohibition or restriction lapses or is legally removed, Borrower shall
immediately take all such actions as are reasonably necessary to provide Lender
with control over and/or the right of setoff against such Government Blocked
Account (at Borrower’s cost).
6.2    Preservation of Collateral and Perfection of Security Interests Therein.
Borrower agrees that it shall execute and deliver to Lender, concurrently with
the execution of this Agreement, and promptly at any time or times hereafter at
the reasonable request of Lender instruments and documents as Lender may
reasonably request, in a form and substance satisfactory to Lender, to
establish, create, perfect and keep perfected the Liens in the Collateral or to
otherwise protect and preserve the Collateral and Lender’s Liens therein
(including, without limitation, if and as applicable, financing statements, and
Borrower shall pay the cost of filing or recording the same in all public
offices deemed necessary by Lender). If Borrower fails to do so, Lender is
authorized to file such financing statements. Borrower further agrees that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement.
6.3    Loss of Value of Collateral. Borrower agrees to immediately notify Lender
of any material loss or depreciation in the value of the Collateral or any
portion thereof.
6.4    Right to File Financing Statements. Notwithstanding anything to the
contrary contained herein, Lender may at any time and from time to time file
financing statements, continuation statements and amendments thereto that
describe the Collateral as “all assets” or in particular and which contain any
other information required by the Code for the sufficiency or filing office
acceptance of any financing statement, continuation statement or amendment,
including whether Borrower is an organization, the type of organization and any
organization identification number issued to Borrower. Borrower agrees to
furnish any such information to Lender promptly upon request. Any such financing
statements, continuation statements or amendments may be signed (if at any time
required) by Lender on behalf of Borrower and may be filed at any time with or
without signature and in any jurisdiction as reasonably determined by Lender.
Lender agrees to use its reasonable efforts to notify Borrower of Lender taking
any such action provided in this Section; provided, however, Borrower agrees
that the failure of Lender to so notify Borrower for any reason shall not in any
way invalidate the actions taken by Lender pursuant to this Section.
6.5    Third Party Agreements. Borrower shall at any time and from time to time
take such steps as Lender may reasonably require for Lender: (i) to obtain an
acknowledgment, in form and substance reasonably satisfactory to Lender, of any
third party having possession of any of the Collateral that the third party
holds for the benefit of Lender, (ii) to obtain “control” (as defined in

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the Code) of any Investment Property, Deposit Accounts, Letter of Credit Rights
or Electronic Chattel Paper (each as defined in the Code), with any agreements
establishing control to be in form and substance reasonably satisfactory to
Lender, and (iii) otherwise to ensure the continued perfection and priority of
Lender’s security interest in any of the Collateral and of the preservation of
its rights therein.
6.6    All Loans One Obligation. All Liabilities of Borrower under this
Agreement and each of the Financing Agreements, are cross-collateralized and
cross-defaulted. Payment of all sums and indebtedness to be paid by Borrower to
Lender under this Agreement shall be secured by, among other things, the
Financing Agreements. All loans or advances made to Borrower under this
Agreement shall constitute one Loan, and all of Borrower’s Liabilities and other
liabilities of Borrower to Lender shall constitute one general obligation
secured by Lender’s Lien on all of the Collateral of Borrower and by all other
liens heretofor, now, or at any time or times granted to Lender to secure the
Loan and other Liabilities. Borrower agrees that all of the rights of Lender set
forth in this Agreement shall apply to any amendment, restatement or
modification of, or supplement to, this Agreement, any supplements or exhibits
hereto and the Financing Agreements, unless otherwise agreed in writing by
Lender.
6.7    Commercial Tort Claim. If Borrower shall at any time hereafter acquire a
Commercial Tort Claim (as defined in the Code), Borrower shall promptly notify
Lender of same in a writing signed by Borrower (describing such claim in
reasonable detail) and grant to Lender in such writing (at the sole cost and
expense of Borrower) a continuing, first-priority security interest therein
(subject only to the Permitted Liens) and in the proceeds thereof, with such
writing to be in form and substance satisfactory to Lender in its sole and
absolute determination.
7.    REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender that as of the date of this
Agreement, and continuing as long as any Liabilities remain outstanding, and
(even if there shall be no such Liabilities outstanding) as long as this
Agreement remains in effect:
7.1    Existence. Borrower is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or formation. Borrower is duly (a) qualified and in good standing
as a foreign corporation or foreign limited liability company and (b) authorized
to do business in each jurisdiction where such qualification is required because
of the nature of its activities or properties. Borrower has all requisite power
to carry on its business as now being conducted and as proposed to be conducted.
7.2    Corporate Authority. The execution and delivery by Borrower of this
Agreement and all of the other Financing Agreements to which Borrower is a party
and the performance of its obligations hereunder and thereunder: (i) are within
its powers; (ii) are duly authorized by the board of directors, manager or
members of Borrower, each as applicable; and (iii) are not in contravention of
the terms of its operating agreement, bylaws, or of an indenture, agreement or
undertaking to which it is a party or by which it or any of its property is
bound. The execution and delivery by Borrower of this Agreement and all of the
other Financing Agreements to which it is a party and the performance of its
obligations hereunder and thereunder: (i) do not require any governmental

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consent, registration or approval; (ii) do not contravene any contractual or
governmental restriction binding upon it; and (iii) will not, except in favor of
Lender, result in the imposition of any Lien upon any property of Borrower under
any existing indenture, mortgage, deed of trust, loan or credit agreement or
other material agreement or instrument to which it is a party or by which it or
any of its property may be bound or affected. Borrower is not bound by any
contractual obligation, or subject to any restriction in any organizational
document, that could reasonably be expected to have a Material Adverse Effect.
This Agreement and all of the other Financing Agreements to which Borrower is a
party have been duly executed.
7.3    Binding Effect. This Agreement and all of the other Financing Agreements
to which Borrower is a party are the legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditor’s rights and
remedies generally.
7.4    Financial Data.
(e)    All income statements, balance sheets, cash flow statements, statements
of operations, and other financial data which have been or shall hereafter be
furnished to Lender for the purposes of or in connection with this Agreement do
and will present fairly in all material respects in accordance with GAAP,
consistently applied, the financial condition of Borrower as of the dates
thereof and the results of its operations for the period(s) covered thereby. The
foregoing notwithstanding all unaudited financial statements furnished or to be
furnished to Lender by or on behalf of Borrower are not and will not be prepared
in accordance with GAAP to the extent that such financial statements (a) are
subject to cost report and other year-end audit adjustments, (b) do not contain
footnotes, (c) were prepared without physical inventories, (d) are not restated
for subsequent events, (e) may not contain a statement of construction in
process, and (f) may not fully reflect the following liabilities: (i) vacation,
holiday and similar accruals, (ii) liabilities payable in connection with
workers’ compensation claims, (iii) liabilities payable to any employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) maintained by
Borrower or its affiliates on account of Borrower’s employees, (iv) federal,
state and local income or franchise taxes and (v) bonuses payable to certain
employees (collectively, the “GAAP Exceptions”).
(f)    Since December 31, 2013, there has been no Material Adverse Change with
respect to Borrower.
7.5    Collateral. Except for the Permitted Liens, all of Borrower’s assets and
property (including, without limitation, the Collateral) is and will continue to
be owned by Borrower (except for items of Inventory disposed of in the ordinary
course of business and sales of Equipment being replaced in the ordinary course
of business, or as a result of casualty loss or condemnation, with other
Equipment with a value equal to or greater than the Equipment being sold), has
been fully paid for and is free and clear of all Liens. No financing statement
or other document similar in effect covering all or any part of the Collateral
is on file in any recording or filing office, other than those identifying
Lender as the secured creditor or except for Permitted Liens. The organizational
number assigned by the Secretary of State of Borrower’s state of incorporation
or formation, as

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applicable, is _________________, as also identified on the UCC Financing
Statement filed in connection with this Agreement.
7.6    Solvency. Borrower is Solvent. Borrower will not be rendered insolvent by
the execution and delivery of this Agreement or any Financing Agreement, or by
completion of the transactions contemplated hereunder or thereunder.
7.7    Principal Place of Business; State of Organization. As of the Closing
Date, (a) the principal place of business and chief executive office of Borrower
is 1621 Galleria Boulevard, Brentwood, Tennessee 37027, and (b) Borrower’s state
of incorporation or formation is the State of Delaware. The books and records of
Borrower are at the principal place of business and chief executive office of
Borrower.
7.8    Other Names. As of the Closing Date Borrower is not using, and shall not
thereafter use, any name (including, without limitation, any trade name, trade
style, assumed name, division name or any similar name).
7.9    Tax Liabilities. Borrower has filed all material federal, state and local
tax reports and returns required by any law or regulation to be filed by it,
except for extensions duly obtained, and taxes that are being contested in good
faith by appropriate proceedings duly conducted, and has either duly paid all
taxes, duties and charges indicated due on the basis of such returns and
reports, or made adequate provision for the payment thereof, and the assessment
of any material amount of additional taxes in excess of those paid and reported
is not reasonably expected.
7.10    Loans. Except for the loan evidenced by the Revolving Loan Agreement,
Borrower is not obligated on any loans or other Indebtedness.
7.11    Margin Securities. No part of the proceeds of the Loan will be used, and
whether immediately, incidentally or ultimately, for any purposes that violates
or results in directly or indirectly, a violation of Regulations U, T or X of
the Board of Governors of the Federal Reserve System (assuming, in the case of
Regulation T, that no broker-dealer or other “creditor” as defined in Regulation
T extends or maintains credit to Borrower under this Agreement). Borrower does
not own any margin securities and the Loan advanced hereunder will not be used
for the purpose of purchasing or carrying any margin securities or for the
purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase any margin securities or for any other purpose not permitted by
Regulation U of the Board of Governors of the Federal Reserve System.
7.12    Litigation and Proceedings. As of the Closing Date, no judgments are
outstanding against Borrower that could be an Event of Default under clause (e)
of Section 11.1, nor is there as of such date pending, or to the best of
Borrower’s knowledge, threatened as of the Closing Date, except as shown on
Schedule 7.12, any (i) litigation, suit, action or contested claim (other than a
personal injury tort claim), or federal, state or municipal governmental
proceeding, by or against Borrower or any of its property which if adversely
determined could have a Material Adverse Effect, or (ii) any tort claim for
personal injury, including death, against Borrower as to which (a) litigation
has been instituted and is pending or (b) or a request for medical records has
been made upon Borrower by an attorney for the claimant on or after January 1,
2012.

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7.13    Other Agreements. Borrower is not in default under or in breach of any
agreement, contract, lease, or commitment to which it is a party or by which it
is bound which could reasonably be expected to have a Material Adverse Effect.
Borrower does not know of any dispute regarding any agreement, contract,
instrument, lease or commitment to which it is a party which could reasonably be
expected to have a Material Adverse Effect.
7.14    Compliance with Laws and Regulations. The execution and delivery by
Borrower of this Agreement and all of the other Financing Agreements to which it
is a party and the performance of Borrower’s obligations hereunder and
thereunder are not in contravention of any applicable law, rule or regulation.
Borrower has obtained all licenses, authorizations, approvals, licenses and
permits necessary in connection with the operation of its business, except to
the extent the failure to obtain any of the foregoing could reasonably be
expected to not result in a Material Adverse Effect. Borrower is in compliance
with all laws, orders, rules, regulations and ordinances of all federal,
foreign, state and local governmental authorities applicable to it and its
business, operations, property, and assets, except to the extent any such
non-compliance could reasonably be expected to not result in a Material Adverse
Effect.
7.15    Intellectual Property. As of the Closing Date, Borrower does not own or
otherwise possess any material Intellectual Property. To Borrower’s best
knowledge, none of its Intellectual Property infringes on the rights of any
other Person; provided that the name “Diversicare” is shared in Canada with
various Diversicare entities that were sold in 2004.
7.16    Environmental Matters. Borrower has not Managed Hazardous Substances on
or off the Real Property other than in compliance with applicable Environmental
Laws, except to the extent any such non-compliance could reasonably be expected
to not result in a Material Adverse Effect. Borrower has complied in all
material respects with applicable Environmental Laws regarding transfer,
construction on and operation of its business and the Real Property, including,
but not limited to, notifying authorities, observing restrictions on use,
transferring, modifying or obtaining permits, licenses, approvals and
registrations, making required notices, certifications and submissions,
complying with financial liability requirements, and Managing Hazardous
Substances and Responding to the presence or Release of Hazardous Substances
connected with operation of its business or the Real Property. Borrower does not
have any contingent liability with respect to the Management of any Hazardous
Substance that could reasonably be expected to result in a Material Adverse
Effect. As of the Closing Date, Borrower has not received any Environmental
Notice that could reasonably be expected to result in a Material Adverse Effect.
7.17    Disclosure. As of the Closing Date, none of the representations or
warranties made by Borrower herein or in any Financing Agreement to which
Borrower is a party and no other written information provided or statements made
by Borrower or its representatives to Lender contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of the Closing Date, Borrower has disclosed to Lender all facts
of which Borrower has knowledge which might result in a Material Adverse Effect
either prior or subsequent to the consummation of the transactions contemplated
hereby or which, to Borrower’s knowledge, at any time hereafter might reasonably
be expected to result in a Material Adverse Effect.

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7.18    Pension Related Matters. Each employee pension plan (other than a
multiemployer plan within the meaning of Section 3(37) of ERISA and to which
Borrower or any ERISA Affiliate has or had any obligation to contribute (a
“Multiemployer Plan”)) maintained by Borrower or any of its ERISA Affiliates to
which Title IV of ERISA applies and (a) which is maintained for employees of
Borrower or any of its ERISA Affiliates or (b) to which Borrower or any of its
ERISA Affiliates made, or was required to make, contributions at any time within
the preceding five (5) years (a “Plan”), complies, and is administered in
accordance, with its terms and all material applicable requirements of ERISA and
of the Internal Revenue Code of 1986, as amended, and any successor statute
thereto (the “Tax Code”), and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Tax Code setting forth
those requirements. No “Reportable Event” or “Prohibited Transaction” (as each
is defined in ERISA) or withdrawal from a Multiemployer Plan caused by Borrower
has occurred and no funding deficiency described in Section 302 of ERISA caused
by Borrower exists with respect to any Plan or Multiemployer Plan which could
have a Material Adverse Effect. Borrower and each ERISA Affiliate has satisfied
all of their respective funding standards applicable to such Plans and
Multiemployer Plans under Section 302 of ERISA and Section 412 of the Tax Code
and the Pension Benefit Guaranty Corporation and any entity succeeding to any or
all of its functions under ERISA (“PBGC”) has not instituted any proceedings,
and there exists no event or condition caused by Borrower which would reasonably
be expected to constitute grounds for the institution of proceedings by PBGC, to
terminate any Plan or Multiemployer Plan under Section 4042 of ERISA which could
have a Material Adverse Effect.
7.19    Perfected Security Interests. The Lien in favor of Lender provided
pursuant to Section 6.1 hereof is a valid and perfected first priority security
interest in the Collateral (subject only to the Permitted Liens), and all
filings and other actions necessary to perfect such Lien have been or will be
duly taken.
7.20    Broker’s Fees. Borrower does not have any obligation to any Person in
respect of any finder’s, brokers or similar fee in connection with the Loan or
this Agreement.
7.21    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.
7.22    Offenses and Penalties Under the Medicare/Medicaid Programs. As of the
Closing Date, Neither Borrower nor any employee of Borrower is currently, to the
best knowledge of Borrower, after due inquiry, under investigation or
prosecution for, nor has Borrower or, to the best knowledge of Borrower, after
due inquiry, any current employee of Borrower been convicted of: (a) any offense
related to the delivery of an item or service under the Medicare or Medicaid
programs; (b) a criminal offense related to neglect or abuse of patients in
connection with the delivery of a health care item or service; (c) fraud, theft,
embezzlement or other financial misconduct; (d) the obstruction of an
investigation of any crime referred to in subsections (a) through (c) of this
Section; or (e) unlawful manufacture, distribution, prescription, or dispensing
of a controlled substance. As of the Closing Date, Neither Borrower nor, to the
best knowledge of Borrower, after due inquiry, any current employee of Borrower
has been required to pay any civil money penalty under applicable

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laws regarding false, fraudulent or impermissible claims or payments to induce a
reduction or limitation of health care services to beneficiaries of any state or
federal health care program, nor, to the best knowledge of Borrower, after due
inquiry, is Borrower and/or to the best knowledge of Borrower, after due
inquiry, any current employee of Borrower currently the subject of any
investigation or proceeding that may result in such payment.
7.23    Medicaid/Medicare. Neither Borrower nor any Affiliate of Borrower nor
any current officer or director of the foregoing has engaged in any of the
following: (i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment under Medicare or Medicaid; (ii) knowingly and willfully
making or causing to be made any false statement or representation of a material
fact for use in determining rights to any benefit or payment under Medicare or
Medicaid; (iii) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment
under Medicare or Medicaid on its own behalf or on behalf of another, with
intent to secure such benefit or payment fraudulently; or (iv) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay such remuneration: (A) in return for referring any
individual to a Person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid; or (B) in return for purchasing, leasing or ordering or arranging for
or recommending the purchasing, leasing or ordering of any good, facility,
service or item for which payment may be made in whole in part by Medicare or
Medicaid.
7.24    USA Patriot Act. Neither Borrower nor any of its Affiliates is
identified in any list of known or suspected terrorists published by any United
States government agency (collectively, as such lists may be amended or
supplemented from time to time, referred to as the “Blocked Persons Lists”)
including, without limitation, (a) the annex to Executive Order 13224 issued on
September 23, 2001, and (b) the Specially Designated Nationals List published by
the Office of Foreign Assets Control. No part of the proceeds of any Loan will
be used directly or indirectly for any payments to any government official or
employee, political party, official of a political party, candidate for
political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977, as amended.
7.25    Absence of Foreign or Enemy Status. Neither Borrower nor any Affiliate
of Borrower is an “enemy” or an “ally of the enemy” within the meaning of
Section 2 of the Trading with the Enemy Act (50 U.S.C. App. §§ 1 et seq.), as
amended. Neither Borrower nor any Affiliate of Borrower is in violation of, nor
will the use of the Loan violate, the Trading with the Enemy Act, as amended, or
any executive orders, proclamations or regulations issued pursuant thereto,
including, without limitation, regulations administered by the Office of Foreign
Asset Control of the Department of the Treasury (31 C.F.R. Subtitle B, Chapter
V).
7.26    Acquisition. Borrower has delivered true, correct and complete copies of
the fully-signed Acquisition Documents to Lender on or prior to the Closing
Date. On the Closing Date and concurrently with the making of the Term Loan
hereunder, the Acquisition will have been consummated in accordance with the
terms of the Acquisition Documents and in accordance in all

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material respects with all applicable laws. As of the Closing Date, to
Borrower’s knowledge, the Seller is not in default or breach of or under the
Acquisition Documents to which Seller is a party. All consents and approvals of,
and filings and registrations with, and all other actions by, any Governmental
Authority and (except where the failure to obtain or make the same could not
reasonably be expected to have an adverse effect on the Acquisition or any
portion thereof or a Material Adverse Effect) to the best of Borrower’s
knowledge each other Person required in order to make or consummate the
Acquisition have been obtained, given, filed or taken and are or will be in full
force and effect.
7.27    Labor Matters. There are no strikes or other labor disputes or
grievances pending or, to the knowledge of Borrower, threatened against
Borrower. All payments due from Borrower on account of wages and employee and
retiree health and welfare insurance and other benefits have been paid or
accrued as a liability on its books. The consummation of the transactions
contemplated by the Financing Agreements will not give rise to a right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which Borrower is a party or by which it is
bound.
7.28    Government Contracts. Borrower is not a party to any contract or
agreement (including, but not limited to, any Lease) that requires Borrower to
comply with the Federal Assignment of Claims Act, as amended (31 U.S.C. Section
3727) or, to the best of Borrower’s knowledge, any similar state or local law.
7.29    OFAC. Neither Borrower, nor any beneficial owner of Borrower, is
currently listed on the OFAC Lists. Neither Borrower nor, to the best knowledge
of Borrower, its Affiliates, are in violation of (a) the Trading with the Enemy
Act, and each of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B Chapter V, as amended) and any other
enabling legislation or executive order relating thereto, (b) the Patriot Act
and (c) other federal or state laws relating to “know your customer” and
anti-money laundering rules and regulations.
7.30    Leases. As of the Closing Date, there are no Leases as to which Borrower
is the lessee.
7.31    Title to Property. Except as could not reasonably be expected to have a
Material Adverse Effect, Borrower owns good and, in the case of real property,
marketable title to all of its properties and assets, real and personal,
tangible and intangible, of any nature whatsoever, free and clear of all Liens
(except for Permitted Liens), and except for minor defects in title that do not
interfere with in any material respect with the ability of Borrower to conduct
its business as currently conducted or utilize such properties and assets for
their intended purposes.
7.32    Management Fees. The management fees payable by Borrower to Manager
pursuant to the Management Agreement is entirely used to cover and pay for
actually incurred, ordinary course costs and does not include any amount of
profit.
8.    AFFIRMATIVE COVENANTS.

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Borrower covenants and agrees on a joint and several basis with Lender that, as
long as any Liabilities remain outstanding, and (even if there shall be no such
Liabilities outstanding) as long as this Agreement remains in effect:
8.1    Reports, Certificates and Other Information. Borrower shall deliver to
Lender:
(a)    Financial Statements. On or before (i) the one hundred twentieth (120th)
day after the end of each Fiscal Year, a copy of the annual financial statement
of Borrower consisting of balance sheets and statements of income and cash flow
for such period, including without limitation schedules thereto breaking out the
financials for the Facility, prepared in conformity with GAAP, and audited by
independent certified public accountants of nationally recognized standing
selected by Borrower, and (iii) the thirtieth (30th) day after the end of each
calendar month, a copy of internally prepared financial statements for Borrower
prepared in accordance with GAAP, signed on behalf of Borrower by a Duly
Authorized Officer and consisting of, at least, an income statement and a
balance sheet, as at the close of such calendar month and statements of earnings
for such calendar month and for the period from the beginning of such Fiscal
Year to the close of such calendar month, each of which must be in form, scope
and substance reasonably satisfactory to Lender.
(b)    Compliance Certificates. On or before the forty-fifth (45th) day after
the of each of the first, second and third Fiscal Quarters, and on or before the
seventy-fifth (75th) day after the last day of the fourth Fiscal Quarter, a duly
completed compliance certificate with appropriate insertions (a “Compliance
Certificate”), dated the date of such annual financial statement or such Fiscal
Quarter and signed on behalf of Borrower by a Duly Authorized Officer, which
Compliance Certificate shall state that no Default or Event of Default has
occurred and is continuing, or, if there is any such event, describes it and the
steps, if any, being taken to cure it. Each Compliance Certificate shall contain
a computation of, and show compliance with, each of the financial ratios and
restrictions set forth in Section 9.12 hereof (each such computation and
calculation to be in form and substance acceptable to Lender), and each
Compliance Certificate must otherwise be in form, scope and substance reasonably
satisfactory to Lender.
(c)    Real Estate Taxes. As paid, evidence of timely payment of real estate
taxes owed on the Real Property.
(d)    Notice of Default, Regulatory Matters, Litigation Matters or Adverse
Change in Business. Forthwith upon learning of the occurrence of any of the
following, written notice thereof which describes the same and the steps being
taken by Borrower with respect thereto: (i) the occurrence of a Default or an
Event of Default; (ii) the institution or threatened institution of, or any
adverse determination in, any litigation (other than a personal injury tort
claim), arbitration proceeding or governmental proceeding in which any
injunctive relief or money damages is sought which if adversely determined could
have a Material Adverse Effect; (iii) the receipt of any notice from any
governmental agency concerning any violation or potential violation of any
regulations, rules or laws applicable to Borrower which could have a Material
Adverse Effect; or (iv) any Material Adverse Change. With regard to personal
injury tort claims, upon request by Lender, Borrower shall review with Lender
the occurrence of any personal injury or other action which could reasonably
give rise to a personal injury tort claim against Borrower as to which (i)
litigation has

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been instituted and is pending or (ii) a request for medical records has been
made upon Borrower by an attorney for the claimant on or after January 1, 2012.
(e)    Insurance Reports. (i) At any time after a Default and upon the request
of Lender, a certificate signed by a Duly Authorized Officer that summarizes the
property, casualty, liability and malpractice insurance policies carried by
Borrower, and (ii) written notification of any material change in any such
insurance by Borrower within five (5) Business Days after receipt of any notice
(whether formal or informal) of such change by any of its insurers.
(f)    Operating Budget. No later than thirty (30) days after the end of each
Fiscal Year, a copy of Borrower’s Fiscal Year operating budget.
(g)    Affiliate Transactions. Upon Lender’s reasonable request from time to
time, a reasonably detailed description of each of the material transactions
between Borrower and any of its Affiliates during the time period reasonably
requested by Lender, which shall include, without limitation, the amount of
money either paid or received, as applicable, by Borrower in such transactions.
(h)    Interim Reports. Promptly upon receipt thereof, copies of any reports
submitted to Borrower by the independent accountants in connection with any
interim audit of the books of any such Person and copies of each management
control letter provided to Borrower by independent accountants.
(i)    Reports to the SEC. Upon Lender’s reasonable request from time to time,
copies of any and all regular, annual, periodic or special reports of Borrower
or any Affiliate thereof filed with the Securities and Exchange Commission
(“SEC”); copies of any and all registration statements of Borrower or any
Affiliate thereof filed with the SEC; and copies of any and all proxy statements
or other written communications made to security holders generally.
(j)    Other Information. Such other information, certificates, schedules,
exhibits or documents (financial or otherwise) concerning Borrower and its
operations, business, properties, condition or otherwise as Lender may
reasonably request from time to time.
8.2    Inspection; Audit Fees. Borrower shall keep proper books of record and
account in accordance with GAAP in which full, true and correct entries shall be
made of all dealings and transactions in relation to its business and
activities; and shall permit (at the expense of Borrower provided Borrower shall
be responsible for such reasonable expenses no more than one (1) time per year
unless an Event of Default has occurred and is continuing), representatives of
Lender or any Person appointed by Lender to visit and inspect the Facility, to
examine and make abstracts or copies from any of its books and records (in each
case excluding patient medical records and other records to the extent
confidential or where such examination is prohibited under applicable Laws,
including without limitation HIPAA), to conduct a collateral audit and analysis
of its Inventory and Accounts and to discuss its affairs, finances and accounts
with its officers, employees and independent public accountants as often as may
reasonably be desired. In the absence of an Event of Default, Lender shall give
Borrower commercially reasonable prior written notice of such exercise;
provided, no notice shall be required during the existence and continuance of
any Event

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of Default. All such costs, expenses and fees incurred or charged by Lender
under this Section 8.2 shall bear interest at the Default Rate and shall be
additional Liabilities of Borrower to Lender, secured by the Collateral, if not
promptly paid upon the request of Lender.
8.3    Conduct of Business. Borrower shall maintain its corporate existence,
shall maintain in full force and effect all licenses, permits, authorizations,
bonds, franchises, leases, patents, trademarks and other Intellectual Property,
contracts and other rights necessary to the conduct of its business, shall
continue in, and limit its operations to, the same general line of business as
that currently conducted and shall comply with all applicable laws (including,
without limitation, Healthcare Laws and Environmental Laws), orders, regulations
and ordinances of all federal, foreign, state and local governmental
authorities, except to the extent any such non-compliance could reasonably be
expected to result in a Material Adverse Effect. Borrower shall keep proper
books of record and account in which full and true entries will be made of all
dealings or transactions of or in relation to the business and affairs of
Borrower, in accordance with GAAP (subject, however, to the GAAP Exceptions),
consistently applied.
8.4    Claims and Taxes. Borrower agrees to pay or cause to be paid all license
fees, bonding premiums and related taxes and charges and shall pay or cause to
be paid all of Borrower’s real and personal property taxes, assessments and
charges and all of Borrower’s franchise, income, unemployment, payroll, use,
excise, old age benefit, withholding, sales and other taxes and other
governmental charges assessed against Borrower, or payable by Borrower, at such
times and in such manner as to prevent any penalty from accruing or any Lien
from attaching to its property, provided that Borrower shall have the right to
contest in good faith, by an appropriate proceeding promptly initiated and
diligently conducted, the validity, amount or imposition of any such tax,
assessment or charge, and upon such good faith contest to delay or refuse
payment thereof, if (a) Borrower establishes adequate reserves to cover such
contested taxes, assessments or charges, and (b) such contest does not have a
Material Adverse Effect.
8.5    State of Incorporation or Formation. Borrower’s state of incorporation or
formation, as applicable, shall remain Borrower’s state of incorporation or
formation, as applicable, unless: (a) Borrower provides Lender with at least
thirty (30) days prior written notice of any proposed change, (b) no Event of
Default then exists or will exist immediately after such proposed change, and
(c) Borrower provides Lender with, at Borrower’s sole cost and expense, such
financing statements, and such other agreements and documents as Lender shall
reasonably request in connection therewith.
8.6    Liability Insurance. Borrower shall maintain, at its expense, general
liability and environmental insurance through commercial insurance in such
amounts and with such deductibles consistent with its past practices, and shall
deliver to Lender the original (or a certified) copy of each policy of insurance
and evidence of the payment of all premiums therefor. Such policies of insurance
shall contain an endorsement showing Lender as additional insured thereunder to
the general liability coverage and, where such an endorsement is available from
Borrower’s carrier at commercially affordable rates, to the professional
liability coverage. Lender acknowledges that general liability insurance
coverage is currently unavailable generally in the nursing home industry at
commercially affordable rates. Borrower has in place and will maintain general
liability and

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professional liability insurance with single limit coverage of One Million and
No/100 Dollars ($1,000,000.00) per occurrence and Three Million and No/100
Dollars ($3,000,000.00) aggregate. Lender agrees that until such time as
insurance coverage is generally available in the nursing home industry at
commercially affordable rates, Lender agrees to accept Borrower’s current
coverage. Borrower shall provide Lender, (a) on an annual basis, information
from its insurance representative, insurance carrier or from comparable
insurance carriers regarding availability of insurance and (b) with respect to
the insurance policies contemplated by this Section 8.6 and those certain
insurance policies contemplated by Section 8.7 below, prompt (but in any event,
within five (5) Business Days of any such occurrence) written notice of any
alteration or cancellation of such insurance policy.
8.7    Property and Other Insurance. Borrower shall, at its expense, keep and
maintain its assets material to the Business of Borrower insured against (i)
loss or damage by fire, theft, explosion, flood, earthquake, spoilage and all
other hazards and risks and (ii) business interruption, in such amounts with
such deductibles (which may include self-insurance trusts) ordinarily insured
against by other owners or users of such properties in similar businesses of
comparable size operating in the same or similar locations. Borrower, at
Borrower’s expense, shall keep and maintain workers compensation insurance as
may be required by applicable Laws. Borrower shall deliver to Lender the
original (or a certified) copy of each policy of insurance and evidence of
payment of all premiums therefor. All such policies of insurance shall be in
form and substance reasonably satisfactory to Lender. Such policies of insurance
shall contain an endorsement, in form and substance satisfactory to Lender,
showing Lender as “Lender’s Loss Payee” and all loss payable to Lender, as its
interests may appear, as provided in this Section. Such endorsement shall
provide that such insurance company will give Lender at least thirty (30) days
prior written notice before any such policy or policies of insurance shall be
altered or canceled and that no act or default of Borrower or any other Person
shall affect the right of Lender to recover under such policy or policies of
insurance in case of loss or damage. Borrower hereby directs all insurers under
such policies of insurance to pay all proceeds of insurance policies directly to
Lender and Lender shall absent an Event of Default permit Borrower to use such
proceeds to restore or rebuild the damaged property as Borrower shall determine
in its reasonable and good faith determination.
Upon the occurrence of an Event of Default under this Agreement, Borrower
irrevocably makes, constitutes and appoints Lender (and all officers, employees
or agents designated by Lender in writing to Borrower) as Borrower’s true and
lawful attorney-in-fact for the purpose, of making, settling and adjusting
claims on behalf of Borrower under all such policies of insurance, endorsing the
name of Borrower on any check, draft, instrument or other item of payment
received by Borrower or Lender pursuant to any such policies of insurance, and
for making all determinations and decisions of Borrower with respect to such
policies of insurance.
UNLESS BORROWER PROVIDES LENDER WITH EVIDENCE OF THE INSURANCE COVERAGE REQUIRED
BY THIS AGREEMENT WITHIN THREE BUSINESS DAYS FOLLOWING LENDER’S REQUEST, LENDER
MAY PURCHASE INSURANCE AT BORROWER’S EXPENSE TO PROTECT LENDER’S INTERESTS IN
THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT THE INTERESTS IN THE
COLLATERAL. THE COVERAGE PURCHASED BY LENDER MAY NOT PAY ANY CLAIMS THAT
BORROWER MAKES OR ANY CLAIM THAT IS MADE AGAINST BORROWER IN

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CONNECTION WITH THE COLLATERAL. BORROWER MAY LATER CANCEL ANY SUCH INSURANCE
PURCHASED BY LENDER, BUT ONLY AFTER PROVIDING LENDER WITH EVIDENCE THAT BORROWER
HAS OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT. IF LENDER PURCHASES
INSURANCE FOR THE COLLATERAL, BORROWER WILL BE RESPONSIBLE FOR THE COSTS OF THAT
INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT LENDER MAY IMPOSE IN
CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE
CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE
ADDED TO THE LIABILITIES SECURED HEREBY. THE COSTS OF THE INSURANCE MAY BE MORE
THAN THE COST OF INSURANCE BORROWER MAY BE ABLE TO OBTAIN ON ITS OWN.
8.8    Environmental. Borrower shall promptly notify and furnish Lender with a
copy of any and all Environmental Notices which are received by it. Borrower
shall take prompt and appropriate action in response to any and all such
Environmental Notices and shall promptly furnish Lender with a description of
Borrower’s Response thereto. Borrower shall (a) obtain and maintain all permits
required under all applicable federal, state, and local Environmental Laws,
except as to which the failure to obtain or maintain would not have a Material
Adverse Effect; and (b) keep and maintain the Real Property and each portion
thereof in compliance with, and not cause or permit the Real Property or any
portion thereof to be in violation of, any Environmental Law, except as to which
the failure to comply with or the violation of which, would not have a Material
Adverse Effect. During the term of this Agreement, Borrower shall not permit
others to, Manage, whether on or off Borrower’s Property, Hazardous Substances,
except to the extent such Management does not or is not reasonably likely to
result in or create a Material Adverse Effect. Borrower shall take prompt action
in material compliance with applicable Environmental Laws to Respond to the
on-site or off-site Release of Hazardous Substances connected with operation of
its business or the Real Property.
8.9    Banking Relationship. Borrower shall at all times maintain all of its
primary deposit and operating accounts with Lender and Lender will act as the
principal depository and remittance agent for Borrower. Borrower agrees to pay
to Lender reasonable and customary fees for banking services/cash management
services of Borrower (the “Service Fee”). Lender shall be and hereby is
authorized to charge any deposit or operating account of Borrower in respect of
the Service Fee.
8.10    Intellectual Property. If after the Closing Date Borrower shall own or
otherwise possess any registered patents, copyrights, trademarks, trade names,
or service marks, Borrower shall promptly notify Lender in writing of same and
execute and deliver any documents or instruments (at Borrower’s sole cost and
expense) reasonably required by Lender to perfect a security interest in and
lien on any such federally registered Intellectual Property in favor of Lender
and assist in the filing of such documents or instruments with the United States
Patent and Trademark Office and/or United States Copyright Office or other
applicable registrar.
8.11    Change of Location; Etc. Any of the Collateral may be moved to another
location within the continental United States so long as: (i) Borrower provides
Lender with at least thirty (30) days prior written notice, (ii) no Event of
Default then exists, and (iii) Borrower provides

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Lender with, at Borrower’s sole cost and expense, such financing statements,
landlord waivers, bailee and processor letters and other such agreements and
documents as Lender shall reasonably request. Borrower shall defend and protect
the Collateral against and from all claims and demands of all Persons at any
time claiming any interest therein adverse to Lender. If Borrower desires to
change its principal place of business and chief executive office or its name,
Borrower shall notify Lender thereof in writing no later than thirty (30) days
prior to such change and Borrower shall provide Lender with, at Borrower’s sole
cost and expense, such financing statements, amendment statements and other
documents as Lender shall reasonably request in connection with such change. If
Borrower shall decide to change the location where its books and records are
maintained, Borrower shall notify Lender thereof in writing no later than thirty
(30) days prior to such change.
8.12    Health Care Related Matters. To the extent applicable, Borrower shall
cause all licenses, permits, certificates of need, reimbursement contracts and
programs, and any other agreements necessary for the use and operation of its
business or as may be necessary for participation in Medicaid and other
applicable reimbursement programs, to remain in full force and effect, except to
the extent that the failure to do so would not cause a Material Adverse Effect.
8.13    US Patriot Act. Borrower covenants to Lender that if Borrower becomes
aware that it or any of its Affiliates is identified on any Blocked Persons List
(as identified in Section 7.29 hereof), Borrower shall immediately notify Lender
in writing of such information. Borrower further agrees that in the event any of
them or any Affiliate is at any time identified on any Blocked Persons List,
such event shall be an Event of Default, and shall entitle Lender to exercise
any and all remedies provided in any Financing Agreements or otherwise permitted
by Law. In addition, Lender may immediately contact the Office of Foreign Assets
Control and any other government agency Lender deem appropriate in order to
comply with its obligations under any Law regulating or relating to terrorism
and international money laundering.
8.14    Single Purpose Entity Provisions. (a) The business and purposes of
Borrower is and will continue to be limited to the following: (i) to acquire,
own, hold, lease, operate, manage, maintain, develop and/or improve the Real
Property; (ii) to enter into and perform its obligations under this Agreement
and the other Financing Agreements; (iii) to sell, transfer, service, convey,
dispose of, pledge, assign, borrow money against, finance or otherwise deal with
the Real Property to the extent permitted under this Agreement and the other
Financing Agreements; and (iv) to engage in any lawful act or activity and to
exercise any powers permitted to entities of its type pursuant to the laws of
its state of organization that are related or incidental to and necessary,
convenient or advisable for the accomplishment of the above mentioned purposes.
(b)    Borrower shall do all of the following: (i) maintain its intention to
remain Solvent and pay its debts and liabilities (including, as applicable,
shared personnel and overhead expenses) from its assets, to the extent of its
assets, as the same shall become due; (ii) do or cause to be done all things
necessary to observe organizational formalities of Borrower and preserve its
existence; and (iii) to the extent of cash flow available from operations,
intend to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations.

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8.15    Further Assurances. Borrower shall, at its own cost and expense, cause
to be promptly and duly taken, executed, acknowledged and delivered all such
further acts, documents and assurances as may from time to time be necessary or
as Lender may from time to time reasonably request in order to carry out the
intent and purposes of this Agreement and the other Financing Agreements and the
transactions contemplated hereby and thereby, including, without limitation, all
such actions to establish, create, preserve, protect and perfect a
first-priority Lien (subject only to the Permitted Liens) in favor of Lender on
the Collateral (including Collateral acquired after the date hereof), including
on any and all unencumbered assets of Borrower whether now owned or hereafter
acquired.
8.16    Compliance with Anti-Terrorism Orders. Lender hereby notifies Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56, signed into law October 26, 2001) (the “Patriot Act”), and the policies
and practices of Lender, Lender is required to obtain, verify and record certain
information and documentation that identifies Borrower, which information
includes the name and address of Borrower and such other information that will
allow Lender to identify Borrower in accordance with the Patriot Act. In
addition, Borrower shall (a) ensure that no Person who owns a controlling
interest in or otherwise controls Borrower is or shall be listed on the OFAC
Lists, (b) not use or permit the use of the proceeds of the Loan to violate any
of the foreign asset control regulations of OFAC or any enabling statute or
Executive Order relating thereto, and (c) comply with all applicable Bank
Secrecy Act laws and regulations, as amended. Borrower shall not permit the
transfer of any interest in Borrower to any Person (or any beneficial owner of
such entity) who is listed on the OFAC Lists. Borrower shall not knowingly enter
into a Lease with any party who is listed on the OFAC Lists. Borrower shall
immediately notify Lender if Borrower has knowledge that Borrower or any
manager, member or beneficial owner of Borrower is listed on the OFAC Lists or
(i) is indicted on or (ii) arraigned and held over on charges involving money
laundering or predicate crimes to money laundering. Borrower shall immediately
notify Lender if Borrower knows that any Tenant is listed on the OFAC Lists or
(A) is convicted on, (B) pleads nolo contendere to, (C) is indicted on or (D) is
arraigned and held over on charges involving money laundering or predicate
crimes to money laundering.
8.18    ERISA. Borrower shall maintain, or cause its ERISA Affiliates to
maintain, each Plan in compliance in all material respects with all material
applicable requirements of ERISA and the Tax Code.
9.    NEGATIVE COVENANTS.
Borrower covenants and agrees that as long as any Liabilities remain
outstanding, and (even if there shall be no such Liabilities outstanding) as
long as this Agreement remains in effect (unless Lender shall give prior written
consent thereto):
9.1    Encumbrances. Borrower shall not create, incur, assume or suffer to exist
any Lien of any nature whatsoever on any of its assets or property, including,
without limitation, the Collateral, other than the following (“Permitted
Liens”): (i) Liens securing the payment of taxes, either not yet due or the
validity of which is being contested in good faith by appropriate proceedings,
and as to which Borrower shall, if appropriate under GAAP, have set aside on its
books and records adequate reserves, provided, that such contest does not have a
material adverse effect on the ability of Borrower

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to pay any of the Liabilities, or the priority or value of Lender’s Lien in the
Collateral; (ii) deposits under workmen’s compensation, unemployment insurance,
social security and other similar laws made in ordinary course of business;
(iii) Liens in favor of Lender; (iv) liens imposed by law, such as mechanics’,
materialmen’s, landlord’s, warehousemen’s, carriers’ and other similar liens,
securing obligations incurred in the ordinary course of business that are not
past due for more than thirty (30) calendar days, or that are being diligently
contested in good faith by appropriate proceedings and for which appropriate
reserves have been established, or that are not yet due and payable;
(v) purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure the purchase price of
such property so long as: (a) the aggregate indebtedness relating to such
purchase money security interests and Capitalized Lease Obligations does not at
any time exceed One Million and No/100 Dollars ($1,000,000.00) in the aggregate
at any time, (b) each such lien shall only attach to the property to be
acquired; and (c) the indebtedness incurred shall not exceed one hundred percent
(100%) of the purchase price of the item or items purchased; (v) pledges and
deposits made in the ordinary course of business in compliance with workmen’s
compensation laws, unemployment insurance and other social security laws or
regulations, or deposits to secure performance of tenders, statutory
obligations, trade contracts (other than for Indebtedness), leases (other than
Capital Lease Obligations), surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of Borrower’s
business as presently conducted; (vi) any Lien securing a judgment; provided,
that any Lien securing a judgment in excess of Five Hundred Thousand Dollars
($500,000.00) that remains unsatisfied or undischarged for more than thirty (30)
days shall not be a Permitted Lien, unless such judgment is either (x) fully
insured and such insurer has admitted liability or (y) is being contested or
appealed by appropriate proceedings and the enforcement of such judgment is
stayed during the course of such contest or appeal, provided that Borrower has
established reserves adequate for payment of such judgment and in the event such
contest or appeal is ultimately unsuccessful pays such judgment within ten (10)
days of the final, non-appealable ruling rendered in such contest or appeal;
(vii) financing statements with respect to a lessor’s rights in and to personal
property leased to Borrower in the ordinary course of business other than
through a Capitalized Lease Obligations; and (viii) Liens securing the
Indebtedness of Borrower under the Revolving Loan Agreement.
9.2    Indebtedness; Capital Expenditures. Borrower shall not incur, create,
assume, become or be liable in any manner with respect to, or permit to exist,
any Indebtedness, except (i) the Liabilities, (ii) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, (iii) the
indebtedness not to at any time exceed One Million and No/100 Dollars
($1,000,000.00) relating to the purchase money security interests and
Capitalized Lease Obligations permitted pursuant to Section 9.1 hereof, (iv)
intercompany Indebtedness of Borrower to the extent permitted under Section 9.4;
and (v) the Indebtedness evidenced by the Revolving Loan Agreement.
9.3    Consolidations, Mergers or Transactions; Subsidiary. Borrower shall not
be a party to any merger, consolidation, recapitalization or other exchange of
Stock, or purchase or otherwise acquire all or substantially all of the assets
or Stock of any class of, or any other evidence of an equity interest in, or any
partnership, limited liability company, or joint venture interest in, any other
Person (whether in one transaction or a series of related transactions);
provided, that, with prior written notice to Lender, Borrower may merge or
consolidate with, or dissolve into, another

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Borrower so long as the surviving entity remains Borrower for all purposes under
this Agreement and the other Financing Agreements. Borrower shall not form or
establish any Subsidiary without Lender’s prior written consent. With prior
notice to Lender, Borrower may dissolve an inactive Subsidiary that does not
conduct any business operations and has assets with a book value not in excess
of Ten Thousand and No/100 Dollars ($10,000.00) (“Inactive Subsidiary”).
9.4    Investments or Loans. Borrower shall not make, incur, assume or permit to
exist any loans or advances, or any investments in or to any other Person,
except (i) investments in short-term direct obligations of the United States
Government, agency or instrumentality thereof; or any (ii) investments in
negotiable certificates of deposit issued by Lender or by any other bank
reasonably satisfactory to Lender, payable to the order of Borrower or to
bearer, (iii) investments in commercial paper rated at least A-1 by Standard &
Poor’s Corporation or P-1 by Moody’s Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency if both of the two
named rating agencies cease publishing ratings of investments, (iv) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (iii), above; provided that, in
each case, such investment is reasonably acceptable to Lender, (iv) other
short-term investments as may be permitted by Lender, (vi) loans or advances
made by Borrower to an Affiliate that is a Borrower under the Revolving Loan
Agreement; (vii) loans and advances to employees permitted under Section 9.8;
and (viii) investments by Borrower in its Subsidiaries existing on the date
hereof.
9.5    Guarantees. Borrower shall not guarantee, endorse or otherwise in any way
become or be responsible for obligations of any other Person, whether by
agreement to purchase the Indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
any Indebtedness or obligation of such other Person or otherwise, except (i)
endorsements of negotiable instruments for collection in the ordinary course of
business, and (ii) the Indebtedness permitted under Section 9.2, above.
9.6    Disposal of Property. Borrower shall not sell, assign, lease, convey,
lease, transfer or otherwise dispose of (whether in one transaction or a series
of transactions) all or any substantial part of its properties, assets and
rights (or sell or assign, with or without recourse, any receivables) to any
Person except (a) sales of Inventory in the ordinary course of business, (b)
sales of Equipment being replaced in the ordinary course of business with other
Equipment with a fair market value and orderly liquidation value equal to or
greater than the Equipment being replaced, and (c) sales in the ordinary course
of business of personal property that is obsolete, unmerchantable or otherwise
unsalable, unusable or unnecessary to Borrower’s business.
9.7    Use of Proceeds. Borrower shall use the proceeds of the Term Loan only
for the following purposes: (a) to consummate the Acquisition; and (b) to pay
reasonable and actually incurred transaction costs and expenses in connection
with this Agreement, the Acquisition Agreement and the transactions contemplated
hereby and thereby.
9.8    Loans to Officers; Consulting and Management Fees. Borrower shall not
make any loans to its officers, directors, equity holders, manager, member, or
employees or to any other Person,

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and Borrower shall not pay any consulting, management fees or similar fees to
its officers, directors, equity holders, member, manager, employees, or
Affiliates or any other Person, whether for services rendered to Borrower or
otherwise; provided, however, Borrower shall be permitted to (i) make advances
to its employees in an aggregate amount not to exceed One Hundred Thousand
Dollars ($100,000) in any Fiscal Year of Borrower for all such employees
collectively, in each case, provided that both immediately before such
contemplated payment(s) or after giving effect to any such payment(s) no Default
or Event of Default shall exist or have occurred or result therefrom; (ii) pay
reasonable outside directors fees; and (iii) pay the management fees permitted
by the Management Agreement (with an absolute cap on the payment of any and all
management fees notwithstanding anything to the contrary contained in the
Management Agreement of five percent (5.0%) of the total revenues of Borrower
during any Fiscal Year). Lender acknowledges that travel advances issued in the
ordinary course of business do not constitute loans for purposes of this Section
9.8.
9.9    Dividends, Distributions and Stock Redemptions. Borrower shall not (a)
declare, make or pay any dividend or other distribution (whether in cash,
property or rights or obligations) to or for the benefit of any officer, member,
equity holder, director, or any Affiliate or any other Person other than (i) to
Diversicare Healthcare Services, Inc. (“Parent”, provided that both immediately
before such contemplated payment(s) or after giving effect to such Payment(s)
Borrower is in compliance with Section 9.12(a) hereof, (ii) distributions under
Borrower Cash Management Program, including distributions for Parent’s normal
quarterly dividends to common shareholders, and (iii) payment of the management
fees under the Management Agreement (subject to subsection (iii) of Section 9.8
above), or (b) purchase or redeem any of the Stock of Borrower or any options or
warrants with respect thereto, declare or pay any dividends or distributions
thereon, or set aside any funds for any such purpose. Notwithstanding the
foregoing or anything to the contrary contained herein, the foregoing
declarations, payments, distributions, purchases or redemptions set forth in
this Section 9.9 shall, in each case, be in both manner and amount consistent
with Borrower’s historical practices.
9.10    Payments in Respect of Subordinated Debt. Borrower shall not make any
payment in respect of any Indebtedness for borrowed money that is subordinated
to the Liabilities (including, without limitation, the Subordinated Debt);
provided, however, Borrower shall be permitted to make solely those payments
expressly permitted pursuant to the terms of any Subordination Agreements, in
each case, as long as Borrower is in compliance with Section 9.12 hereof both
immediately before and after any such contemplated or actual payment, provided,
further, that both immediately before any such contemplated payment or after
giving effect to any such payments no Default or Event of Default shall exist or
have occurred or result therefrom, unless otherwise permitted expressly under
the terms of such Subordination Agreements.
9.11    Transactions with Affiliates. Except as expressly permitted under this
Agreement, and except for the Management Agreement and payment of the fee
permitted by the terms of the Management Agreement (subject to subsection (iii)
of Section 9.8 above), and Borrower Cash Management Program, Borrower shall not
transfer any cash or property to any Affiliate or enter into any transaction,
including, without limitation, the purchase, lease, sale or exchange of property
or the rendering of any service to any Affiliate; provided, however, except as
otherwise expressly restricted under this Agreement, that Borrower may transfer
cash or property to Affiliates and enter

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into transactions with Affiliates for fair value in the ordinary course of
business pursuant to terms that are no less favorable to Borrower than the terms
upon which such transfers or transactions would have been made had such
transfers or transactions been made to or with a Person that is not an
Affiliate.
9.12    Financial Ratios. Commencing with the Fiscal Quarter ending June 30,
2014, and continuing thereafter:
(a)    Minimum EBITDA. Borrower shall not permit its EBITDA to be less than One
Million One Hundred Thousand and No/100 Dollars ($1,100,000.00) measured as of
the last day of the trailing twelve (12) month period. Such ratio shall be
tested on or before the forty-fifth (45th) day after the last day of each of the
first, second and third Fiscal Quarters, and on or before the seventy-fifth
(75th) day after the last day of the fourth Fiscal Quarter, using the
information contained in the Compliance Certificate most recently delivered to
Lender pursuant to the requirements of Section 8.1(b) hereof.
(b)    Minimum Fixed Charge Coverage Ratio. Borrower shall not permit its Fixed
Charge Coverage Ratio for each Fiscal Quarter during the term of the Term Loan
to be less than 1.00 to 1.00, measured as of the last day of the trailing twelve
(12) month period. Such ratio shall be tested on or before the forty-fifth
(45th) day after the last day of each of the first, second and third Fiscal
Quarters, and on or before the seventy-fifth (75th) day after the last day of
the fourth Fiscal Quarter, using the information contained in the Compliance
Certificate most recently delivered to Lender pursuant to the requirements of
Section 8.1(b) hereof.
9.13    Change in Nature of Business. Borrower shall not engage, directly or
indirectly, in any business other than owning and operating the Facility and
matters incidental or directly related thereto.
9.14    Other Agreements. Borrower shall not enter into any agreement containing
any provision which would be violated or breached by the performance of its
obligations hereunder or under any Financing Agreement to which Borrower is a
party or which would violate or breach any provision hereof or thereof, or that
would or is reasonably likely to adversely affect Lender’s interests or rights
under this Agreement and the other Financing Agreements to which Borrower is a
party or the likelihood that the Liabilities will be paid in full when due, nor
shall Borrower’s certificate of formation, bylaws, articles of incorporation,
operating agreement, partnership agreement or other governing document (each a
“Governing Document”), as applicable, be amended or modified in any way that
would violate or breach any provision hereof or of any Financing Agreement to
which Borrower is a party, or that would or is reasonably likely to adversely
affect Lender’s interests or rights under this Agreement and the other Financing
Agreements to which Borrower is a party or the likelihood that the Liabilities
will be paid in full when due; provided, prior to any amendment or modification
of any of Borrower’s Governing Documents, Borrower shall furnish a correct and
complete copy of any such proposed amendment or modification to Lender.
9.15    Blocked Accounts and Lock Box Accounts. Borrower shall not establish or
open any blocked account or any lock box accounts after the Closing Date unless
in favor of and with Lender.

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9.16    Amendments to Restricted Agreements. Borrower shall not amend, modify or
supplement any Restricted Agreement in any manner that would or is reasonably
likely to adversely affect Lender’s interests under this Agreement and the other
Financing Agreements to which Borrower is a party, without Lender’s prior
written consent. Within three (3) Business Days after entering into any
non-adverse amendment, modification or supplement to any Restricted Agreement,
Borrower shall deliver to Lender a complete and correct copy of such amendment,
modification or supplement.
9.17    State of Incorporation or Formation. Borrower shall not change its state
of incorporation or formation, as applicable.
9.18    Environmental. Borrower shall not permit the Real Property or any
portion thereof to be involved in the use, generation, manufacture, storage,
disposal or transportation of Hazardous Substances except in compliance in all
material respects with all Environmental Laws.
9.19    Fiscal Year. Borrower shall not change its Fiscal Year.
9.20    Restrictions on Fundamental Changes. Without duplication of any of the
foregoing, Borrower shall not:
(a)    except as expressly permitted in accordance with Section 9.3 hereof,
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution);
(b)    transfer, assign, convey or grant to any other Person, other than another
Borrower, the right to operate or control the Facility, whether by lease,
sublease, management agreement, joint venture agreement or otherwise;
(c)    without providing Lender with thirty (30) days’ prior written notice,
change its legal name (and Borrower shall provide Lender with, at Borrower’s
sole cost and expense, such amendment and financing statements and other
documents as Lender shall reasonably request in connection with such
contemplated change);
(d)    except as expressly permitted in accordance with Section 9.3 hereof,
suffer or permit to occur any change in the legal or beneficial ownership of the
capital stock, partnership interests or membership interests, or in the capital
structure, or any material change in the organizational documents or governing
documents, of Borrower;
(e)    change the licensed operator, manager or property manager for the Real
Property; or
(f)    consent to or acknowledge any of the foregoing.
9.21    Margin Stock. Borrower shall not carry or purchase any “margin security”
within the meaning of Regulations U, T or X of the Board of Governors of the
Federal Reserve System.
9.22    Truth of Statements and Certificates. Borrower shall not furnish to
Lender any certificate or other document that contains any untrue statement of a
material fact or that omits to

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state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
9.23    Leases. Except for resident agreements entered into in the normal course
of business, Borrower shall not enter into any Leases at the Facility without
the prior written consent of Lender, which consent will not be unreasonably
withheld.
9.24    ERISA. Borrower shall not, and shall not cause or permit any ERISA
Affiliate to, cause or permit to occur an unfunded pension fund obligation and
liability to the extent such unfunded pension fund obligation and liability
would reasonably be expected to result in taxes, penalties and other liability
in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the
aggregate.
9.25    Miscellaneous. Borrower shall not (a) voluntarily cancel any claim or
debt owing to it, except for reasonable consideration or in the ordinary course
of business, the effect of which would be a Material Adverse Change, (b) enter
into any agreement containing any provision that would (i) be violated or
breached by any borrowing by Borrower hereunder or the performance by Borrower
of any of its Liabilities hereunder or under any other Financing Agreement to
which it is a party, or (ii) prohibit Borrower from granting to Lender a Lien on
any of Borrower’s assets as contemplated hereunder, except for (w) any
restrictions imposed by any Permitted Lien pursuant to Section 9.1; (x) any
restrictions imposed by any agreement relating to any Indebtedness permitted by
Section 9.2; (y) customary provisions contained in leases and licenses entered
into in the ordinary course of Borrower’s business restricting the assignment
thereof; and (z) any restrictions imposed by applicable Laws. Without the prior
written consent of Lender, the management fees payable by Borrower to Manager
pursuant to the Management Agreement shall not include any amount of profit (but
shall entirely be used to cover and pay for actually incurred, ordinary course
costs).
Borrower agrees that compliance with this Article 9 is a material inducement to
Lender’s advancing credit under this Agreement. Borrower further agrees that in
addition to all other remedies available to Lender, Lender shall be entitled to
specific enforcement of the covenants in this Article 9, including injunctive
relief.
10.    HEALTH CARE MATTERS.
Without limiting the generality of any representation or warranty made in
Article 7 or any covenant made in Articles 8 or 9, Borrower represents and
warrants to and covenants with Lender, that:
10.1    Certificate of Need. If required under applicable Law, Borrower has and
shall maintain in full force and effect a valid certificate of need (“CON”) or
similar certificates, license, permit, registration, certification or approval
issued by the State Regulator for the requisite number of beds in the Facility
(the “Licenses”). Borrower shall cause to be operated the Facility in a manner
such that the Licenses shall remain in full force and effect at all times. True
and complete copies of the Licenses have been delivered to Lender.

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10.2    Licenses. The Licenses: (i) are and shall continue in full force and
effect at all times throughout the term of this Agreement and are and shall be
free from restrictions or known conflicts which would materially impair the use
or operation of the Real Property for its current use, and if any Licenses
become provisional, probationary, conditional or restricted in any way
(collectively “Restrictions”), Borrower shall take or cause to be taken prompt
action to correct such Restrictions; (ii) may not be, and have not been, and
will not be transferred to any location other than the Real Property; and (iii)
have not been and will not be pledged as collateral security for any other loan
or indebtedness. Borrower shall not do (or suffer to be done) any of the
following:
(d)    Rescind, withdraw, revoke, amend, modify, supplement, or otherwise alter
the nature, tenor or scope of the Licenses for the Facility without Lender’s
prior written consent;
(e)    Amend or otherwise change the Facility’s licensed beds capacity and/or
the number of beds approved by the State Regulator without Lender’s prior
written consent; or
(f)    Replace, assign or transfer all or any part of the Facility’s beds to
another site or location without Lender’s prior written consent.
11.    DEFAULT, RIGHTS AND REMEDIES OF LENDER.
11.1    Event of Default. Any one or more of the following shall constitute an
“Event of Default” under this Agreement:
(g)    Borrower fails to pay (i) any principal or interest payable hereunder or
under the Term Loan Note on the date due, declared due or demanded (including,
without limitation, any amount due under Section 2.14); or (ii) any other amount
payable to Lender under this Agreement or under any other Financing Agreement to
which Borrower is a party (including, without limitation, the Term Loan Note)
within five (5) calendar days after the date when any such payment is due and,
with respect to clause (ii) only, such failure is not cured within five (5)
calendar days after notice to Borrower by Lender;
(h)    Borrower fails or neglects to perform, keep or observe any of the
covenants, conditions or agreements set forth in (i) Sections 8.1(a), 8.1(b),
8.1(c), 8.2, 8.5, 8.6, 8.7, 8.9, 8.11, or 8.12, hereof, (ii) any Section of
Article 9 hereof (other than Section 9.18 hereof), or (iii) any Section of
Article 10 hereof and, with respect to such Sections in Article 10 only, such
failure or neglect shall continue for a period of five (5) calendar days after
the earlier of (1) the date Borrower actually knew of such failure or neglect
and (2) notice to Borrower by Lender.
(i)    Borrower fails or neglects to perform, keep or observe any of the
covenants, conditions, promises or agreements contained in this Agreement (which
is not otherwise specifically referenced in this Section 11.1) and such failure
or neglect shall continue for a period of thirty (30) calendar days after the
earlier of (i) the date Borrower actually knew of such failure or neglect and
(ii) notice to Borrower by Lender;
(j)    any representation or warranty heretofore, now or hereafter made by
Borrower in connection with this Agreement or any of the other Financing
Agreements to which

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Borrower is a party is untrue, misleading or incorrect in any material respect,
or any schedule, certificate, statement, report, financial data, notice, or
writing furnished at any time by Borrower to Lender is untrue, misleading or
incorrect in any material respect, on the date as of which the facts set forth
therein are stated or certified;
(k)    a judgment, decree or order requiring payment in excess of Five Hundred
Thousand and No/100 Dollars ($500,000.00) shall be rendered against Borrower and
such judgment or order shall remain unsatisfied or undischarged and in effect
for thirty (30) consecutive days without a stay of enforcement or execution,
provided that this clause (e) shall not apply to any judgment, decree or order
for which Borrower is fully insured and with respect to which the insurer has
admitted liability, or such judgment, decree or order is being contested or
appealed by appropriate proceedings;
(l)    a notice of Lien, levy or assessment is filed or recorded with respect to
any of the assets of Borrower (including, without limitation, the Collateral),
by the United States, or any department, agency or instrumentality thereof, or
by any state, county, municipality or other governmental agency or any taxes or
debts owing at any time or times hereafter to any one or more of them become a
Lien, upon any of the assets of Borrower (including, without limitation, the
Collateral), provided that this clause (f) shall not apply to any Liens, levies,
or assessments which Borrower is diligently contesting in good faith (provided
Borrower has complied with the provisions of clauses (a) and (b) of Section 8.4
hereof) or which relate to current taxes not yet due and payable;
(m)    any material portion of the Collateral is attached, seized, subjected to
a writ or distress warrant, or is levied upon, or comes within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors;
(n)    a proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed against
Borrower or any guarantor of the Liabilities, and any such proceeding is not
dismissed within sixty (60) days of the date of its filing, or a proceeding
under any bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statute is filed by Borrower or any
guarantor of the Liabilities, or Borrower or any guarantor of the Liabilities
makes an assignment for the benefit of creditors, or Borrower or any guarantor
of the Liabilities takes any action to authorize any of the foregoing;
(o)    except as permitted for an Inactive Subsidiary or Borrower voluntarily or
involuntarily dissolves or is dissolved, or its existence terminates or is
terminated; provided that in the case of an administrative dissolution or
revocation of existence for failure to file the proper reports or returns with
the applicable governmental authorities, no Event of Default shall be deemed to
have occurred if an application for reinstatement is (i) filed promptly (but in
any event, within fifteen (15) calendar days) upon Borrower receiving notice of
such dissolution or revocation from the applicable Governmental Authority and
(ii) diligently pursued to completion (if reasonably capable of being
completed), as determined by Lender in its sole and absolute discretion;
(p)    the Credit Parties, taken as a whole, fail, at any time, to be Solvent;

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(q)    Borrower or any guarantor of the Liabilities is enjoined, restrained, or
in any way prevented by the order of any court or any administrative or
regulatory agency from conducting all or any material part of its business
affairs;
(r)    a breach by Borrower shall occur under any agreement, document or
instrument (other than an agreement, document or instrument evidencing the
lending of money), whether heretofore, now or hereafter existing between
Borrower and any other Person and the effect of such breach if not cured within
any applicable cure period will or is likely to have or create a Material
Adverse Effect;
(s)    Borrower shall fail to make any payment due on any other obligation for
borrowed money or shall be in breach of any agreement evidencing the lending of
money and the effect of such failure or breach if not cured within any
applicable cure period would be to permit the acceleration of any obligation,
liability or indebtedness in excess of Five Hundred Thousand Dollars ($500,000);
(t)    there shall be instituted in any court criminal proceedings against
Borrower, or Borrower shall be indicted for any crime, in either case for which
forfeiture of a material amount of its property is a potential penalty, unless
(i) such actions are being contested or appealed in good faith by appropriate
proceedings, (ii) the potential forfeiture has been stayed during the pendency
of such proceedings, and (iii) no Medicare or Medicaid reimbursement obligations
are materially adversely affected by such proceedings;
(u)    a Change of Control shall occur;
(v)    any Lien securing the Liabilities shall, in whole or in part, cease to be
a perfected first priority Lien (subject only to the Permitted Liens); this
Agreement or any of the Financing Agreements to which Borrower is a party, shall
(except in accordance with its terms), in whole or in part, terminate, cease to
be effective or cease to be the legally valid, binding and enforceable
obligations of Borrower; or Borrower shall directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability;
(w)    any breach, non-compliance, default or event of default shall occur under
or pursuant to any Subordination Agreement, or any other Financing Agreement
(including, without limitation, the Guaranty, any Hedging Agreement, or the Deed
of Trust by any party thereto (other than by Lender), and the same is not cured
or remedied within any applicable cure period, provided that if such default or
event of default, breach, noncompliance or default, requires the giving of
notice by Lender to any party in addition to or other than Borrower, Lender
shall have provided Borrower with such notice at the same time as it provides
such notice to such other party;
(x)    any material adverse breach by Borrower that would materially adversely
affect Lender or its rights or remedies hereunder shall occur under or pursuant
to the Acquisition Documents, after expiration of any applicable notice or cure
period provided therein, if any;
(y)    institution by the PBGC, Borrower or any ERISA Affiliate of steps to
terminate any Plan or to organize, withdraw from or terminate a Multiemployer
Plan if as a result

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of such reorganization, withdrawal or termination, Borrower or any ERISA
Affiliate could be required to make a contribution to such Plan or Multiemployer
Plan, or could incur a liability or obligation to such Plan or Multiemployer
Plan, in excess of Two Hundred Fifty Thousand Dollars ($250,000), or (ii) a
contribution failure occurs with respect to any Plan sufficient to give rise to
a Lien under ERISA, which Lien is not fully discharged within fifteen (15) days;
(z)    a Material Adverse Change shall occur;
(aa)    Borrower or any Affiliate of Borrower, shall challenge or contest, in
any action, suit or proceeding, the validity or enforceability of this
Agreement, or any of the other Financing Agreements, the legality or the
enforceability of any of the Liabilities or the perfection or priority of any
Lien granted to Lender;
(bb)    Borrower shall be prohibited or otherwise restrained from conducting the
business theretofore conducted by it in any manner that has or could reasonably
be expected to have or result in a Material Adverse Effect;
(cc)    there shall occur any Medicare or Medicaid survey deficiencies at Level
I, J, K, L or worse (i) which deficiencies are not cured within the amount of
time permitted by the applicable reviewing agency; (ii) which result in the
imposition by any Government Authority or the applicable state survey agency of
sanctions in the form of either a program termination, temporary management,
denial of payment for new admission (which continues for thirty (30) days or
more) or facility closure and (iii) which sanctions could have a Material
Adverse Effect as determined by Lender in its reasonable discretion. Upon the
occurrence of such event, Borrower shall submit to Lender its plan of correction
for dealing with such event, and shall periodically review its progress under
the plan of correction with Lender. Provided that Lender remains satisfied with
the progress under the plan of correction, then such Event shall not be an Event
of Default unless formal notice is given by Lender to Borrower;
(dd)    a state or federal regulatory agency shall have revoked any license,
permit, certificate or Medicaid or Medicare qualification pertaining to the Real
Property, regardless of whether such license, permit, certificate or
qualification was held by or originally issued for the benefit of Borrower, a
tenant or any other Person, the revocation of which could reasonably be expected
to have a Material Adverse Effect;
(ee)    any material default by Borrower under the terms of any material Lease
following the expiration of any applicable notice and cure period (if any);
(ff)    Kelly J. Gill or James R. McKnight, Jr. shall not be senior officers of
Borrower and devote significant time and energy to the business of Borrower;
provided, however, it shall not constitute an Event of Default if any such
individual shall fail for any reason to be a senior officer of Borrower or fail
to devote significant time and energy to the business of Borrower, and such
individual shall be promptly replaced by Borrower, whether on an interim or
permanent basis, with an individual with substantially similar skills and
experience (but in no event later than within 90 calendar days of the former
individual’s resignation, termination, permanent disability or death) and
otherwise acceptable to Lender in its reasonable and good faith determination;

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(gg)    any subordination provision in any document or instrument governing
Subordinated Debt, or any subordination provision in any guaranty by any
Subsidiary of any Subordinated Debt, shall cease to be in full force and effect,
or any Credit Party or any other Person (including the holder of any applicable
Subordinated Debt) shall contest in any manner the validity, binding nature or
enforceability of any such provision;
Notwithstanding the foregoing, in the situations described in clauses (l), (t),
(x) and (z), above, where an Event of Default is triggered by the occurrence of
a Material Adverse Change or a Material Adverse Effect, events which could
reasonably be expected to have or result in a Material Adverse Effect or
Material Adverse Change, such occurrence shall not be deemed to be an Event of
Default hereunder provided that Borrower shall within forty-eight (48) hours
after the occurrence thereof submit to Lender in writing a plan of correction
for dealing with such Material Adverse Change or Material Adverse Effect that is
acceptable to Lender in its sole and absolute discretion, and, if such plan of
correction is so acceptable, for so long as Lender remains satisfied in all
respects with the progress under such plan of correction and until written
notice that Lender is not so satisfied is given by Lender to Borrower.
11.2    Acceleration. Upon the occurrence of any Event of Default described in
Sections 11.1(h), (i), or (j), the Term Loan Commitment (if it has not
theretofore terminated) shall automatically and immediately terminate and all of
the Liabilities shall immediately and automatically, without presentment,
demand, protest or notice of any kind (all of which are hereby expressly
waived), be immediately due and payable; and upon the occurrence of any other
Event of Default, Lender may declare the Term Loan Commitment (if it has not
theretofore terminated) to be terminated and any or all of the Liabilities may,
at the option of Lender, and without presentment, demand, protest or notice of
any kind (all of which are hereby expressly waived), be declared, and thereupon
shall become, immediately due and payable, whereupon the Term Loan Commitment
shall immediately terminate.
11.3    Rights and Remedies Generally.
(a)    Upon the occurrence of any Event of Default, Lender shall have, in
addition to any other rights and remedies contained in this Agreement and in any
of the other Financing Agreements, all of the rights and remedies of a secured
party under the Code or other applicable laws, all of which rights and remedies
shall be cumulative, and non-exclusive, to the extent permitted by Laws,
including, without limitation, the right of Lender to sell, assign, or lease any
or all of the Collateral. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and Lender, upon the
occurrence of an Event of Default, may proceed against Borrower, and/or the
Collateral, at any time, under any agreement, with any available remedy and in
any order. All sums received from Borrower and/or the Collateral in respect of
the Loan may be applied by Lender to any Liabilities in such order of
application and in such amounts as Lender shall deem appropriate in its
discretion (subject to Section 12.8). Borrower waives any right it may have to
require Lender to pursue any Person for any of the Liabilities.
(b)    Upon notice to Borrower after an Event of Default, Borrower at its own
expense shall assemble all or any part of the Collateral as determined by Lender
and make it available to Lender at any location designated by Lender. In such
event, Borrower shall, at its sole cost and

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expense, store and keep any Collateral so assembled at such location pending
further action by Lender and provide such security guards and maintenance
services as shall be necessary to protect and preserve such Collateral. In
addition to all such rights and remedies, the sale, lease or other disposition
of the Collateral, or any part thereof, by Lender after an Event of Default may
be for cash, credit or any combination thereof, and Lender may purchase all or
any part of the Collateral at public or, if permitted by law, private sale, and
in lieu of actual payment of such purchase price, may set-off the amount of such
purchase price against the Liabilities of Borrower then owing. Any sales of such
Collateral may be adjourned from time to time with or without notice. Lender
may, in its sole discretion, cause the Collateral to remain on Borrower’s
premises, at Borrower’s expense, pending sale or other disposition of such
Collateral. Lender shall have the right after an Event of Default to conduct
such sales on Borrower’s premises, at Borrower’s expense, or elsewhere, on such
occasion or occasions as Lender may see fit.
11.4    Entry Upon Premises and Access to Information. Upon the occurrence of
any Event of Default, Lender shall have the right to enter upon the premises of
Borrower where the Collateral is located without any obligation to pay rent to
Borrower, or any other place or places where such Collateral is believed to be
located and kept, and remove such Collateral therefrom to the premises of Lender
or any agent of Lender, for such time as Lender may desire, in order to
effectively collect or liquidate such Collateral. Upon the occurrence of any
Event of Default, Lender shall have the right to obtain access to Borrower’s
data processing equipment, computer hardware and software relating to the
Collateral and subject to the privacy requirements and regulations of HIPAA and
of any applicable state or federal patients bill of rights, to use all of the
foregoing and the information contained therein in any manner Lender deems
appropriate. Upon the occurrence of any Event of Default, Lender shall have the
right to receive, open and process all mail addressed to Borrower and relating
to the Collateral.
11.5    Sale or Other Disposition of Collateral by Lender. Any notice required
to be given by Lender of a sale, lease or other disposition or other intended
action by Lender, with respect to any of the Collateral, which is deposited in
the United States mails, postage prepaid and duly addressed to Borrower at the
address specified in Section 12.12 hereof, at least ten (10) calendar days prior
to such proposed action shall constitute fair and reasonable notice to Borrower
of any such action. The net proceeds realized by Lender upon any such sale or
other disposition, after deduction for the expense of retaking, holding,
preparing for sale, selling or the like and the attorneys’ and paralegals’ fees
and legal expenses incurred by Lender in connection therewith, shall be applied
as provided herein toward satisfaction of the Liabilities, including, without
limitation, such Liabilities described in Sections 8.2 and 11.2 hereof. Lender
shall account to Borrower for any surplus realized upon such sale or other
disposition, and Borrower shall remain liable for any deficiency. The
commencement of any action, legal or equitable, or the rendering of any judgment
or decree for any deficiency shall not affect Lender’s Liens in the Collateral
until Payment in Full. Borrower agrees that Lender has no obligation to preserve
rights to the Collateral against any other Person. If and to the extent
applicable, Lender is hereby granted a license or other right to use, without
charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trade styles, trademarks, service marks and advertising
matter or any property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale and selling any such Collateral,
and Borrower’s rights and benefits under all licenses and franchise

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agreements, if any, shall inure to Lender’s benefit until Payment in Full.
Borrower covenants and agrees not to interfere with or impose any obstacle to
Lender’s exercise of its rights and remedies with respect to the Collateral.
11.6    Waivers (General).
(a)    Except as otherwise provided for in this Agreement and to the fullest
extent permitted by applicable Law, Borrower hereby waives: (i) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Financing Agreements, the Term
Loan Note or any other notes, commercial paper, Accounts, contracts, documents,
instruments, chattel paper and guaranties at any time held by Lender on which
Borrower may in any way be liable, and hereby ratifies and confirms whatever
Lender may do in this regard; (ii) all rights to notice and a hearing prior to
Lender’s taking possession or control of, or to Lender’s replevy, attachment or
levy upon, any Collateral or any bond or security which might be required by any
court prior to allowing Lender to exercise any of its remedies; and (iii) the
benefit of all valuation, appraisal and exemption Laws. Borrower acknowledges
that it has been advised by counsel of its choice and decision with respect to
this Agreement, the other Financing Agreements and the transactions evidenced
hereby and thereby.
(b)    Borrower for itself and all endorsers, guarantors and sureties and their
heirs, legal representatives, successors and assigns, (i) agrees that its
liability shall not be in any manner affected by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by Lender; (ii)
consents to any indulgences and all extensions of time, renewals, waivers, or
modifications that may be granted by Lender with respect to the payment or other
provisions of this Agreement, the Term Loan Note, and to any substitution,
exchange or release of the Collateral, or any part thereof, with or without
substitution, and agrees to the addition or release of Borrower, endorsers,
guarantors, or sureties, or whether primarily or secondarily liable, without
notice to Borrower and without affecting its liability hereunder; (iii) agrees
that its liability shall be unconditional and without regard to the liability of
any other tax; and (iv) expressly waives the benefit of any statute or rule of
law or equity now provided, or which may hereafter be provided, which would
produce a result contrary to or in conflict with the foregoing.
(c)    Subject to Section 12.1, each and every covenant and condition for the
benefit of Lender contained in this Agreement and the other Financing Agreements
may be waived by Lender. Any forbearance by Lender in exercising any right or
remedy under any of the Financing Agreements, or otherwise afforded by
applicable Law, including any failure to accelerate the Stated Maturity Date
shall not be a waiver of or preclude the exercise of any right or remedy nor
shall it serve as a novation of the Term Loan Note or as a reinstatement of the
Loan or a waiver of such right of acceleration or the right to insist upon
strict compliance of the terms of the Financing Agreements. Lender’s acceptance
of payment of any sum secured by any of the Financing Agreements after the due
date of such payment shall not be a waiver of Lender’s right to either require
prompt payment when due of all other sums so secured or to declare a default for
failure to make prompt payment. The procurement of insurance or the payment of
taxes or other liens or charges by Lender shall not be a waiver of Lender’s
right to accelerate the maturity of the Loan,

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nor shall Lender’s receipt of any condemnation awards, insurance proceeds, or
damages under this Agreement operate to cure or waive Borrower’s default in
payment of sums secured by any of the Financing Agreements.
(d)    Without limiting the generality of anything contained in this Agreement
or the other Financing Agreements, Borrower agrees that if an Event of Default
is continuing (i) Lender is not subject to any “one action” or “election of
remedies” law or rule, and (ii) all liens and other rights, remedies or
privileges provided to Lender shall remain in full force and effect until Lender
has exhausted all of its remedies against the Collateral and any other
properties owned by Borrower and the Financing Agreements and other security
instruments or agreements securing the Liabilities has been foreclosed, sold
and/or otherwise realized upon in satisfaction of the Liabilities.
(e)    Nothing contained herein or in any other Financing Agreement shall be
construed as requiring Lender to resort to any part of the Collateral for the
satisfaction of any of Borrower’s obligations under the Financing Agreements in
preference or priority to any other Collateral, and Lender may seek satisfaction
out of all of the Collateral or any part thereof, in its absolute discretion in
respect of Borrower’s obligations under the Financing Agreements. In addition,
Lender shall have the right from time to time to partially foreclose upon any
Collateral in any manner and for any amounts secured by the Financing Agreements
then due and payable as determined by Lender, including, without limitation, the
following circumstances: (i) if Borrower defaults beyond any applicable grace
period in the payment of one or more scheduled payments of principal and
interest, Lender may foreclose upon all or any part of the Collateral to recover
such delinquent payments, or (ii) if Lender elects to accelerate less than the
entire outstanding principal balance of the Term Loan Note, Lender may foreclose
all or any part of the Collateral to recover so much of the principal balance of
the Term Loan Note as Lender may accelerate and such other sums secured by one
or more of the Financing Agreements as Lender may elect. Notwithstanding one or
more partial foreclosures, any unforeclosed Collateral shall remain subject to
the Financing Agreements to secure payment of sums secured by the Financing
Agreements and not previously recovered.
(f)    To the fullest extent permitted by Law, Borrower, for itself and its
successors and assigns, waives in the event of foreclosure of any or all of the
Collateral any equitable right otherwise available to Borrower which would
require the separate sale of any of the Collateral or require Lender to exhaust
its remedies against any part of the Collateral before proceeding against any
other part of the Collateral; and further in the event of such foreclosure
Borrower does hereby expressly consent to and authorize, at the option of
Lender, the foreclosure and sale either separately or together of each part of
the Collateral.
11.7    Waiver of Notice. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, BORROWER
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE
BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR
TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
11.8    Injunctive Relief. The parties acknowledge and agree that, in the event
of a breach or threatened breach of any Credit Party’s obligations under any
Financing Agreements, Lender

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may have no adequate remedy in money damages and, accordingly, shall be entitled
to an injunction (including without limitation, a temporary restraining order,
preliminary injunction, writ of attachment, or order compelling an audit)
against such breach or threatened breach. However, no specification in this
Agreement of a specific legal or equitable remedy shall be construed as a waiver
or prohibition against any other legal or equitable remedies in the event of a
breach or threatened breach of any provision of this Agreement. Each Credit
Party waives the requirement of the posting of any bond in connection with such
injunctive relief.
11.9    Marshalling; Recourse to Borrower. Lender shall have no obligation to
marshal any assets in favor of any Credit Party, or against or in payment of any
of the other Liabilities or any other obligation owed to Lender by any Credit
Party. Notwithstanding anything to the contrary contained herein or in any other
Financing Agreement, the Loan and other Liabilities shall be fully recourse to
Borrower, and Lender shall be authorized, in its sole and absolute discretion,
to enforce any or all of its remedies hereunder against Borrower, including all
present and future revenue and assets of Borrower, whether or not such assets
have been pledged as collateral for the Loan.
11.10    Advice of Counsel. Borrower acknowledges that it has been advised by
its counsel with respect to this transaction and this Agreement, including,
without limitation, all waivers contained herein.
11.11    Credit Bidding. Without limiting the foregoing, Borrower and Lender
hereby irrevocably authorize (and by entering into a Bank Product Agreement,
each Bank Product provider shall be deemed to authorize) Lender to Credit Bid
(as defined below) and purchase (either directly or through one or more
acquisition vehicles) all or any portion of the Collateral (and Borrower shall
approve Lender as a qualified bidder and such Credit Bid as a qualified bid) at
any sale thereof conducted by Lender to Credit Bid (as defined below) and
purchase (either directly or through one or more acquisition vehicles) all or
any portion of the Collateral (and Borrower shall approve Lender as a qualified
bidder and such Credit Bid as a qualified bid) at any sale thereof conducted by
Lender, (a) under any provisions of the UCC, including pursuant to Sections
9-610 or 9-620 of the UCC, (b) under the provisions of the Bankruptcy Code,
including pursuant to Section 363 thereof, or any applicable insolvency,
reorganization or similar law, or (c) at any other sale or foreclosure conducted
by (or with the consent or at the direction of) Lender (whether by judicial
action or otherwise) in accordance with applicable law or by the exercise of any
legal or equitable remedy; provided, however, that (i) the acquisition documents
shall be commercially reasonable and contain customary protections for minority
holders, such as anti-dilution and tag-along rights, (ii) the exchanged debt or
equity securities must be freely transferable, without restriction (subject to
applicable securities laws) and (iii) reasonable efforts shall be made to
structure the acquisition in a manner that causes the governance documents
pertaining thereto to not impose any obligations or liabilities upon Lender
individually (such as indemnification obligations).
For purposes of the preceding sentence, the term “Credit Bid” shall mean, an
offer submitted at a public or private sale of all or any portion of the
Collateral by Lender, to acquire all of the Collateral of Borrower or any
portion thereof in exchange for and in full and final satisfaction of all or a
portion of the Liabilities owing to Lender under this Agreement and the other
Financing Agreements.

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12.    MISCELLANEOUS.
12.1    Waiver; Amendment. Lender’s failure, at any time or times hereafter, to
require strict performance by Borrower of any covenant, condition or provision
of this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Lender of an Event of Default under this Agreement or a default
under any of the other Financing Agreements shall not suspend, waive or affect
any other Event of Default under this Agreement or any other default under any
of the other Financing Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different kind or character. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Financing Agreements and no
Event of Default under this Agreement or default under any of the other
Financing Agreements shall be deemed to have been suspended or waived by Lender
unless such suspension or waiver is in writing signed by an officer of Lender,
and directed to Borrower specifying such suspension or waiver.
Except as otherwise set forth herein, no amendment or modification or waiver of,
or consent with respect to (as reasonably determined by Lender) any provision of
this Agreement or the other Financing Agreements shall in any event be effective
unless the same shall be in writing and acknowledged by Borrower and Lender.
12.2    Costs and Attorneys’ Fees.
(c)    Borrower agrees to jointly and severally pay on demand all of the costs
and expenses of Lender (including, without limitation, the reasonable fees and
out-of-pocket expenses of Lender’s counsel, all UCC tax, lien, judgment, pending
suit, and bankruptcy search fees and costs, UCC filing fee and costs, recording,
filing and registration fees and charges, mortgage or documentary taxes, all
costs of Intralinks, DebtX or other similar transmission system, if applicable,
all corporate search fees and certified documents, all financial and legal due
diligence expenses, all audit, field exam and appraisal costs and fees, costs
incurred by Lender in connection with travel expenses of its associates,
background checks on members of management of Borrower, and real estate
appraisal fees, survey fees, recording and title insurance costs, and any
environmental report or analysis) in connection with the structuring,
preparation, negotiation, execution, delivery and closing of: (i) this
Agreement, the other Financing Agreements and all other instruments, agreements,
certificates or documents provided for herein or delivered or to be delivered
hereunder, and (ii) any and all amendments, modifications, supplements and
waivers executed and delivered pursuant hereto or any other Financing Agreement
or in connection herewith or therewith. Borrower further agrees that Lender, in
its sole discretion, may deduct all such unpaid amounts from the aggregate
proceeds of the Loan or debit such amounts from the operating accounts of
Borrower maintained with Lender.
(d)    The costs and expenses that Lender incurs in any manner or way with
respect to the following shall be part of the Liabilities, payable by Borrower
jointly and severally on demand if at any time after the date of this Agreement
Lender: (i) employs counsel in good faith for advice or other representation,
(ii) with respect to the amendment, modification or enforcement of this
Agreement or the other Financing Agreements, or with respect to any Collateral
hereunder or other collateral under the other Financing Agreements securing the
Liabilities hereunder, (iii) to represent

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Lender and Lender in any work-out or any type of restructuring of the
Liabilities, or any litigation, contest, dispute, suit or proceeding or to
commence, defend or intervene or to take any other action in or with respect to
any litigation, contest, dispute, suit or proceeding (whether instituted by
Lender, Borrower or any other Person) in any way or respect relating to this
Agreement, the other Financing Agreements, Borrower’s affairs or any Collateral
hereunder or under any other Financing Agreement, (iv) to protect, preserve, or
enforce any of the rights of Lender with respect to Borrower provided in this
Agreement, under any of the other Financing Agreements, or otherwise (whether at
law or in equity) (including any foreclosure sale, deed in lieu transaction or
costs incurred in connection with any litigation or bankruptcy or administrative
hearing and any appeals therefrom and any post-judgment enforcement action
including, without limitation, supplementary proceedings in connection with the
enforcement of this Agreement); (v) takes any action to protect, preserve,
store, ship, appraise, prepare for sale, collect, sell, liquidate or otherwise
dispose of any Collateral hereunder or any other collateral under any other
Financing Agreement; and/or (vi) seeks to enforce or enforces any of the rights
and remedies of Lender with respect to Borrower or any guarantor of the
Liabilities. Without limiting the generality of the foregoing, such expenses,
costs, charges and fees include: reasonable fees, costs and expenses of
attorneys, accountants, environmental consultants, and other consultants
(whether work out, financial or otherwise); court costs and expenses; court
reporter fees, costs and expenses; long distance telephone charges; and courier
and telecopier charges.
(e)    Borrower further agrees to pay, and to save Lender harmless from all
liability for, any documentary stamp tax, intangible tax, or other stamp tax or
taxes of any kind which may be payable in connection with or related to the
execution or delivery of this Agreement, the other Financing Agreements, the
borrowing hereunder, the issuance of the Term Loan Note or of any other
instruments, agreements, certificates or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith, provided that
Borrower shall not be liable for Lender’s income tax liabilities.
(f)    All of Borrower’s obligations provided for in this Section 12.2 shall be
Liabilities secured by the Collateral and shall survive repayment of the Loan or
any termination of this Agreement or any Financing Agreements.
12.3    Expenditures by Lender. In the event Borrower shall fail to pay taxes,
insurance, audit fees and expenses, consulting fees, filing, recording and
search fees, assessments, fees, costs or expenses which Borrower is, under any
of the terms hereof or of any of the other Financing Agreements, required to
pay, or fails to keep the Collateral free from other Liens, except as permitted
herein, Lender may, in its sole discretion, pay or make expenditures for any or
all of such purposes, and the amounts so expended, together with interest
thereon at the Default Rate (from the date the obligation or liability of
Borrower is charged or incurred until actually paid in full to Lender) and shall
be part of the Liabilities of Borrower, payable on demand and secured by the
Collateral.
12.4    Custody and Preservation of Collateral. Lender shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as
Borrower shall request in writing, but failure by Lender to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care, and
no

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failure by Lender to preserve or protect any right with respect to such
Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Borrower, shall of itself be
deemed a failure to exercise reasonable care in the custody or preservation of
such Collateral.
12.5    Reliance by Lender. Borrower acknowledges that Lender, in entering into
this Agreement and agreeing to make the Loan to Borrower hereunder, has relied
upon the accuracy of the covenants, agreements, representations and warranties
made herein by Borrower and the information delivered by Borrower to Lender in
connection herewith (including, without limitation, all financial information
and data).
12.6    Assignability; Parties. This Agreement (including, without limitation,
any and all of Borrower’s rights, obligations and liabilities hereunder) may not
be assigned by Borrower without the prior written consent of Lender. Whenever in
this Agreement there is reference made to any of the parties hereto, such
reference shall be deemed to include, wherever applicable, a reference to the
successors and permitted assigns of Borrower and the successors and assigns of
Lender.
12.7    Severability; Construction. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement. The parties
hereto have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
hereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
12.8    Application of Payments. Notwithstanding any contrary provision
contained in this Agreement or in any of the other Financing Agreements, after
the occurrence of a Default or an Event of Default Borrower irrevocably waives
the right to direct the application of any and all payments at any time or times
hereafter received by Lender from Borrower or with respect to any of the
Collateral, and Borrower and Lender does hereby irrevocably agree that any and
all payments or proceeds so received shall be applied in the following manner:
First, to the payment of all fees, costs, expenses and indemnities of Lender (in
its capacity as such), including reasonable attorneys’ fees and costs of Lender,
and any other Liabilities owing to Lender in respect of sums advanced by Lender
to preserve the Collateral or to preserve its security interest in the
Collateral (or any other collateral provided pursuant to any other Financing
Agreement);
Second, to payment of that portion of the Liabilities constituting fees, costs,
expenses and indemnities of Lender;
Third, to payment of that portion of the Liabilities constituting fees, costs,
expenses and indemnities of Lender as provided herein;

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Fourth, to the payment of all of the Liabilities consisting of accrued and
unpaid interest owing to Lender;
Fifth, to the payment of all Liabilities consisting of principal owing to
Lender;
Sixth, to the payment of all Bank Product Obligations (including with respect to
any Hedging Agreement) owing to Lender or its Affiliates;
Seventh, to the payment of all other Liabilities owing to Lender; and
Last, the payment of any remaining proceeds, if any, to whomever may be lawfully
entitled to receive such amounts, including, if applicable, Borrower.
All amounts owing under this Agreement in respect of Liabilities including fees,
interest, default interest, interest on interest, expense reimbursements and
indemnities, shall be payable in accordance with the foregoing waterfall
provisions irrespective of whether a claim in respect of such amounts is allowed
or allowable in any insolvency proceeding.
12.9    Payments Set Aside. To the extent that Borrower makes a payment or
payments to Lender or Lender enforces its Liens or exercises its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party or Person under any bankruptcy law, state or federal
law, common law or equitable cause or otherwise (including, without limitation,
provisions of the federal bankruptcy code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property), then to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be automatically revived, reinstated,
restored and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred. The provisions of and
undertakings set out in this Section 12.9 shall survive the satisfaction and
payment of the Liabilities of Borrower and the termination of this Agreement.
12.10    Sections and Titles; UCC Termination Statements. The sections and
titles contained in this Agreement shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto. Upon Payment in Full, Lender will, upon Borrower’s written
request and at Borrower’s cost and expense, timely file all Uniform Commercial
Code termination statements reasonably required by Borrower to evidence the
termination of the Liens in the Collateral in favor of Lender.
12.11    Continuing Effect; No Joint Venture. This Agreement, Lender’s Liens in
the Collateral, and all of the other Financing Agreements shall continue in full
force and effect so long as any Liabilities shall be owed to Lenders, and (even
if there shall be no such Liabilities outstanding) so long as this Agreement has
not been terminated as provided in Section 2.9 hereof. The relationship between
Lender on the one hand and Borrower on the other hand shall be that of
creditor-debtor only. No term in this Agreement or in any other Financing
Agreement and no course of dealing between the parties shall be deemed to create
any relationship or agency, partnership or joint venture or any fiduciary duty
by Lender to Borrower or any other party. In exercising its rights hereunder

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and under any other Financing Agreements or taking any actions herein or
therein, Lender may act through its employees, agents or independent contractors
as authorized by Lender.
12.12    Notices. Any notice or other communication required or permitted under
this Agreement shall be in writing and personally delivered, mailed by
registered or certified U.S. mail (return receipt requested and postage
prepaid), sent by telecopier (with a confirming copy sent by regular mail), or
sent by prepaid nationally recognized overnight courier service, and addressed
to the relevant party at its address set forth below, or at such other address
as such party may, by written notice, designate as its address for purposes of
notice under this Agreement:
(a)    If to Lender, at:
The PrivateBank and Trust Company
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Adam D. Panos, Managing Director
Telephone No.: 312-564-1278
Facsimile No.: 312-564-6889
With a copy to:

Duane Morris LLP
190 South LaSalle Street
Suite 3700
Chicago, Illinois 60603
Attention: Daniel Kohn, Esq.
Telephone No: 312-499-6712
Facsimile No: 312-499-6701

(b)    If to Borrower, at:
Diversicare Healthcare Services, Inc.
1621 Galleria Boulevard
Brentwood, Tennessee 37027
Attention: James R. McKnight, Jr.
Telephone No.: 615-771-7575
Facsimile No.: 615-771-7409
With a copy to:

Harwell Howard Hyne Gabbert & Manner
315 Deaderick Street
Suite 1800
Nashville, Tennessee 37238
Attention: John N. Popham IV, Esq.

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Telephone No.: 615-251-1093
Facsimile No.: 615-251-1059

If mailed, notice shall be deemed to be given three (3) days after being sent,
and if sent by personal delivery, telecopier or prepaid courier, notice shall be
deemed to be given when delivered. If any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
12.13    Equitable Relief. Borrower recognizes that, in the event Borrower fails
to perform, observe or discharge any of its obligations or liabilities under
this Agreement, any remedy at law may prove to be inadequate relief to Lender;
therefore, Borrower agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
12.14    Entire Agreement. This Agreement, together with the Financing
Agreements executed in connection herewith, constitutes the entire agreement
among the parties with respect to the subject matter hereof, and supersedes all
prior written or oral understandings, discussions and agreements with respect
thereto (including, without limitation, any term sheet, proposal letter or
commitment letter).
12.15    Participations and Assignments.
(a)    This Agreement, the Term Note, and the other Financial Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns and shall bind all Persons who become bound as
a debtor to this Agreement. Notwithstanding the foregoing, Borrower may not
assign any of their rights or delegate any of their obligations under this
Agreement without the prior written consent of Lender, which may be withheld in
Lender’s discretion.
(b)    Lender may at any time, assign to one or more Persons (any such Person,
an “Assignee”) all or any portion of the Loan with the prior consent of
Borrower.
(c)    Lender may at any time, sell to one or more Persons participating
interests in its portion of the Term Loan, commitments or other interests
hereunder (any such Person, a “Participant”). In the event of a sale by Lender
of a participating interest to a Participant, (a) Lender’s obligations hereunder
shall remain unchanged for all purposes, (b) Borrower and Lender shall continue
to deal solely and directly with Lender in connection with Lender’s rights and
obligations hereunder and (c) all amounts payable by Borrower shall be
determined as if Lender had not sold such participation and shall be paid
directly to Lender. No Participant shall have any direct or indirect voting
rights hereunder. Lender agrees to incorporate the requirements of the preceding
sentence into each participation agreement which Lender enters into with any
Participant. Borrower agrees that if amounts outstanding under this Agreement
are due and payable (as a result of acceleration or otherwise), each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as Lender under
this Agreement;

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provided that such right of set-off shall be subject to the obligation of each
Participant to share with Lender.
12.16    INDEMNIFICATION BY BORROWER. IN CONSIDERATION OF THE EXECUTION AND
DELIVERY OF THIS AGREEMENT BY LENDER AND THE AGREEMENT TO EXTEND THE TERM LOAN
COMMITMENT PROVIDED HEREUNDER, BORROWER HEREBY AGREES TO AND SHALL INDEMNIFY,
DEFEND, PROTECT, EXONERATE AND HOLD LENDER, AND EACH OF THE OFFICERS, DIRECTORS,
EMPLOYEES, PARENT ENTITIES, AFFILIATES, ATTORNEYS AND AGENTS OF LENDER (EACH A
“INDEMNIFIED PARTY”) FREE AND HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS,
CAUSES OF ACTION, SUITS, JUDGMENTS, CLAIMS, LOSSES, LIABILITIES, DAMAGES,
PENALTIES, COSTS, AND EXPENSES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES
AND COSTS (COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”), INCURRED BY THE
INDEMNIFIED PARTIES OR ANY OF THEM AS A RESULT OF, OR ARISING OUT OF, OR
RELATING TO (a) ANY REFINANCING, TENDER OFFER, MERGER, PURCHASE OF STOCK,
PURCHASE OF ASSETS OR OTHER SIMILAR TRANSACTION FINANCED OR PROPOSED TO BE
FINANCED IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, WITH THE PROCEEDS OF THE
LOAN, (b) THE USE, HANDLING, RELEASE, EMISSION, DISCHARGE, TRANSPORTATION,
STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS SUBSTANCE AT ANY PROPERTY OWNED
OR LEASED BY BORROWER, (c) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT
TO CONDITIONS AT ANY PROPERTY OWNED OR LEASED BY BORROWER OR THE OPERATIONS
CONDUCTED THEREON, (d) THE INVESTIGATION, CLEANUP OR REMEDIATION OF OFFSITE
LOCATIONS AT WHICH BORROWER OR ITS PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR
INDIRECTLY DISPOSED OF HAZARDOUS SUBSTANCES, (e) THE USE, MAINTENANCE OR
OPERATION OF THE FACILITIES, OR (f) THE EXECUTION, DELIVERY, PERFORMANCE OR
ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER FINANCING AGREEMENT BY ANY OF THE
INDEMNIFIED PARTIES, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES (A) ARISING ON
ACCOUNT OF THE APPLICABLE INDEMNIFIED PARTY’S GROSS NEGLIGENCE, WILLFUL
MISCONDUCT OR ILLEGAL ACTIVITY AS DETERMINED BY A FINAL, NON-APPEALABLE JUDGMENT
BY A COURT OF COMPETENT JURISDICTION, OR (B) AS ARE IN RESPECT OF ANY PROPERTY
FOR ANY OCCURRENCE ARISING DIRECTLY FROM THE ACTS OR OMISSIONS OF LENDER DURING
THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS HAVE OBTAINED
TITLE AND POSSESSION OF SUCH PROPERTY BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE
UNENFORCEABLE FOR ANY REASON, BORROWER HEREBY AGREES TO MAKE THE MAXIMUM
CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES THAT IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED
FOR IN THIS SECTION 12.16 SHALL SURVIVE REPAYMENT OF THE LOAN, CANCELLATION OF
THE TERM LOAN NOTE, ANY

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FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE OR DISCHARGE OF, ANY OR ALL OF
THE OTHER FINANCING AGREEMENTS AND TERMINATION OF THIS AGREEMENT. Any liability,
obligation, loss, damage, penalty, cost or expense incurred by the Indemnified
Parties shall be paid to the Indemnified Parties on demand, together with
interest thereon at the Default Rate from the date incurred by the Indemnified
Parties until paid by Borrower, be added to the Liabilities, and be secured by
the Collateral. The provisions of and undertakings and indemnifications set out
in this Section 12.16 shall survive the satisfaction and payment of the
Liabilities of Borrower and the termination of this Agreement. Borrower agrees
that Lender shall have no liability to Borrower (whether sounding in tort,
contract or otherwise) for losses suffered by Borrower in connection with,
arising out of, or in any way related to the transactions contemplated and the
relationship established by this Agreement and the other Financing Agreements,
or any act, omission or event occurring in connection herewith or therewith,
unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence,
willful misconduct or illegal activity of the party from which recovery is
sought. NO INDEMNIFIED PARTY SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE
USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS,
DEBTX, OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS
AGREEMENT, NOR SHALL ANY INDEMNIFIED PARTY HAVE ANY LIABILITY WITH RESPECT TO,
AND BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR ANY SPECIAL,
PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS
AGREEMENT OR ANY OTHER FINANCING AGREEMENT OR ARISING OUT OF ITS ACTIVITIES IN
CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE).
Borrower acknowledges that it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Financing Agreements to
which it is a party.
12.17    Representations and Warranties. Notwithstanding anything to the
contrary contained herein, each representation or warranty contained in this
Agreement or any of the other Financing Agreements shall survive the execution
and delivery of this Agreement and the other Financing Agreements and the making
of the Loan and the repayment of the Liabilities hereunder.
12.18    Counterparts. This Agreement and any amendment or supplement hereto or
any waiver granted in connection herewith may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Agreement.
12.19    Limitation of Liability of Lender. It is hereby expressly agreed that:
(a)    Lender may conclusively rely and shall be protected in acting or
refraining from acting upon any document, instrument, certificate, instruction
or signature believed to be genuine and may assume and shall be protected in
assuming that any Person purporting to give any notice or instructions in
connection with any transaction to which this Agreement relates has been duly
authorized to do so. Lender shall not be obligated to make any inquiry as to the
authority,

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capacity, existence or identity of any Person purporting to have executed any
such document or instrument or have made any such signature or purporting to
give any such notice or instructions;
(b)    Lender shall not be liable for any acts, omissions, errors of judgment or
mistakes of fact or law, including, without limitation, acts, omissions, errors
or mistakes with respect to the Collateral, except for those arising out of or
in connection with Lender’s and Lender’s gross negligence, willful misconduct or
illegal activity. Without limiting the generality of the foregoing, Lender shall
be under no obligation to take any steps necessary to preserve rights in the
Collateral against any other parties, but may do so at its option, and all
expenses incurred in connection therewith shall be payable by Borrower; and
(c)    Lender shall not be liable for any action taken in good faith and
believed to be authorized or within the rights or powers conferred by this
Agreement and the other Financing Agreements.
12.20    Borrower Authorizing Accounting Firm. Borrower shall authorize its
accounting firm and/or service bureaus to provide Lender with such information
as is requested by Lender in accordance with this Agreement. Borrower authorizes
Lender to contact directly any such accounting firm and/or service bureaus to
obtain such information.
12.21    Confidentiality; Press Releases. Borrower shall not disclose the
contents of this Agreement and the other Financing Agreements to any third party
(including, without limitation, any financial institution or intermediary),
unless required by applicable Laws or by any subpoena, judicial order or similar
legal process, without Lender’s prior written consent, other than to Borrower’s
officers, lawyers and other professional advisors on a need-to-know basis, and
in connection with any filings required to be made under any applicable federal
or state securities laws or regulations (“Securities Laws”). Borrower agrees to
inform all such Persons who receive information concerning this Agreement that
such information is confidential and may not be disclosed to any other Person,
except as required by applicable Laws, including Securities Laws, or by any
subpoena, judicial order or similar legal process. No party hereto shall, and no
party hereto shall permit its Affiliates to, at any time issue any press release
or other public disclosure using the name of Borrower, Lender, or any of their
respective Affiliates or referring to this Agreement or the other Financing
Agreements without at least two (2) Business Days prior written notice to
Borrower, Lender and the applicable Lender and, except for press releases or
other public disclosures required under applicable Securities Laws, without the
prior written consent of Borrower, Lender and the applicable Lender, which
consent shall not unreasonably be withheld, conditioned or delayed. Upon
Borrower’s prior written consent, which consent shall not unreasonably be
withheld, conditioned or delayed, Lender may publish or disseminate a tombstone
or similar advertising material relating to the financing transactions
contemplated by this Agreement. Nothing contained in this Agreement is intended
to permit or authorize Borrower to make any contract on behalf of Lender. Lender
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to each of its Affiliates’
respective directors, officers, managers, employees and agents, including,
without limitation, accountants, legal counsel and other professional advisors
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such information and instructed

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to keep such Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent required by applicable Laws or
regulations or by any subpoena, judicial order or similar legal process or bank
regulatory process, (d) to any other party to this Agreement or any other
Financing Agreement, (e) in connection with the exercise of any remedies
hereunder or under any Financing Agreement or any suit, action or proceedings
relating to this Agreement or any Financing Agreement or the enforcement of
rights hereunder or thereunder, or (f) subject to an agreement containing
provisions substantially the same as those of this Section 12.21, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement.
For the purpose of this Section 12.21, “Information” means all information
received from Borrower or any other Credit Party relating to Borrower or any
other Credit Party and their businesses, other than any information (i) that is
available to Lender on a non-confidential basis prior to disclosure by Borrower
or any Credit Party, (ii) that is publicly disclosed by Borrower or any Credit
Party in connection with public filings with the Securities and Exchange
Commission, (iii) without limitation of subsection (i) immediately above, that
was in the possession of Lender or Lender prior to its disclosure by Borrower or
any Credit Party pursuant hereto provided that the source of such information
was not known by Lender or Lender to be bound by a confidentiality agreement
with or other contractual, legal or fiduciary obligation of confidentiality to
Borrower or any Credit Party with respect to such information, (iv) is or
becomes generally available to the public by acts other than those of Lender or
its Affiliates, officers, directors, managers, employees or agents in breach of
the terms hereof, (v) that has been or is received by Lender from a third party
who is not known by Lender, as applicable, to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to Borrower or any Credit Party with respect to such
information, or (vi) has been or is developed independently without use of or
reference to Confidential Information. Any Person required to maintain the
confidentiality of Information as provided in this Section 12.21 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
Without limiting anything to the contrary contained in this Agreement, each of
the obligations contained in this Section 12.21 are several (and not joint and
several) and Lender shall not be liable or responsible in any way for any breach
of this Section 12.21 by Lender or any other Person.
12.22    Fax Signatures. A signature hereto sent or delivered by facsimile or
other electronic transmission shall be as legally binding and enforceable as a
signed original for all purposes.
12.23    Release. For and in consideration of the Loan hereunder, Borrower,
voluntarily, knowingly, unconditionally, and irrevocably, with specific and
express intent, for and on behalf of itself and its agents, attorneys, heirs,
successors, and assigns (collectively the “Releasing Parties”) does hereby fully
and completely release, acquit and forever discharge Lender, and each of its
successors, assigns, heirs, affiliates, subsidiaries, parent companies,
principals, directors, officers, employees, shareholders and agents (hereinafter
called the “Lender Parties”), and any other person, firm, business, corporation,
insurer, or association which may be responsible or liable for the acts or
omissions of Lender Parties, or who may be liable for the injury or damage
resulting therefrom (collectively the “Released Parties”), of and from any and
all actions, causes of action, suits, debts,

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disputes, damages, claims, obligations, liabilities, costs, expenses, fees
(including, without limitation, reasonable attorneys’ fees) and demands of any
kind whatsoever, at law or in equity, whether matured or unmatured, liquidated
or unliquidated, vested or contingent, choate or inchoate, known or unknown that
the Releasing Parties (or any of them) have or may have, against the Released
Parties or any of them (whether directly or indirectly) relating to events
occurring on or before the date of this Agreement, other than any claim as to
which a final determination is made in a judicial proceeding (in which Lender or
any of the Released Parties have had an opportunity to be heard) which
determination includes a specific finding that one of the Released Parties acted
in a grossly negligent manner or with actual willful misconduct or illegal
activity. Borrower acknowledges that the foregoing release is a material
inducement to Lender’s and Lender’s decision to extend to Borrower the financial
accommodations hereunder and has been relied upon by Lender in agreeing to make
the Loan hereunder. Borrower understands, acknowledges and agrees that the
release set forth above may be pleaded as a full and complete defense and may be
used as a basis for an injunction against any action, suit or other proceeding
which may be instituted, prosecuted or attempted in breach of the provisions of
such release. To the furthest extent permitted by law, Borrower hereby
knowingly, voluntarily, intentionally and expressly waives and relinquishes any
and all rights and benefits that it respectively may have as against any of
Lender Parties or any other Released Parties under any law, rule or regulation
of any jurisdiction that would or could have the effect of limiting the extent
to which a general release extends to claims which any of the Releasing Parties
does not know or suspect to exist as of the date hereof.
12.24    Time; Inconsistency. Time is of the essence in Borrower’s performance
under this Agreement and all other Financing Agreements. Notwithstanding
anything to the contrary contained in any Financing Agreement, if and to the
extent any terms or provisions contained in any Financing Agreement are
inconsistent or conflict with the terms and provisions of this Agreement, the
terms and provisions of this Agreement shall control and govern.
12.25    Relationship. The relationship between, on the one hand, Lender, and
Borrower, on the other hand, shall be that of creditor-debtor only. No term in
this Agreement or in the other Financing Agreements and no course of dealing
between the parties shall be deemed to create any relationship of agency,
partnership or joint venture or any fiduciary duty by Lender to Borrower or any
other party.
12.26    Intentionally Omitted.
12.27    Acting Through Agents. In exercising any rights under the Financing
Agreements or taking any actions provided for therein, Lender may act through
its employees, agents or independent contractors as authorized by Lender.
Borrower shall authorize its accounting firm and/or service bureaus to provide
Lender with such information as is requested by Lender in accordance with this
Agreement. Borrower authorizes Lender to contact directly any such accounting
firm and/or service bureaus to obtain such information.
12.28    Additional Waivers. Borrower authorizes Lender to exercise, in its sole
discretion, any right, remedy or combination thereof which may then be available
to Lender, since it is Borrower’s intent that the Liabilities be absolute,
independent and unconditional obligations of Borrower under all circumstances.
Notwithstanding any foreclosure of any Lien with respect to

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any or all of any property securing the Liabilities, whether by the exercise of
the power of sale contained therein, by an action for judicial foreclosure or by
an acceptance of a deed in lieu of foreclosure, Borrower shall remain bound
under Borrower’s guaranty of the Liabilities directly incurred by any other
Borrower.
12.29    Nonliability of Lender . The relationship between Borrower on the one
hand and Lender on the other hand shall be solely that of borrower and lender.
Lender does not have any fiduciary relationship with or duty to any Credit Party
arising out of or in connection with this Agreement or any of the other
Financing Agreements, and the relationship between the Credit Parties, on the
one hand, and Lender, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor. Lender does not undertake any responsibility
to any Credit Party to review or inform any Credit Party of any matter in
connection with any phase of any Credit Party’s business or operations. Borrower
agrees that Lender shall have no liability to any Credit Party (whether sounding
in tort, contract or otherwise) for losses suffered by any Credit Party in
connection with, arising out of, or in any way related to the transactions
contemplated and the relationship established by the Financing Agreements, or
any act, omission or event occurring in connection therewith, unless it is
determined in a final non-appealable judgment by a court of competent
jurisdiction that such losses resulted from the gross negligence, willful
misconduct or illegal activity of the party from which recovery is sought. NO
LENDER OR LENDER SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS
OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS, DEBTX OR
OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS
AGREEMENT, NOR SHALL LENDER HAVE ANY LIABILITY WITH RESPECT TO, AND BORROWER ON
BEHALF OF ITSELF AND EACH OTHER CREDIT PARTY, HEREBY WAIVES, RELEASES AND AGREES
NOT TO SUE FOR ANY SPECIAL, PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL
DAMAGES RELATING TO THIS AGREEMENT OR ANY OTHER FINANCING AGREEMENT OR ARISING
OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR
AFTER THE CLOSING DATE). Borrower acknowledges that it has been advised by
counsel in the negotiation, execution and delivery of this Agreement and the
other Financing Agreements to which it is a party. No joint venture is created
hereby or by the other Financing Agreements or otherwise exists by virtue of the
transactions contemplated hereby by Lender or among the Credit Parties and
Lender.
13.    JURISDICTION; JURY TRIAL WAIVER.
13.1    SUBMISSION TO JURISDICTION; WAIVER OF VENUE. BORROWER HEREBY IRREVOCABLY
AND UNCONDITIONALLY:
(g)    SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND THE OTHER FINANCING AGREEMENTS TO WHICH IT IS A
PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO
THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS, THE
COURTS OF THE

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UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS AND APPELLATE
COURTS FROM ANY THEREOF, LOCATED IN COOK COUNTY;
(h)    CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS
AND WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW IN CONNECTION WITH ANY SUCH
ACTION OR PROCEEDING (i) ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME, (ii) THE RIGHT TO ASSERT OR IMPOSE ANY CLAIM, NONCOMPULSORY SET-OFF,
COUNTERCLAIM OR CROSS-CLAIM IN RESPECT THEREOF IN SUCH PROCEEDING; PROVIDED,
HOWEVER, THIS WAIVER DOES NOT PRECLUDE THE RIGHT TO ASSERT A DEFENSE IN SUCH
ACTION OR PROCEEDING OR TO ASSERT OR IMPOSE ANY CLAIM, COUNTERCLAIM OR
CROSS-CLAIM WHICH BORROWER WISHES TO PURSUE IN A SEPARATE PROCEEDING AT ITS SOLE
COST AND EXPENSE, AND (iii) ALL STATUTES OF LIMITATIONS WHICH MAY BE RELEVANT
THERETO; AND
(i)    AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY CERTIFIED MAIL (OR ANY SUBSTANTIALLY
SIMILAR FORM OF MAIL), POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO BORROWER AT
ITS ADDRESS SET FORTH ABOVE OR AT SUCH OTHER ADDRESS OF WHICH LENDER SHALL HAVE
BEEN NOTIFIED PURSUANT THERETO. BORROWER AGREES THAT SUCH SERVICE, TO THE
FULLEST EXTENT PERMITTED BY LAW (i) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON BORROWER IN ANY SUIT, ACTION OR PROCEEDING, AND (ii)
SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY
TO BORROWER. SOLELY TO THE EXTENT PROVIDED BY APPLICABLE LAW, SHOULD BORROWER,
AFTER BEING SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS
OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE
DELIVERY OR MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY THE COURT AGAINST BORROWER AS DEMANDED OR
PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS.
(j)    NOTHING HEREIN SHALL AFFECT LENDER’S RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR LIMIT LENDER’S RIGHT TO BRING PROCEEDINGS AGAINST
BORROWER OR ITS PROPERTY IN ANY COURT OR ANY OTHER JURISDICTION.
13.2    GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ALL RESPECTS IN
ACCORDANCE WITH, AND ENFORCED AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
13.3    JURY TRIAL. BORROWER AND LENDER HEREBY IRREVOCABLY AND KNOWINGLY WAIVE
(TO THE FULLEST EXTENT PERMITTED BY LAW) ANY RIGHT

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TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING, WITHOUT LIMITATION,
ANY COUNTERCLAIM) ARISING OUT OF THIS AGREEMENT, THE FINANCING AGREEMENTS OR ANY
OTHER AGREEMENTS OR TRANSACTIONS RELATED HERETO OR THERETO, INCLUDING, WITHOUT
LIMITATION, ANY ACTION OR PROCEEDING (A) TO ENFORCE OR DEFEND ANY RIGHTS UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR (B)
ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT AND THE FINANCING AGREEMENTS. LENDER AND BORROWER AGREE THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY.
[Signature Page Follows]

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IN WITNESS WHEREOF, this Term Loan and Security Agreement has been duly executed
as of the day and year first above written.
BORROWER:
DIVERSICARE ROSE TERRACE, LLC,
a Delaware limited liability company
BY:
DIVERSICARE LEASING CORP., its sole member
 
By:
/s/James R. McKnight, Jr.
 
Name: James R. McKnight, Jr.
 
Its: Executive Vice President &
Chief Financial Officer

LENDER:
THE PRIVATEBANK AND TRUST COMPANY, in its capacity as Lender
By:
/s/Jeffrey J. Groenewold
 
Name: Jeffrey Groenewold
 
Its: Officer

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LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A
Legal Description
Exhibit B
Form of Term Loan Note
 
 

SCHEDULES
Schedule 7.12
Litigation and Proceedings

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SCHEDULE 7.12

Litigation and Proceedings

1.    Pending litigation against Borrower as of March 19, 2014.

(a)
Desiree Chapman, as Parent of Bentley Chapman, Circuit Court of Cabell County,
W. Va., filed 9/13/13, personal injury tort/worker’s compensation claim.

(b)
Wilma Jean Helms, Circuit Court of Kanawha County, W. Va., filed 1/15/14,
personal injury tort claim.

2.
Requests for Records from Attorneys for the period January 1, 2012 through March
19, 2014.

(a)    3/6/2013, Steptoe & Johnson, request for records of former resident

(b)    10/23/2013, McHugh Fuller, request for records of former resident

(c) 11/18/2013, Greene, Ketchum, Farrell, Baker & Tweed, request for records of
former resident
         
(d) 01/30/2014, Bell Law Firm, request for records of former resident

3.
Threatened litigation against Borrower as of March 19, 2014:

Hamilton v. Diversicare Leasing Corp., Diversicare Management Co., Advocat Inc.,
and John Does 1-30. United States District Court Western District of Arkansas -
On June 22, 2012, Plaintiffs filed this collective action under the Fair Labor
Standards Act claiming that defendants failed to pay its employees for work
performed “off the clock.” Plaintiffs have asked the Court to conditionally
certify a nationwide class of all current and former hourly employees who worked
at any of facilities of the named defendants and their affiliates (John Does
1-30, to be identified) from June 22, 2009 to the present.