Exhibit 10.7
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE
     This Fifth Amendment to Consolidated Amended and Restated Master Lease
(this “Amendment”) is executed and delivered as of August 10, 2007 by and
between STERLING ACQUISITION CORP., a Kentucky corporation (“Lessor”), the
address of which is 9690 Deereco Road, Suite 100, Timonium, MD 21093, and
DIVERSICARE LEASING CORP., a Tennessee corporation, the address of which is 1621
Galleria Boulevard, Brentwood, TN 37027.
RECITALS:
     A. Lessee has executed and delivered to Lessor a Consolidated Amended and
Restated Master Lease dated as of November 8, 2000, but effective as of
October 1, 2000, as amended by a First Amendment to Consolidated Amended and
Restated Master Lease dated as of September 30, 2001, a Second Amendment to
Consolidated Amended and Restated Master Lease dated as of June 15, 2005 (the
“Second Amendment”), a Third Amendment to Consolidated Amended and Restated
Master Lease dated as of October 20, 2006 (the “Third Amendment”), and a Fourth
Amendment to Consolidated Amended and Restated Master Lease dated as of April 1,
2007 (the “Existing Master Lease”) pursuant to which Lessee leased from Lessor
certain healthcare facilities.
     B. Pursuant to that certain First Amended Chapter 11 Plan Proposed by the
Debtors dated May 17, 2007 and an Operations Transfer Agreement effective as of
July 20, 2007 among the Texas Sublessees (as defined below) and Senior
Management Services of America North Texas, Inc., a Texas corporation (“SMSA”),
and certain affiliates of SMSA, the Texas Sublessees are acquiring from SMSA its
rights as tenant under that certain Consolidated Master Lease dated as of
June 1, 2005 (the “SMSA Master Lease”) between SMSA and OHI Asset (TX), LLC, a
Delaware limited liability company (“OHI Texas”). Pursuant to the SMSA Master
Lease, SMSA had leased the Texas Facilities from OHI Texas.
     C. Concurrently with the execution of this Amendment, (i) OHI Texas and the
Texas Sublessees have terminated the SMSA Master Lease and (ii) OHI Texas has
transferred to Lessor the Texas Facilities to Lessor.
     D. Lessee and Lessor desire to amend the Existing Lease to add the Texas
Facilities to the Existing Master Lease on the terms and conditions of this
Amendment.
     NOW THEREFORE, the parties agree as follows:
1. Definitions.
     (a) Any capitalized term used but not defined in this Amendment will have
the meaning assigned to such term in the Master Lease. From and after the date
of this Amendment, each reference in the Existing Master Leases or the other
Transaction Documents to the “Lease”

 

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or “Master Lease” means, as applicable, the Existing Master Lease or Existing
Master Leases as modified by this Amendment.
     (b) In addition to the other definitions contained herein, when used in
this Amendment the following terms shall have the following meanings:
     Asbestos Clean-Up Costs: means the actual, out of pocket cost of completing
a Required Asbestos Clean-Up, which amount does not include any amounts paid to
Lessee or any Affiliate of Lessee without the written consent of Lessor.
     Asbestos Management Plans: means the Asbestos Management Plans dated
March 19, 2004 for Lessor by ATC Associates, Inc. for the Doctors & Fort Worth
Facilities.
     Doctors & Fort Worth Facilities: means Facilities commonly known as
(i) Estates Healthcare Center located at 201 Sycamore School Road, Fort Worth,
Texas 76134, and (ii) as Doctors Healthcare Center and located at 9009 White
Rock Trail, Dallas, Texas 75238.
     Existing Asbestos Containing Materials: means the asbestos containing
materials on the Doctors & Fort Worth Facilities identified in the Asbestos
Management Plans.
     First Texas Renewal Term Expiration Date: September 30, 2030.
     Humble Facility: means the Facility commonly known as Oakmont Nursing and
Rehabilitation Center of Humble located in Humble, Texas.
     Katy Facility: means the Facility commonly known as the Oakmont Nursing and
Rehabilitation Center of Katy located in Katy, Texas.
     LaSalle: means LaSalle Bank National Association.
     LaSalle Loans: means the following loans and credit facilities extended by
LaSalle to Lessee, the Sublessees and certain of their Affiliates: (i) certain
revolving loans in an aggregate amount of up to Fifteen Million and No/100
Dollars ($15,000,000.00) to support working capital needs of Lessee, the
Sublessees and certain of their Affiliates, (ii) certain transition revolving
loans in an aggregate amount of up to Six Million and No/100 Dollars
($6,000,000.00) to support working capital needs of Lessee, the Sublessees and
certain of their Affiliates for the six months following date of this Amendment
(the “Temporary Revolving Loan”), and (iii) a term loan of Sixteen Million Five
Hundred Thousand and No/100 Dollars ($16,500,000.00) (the “Term Loan”).
     Lien: means any interest in Property securing an obligation owed to, or a
claim by, any Person (other than the owner of the Property), whether such
interest shall be based on common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances,

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including, without limitation, judgment liens, the lien or security interest
arising, from a mortgage, deed of trust, debenture, charge, guarantee,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security
agreement, loan and security agreement, adverse claim or charge, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes, and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, other title
exceptions and encumbrances affecting any real property and the retained
security title of a conditional vendor or lessor.
     Lease Documents: means the following documents: this Lease, the Guaranty,
the Letter of Credit Agreement, the Security Agreement, the Pledge Agreements,
the Subordination Agreements, Texas Pledge Agreements, Texas Sublessees
Guaranty, Texas Sublessee Security Agreement, the Stock Issuance and
Subscription Agreement, the Subordinated Note, and any security agreements,
pledge agreements, letter of credit agreements, guarantees, notes or other
documents which evidence, secure or otherwise relate to this Lease, or the
transactions contemplated by this Lease; and any and all amendments,
modifications, extensions and renewals of any of the foregoing documents
     Letter of Credit Agreement: means the Letter of Credit Agreement between
Lessee and Lessor.
     Master Texas Sublessee: DIVERSICARE TEXAS I, LLC, Delaware limited
liability company.
     Non-Texas Base Rent:
     (A) During the Initial Term, the Non-Texas Base Rent shall be:
(1) For the first Initial Term (being the period of October 1, 2000 thru
September 30, 2006), the amount set forth for such period in the Master Lease as
it existed prior to the Third Amendment;
(2) For the first (1st) Lease Year of the first Renewal Term (October 1, 2006
thru September 30, 2007), the Base Amount plus the Improvement Allowance
Adjustment Amount (as adjusted during such Lease Year);
(3) For each of the second (2nd) through twelfth (12th) Lease Years of the first
Renewal Term, the lesser of (i) the Base Amount as of the end of first (1st)
Lease Year of the Renewal Term plus Improvement Allowance Adjustment Amount,
increased by a percentage equal to two (2) times the percentage increase in the
CPI (if positive) from the commencement date of the first Renewal Term to the
Adjustment Date in each of the second (2nd) through twelfth (12th) Lease Years,
as applicable (the “Adjustment Date”), and (ii) the product of the Base Amount
as of the end of the first Lease Year plus the Improvement Allowance Adjustment
Amount and the following factor:

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          Lease Year During     First Renewal Term   Applicable Factor
2
    1.030  
3
    1.061  
4
    1.093  
5
    1.126  
6
    1.159  
7
    1.194  
8
    1.230  
9
    1.267  
10
    1.305  
11
    1.344  
12
    1.384  

Under no circumstances will the Non-Texas Base Rent in any Lease Year be less
than the Non-Texas Base Rent during the preceding Lease Year.
     (B) During the second Renewal Term, the Non-Texas Base Rent shall be:
     (1) For the first Lease Year of the second Renewal Term, the greater of
(a) the Non-Texas Base Rent during the last Lease Year of the Initial Term and
(b) the Fair Market Rent for the Facilities other than the Texas Facilities on
the first day of such Renewal Term as agreed upon by Lessor and Lessee, or, if
prior to the commencement of the Renewal Term they are unable to agree, as
determined by an appraisal pursuant to Article XXXII of this Lease; provided,
however, that the Non-Texas Base Rent for the first Lease Year of the second
Renewal Term shall not exceed one hundred ten percent (110%) of the Non-Texas
Base Rent for the Lease Year immediately preceding the commencement of the
second Renewal Term; and
     (2) For each of the second (2nd) through the twelfth (12th) Lease Years
during the second Renewal Term, the lesser of (i) the Non-Texas Base Rent for
the first (1st) Lease Year of the second Renewal Term, increased by a percentage
equal to two (2) times the percentage increase in the CPI (if positive) from the
commencement date of the second Renewal Term to the Adjustment Date in each of
the second (2nd) through twelfth (12th) Lease Years, as applicable
(the “Adjustment Date”), and (ii) the product of the Non-Texas Base Rent during
the first (1st) Lease Year of the second Renewal Term and the following factor:

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          Lease Year During     Second Renewal Term   Applicable Factor
2
    1.030  
3
    1.061  
4
    1.093  
5
    1.126  
6
    1.159  
7
    1.194  
8
    1.230  
9
    1.267  
10
    1.305  
11
    1.344  
12
    1.384  

Under no circumstances will the Non-Texas Base Rent in any Lease Year during the
Renewal Term be less than the Non-Texas Base Rent during the preceding Lease
Year.
     Pre-Existing Hazardous Substances: means Hazardous Substances located on,
under about or with respect to the Treemont Facility prior to February 1, 2003
or the Katy Facility prior to July 1, 2003 or the Humble Facility prior to
July 1, 2003.
     Pre-Existing Environmental Conditions: means any Contamination or other
environmental condition on, under, about or with respect to the Treemont
Facility prior to February 1, 2003 or the Katy Facility prior to July 1, 2003 or
the Humble Facility prior to July 1, 2003.
     Property: means any and all real, personal, or mixed property and assets,
including, without limitation, all types of tangible and intangible property.
     Second Texas Renewal Term Expiration Date: May 31, 2035.
     Texas Base Rent: During the Term, the Texas Base Rent shall be:
     (1) For each month during the period from the Commencement Date for the
Texas Facilities until January 31, 2008, Three Hundred Twenty Eight Thousand
Five Hundred Ninety Two and 79/100 Dollars ($328,592.79), which equal an annual
Base Rent of Three Million Nine Hundred Forty Three Thousand One Hundred
Thirteen and 48/100 Dollars ($3,943,113.48) (the “Initial Texas Annualized Base
Rent”);
     (3) For period from February 1, 2008 thru January 31, 2009, the Initial
Texas Annualized Base Rent, increased by the product of (i) the Initial Texas
Annualized Base Rent and (ii) the lesser of one (1) times the change in CPI
(expressed as a percentage) and two and one-half percent (2.5%).
     (4) For the subsequent twelve month period (being February 1, 2009 thru
January 31, 2010) and each succeeding twelve month (being February 1 thru
January 31) until the end of the Term (including any Renewal Terms), the Texas
Base Rent for the previous Lease Year, increased by the product of (i) the Texas
Base Rent during the immediately preceding Lease Year and (ii) the lesser of one
(1) times the increase, if any, in CPI (expressed as a percentage) and two and
one-half percent (2.5%).

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     Texas Facilities: means the Facilities located on the real property
described in Exhibits A-1 through A-7 to this Amendment.
     Texas Pledge Agreements: means the Pledge Agreements dated as of the same
date as this Amendment from the equity owners of the Texas Sublessees in favor
Lessor.
     Texas Sublessees: means the Master Texas Sublessee and DIVERSICARE
BALLINGER, LLC, Delaware limited liability company, DIVERSICARE DOCTORS, LLC,
Delaware limited liability company, DIVERSICARE ESTATES, LLC, Delaware limited
liability company, DIVERSICARE HUMBLE, LLC, Delaware limited liability company,
DIVERSICARE KATY, LLC, Delaware limited liability company, DIVERSICARE NORMANDY
TERRACE, LLC, Delaware limited liability company, and DIVERSICARE TREEMONT, LLC,
Delaware limited liability company.
     Texas Sublessees Guaranty: means the Guaranty dated as of the same date as
this Amendment from the Texas Sublessees in favor Lessor.
     Texas Sublessee Security Agreement: means the Security Agreement dated as
of the same date as this Amendment from the Texas Sublessees in favor of Lessor.
     Non-Texas Facilities: means the Facilities leased pursuant to this Lease
other than the Texas Facilities.
     (c) The following definitions defined in §2.1 of the Existing Master Lease
are hereby amended in their entirety as follows:
     Base Rent: means the sum of (i) the Non-Texas Base Rent and (ii) the Texas
Base Rent.
     Commencement Date: October 1, 2000 for the Non-Texas Facilities, and August
11, 2007 for the Texas Facilities.
     Expiration Date: means the First Renewal Term Expiration Date, the Second
Renewal Term Expiration Date, the First Texas Renewal Term Expiration Date, or
the Second Texas Renewal Term Expiration Date, as applicable.
     Facilit(y)(ies): Each health care facility on the Land, including the
Leased Property associated with such Facility, and together, all such facilities
on the Leased Properties; all of which Facilities are collectively listed on
Exhibit B to this Amendment.
     Intercreditor Agreement: means the Subordination and Intercreditor
Agreement of even date herewith by and between Lessor and LaSalle and any
replacement intercreditor agreement between Lessor and any working capital
lender to whom a first priority security interest in accounts receivable from
the Facilities has been granted in accordance with the requirements of
Section 39.5 of this Lease.

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     Land: The real property described in listed on attached Exhibit A to the
Existing Master Lease and Exhibit A to this Amendment.
     Permitted Encumbrances: Encumbrances listed on attached Exhibit C to the
Existing Master Lease and Exhibit C to this Amendment.
     (d) The subparagraphs (m) and (r) of the definition of “Event of Default”
set forth in Section 2.1 of the Existing Master Lease is hereby amended and
restated as follows:
*      *      *
     (n) A default occurs under the any Texas Sublessee Guaranty, Texas Pledge
Agreement, the Texas Sublessee Security Agreement, or the Letter of Credit
Agreement, which default is not cured within the applicable cure period, if any.
*      *      *
     (r) LaSalle (or its successors and assigns) or any working capital lender
to whom a first priority security interest in accounts receivable from the
Facilities has been granted in accordance with the requirements of Section 39.5
of this Lease, declares an event of default under the loan documents evidencing
or securing the LaSalle Loans or Line of Credit Documents, and accelerates any
or all of the indebtedness evidenced and secured thereby, or commences any
action against Lessee or Sublessee to realize on such lender’s interest in the
accounts receivable from the Facilities.
     2. Renewal Options. Section 1.3 of the Existing Master Lease is hereby
amended and restated as follows:
     1.3 Options to Renew.
     (a) Lessee is hereby granted two (2) options to renew this Lease (an “All
Facilities Option”) for an additional, successive period of twelve (12) Lease
Years, for a maximum Term if such options are exercised of thirty (30) Lease
Years, on the following terms and conditions:
     (i) the second option to renew is exercisable only by Notice to Lessor at
least three hundred sixty-five (365) days prior to the expiration of the first
Renewal Term;
     (ii)  the absence of any Event of Default both at the time a renewal option
is exercised and at the commencement of a Renewal Term is a condition precedent
to any renewal of the Term;
     (iii) during a Renewal Term, all of the terms and conditions of this Lease
shall remain in full force and effect; and

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     (iv) Lessee may exercise its options to renew with respect to all (and no
fewer than all) of the Leased Properties.
Lessee and Lessor acknowledge and agree that Lessee exercised the first All
Facilities Option pursuant to the Third Amendment such that, as of the date of
this Amendment, the Expiration Date of the current Term of this Lease for all of
the Facilities, including the Texas Facilities, is the First Renewal Term
Expiration Date of September 30, 2018.
     (b) Lessee is also hereby granted two (2) options to renew this Lease with
respect to the Texas Facilities only (the “Texas Options”) until September 30,
2030, with respect to the first such Texas Option, and May 31, 2035, with
respect to the second such Texas Option, on the following terms and conditions:
     (i) a Texas Option is exercisable only by Notice to Lessor at least three
hundred sixty-five (365) days prior to the expiration of the prior period;
     (ii)  the absence of any Event of Default both at the time a Texas Option
is exercised and at the commencement of a Renewal Term is a condition precedent
to any renewal of the Term;
     (iii) during a Renewal Term, all of the terms and conditions of this Lease
shall remain in full force and effect; provided, however, that the Base Rent
shall be equal to the Texas Facilities Base Rent and the Security Deposit shall
be reduced to an amount equal to the Texas Facilities Base Rent divided by four
(4) (such that it is equal to three months Base Rent);
     (iv) Lessee may exercise its options to renew with respect to all (and no
fewer than all) of the Texas Facilities, and as to no other Facilities; and
     (v) Lessee may not exercise a Texas Option for any period with respect to
which Lessee exercises an All Facilities Option (for avoidance of doubt, because
an All Facilities Option is exercised as to all of the Facilities, including the
Texas Facilities, Lessee would not need to exercise a Texas Facilities Option
for any period for which an All Facilities Option has been exercised).
3. Environmental Amendments. Notwithstanding anything to the contrary in this
Lease, (i) Section 7.3 of the Existing Lease shall not apply to the Texas
Facilities; and (ii) in lieu thereof, Lessee’s environmental obligations with
regard to the Texas Facilities shall be governed by Exhibit D to this Amendment,
which is incorporated herein by this reference.
4. Section 9.1.1 of the Existing Master Lease is hereby amended and restated in
its entirety as follows:

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     9.1.1 Lessee, at its expense, will keep the Leased Properties, and all
landscaping, private roadways, sidewalks and curbs appurtenant thereto which are
under Lessee’s control and Lessee’s Personal Property in good order and repair,
whether or not the need for such repairs arises out of Lessee’s use, any prior
use, the elements or the age of the Leased Property or any portion thereof, or
any cause whatsoever except the act or negligence of Lessor, and with reasonable
promptness shall make all necessary and appropriate repairs thereto of every
kind and nature, whether interior or exterior, structural or non-structural,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the Commencement Date (concealed or otherwise) or
existing after February 1, 2003 with respect to the Treemont Facility, and
July 1, 2003 with respect to the Katy Facility and the Humble Facility;
provided, however, that Lessee shall be permitted to prosecute claims against
Lessor’s predecessor in title for breach of any representation or warranty made
to or on behalf of Lessor, or for latent defects in any Leased Property. Lessee
shall at all times maintain, operate and otherwise manage the Leased Properties
on a quality basis and in a manner consistent with the standards of the highest
quality competing facilities in the market areas served by the Leased
Properties. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work or, subject to the provisions of
Paragraph 9.1.4, below, the property to be repaired shall be replaced. Lessee
will not take or omit to take any action the taking or omission of which might
materially impair the value or the usefulness of the Leased Properties or any
parts thereof for the Primary Intended Use.
5. Section 8.2.1.4 of the Existing Master Lease is hereby amended and restated
in its entirety as follows:
          8.2.1.4 Equipment Financing. The aggregate amount of principal,
interest and lease payments due from Lessee and/or Sublessee with respect to any
equipment leases or financing secured by equipment utilized in the operation of
the Facilities shall not at any time during the Term exceed $1,000,000.00 in any
one Lease Year.
6. The Existing Master Lease is hereby amended to add the following new
Section 8.2.5 as follows:
     8.2.5 Indebtedness. Neither Lessee nor any Sublessee will create, incur or
suffer to exist any Debt which is secured by a Lien in any of the Property with
respect to which Lessor has been granted a Lien in pursuant to the Lease
Documents, except:

  (i)   The equipment financing permitted under Section 8.2.1.4;     (ii)   The
Line of Credit permitted under Section 39.5;     (iii)   The LaSalle Loans; and
    (iv)   Any Debt owed to Lessor or any Affiliate of Lessor.

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7. Section 8.5 of the Existing Master Lease is hereby amended and restated in
its entirety as follows:
     8.5 Other Facilities. Neither Lessee nor any Affiliate shall own, operate
or manage any nursing home, rest home, assisted living facility, subacute
facility, retirement center or similar health care facility within a ten
(10) mile radius of any Facility, other than any Facility which is a Leased
Property under this Lease or which Lessee or any Affiliate of Lessee owns or
operates as of the Commencement Date and set forth on Schedule C attached
hereto.
8. Paragraph 5 of the Second Amended is hereby amended and restated in its
entirety as follows:
     5. Insurance.
     (a) Lessor acknowledges that the liability insurance coverage and the
malpractice insurance coverage required pursuant to Sections 13.2.4 and 13.2.5
of the Lease, are currently unavailable generally in the nursing home industry
at commercially affordable rates and that Lessee currently maintains and has in
place for all of the Facilities general liability and malpractice insurance with
single limit coverage of One Hundred Thousand Dollars ($100,000.00) per
occurrence and Five Hundred Thousand Dollars ($500,000.00) cumulative, with a
deductible of Twenty Five Thousand Dollars ($25,000.00). Lessor hereby agrees
that, the provisions of Sections 13.2.4 and 13.2.5 of the Lease to the contrary
notwithstanding, until such time as the insurance coverage required therein is
generally available in the nursing home industry at commercially affordable
rates, Lessee shall not be required obtain the coverages required therein and
Lessor agrees to accept Lessee’s current coverage in lieu thereof for the
Non-Texas Facilities for the first Renewal Term of the Lease. Lessee shall not
be deemed to be in default of the provisions of Article XIII of the Lease as a
result thereof. Lessee shall provide Lessor, on an annual basis, information
from its insurance carrier and from comparable insurance carriers of the costs
of insurance premiums to meet Lessor’s insurance requirements. At such time as
the premium amounts quoted are commercially affordable, Lessee shall immediately
purchase any and all insurance policies necessary to meet the requirements of
Sections 13.2.4 and 13.2.5 of the Lease. This provision does not relieve Lessee
from its agreement of indemnity under Article XXI of the Lease nor does it
modify the provisions thereof. Notwithstanding the foregoing, Lessee
acknowledges and agrees that the provisions of this Paragraph 5 shall not be
applicable in the event of any Transfer. Lessee acknowledges and agrees that
Lessor shall have the right to withhold its consent to any proposed Transfer
unless, among other things, the Transferee agrees to provide the insurance
coverage required by the provisions of Sections 13.2.4 and 13.2.5 of the Lease.
     (b) Lessor hereby agrees that, the provisions of Sections 13.2.4 and 13.2.5
of the Lease to the contrary notwithstanding Lessee’s failure to obtain the
coverages required by Sections 13.2.4 and 13.2.5 for the Texas Facilities shall
not be an Event of

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Default under this Lease. Lessee shall not be required to obtain the coverages
required therein and Lessor agrees to accept such lesser coverage, if any, as
Lessee elects to maintain for the Texas Facilities for the Term of the Lease,
including any Renewal Term. This provision does not relieve Lessee from its
agreement of indemnity under Article XXI of the Lease nor does it modify the
provisions thereof.
9. Section 39.1 of the Existing Master Lease is hereby amended and restated in
its entirety as follows:
     39.1 Security Deposit. Prior to the date of this Amendment, Lessor was
holding as the Security Deposit the sum of $340,000 in cash. Concurrently with
the delivery of this Amendment, (A) Lessor shall return to Lessee the $340,000
in cash, and (B) Lessee shall deliver to Lessor a Security Deposit in the amount
equal to $8,116,726.10, in the form of an absolute, unconditional site draft
letter of credit for a term of one (1) year (renewable automatically) issued by
an “A” rated financial institution (“Security Deposit”), which Lessor shall hold
as security for the full and faithful performance by Lessee of each and every
term, provision, covenant and condition of this Lease in accordance with, and
subject to, the terms and conditions of the Letter of Credit Agreement. If at
any time the Security Deposit is in the form of cash, the Security Deposit shall
be deposited by Lessor into an account which shall earn interest for the benefit
of Lessee, which cash shall remain on deposit as security and be available to
Lessor as provided in this Article. The Security Deposit shall not be considered
an advance payment of Rent (or of any other sum payable to Lessee under this
Lease) or a measure of Lessor’s damages in case of a default by Lessee. The
Security Deposit shall not be considered a trust fund, and Lessee expressly
acknowledges and agrees that Lessor is not acting as a trustee or in any
fiduciary capacity in controlling or using the Security Deposit. Notwithstanding
the foregoing, if at any time the Security Deposit is in the form of cash, then
(i) Lessor shall maintain the Security Deposit separate and apart from Lessor’s
general and/or other funds and (ii) provided that Lessee is not then in default,
Lessor shall disburse to Lessee the earnings on the Security Deposit on a
quarterly basis. The Security Deposit, less any portion thereof applied as
provided in Section 39.3 or the Letter of Credit Agreement, shall be returned to
Lessee within sixty (60) days following the expiration of the Term or earlier
termination of this Lease.
10. Section 39.5 of the Existing Master Lease is hereby amended and restated in
its entirety as follows:
     39.5 Line of Credit; A/R Replacement Security Deposit.
     (a) Line of Credit. Prior to the date of this Amendment, pursuant to the
Security Agreement, Lessee has granted to Lessor a first priority security
interest in the accounts receivable generated by the Facilities. LaSalle
currently has a security interest in the accounts receivable from the Facilities
to secure the LaSalle Loans. Lessor and LaSalle have entered into the
Intercreditor Agreement pursuant to which Lessor has agreed to subordinate its
security interest in the accounts receivable generated by the

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Facilities. If Lessee and/or the Sublessees, or any Affiliate of Lessee (other
than Affiliates who are the operators of the Florida Managed Facilities, as
defined in the Settlement and Restructuring Agreement), obtain, concurrently
with or after the date of this Amendment, a working capital line of credit (the
“Line of Credit”) from a third-party working capital lender that requires that,
in order to secure the Line of Credit, Lessee and/or the Sublessees must grant
to the working capital lender a first priority security interest in the accounts
receivable from the Facilities accruing during the Term, then Lessor will
subordinate its security interest in the accounts receivable from the Facilities
accruing during the Term to the security interest of such working capital
lender, provided that:
     (i) The working capital lender executes and delivers to Lessor an
intercreditor agreement in form and substance reasonably satisfactory to Lessor;
and
     (ii) The lien of Lessor in accounts receivable from the Facilities shall be
subordinated to the lien of the working capital lender therein only to the
extent of amounts advanced from time to time by the working capital lender to
Lessee and/or the Sublessees with respect to the Facilities and only in the
amount of $17,400,000.00, plus interest, penalties and other charges under the
loan documents evidencing the Line of Credit (the “Line of Credit Documents”)
with respect to principal amounts advanced;
     (iii) Lessee delivers to Lessor the A/R Replacement Security Deposit and
the Letter of Credit Agreement (as defined below);
     (iv) The LaSalle Loans have been repaid in full or, in the alternative, the
Temporary Revolving Loan and the Term Loan have been repaid, and an amendment to
the Intercreditor Agreement with the holder of the remaining LaSalle Loans is
entered into providing for the priority cap contemplated by sub-paragraph
39(a)(ii) above (the “LaSalle Amendment”) in form and substance reasonably
satisfactory to Lessor; and
     (v) As of the date of entry by Lessor into the intercreditor agreement of
the LaSalle Amendment, no Event of Default has occurred and is continuing.
     (b) Lessee acknowledges and agrees that on the occurrence of a “Default”,
“Event of Default” or similar event or occurrences which causes the lender under
the Line of Credit Documents to accelerate any or all of the indebtedness
thereby or to exercise any rights or remedies under such documents to realize on
its interest in the accounts receivable from the Facilities, or to cease funding
under the Line of Credit, which is not cured within any applicable cure period
under the Line of Credit Documents or any written agreement by lender, shall
constitute an Event of Default under this Lease.
     (c) Concurrently with the delivery of the intercreditor agreement by Lessor
pursuant to Section 39.5(a)(i) above or the LaSalle Amendment, Lessee shall
deliver to

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Lessor a Security Deposit in an amount equal to the sum of (i) six (6) times the
monthly Non-Texas Base Rent (the “Initial Amount”) plus (ii) three (3) times the
monthly Texas Base Rent then payable under this Lease, in the form of an
absolute, unconditional site draft letter of credit for a term of one (1) year
(renewable automatically) issued by an “A” rated financial institution (“A/R
Replacement Security Deposit”), which Lessor shall hold as security for the full
and faithful performance by Lessee of each and every term, provision, covenant
and condition of this Lease in accordance with, and subject to, the terms and
conditions of the Letter of Credit Agreement. On August 31, 2008, and each
subsequent anniversary of such date thereafter, the amount of the A/R
Replacement Security Deposit required to be maintained by Lessee on deposit with
Lessor shall be reduced by 16.66% (or 1/6) of the Initial Amount if and only if
on the applicable anniversary date (i) Lessee has maintained a Stressed Coverage
Ratio for the trailing twelve months of at least 1.45 and (ii) no Event of
Default exists. Notwithstanding the foregoing, at no time shall the A/R
Replacement Security Deposit be less than an amount equal to three times the
monthly Base Rent payable under this Lease on the date of delivery of the A/R
Replacement Security Deposit. Upon delivery to Lessor of the A/R Replacement
Security Deposit and the intercreditor agreement pursuant to this
Section 39.5(a)(i) or the LaSalle Amendment, the amount of the Security Deposit
required under Section 39.1 shall be set equal to the A/R Replacement Security
Deposit.
11. Single, indivisible Lease. The Master Lease constitutes one indivisible
lease of the Leased Properties, and not separate leases governed by similar
terms. The Leased Properties constitute one economic unit, and the Base Rent and
all other provisions have been negotiated and agreed to based on a demise of all
of the Leased Properties as a single, composite, inseparable transaction and
would have been substantially different had separate leases or a divisible lease
been intended. Except as expressly provided herein for specific, isolated
purposes (and then only to the extent expressly otherwise stated), all
provisions of this Lease apply equally and uniformly to all the Leased
Properties as one unit. An Event of Default with respect to any Leased Property
is an Event of Default as to all of the Leased Properties. The parties intend
that the provisions of this Lease shall at all times be construed, interpreted
and applied so as to carry out their mutual objective to create an indivisible
lease of all the Leased Properties and, in particular but without limitation,
that for purposes of any assumption, rejection or assignment of this Lease under
11 U.S.C. 365, this is one indivisible and non-severable lease and executory
contract dealing with one legal and economic unit which must be assumed,
rejected or assigned as a whole with respect to all (and only all) the Leased
Properties covered hereby.
12. Representations and Warranties of Lessee. Lessee hereby represents and
warrants to Lessor that (i) it has the right and power and is duly authorized to
enter into this Agreement; and (ii) the execution of this Agreement does not and
will not constitute a breach of any provision contained in any agreement or
instrument to which Lessee is or may become a party or by which Lessee is or may
be bound or affected
13. Execution and Counterparts. This Amendment may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original, but when taken together shall constitute one and the same
Amendment.

13

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14. Headings. Section headings used in this Amendment are for reference only and
shall not affect the construction of the Amendment.
15. Enforceability. Except as expressly and specifically set forth herein, the
Existing Master Lease remains unmodified and in full force and effect. In the
event of any discrepancy between the Existing Master Lease and this Amendment,
the terms and conditions of this Amendment will control and the Existing Master
Lease is deemed amended to conform hereto.
[SIGNATURE PAGES, ACKNOWLEDGEMENTS, AND JOINDER FOLLOW]

14

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Signature Page to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

                  LESSOR:    
 
                STERLING ACQUISITION CORP., a         Kentucky corporation    
 
           
 
  By:
Name:   /s/ Daniel J. Booth
 
Daniel J. Booth    
 
  Title:   Chief Operating Officer    

             
STATE OF MARYLAND
    )      
 
    )  ss.    
COUNTY OF BALTIMORE
    )      

     This instrument was acknowledged before me on the 9th day of August, 2007,
by _Daniel J. Booth                    , the COO of STERLING ACQUISITION CORP.,
a Kentucky corporation, on behalf of said company.

         
 
  /s/ Judith A. Jacobs
 
Notary Public, Baltimore County, Maryland    
 
  My commission expires: May 1, 2008    

Signature Page 1 of  2

 

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Signature Page to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE
LESSEE:

                  DIVERSICARE LEASING CORP., a         Tennessee corporation    
 
           
 
  By:
Name:   /s/ Glynn Riddle
 
Glynn Riddle    
 
  Title:   EVP & CFO    

             
STATE OF TENNESSEE
    )      
 
    )     SS
COUNTY OF WILLIAMSON
    )      

     This instrument was acknowledged before me on the 9TH day of August, 2007,
by Glynn Riddle, the EVP & CFO of DIVERSICARE LEASING CORP., a Tennessee
corporation, on behalf of said company

         
 
  /s/ Brenda Wimsatt
 
Notary Public, Williamson County, Tennessee    
 
  My commission expires: 7/25/2009    

Signature Page 2 of  2

 

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Acknowledgement to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE
     The undersigned hereby consent to the transactions contemplated by this
Fifth Amendment to Consolidated Amended and Restated Master Lease (the “Fifth
Amendment”), ratify and affirm their respective Guaranties, Pledge Agreements,
Security Agreements, Subordination Agreements and other Transaction Documents,
and acknowledge and agree that the performance of the Master Lease and
obligations described therein are secured by their Guaranties, Pledge
Agreements, Security Agreement, Subordination Agreement and other Transaction
Documents on the same terms and conditions in effect prior to this Amendment.

                  ADVOCAT, INC. a Delaware corporation    
 
           
 
  By:
Name:   /s/ Glynn Riddle
 
Glynn Riddle    
 
  Title:   Executive Vice President and Chief    
 
      Financial Officer    

             
STATE OF TENNESSEE
    )      
 
    )     ss.
COUNTY OF WILLIAMSON
    )      

     The foregoing instrument was acknowledged before me this 9th day of August,
2007, by GLYNN RIDDLE , who is Executive Vice President and Chief Financial
Officer of ADVOCAT, INC. a Delaware corporation, on behalf of the corporation,
who acknowledged the same to be his or her free act and deed and the free act
and deed of the corporation.

         
 
  /s/ Brenda Wimsatt
 
Notary Public, Williamson County, Tennessee    
 
  My Commission Expires: July 25, 2009    

Acknowledgement — Page 1 of  4

 

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Acknowledgement to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

                  DIVERSICARE MANAGEMENT SERVICES         CO., a Tennessee
corporation    
 
           
 
  By:
Name:   /s/ Glynn Riddle
 
Glynn Riddle    
 
  Title:   Executive Vice President and Chief    
 
      Financial Officer    

             
STATE OF TENNESSEE
    )      
 
    )     ss.
COUNTY OF WILLIAMSON
    )      

     The foregoing instrument was acknowledged before me this 9th day of August,
2007, by Glynn Riddle, who is Executive Vice President and Chief Financial
Officer of DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation, on
behalf of the corporation, who acknowledged the same to be his or her free act
and deed and the free act and deed of the corporation.

         
 
  /s/ Brenda Wimsatt
 
Notary Public, Williamson County, Tennessee    
 
  My Commission Expires: July 25, 2009    

Acknowledgement — Page 2 of  4

 

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Acknowledgement to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

                  ADVOCAT FINANCE INC., a Delaware corporation    
 
           
 
  By:
Name:   /s/ Glynn Riddle
 
Glynn Riddle    
 
  Title:   Executive Vice President and Chief    
 
      Financial Officer    

             
STATE OF TENNESSEE
    )      
 
    )     ss.
COUNTY OF WILLIAMSON
    )      

     The foregoing instrument was acknowledged before me this 9th day of August,
2007, by Glynn Riddle, who is Executive Vice President and Chief Financial
Officer of ADVOCAT FINANCE INC., a Delaware corporation, on behalf of the
corporation, who acknowledged the same to be his or her free act and deed and
the free act and deed of the corporation.

         
 
  /s/ Brenda Wimsatt
 
Notary Public, Williamson County, Tennessee    
 
  My Commission Expires: July 25, 2009    

Acknowledgement — Page 3 of  4

 

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Acknowledgement to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

                  STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporation
   
 
           
 
  By:
Name:   /s/ Glynn Riddle
 
Glynn Riddle    
 
  Title:   Executive Vice President and Chief    
 
      Financial Officer    

             
STATE OF TENNESSEE
    )      
 
    )  ss.  
COUNTY OF WILLIAMSON
    )      

     This foregoing instrument was acknowledged before me on the 9th day of
August, 2007, by Glynn Riddle, who is Executive Vice President and Chief
Financial Officer of STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky
corporation, on behalf of said corporation, who acknowledged the same to be his
or her free act and deed and the free act and deed of the corporation.

         
 
  /s/ Brenda Wimsatt
 
Notary Public, Williamson County, Tennessee    
 
  My Commission Expires: July 25, 2009    

Acknowledgement — Page 4 of  4

 

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List of Exhibits and Schedules to
FIFTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

Exhibit A   Legal Description of Texas Facilities

Exhibit B   List of Facilities and Facility Trade Names

Exhibit C   Permitted Encumbrances for Texas Facilities

Exhibit D   Texas Environmental Matters

Schedule C   Excepted Facilities to Radius Requirements

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