Exhibit 10.13

 

LOAN AGREEMENT

 

THIS LOAN AGREEMENT (this “Agreement”) is made as of August 17, 2012, by and
among CSCC PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“Owner”)
and CSCC NURSING, LLC, a Georgia limited liability company (“Operator”) and
together with the Owner and with their respective successors and assigns, being
collectively referred to herein as, the “Borrowers,” and each, a “Borrower”),
and CONTEMPORARY HEALTHCARE FUND I, L.P., a Delaware limited partnership
(together with its successors and assigns, the “Lender”).

 

RECITALS

 

WHEREAS, Borrowers have requested that Lender make a loan to Borrowers in the
principal sum of $600,000.

 

WHEREAS, Lender has agreed to make such loan on the terms and conditions
hereinafter set forth.

 

AGREEMENT

 

NOW, THEREFORE, it is hereby agreed as follows:

 

ARTICLE I.
DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.

 

1.1          Definitions.  As used in this Agreement, the following terms shall
have the following meanings unless the context hereof shall otherwise indicate:

 

“Accounts” means all accounts arising from the business of each of the
Borrowers, and all rights to payment from patients, residents, private insurers,
and others arising from the business of each of the Borrowers, including rights
to payment pursuant to Reimbursement Contracts, including rights to payment from
Medicare and Medicaid programs or similar state or federal programs, boards,
bureaus or agencies.  “Accounts” shall also include the proceeds thereof
(whether cash or noncash, moveable or immoveable, tangible or intangible)
received from the sale, exchange, transfer, collection or other disposition or
substitution thereof and any amounts deposited with Lender pursuant to Sections
4.13 and 4.14 and any reserve account required hereunder.

 

“Account Debtor” means “account debtor,” as defined in Article 9 of the UCC, and
any other obligor in respect of an Account.

 

“Advance” shall have the meaning given such term in Section 2.1(c).

 

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“Advance Rate” shall be 80% as applied to the Borrowing Base as defined below.

 

“Affiliate” shall mean, with respect to any Person, (a) each Person that
controls, is controlled by or is under common control with such Person, (b) each
Person that, directly or indirectly, owns or controls, whether beneficially or
as a trustee, guardian or other fiduciary, any of the Stock of such Person, and
(c) each of such Person’s officers, directors, members, joint venturers and
partners.

 

“Anti Terrorism Laws” shall mean any Laws relating to terrorism or money
laundering, including Executive Order No. 13224 (effective September 24, 2001),
the United States Patriot Act, the laws comprising or implementing the Bank
Secrecy Act, and the laws administered by OFAC.

 

“Application Fee” shall have the meaning set forth in Section 2.9.

 

“Assignee” shall have the meaning set forth in Section 7.9.

 

“Assignment and Pledge Agreement” shall have the meaning set forth in
Section 2.2(b)(iii).

 

“Assumed Management Fees” shall mean five percent (5%) of total revenues net of
contractual adjustments.

 

“Bankruptcy Default” means an Event of Default pursuant to Section 6.1(e) or
Section 6.1(f) of this Agreement.

 

“Borrower” or “Borrowers” has the meaning set forth in the introductory
paragraph of this Agreement.

 

“Borrower Environmental Indemnity Agreement” shall have the meaning set forth in
Section 2.2(c)(v) of this Agreement.

 

“Borrowing Base” shall mean the product of: (i) net billings outstanding less
Ineligible Accounts Receivable, times (ii) the Liquidity Factor, times (iii) the
Advance Rate.

 

“Borrowing Base Certificate” means the certificate attached as Exhibit I.

 

“Business Day” means a day, other than Saturday or Sunday and legal holidays,
when the Lender or national banks in New Jersey are open for business.

 

“Capital Improvements Escrow and Security Agreement” shall have the meaning set
forth in Section 2.2(b)(v).

 

“Certificate of Occupancy” shall mean a final and unconditional Certificate of
Occupancy (or its equivalent) permitting the lawful occupancy of the Facility
from the appropriate Governmental Authority having jurisdiction over the
Property.

 

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“Change in Control” shall mean (i) a merger or consolidation of either of the
Borrowers where any of the Borrowers, as the case may be, is not the surviving
entity, or if it is the surviving entity, such transaction resulted in a change
in its governing body, such that a majority of the individuals who comprise the
governing body immediately prior to such transaction (or series of related
transactions) do not constitute a majority of the governing body after such
transaction, (or if such individuals continue to constitute a majority of the
governing body the transaction vested in another person(s) and/or entity(ies)
any super-majority voting rights); (b) a cumulative change in the ownership of a
Borrower exceeding, on a fully diluted basis and on an as if converted basis,
twenty five percent (25%) of the equity interest issued and outstanding at the
Closing Date; (c) the termination of employment or any material change in the
duties and responsibilities of Christopher F. Brogdon or the material failure to
perform his duties, as determined by the Lender; or (d) any change of the
“Manager,” as defined in each of the Borrower’s operating agreements, as
designated as of the date hereof.

 

“Chattel Paper” shall mean all chattel paper, as that term is defined in
Article 9 of the UCC, and includes, without limitation, a record or records
(including, without limitation, electronic chattel paper) which evidence both a
monetary obligation and a security interest in specific goods, a security
interest in specific goods and software used in the goods, or a lease of
specific goods; all Supporting Obligations (as defined below) with respect
thereto; any returned, rejected or repossessed goods and software covered by any
such record or records and all proceeds (in any form including, without
limitation, accounts, contract rights, documents, chattel paper, instruments and
general intangibles) of such returned, rejected or repossessed goods; and all
proceeds (Cash proceeds and non-cash proceeds) of the foregoing, whether now or
hereafter held by any Borrower.

 

“Closing Date” shall have the meaning set forth in Section 2.1(b).

 

“Closing Fee” shall have the meaning set forth in Section 2.9.

 

“Closing Statement” means the Lender’s Closing Statement dated the date hereof,
executed by the Borrowers and the Lender.

 

“Collateral” means, collectively, all collateral assigned, hypothecated,
pledged, or otherwise granted to Lender under the Loan Documents all whether now
owned or hereafter acquired, including replacements, additions, accessions,
substitutions, and products thereof and thereto, and all other property which is
or hereafter may become subject to a Lien in favor of Lender as security for any
of the Loan Obligations.

 

“Contemporary Debt” shall mean any indebtedness now or hereafter owing to Lender
or any Affiliate of Lender by Borrowers (or any of them) or any Affiliate of a
Borrower, whether primary or secondary, fixed or contingent, individually or
jointly with others, including, but not limited to debt owing to Lender or any
Affiliate of Lender that is guaranteed by any Guarantor. Such Contemporary Debt
shall include the Senior Loan.

 

“Control Agreement” shall have the meaning set forth in Section 2.2(b)(x).

 

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“Corporate Guarantor” means, jointly and severally, AdCare Oklahoma Management,
LLC, a Georgia limited liability company, and AdCare Health Systems, Inc., an
Ohio corporation.

 

“Current Assets” shall have the meaning set forth in Section 4.13(a).

 

“Current Liabilities” shall have the meaning set forth in Section 4.13(a).

 

“Current Ratio” shall have the meaning set forth in Section 4.13(a).

 

“Debt Service Coverage Ratio” means a ratio of the first number to the second
number in which:

 

(i)                                     the first number is the sum of:

 

(a)                                 net income from operations of the Facility
(without deduction for actual management fees paid in connection with the
operation of the Facility) calculated based upon the applicable period,

 

(b)                                 interest expense with respect to the
Facility, to the extent deducted in determining net income,

 

(c)                                  lease expense pursuant to a lease of the
Facility from one Borrower to another, if any, to the extent deducted in
determining net income,

 

(d)                                 non-cash expenses or allowances for
depreciation and amortization of the Facility for such period to the extent
deducted in determining net income, and

 

(e)                                  any monies in the Capitalized Interest
Reserve Account held with the Senior Loan,

 

less:

 

(a)                                 non- operating or extraordinary income,

 

(b)                                 Assumed Management Fees,

 

(c)                                  required Capital Improvements Reserve Fund
deposits for such period, and

 

(d)                                 unfinanced capital expenditures in excess of
the year-to-date sum of Capital Improvements Reserve Fund deposits,

 

(ii)                                  and the second number is the sum of:

 

(a)                                 the total Installment Payments, as defined
in the Note, due for such period, and

 

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(b)                                 other secured and unsecured debt payments
(principal and interest) for such period relating to the Facility, including,
without limitation, payments with respect to any Contemporary Debt relating to
the Facility, provided, however, that such debt shall not include the Senior
Loan, unless provided for herein.

 

In calculating “net income,” any extraordinary income shall be excluded.

 

“Default” means the occurrence or existence of any event which, but for the
giving of notice or expiration of time or both, would constitute an Event of
Default.

 

“Default Rate” means a per annum rate equal to the lesser of five (5%) percent
above the Note Rate as set forth in the Note or the maximum rate permitted by
applicable law.

 

“Equipment” means all beds, linen, televisions, carpeting, telephones, cash
registers, computers, lamps, glassware, rehabilitation equipment, restaurant and
kitchen equipment, and other fixtures and equipment of each of the Borrowers
located on, attached to or used or useful in connection with any of the Property
or the Facility and all renewals and replacements thereof and substitutions
therefor; provided, however, that with respect to any items which are leased for
the benefit of the Facility and not owned by any Borrower, the Equipment shall
include the leasehold interest only of a Borrower together with any options to
purchase any of said items and any additional or greater rights with respect to
such items which any Borrower may hereafter acquire, but the foregoing shall not
be construed to mean that such leasing shall be permitted hereunder and under
the other Loan Documents.

 

“ERISA” shall have the meaning set forth in Section 3.23.

 

“Event of Default” means any “Event of Default” as defined in Article VI hereof.

 

“Exhibit” means an Exhibit to this Agreement, unless the context refers to
another document, and each such Exhibit shall be deemed a part of this Agreement
to the same extent as if it were set forth in its entirety wherever reference is
made thereto.

 

“Exit Fee” shall have the meaning set forth in Section 2.9(d).

 

“Facility” means that certain facility known as Companions Specialized Care
Center, a 121-bed licensed skilled nursing facility located at 6201 East
36th Street, Tulsa, OK 74135, as it may now or hereafter exist, together with
any other general or specialized care facility, if any, now or hereafter
operated on the Property.

 

“Facility Bank” means The PrivateBank and Trust Company.

 

“Force Majeure” means any happening or occurrence such as strikes, acts of God
or nature or similar unanticipated events beyond the control of the party
affected thereby, which prevents such party’s compliance with certain
obligations hereunder, other than a Borrower’s financial inability to perform.

 

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“GAAP” means, as in effect from time to time, generally accepted accounting
principles consistently applied as promulgated by the American Institute of
Certified Public Accountants.

 

“General Intangibles” means all intangible personal property of any of the
Borrowers arising out of or connected with the Property or the Facility and all
renewals and replacements thereof and substitutions therefor (other than
Accounts, Rents, Instruments, Inventory, Money, Permits, and Reimbursement
Contracts), including, without limitation, things in action, contract rights and
other rights to payment of money.

 

“Government Receivables Account” means the bank deposit account for Borrowers
maintained at the Facility Bank into which all Medicaid and Medicare
Reimbursement Contracts payments are to be deposited.

 

“Governmental Authority” means any board, commission, department or body of any
municipal, county, state or federal governmental unit, or any subdivision of any
of them, that has or acquires jurisdiction over the Property and/or the
Improvements or the use, operation or improvement of the Property.

 

“Guarantor” means, jointly and severally, any Corporate Guarantor and each other
party who executes and delivers a Guaranty Agreement in accordance with the
terms of this Agreement.

 

“Guaranty Agreement” means any Payment and Performance Guaranty.

 

“Health Regulatory Authority” means any Governmental Authority administering,
overseeing, or regulating any certificates of need and other licensure and
regulatory approvals required for the operation of the Facility (including any
approvals required to obtain reimbursement under Medicare, Medicaid and CHAMPUS,
and other Department of Veterans Affairs benefits, as applicable.)

 

“Improvements” means all buildings, structures and improvements of every nature
whatsoever now or hereafter situated on the Property, including, but not limited
to, all gas and electric fixtures, radiators, heaters, engines and machinery,
boilers, ranges, elevators and motors, plumbing and heating fixtures, carpeting
and other floor coverings, water heaters, awnings and storm sashes, and cleaning
apparatus which are or shall be attached to the Property or said buildings,
structures or improvements.

 

“Indebtedness” means any (a) obligations for borrowed money, (b) obligations,
payment for which is being deferred by more than thirty (30) days, representing
the deferred purchase price of property other than accounts payable arising in
connection with the purchase of inventory and materials customary in the trade
and in the ordinary course of each Borrower’s business, (c) obligations, whether
or not assumed, secured by Liens or payable out of the proceeds or production
from the Accounts and/or property now or hereafter owned or acquired, and
(d) the amount of any other obligation (including obligations under financing
leases) which would be shown as a liability on a balance sheet prepared in
accordance with GAAP.

 

“Indemnified Parties” shall have the meaning set forth in Section 7.4.

 

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“Ineligible Accounts Receivable” shall mean the sum of:

 

(i)                                     self-pay billings and direct patient
obligations not directly collectible from commercial or government payors;

 

(ii)                                  gross patient billings outstanding to
government payors aged greater than 90 days;

 

(iii)                               gross patient billings outstanding to
commercial payors aged greater than 90 days;

 

(iv)                              net billings not directly owned by or in the
name of and payable to the Borrower or subject to a priority lien in favor of
any entity other than the Lender;

 

(v)                                 net billings made under any provider or
payor agreement of which the Borrower is not directly the receiving party or
Seller in accordance with the Purchase Agreement; and

 

(vi)                              other billings so deemed ineligible by the
Lender based on the collection experience with respect to the Accounts or other
factually based credit criteria upon an audit of cash collections by an
independent auditor acceptable to the Lender.

 

“Installment Payments” shall have the meaning given to such term in the Note.

 

“Instruments” means all instruments, Chattel Paper, documents or other writings
obtained from or in connection with the operation of the Property or the
construction and operation of the Facility (including, without limitation, all
ledger sheets, computer records and printouts, data bases, programs, books of
account, trademarks or trade names, utility contracts, maintenance and service
contracts, and files relating thereto).

 

“Inventory” means all inventories of food, beverages and other consumables held
by any of the Borrowers for sale or use at or from the Property or the Facility,
and soap, paper supplies, medical supplies, drugs and all other such goods,
wares and merchandise held by any of the Borrowers for sale to or for
consumption by guests, patients or residents of the Property or the Facility and
all such other goods returned to or repossessed by any Borrower.

 

“Investment Property” shall mean all property, as such term is defined in the
UCC, and includes, without limitation, a security, whether certificated or
uncertificated, security entitlement, securities account, commodity, or
commodity account, and all proceeds (Cash proceeds and non-cash proceeds) of,
and Supporting Obligations with respect to, the foregoing.

 

“Knowledge” means that any Borrower will be deemed to have “Knowledge” of a
particular fact or other matter if any executive officer of such Borrower is
aware of such fact or other matter where a prudent individual could be expected
to discover or otherwise become aware of such fact or other matter in the course
of operating the business.

 

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“Lease Agreement” shall mean that certain Facility Lease dated June 25, 2012 and
effective on the Operations Closing Date, between Owner and the Operator.

 

“Legal Requirements” means all governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of any Governmental
Authority affecting either Borrower or the Property or any portion of or the
construction, rehabilitation, ownership, use, alteration or operation of, or any
portion of the Property (whether now or hereafter enacted and in force), and all
permits, licenses and authorizations and regulations relating thereto.

 

“Lender” shall mean Contemporary Healthcare Fund I, L.P.

 

“Lender’s Approval” shall have the meaning set forth in Section 7.12.

 

“Lien” means any voluntary or involuntary mortgage, security deed, deed of
trust, lien, pledge, assignment, security interest, title retention agreement,
financing lease, levy, execution, seizure, judgment, attachment, garnishment,
charge, lien or other encumbrance of any kind, including those contemplated by
or permitted in this Agreement and the other Loan Documents.

 

“Liquidity Factor” shall mean a percentage representative of cash collections to
net billings by payor, by site, or by other classification as determined by an
independent auditor acceptable to Lender.  The Liquidity Factor shall be subject
to change during the term of this Agreement at the sole discretion of Lender
based upon factually based credit criteria, including, among other things,
actual monthly cash collections recognized on gross patient billings as
determined by an independent auditor acceptable to Lender. The Liquidity Factor
as of the Closing Date will be 90%.

 

“Loan” shall mean the loan in a maximum amount of the Original Loan Amount made
by Lender to Borrowers as evidenced by the Note.

 

“Loan Account” means the Borrowers’ deposit account maintained at the Facility
Bank and subject to the Control Agreement and ZBA Agreement.

 

“Loan Documents” means, collectively:

 

(i)                                     this Agreement,

 

(ii)                                  Assignment and Pledge Agreement (with, if
applicable, Waiver and Consent),

 

(iii)                               Borrower Environmental Indemnity Agreement,

 

(iv)                              Closing Statement,

 

(v)                                 Control Agreement,

 

(vi)                              Management Company Environmental Indemnity
Agreement,

 

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(vii)                           Note,

 

(viii)                        Payment and Performance Guaranty,

 

(ix)                              Security Agreement,

 

(x)                                 Subordination and Assignment of Lease
Agreement,

 

(xi)                              Subordination and Assignment of Management
Agreement,

 

(xii)                           Subordination and Standstill Agreement,

 

(xiii)                        Subsidiary Guaranty,

 

(xiv)                       ZBA Agreement.

 

each as further amended, modified, supplemented or restated, together with any
and all other documents executed by any Borrower or others, evidencing, securing
or otherwise relating to the Loan.

 

“Loan Obligations” means the aggregate of all principal and interest owing from
time to time under the Note and all expenses, charges and other amounts from
time to time owing under the Note, this Agreement, or the other Loan Documents
and all covenants, agreements and other obligations from time to time owing to,
or for the benefit of, Lender pursuant to the Loan Documents.

 

“Management Agreement” means that certain Management Agreement dated January 1,
2012, between Operator and Management Company.

 

“Management Company” shall mean AdCare Oklahoma Management, LLC, a Georgia
limited liability company.

 

“Management Company Environmental Indemnity Agreement” shall have the meaning
set forth in Section 2.2(c)(vi) of this Agreement.

 

“Material Adverse Effect” shall have the meaning set forth in Section 3.1.

 

“Maturity Date” shall have the meaning given such term in the Note.

 

“Medicaid” means that certain program of medical assistance, funded jointly by
the federal government and the states, for impoverished individuals who are
aged, blind and/or disabled, and/or members of families with dependent children,
which program is more fully described in Title XIX of the Social Security Act
(42 U.S.C. §§ 1396 et seq.) and the regulations promulgated thereunder.

 

“Medicare” means that certain federal program providing health insurance for
eligible elderly and other individuals, under which physicians, hospitals,
independent living and assisted living facilities, skilled nursing homes, home
health care and other providers are reimbursed for certain covered services they
provide to the beneficiaries of such program, which

 

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program is more fully described in Title XVIII of the Social Security Act (42
U.S.C. §§ 1395 et seq.) and the regulations promulgated thereunder.

 

“Money” means all monies, cash, rights to deposit or savings accounts or other
items of legal tender obtained from or for use in connection with the operation
of the Facility.

 

“Note” means the Promissory Note dated the date hereof in the principal amount
of the Original Loan Amount payable by Borrowers to the order of Lender.

 

“Note Rate” shall have the meaning given such term in the Note.

 

“Operations Closing Date” shall have the meaning given such term in
Section 3.39(i).

 

“Operations Seller” means Tulsa Christian Care, Inc.

 

“Operations Seller Lease Agreement” means the Facility Lease dated the date
hereof, between Operations Seller and Owner.

 

“Operations Seller Management Agreement” means the Management Agreement dated
June 25, 2012, as amended, between Operations Seller and Management Company.

 

“Operations Seller SNDA” shall have the meaning set forth in
Section 2.2(c)(vii).

 

“Operations Seller Subordination and Assignment of Lease Agreement” shall have
the meaning set forth in Section 2.2(c)(viii).

 

“Operations Seller Transfer Agreement” means the Operations Transfer Agreement
dated the date hereof, between the Operations Seller and the Operator.

 

“Original Loan Amount” shall mean $600,000.

 

“Payment and Performance Guaranty” shall have the meaning set forth in
Section 2.2(b)(viii).

 

“Payroll Account” means the Borrowers’ payroll account maintained at the
Facility Bank and subject to the ZBA Agreement.

 

“Permits” means all licenses, permits and certificates used or necessary in
connection with the ownership, operation, construction, use or occupancy of the
Property and/or the Facility, including, without limitation, business licenses,
state health department licenses, food service licenses, licenses to conduct
business, certificates of need and all such other permits, licenses and rights,
obtained from any governmental, quasi-governmental or private person or entity
whatsoever concerning ownership, construction, operation, use or occupancy.

 

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“Permitted Encumbrances” has the meaning given to that term in Section 5.2
hereof.

 

“Person” means any natural person, firm, trust, corporation, partnership,
limited liability company, trust and any other form of legal entity.

 

“Physical Plant Standard” shall have the meaning set forth in Section 3.15.

 

“Proceeds” means all awards, payments, earnings, royalties, issues, profits,
liquidated claims, and proceeds (including proceeds of insurance and
condemnation or any conveyance in lieu thereof) from the sale, conversion
(whether voluntary or involuntary), exchange, transfer, collection, loss,
damage, condemnation, disposition, substitution or replacement of any of the
Collateral.

 

“Property” means the real estate which is more particularly described in
Exhibit A hereto, upon which the Facility is located, and which, concurrent with
the Closing Date, was owned by Owner.

 

“Purchase Agreement” means the Purchase and Sale Agreement, with exhibits, dated
March 14, 2012, as amended April 19, 2012 and June 19, 2012, as amended, between
Seller and AdCare Property Holdings, LLC, as assigned to the Owner.

 

“Reimbursement Contracts” means all third party reimbursement contracts for the
Facility which are now or hereafter in effect with respect to residents or
patients qualifying for coverage under the same, including Medicare, Medicaid,
other government programs and private insurance agreements, and any successor
program or other similar reimbursement program and/or private insurance
agreements.

 

“Rents” means all rent and other payments of whatever nature from time to time
payable pursuant to leases of the Property or the Facility, or for retail space
or other space at the Property (including, without limitation, rights to payment
earned under leases for space in the Improvements for the operation of ongoing
retail businesses such as newsstands, barbershops, beauty shops, physicians’
offices, pharmacies and specialty shops).

 

“Security Agreement” shall have the meaning set forth in Section 2.2(b)(ii).

 

“Seller” means, collectively, F&F Ventures, LLC and Tulsa Christian Care, Inc.

 

“Senior Lender” shall mean Contemporary Healthcare Senior Lien Fund I, L.P.

 

“Senior Loan” shall mean all loan obligations, the Senior Loan Agreement and the
other Senior Loan Documents.

 

“Senior Loan Agreement” shall mean that certain Loan Agreement dated the date
hereof, by and between Senior Lender and the Borrowers, as such agreement may be
amended.

 

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“Senior Loan Documents” shall mean the Senior Loan Agreement and all documents,
instruments and agreements executed in connection with such Senior Loan
Agreement.

 

“Senior Mortgage” means that certain Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Filing of even date herewith from the Owner in
favor of or for the benefit of the Senior Lender.

 

“Single Purpose Entity” means a Person which owns no interest or property other
than the Property and the Improvements or has a business purpose limited solely
to the leasing and operation of the Facility.

 

“Stabilization” means the date upon which the Facility demonstrates a Total Debt
Service Coverage Ratio of 1.15 to 1.00 for three consecutive calendar months.

 

“Standstill Notice” shall have the meaning set forth in Section 6.4.

 

“Stock” shall mean all shares, options, warrants, general or limited partnership
interests, membership interests, participations or other equivalents (regardless
of how designated) in a corporation, limited liability company, partnership or
any equivalent entity, whether voting or nonvoting, including, without
limitation, common stock, preferred stock, or any other “equity security” (as
such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).

 

“Subordination and Assignment of Lease Agreement” shall have the meaning set
forth in Section 2.2(c)(iii).

 

“Subordination and Assignment of Management Agreement” shall have the meaning
set forth in Section 2.2(c)(ii).

 

“Subordination and Attornment Agreement” shall have the meaning set forth in
Section 2.2(c)(i).

 

“Subordination and Standstill Agreement” shall have the meaning set forth in
Section 2.2(c)(iv).

 

“Subsidiary Guaranty” shall have the meaning set forth in Section 2.2(b)(ix).

 

“Supporting Obligation” shall mean all supporting obligations as such term is
defined in the UCC, and in any event shall include, without limitation, a
letter-of-credit right, secondary obligation, or obligation of a secondary
obligor, or secondary obligation that supports the payment or performance of an
Account, Chattel Paper, a document, a General Intangible, an Instrument, or
Investment Property.

 

“Tax” (including, with correlative meaning, the terms “Taxes” and “Taxable”)
means, with respect to any Person, (a) all taxes, domestic or foreign, including
without limitation any income (net, gross or other, including recapture of any
tax items such as investment tax

 

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credits), alternative or add-on minimum tax, gross income, gross receipts,
gains, sales, use, leasing, lease, user, ad valorem, transfer, recording,
franchise, profits, property (real or personal, tangible or intangible), fuel,
license, withholding on amounts paid to or by such Person, payroll, employment,
unemployment, social security, excise, severance, stamp, occupation, premium,
environmental or windfall profit tax, custom, duty or other tax, or other like
assessment or charge of any kind whatsoever, together with any interest, levies,
assessments, charges, penalties, additions to tax or additional amounts imposed
by any Taxing Authority, (b) any joint or several liability of such Person with
any other Person for the payment of any amounts of the type described in (a) of
this definition and (c) any liability of such Person for the payment of any
amounts of the type described in (a) as a result of any express or implied
obligation to indemnify any other Person.

 

“Tax and Insurance Escrow and Security Agreement” shall mean that certain Tax
and Insurance Escrow and Security Agreement in the form attached hereto as
Schedule 2.2(b)(vi).

 

“Tax and Insurance Report” shall mean the report required by Section 4.6(o) of
this Agreement.

 

“Tax Return(s)” mean all returns, consolidated or otherwise (including without
limitation informational returns), required to be filed with any Taxing
Authority.

 

“Taxing Authority” means any authority responsible for the imposition or
collection of any Tax.

 

“Third Party Payors’ Programs” shall have the meaning set forth in Section 3.13.

 

“Total Debt Service Coverage Ratio” means the Debt Service Coverage Ratio
including the Senior Loan.

 

“Trade Rights” shall have the meaning set forth in Section 3.32.

 

“UCC” shall mean the Uniform Commercial Code.

 

“Unused Fee” shall have the meaning set forth in Section .2.9(d).

 

“ZBA Agreement” means the agreement by and among the Facility Bank, each
Borrower and the Lender, governing the operation of the Government Receivables
Account and Payroll Account and transfer to the Loan Account.

 

1.2                               Singular vs. Plural.  Singular terms shall
include the plural forms and vice versa, as applicable, related to the terms
defined.

 

1.3                               Uniform Commercial Code.  Terms contained in
this Agreement shall, unless otherwise defined herein or unless the context
otherwise indicates, have the meanings, if any, assigned to them by the Uniform
Commercial Code in effect in the state in which the Collateral for the Loan
Obligations is deemed located, as such Uniform Commercial Code may

 

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be amended from time to time (provided, no amendment shall have the effect of
releasing any security interest previously granted.)

 

1.4                               GAAP.  All accounting terms used in this
Agreement shall be construed in accordance with GAAP, except as otherwise
specified.

 

1.5                               References Generally.  All references to other
documents or instruments shall be deemed to refer to such documents or
instruments as they may hereafter be extended, renewed, modified, or amended and
all replacements and substitutions therefor.

 

1.6                               References to Medicaid and Medicare.  All
references herein to “Medicaid” and “Medicare” shall be deemed to include any
successor program thereto.

 

ARTICLE II.
TERMS OF THE LOAN

 

2.1                               The Loan.

 

(a)                                 Loan.  Borrowers have agreed to borrow the
Loan from Lender and Lender has agreed to make the Loan to Borrowers, subject to
each Borrower’s compliance with and observance of the terms, conditions,
covenants, and provisions of this Agreement and the other Loan Documents, and
Borrowers have made the covenants, representations, and warranties herein and
therein as a material inducement to Lender to make the Loan.

 

(b)                                 Closing Date.  The date of the closing
related to the disbursing of any portion of the Loan and delivery of the Loan
Documents shall be referred to herein as the “Closing Date.”

 

(c)                                  Advances.  Borrowers shall have the option
to request up to one advance of Loan proceeds (an “Advance”) per week during the
term of the Loan upon presentation to Lender of a current Borrowing Base
Certificate, in form attached as Exhibit I hereto, and such other supporting
documentation as Lender shall require.  All such requests for Advances shall be
submitted to Lender not less than three (3) Business Days prior to the date of
the desired funding of the Advance.  Each such Advance shall be subject to
receipt of a signed certificate from an authorized officer of the Borrowers in a
form acceptable to Lender, which certificate shall demonstrate Borrowers’
compliance with the conditions of the Advance set forth herein certifying to
such items as Lender shall require, including without limitation the following:

 

(i)                                     Lender has the capacity to fund the
Advance, and such Advance, when combined with the aggregate unpaid principal
amount of all other Advances does not violate any of the Lender’s concentration
rules or requirements relating to the maximum aggregate financing Lender may
advance to any one Borrower, as determined by Lender in accordance with SBA
regulations;

 

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(ii)                                  No monetary Event of Default shall have
occurred and no other Default or Event of Default shall exist and be continuing
under the Loan or the Senior Loan;

 

(iii)                               Borrowers shall demonstrate to Lender that
the aggregate principal balance outstanding of the Loan, giving effect to the
requested Advance, is equal to the lesser of (A) $600,000, or (B) the Borrowing
Base;

 

(iv)                              All representations and warranties made by
Borrowers in this Agreement and the other Loan Documents are true and correct as
of the date of making such Advance except as otherwise specifically approved by
Lender in writing or permitted under the Loan Documents;

 

(v)                                 There shall have been no material adverse
change in the financial condition of the Borrowers or any Guarantor as
determined by Lender in its sole discretion;

 

(vi)                              Borrowers shall pay all reasonable fees and
expenses incurred by Lender in connection with making such Advance;

 

(vii)                           Borrowers’ minimum balance on any date shall be
the lesser of (A) $450,000 or (B) the Borrowing Base;

 

(viii)                        Borrowers shall deliver to Lender any and all
documents and information to evidence the conditions set forth herein as
determined by Lender, in its sole discretion;

 

(ix)                              Borrowers shall execute any and all documents
reasonably deemed necessary by Lender;

 

(x)                                 Borrowers shall be current under all payroll
and payroll tax obligations for the Facility unless subject to a good faith
contest adequately reserved for in the judgment of the Lender; and

 

(xi)                              Each Advance shall be in a minimum amount of
$25,000.

 

2.2                               Loan Documents.

 

(a)                                 The Loan will be evidenced by the Loan
Documents, including, but not limited to, the Note;

 

(b)                                 The Loan will be secured and guaranteed by
the following:

 

(i)                                     reserved;

 

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(ii)                                  a second lien security interest., subject
only to Senior Lender’s lien, and an assignment of Borrowers’ interest in all
General Intangibles, including, but not limited to, licenses, Permits,
Reimbursement Contracts, leases and other contracts used in connection with or
relating to operation of the Facility, and a first lien security interest and an
assignment of Borrowers’ interest in all Accounts, as evidenced by the Security
Agreement delivered by Borrowers on the Closing Date, in the forms attached
hereto as Schedule 2.2(b)(ii) (the “Security Agreement”);

 

(iii)                               a second lien security interest in all of
the issued and outstanding membership interests or capital stock, as the case
may be, of Owner and Operator, evidenced by the form of Assignment and Pledge
Agreement executed and delivered by all the members of each of the Borrowers on
the Closing Date, along with a Waiver and Consent, if applicable, in the form
attached hereto as Schedule 2.2(b)(iii) (each, an “Assignment and Pledge
Agreement”);

 

(iv)                              reserved;

 

(v)                                 a second lien security interest in the
Capital Improvements Reserve Fund as evidenced and as required by the form of
capital improvements escrow and security agreement attached to the Senior Loan
Agreement (the “Capital Improvements Escrow and Security Agreement”);

 

(vi)                              a second lien security interest in the Tax and
Insurance Reserve Fund as evidenced and as required by the form of tax and
insurance escrow and security agreement attached to the Senior Loan Agreement
(the “Tax and Insurance Escrow and Security Agreement”);

 

(vii)                           a second lien on the Capitalized Interest
Reserve Account held by the Senior Lender and as defined in the Senior Loan
Agreement;

 

(viii)                        a guaranty by each Corporate Guarantor, through
the delivery to Lender on the Closing Date, of a payment and performance
guaranty agreement in the form attached hereto as Schedule 2.2(b)(viii) (each a
“Payment and Performance Guaranty”);

 

(ix)                              a guaranty by each subsidiary of any Borrower
which may be hereafter acquired or formed by a Borrower, it being

 

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understood and agreed that as of the Loan Closing Date, no such entities exist,
through the delivery to Lender at the time of the acquisition or formation of
such subsidiary by each such subsidiary, a Guaranty in the form attached hereto
as Schedule 2.2(b)(ix) (each, a “Subsidiary Guaranty”); and

 

(x)                                 a Control Agreement by and among the
Facility Bank, Borrowers and Lender for the “Loan Account,” delivered to Lender
within 10 Business Days of the Closing Date in the form attached hereto as
Schedule 2.2(b)(x) (the “Control Agreement”);

 

(xi)                              reserved.

 

(c)                                  Additional terms and conditions of the Loan
will be evidenced by the following documents:

 

(i)                                     reserved;

 

(ii)                                  a Subordination and Assignment of
Management Agreement executed and delivered by Borrowers and the Management
Company on the Operations Closing Date in the form attached hereto as
Schedule 2.2(c)(ii) (the “Subordination and Assignment of Management
Agreement”);

 

(iii)                               a Subordination and Assignment of Lease
Agreement executed and delivered by Borrowers on the Operations Closing Date in
the form attached hereto as Schedule 2.2(c)(iii) (the “Subordination and
Assignment of Lease Agreement”);

 

(iv)                              a Subordination and Standstill Agreement
executed and delivered by Lender and Senior Lender, and acknowledged by each
Borrower on the Closing Date in the form attached hereto as Schedule
2.2(c)(iv)(A) (the “Subordination and Standstill Agreement”);

 

(v)                                 a Borrower Environmental Indemnity Agreement
dated the Closing Date executed and delivered by Borrowers in the form attached
hereto as Schedule 2.2(c)(v) (the “Borrower Environmental Indemnity Agreement”);

 

(vi)                              a Management Company Environmental Indemnity
Agreement dated the Closing Date executed and delivered by the Management
Company in the form attached hereto

 

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as Schedule 2.2(c)(vi) (the “Management Company Environmental Indemnity
Agreement”);

 

(vii)                           a Subordination and Attornment Agreement
executed and delivered by Operations Seller, Owner and Senior Lender, under
which Lender is a third party beneficiary,  on the Closing Date in the form
attached hereto as Schedule 2.2(c)(vii) (the “Operations Seller SNDA”); and

 

(viii)                        a Subordination and Assignment of Lease Agreement
executed and delivered by Owner, Operations Seller, Senior Lender and Lender on
the Closing Date in the form attached hereto as Schedule 2.2(c)(viii) (the
“Operations Seller Subordination and Assignment of Lease Agreement”).

 

2.3                               Closing Deliverables by Borrowers.  Borrowers
shall deliver or cause to be delivered to Lender the following:

 

(a)                                 Borrower’s Officers’ Certificates.  On the
Closing Date, a certificate executed by the Chief Executive Officer and Chief
Financial Officer or other party acceptable to Lender of each Borrower
certifying to Lender, among other things, that, as of the Closing Date: (i) the
transactions have been duly authorized, (ii) true, correct and complete copies
of the organizational documents of Borrowers have been delivered to Lender,
(iii) to the Borrowers’ Knowledge, no part of the Facility shall have been
damaged and not repaired to Lender’s satisfaction or taken in condemnation or
other like proceedings nor shall any such proceeding be pending, (iv) to the
Borrowers’ Knowledge, the Facility shall be unimpaired and not reduced in value
and shall be free from settling and other structural defects, (v) neither the
Borrowers nor the Guarantors, nor any of Borrowers’ or Guarantors’ principals
shall be involved in any bankruptcy, reorganization or insolvency proceeding and
(vi) that since the date or dates, as the case may be, of the financial
information last provided to the Lender with respect to the Borrowers, any
ownership interest in the Borrowers, the Facility or the Guarantors, there has
been no material adverse change in the financial condition thereof;

 

(b)                                 Legal Opinion.  On the Closing Date, a legal
opinion of Borrowers’, the Borrowers’ members and any Guarantor’s counsel, in
form and content satisfactory to Lender and its counsel;

 

(c)                                  Reports.  The following reports and other
documents all of which shall be in Lender’s name:

 

(i)                                     Reserved.

 

(ii)                                  Survey.  On the Closing Date, three (3)
copies of a survey with a licensed surveyor’s certificate, all in form and
substance acceptable to and certified to Lender, Lender’s counsel and the title
insurance company.  Such survey and surveyor’s certificate shall not be dated
more than thirty

 

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(30) days prior to the date of the Closing Date and shall attest to the
existence or nonexistence of a special flood hazard area with respect to the
Facility.  The survey shall also be prepared in accordance with ALTA 2011
standards and be certified to the Lender and the title insurance company.  Such
survey shall provide evidence to Lender that all streets adjoining the Property
underlying the Facility have been completed, dedicated and accepted for
maintenance and public ingress and egress to the Property.

 

(iii)          Environmental Report.  On the Closing Date, a Phase I
Environmental Report indicating that the Facility and the Property are free from
toxic chemicals and environmentally hazardous substances and that surrounding
land uses do not pose an environmental threat.

 

(iv)                              Engineering Report.  On the Closing Date, an
engineering report of the Facility from an engineering firm acceptable to Lender
in its sole discretion, which report shall be in substance acceptable to Lender

 

(v)                                 Appraisal.  (a) On the Closing Date, an
appraisal of the Property “as is” acceptable to Lender, in its sole discretion
dated no more than thirty (30) days prior to the Closing Date, and (b) as
otherwise may be required hereunder.

 

(vi)                              Termite Inspection Report.  On the Closing
Date, a termite inspection report of the Facility dated no more than thirty (30)
days prior to the Closing Date in form and substance satisfactory to the Lender
or, in lieu thereof, a current pest control contract for the Facility.

 

(d)                                 Zoning Letter. A copy of a letter from local
zoning authority or some other evidence acceptable to Lender, addressed to the
Lender, confirming that the Facility is zoned for its intended use.

 

(e)                                  Sprinkler Systems.  On the Closing Date,
Borrowers shall provide evidence to Lender, acceptable to Lender in its sole
discretion, that all buildings that comprise the Facility have sprinkler
systems.

 

(f)                                   Evidence of Insurance. Evidence,
acceptable to Lender in its sole discretion, of insurance required by Section
4.5 herein, in form and substance acceptable to Lender. Such evidence shall be:
(i) the original, or a copy certified by the insurance agent, of the policy(ies)
of insurance, or (ii) the insurance binder (Acord Form 25 provided by the
insurance carrier) or (iii) a certificate of insurance (Acord Form 27 or 28, at
Lender’s discretion, provided by the insurance agent), or (iv) an original
letter from the insurance carrier on the primary layer, signed by an officer of
such carrier, attaching the form of insurance policy pursuant to which

 

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coverage is being provided, and, if applicable, an original letter from each
insurance carrier on the excess layers, signed by an officer of such carrier(s)
agreeing that such carrier is bound to the form of insurance policy delivered by
the primary carrier (i.e., agreeing to “follow form” to the primary carrier). 
The letter must set forth the date by which the policy will be delivered to the
Lender. All mortgagee/loss payee/additional insured endorsements must be
attached to such letter.

 

(g)                                  Evidence of Payment of Taxes. Evidence,
acceptable to the Lender in its sole discretion, that Borrowers have timely and
appropriately paid all Taxes associated with the Facility.

 

(h)                                 Licenses and Permits. On the Closing Date, a
copy of the Facility license to permit it to be operated as a skilled nursing
facility prior to the Operations Closing Date.

 

(i)                                     Certificate of Occupancy.  On the
Closing Date or post Closing Date at Lender’s discretion, a copy of the
Facility’s Certificate of Occupancy.

 

(j)                                    Loan Documents.  On the Closing Date,
executed copies of each of the Loan Documents required on such date.

 

(k)                                 Other Agreements. On the Closing Date, a
copy of the executed Operations Seller Management Agreement, Operations Seller
Lease Agreement and the Operations Seller Transfer Agreement.

 

(l)                                     Further Assurances.  Such other
information of Borrowers, each Guarantor and/or the Facility, as Lender shall
reasonably deem necessary.

 

2.4                               Interest and Interest Rate.

 

(a)                                 The outstanding principal balance of the
Loan will bear interest at the Note Rate as set forth in the Note and payments
of principal and interest on the Loan, including any fees payable in Section
2.9, shall be made in accordance with the terms and provisions of the Note and
this Agreement.  Payments of principal and interest on the Loan shall be made in
accordance with the terms and provisions of the Note and the amortization
schedule attached hereto as Schedule 2.4(a) (which amortization schedule may be
adjusted during the term of the Loan in accordance with the Note).

 

(b)                                 All interest on the outstanding principal
balance of the Loan shall be calculated on the basis of a 360-day year by
multiplying the outstanding principal amount by the applicable per annum rate,
multiplying the product thereof by thirty days and dividing the product so
obtained by 360.

 

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2.5                               Repayment of Loan.  Each payment of the Loan
Obligations shall be paid directly to Lender in lawful money of the United
States of America at the following address:

 

Contemporary Healthcare Fund I, L.P.
1040 Broad Street
Suite 103
Shrewsbury, New Jersey 07702
Attention:  Mr. Eric Smith

 

or such other place as Lender shall designate in writing to Borrowers.  Each
such payment shall be paid in immediately available funds by 2:00 p.m. Eastern
time on the date such payment is due, except if such date is not a Business Day
such payment shall then be due on the first Business Day after such date, but
interest shall continue to accrue until the date payment is received.  Any
payment received after 2:00 p.m. Eastern time shall be deemed to have been
received on the immediately following Business Day for all purposes, including,
without limitation, the accrual of interest on principal.

 

2.6                               Prepayment.

 

(a)                                 During the term of the Loan, the Borrowers
may borrow, repay, and reborrow the Loan in accordance with the terms hereof and
subject to the limitations set forth herein and in the Note.

 

(b)                                 The Borrowers shall prepay the Loan in full
upon any repayment in whole of the Senior Loan.

 

2.7                               Late Charges on Overdue Installments;
Collection Costs.

 

(a)                                 If any scheduled payment of principal or
interest as set forth in the Note, or any other agreed charge, is not made as
the same becomes due, Borrowers agree to pay to Lender a late charge as required
by the Note.

 

(b)                                 The imposition of such late charges shall
not preclude Lender from exercising any other remedies which it may have.

 

(c)                                  Borrowers will also pay to Lender, in
addition to the amount due, all reasonable costs of collecting, securing, or
attempting to collect or secure the Note, including, without limitation, court
costs and reasonable attorneys’ fees, including, without limitation, attorneys’
fees for preparation of litigation and in any appellate and bankruptcy
proceedings.

 

2.8                               Usury Provisions.  In no event shall the
amount of interest due or payable hereunder or pursuant to any of the Loan
Documents exceed the maximum rate of interest allowed by applicable law, and in
the event any such payment is inadvertently paid by Borrowers or inadvertently
received by Lender, then such excess sum shall be credited as a payment of
principal.  It is the express intent hereof that Borrowers not pay and Lender
not receive, directly or indirectly, interest in excess of that which may be
legally paid by Borrowers under applicable law.

 

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2.9                               Fees.

 

(a)                                 Application Fee.  Borrowers shall pay to
Lender a non-refundable Application Fee of one percent (1.00%) of the Original
Loan Amount, which fee may be paid for from Loan proceeds (the “Application
Fee”). The Application Fee is due upon the earlier of the Closing Date or August
31, 2012 and is deemed fully earned upon the execution of such term sheet.

 

(b)                                 Closing Fee. Borrowers shall pay to Lender a
non-refundable transaction fee of one percent (1%) of the initial Advance to be
made on the first Closing Date and one percent (1%) on each subsequent Advance
(the “Closing Fee”).  Such Closing Fee is deemed fully earned on the date due.
Notwithstanding the foregoing, the total Closing Fee paid by the Borrowers over
the term of the Loan shall not exceed 1% of the Original Loan Amount (the
“Closing Fee”)

 

(c)                                  Monitoring Fee. Borrowers shall pay to
Lender a Monitoring Fee of one-half of a percent (0.5%) per annum of the
Original Loan Amount, payable monthly on the 20th day of each month commencing
the 20th day of the month next succeeding the Operations Closing Date (the
“Monitoring Fee”).

 

(d)                                 Exit Fee. Upon the Maturity Date or if the
Borrowers shall decide to terminate a portion or all of the Lender’s commitment
to provide the Loan hereunder, the Borrowers shall pay an exit fee (the “Exit
Fee”) to the Lender equal to 1.5% of the Original Loan Amount; subject, however,
to the following: (i) any cash sweeps upon an Event of Default shall not be
considered prepayments subject to the Exit Fee so long as the aggregate
outstanding principal balance of the Loan at all times equals or exceeds
$450,000; (ii) if at any time the aggregate outstanding principal balance of the
Loan shall be less than $450,000, then the Exit Fee shall be equal to 1.5% of
the difference between $450,000 and the aggregate outstanding principal balance
on such date; and (iii) any permanent full or partial termination of Lender’s
commitment for the Original Loan Amount shall require payment of the Exit Fee
equal to 1.5% of the principal amount so terminated; provided, that the
aggregate amount of Exit Fees payable during the term of the Loan shall not
exceed 1.5% of the Original Loan Amount.

 

(e)                                  Non-Use Fee. Borrower shall pay to Lender a
Non-Use Fee of one half of a percent (0.5%) per annum on the average monthly
Loan amount that has not been advanced, payable monthly on the 20th day of each
month commencing the 20th day of the month next succeeding the Operations
Closing Date.

 

All fees provided for in this Section 2.9 are deemed fully earned on the date
due.

 

2.10                        Use of Loan; Disbursement of Proceeds.

 

(a)                                 Borrowers agree to use the Loan for the
following:

 

(i)                                     To provide funds to pay for the costs,
expenses and fees due in connection with the Loan as noted on the Lender’s
Closing Statement; and

 

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(ii)                                  The balance of the Loan, if any, shall be
used for working capital, including, but not limited to, towards satisfaction of
the covenants set forth herein and in the other Loan Documents.

 

(b)                                 reserved.

 

(c)                                  Borrowers further agree to make an equity
contribution of $550,000. The required equity contribution amount excludes any
other fee the Borrowers or any of their Affiliates would pay themselves for
services with respect to the acquisition or improvement of the Facility.

 

(d)                                 Lender acknowledges that Borrowers have
agreed to provide $750,000 of stock in AdCare Health Systems, Inc. to Seller in
accordance with the Purchase Agreement.

 

2.11                        Miscellaneous.  With respect to the amounts due
under the Note, each Borrower waives the following to the fullest extent
permitted by law:

 

(a)                                 All rights of exemption of any of the
Collateral from levy or sale under execution or other process for the collection
of debts under the Constitution or laws of the United States or any state
thereof;

 

(b)                                 Demand, presentment, protest, notice of
dishonor, notice of non-payment, diligence in collection, and all other
requirements necessary to enforce the Note; and

 

(c)                                  Any further receipt by Lender or
acknowledgment by Lender of any Collateral now or hereafter deposited with
Lender as security for the Loan.

 

2.12                        Application of Payment.  Note payments shall be
applied as set forth in the Note.

 

ARTICLE III.
BORROWERS’ REPRESENTATIONS AND WARRANTIES

 

To induce Lender to enter into this Agreement, and to make the Loan to
Borrowers, each Borrower, jointly and severally, represents and warrants to
Lender as follows:

 

3.1                               Existence, Power and Qualification.  Each
Borrower is a duly organized and validly existing in the jurisdiction of its
formation having the power to own its properties and to carry on its business as
is now being conducted, and is duly qualified to do business and is in good
standing in every jurisdiction in which the failure to be so qualified would
have a material adverse effect on the results of operations, conditions
(financial or otherwise), assets, properties, business or prospects of Borrowers
(a “Material Adverse Effect”).

 

3.2                               Power and Authority.  Each Borrower has full
power and authority to borrow the indebtedness evidenced by the Note and to
incur the Loan Obligations provided for herein, all of which have been
authorized by all proper and necessary action.  All consents,

 

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approvals authorizations, orders or filings of or with any court or governmental
agency or body, if any, required for the execution, delivery and performance of
the Loan Documents by each Borrower has been obtained or made.

 

3.3                               Due Execution and Enforcement.  Each of the
Loan Documents to which each Borrower is a party constitutes a valid and legally
binding obligation of each Borrower, enforceable in accordance with its
respective terms (except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium, or other laws relating to
the rights of creditors generally and by general principles of equity) and does
not violate, conflict with, or constitute any default under any law, government
regulation, decree, judgment, each Borrower’s articles of organization or
operating agreement or any other agreement or instrument binding upon each
Borrower.

 

3.4                               Capitalization.  The owners of any issued and
outstanding equity interests of a Borrower and the amount of such equity
interests held by such owners as of the Closing Date is set forth on Exhibit C
attached hereto.  All such issued and outstanding equity interests of the
Borrowers have been duly and validly issued and are fully paid and
non-assessable and were issued in full compliance with all federal and state
securities laws.  There are no outstanding (a) options, warrants or other rights
to purchase from any Borrower any securities of a Borrower, (b) securities
convertible into or exchangeable for shares of such equity interests, or (c)
other commitments of any kind for the issuance of additional equity interests or
options, warrants or other securities of the Borrowers except as set forth on
Exhibit C.  Except as set forth on Exhibit C, the Borrowers are not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the Securities Act of 1933, as amended, any of their presently
outstanding securities or any of their securities which may be hereafter issued.

 

3.5                               Subsidiaries.  Neither Borrower presently owns
or controls, directly or indirectly, any interest in any other corporations,
associations or other business entities and neither Borrower is a participant in
any joint venture, partnerships or similar arrangements.

 

3.6                               Non-Contravention.  Neither the execution and
delivery by the Borrowers of this Agreement or the other Loan Documents, nor the
consummation by the Borrowers of the transactions contemplated hereby and
thereby, will (a) conflict with or violate the provisions of any law, rule or
regulation applicable to the Borrowers or any of their respective properties or
assets, (b) conflict with or violate the provisions of the organizational or
governing documents, including but not limited to, the operating agreements of
the Borrowers, (c) require on the part of any Borrower any notice to or filing
with, or any permit, authorization, consent or approval of, any Governmental
Authority other than the filing of UCC financing statements as required by the
Loan Documents, (d) require on the part of any Borrower, any notice to or filing
with or any permit authorization, consent or approval of any Person, (e) violate
any judgment, decree, order or award of any Governmental Authority by which the
Borrowers or their properties are bound, or (f) conflict with, result in
material breach of, constitute (with or without due notice or lapse of time or
both) a material default under, result in the acceleration of obligations under,
create in any party any right to terminate, modify or cancel, or require any
notice, consent or waiver under, any material contract or instrument to which a
Borrower is a party or by which they are bound (individually or collectively) or
to which any of its assets are subject.

 

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3.7                               Absence of Undisclosed Liabilities.  Except as
set forth on Schedule 3.7 neither of the Borrowers have any liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, that is material to the condition (financial or
otherwise) of the assets, properties, business or prospects of such Borrower,
except as and to the extent any such liability or obligation is reflected and
reserved against in the current balance sheet delivered to Lender prior to the
Closing Date. Except as set forth on Schedule 3.7 the Facility will not have any
liability or obligation, secured or unsecured, whether accrued, absolute,
contingent, unasserted or otherwise, that is material to the condition
(financial or otherwise) of the assets, properties, business or prospects of the
Facility, except as and to the extent any such liability or obligation is
reflected and reserved against in the balance sheet delivered to Lender on the
Closing Date.

 

3.8                               Pending Matters.

 

(a)                                 Operations; Financial Condition.  No action
or investigation is pending or threatened before or by any court or
administrative agency which might result in any material adverse change in the
financial condition, operations or prospects of any Borrower or any lower
reimbursement rate under the Reimbursement Contracts.  Neither Borrower is in
violation of any agreement, the violation of which might reasonably be expected
to have a Material Adverse Effect on its business or assets, and neither
Borrower is in violation of any order, judgment, or decree of any court, or any
statute or governmental regulation to which it is subject.

 

(b)                                 Property Improvements.  There are no
proceedings pending, or, to the best of either Borrower’s knowledge, threatened,
to acquire through the exercise of any power of condemnation, eminent domain or
similar proceeding any part of the Property, the Improvements or any interest
therein, or to enjoin or similarly prevent or restrict the use of the Property
or the operation of the Facility in any manner.  None of the Improvements is
subject to any unrepaired casualty or other damage.

 

3.9                               Financial Statements Accurate.  All financial
statements heretofore or hereafter provided by either Borrower are and will be
true and complete in all material respects as of their respective dates and
fairly present the respective financial condition of such Borrower, and there
are no material liabilities, direct or indirect, fixed or contingent, as of the
respective dates of such statements which are not reflected therein or in the
notes thereto or in a written certificate delivered with such statements.  The
financial statements of each Borrower have been prepared in accordance with
GAAP.  There has been no material adverse change in the financial condition,
operations, or prospects of either Borrower since the dates of such statements
except as fully disclosed in writing with the delivery of such statements.  All
financial statements of the operations of the Facility heretofore or hereafter
provided to Lender are and will be true and complete in all material respects as
of their respective dates.

 

3.10                        Compliance with Facility Laws.

 

(a)                                 Commencing on the Operations Closing Date,
Borrowers shall be in compliance, as applicable, in all material respects with
the applicable provisions of skilled

 

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nursing facility laws, rules, regulations and published interpretations to which
Borrowers are subject.

 

(b)                                 At all times:

 

(i)                                     the Facility is and will be duly
licensed and operated as a skilled nursing facility under the applicable laws of
the state where the Property is located;

 

(ii)                                  Commencing on the Operations Closing Date,
with respect to the Facility, Borrowers will be the lawful owners of all
applicable operating Permits for the Facility, including, without limitation,
the Certificate of Need, as applicable, which (A) is and will be in be in full
force and effect, (B) constitutes all of the permits, licenses and certificates
required for the use, operation and occupancy thereof, (C) has not been pledged
as collateral for any other loan or Indebtedness except to Lender or Senior
Lender or their Affiliates, (D) is and will be free from restrictions or any
encumbrance which would materially adversely affect the use or operation of the
Facility, and (E) will not be provisional, probationary or restricted in any
way;

 

(iii)                               No waivers of any laws, rules, regulations,
or requirements (including, but not limited to, minimum square foot requirements
per bed) is or will be required for the Facility to operate at the current
licensed bed capacity;

 

(iv)                              all Reimbursement Contracts are and will be in
full force and effect with respect to the Facility, and each Borrower is in good
standing with all the respective agencies governing such skilled nursing
facility licenses, program certification, and Reimbursement Contracts;

 

(v)                                 each Borrower is and will be current in the
payment of all applicable so-called provider specific taxes or other applicable
assessments with respect to such Reimbursement Contracts; and

 

(vi)                              in the event Lender acquires the Facility
through foreclosure, to the Borrowers’ knowledge as of the Closing Date, no
receiver appointed by the court in connection with such foreclosure shall have
to obtain a Certificate of Need in connection with such foreclosure.

 

3.11                        Maintain Bed Capacity.  Neither Borrower has granted
to any third party the right to reduce the number of licensed beds in the
Facility or to apply for approval to transfer the right to any and all of the
licensed Facility beds to any other location.

 

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3.12                        Medicare and Medicaid Compliance.  The Facility is
in substantial compliance with all requirements for participation in Medicare
and Medicaid, including without limitation, the Medicare and Medicaid Patient
Protection Act of 1987.  The Facility is in conformance in all material respects
with all insurance, reimbursement and cost reporting requirements and has a
current provider agreement which is in full force and effect under Medicaid and
Medicare.

 

3.13                        Third-Party Payors. To the Borrowers’ Knowledge,
there is no threatened or pending revocation, suspension, termination,
probation, restriction, limitation, or nonrenewal affecting either Borrower or
the Facility or any participation or provider agreement with any third-party
payor, including Medicare, Medicaid and any private commercial insurance managed
care and employee assistance program (such programs, the “Third-Party Payors’
Programs”) to which such Borrower presently is subject.  All Medicare, Medicaid
and private insurance cost reports and financial reports submitted by Borrowers
or any Guarantor are and will be materially accurate and complete and have not
been and will not be misleading in any material respects.  No cost reports for
the Facility remain “open” or unsettled, except as otherwise disclosed.
Borrowers further covenant to sweep, on a daily basis, all accounts containing
Medicaid or Medicare receivables into a Borrowers’ account that is subject to
the Control Agreement.

 

3.14                        Governmental Proceedings and Notices.  No Borrower
nor the Facility is currently the subject of any proceeding by any governmental
agency, and no notice of any violation has been received from a governmental
agency that would, directly or indirectly, or with the passage of time:

 

(a)                                 Have a material adverse impact on such
Borrower’s ability to accept and/or retain patients or result in the imposition
of a fine, a sanction, a lower rate certification or a lower reimbursement rate
for services rendered to eligible patients;

 

(b)                                 Modify, limit or annul or result in the
transfer, suspension, revocation or imposition of probationary use of any of the
Permits; or

 

(c)                                  Affect such Borrower’s continued
participation in the Medicare or Medicaid programs or any other Third-Party
Payors’ Programs, or any successor programs thereto, at current rate
certifications.

 

(d)                                 Affect such Borrower’s prospective
participation in the Medicare or Medicaid programs or any other Third-Party
Payors’ Programs, or any successor programs thereto, at current rate
certifications.

 

The Facility is not the subject of any proceeding by any Governmental Authority,
and no notice of any violation has been received by the Facility from a
Governmental Authority that would, directly or indirectly, or with the passage
of time:

 

(a)                                 Have a material adverse impact on such
Borrower’s ability to accept and/or retain residents or result in the imposition
of a fine, a sanction, a lower rate

 

27

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certification, if applicable, or a lower reimbursement rate for services
rendered, if applicable, to eligible residents;

 

(b)                                 Modify, limit or annul or result in the
transfer, suspension, revocation or imposition of probationary use of any of the
Permits; or

 

(c)                                  Affect such Borrowers’ continued
participation in the Medicare or Medicaid programs or any other Third-Party
Payors’ Programs, or any successor programs thereto, at current rate
certifications.

 

3.15                        Physical Plant Standards.  The Facility and the use
thereof complies in all material respects with all applicable local, state and
federal building codes, fire codes, health care, nursing facility and other
similar regulatory requirements (the “Physical Plant Standards”), and no waivers
of Physical Plant Standards exist at the Facility.

 

3.16                        Pledges of Receivables.  Except as set forth in
Schedule 3.16, neither Borrower has pledged its Accounts as collateral security
for any loan or Indebtedness other than, as applicable, the Loan and the Senior
Loan.

 

3.17                        Payment of Taxes and Property Impositions.  Each
Borrower has filed all federal, state, and local tax returns which it is
required to file and has paid, or made adequate provision for the payment of,
all taxes which are shown pursuant to such returns or are required to be shown
thereon or to assessments received by each Borrower, including, without
limitation, provider taxes.  All such returns are complete and accurate in all
respects.  Each Borrower has paid or made adequate provision for the payment of
all applicable water and sewer charges, ground rents (if applicable) and Taxes
with respect to the Property.

 

3.18                        Title to Collateral.  Each Borrower has good and
marketable title to all of the Collateral it has pledged as security for the
Loan, subject to no Lien, except Permitted Encumbrances which do not and will
not materially interfere with the security intended to be provided by the
Security Agreement or the current use or operation of the Property and the
Improvements or the current ability of the Facility to generate net operating
income sufficient to service the Loan.  All Improvements situated on the
Property are situated wholly within the boundaries of the Property.

 

3.19                        Priority of Mortgages; Liens; Other Obligations. 
The Security Agreement and UCC financing statements constitute a valid lien
against the personal property described therein, prior to all other liens or
encumbrances, including those which may hereafter accrue, excepting only
Permitted Encumbrances (as defined in Section 5.2 (No Liens; Exceptions)) which
do not and will not materially and adversely affect (a) the ability of any
Borrower to pay in full the principal of and interest on the Note when due, (b)
the security (and its value) intended to be provided by the Security Agreement
and UCC financing statements, or (c) the current use of the Property and the
Improvements.  No Borrower nor any Guarantor is liable, primarily or
secondarily, upon any Indebtedness other than as described in its financial
statements or in the Senior Loan Documents, or has any fixed or contingent
obligation to make any loan or contribution of capital to any other entity that
has not been fully paid.  No Borrower nor any Guarantor owes any debt to its
members, shareholders, partners or affiliates.

 

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3.20                        Location of Chief Executive Offices.  The location
of each Borrower’s principal place of business and chief executive office is set
forth on Exhibit B hereto.

 

3.21                        Disclosure.  All information furnished or to be
furnished by each Borrower to Lender in connection with the Loan or any of the
Loan Documents, is, or will be at the time the same is furnished, accurate and
correct in all material respects and complete insofar as completeness may be
necessary to provide Lender with true and accurate knowledge of the subject
matter.

 

3.22                        Trade Names.  Except as disclosed in Schedule 3.22,
no Borrower nor the Facility have changed their names, been known by any other
name, or been a party to a merger, reorganization or similar transaction within
the last five (5) years.

 

3.23                        ERISA.  To the Borrower’s Knowledge, each Borrower
is in compliance with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”).

 

3.24                        Ownership.  The ownership interests of the Persons
comprising each Borrower and each of the respective interests in each Borrower
as of the Closing Date is correctly and accurately set forth on Exhibit C,
attached hereto.

 

3.25                        Proceedings Pending.  There are no proceedings
pending, or, to the best of each Borrower’s knowledge, threatened, to acquire
any power of condemnation or eminent domain with respect to any part of the
Property, or to enjoin or similarly prevent or restrict the use of any Property
or the operation of the Facility in any manner.

 

3.26                        Compliance With Other Applicable Laws.  To the best
of each Borrower’s knowledge, each Property and Improvements comply with all
covenants and restrictions of record and applicable laws, ordinances, rules and
regulations, including, without limitation, all laws, ordinances, rules and
regulations relating to zoning, setback requirements and building codes.  No
Improvements constitute a nonconforming structure and the operation of the
Facility is not a nonconforming use under current zoning, and there are no
waivers of any current building code requirements for the Property or
Improvements.  The Facility is in compliance in all material respects with the
Americans With Disabilities Act and regulations thereunder and the Federal
Housing Act and regulations thereunder, each to the extent applicable.  Each
Borrower agrees to indemnify and hold Lender harmless from any fines or
penalties assessed or any corrective costs incurred by Lender if any
Improvements or any Property, or any part thereof, is hereafter determined to be
in violation of any covenants or restrictions of record or any applicable laws,
ordinances, rules or regulations, and such indemnity shall survive any
foreclosure or deed in lieu of foreclosure.

 

3.27                        Solvency.  Each Borrower is solvent for purposes of
11 U.S.C. §548, and the borrowing of the Loan will not render such Borrower
insolvent for purposes of 11 U.S.C. §548. Neither of the Borrowers nor any of
the Guarantors nor any of the Borrowers’ principals, partners and/or members are
involved in any bankruptcy, reorganization or insolvency proceeding.

 

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3.28                        Lease Agreement.  The Operations Seller Lease
Agreement is in full force and effect and, there are no defaults (either
monetarily or non-monetarily) by the Operations Seller or Owner, as applicable,
thereunder. Commencing on the Operations Closing Date, the Lease Agreement is in
full force and effect and, there are no defaults (either monetarily or
non-monetarily) by the Owner or Operator, as applicable, thereunder.

 

3.29                        Management Agreement.  The Operations Seller
Management Agreement is in full force and effect and, there are no defaults
(either monetarily or non-monetarily) by the Operations Seller or Management
Company, as applicable, thereunder. Commencing on the Operations Closing Date,
the Management Agreement is in full force and effect and, there are no defaults
(either monetarily or non-monetarily) by the Operator or Management Company, as
applicable, thereunder.

 

3.30                        Single Purpose Entity.  Each Borrower is a Single
Purpose Entity.

 

3.31                        Fraudulent Conveyances.  No Borrower (a) has entered
into this Agreement or any of the other Loan Documents with the actual intent to
hinder, delay, or defraud any creditor, nor (b) has received reasonably
equivalent value in exchange for its obligations under the Loan Documents. 
Giving effect to the transactions contemplated by the Loan Documents, the fair
saleable value of each Borrower’s assets exceeds and will, immediately following
the execution and delivery of the Loan Documents, be greater than each
Borrower’s probable liabilities, including the maximum amount of its contingent
liabilities or its debts as such debts become absolute and mature.  Each
Borrower’s assets do not and, immediately following the execution and delivery
of the Loan Documents will not, constitute unreasonably small capital to carry
out its business as conducted or as proposed to be conducted.  None of the
Borrowers intend to, nor do they believe that they will, incur debts and
liabilities (including, without limitation, contingent liabilities and other
commitments) beyond their ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
each Borrower).

 

3.32                        Trademarks, Patents and Other Rights.  Set forth in
Schedule 3.32 is a list and brief description of all patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names and copyrights, and all applications for such
which are in the process of being prepared, are owned by, or are registered in
the name of either Borrower, or of which any Borrower is a licensor or licensee,
or in which any Borrower has any right, and in each case a brief description of
the nature of such right.  Each Borrower owns or possesses adequate licenses or
other rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulae, trade secrets, and know how (collectively,
“Trade Rights”) necessary or desirable to the conduct of its business as
conducted and as proposed to be conducted.  No claim is pending or, to the
knowledge of either Borrower, threatened to the effect that the operations of
either Borrower infringe upon or conflict with the asserted rights of any other
Person under any Trade Rights, and, to the knowledge of either Borrower, there
is no basis for any such claim (whether or not pending or threatened).  No claim
is pending or, to the knowledge of either Borrower, threatened to the effect
that any such Trade Rights owned or licensed by either Borrower or which such
Borrower otherwise has the right to use, is invalid or unenforceable by such
Borrowers, and there is no known basis for any such

 

30

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claim (whether or not pending or threatened).  All technical information
developed by and belonging to each Borrower has been patented or has been kept
confidential or has otherwise been established as a trade secret.  Neither
Borrower has granted or assigned to any other Person any right to sell or
produce the products or proposed products or provide the services or proposed
services of Borrowers.  No officer, director, equity-holder or employee of
Borrower has an ownership interest in any of the trademarks, patents, or other
rights set forth in Schedule 3.32.

 

3.33                        Proprietary Information of Third Parties.  To the
knowledge of each Borrower, no third party has claimed or has any reason to
claim that any Person employed by either Borrower has: (i) violated or may be
violating any of the material terms or conditions of his or her employment,
non-competition, or non-disclosure agreement with such third party; (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party; or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its current or former employees.  To the knowledge of
either Borrower, no third party has requested information from either Borrower
that suggests that such a claim might be contemplated.  To the knowledge of
either Borrower, no Person employed by either Borrower has employed or proposes
to employ any trade secret or any information or documentation proprietary to
any former employer, and no Person employed by either Borrower has violated any
confidential relationship which such Person may have had with any third party in
connection with the development or sale of any product or proposed product or
the development or sale of any service or proposed service of either Borrower,
and such Borrowers does not have any reason to believe there will be any such
employment or violation.  To the knowledge of either Borrower, none of the
execution, delivery or performance of this Agreement, or the carrying on of the
business of either Borrower as officers, employees, or agents by any officer,
director, or key employee, or the conduct of the businesses of such Borrowers,
will conflict with or result in a material breach of the terms, conditions, or
provisions of, or constitute a default under any material contract, covenant, or
instrument under which such Person is obligated.

 

3.34                        Insider Interests.  No present officer, director,
equity holder or employee of, or supplier to, any Borrower: (i) owns, other than
by virtue of a membership interest in a Borrower, directly or indirectly, in
whole or in part, any of the properties used in the businesses of any Borrower;
(ii) has received a loan or advance from either Borrower which is currently
outstanding; (iii) has any obligation to make any loan to either Borrower other
than as may be specifically contemplated by each Borrower’s limited liability
company operating agreement; or (iv) has any other business relationship with
Borrowers other than in his, her or its capacity as an officer, director, equity
holder or employee. No present officer, director, equity holder or employee of
either Borrower owns, in whole or in part, directly or indirectly, any interest
in excess of five percent (5%) in, or controls, or is an employee, officer,
director, or partner of, or participant in, or consultant to, any corporation,
association, partnership, limited partnership, joint venture, or other entity
which is operating as a nursing facility or residential care facility within ten
(10) miles of the Facility, of either Borrower.

 

3.35                        Fraud and Abuse.  Neither Borrower nor either
Borrower’s members, managers, officers, directors, or senior executives, or, to
the knowledge of either Borrower, Persons who provide professional services
under agreements with such Borrower, have engaged in any activities on behalf of
or attributable to either Borrower which are prohibited under

 

31

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federal Medicare and Medicaid statutes, 42 U.S.C. § 1320a-7b, or the regulations
promulgated pursuant to such statutes or related state or local statutes or
regulations or which are prohibited by rules of professional conduct, including
but not limited to 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; (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; (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 on its own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; (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
an 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 purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare or Medicaid, as applicable.

 

3.36                        Brokerage Commission.  Any brokerage commission or
similar compensation amounts or fees due in connection with the purchase of the
Property and in connection with the transactions contemplated hereby have been
paid in full and any such commissions coming due in the future as related to any
act of or on behalf of the Borrower will promptly be paid by Borrowers. 
Borrowers agree to and shall indemnify Lender from any liability, claims or
losses (including reasonable attorneys’ fees) incurred by Lender and arising by
reason of any claim from any such brokerage commission that are the result of
any action by or on behalf of the Borrowers.  This provision shall survive the
repayment of the Loan and shall continue in full force and effect so long as the
possibility of such liability, claims or losses exists.

 

3.37                        Labor Matters.  As of the Closing Date, there are no
strikes or other labor disputes pending or, to any Borrower’s knowledge,
threatened against Borrowers or any Guarantor.  Hours worked and payments made
to the employees of any Borrower and Guarantors have not been in violation of
the Fair Labor Standards Act or any other applicable Law dealing with such
matters.  All payments due from Borrowers and Guarantors, or for which any claim
may be made against any of them, on account of wages and employee and retiree
health and welfare insurance and other benefits have been paid or accrued as a
liability on their books, as the case may be.  The consummation of the
transactions contemplated by this Agreement and the other Loan Documents 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 it is a party or by
which it is bound.

 

3.38                        No Litigation. There is no action, suit, claim,
investigation or proceeding pending against, or to any Borrower’s knowledge
threatened against or affecting any Borrower or the Facility.

 

3.39                        Post Closing Date Covenants. Borrower warrants and
covenants to provide or cause to be provided to Lender:

 

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(i)                                     On a date to occur within five months
after the Closing Date, deliver all of the following to the Lender (such date,
the “Operations Closing Date”):

 

(a)                                 Facility license in the name of the
Operator;

 

(b)                                 Medicare number for the Operator;

 

(c)                                  Management Agreement, effective as of the
Operations Closing Date;

 

(d)                                 Lease Agreement, effective as of the
Operations Closing Date;

 

(e)                                  Assignment of Leases and Rents dated the
Operations Closing Date;

 

(f)                                   Subordination and Attornment Agreement
dated the Operations Closing Date;

 

(g)                                  Subordination and Assignment of Lease
Agreement dated the Operations Closing Date;

 

(h)                                 Subordination and Assignment of Management
Agreement dated the Operations Closing Date; and

 

(i)                                     Opinion of counsel dated the Operations
Closing Date, addressing those matters required by Lender.

 

(ii)                                  No later than seven months after the
Closing Date, a new Medicaid provider number for the Operator;

 

(iii)                               Within ninety days of the Closing Date, a
copy of the Certificate of Occupancy;

 

(iv)                              Within ten Business Days after the Closing
Date, deliver to Lender the executed Control Agreement;

 

(v)                                 Within ten Business Days after the Closing
Date, deliver to Lender the executed ZBA Agreement.

 

ARTICLE IV.

AFFIRMATIVE COVENANTS OF BORROWERS

 

Each Borrower, jointly and severally, agrees with and covenants unto the Lender
that until the Loan Obligations have been paid in full, Borrowers shall:

 

4.1                               Payment of Loan/Performance of Loan
Obligations.  Duly and punctually pay or cause to be paid the principal and
interest of the Note in accordance with its

 

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terms and duly and punctually pay and perform or cause to be paid or performed
all Loan Obligations hereunder and under the other Loan Documents.

 

4.2                               Maintenance of Existence.  Maintain its
existence as a limited liability company, and, in each jurisdiction in which the
character of the property owned by it or in which the transaction of its
business makes qualification necessary, maintain good standing.

 

4.3                               Maintenance of Single Purpose.  Maintain its
existence as a Single Purpose Entity.

 

4.4                               Accrual and Payment of Taxes.

 

(a)                                 Borrowers shall pay, on or before the due
date thereof, all Taxes, levies, license fees, permit fees and all other charges
(in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen) of every character whatsoever (including all penalties and
interest thereon) now or hereafter levied, assessed, confirmed or imposed on, or
in respect of, or which may be a lien upon the Collateral or the Facility, or
any part thereof, or any estate, right or interest therein, or upon the rents,
issues, income or profits thereof, and shall submit to Lender such evidence of
the due and punctual payment of all such Taxes, assessments and other fees and
charges as may be required by law.  Borrowers shall have the right before they
become delinquent to contest or object to the amount or validity of any such
Tax, assessment, fee or charge by appropriate legal proceedings, but this shall
not be deemed or construed in any way as relieving, modifying or extending
Borrowers’ covenant to pay any such Tax, assessment, fee or charge at the time
and in the manner provided herein, unless Borrowers have given prior written
notice to Lender of Borrowers’ intent to so contest or object, and unless
(i) Borrowers shall demonstrate to Lender’s satisfaction that the legal
proceedings shall conclusively operate to prevent the sale of the Collateral and
Facility, or any part thereof, to satisfy such Tax, assessment, fee or charge
prior to final determination of such proceedings; and (ii) if required by
Lender, Borrowers shall furnish a good and sufficient bond or surety as
requested by and satisfactory to Lender in an amount sufficient to fully pay the
contested amount, with penalties, interest and other charges if Borrowers should
be unsuccessful in such contest; and (iii) Borrowers shall diligently pursue
such contest.

 

(b)                                 Borrowers shall pay, on or before the due
date thereof, all Taxes, assessments, charges, expenses, costs and fees which
may now or hereafter be levied upon, or assessed or charged against, or incurred
in connection with, the Note, the Security Agreement or any other Loan
Documents.

 

(c)                                  Operator shall pay, on or before the due
date thereof, all rents and other payments due under the Lease Agreement; and
Borrowers shall pay all utility charges with respect to the Collateral and
Facility, or which may become a charge or lien against the Collateral and the
Facility, for gas, electricity, water and sewer services and the like furnished
to the Collateral or the Facility, and all other public or private assessments
or charges of a similar nature affecting the Collateral or the Facility or any
portion thereof, whether or not the nonpayment of same may result in a lien
thereon.  Borrowers shall submit to Lender such evidence of the due and punctual
payment of all such premiums, charges and other sums as Lender may require.

 

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(d)                                 Borrowers shall not suffer any mechanic’s,
materialman’s, laborer’s, statutory or other lien (except as expressly permitted
by this Agreement) to be created or remain outstanding against the Collateral or
the Facility; provided, however, that Borrowers may contest any such lien in
good faith by appropriate legal proceedings provided the lien is bonded off and
removed as an encumbrance upon the Collateral or the Facility.  Lender has not
consented and will not consent to the performance of any work or the furnishing
of any materials which might be deemed to create a lien or liens superior to the
lien hereof.

 

(e)                                  In the event of the passage of any state,
federal, municipal or other governmental law, order, rule or regulation,
subsequent to the date hereof, in any manner changing or modifying the laws now
in force governing the taxation of mortgages or security agreements or debts
secured thereby or the manner of collecting such Taxes so as to adversely affect
Lender, Borrower will pay any such Tax on or before the due date thereof.  If
Borrowers fail to make such prompt payment or if, in the opinion of Lender, any
such state, federal, municipal, or other governmental law, order, rule or
regulation prohibits Borrowers from making such payment or would penalize Lender
if Borrowers makes such payment or if, in the opinion of Lender, the making of
such payment might result in the imposition of interest beyond the maximum
amount permitted by applicable law, then the entire balance of the Loan
Obligations shall, at the option of Lender, become immediately due and payable.

 

(f)                                   Each Borrower hereby, jointly and
severally, indemnifies and holds Lender harmless from any sales or use Tax that
may be imposed on the Lender by virtue of Lender’s Loan to Borrowers.

 

(g)                                  During each fiscal year, make accurate
provision for the payment of all current tax liabilities of all kinds
(including, without limitation, federal and state income taxes, franchise taxes,
payroll taxes, provider taxes (to the extent necessary to participate in and
receive maximum funding pursuant to Reimbursement Contracts) and Taxes, all
required withholding of income taxes of employees, all required old age and
unemployment contributions, and all required payments to employee benefit plans,
and pay the same when they become due including, but not limited to, making all
required deposits into an escrow fund (the “Tax and Insurance Reserve Fund”) in
accordance with the terms of the Tax and Insurance Escrow and Security Agreement
for the Senior Loan.

 

4.5                               Insurance.  Maintain the following insurance
coverages with respect to the Property and the Facility:

 

(a)                                 Property Insurance.  Insurance against loss
or damage by fire, casualty and other hazards as now are or subsequently may be
covered by an “all risk” policy or a policy covering “special” causes of loss,
with such endorsements as Lender may from time to time reasonably require and
which are customarily required by institutional lenders of similar properties
similarly situated, including, without limitation, building, ordinance or law,
lightning, windstorm, civil commotion, hail, riot, strike, water damage,
sprinkler leakage, collapse, malicious mischief, explosion, smoke, aircraft,
vehicles, vandalism, falling objects and weight of snow, ice or sleet, and
covering the Facility in an amount equal to one hundred percent (100%) of the
full insurable replacement value of the Facility (exclusive of footings and
foundations below the lowest basement floor) without deduction for
depreciation.  The determination of the

 

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replacement cost amount shall be adjusted annually to comply with the
requirements of the insurer issuing the coverage or, at Lender’s election, by
reference to such indexes, appraisals or information as Lender determines in its
reasonable discretion, and, unless the insurance required by this paragraph
shall be effected by blanket and/or umbrella policies in accordance with these
terms, the policy shall include inflation guard coverage that ensures that the
policy limits will be increased over time to reflect the effect of inflation. 
Each policy shall, subject to Lender’s approval, contain (i) a replacement cost
endorsement, without deduction for depreciation, (ii) either an agreed amount
endorsement or a waiver of any co-insurance provisions, and (iii) an ordinance
or law coverage or enforcement endorsement if the Improvements or the use of the
Property constitutes any legal nonconforming structures or uses, and shall
provide for deductibles in such amounts as Lender may permit in its sole
discretion. The property insurance policy shall not contain an exclusion
endorsement for mold.

 

(b)                                 Commercial General Liability Insurance. 
Commercial general liability insurance under a policy containing “Comprehensive
General Liability Form” of coverage on an occurrence or claims made basis with
retroactive date to prior occurrence form, which policy shall include, without
limitation, coverage against claims for personal injury, bodily injury, death
and property damage liability with respect to the Facility and the operations
related thereto, whether on or off the Property, and the following coverages: 
Employee as Additional Insured, Employee Benefits, Product Liability/Completed
Operations; Broad Form Contractual Liability, Independent Contractor, Personal
Injury and Advertising Injury Protection, Medical Payment (with a minimum limit
of $5,000 per person), hired and non-owned automobile coverage (including rented
and leased vehicles), and, if any alcoholic beverages shall be sold,
manufactured or distributed in the Facility, liquor liability coverage, all of
which shall be in such amounts as Lender may from time to time reasonably
require, but not less than One Million Dollars ($1,000,000) per occurrence,
Three Million Dollars ($3,000,000) in the aggregate.  If such policy shall cover
more than one property, such limits shall apply on a “per location” basis. If
any elevators, health club facilities or swimming pools are located at the
Facility at any time during the Loan, the foregoing amounts shall be increased
to Three Million Dollars ($3,000,000) and Five Million Dollars ($5,000,000),
respectively, unless other amounts are approved in writing by Lender in its sole
discretion.  Such liability policy shall delete the contractual exclusion under
the personal injury coverage, if possible, and if available, shall include the
following endorsements:  Notice of Accident, Knowledge of Occurrence, and
Unintentional Error and Omission.  Absent written consent from Lender, Borrowers
shall not change, cancel or renew the terms of such policy in any manner that
would materially lessen the amount and scope of such insurance coverage
applicable to the Property and Facility. The commercial general liability policy
shall not contain an exclusion endorsement for mold.

 

(c)                                  Professional Liability Insurance. 
Professional liability insurance, whenever possible provided by the same carrier
as the Commercial General Liability coverage, in an amount equal to One Million
Dollars ($1,000,000) per occurrence and Three Million Dollars ($3,000,000) in
the aggregate and insuring Borrowers from acts occurring prior to the date of
the Loan, unless other amounts are approved by Lender in writing at its sole
discretion.

 

(d)                                 Business Interruption Insurance/Extra
Expense Coverage.  Business interruption income insurance (i) covering the same
perils of loss as are required to be covered by the property insurance described
above, (ii) in an amount equal to the greater of: (1)

 

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the projected annual net income from the Facility plus carrying costs and
extraordinary expenses of the Property for a period of twenty-four (24) months,
based upon Borrower’s reasonable estimate thereof as approved by Lender;
provided, however, that if fifty-percent (50%) of the estimated annual expenses
of the Facility is greater than such calculation of net income, then Borrowers
shall, for purposes of this test, use such amount, or (2) or actual loss
sustained, in either case with no cap, (iii) including either an agreed amount
endorsement or a waiver of any co-insurance provisions, so as to prevent any
Borrower, Lender and any other insured thereunder from being a coinsurer, and
(iv) providing that any covered loss thereunder shall be payable to Lender.

 

(e)                                  Construction Insurance. During the period
of any new construction on the Property, a so-called “Builder’s All-Risk
Completed Value” or “Course of Construction” insurance policy in non-reporting
form for any improvements under construction, including, without limitation, for
demolition and increased cost of construction or renovation, in an amount equal
to one hundred percent (100%) of the estimated replacement cost value on the
date of completion, including “soft cost” coverage, FF&E and Workers’
Compensation Insurance covering all persons engaged in such construction, in an
amount at least equal to the minimum required by law.  In addition, each
contractor and subcontractor shall be required to provide Lender with a
certificate of insurance for (i) Workers’ Compensation insurance covering all
persons engaged by such contractor or subcontractor in such construction in an
amount at least equal to the minimum required by law, (ii) General Liability
insurance showing minimum limits of at least One Million Dollars ($1,000,000)
per occurrence and Two Million Dollars ($2,000,000) in the aggregate, where
Borrowers and Lender have additional insured status on a primary and
non-contributory basis with both forms CG 2010 (ongoing operations) and CG 2037
(completed operations) or its equivalent including coverage for products and
completed operations, (iii) Automobile Liability insurance showing minimum
limits of at least One Million Dollars ($1,000,000) covering all owned autos,
hired and non-owned autos (including rented and leased vehicles).and
(iv) statutory Workers Compensation with Employers Liability limits of
$1,000,000 for each accident, each disease and each disease policy limit. Each
contractor and subcontractor also shall cover Borrowers and Lender as an
additional insured under hall liability policies (excluding Professional
Liability, Workers Compensation & Employers Liability) and shall indemnify and
hold Borrowers and Lender harmless from and against any and all claims, damages,
liabilities, costs and expenses arising out of, relating to or otherwise in
connection with its performance of such construction.  Each contractor shall
waive all rights of recovery and shall cause its insurance carriers to waive
their subrogation rights against the Lender, Borrowers and affiliated entities,
for damages covered by the insurance required.

 

(f)                                   Boiler and Machinery Equipment Breakdown
Coverage.  If the Facility contains steam boilers, steam pipes, steam engines,
steam turbines or other high pressure vessels, insurance covering the major
components of the central heating, air conditioning and ventilating systems,
boilers, other pressure vessels, high pressure piping and machinery, elevators
and escalators, if any, and other similar equipment installed in the
Improvements, in an amount equal to the coverage as defined under the Property
Insurance, which policies shall insure against physical damage to and loss of
occupancy and use of the improvements arising out of an accident or breakdown
covered thereunder.

 

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(g)                                  Flood. If the Facility is located in a High
Risk Flood Area, as defined by FEMA, flood coverage in the amount of $1,000,000
is required. If the Facility is located in an area covered by the National Flood
Insurance Program, the Borrowers shall carry the maximum federal amount of
$500,000 and additionally will carry a Differences in Conditions policy.

 

(h)                                 Wind and Hurricane Insurance. If the
Facility is located in Wind Zone 3 or 4, there must be no policy restrictions
with regard to “Wind”, “Windstorm”, “Hail”, “Named Storm” and “Hurricane”. Any
restrictions in coverage and/or deductibles must be reviewed and approved by
Lender.

 

(i)                                     Earthquake Insurance.  If the Facility
is located in Seismic Zone 3 or 4, earthquake coverage must be obtained in an
amount equal to the coverage as defined under the Property Insurance.

 

(j)                                    Workers’ Compensation/Employer’s
Liability Insurance.  Workers’ compensation insurance or other similar insurance
which may be required by governmental authorities or applicable Legal
Requirements in an amount at least equal to the minimum required by law, and
employer’s liability insurance with a limit of One Million Dollars ($1,000,000)
per accident and per disease per employee, and One Million Dollars ($1,000,000)
in the aggregate for disease arising in connection with the operation of the
Property. If the Facility is located in a monopolistic state, a Stop Gap
Endorsement must be added to the General Liability policy.

 

(k)                                 Automobile Liability Insurance. Borrowers
must obtain Automobile Liability Insurance coverage in the amount of $1,000,000.
If the Facility does not own any vehicles, then hired and non-owned automobile
endorsement (including rented and leased vehicles) must be obtained.

 

(l)                                     Term and Other Requirements.  All
insurance required under this Agreement must have a term of not less than one
year and shall be in the form and amount and with deductibles as, from time to
time, shall be acceptable to Lender in its sole discretion, under valid and
enforceable policies issued by financially responsible insurers either licensed
to transact business in the state where the Facility is located, or obtained
through a duly authorized surplus lines insurance agent or otherwise in
conformity with the laws of such state, with a (i) rating of not less than the
fourth (4th) highest rating category by either Standard & Poor’s Ratings Group,
Duff & Phelps Credit Rating Co., Moody’s Investors Service, Inc., Fitch
Investors Service, Inc. or any successors thereto, or (ii) an A-V rating in
Best’s Key Rating Guide.  Originals or certified copies of all insurance
policies shall be delivered to and held by Lender.  All such policies shall name
Lender as an additional insured, shall provide for loss payable solely to Lender
and shall contain:  (A) a standard “non-contributory mortgagee endorsement or
its equivalent relating, inter alia, to recovery by Lender notwithstanding the
negligent or willful acts or omissions of Borrowers and notwithstanding
(1) occupancy or use of the Facility for purposes more hazardous than those
permitted by the terms of such policy, (2) any foreclosure or other action taken
by Lender pursuant to the Security Agreement or the other Loan Documents upon
the occurrence of a default, or (3) any change in title or ownership of the
Facility; and (B) a provision that such policies shall not be canceled or
amended, including, without limitation, any

 

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amendment reducing the scope or limits of coverage, or failed to be renewed,
without at least thirty (30) days prior written notice to Lender in each
instance.  With respect to insurance policies which require payment of premiums
annually, not less than thirty (30) days prior to the expiration dates of the
insurance policies obtained pursuant to this Agreement, Borrowers shall pay such
amounts; provided, however, to the extent Lender has required Borrowers to
deposit funds in an escrow therefor, Borrowers shall instead fund such escrow,
as directed by Lender.  Not less than thirty (30) days prior to the expiration
dates of the insurance policies obtained pursuant to this Agreement, originals
or certified copies of renewals of such policies (or certificates evidencing
such renewals) bearing notations evidencing the payment of premiums or
accompanied by other evidence satisfactory to Lender of such payment, which
premiums shall not be paid by Borrowers through or by any financing arrangement,
shall be delivered by Borrowers to Lender.  Borrowers shall carry separate
insurance, concurrent in kind or form or contributing in the event of loss with
any insurance required by this Section 4.5.  If the limits of any policy
required hereunder are reduced or eliminated due to a covered loss, Borrowers
shall pay the additional premium, if any, in order to have the original limits
of insurance reinstated, or Borrowers shall purchase new insurance in the same
type and amount that existed immediately prior to the loss.

 

(m)                             Lender’s Right to Procure Insurance.  If
Borrowers fail to maintain and deliver to Lender the original policies and/or
certificates of insurance required, Lender may, at its option, procure such
insurance and Borrowers shall pay or, as the case may be, reimburse Lender for,
all premiums thereon promptly, upon demand by Lender, with interest thereon at
the Default Rate from the date paid by Lender to the date of repayment and such
sum shall constitute a part of all obligations related to the Loan.

 

(n)                                 Use of Blanket and Umbrella Policies.  The
insurance required may, at the option of Borrowers, be effected by blanket
and/or umbrella policies issued to Borrowers or to an Affiliate of Borrowers
covering the Facility and the properties of such Affiliate; provided that, in
each case, the policies otherwise comply with the provisions of this Agreement
and allocate to the Facility, from time to time, the coverage specified by this
Agreement, without possibility of reduction or coinsurance by reason of, or
damage to, any other property (real or personal) named therein.  If the
insurance required by this Agreement shall be affected by any such blanket or
umbrella policies, Borrowers shall furnish to Lender original policies or
certified copies thereof, with schedules attached thereto showing the amount of
the insurance provided under such policies which are applicable to the Facility.
Additionally, umbrella coverage of no less than Five Million Dollars
($5,000,000) in the aggregate, will extend over General Liability, Professional
Liability, Automobile Liability, and Employer’s Liability.

 

(o)                                 Subrogation Rights.  Neither Lender nor its
agents or employees shall be liable for any loss or damage insured by the
insurance policies required to be maintained under this Agreement; it being
understood that (i) Borrowers shall look solely to their insurance company for
the recovery of such loss or damage, (ii) such insurance company shall have no
rights of subrogation against Lender, its agents or employees, and
(iii) Borrowers shall use their best efforts to procure from such insurance
company a waiver of subrogation rights against Lender.  If, however, such
insurance policies do not provide for a waiver of subrogation rights against
Lender (whether because such a waiver is unavailable or otherwise), then
Borrowers hereby agree, to the extent permitted by law and to the extent not
prohibited by such insurance

 

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policies, to waive their respective rights of recovery, if any, against Lender,
its agents and employees, whether resulting from any damage to the Facility, any
liability claim in connection with the Facility or otherwise.  If any such
insurance policy shall prohibit Borrowers from waiving such claims, then
Borrowers must obtain from such insurance company a waiver of subrogation rights
against Lender.

 

(p)                                 Condemnation and Casualty Loss.  In the
event of condemnation or casualty loss, the entire award of insurance proceeds
as a result thereof will be assigned to Lender with authorization, at Lender’s
option, to apply all or a portion thereof up to the outstanding principal
balance of the Loan and to any other Loan Obligations or to release amounts in
excess of such outstanding obligations related to the Loan to Borrowers, at
Lender’s option in its sole discretion.

 

(q)                                 Use of Proceeds of Insurance or
Condemnation.  At its option, Lender agrees that Lender shall make the net
proceeds of insurance or condemnation (after payment of Lender’s reasonable
costs and expenses) available to Borrowers for Borrowers’ repair, restoration
and replacement of the improvements on the Property, the equipment and the
inventory damaged or taken on the following terms and subject to Borrowers’
satisfaction of the following conditions:

 

(i)                                     The aggregate amount of all such
proceeds shall not exceed the aggregate amount of all such Loan Obligations;

 

(ii)                                  At the time of such loss or damage and at
all times thereafter while Lender is holding any portion of such proceeds, there
shall exist no Default or Event of Default;

 

(iii)                               The Improvements, Equipment, and Inventory
for which loss or damage has resulted shall be capable of being restored to its
preexisting condition and utility in all material respects with a value equal to
or greater than that which existed prior to such loss or damage and such
restoration shall be capable of being completed prior to the earlier to occur of
(A) the expiration of business interruption insurance as determined by an
independent inspector or (B) the Maturity Date;

 

(iv)                              Within thirty (30) days from the date of such
loss or damage Borrowers shall have given Lender a written notice electing to
have the proceeds applied for such purpose;

 

(v)                                 Within sixty (60) days following the date of
notice under the preceding subparagraph (c) and prior to any proceeds being
disbursed to Borrowers, Borrowers shall have provided to Lender all of the
following:

 

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(A)                               complete plans and specifications for
restoration, repair and replacement of the Improvements, Equipment and Inventory
damaged to the condition, utility and value required by (a) above,

 

(B)                               if loss or damage exceeds $50,000, fixed-price
or guaranteed maximum cost bonded construction contracts for completion of the
repair and restoration work in accordance with such plans and specifications,

 

(C)                               builder’s risk insurance for the full cost of
construction with Lender named under a standard mortgagee loss-payable clause,

 

(D)                               such additional funds as in Lender’s
reasonable opinion are necessary to complete such repair, restoration and
replacement, and

 

(E)                                copies of all permits and licenses necessary
to complete the work in accordance with the plans and specifications;

 

(vi)                              Lender may, at Borrowers’ expense, retain an
independent inspector to review and approve plans and specifications and
completed construction and to approve all requests for disbursement, which
approvals shall be conditions precedent to release of proceeds as work
progresses;

 

(vii)                           No portion of such proceeds shall be made
available by Lender for architectural reviews or for any other purposes which
are not directly attributable to the cost of repairing, restoring or replacing
the Improvements, Equipment and Inventory for which a loss or damage has
occurred unless the same are covered by such insurance;

 

(viii)                        Borrowers shall diligently pursue such work and
shall complete such work prior to the earlier to occur of the expiration of
business interruption insurance or the Maturity Date;

 

(ix)                              Each disbursement by Lender of such proceeds
and deposits shall be funded subject to conditions and in accordance with
disbursement procedures which a commercial construction lender would typically
establish in the exercise of sound banking practices and shall be made only upon
receipt of disbursement requests on an AIA G702/703 form (or similar form
approved by the Lender) signed and certified by Borrowers and, if required by
Lender, its architect and general contractor with appropriate invoices and lien
waivers as required by Lender; and

 

41

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(x)                                 Lender shall have a second lien and security
interest in all building materials and completed repair and restoration work and
in all fixtures and equipment acquired with such proceeds, and each Borrower
shall, as applicable, execute and deliver such mortgages, deeds of trust,
security agreements, financing statements and other instruments as Lender shall
request to create, evidence, or perfect such lien and security interest.

 

(r)                                    Use of Insurance Proceeds to Set Off Loan
Obligations.  In the event and to the extent such proceeds are not required or
used for the repair, restoration and replacement of the Improvements, Equipment
and Inventory for which a loss or damage has occurred, or in the event Lender
does not permit Borrowers to have the insurance proceeds applied to the
restoration of the Improvements, Equipment, or Inventory, or, if the conditions
set forth herein for such application are otherwise not satisfied, then Lender
shall be entitled without notice to or consent from Borrowers to apply such
proceeds, or the balance thereof, at Lender’s option either (i) to the full or
partial payment or prepayment of the Loan Obligations (without premium) in the
manner aforesaid, or (ii) to the repair, restoration and/or replacement of all
or any part of such Improvements, Equipment and Inventory for which a loss or
damage has occurred.

 

(s)                                   Appointment as Attorney-in-Fact.  Each
Borrower appoints Lender as such Borrower’s attorney-in-fact to cause the
issuance of or an endorsement of any insurance policy to bring Borrowers into
compliance herewith and, as limited above, at Lender’s sole option, to make any
claim for, receive payment for, and execute and endorse any documents, checks or
other instruments in payment for loss, theft, or damage covered under any such
insurance policy; provided, however, in no event will Lender be liable for
failure to collect any amounts payable under any insurance policy.

 

(t)                                    Changes in Insurance Coverage.  Lender
acknowledges that certain coverage amounts described above may not be
commercially reasonable or available to attain or maintain.  Lender reserves the
right in its sole discretion to approve lesser amounts of coverage or approve
modifications to the required types of insurance.  Notwithstanding the
foregoing, if the Lender determines in its reasonable discretion based on its
experience with the long term care industry, generally, that insurance coverage
in excess of the amounts currently maintained by the Borrowers or on an
“occurrence” basis or any other modification to the insurance requirements are
necessary and are available for the Borrowers at premiums not materially in
excess of the premiums then being paid by Borrowers, then Borrowers shall be
obligated to procure coverage as determined by Lender.

 

(u)                                 Other Insurance. Lender may require such
other insurance coverages, in such amounts, and such other forms and
endorsements, as may from time to time be required by Lender and which are
customarily required by institutional lenders to similar properties in the state
the Facility is located in, similarly situated, including, without limitation,
coverages against other insurable hazards, which at the time are commonly
insured against and generally available at commercially reasonable premiums.

 

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(v)                                 Escrow for Insurance. Borrowers shall
deposit funds for payment of insurance premium in accordance with the Tax and
Insurance Escrow and Security Agreement.

 

4.6                               Financial and Other Information. Provide
Lender the following financial statements and information on a continuing basis
during the term of the Loan:

 

(a)                                 Annual Financial Statements.  Within ninety
(90) days after the end of each fiscal year of the Facility, for each Borrower
and Management Company, reviewed financial statements, and for AdCare Health
Systems, Inc., audited financial statements (including a balance sheet, a cash
flow statement and a statement of income and expenses for the reporting year)
prepared by a nationally recognized accounting firm or independent certified
public accountant acceptable to Lender and certified to by the respective
financial officer as being true and correct.

 

(b)                                 Annual Disclosure Certificate.  Within
thirty (30) days after the end of each fiscal year, an annual disclosure
certificate in the form provided for in Exhibit D attached hereto certified by
the chief financial officer of each Borrower.

 

(c)                                  Quarterly Compliance Certificate. Within
forty-five (45) days after the end of each fiscal quarter of the Facility,
furnish to Lender a quarterly compliance certificate in the form attached hereto
as Exhibit E certified by the chief financial officer of each Borrower.

 

(d)                                 Quarterly Financial Statements.  Within
forty-five (45) days after the end of each fiscal quarter of the Facility, for
each Borrower, the Management Company and any Corporate Guarantor, financial
statements (including a balance sheet, cash flow statement and a statement of
income and expenses for the reporting quarter) certified to by the respective
financial officer as being true and correct.

 

(e)                                  Monthly Financial Statements.  Within
thirty (30) days after the end of each month current financial statements for
the Facility, prepared in accordance with GAAP consistently applied, which
statements shall include a balance sheet, cash flow statement, a statement of
income and expenses for the month then ended and a statement of the number of
bed days available and the actual patient days incurred for the month, together
with monthly census information of the Facility as of the end of such month in
sufficient detail to show patient-mix on a daily average basis for such year
through the end of such month, certified by a financial officer of each Borrower
to be true and correct.

 

(f)                                   Copies of Tax Returns.  As soon as
available, but in no event more than thirty (30) days after the filing deadline,
as may be extended from time to time, copies of all federal, state and local tax
returns of each Borrower and each Guarantor, together with all supporting
documentation and required schedules.

 

(g)                                  Copies of Medicare and Medicaid Cost
Reports.  As applicable, within ten (10) Business Days of filing or receipt,
(i) all Medicaid and Medicare cost reports and any amendments thereto filed with
respect to the Facility and all responses, audit reports, or other inquiries
with respect to such cost reports and (ii) copies of all licensure and state and
federal inspection reports, if applicable, with an attached plan of correction.

 

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(h)                                 Copies of Medicaid and Medicare Rate
Calculation Worksheet.  As applicable, within ten (10) Business Days of receipt,
a copy of the Medicaid and Medicare Rate Calculation Worksheet (or the
equivalent thereof) issued by the appropriate agency for the Facility.

 

(i)                                     Copies of Downgrade Notices.  Within
three (3) days of receipt, any and all notices (regardless of form) from any and
all licensing and/or certifying agencies that license the Facility and/or the
Medicare and/or Medicaid certification of the Facility that the Facility is
being downgraded to a substandard category, revoked, or suspended or that any
such action is pending or being considered to downgrade to a substandard
category, revoke or suspend the Facility’s license.

 

(j)                                    Evidence of Payment of Bed Taxes.  Upon
request by Lender, evidence of payment by Borrowers of any applicable provider
bed taxes or similar taxes with respect to the Facility, which taxes Borrowers
agree to pay or cause to be paid.

 

(k)                                 Aged Accounts Receivable/Payable Report. 
Within thirty (30) days after the end of each calendar month, (i) an aged
accounts receivable report of the Facility in sufficient detail to show amounts
due from each class of unit or patient-mix (i.e., private, Medicare, Medicaid
and V.A.) by the account age classifications of 30 days, 60 days, 90 days, 120
days, and over 120 days, (ii) monthly census information of the Facility in
sufficient detail to show unit or patient mix on a daily average basis for such
month and (iii) an accounts payable report of the Facility.

 

(l)                                     Report Regarding Resident Days and
Medicare or Medicaid Default Rate.  As applicable, within ten (10) Business Days
of receipt, a statement of the number of patient days for which the Facility has
received the Medicare default rate for any applicable period.  For purposes
herein, “default rate” shall have the meaning ascribed to it in that certain
Medicare or Medicaid rate notification letter prepared in connection with any
review or survey of the Facility.

 

(m)                             Copies of Inspection Reports.  Within ten
(10) Business Days of receipt, copies of all licensure and state or federal
inspection reports, if applicable, with attached plan of correction.  Borrowers
shall correct any deficiency on any report delivered pursuant to this
Section 4.6 or otherwise received by Borrowers within the date required by the
Health Regulatory Authority or other such government agency.

 

(n)                                 Payment of Taxes and Insurance. Borrowers
shall deliver to Lender on a monthly or quarterly basis (as determined by Lender
in accordance with the requirements of the applicable taxing authorities)
evidence that Borrowers have paid or caused to be paid all insurance premiums
and all Taxes, charges, claims for labor, supplies, rent or other obligations
which, if unpaid, might give rise to a Lien against the property of Borrowers
(except Liens permitted by this Agreement), that were due and payable by
Borrowers during such previous month or quarter, as the case may be (each a “Tax
and Insurance Report”).

 

(o)                                 SBA Requirements. .Within twenty (20) days
after the end of each fiscal quarter, a completed SBA Form 468/Economic Data
Portfolio Concern in the form

 

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attached hereto as Exhibit F and such other documents and agreements as may be
required to be delivered to the Small Business Administration, all as directed
by the Lender.

 

(p)                                 Insurance Captive. Within ninety (90) days
after the end of each fiscal year, a loss run history on the entire insurance
captive, if an insurance captive is utilized for the Facility.

 

(q)                                 Independent Audit of Accounts Receivable. 
Upon Lender’s request, but no often than once per year, and/or, upon an Event of
Default, Borrowers shall submit the results of an audit of its accounts
receivable and cash collections in form and substance acceptable to Lender, in
Lender’s sole discretion, and performed by an independent third party auditor
approved by Lender, which audits will be performed at Borrowers’ expense.

 

(r)                                    Reports Regarding Claims.  Within three
(3) Business Days of being (a) presented with a claim or claims in an amount in
excess of Fifty Thousand Dollars ($50,000) against any insurance policy for the
Facility related any facility under that policy or (b) presented with any claim
against the Facility, a report and/or notice identifying the amount and related
loss of such claim.

 

(s)                                   Affiliates Facilities Reports. Should a
health care facility owned by an Affiliate of any Borrower (whether or not
financed by Lender or its Affiliate) be either decertified (or action taken in
pursuance thereof) or is subject to a denial of new admissions, the Borrowers or
the applicable Affiliate shall provide Lender with a written notice of such
events.

 

(t)                                    Accounts List. Within thirty (30) days
after the end of each fiscal year, within five (5) Business Days of opening or
closure of any account or upon Lender’s request, deliver a comprehensive list of
all bank accounts associated with any Borrower or the Facility and all
subsidiaries thereof including, without limitation: (i) the designated number
associated with each account; (ii) the name of the bank or financial institution
where the account is held; and (iii) the type of account.

 

(u)                                 Audited Financials.  If not already
required, the Lender reserves the right to require that the annual financial
statements of each Borrower and the Management Company be audited and prepared
by a nationally recognized accounting firm or independent certified public
accountant acceptable to Lender, at Borrowers’ respective cost and expense, if
(i) an Event of Default has occurred or (ii) if Lender has reasonable grounds to
believe that the unaudited financial statements do not accurately represent the
financial condition of each Borrower, the Management Company or any Corporate
Guarantor, as the case may be.

 

(v)                                 Additional Information.  Lender further
reserves the right to require such other information of Borrowers, the
Management Company, Guarantors and/or the Facility, in such form and at such
other times (including monthly or more frequently) as Lender shall deem
necessary, and Borrowers agree promptly to provide or to cause to be provided,
such information to Lender.

 

(w)                               Statutory Rights. The provisions of this
Section 4.6 shall not be in limitation of any rights which the Lender may have
under any applicable law with respect to the

 

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books and records of the Borrowers or to inspect the Facility of to discuss its
affairs, finances and accounts.

 

(x)                                 Borrowing Base Certificate. Borrowers shall
submit a Borrowing Base Certificate: (1) in connection with each Draw updated
for estimated billings and actual collections since the prior submission and
(2) monthly, by the fifteenth (15th) day of each month, commencing on the month
of the Operations Closing Date, regardless if there is a Draw.

 

4.7                               Government Receivables Account and Loan
Account.

 

(a)                                 By no later than ten Business Days after the
Closing Date, Borrowers shall establish the Government Receivables Account
consistent with the definition of such term herein.

 

(b)                                 By no later than ten Business Days after the
Closing Date, Borrowers shall establish the Loan Account consistent with the
definition of such term herein.

 

(c)                                  By no later than ten Business Days after
the Closing Date, Borrowers shall establish the Payroll Account consistent with
the definition of such term herein.

 

(d)                                 By no later than ten Business Days after the
Closing Date, Borrowers will enter into the ZBA Agreement pursuant to which
monies on deposit in the Government Receivables Account and Payroll Account will
be swept and deposited to the Loan Account.

 

(e)                                  By no later than ten Business Days after
the Closing Date, Borrowers will enter into the Control Agreement with the
Lender and the Facility Bank.

 

(f)                                   Borrowers will cause all Facility revenue
that is not required to be deposited into the Government Receivables Account to
be deposited to the Loan Account.

 

(g)                                  No Borrower shall close the Government
Receivables Account, Payroll Account nor the Loan Account nor change the
procedures or sweep instructions under the ZBA Agreement.

 

(h)                                 No checks, drafts or other Instruments
received by Lender shall constitute final payment for the Loan to Lender unless
and until such Instruments have actually been collected.

 

(i)                                     Borrowers acknowledge and agree that
compliance with the terms of this section is essential, and that Lender will
suffer immediate and irreparable injury and have no adequate remedy at law, if
Borrowers, through acts or omissions, cause or permit Facility revenues to be
deposited to other than the Government Receivables Account or Loan Account. 
Accordingly, in addition to all other rights and remedies of Lender hereunder,
Lender shall have the right to seek specific performance of the Borrowers’
obligations under this section and any other equitable relief as Lender may deem
necessary or appropriate, and Borrowers waive any requirement for the posting of
a bond in connection with such equitable relief.

 

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(j)                                    If any Borrower breaches its obligation
hereunder, Lender, as the irrevocably made, constituted and appointed true and
lawful attorney for Borrowers, may upon prior notice to Borrowers, by the
signature or other act of any of Lender’s officers (without requiring any of
them to do so), direct any account debtor to pay Facility revenues to the Loan
Account or Government Receivables Account, as applicable.

 

(k)                                 Each Borrower agrees not to open any lockbox
or new bank account into Facility revenues are to be delivered or deposited
unless concurrently with the opening of such account, Lender, such Borrower and
the bank which will maintain such account, execute a new agreement on terms
substantially similar to the ZBA Agreement and Control Agreement, as applicable,
with respect to such account.

 

4.8                               Books and Records.  Keep and maintain at all
times at the Facility or the Management Company’s offices, and upon Lender’s
request shall make available at the Facility, complete and accurate books of
account and records (including copies of supporting bills and invoices) adequate
to reflect correctly the results of the operation of the Facility, and copies of
all written contracts, subleases (if any), and other instruments which affect
the Property, which books, records, contracts, leases (if any) and other
instruments shall be subject to examination and inspection at any reasonable
time by Lender (upon reasonable advance notice, which for such purposes only may
be given orally, except in the case of an emergency or following an Event of
Default, in which case no advance notice shall be required); provided, however,
that if an Event of Default has occurred and is continuing, Borrowers shall
deliver to Lender upon written demand all books, records, contracts, subleases
(if any) and other instruments relating to such Facility or its operation and
Borrowers authorize Lender to obtain a credit report on Borrowers at any time at
Borrowers’ sole cost and expense.

 

4.9                               Payment of Indebtedness.  Duly and punctually
pay or cause to be paid all other Indebtedness now owing or hereafter incurred
by Borrowers in accordance with the terms of such Indebtedness, except such
Indebtedness owing to those other than Lender which is being contested in good
faith and with respect to which any execution against properties of Borrowers
has been effectively stayed and for which reserves and collateral for the
payment and security thereof have been established as determined by Lender in
its sole discretion.

 

4.10                        Notice of Loss.  Immediately notify the Lender of
any event causing a loss or depreciation in value of either Borrower’s assets in
excess of $10,000 or any Guarantor’s assets in excess of the amount required by
their Guaranty Agreement and the amount of such loss or depreciation, except
Borrowers shall not be required to notify Lender of depreciation in Equipment
resulting from ordinary use thereof.

 

4.11                        Records of Accounts.  Maintain all records,
including records pertaining to the Accounts of each Borrower, at the chief
executive office of each Borrower as set forth in this Agreement.

 

4.12                        Conduct of Business.  Conduct the operation of the
Facility at all times in a manner consistent with the level of operation of the
Facility as of the date hereof, including without limitation, the following:

 

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(a)                                 to maintain the standard of care for the
patients of the Facility at all times at a level necessary to ensure quality
care for the patients of the Facility in accordance with customary and prudent
industry standards;

 

(b)                                 to operate the Facility in a prudent manner
and in compliance with applicable laws and regulations relating thereto and
cause all Permits, Reimbursement Contracts, and any other agreements necessary
for the use and operation of the Facility or as may be necessary for
participation in the Medicaid, Medicare or other applicable reimbursement
programs to remain in effect without reduction in the number of licensed beds
authorized for use in the Medicaid, Medicare or other applicable reimbursement
programs;

 

(c)                                  to maintain sufficient Inventory and
Equipment of types and quantities at the Facility to enable Borrowers adequately
to perform operations of the Facility;

 

(d)                                 to keep all Improvements and Equipment
located on or used or useful in connection with the Facility in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needed and proper repairs, renewals, replacements, additions, and
improvements thereto to keep the same in good operating condition;

 

(e)                                  to maintain sufficient cash in the
operating accounts of the Facility in order to satisfy the working capital needs
of the Facility and not to comingle funds of the Facility and the Borrowers with
any other funds; provided, however, that any cash or equity contributions shall
not be deemed commingled funds and provided further, however, that any of such
contributions that are deemed loans must be subject to a subordination agreement
approved by the Lender; and

 

(f)                                   to keep all required Permits current and
in full force and effect.

 

4.13                        Minimum Financial Covenants.  Borrowers on a
consolidated basis shall maintain the following:

 

(a)                                 Current Ratio.

 

(i)                                     Borrowers shall maintain a Current Ratio
(as defined below) of 1.0 to 1.0 commencing at the end of the first fiscal
quarter after the Closing Date and thereafter as tested on a quarterly basis at
the end of each quarter for the term of the Loan; and

 

(ii)                                  For the purposes of this Agreement,
“Current Ratio” shall mean Current Assets divided by Current Liabilities. 
“Current Assets” shall mean, only with respect to the Facility, cash, accounts
receivable aged less than 90 days (any other receivable in such calculation to
be approved by Lender), inventory, marketable securities, prepaid expenses and
other assets that can be converted to cash within one year, excluding, at the
sole discretion of the Lender, accounts or Indebtedness due to or from
Affiliates of the

 

48

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Borrowers.  “Current Liabilities” shall mean, only with respect to the Facility,
accounts payable, short term loans, expenses incurred but unpaid and other debts
due within one year, excluding, at the sole discretion of the Lender, accounts
or Indebtedness due to or from Affiliates of the Borrowers.

 

(b)                                 Liquidity.  Borrowers on a consolidated
basis shall at all times during the term of the Loan maintain cash, or
availability under a line of credit, including availability under the Loan, of
no less than Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00).

 

(c)                                  If any Borrower fails to achieve or provide
evidence of achievement of the Current Ratio for the Facility, provided there is
no continuing Default or Event of Default under the Loan Documents and provided,
further, that there has never been a default under Section 6.1(a) of this
Agreement, Borrowers may deposit with Lender, at Borrowers’ option within thirty
(30) days of such failure, additional cash or other liquid collateral in an
amount which would have resulted in the noncomplying Current Ratio requirement
having been satisfied.  If after Borrowers have deposited such additional cash
or liquid collateral, any Borrower again fails to achieve or provide evidence of
the achievement of the Current Ratio for the Facility requirements set forth
above and such failure continues for a second consecutive quarter, Borrowers may
deposit with Lender, at Borrowers’ option within thirty (30) days of such
failure, additional cash or other liquid collateral (with credit for amounts
currently being held by Lender pursuant to the foregoing sentence), in an amount
which would have resulted in the noncomplying Current Ratio requirement for such
quarter having been satisfied.  Borrowers shall not have the option to cure for
failure to comply for any additional consecutive quarters and such an event will
constitute an Event of Default under this Agreement. Any additional cash or
liquid collateral deposited by Borrowers hereunder in order to achieve the
required Current Ratio for the Facility and cure any existing default with
respect thereto will be held by Lender in a standard custodial account and shall
constitute additional collateral for the obligations related to the Loan and an
“Account” as defined in this Agreement, and, upon the occurrence of a default,
may be applied by Lender, in such order and manner as Lender may elect, to the
reduction of the obligations related to the Loan.  Borrowers shall not be
entitled to any interest earned on such additional collateral.  Provided that
there is no outstanding Default or Event of Default, such additional collateral
which has not been applied to the Loan Obligations will be released by Lender at
such time as Borrowers provided Lender with evidence that the required minimum
Current Ratio requirement set forth above has been achieved and maintained
(without regard to any cash or liquid collateral deposited pursuant to this
section) for two (2) consecutive fiscal quarters.

 

Notwithstanding anything herein to the contrary, any additional liquid
collateral posted by Borrowers under the Senior Loan Agreement for purposes of
satisfying this covenant, if the lender thereof is an Affiliate of the Lender,
shall be deemed to satisfy the requirements herein.

 

Borrowers shall be required to supply Lender with a certificate evidencing
compliance with the requirements of this Section, which certificate shall be
signed by an officer

 

49

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or manager as appropriate.

 

4.14                        Debt Service Coverage Requirements.

 

(a)                                 Debt Service Coverage Ratio.  Borrowers on a
consolidated basis shall maintain and provide evidence to Lender of the
achievement of a Debt Service Coverage Ratio and Total Debt Service Coverage
Ratio for the Facility of (i) not less than 1.00 to 1.00 as tested on a
quarterly basis at the end of the first full fiscal quarter ending December 31,
2012 and the second fiscal quarter ending March 31, 2013, and thereafter,
(ii) 1.15 to 1.00 as tested on a quarterly basis at the end of each quarter,
beginning with the last day of the third fiscal quarter after the Closing Date
and continuing thereafter for the term of the Loan. Borrowers may include any
outstanding amounts in the Capitalized Interest Reserve Account in such
calculations.

 

This Debt Service Coverage Ratio and Total Debt Service Coverage Ratio will be
measured as follows: (A) for a trailing three month period tested at the end of
the first fiscal quarter following the Closing Date, (B) for the second fiscal
quarter following the Closing Date and for a trailing six month period tested at
the end of such quarter, (C) for the third fiscal quarter following the Closing
Date, and for a trailing nine month period tested at the end of such quarter,
and (iv) thereafter, tested quarterly and for a trailing twelve month period
from the end of such quarter.

 

(b)                                 If any Borrower fails to achieve or provide
evidence of achievement of the Debt Service Coverage Ratio or Total Debt Service
Coverage Ratio for the Facility, provided there is no continuing Default or
Event of Default under the Loan Documents and provided, further, that there has
never been a Default under Section 6.1(a) of this Agreement, Borrowers may
deposit with Lender, at Borrowers’ option within thirty (30) days of such
failure, additional cash or other liquid collateral in an amount which would
have resulted in the noncomplying Debt Service Coverage Ratio or noncomplying
Total Debt Service Coverage Ratio requirement having been satisfied.  If after
Borrowers have deposited such additional cash or liquid collateral, any Borrower
again fails to achieve or provide evidence of the achievement of the Debt
Service Coverage Ratio or Total Debt Service Coverage Ratio for the Facility
requirements set forth above and such failure continues for a second consecutive
quarter, Borrowers may deposit with Lender, at Borrowers’ option within thirty
(30) days of such failure, additional cash or other liquid collateral (with
credit for amounts currently being held by Lender pursuant to the foregoing
sentence), in an amount which would have resulted in the noncomplying Debt
Service Coverage Ratio or Total Debt Service Coverage Ratio requirement for such
quarter having been satisfied.  Borrowers shall not have the option to cure for
failure to comply for any additional consecutive quarters and such an event will
constitute an Event of Default under this Agreement. Any additional cash or
liquid collateral deposited by Borrowers hereunder in order to achieve the
required Debt Service Coverage Ratio or Total Debt Service Coverage Ratio for
the Facility and cure any existing default with respect thereto will be held by
Lender in a standard custodial account and shall constitute additional
collateral for the obligations related to the Loan and an “Account” as defined
in this Agreement, and, upon the occurrence of and during the continuance of an
Event of Default, may be applied by Lender, in such order and manner as Lender
may elect, to the reduction of the obligations related to the Loan.  Borrowers
shall not be entitled to any interest earned on such additional collateral. 
Provided that there is no outstanding Default or Event of Default, such
additional collateral

 

50

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which has not been applied to the Loan Obligations will be released by Lender at
such time as Borrowers provide Lender with evidence that the required minimum
Debt Service Coverage Ratio and minimum Total Debt Service Coverage Ratio
requirements set forth above have been achieved and maintained (without regard
to any cash or liquid collateral deposited pursuant to this section) for two
(2) consecutive fiscal quarters.

 

Notwithstanding anything herein to the contrary, any additional liquid
collateral posted by Borrowers under the Senior Loan Agreement for purposes of
satisfying this covenant, if the lender thereof is an Affiliate of the Lender,
shall be deemed to satisfy the requirements herein.

 

Borrowers shall be required to supply Lender with a certificate evidencing
compliance with the requirements of this Section, which certificate shall be
signed by an officer or manager as appropriate.

 

4.15                        Occupancy.  Starting with the quarter ending
March 31, 2013, maintain or cause to be maintained, an average annual occupancy
of the Facility as tested quarterly (on the basis of a fiscal year) of seventy
percent (70%) or greater (based on 102 in-service beds).

 

4.16                        Reserved.

 

4.17                        Updated Appraisals; Inspections.

 

(a)                                 Appraisals.  For so long as the Loan remains
outstanding, if any Event of Default shall occur hereunder, or if, in Lender’s
judgment, a material depreciation in the value of the Property shall have
occurred, then in any such event, Lender, may cause the Property to be appraised
by an appraiser selected by Lender, and in accordance with Lender’s appraisal
guidelines and procedures then in effect, and Borrowers agree to cooperate in
all respects with such appraisals and furnish to the appraisers all requested
information regarding the Property and the Facility.  Borrowers agree to pay all
reasonable costs incurred by Lender in connection with such appraisal which
costs shall be secured by the Senior Mortgage and shall accrue interest at the
Default Rate until paid.

 

(b)                                 Reserved.

 

(c)                                  Access; Inspections.  Borrowers shall
authorize and permit Lender and its representatives (which term shall be deemed
to include its independent accountants and counsel) to have reasonable access
during normal business hours, upon reasonable notice and in such manner as will
not unreasonably interfere with the conduct of business of Borrowers, to the
Facility as Lender may from time to time reasonably request.  Upon an Event of
Default under the Loan Documents, Lender shall have access to the Facility at
any hour without notice.  Borrowers will agree to allow Lender or Lender’s
representative access to conduct inspections of the Facility upon reasonable
notice to Borrowers.  In cases of an emergency, Lender shall have the right to
access the Facility to conduct inspections without notice.  In addition to and
not in substitution for Lender’s rights under Section 4.8 (Books and Records),
Borrowers agree to provide Lender, for any such inspection purposes, any data
necessary for Lender to complete its

 

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inspection. Borrowers shall reimburse Lender for reasonable travel costs
associated with one Facility visit per year.

 

(d)                                 Reports.  If any inspector’s report
indicates that repairs or replacements are necessary over and above such capital
expenditure requirement, Lender shall require a non-interest bearing repair
escrow fund to ensure completion of the repairs.  The amount of any repair
escrow shall be one hundred twenty five percent (125%) of the estimated cost of
repairs as determined by the inspector and Lender.  Lender also shall require an
agreement satisfactory to Lender, which will provide for completion of the
repairs and the disbursement of the escrow funds.  All fees and costs associated
with any inspection, any report and any subsequent inspections (if required)
shall be paid by Borrowers.

 

(e)                                  Clinical Inspection Fee for Facility.
Borrowers shall pay to Lender the reasonable fees associated with a third party
clinician that is engaged by Lender to inspect the Facility for clinical issues
if the Facility’s plan of correction following any survey is not approved after
the first revisit or where the Facility has been decertified or given a Denial
of Payment.

 

4.18                        Comply with Covenants and Laws.  Comply, in all
material respects, with all applicable covenants and restrictions of record and
all laws, ordinances, rules and regulations and keep the Facility and the
Property in compliance with all applicable laws, ordinances, rules and
regulations, including, without limitation, the Americans with Disabilities Act
and regulations promulgated thereunder, the Fair Housing Act and regulations
thereunder, and laws, ordinances, rules and regulations relating to zoning,
health, building codes, setback requirements, Medicaid and Medicare laws and
keep the Permits for the Facility in full force and effect (and if any material
noncompliance is discovered during the term of the Loan, Borrowers will promptly
remedy such noncompliance).

 

4.19                        Reserved.

 

4.20                        Certificate.  Upon Lender’s written request, furnish
Lender with a certificate stating that Borrowers have complied with and is in
compliance with all terms, covenants and conditions of the Loan Documents to
which Borrowers are a party and that there exists no Default or Event of Default
or, if such is not the case, that one or more specified events have occurred,
and that the representations and warranties contained herein are true and
correct with the same effect as though made on the date of such certificate.

 

4.21                        Notice of Fees or Penalties.  Immediately notify
Lender, upon Borrower’s knowledge thereof, of the assessment by any state or any
Medicare, Medicaid, health or licensing agency of any fines or penalties against
either Borrower or the Facility.

 

4.22                        Notice of Representations and Warranties.  Borrowers
shall immediately notify Lender in writing, in the event any representation or
warranty contained in the Loan Documents becomes untrue or there shall have been
any material adverse change in any such representation or warranty.

 

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4.23                        Lease Agreement; Management Agreement.

 

(a)                                 Maintain any lease agreement, any management
agreement and any other services agreement, excluding those cancelable within
thirty days or less than $10,000 per annum (including, without limitation, the
Operations Seller Lease Agreement, Lease Agreement, Operations Seller Management
Agreement and Management Agreement) in full force and effect and timely perform
all of its obligations thereunder and not permit the termination or amendment of
such lease agreement, management agreement or other services agreement
(including, without limitation, the Operations Seller Lease Agreement, Lease
Agreement, Operations Seller Management Agreement and Management Agreement) or
enter into any replacement or additional lease agreements, management agreements
or other services agreements (including, without limitation, food service
management agreements) unless the prior written consent of Lender is first
obtained (which consent will not be unreasonably withheld and may be presumed a
response in the affirmative if not received by the Borrowers within fifteen days
of Lender’s receipt of the initial request for consent); provided, however, that
Lender’s prior consent shall not be required for termination of any such lease
agreement, management agreement or other services agreement (including, without
limitation, the Operations Seller Lease Agreement, Lease Agreement, Operations
Seller Management Agreement and Management Agreement) in the event of emergency
situations (i.e., termination of the Facility’s license or decertification of
the Facility from participation in Medicare and/or Medicaid) as set forth below;

 

(b)                                 In the event that proceedings are instituted
to terminate the Facility’s license or to terminate the Facility’s Medicaid or
Medicare certification, upon request of Lender immediately terminate any lease
agreement, any management agreement or any other services agreement (including,
without limitation, the Operations Seller Lease Agreement, Lease Agreement,
Operations Seller Management Agreement and Management Agreement) relating to the
Facility and engage oversight management services from a replacement lessee,
management company or operator, as the case may be, reasonably acceptable to the
Lender;

 

(c)                                  In the event that bankruptcy or insolvency
proceedings are instituted by or against the Operator, Management Company or
Operations Seller, Owner shall (to the extent permitted by the applicable
bankruptcy court having jurisdiction over such proceedings), upon written
instruction received from Lender, to terminate any applicable lease agreement,
management agreement or other services agreement (including, without limitation,
the Operations Seller Lease Agreement, Lease Agreement, Operations Seller
Management Agreement and Management Agreement);

 

(d)                                 In the event that Borrowers fail to satisfy
any covenants in the Loan Documents, Lender shall have the right, but not the
obligation, to terminate any lease agreement, any management agreement and any
other services agreement (including, without limitation, the Operations Seller
Lease Agreement, Lease Agreement, Operations Seller Management Agreement and
Management Agreement) and engage oversight management services and other
relevant services from a replacement lessee, management company or operator, as
the case may be, reasonably acceptable to Lender;

 

(e)                                  In the event that at any time during the
term of the Loan, any lessee, management company or operator materially defaults
under the then applicable lease agreement, management agreement or other
services agreement (including, without limitation the

 

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Operations Seller Lease Agreement, Lease Agreement, Operations Seller Management
Agreement and Management Agreement) in effect (which default is not cured within
the applicable cure period, if any) Borrowers shall terminate such lease
agreement, management agreement or other services agreement (including, without
limitation the Operations Seller Lease Agreement, Lease Agreement, Operations
Seller Management Agreement and Management Agreement) and replace such lessee,
management company or operator pursuant to a replacement lease agreement,
management agreement or other services agreement in form and substance
acceptable to Lender, within thirty (30) days of such material default; and

 

(f)                                   In any instance where a replacement
manager or operator is appointed by the Borrowers and/or Owner and/or Operator
or Operations Seller, as applicable, or as required by the Lender, such
replacement manager or operator shall be required to enter into a replacement
Subordination and Assignment of Management Agreement, environmental indemnity
agreement and/or Subordination and Assignment of Lease Agreement, as applicable,
and any other agreement reasonably required by the Lender, in each instance in
form and substance substantially similar to those same agreements executed on
the Closing Date or the Operations Closing Date.

 

4.24                        Required Payment.  At any time upon: (i) a sale of
twenty-five percent (25%) or more of the assets of either of the Borrowers (in a
single transaction or a series of transactions not in the ordinary course of
business), (ii) a repayment in full of the Senior Loan, or (iii) a Change in
Control of any Borrower, the Loan shall be required to be prepaid in full with
accrued interest plus the Exit Fee, as set forth in Section 6.3 (Default Rate)
and Section 2.6 (Prepayment), at the option of Lender in its sole discretion;
provided, however, that no prepayment penalty shall be required for a prepayment
due to a Change in Control.

 

4.25                        Other Debt Agreements.  Maintain, and cause each
Affiliate to maintain, compliance with the terms, covenants and conditions of
the loan agreements, notes, mortgages, deeds of trust, security agreements,
assignments and/or other documents and instruments evidencing or securing
Indebtedness upon which such Person is obligated or which encumbers any property
of such Person, including, without limitation, the Senior Loan and all other
Contemporary Debt.

 

4.26                        Access.  Borrowers shall authorize and permit Lender
and its representatives (which term shall be deemed to include its independent
accountants and counsel) to have reasonable access during normal business hours,
upon reasonable notice and in such manner as will not unreasonably interfere
with the conduct of business of Borrowers, to the Facility as Lender may from
time to time reasonably request.  Upon an Event of Default under the Loan
Documents, Lender shall have access to the Facility at any hour without notice.

 

4.27                        USA Patriot Act Verification Information.  On the
Closing Date, provide evidence of its legal name, tax identification number and
street address, and, if either Borrower is an individual, a driver’s license and
date of birth, satisfactory to and sufficient for Lender to verify the identity
of such Borrower, as required under the USA Patriot Act.  Each Borrower shall
notify Lender, promptly, of any change to such information.

 

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4.28                        Lien Searches.  Upon Lender’s request and at
Borrowers’ sole cost and expense, deliver to Lender the results of complete lien
and judgment searches for each Borrower or any Guarantor at the applicable
county and at the Secretary of State’s Office.

 

4.29                        License to Operate. Maintain or cause to be
maintained the required Facility licenses, Medicaid and Medicare Reimbursement
Contracts and/or Permits at all times.

 

4.30                        Reserved.

 

ARTICLE V.

NEGATIVE COVENANTS OF BORROWERS

 

Until the Loan Obligations have been paid in full, each Borrower jointly and
severally agrees it shall not:

 

5.1                               Assignment of Licenses and Permits.  Assign or
transfer any of its interest in any Permits or Reimbursement Contracts
(including rights to payment thereunder) pertaining to the Facility, or assign,
transfer, or remove or permit any other person to assign, transfer, or remove
any records pertaining to the Facility including, without limitation, patient
records, medical and clinical records (except for removal of such patient
records as directed by the patients owning such records), without Lender’s prior
written consent, which consent may be granted or refused in Lender’s sole
discretion.

 

5.2                               No Liens; Exceptions.  Create, incur, assume
or suffer to exist any Lien upon or with respect to the Facility or any of any
Borrower’s properties, rights, income or other assets relating thereto,
including, without limitation, the Collateral, whether now owned or hereafter
acquired, other than the following permitted Liens (“Permitted Encumbrances”):

 

(a)                                 Liens at any time existing in favor of the
Lender or its Affiliates,

 

(b)                                 Liens which are listed in Exhibit G attached
hereto,

 

(c)                                  Inchoate Liens arising by operation of law
for the purchase of labor, services, materials, equipment or supplies, provided
payment shall not be delinquent and, if such Lien is a lien upon any of the
Property or Improvements, such Lien must be fully disclosed to Lender and bonded
off and removed from the Property and Improvements, within thirty (30) days of
its creation, in a manner satisfactory to Lender,

 

(d)                                 Liens incurred in the ordinary course of
business in connection with workers’ compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts (other than for money
borrowed or for credit received with respect to property acquired) entered into
in the ordinary course of business as presently conducted or to secure
obligations for surety or appeal bonds, and

 

(e)                                  Liens for current year’s taxes, assessments
or governmental charges or levies provided payment thereof shall not be
delinquent.

 

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(f)                                   Liens in favor of Senior Lender or any
Contemporary Debt.

 

5.3                               Indebtedness and Other Obligations.

 

(a)                                 Incur or become obligated upon any other
Indebtedness, secured or unsecured, or become obligated to make any capital
contribution or loan to any other entity other than the following:

 

(i)                                     Indebtedness to Lender including
Contemporary Debt;

 

(ii)                                  Indebtedness to Senior Lender;

 

(iii)                               Indebtedness to trade creditors in the
ordinary course of business as reflected on the financial statements; and

 

(iv)                              Accrued debt for current payroll taxes and
similar taxes not yet due.

 

(b)                                 Other than in accordance with the terms of
the Subordination and Standstill Agreement, Borrowers will not permit any
increase in the Senior Loan or change in the interest rate (other than changes
occurring automatically under a note having a floating rate as an index),
payment terms or other material terms of any of such debt and will not enter
into any agreement amending the documents evidencing such debt in any of the
foregoing respects.

 

5.4                               Merger, Consolidation, Etc.  Consummate any
Change in Control, merger, consolidation or similar transaction, or sell,
assign, lease or otherwise dispose of substantially all of its assets (whether
now or hereafter acquired), without the prior written consent of the Lender,
which consent may be granted or refused in Lender’s sole discretion.

 

5.5                               Maintain Single-Purpose Entity Status.

 

(a)                                 Borrowers shall not:

 

(i)                                     engage in any business or activity other
than the ownership, operation and maintenance of the Property and activities
incidental thereto;

 

(ii)                                  acquire or own any material assets other
than (A) the Property, Facility, Equipment, General Intangibles, Accounts and
Inventory, and (B) such incidental machinery, equipment, fixtures and other
personal property as may be necessary for the operation of the Property;

 

(iii)                               fail to preserve its existence as a limited
liability company, validly existing and in good standing (if applicable) under
the laws of the jurisdiction of its organization or formation, or without the
prior written consent of Lender, amend, modify, terminate or fail to comply with
the provisions of

 

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its articles of organization, operating agreement or similar organizational
document, as same may be further amended or supplemented, if such amendment,
modification, termination or failure to comply would adversely affect its
ability to perform its obligations hereunder, under the Note or any other
document evidencing or securing the Loan;

 

(iv)                              incur any debt, secured or unsecured, direct
or contingent (including guaranteeing any obligation), other than the Loan and
trade payables incurred in the ordinary course of business, provided same are
paid when due;

 

(v)                                 fail to maintain its records, books of
account and bank accounts separate and apart from those of its members and
affiliates, the affiliates of any of its members, and any other person; and

 

(vi)                              fail either to hold itself out to the public
as a legal person separate and distinct from any other person or to conduct its
business solely in its own name in order not (A) to mislead others as to the
identity with which such other party is transacting business, or (B) to suggest
that it is responsible for the debts of any third party (including any of its
members or affiliates, or any general partner, principal or affiliate thereof).

 

5.6                               Dividends, Distributions and Redemptions.

 

(a)                                 Except as otherwise consented to by Lender
in writing, none of the Borrowers may declare or pay any dividends, or purchase,
redeem, retire, or otherwise acquire for value, any of its membership interests
or shares of capital stock, as the case may be, now or hereafter outstanding, or
return any capital to its members (each a “Distribution”).

 

(b)                                 Notwithstanding the foregoing, the Borrowers
may declare and pay Distributions quarterly provided that:

 

(1)                                 the Borrowers have demonstrated satisfactory
compliance, as determined by Lender in Lender’s sole discretion, with all
covenants of the Loan Documents,

 

(2)                                 the Borrowers have demonstrated satisfactory
compliance, as determined by Lender in Lender’s sole discretion, with all
financial covenants of the Loan Documents including that the Borrowers have
maintained a Total Debt Service Coverage Ratio of 1.35 to 1.00 for two
consecutive fiscal quarters immediately prior to any Distribution, provided,
however, that if the Facility falls below such coverage requirements for any
quarter after meeting the immediately provided for

 

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test, all Distributions shall cease until the Facility again meets such
requirements for another two consecutive quarters,

 

(3)                                 there has not existed a payment Event of
Default on the Loan or the Senior Loan;

 

(4)                                 neither the Loan nor the Senior Loan is in
Default which Default has not been cured or waived;

 

(5)                                 the making of such Distribution would not
cause an Event of Default on the Loan or the Senior Loan;

 

(6)                                 at no time has the Lender accelerated the
Loan, otherwise there shall be no Distributions.

 

5.7                               Change of Business.  Make any material change
in the nature of its business as it is being conducted as of the date hereof.

 

5.8                               Changes in Accounting.  Change its methods of
accounting, unless such change is permitted by GAAP, and provided such change
does not have the effect of curing or preventing what would otherwise be an
Event of Default or Default had such change not taken place.

 

5.9                               ERISA Funding and Termination.  Permit (a) the
funding requirements of ERISA with respect to any employee plan to be less than
the minimum required by ERISA at any time, or (b) any employee plan to be
subject to involuntary termination proceedings at any time.

 

5.10                        Transactions with Affiliates.  Unless previously
approved by the Lender, enter into any transaction with a Person which is an
Affiliate of any Borrower other than in the ordinary course of its business and
on fair and reasonable terms no less favorable to Borrowers, than those they
could obtain in a comparable arms-length transaction with a Person not an
Affiliate.

 

5.11                        Transfer of Ownership Interests.  Permit a change in
the Persons holding the ownership interests or capital stock of any Borrower
unless the written consent of the Lender is first obtained, which consent may be
granted or refused in Lender’s sole discretion.

 

5.12                        Change of Use.  Alter or change the use of the
Facility or permit to exist any management agreement for the Facility or enter
into any operating lease for the Facility (other than the Lease Agreement,
Operations Seller Lease Agreement, Operations Seller Management Agreement and
Management Agreement), unless Borrowers first notify Lender and provide Lender a
copy of the proposed lease agreement or management agreement, obtains Lender’s
written consent thereto, which consent may be withheld in Lender’s sole
discretion, and obtains and provides Lender with a subordination agreement in
form satisfactory to Lender, as determined by Lender in its sole discretion,
from such manager or lessee subordinating to all rights of Lender.

 

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5.13                        Domicile and Place of Business.  Change its chief
executive office or its principal place of business without first giving Lender
at least thirty (30) days prior written notice thereof and promptly providing
Lender such information and amendatory financing statements as Lender may
request in connection therewith.

 

5.14                        Acquisitions.  Directly or indirectly, purchase,
lease, manage, own, operate, or otherwise acquire any property or other assets
(or any interest therein) which are not used in connection with the operation of
the Facility.

 

5.15                        Change in Organizational Documents.  Permit any
change in the articles of organization articles of incorporation, bylaws or
operating agreement of any Borrower or the Management Company, as the case may
be, without in each case the prior written consent of Lender, or permit the
change in the manager or managing member of any Borrower or the Management
Company, as the case may be, or the admission of any other manager or managing
member of any Borrower or the Management Company, as the case may be.

 

5.16                        Facility Status.  Borrowers shall not close the
Facility.

 

5.17                        Compliance With Anti-Terrorism Orders.  Borrowers
will not permit the transfer of any interest in any Borrower to any person or
entity (or any beneficial owner of such entity) who is listed on those certain
lists referred to as the OFAC Lists developed in connection with the
Anti-Terrorism Laws (the “OFAC Lists”).  Borrowers will not knowingly enter into
a lease with any party who is listed on the OFAC Lists.  Borrowers shall
immediately notify Lender if any Borrower has knowledge that any principal, or
any member or beneficial owner of any Borrower or principal of any Borrower is
listed on the OFAC Lists or is indicted on or arraigned and held over on charges
involving money laundering or predicate crimes to money laundering.  Borrowers
shall immediately notify Lender if any Borrower knows that any tenant of the
Facility is listed on the OFAC Lists, or is convicted on, pleads nolo contendere
to, is indicted on, or is arraigned and held over on charges involving money
laundering or predicate crimes to money laundering.

 

5.18                        Involvement of Key Management.  Permit Christopher
F. Brogdon to cease to be actively involved on a full time basis in the senior
management of Borrowers or the Management Company, as the case may be, except
with consent of Lender, which consent shall be given or withheld in its sole
discretion, unless replaced by a replacement executive acceptable to Lender
acting in good faith within sixty (60) days of such cessation.

 

5.19                        Intercompany Indebtedness Prohibited. In addition to
and not in substitution for the covenants and obligations set for in Article V
and the Permitted Encumbrances set forth herein, except as noted in Schedule
5.19, no Borrower shall incur or become obligated upon any other Indebtedness,
secured or unsecured, or become obligated to make any capital contribution or
loan to any Affiliate of any Borrower, including, but not limited to
(i) advancing or loaning funds, (ii) engaging in any actions that generate any
accounts receivable due from and/or (iii) distribution of any funds of any
Borrower to any other affiliate businesses of Borrowers or Guarantors which are
not a Borrower hereunder, except as allowable under Section 5.6. Borrowers are
prohibited from commingling Facility funds with any other funds not attributable
to the Borrowers and/or the Facility.

 

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ARTICLE VI.

EVENTS OF DEFAULT AND REMEDIES

 

6.1                               Events of Default.  The occurrence of any one
or more of the following shall constitute an “Event of Default” hereunder:

 

(a)                                 The failure by Borrowers to pay any
installment of principal, interest, or other payments required under the Note,
as and when due;

 

(b)                                 Either Borrower’s violation of any covenant
set forth in Section 3.39 (Post Closing Date Covenants), Section 4.24 (Required
Payment), Section 4.29 (License to Operate) and Article V hereof;

 

(c)                                  Either Borrower’s or any Guarantor’s
failure to deliver or cause to be delivered the financial statements and
information set forth in Section 4.6 (Financial and Other Information) within
the times required, either Borrower’s ability to maintain the financial
covenants set forth in Section 4.13 (Minimum Financial Covenants) or
Section 4.14 (Debt Service Coverage Ratio Requirements) in the applicable
period, or either Borrower’s timely or proper performance or observance of the
covenants set forth in Section 4.5 (Insurance), and such failure is not cured
within thirty (30) days following Lender’s written notice to Borrowers thereof;

 

(d)                                 The failure of either Borrower properly and
timely to perform or observe any covenant or condition set forth in this
Agreement (other than those specified in this Section 6.1) or any other Loan
Documents which is susceptible of being cured and is not cured within any
applicable cure period as set forth herein or, if no cure period is specified
therefor, is not cured within thirty (30) days of Lender’s notice to Borrowers
of such Default; provided, however, that if such default cannot be cured within
such thirty (30) day period, such cure period shall be extended for an
additional sixty (60) days, as long as Borrowers are diligently and in good
faith prosecuting said cure to completion and as long as such extension is
approved by Lender in its sole discretion;

 

(e)                                  The filing by either Borrower or any
Guarantor of a voluntary petition, or the adjudication of any of the aforesaid
Persons, or the filing by any of the aforesaid Persons of any petition or answer
seeking or acquiescing, in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, or if any of the aforesaid
Persons should seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator for itself or of all or any substantial part of
its property or of any or all of the rents, revenues, issues, earnings, profits
or income thereof, or the mailing of any general assignment for the benefit of
creditors or the admission in writing by any of the aforesaid Persons of its
inability to pay its debts generally as they become due;

 

(f)                                   The entry by a court of competent
jurisdiction of an order, judgment, or decree approving a petition filed against
either Borrower or any Guarantor which such petition seeks any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future federal, state or other statute, law or

 

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regulation relating to bankruptcy, insolvency, or other relief for debtors,
which order, judgment or decree remains unvacated and unstayed for an aggregate
of sixty (60) days (whether or not consecutive) from the date of entry thereof,
or the appointment of any trustee, receiver or liquidator of any of the
aforesaid Persons or of all or any substantial part of its properties or of any
or all of the rents, revenues, issues, earnings, profits or income thereof which
appointment shall remain unvacated and unstayed for an aggregate of sixty (60)
days (whether or not consecutive);

 

(g)                                  Unless otherwise permitted hereunder or
under any other Loan Documents, the sale, transfer, lease, assignment, or other
disposition, voluntarily or involuntarily, of the Collateral, or any part
thereof, or, except for Permitted Encumbrances as described in Section 5.2 (No
Liens; Exceptions) above, any further encumbrance of the Collateral, unless the
prior written consent of Lender is obtained, which consent may be withheld in
Lender’s sole discretion;

 

(h)                                 The death or incompetence of any individual
Guarantor or, if such Guarantor is a joint and several guarantor with a spouse,
such Guarantor and spouse, unless replaced by a replacement Guarantor acceptable
to Lender acting in good faith within four (4) months of such death or any legal
determination of incompetence.

 

(i)                                     Any certificate, statement,
representation, warranty or audit heretofore or hereafter furnished by or on
behalf of either Borrower or any Guarantor pursuant to or in connection with
this Agreement (including, without limitation, representations and warranties
contained herein or in any Loan Documents) or as an inducement to Lender to make
the Loan to Borrowers, (i) proves to have been false in any material respect at
the time when the facts therein set forth were stated or certified, (ii) proves
to have omitted any substantial contingent or unliquidated liability or claim
against either Borrower or any Guarantor, or (iii) on the date of execution of
this Agreement there shall have been any materially adverse change in any of the
acts previously disclosed by any such certificate, statement, representation,
warranty or audit, which change shall not have been disclosed to Lender in
writing at or prior to the time of such execution;

 

(j)                                    The failure of either Borrower to correct
within the time deadlines set by any applicable Medicare, Medicaid or licensing
agency, any deficiency which would result in the following actions by such
agency with respect to the Facility:

 

(i)                                     a termination of any Reimbursement
Contract or any Permit; or

 

(ii)                                  a ban on new admissions generally or on
admission of patients otherwise qualifying for Medicare or Medicaid coverage; or

 

(iii)                               a ban on new beds, generally.

 

(k)                                 Either Borrower or the Facility should be
assessed fines or penalties by any state or any Medicare, Medicaid, health or
licensing agency having jurisdiction over such Persons or the Facility in excess
of $10,000;

 

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(l)                                     A final judgment shall be rendered by a
court of law or equity against either Borrower or any Guarantor in excess of
$10,000, and the same shall remain undischarged for a period of thirty (30)
days, unless such judgment is either (i) fully covered by collectible insurance
and such insurer has within such period acknowledged such coverage in writing,
or (ii) although not fully covered by insurance, enforcement of such judgment
has been effectively stayed, such judgment is being contested or appealed by
appropriate proceedings and such Borrower or Guarantor, as the case may be, has
established reserves adequate for payment in the event such Person is ultimately
unsuccessful in such contest or appeal and evidence thereof is provided to
Lender and such evidence is satisfactory as determined by Lender in its sole
discretion;

 

(m)                             The occurrence of any “Event of Default” under
any of the Senior Loan Documents or any Contemporary Debt in existence on the
date hereof;

 

(n)                                 The occurrence of any material default that
is not cured within any applicable cure period under any other deed to secure
debt or related financing documents evidencing or securing debt with respect to
the Facility;

 

(o)                                 The occurrence of any materially adverse
change in the financial condition or prospects of either Borrower or any
Guarantor, or the existence of any other condition which constitutes a material
impairment of any such Person’s ability to operate the Facility or of such
Person’s ability to perform their respective obligations under the Loan
Documents, which is not remedied within thirty (30) days after written notice;

 

(p)                                 Borrowers shall execute (other than to
Lender) any conditional bill of sale, chattel mortgage, security agreement or
other security instrument covering any materials, fixtures, machinery,
equipment, articles, and/or Personal Property intended to be incorporated in the
Facility or the appurtenances thereto or placed in the Facility, or if a
financing statement (for collateral greater than $10,000 in value) giving notice
of a security interest created under any such security instrument shall be
filed, or if any of such materials, fixtures, machinery, equipment, articles,
and/or Personal Property shall not be purchased so that the ownership thereof
will vest unconditionally in Borrowers, free from encumbrances other than to
Lender, on delivery at the Property, or if Borrowers shall not produce to Lender
upon demand the contracts, bills of sale, statements, receipted vouchers or
agreements, or any of them, under which Borrower claims title to any thereof; or

 

(q)                                 Any survey, report or examination discloses
that the Property or any portion thereof encroaches upon or projects over a
street or upon or over adjoining property or violates any setback or other
restriction, however created, or any building, zoning, subdivision, land-use,
health, sanitation, or environmental protection ordinance, regulation or law of
any Governmental Authority having jurisdiction over the Property or any other
Legal Requirements; provided, however, that if such default cannot be cured
within such thirty (30) day period, such cure period shall be extended for an
additional sixty (60) days, as long as Borrowers are diligently and in good
faith prosecuting said cure to completion and as long as such extension is
approved by Lender.

 

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Notwithstanding anything in this Section 6.1, all requirements of notice shall
be deemed eliminated if Lender is prevented from declaring an Event of Default
by bankruptcy or other applicable law.  The cure period, if any, shall then run
from the occurrence of the event or condition of Default rather than from the
date of notice.

 

6.2                               Remedies.  In addition to other remedies under
this Agreement, upon the occurrence of any one or more of the foregoing Events
of Default, the Lender may, at its option:

 

(a)                                 Declare the entire unpaid principal of the
Loan Obligations to be, and the same shall thereupon become, immediately due and
payable, without presentment, protest or further demand or notice of any kind,
all of which are hereby expressly waived; provided, however, if a Bankruptcy
Default occurs, then all such amounts shall become immediately due and payable
automatically without any election by the Lender; and/or

 

(b)                                 Proceed to protect and enforce its rights by
action at law (including, without limitation, bringing suit to reduce any claim
to judgment), suit in equity and other appropriate proceedings including,
without limitation, for specific performance of any covenant or condition
contained in this Agreement; and/or

 

(c)                                  Exercise any and all rights and remedies
afforded by the laws of the United States, the states in which any of the
Property or other Collateral is located or any other appropriate jurisdiction as
may be available for the collection of debts and enforcement of covenants and
conditions such as those contained in this Agreement and the Loan Documents;
and/or

 

(d)                                 Exercise the rights and remedies of setoff
and/or banker’s lien against the interest of Borrowers in and to every account
and other property of either Borrower which is in the possession of the Lender
or any person who then owns a participating interest in the Loan, to the extent
of the full amount of the Loan; and/or

 

(e)                                  Appoint a management company, in Lender’s
sole discretion, to assume and manage the business of the each Borrower, as such
relates to the Facility secured by the Loan Documents; and/or

 

(f)                                   Exercise its rights and remedies pursuant
to any other Loan Documents; and/or

 

(g)                                  All rights and remedies of Lender under the
terms of this Agreement, the Note, any of the other Loan Documents, and any
applicable statutes or rules of law shall be cumulative and may be exercised
successively or concurrently; and/or

 

(h)                                 reserved.

 

6.3                               Default Rate; Exit Fee.

 

(a)                                 In addition to and not in substitution for
the penalties set forth in Section 6.3(b) and Section 6.3(c), upon the
occurrence and during the continuance of any Event of Default, the Note Rate
shall be increased by the Default Rate, at the option of Lender.

 

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(b)                                 In addition to and not in substitution for
the penalties set forth in Section 6.3(a) and Section 6.3(c), if an Event of
Default occurs and the Loan is declared to be immediately due and payable, there
shall be added to the principal balance of the Loan then due an amount equal to
the Exit Fee, as set forth in Section 2.6.

 

(c)                                  In addition to and not in substitution for
the penalties set forth in Section 6.3(a) and Section 6.3(b), upon the
occurrence of any Event of Default, Borrowers shall be liable to the Lender for
all costs paid or incurred for the acquisition, renovating, improving and/or
equipping of the Facility, whether the same shall be paid or incurred pursuant
to the provisions of this section or otherwise, and all payments made or
liabilities incurred by the Lender hereunder or any kind whatsoever shall be
secured by the Loan Documents and shall immediately become due and payable to
the Lender without notice or demand and shall be paid by Borrowers to the Lender
on demand, with interest thereon at the Default Rate to the date of payment..

 

6.4                               Standstill Remedy.  Upon the occurrence of any
Event of Default, Lender shall have the right, but not the obligation, to issue
to Borrowers a standstill notice (the “Standstill Notice”) which notice shall
set forth any or all of the following provisions:

 

(a)                                 Each Borrower, jointly and severally,
covenants and agrees that after receipt of this Standstill Notice, without the
prior written consent of Lender:

 

(i)                                     each Borrower’s business, including the
Facility, will be conducted only in the ordinary course of business and in
compliance with applicable laws, regulations, and contractual obligations;

 

(ii)                                  Neither Borrower will merge, amalgamate or
consolidate with any corporation, or acquire all or substantially all of the
business or assets of any other Person, business organization, entity or
enterprise, or acquire ownership or control of any capital stock, bonds, or
other securities of, or any property interest in, any business organization,
entity or enterprise or acquire control of the management or policies thereof;

 

(iii)                               Each Borrower shall not:

 

(A)                               enter into any transaction with or create or
assume any obligation or liability to any Affiliate, agent or relative of any
Borrower or such Affiliates;

 

(B)                               cancel or compromise any claim, except in the
ordinary course of business, or waive any rights of substantial value;

 

(C)                               make any Tax election or settle or compromise
any Tax liability;

 

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(D)                               make any capital expenditures, except those
made in the ordinary course of business which do not exceed $10,000 in the
aggregate;

 

(E)                                enter into or assume any contract, agreement
or commitment which, by reason of its size, term or other factor, is not in the
ordinary course of business;

 

(F)                                 delay the payment of its accounts payable or
take any actions to accelerate the payment of its accounts receivable; or

 

(G)                               take any action, or omit to take any action,
which would have, or could reasonably be expected to have, a Material Adverse
Effect.

 

(iv)                              Each Borrower shall use its respective
commercially reasonable efforts in a manner consistent with past practice to
preserve the business organization of the Facility intact and to keep available
the services of the present employees and agents of the Facility and to preserve
the good will of customers, suppliers, referral sources, employees, agents,
third-party payors and others having business relations with the Facility;

 

(v)                                 Each Borrower shall use its respective
reasonable efforts to maintain the Facility in good operating condition and
repair, ordinary wear and tear excepted, and will maintain existing insurance
coverage on the Facility as well as other existing insurance coverage;

 

(vi)                              Each Borrower shall pay all registration,
maintenance and renewal fees that are due or past due in connection with each
item of Intellectual Property relating to the Facility; and

 

Upon receipt of the Standstill Notice, Borrowers shall comply with all of the
provisions set forth herein.

 

ARTICLE VII.

MISCELLANEOUS

 

7.1                               Waiver.  No remedy conferred upon, or reserved
to, the Lender in this Agreement or any of the other Loan Documents is intended
to be exclusive of any other remedy or remedies, and each and every remedy shall
be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing in law or in equity. Exercise of or omission to
exercise any right of the Lender shall not affect any subsequent right of Lender
to exercise the same.  No course of dealing between Borrowers and Lender or any
delay on the Lender’s part in exercising any rights shall operate as a waiver of
any of the Lender’s rights.  No waiver of any Default under this Agreement or
any of the other Loan Documents shall extend to

 

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or shall affect any subsequent or other then existing Default or shall impair
any rights, remedies or powers of Lender.

 

7.2                               Costs and Expenses.  Borrowers will bear all
taxes, fees, charges and expenses, including, but not limited to, in connection
with the Loan, the Note, the preparation and servicing of this Agreement and the
other Loan Documents (including any amendments hereafter made), and in
connection with any modifications thereto after the Closing Date, the recording
or re-recording of any of the Loan Documents, surveillance of the Borrowers’
operations and evaluation of Lender’s, Borrowers’, or any Guarantor’s respective
rights, obligations, actions or in-actions under the Loan Documents, including,
any waivers or consents, all (a) out of pocket expenses of Borrowers and Lender;
(b) recording fees, recording taxes, intangibles taxes, documentary taxes or
similar taxes; (c) title insurance premiums, (d) costs of third party reports,
including, but not limited to, environmental, engineering, appraisal, survey,
title report, lien search, inspections, drawing of papers, architects, and
Engineers expenses and charges; (e) attorneys’ fees of the Lender’s counsel;
(f) fees and expenses of consultants and advisors of Lender, including financial
advisors; and (g) expenses related to the employment of watchmen to protect the
Property from injury in the event that after request Borrowers do not provide
such protection, the amount of which taxes, fees, charges and expenses shall
constitute additional Loan Obligations of Borrowers to Lender payable on demand
of Lender.  If, at any time, a Default occurs or Lender becomes a party to any
suit or proceeding in order to protect its interests or priority in any
collateral for any of the Loan Obligations or its rights under this Agreement or
any of the Loan Documents, or if Lender is made a party to any suit or
proceeding by virtue of the Loan, this Agreement or any Collateral and as a
result of any of the foregoing, Lender employs or engages counsel, consultants
or other advisors to advise, consult or provide other representation with
respect to the Loan Documents, or to collect the balance of the Loan
Obligations, or to take any action in or with respect to any suit or proceeding
relating to this Agreement, any of the other Loan Documents, any Collateral,
Borrowers or any Guarantor or operator, or to protect, collect, or liquidate any
of the security for the Loan Obligations, or attempt to enforce any security
interest or lien granted to Lender by any of the Loan Documents, then in any
such events, all of the reasonable attorney’s fees, consultant fees, or other
advisor fees arising from such services, including any fees for preparation of
litigation and in any appellate or bankruptcy proceedings, and any expenses,
costs and charges relating thereto shall constitute additional Loan Obligations
of Borrowers to Lender payable on demand of Lender.  Without limiting the
foregoing, the Borrowers have undertaken the obligation for payment of, and
shall pay, all recording and filing fees, revenue or documentary stamps or
taxes, intangibles taxes, and other taxes, expenses and charges payable in
connection with this Agreement, any of the Loan Documents, the Loan Obligations,
or the filing of any financing statements or other instruments required to
effectuate the purposes of this Agreement and any record searches, lien searches
or other similar searches performed by Lender during the term of the Loan as
determined by Lender to be necessary or appropriate, in its sole discretions,
and should the Borrowers fail to do so, the Borrowers agree to reimburse Lender
for the amounts paid by Lender, together with penalties or interest, if any,
incurred by Lender as a result of underpayment or nonpayment.  Such amounts
shall constitute a portion of the Loan Obligations, shall be secured by the
Security Agreement and shall bear interest at the Default Rate (as defined in
the Note) from the date advanced until repaid.

 

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7.3                               Performance of Lender.  At its option, upon
Borrowers’ failure to do so, the Lender may make any payment or do any act on
Borrowers’ behalf that Borrowers or others are required to do to remain in
compliance with this Agreement or any of the other Loan Documents, and
Borrowers, jointly and severally, agree to reimburse the Lender, on demand, for
any payment made or expense incurred by Lender pursuant to the foregoing
authorization, including, without limitation, attorneys’ fees, and until so
repaid any sums advanced by Lender shall constitute a portion of the Loan
Obligations, shall be secured by the Security Agreement and shall bear interest
at the Default Rate from the date advanced until repaid.  Further, upon the
occurrence and during the continuation of an Event of Default, Lender shall have
the right to notify all account debtors to make payment directly to Lender until
such time as (i) Lender has determined in its sole discretion, applied in good
faith, that such Event of Default has been cured by Borrowers, (ii) Lender has
waived such Event of Default, or (iii) all amounts due hereunder have been fully
paid and discharged, whichever occurs first.

 

7.4                               Indemnification.  Borrowers shall, at their
sole cost and expense, protect, defend, indemnify and hold harmless the
Indemnified Parties from and against any and all claims, suits, liabilities
(including, without limitation, strict liabilities), actions, proceedings,
obligations, debts, damages, losses, costs, expenses, diminutions in value,
fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, punitive damages, foreseeable and unforeseeable consequential
damages, of whatever kind or nature (including but not limited to reasonable
attorneys’ fees and other costs of defense) imposed upon or incurred by or
asserted against Lender by reason of:

 

(a)                                 ownership of the Note, the Security
Agreement, the Property or any interest therein or receipt of any Rents (as
defined in the Senior Mortgage);

 

(b)                                 any amendment to, or restructuring of, the
Loan Obligations and/or any of the Loan Documents;

 

(c)                                  any and all lawful action that may be taken
by Lender in connection with the enforcement of the provisions of the Security
Agreement or the Note or any of the other Loan Documents, whether or not suit is
filed in connection with same, or in connection with either Borrower, any
Guarantor, and/or any partner, joint venturer, member or shareholder thereof
becoming a party to a voluntary or involuntary federal or state bankruptcy,
insolvency or similar proceeding;

 

(d)                                 any accident, injury to or death of persons
or loss of or damage to property occurring in, on or about the Property, the
Improvements or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways;

 

(e)                                  any use, nonuse or condition in, on or
about the Property, the Improvements or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;

 

(f)                                   any failure on the part of either Borrower
or any Guarantor to perform or comply with any of the terms of this Agreement or
any of the other Loan Documents;

 

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(g)                                  any claims by any broker, person or entity
claiming to have participated in arranging the making of the Loan evidenced by
the Note;

 

(h)                                 any failure of the Property to be in
compliance with any applicable laws;

 

(i)                                     any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in the Lease Agreement, Operations
Seller Lease Agreement or any replacement or renewal thereof or substitution
therefor;

 

(j)                                    performance of any labor or services or
the furnishing of any materials or other property with respect to the Property,
the Improvements or any part thereof;

 

(k)                                 reserved;

 

(l)                                     any misrepresentation made to Lender in
this Agreement or in any of the other Loan Documents;

 

(m)                             any tax on the making and/or recording of the
Note or any of the other Loan Documents;

 

(n)                                 the violation of any requirements of ERISA;

 

(o)                                 any fines or penalties assessed or any
corrective costs incurred by Lender if the Facility or any part of the Property
is determined to be in violation of any covenants, restrictions of record, or
any applicable laws, ordinances, rules or regulations; or

 

(p)                                 the enforcement by any of the Indemnified
Parties of the provisions of this Section 7.4.

 

Any amounts payable to Lender by reason of the application of this Section 7.4
shall become immediately due and payable, and shall constitute a portion of the
Loan Obligations, shall be secured by the Security Agreement and shall accrue
interest at the Default Rate.  The obligations and liabilities of Borrowers
under this Section 7.4 shall survive any termination, satisfaction, assignment
and entry of a judgment.  For purposes of this Section 7.4, the term
“Indemnified Parties” means Lender and any Person who is or will have been
involved in the origination of the Loan, any Person who is or will have been
involved in the servicing of the Loan, any Person who may hold or acquire or
will have held a full or partial interest in the Loan (including, without
limitation, any investor in any securities backed in whole or in part by the
Loan) as well as the respective directors, officers, shareholder, partners,
members, employees, agents, servants, representatives, contractors,
subcontractors, affiliates, subsidiaries, participants, successors and assigns
of any and all of the foregoing (including, without limitation, any other Person
who holds or acquires or will have held a participation or other full or partial
interest in the Loan or the Property, whether during the term of the Loan or as
a part of or following a judgment on the Note and including, without limitation,
any successors by merger, consolidation or acquisition of all or a substantial
portion of Lender’s assets and business).

 

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7.5                               Headings.  The headings of the Sections of
this Agreement are for convenience of reference only, are not to be considered a
part hereof, and shall not limit or otherwise affect any of the terms hereof.

 

7.6                               Survival of Covenants.  All covenants,
agreements, representations and warranties made herein and in certificates or
reports delivered pursuant hereto shall be deemed to have been material and
relied on by Lender, notwithstanding any investigation made by or on behalf of
Lender, and shall survive the execution and delivery to Lender of the Note and
this Agreement.

 

7.7                               Notices, Etc.  Any notice or other
communication required or permitted to be given by this Agreement or the other
Loan Documents or by applicable law shall be in writing and shall be in writing
and shall be deemed received (a) on the date delivered, if sent by hand delivery
(to the person or department if one is specified below) with receipt
acknowledged by the recipient thereof, (b) three (3) Business Days following the
date deposited in U.S. mail, certified or registered, with return receipt
requested, or (c) one (1) Business Day following the date deposited with Federal
Express or other national overnight carrier, and in each case addressed as
follows:

 

If to Borrowers:

 

CSCC Property Holdings, LLC

CSCC Nursing, LLC

Two Buckhead Plaza

3050 Peachtree Road NW, Suite 355

Atlanta, Georgia 30305

 

with a copy to:

 

Ellen W. Smith, Esq.

Holt Ney Zatcoff & Wasserman, LLP

100 Galleria Parkway, Suite 1800

Atlanta, Georgia 30339

Fax: (770) 956-1490

 

If to Lender:

 

Eric Smith

Contemporary Healthcare Capital, LLC

1040 Broad Street

Suite 103

Shrewsbury, New Jersey 07702

 

with a copy to:

 

Law Offices of Thomas K. Slattery, P.L.L.C.

1250 24th Street NW, Suite 300

 

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Washington, DC 20037

 

Either party may change its address to another single address by notice given as
herein provided, except any change of address notice must be actually received
in order to be effective.

 

7.8                               Benefits.  All of the terms and provisions of
this Agreement shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.  No Person other than Borrowers or
Lender shall be entitled to rely upon this Agreement or be entitled to the
benefits of this Agreement.

 

7.9                               Participation.  Borrowers acknowledge that
Lender may, at its option, sell participation interests in the Loan or to other
participating banks or Lender may (but shall not be obligated to) assign its
interest in the Loan to its affiliates, or to other assignees (the “Assignee”). 
Borrowers agree with each present and future participant in the Loan or Assignee
of the Loan that if an Event of Default should occur, each present and future
participant or Assignee shall have all of the rights and remedies of Lender with
respect to any deposit due from Borrowers.  The execution by a participant of a
participation agreement with Lender, and the execution by Borrowers of this
Agreement, regardless of the order of execution, shall evidence an agreement
between Borrowers and said participant in accordance with the terms of this
Section 7.9.

 

7.10                        Supersedes Prior Agreements; Counterparts.  This
Agreement and the instruments referred to herein supersede and incorporate all
representations, promises, and statements, oral or written, made by Lender in
connection with the Loan.  This Agreement may not be varied, altered, or amended
except by a written instrument executed by an authorized officer of the Lender. 
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be an original, but such counterparts shall
together constitute one and the same instrument.

 

7.11                        Loan Agreement Governs.  The Loan is governed by
terms and provisions set forth in this Agreement and the other Loan Documents
and in the event of any irreconcilable conflict between the terms of the other
Loan Documents and the terms of this Agreement, the terms of this Agreement
shall control; provided, however, in the event there is any apparent conflict
between any particular term or provision which appears in both this Agreement
and the other Loan Documents and it is possible and reasonable for the terms of
both this Agreement and the Loan Documents to be performed or complied with then
notwithstanding the foregoing both the terms of this Agreement and the other
Loan Documents shall be performed and complied with.

 

7.12                        Construction of Provisions of this Agreement. 
Lender has not agreed to make any loan other than that specifically described
herein.  All requirements herein shall be deemed material to Lender. Except as
specified herein, all conditions and requirements must be satisfied by Borrowers
prior to the Closing Date.  Whenever any of the Loan Documents refers to a
matter being “satisfactory” to Lender, subject to Lender’s “approval” or
“consent,” at Lender’s “option,” at Lender’s “determination,” “required” by
Lender, may be “granted” or “denied” at Lender’s “request,” as Lender shall
“deem necessary,” or similar terminology, it is

 

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deemed that each of the aforesaid shall be in the sole discretion of the Lender
(except as otherwise expressly provided), and if any term or condition requires
Lender’s approval, consent, or satisfaction (the “Lender’s Approval”), the
Lender’s Approval shall not be implied, but shall be evidenced only by a written
notice from Lender specifically addressed to the particular requirement or
condition and expressing Lender’s Approval.  If “Borrower” or “Guarantor”
consists of more than one Person, all obligations of Borrowers or Guarantors are
joint and several and all references herein to “Borrower” or “Guarantor” shall
apply both individually to each Person and in the alternative to all of them
collectively, whether or not so stated.

 

7.13                        Advertising.  Borrowers acknowledge and agree that
Lender is authorized to state in advertising or other press releases the fact
that the type and amount of financing contemplated under the Loan Documents has
been provided to Borrowers and Guarantor for the Facility by Lender.  Lender
agrees not to include any confidential information of the Borrowers or any
Guarantor in such advertisements.

 

7.14                        CONTROLLING LAW.  THE PARTIES HERETO AGREE THAT THE
VALIDITY, INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW JERSEY AND THE PARTIES HERETO SUBMIT (AND WAIVE ALL RIGHTS
TO OBJECT) TO NON-EXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF NEW JERSEY,
FOR THE ENFORCEMENT OF ANY AND ALL OBLIGATIONS UNDER THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS EXCEPT THAT IF ANY SUCH ACTION OR PROCEEDING ARISES UNDER
THE CONSTITUTION, LAWS OR TREATIES OF THE UNITED STATES OF AMERICA, OR IF THERE
IS A DIVERSITY OF CITIZENSHIP BETWEEN THE PARTIES THERETO, SO THAT IT IS TO BE
BROUGHT IN A UNITED STATES DISTRICT COURT, IT SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY OVER SHREWSBURY, NEW JERSEY
OR ANY SUCCESSOR FEDERAL COURT HAVING ORIGINAL JURISDICTION.

 

7.15                        WAIVER OF JURY TRIAL.  EACH BORROWER HEREBY WAIVES
ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM,
SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY
RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE LOAN, OR (B) IN ANY
WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF
LENDER AND/OR BORROWERS WITH RESPECT TO THE LOAN DOCUMENTS OR IN CONNECTION WITH
THIS AGREEMENT OR THE EXERCISE OF ANY PARTY’S RIGHTS AND REMEDIES UNDER THIS
AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE RELATIONSHIP OF THE PARTIES
HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  EACH BORROWER AGREES THAT
LENDER MAY FILE A COPY OF THIS AGREEMENT AND WILL BE ABLE TO FILE A COPY OF ALL
LOAN DOCUMENTS WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND
BARGAINED AGREEMENT OF EACH BORROWER IRREVOCABLY TO

 

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WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF LENDER TO MAKE THE LOAN,
AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY
WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN BORROWERS AND LENDER SHALL
INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT
A JURY.

 

7.16                        Joint and Several Obligations.  All obligations of
Borrowers hereunder are joint and several.  All obligations of each Guarantor
under the Loan Documents are joint and several.  The use of the phrases “either
Borrower” or “each Borrower” or “any Guarantor” in some sentences herein is for
clarity only; the failure to use such phrases elsewhere shall not alter the fact
that each reference to either Borrower and any Guarantor hereunder is intended
to mean each party included within such defined term, both jointly and
severally.

 

7.17                        Time is of the Essence.  Time is of the essence of
the Loan Documents and of each provision hereof.

 

7.18                        Seniority; Subordination. Notwithstanding anything
to the contrary contained in this Agreement, the indebtedness, rights, remedies
and obligations evidenced hereby are senior and/or subordinate, if at all, in
the manner and to the extent set forth in the Subordination and Standstill
Agreement and each signatory hereto shall be bound by the provisions of the
Subordination and Standstill Agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, Borrowers and the Lender have caused this Agreement to be
properly executed, by their respective duly authorized representatives, as of
the date first above written.

 

 

BORROWERS:

 

 

 

CSCC PROPERTY HOLDINGS, LLC, a Georgia limited liability company

 

 

 

By:

/s/ Christopher F. Brogdon

 

Name:

Christopher F. Brogdon

 

Title:

Manager

 

 

 

CSCC NURSING, LLC, a Georgia limited liability company

 

 

 

By:

/s/ Christopher F. Brogdon

 

Name:

Christopher F. Brogdon

 

Title:

Manager

 

 

 

LENDER:

 

 

 

CONTEMPORARY HEALTHCARE FUND I, L.P., a Delaware limited partnership

 

 

 

By:

CHC-GP, LLC,

 

 

a Delaware limited liability company

 

Its:

General Partner

 

 

 

By:

/s/ Eric Smith

 

 

Eric Smith, Member

 

SIGNATURE PAGE TO LOAN AGREEMENT — ADCARE - AR

 

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