Exhibit 10.19

LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT

THIS LIMITED WAIVER AGREEMENT UNDER AMENDED AND RESTATED CREDIT AGREEMENT (this
“Waiver Agreement”) is entered into as of the 27th day of September 2010 by and
among SUNLINK HEALTH SYSTEMS, INC., a corporation organized under the laws of
the State of Ohio, SUNLINK HEALTHCARE LLC, a limited liability company organized
under the laws of the State of Georgia, DEXTER HOSPITAL, LLC, a limited
liability company organized under the laws of the State of Georgia, CLANTON
HOSPITAL, LLC, a limited liability company organized under the laws of the State
of Georgia, SOUTHERN HEALTH CORPORATION OF ELLIJAY, INC., a corporation
organized under the laws of the State of Georgia, SOUTHERN HEALTH CORPORATION OF
DAHLONEGA, INC., a corporation organized under the laws of the State of Georgia,
SOUTHERN HEALTH CORPORATION OF HOUSTON, INC., a corporation organized under the
laws of the State of Georgia, HEALTHMONT OF GEORGIA, INC., a corporation
organized under the laws of the State of Tennessee, HEALTHMONT, LLC, a limited
liability company organized under the laws of the State of Georgia, HEALTHMONT
OF MISSOURI, LLC, a limited liability company organized under the laws of the
State of Georgia, SUNLINK SERVICES, INC., a corporation organized under the laws
of the State of Georgia, SUNLINK SCRIPTSRX, LLC (f/k/a Sunlink Homecare
Services, LLC), a limited liability company organized under the laws of the
State of Georgia, CENTRAL ALABAMA MEDICAL ASSOCIATES, LLC, a limited liability
company organized under the laws of the State of Georgia, DAHLONEGA CLINIC, LLC,
a limited liability company organized under the laws of the State of Georgia,
CARMICHAEL’S CASHWAY PHARMACY, INC., a corporation organized under the laws of
Louisiana, CARMICHAEL’S NUTRITIONAL DISTRIBUTOR, INC., a corporation organized
under the laws of Louisiana, and BREATH OF LIFE HOME HEALTH EQUIPMENT, INC., a
corporation organized under the laws of Louisiana (each individually, a
“Borrower” and, collectively, the “Borrowers”), the other persons designated as
“Credit Parties” on the signature pages hereof, the financial institutions who
are parties to this Waiver Agreement as Lenders (the “Lenders”), and CHATHAM
CREDIT MANAGEMENT III, LLC, a Georgia limited liability company (in its
individual capacity “Chatham”), as Agent.

RECITALS

WHEREAS, the Agent, Union Bank of California, N.A., as the funding agent (the
“Funding Agent”), the financial institutions that are party thereto as lenders,
the Borrowers and the other Credit Parties are parties to that certain Amended
and Restated Credit Agreement, dated as of August 1, 2008 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”; unless otherwise defined herein, capitalized terms used
herein that are not otherwise defined herein shall have the respective meanings
assigned to such terms in the Credit Agreement);

WHEREAS, the Borrowers have notified the Agent that the Borrowers were not in
compliance with the financial covenants set forth in Sections 6.16, 6.17, 6.20
and 6.21 of the Credit Agreement (the “Specified Financial Covenants”) as of the
Borrowers’ fiscal quarter ending June 30, 2010 and may not be in compliance
therewith in subsequent fiscal quarters ending on or prior to March 31, 2011
(such noncompliance collectively, “Non-Compliance with Specified Financial
Covenants”);

WHEREAS, the Borrowers have requested that the Agent and Required Lenders waive
Non-Compliance with Specified Financial Covenants for the four fiscal quarters
ending respectively June 30, 2010, September 30, 2010, December 31, 2010 and
March 31, 2011;

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WHEREAS, KRUG Properties, Inc. and SunLink Healthcare Investments, Inc. have
been dissolved as of June 9, 2010 (the “Dissolution”) and such Dissolution was
not in compliance with Section 6.1 of the Credit Agreement (“Non-Compliance with
Section 6.1 Resulting from the Dissolution”);

WHEREAS, the Agent and Required Lenders are willing to waive the Non-Compliance
with Specified Financial Covenants and Non-Compliance with Section 6.1 Resulting
from the Dissolution, on the terms and subject to the conditions described
herein; and

WHEREAS, on the terms and subject to the conditions described herein, the
parties hereto wish to make certain other changes to the Credit Agreement as set
forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties hereto hereby agree as follows:

Section 1. Limited Waiver. Subject to the satisfaction of the applicable
conditions to effectiveness set forth in Section 4 herein, the Agent and the
Required Lenders hereby waive Non-Compliance with Specified Financial Covenants
and Non-Compliance with Section 6.1 Resulting from the Dissolution. The waiver
set forth above shall be limited precisely as provided for herein and shall not
be deemed to be a waiver of, consent to, or modification of any term or
provision of the Loan Documents or any other document or instrument referred to
therein or of any transaction or further or future action on the part of the
Borrowers or any other Credit Party requiring the consent of the Agent, the
Funding Agent or the Lenders except to the extent specifically provided for
herein. Except as expressly set forth herein, the Agent, the Funding Agent and
the Lenders have not and shall not be deemed to have waived any of their
respective rights and remedies against the Borrowers or any other Credit Party
for any existing or future Default or Event of Default.

Section 2. Term of Waiver. The waiver of Non-Compliance with Specified Financial
Covenants provided hereby shall be applicable and effective for each of the
fiscal quarters of the Borrowers ending respectively June 30,
2010, September 30, 2010, December 31, 2010 and March 31, 2011, provided that
(i) the Borrowers shall pay the Agent the waiver fee with respect to each
applicable fiscal quarter set forth on Annex A attached hereto no later than the
earlier to occur of (x) forty-fifth (45th) day after the end of such fiscal
quarter and (y) the Termination Date, (ii) Credit Parties shall maintain
compliance with the Alternate Minimum EBITDA Test (as described below) as of the
end of such fiscal quarter and (iii)(a) the definitions of the Applicable
Revolving Margin and the Applicable Term Loan Margin shall be automatically
amended to reflect the respective rates set forth for the applicable fiscal
quarter on Annex A, with such amendments to be effective as of the “Pricing
Effective Date” relating to such corresponding fiscal quarter set forth on Annex
A (the “Interest Rate Changes”) and (b) all calculations of interest, default
interest, and other amounts to be paid under the Credit Agreement thereafter
shall be based on the amended Applicable Revolving Margin and Applicable Term
Loan Margin, in each case as applicable and as such margins are deemed to be
amended from time to time. Failure to pay any of the waiver fees described on
Annex A as and when due shall result in an immediate termination of the limited
waiver of Non-Compliance with Specified Financial Covenants contained in this
Waiver Agreement as of last day of the fiscal quarter to which such unpaid or
delinquent waiver fee relates. Without limiting the foregoing, the parties
hereto acknowledge and agree the Interest Rate Changes shall occur automatically
as set forth above in this Section 2 irrespective of whether the conditions for
the continuation of the waiver of Non-Compliance with Specified Financial
Covenants remain satisfied or any other Event of Default shall occur and remain
continuing after the Effective Date of this Waiver Agreement and shall be in
addition to and not in lieu of the imposition of any default rate interest
arising under Section 2.4 of the Credit Agreement. The waiver of Non-Compliance
with Section 6.1 Resulting from the Dissolution shall be effective for the term
of the Credit Agreement.

 

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To maintain compliance with the “Alternate Minimum EBITDA Test” for any
applicable fiscal quarter, Credit Parties shall cause the sum of (i) the
Consolidated EBITDA plus (ii) to the extent deducted in computing Consolidated
EBITDA, severance expenses incurred during the period commencing July 1, 2010
through and including March 31, 2011 in an aggregate amount not exceeding
$500,000 plus (iii) with respect to each Person and any of its Subsidiaries
acquired in a Permitted Acquisition during the relevant period of determination,
the Consolidated Pro Forma EBITDA of such Person and any of its Subsidiaries for
all times during such relevant period prior to the acquisition of such Person
and any of its Subsidiaries, for the twelve (12) consecutive months ending on
the last day of each fiscal quarter set forth below to be equal to or greater
than the minimum amount set forth opposite such fiscal quarter:

 

FISCAL QUARTER ENDING

   MINIMUM CONSOLIDATED
EBITDA

September 30, 2010

   $ 7,000,000

December 31, 2010

   $ 7,000,000

March 31, 2011

   $ 7,000,000

Section 3. Changes to Credit Agreement. Subject to the satisfaction of the
applicable conditions to effectiveness set forth in Section 4 herein, the
Borrowers, the other Credit Parties, the Agent and the Required Lenders hereby
agree to the changes set forth in this Section 3:

(1) Section 1.1 of the Credit Agreement is revised by adding the following new
definitions thereto in proper alphabetical order:

““Applicable Multiple”: For all periods prior to August 15, 2011, a multiple of
5.0 and for all periods on and after August 15, 2011, a multiple of 3.5.”

““Waiver Agreement”: That certain Limited Waiver Agreement Under Amended and
Restated Credit Agreement dated as of September 27, 2010, by and among the
Borrowers, the Agent, and the Required Lenders.”

(2) Subclause (B) in the definition of “Borrowing Base” set forth in Section 1.1
of the Credit Agreement is hereby revised by deleting the number “3.5” in the
last line thereof and substituting in lieu thereof the words “Applicable
Multiple”.

(3) Clause (a) in the definition of Prepayment Event set forth in Section 1.1 of
the Credit Agreement is hereby revised and restated in its entirety to read as
follows:

““(a) any sale, transfer or other disposition (including pursuant to a sale and
leaseback transaction) of any property or asset of any Credit Party other than
dispositions described in Section 6.2(a), Section 6.2(b), Section 6.2(c) and
Section 6.2(d); provided, however, that notwithstanding the foregoing, solely
with respect to the period commencing on and after May 15, 2011, as long as no
Default or Event of Default has occurred and is then continuing, no Prepayment
Event arising from the dispositions described in this clause (a) shall be deemed
to have occurred during such period to the extent net proceeds of such
dispositions during such period have been reinvested, or committed pursuant to a
written

 

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agreement (including any purchase orders) to be reinvested, in productive assets
(other than Inventory) of a kind then used or usable in the business of a Credit
Party within 180 days after the date of such disposition and subsequently such
reinvestment is made; provided further that no such exception from treatment as
a Prepayment Event shall apply for dispositions described in this clause
(a) occurring prior to May 15, 2011;”

(4) The following definitions contained in Section 1.1 of the Credit Agreement
are hereby revised and restated to read in their entirety as follows:

““Applicable Revolving Margin”: 6.50%.”

““Applicable Term Loan Margin”: 8.07%”

““Consolidated EBITDA”: With respect to the Borrowers and their Subsidiaries
determined in accordance with GAAP for any fiscal period, without duplication,
an amount equal to:

(a) Consolidated Net Income of the Borrowers and their Subsidiaries for such
period determined in accordance with GAAP, minus

(b) on a consolidated basis, the sum of (i) income tax credits, (ii) interest
income, (iii) gain from extraordinary items for such period, (iv) any aggregate
net gain (but not any aggregate net loss) during such period arising from the
sale, exchange or other disposition of any assets by the Borrowers and their
Subsidiaries (including any fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed assets and all
securities) other than inventory and services sold, exchanged, or disposed of in
the ordinary course of business, (v) any non-recurring gains for such period and
(vi) any other non-cash gains that have been added in determining Consolidated
Net Income, in each case to the extent included in the calculation of
Consolidated Net Income of the Borrowers and their Subsidiaries for such period
in accordance with GAAP, but without duplication, plus

(c) on a consolidated basis, the sum of (i) any provision for income taxes,
(ii) Consolidated Interest Expense, (iii) loss from extraordinary items for such
period, (iv) the amount of non-cash charges (including depreciation,
amortization, depletion, deferred tax expense, and non-cash interest expense but
excluding any bad debt allowance or reserve), (v) the amount, if any, of
non-recurring costs or expenses related to any refinancing, acquisition, or
merger transaction, including, without limitation, accounting, legal, consulting
and other professional fees in connection therewith, for such period,
(vi) amortized debt discount for such period, and (vii) the amount of any
deduction to Consolidated Net Income as the result of any grant to any members
of the management of the Borrowers and their Subsidiaries of any Equity
Interests (in each case, as determined in accordance with GAAP), in each case to
the extent included in the calculation of Consolidated Net Income of the
Borrowers and their Subsidiaries for such period in accordance with GAAP, but
without duplication.”

““Consolidated Net Income”: For any period, the consolidated net after tax
income of the Borrowers and their Subsidiaries determined in accordance with
GAAP;

 

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provided that the following items shall be excluded in computing Consolidated
Net Income (without duplication): (i) the net income (or loss) of any Person
which is not a Subsidiary of the Borrower, except to the extent of the amount of
any dividends or other distributions actually paid to the Borrowers or any of
their Subsidiaries during such period, (ii) except for determinations expressly
required to be made on a pro forma basis, the net income (or loss) of any Person
accrued prior to the date it becomes a Subsidiary or all or substantially all of
the property or assets of such Person are acquired by a Subsidiary, (iii) the
net income of any Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Subsidiary, (iv) all legal fees and legal expenses
charged to expense by the Borrowers for the litigation between Piedmont
Healthcare Inc. and Piedmont Mountainside Hospital Inc. (Piedmont) and SunLink
Health Systems, Inc. SunLink Healthcare LLC and Southern Health Corporation of
Jasper, Inc. (SunLink) for breach of agreement in the asset sale agreement in
June 2004 in which Piedmont purchased Mountainside Medical Center from SunLink;
(v) all legal fees and legal expenses charged to expense by the Borrowers for
the settlement of the UK Obligations; and (iv) any income recognized as a result
of any reduction or adjustment in any allowances or reserves established by any
Credit Party with respect to accounts receivable.”

““Fixed Charge Coverage Ratio”: For any period of determination, the ratio of

 

  (a) (i) Consolidated EBITDA less (ii) (A) Capital Expenditures other than
Capital Expenditures to the extent financed through the incurrence of
Capitalized Lease Obligations or any other Indebtedness (other than Revolving
Loans) unless such Capital Expenditures constitute a portion of the purchase
price for a Permitted Acquisition and (B) taxes paid in cash (other than taxes
with respect to non-recurring capital gains),

to

 

  (b) the sum of (i) Consolidated Interest Expense and (ii) all scheduled or
otherwise required principal payments (excluding mandatory prepayments of the
Term Loan under this Agreement) with respect to Total Liabilities (including but
not limited to all payments with respect to Capitalized Lease Obligations of the
Borrowers and the Subsidiaries), in each case determined for said period on a
consolidated basis; provided however, that any waiver fees due from Borrowers
pursuant to the Waiver Agreement shall be excluded from the calculation hereof.

““Loan Documents”: This Agreement, the Waiver Agreement, the Security Documents,
the Notes and all other amendments, documents, instruments and agreements,
including lockbox agreements, control agreements, servicing agreements,
financing statements, and deeds of trust or mortgages, executed in connection
herewith or therewith.”

““Revolving Commitment Amount”: (i) Prior to the effective date of the Waiver
Agreement, $12,000,000 and (ii) on and after the effective date of the Waiver
Agreement, $9,000,000, as the same may be reduced from time to time, if at all,
in accordance with this Agreement, including pursuant to Section 2.8.”

 

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““Termination Date”: The earliest of (a) September 30, 2011, (b) the date on
which the Revolving Commitment is terminated pursuant to Section 7.2 hereof or
(c) the date on which the Revolving Commitment Amount is reduced to zero
pursuant to Section 2.8 hereof.”

(5) Section 5.15 of the Credit Agreement is revised by adding the following new
subpart (e) after the last sentence thereof:

“(e) Notwithstanding any of the terms of this Section 5.15 to the contrary, the
Local Bank Account with account number              at Peoples Southern Bank
shall not be required to be subject to a Local Bank Account Agreement provided
that the Credit Parties cause ) all amounts in such account to be transmitted
for deposit on a weekly basis to a Concentration Account.”

(6) Article V of the Credit Agreement is hereby revised by adding the following
new Section 5.17 immediately after Section 5.16 appearing at the end thereof:

“Section 5.17 Special Covenants.

(a) On or prior to December 31, 2010, Borrowers shall cause to be delivered to
Agent (i) one or more written proposal letters from lenders participating in the
Rural Development Advance program (the “RDA Program”) to provide one or more
Borrowers with not less than $11 million of funded loans under the RDA Program
on terms and conditions reasonably satisfactory to the Required Lenders (the
“RDA Loans”), (ii) one or more written proposal letters from other third party
lenders reasonably satisfactory to the Required Lenders to provide one or more
Borrowers with not less than $11 million of funded loans on terms and conditions
reasonably satisfactory to the Required Lenders (the “New Loans”), or (iii) one
or more fully executed letters of intent with bona fide third parties with
respect to the disposition of certain assets of one or more of the Borrowers in
one or a series of transactions at fair market value for net cash proceeds to
Borrowers of not less than $11 million in the aggregate on terms, conditions,
and with parties reasonably satisfactory to the Required Lenders (the “Approved
Sales”) (the foregoing alternate delivery requirements due by December 31, 2010,
the “December Delivery Covenant”). On or prior to February 15, 2011, the
Borrowers shall cause the closing and funding of the RDA Loans, the New Loans or
the Approved Sales to be consummated on terms and conditions consistent with the
proposal letters and/or letters of intent (as applicable) referenced above and
on terms reasonably satisfactory to the Required Lenders with all proceeds
thereof (net of all reasonable transaction costs and expenses not exceeding
$500,000) being concurrently applied to permanently repay the Term Loan (the
foregoing closing and paydown requirements due by February 15, 2011, the
“February Paydown Covenant”). The Borrowers, Agent and Lenders agree that
notwithstanding anything to the contrary contained in this Agreement (including,
without limitation, the terms of Section 7.1 hereof), the sole consequence of
any failure by Borrowers to satisfy any of the undertakings set forth in this
Section 5.17(a) shall be the Special Pricing Increases (as defined below) and
that no Default or Event of Default shall be deemed to occur solely as a result
of any failure by the Borrowers to timely comply with the terms of this
Section 5.17(a). As used herein, “Special Pricing Increases” shall mean (a) if
Borrowers fail to satisfy the December Delivery Covenant on or prior to
December 31, 2010, the Applicable Revolving Margin and the Applicable Term Loan
Margin shall each be automatically increased (i) by 100 basis points over the
levels which would otherwise be applicable under this Agreement and the Waiver
Agreement for the

 

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period commencing January 1, 2011 through and including March 31, 2011 and
(ii) by 200 basis points over the levels which would otherwise be applicable
under this Agreement and the Waiver Agreement for all periods from and after
April 1, 2011 or (b) if Borrowers timely comply with the December Delivery
Covenant by December 31, 2010 but fail to timely comply with the February
Paydown Covenant on or prior to February 15, 2011, the Applicable Revolving
Margin and the Applicable Term Loan Margin shall each be automatically increased
(i) by 100 basis points over the levels which would otherwise be applicable
under this Agreement and the Waiver Agreement for the period commencing
February 15, 2011 through and including May 14, 2011 and (ii) by 200 basis
points over the levels which would otherwise be applicable under this Agreement
and the Waiver Agreement for all periods from and after May 15, 2011. For
avoidance of doubt, (i) the Special Pricing Increases shall be in addition to
and not in lieu of the “Interest Rate Changes” referenced in Section 2 of the
Waiver Agreement and (ii) if a Special Pricing Increase occurs as a result of
clause (a) of the definition thereof, no additional Special Pricing Increase
shall occur under clause (b) of the definition thereof.

The Borrowers, Agent and Lenders acknowledge and agree that the inclusion of any
language in this Section 5.17(a) which refers to any matter being “reasonably
satisfactory” to the Required Lenders shall be limited to determining whether
Borrowers have satisfied their obligations under this Section 5.17(a). Without
limiting any of the obligations of the Borrowers described in this
Section 5.17(a), nothing contained in this Section 5.17(a) shall be deemed to
modify or limit the sole and absolute discretion of the Agent and Required
Lenders to approve or withhold approval to any proposed incurrence of
Indebtedness, incurrence of Liens, release or subordination of any Liens in any
Collateral, and/or any sale or disposition of any assets of any Credit Party
which is not otherwise expressly permitted by the terms this Agreement.

(b) On or prior to November 30, 2010, Borrowers shall retain, at a cost not
exceeding $87,500, a financial advisor selected by Borrowers and reasonably
acceptable to the Agent (the “Financial Advisor”) to assess the business
operations, financial performance and financial projections of the Borrowers
(the “Assessment”). The Financial Advisor shall be directed to complete the
Assessment on or prior to January 15, 2011 (the “Consulting Period”). Borrowers
and the other Credit Parties each irrevocably authorize, and shall direct, the
Financial Advisor during the Consulting Period to: (i) regularly consult with,
and respond to reasonable inquiries of Agent and Lenders concerning matters
relating to the affairs, finances and businesses of Borrowers or any other
Credit Party and/or Financial Advisor’s activities related thereto (including,
without limitation, communications outside the presence of any representatives
of Borrowers or any other Credit Party but for which Borrowers shall be provided
a summary), and (ii) provide Borrowers and Lenders and their respective advisors
copies of such reports, analyses, materials related to the Assessment as Lenders
and their respective advisors may reasonably request (including, without
limitation, such confidential memoranda or other work product as may be provided
by Financial Advisor to any or all of Borrowers, Credit Parties and/or any of
their respective advisors), provided that the Financial Advisor’s activities
shall be carried out during the normal business hours and shall not interfere
with the business operations of the Borrowers and other Credit Parties.”

 

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(7) Section 6.11 of the Credit Agreement is revised and restated to read in its
entirety as follows:

“Section 6.11 Subordinated Debt. No Credit Party will, nor permit any Subsidiary
to, (a) make any scheduled payment of the principal of or interest on any
Subordinated Debt which would be prohibited by the terms of such Subordinated
Debt and any related subordination agreement, provided that, so long as no
Default or Event of Default shall have occurred and be continuing and Borrowers
continue to comply with the terms of Section 2 of the Waiver Agreement, the
Credit Parties may make scheduled payments of principal and interest on
Subordinated Debt due to the Sellers on or after October 22, 2010 (in a
principal amount not to exceed $253,700) and April 22, 2011 (in a principal
amount not to exceed $247,067); (b) directly or indirectly make any prepayment
on or purchase, redeem or defease any Subordinated Debt or offer to do so
(whether such prepayment, purchase or redemption, or offer with respect thereto,
is voluntary or mandatory, unless expressly permitted pursuant to an
intercreditor or subordination agreement entered into between the holder of any
such Subordinated Debt and the Agent); (c) amend or cancel the subordination
provisions applicable to any Subordinated Debt; (d) take or omit to take any
action if as a result of such action or omission the subordination of such
Subordinated Debt, or any part thereof, to the Obligations might be terminated,
impaired or adversely affected; or (e) omit to give the Agent prompt notice of
any notice received from any holder of Subordinated Debt, or any trustee
therefor, or of any default under any agreement or instrument relating to any
Subordinated Debt by reason whereof such Subordinated Debt might become or be
declared to be due or payable.”

(8) Section 7.1(c) of the Credit Agreement is revised and restated to read in
its entirety as follows:

“(c) Any Credit Party or any of its respective Subsidiaries shall fail to comply
with Sections 2.14, 5.1(f), 5.2, 5.3, 5.5, 5.12, 5.15, 5.16 or 5.17(b) hereof or
any Section of Article VI hereof.”

(9) Schedule 1.1(b) to the Credit Agreement is revised by deleting such Schedule
1.1(b) in its entirety and replacing the same with Schedule 1.1(b) attached
hereto.

(10) Schedule 4.28 to the Credit Agreement is revised by deleting such Schedule
4.28 in its entirety and replacing the same with Schedule 4.28 attached hereto.

Section 4. Conditions Precedent. This Waiver Agreement shall become effective as
of the date each of the following conditions precedent has been met (such date,
the “Effective Date”):

(1) The Agent shall have received on behalf of the Lenders:

(a) counterparts to this Waiver Agreement, duly executed by Borrowers, each
other Credit Party, and the Required Lenders;

(b) a payment in immediately available funds of a waiver fee for the fiscal
quarter ending June 30, 2010 of $787,968.11 for the ratable benefit of the
Lenders; and

(c) a certificate of the Secretary or Assistant Secretary (or other appropriate
officer) of each Credit Party dated as of the date hereof certifying to true and
accurate copy of the corporate (or other) resolutions of such Credit Party
authorizing the execution, delivery and performance of this Waiver Agreement and
attaching a true and accurate copy of the certificate of merger issued by the
Secretary of State of Georgia evidencing the merger of Southern Health
Corporation of Jasper, Inc., with and into Southern Health Corporation of
Ellijay, Inc.

 

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(2) The Funding Agent shall have received on behalf of the Lenders:

(a) a payment in immediately available funds of all accrued and unpaid default
rate interest on the Revolving Loan and the Term Loan for the period of July 1,
2010 through but excluding the Effective Date of this Waiver Agreement for the
ratable benefit of the Lenders;

(b) a payment in immediately available funds of a Prepayment Fee equal to
$30,000 for the reduction in the Revolving Commitment Amount as revised
hereunder for the ratable benefit of the Revolving Lenders; and

(c) a prepayment in immediately available funds of the Revolving Loan to the
extent necessary to cause the outstanding balance thereof to be less than the
Revolving Commitment Amount as revised pursuant to this Waiver Agreement.

(3) All legal fees and out of pocket expenses of the Agent shall have been paid
in full by Borrowers.

Section 5. Representations and Warranties. Each of the Credit Parties hereby
represents and warrants to the Agent and Lenders, which representations and
warranties shall survive the execution and delivery of this Waiver Agreement,
that:

(1) All of the representations and warranties contained in Article IV of the
Credit Agreement shall be true and correct in all material respects (except with
respect to those representations and warranties which are qualified as to
materiality in which case such specific materiality qualifiers shall apply) on
the Effective Date, with the same force and effect as if made on such date,
unless such representation and warranty expressly applies to an earlier date, in
which case such representation and warranty shall be deemed made as of such
earlier date.

(2) The execution, delivery and performance by each Credit Party of this Waiver
Agreement have been duly authorized by all necessary corporate action by such
Credit Party. This Waiver Agreement constitutes the legal, valid and binding
obligations of each Credit Party executing the same, enforceable against each
Credit Party in accordance with its terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors’ rights generally and subject to
limitations on the availability of equitable remedies.

(3) The execution, delivery and performance by each Credit Party of this Waiver
Agreement will not (a) violate any provision of any law, statute, rule or
regulation or any order, writ, judgment, injunction, decree, determination or
award of any court, governmental agency or arbitrator presently in effect having
applicability to such Credit Party, (b) violate or contravene any provision of
the Articles or Certificates of Incorporation or Formation, bylaws, operating
agreement or partnership agreement of such Credit Party, or (c) result in a
breach of or constitute a default under any indenture, loan or credit agreement
or any other agreement, lease or instrument to which such Credit Party is a
party or by which it or any of its properties may be bound or result in the
creation of any Lien thereunder.

(4) Except as specifically waived hereunder, no Default or Event of Default has
occurred and is continuing.

 

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(5) No order, consent, approval, license, authorization or validation of, or
filing, recording or registration with, or exemption by, any governmental or
public body or authority is required on the part of any Credit Party to
authorize, or is required in connection with the execution, delivery and
performance of, or the legality, validity, binding effect or enforceability of,
this Waiver Agreement.

Section 6. Acknowledgment; Release. The Borrowers and the other Credit Parties
acknowledge and agree that their obligations to the Agent and the Lenders under
the Credit Agreement as revised hereby are owing without offset, defense or
counterclaim assertable by the Borrowers and such other Credit Parties against
the Agent or any Lender. The Borrowers and the other Credit Parties further
acknowledge and agree that the Security Documents continue to secure the
obligations of the Borrowers under the Credit Agreement as revised hereby. Each
of the Credit Parties hereby waives, releases and discharges Agent, the Funding
Agent and Lenders from any and all claims, demands, actions or causes of action
arising out of or in any way relating to the Loans, the other Obligations, the
Loan Documents and/or any documents, agreements, dealings or other matters
connected with any of the foregoing including, without limitation, all known and
unknown matters, claims, transactions, or things occurring prior to the date of
this Waiver Agreement related to the Loans, the other Obligations, the Loan
Documents and/or any documents, agreements, dealings or other matters connected
with any of the foregoing.

Section 7. General Provisions.

(1) Except as specifically revised or waived set forth above, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed. Each of the Credit Parties hereby confirms
its respective guarantees, pledges, grants of security interests and mortgages
and other obligations, as applicable, under and subject to the terms of each of
the other Loan Documents to which it is party, and agrees that, notwithstanding
the effectiveness of this Waiver Agreement, such guarantees, pledges, grants of
security interests and mortgages and other obligations, and the terms of each of
the other Loan Documents to which it is a party, are not impaired or affected in
any manner whatsoever and shall continue to be in full force and effect after
giving effect to this Waiver Agreement.

(2) The execution, delivery and effectiveness of this Waiver Agreement shall not
operate as a waiver of any right, power or remedy of the Agent or any Lender
under the Credit Agreement or any other Loan Document, nor constitute amendment
of any provision of the Credit Agreement or any other Loan Document, except as
specifically set forth herein. Upon the effectiveness of this Waiver Agreement,
each reference in the Credit Agreement to “this Waiver Agreement”, “hereunder”,
“hereof”, “herein” or words of similar import shall mean and be a reference to
the Credit Agreement as revised hereby.

(3) Each Credit Party acknowledges and agrees that the revisions and waivers set
forth herein are effective solely for the purposes set forth herein and shall
not be deemed (i) except as expressly provided in this Waiver Agreement, to be a
consent by the Agent or any Lender to any amendment, waiver or modification of
any term or condition of the Credit Agreement or of any other Loan Document,
(ii) to create a course of dealing or otherwise obligate the Agent or Lenders to
forbear, waive, consent or execute similar revisions or waivers under the same
or similar circumstances in the future, or (iii) to amend, prejudice, relinquish
or impair any right of the Agent or Lenders to receive any indemnity or similar
payment from any Person or entity as a result of any matter arising from or
relating to this Waiver Agreement.

 

10

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(4) This Waiver Agreement may be executed in any number of counterparts, each
such counterpart constituting an original but all together one and the same
instrument. Any party delivering an executed counterpart of this Waiver
Agreement by fax shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding effect
of this Waiver Agreement.

(5) In case any provision in or obligation under this Waiver Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

(6) This Waiver Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.

(7) Without limiting the general applicability of Section 8.2 of the Credit
Agreement, the Credit Parties agree to reimburse the Agent for the reasonable
fees, costs and expenses of counsel in connection with the preparation,
negotiation, execution, delivery and administration of this Waiver Agreement.

(8) This Waiver Agreement shall constitute a Loan Document.

(9) Section headings in this Waiver Agreement are included herein for
convenience of reference only and shall not constitute a part of this Waiver
Agreement for any other purposes.

(10) THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS WAIVER AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF GEORGIA, WITHOUT GIVING
EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.

(11) Borrowers hereby authorize and request that the Funding Agent and Lenders
cause a Revolving Loan to be funded on the Effective Date in an amount equal to
the sum of payments due under Section 4 of this Waiver Agreement and direct that
the Funding Agent disburse the proceeds of such Revolving Loan to fund the
payments contemplated by Section 4 of this Waiver Agreement on behalf of the
Borrowers.

<Signatures Appear on the Following Pages>

 

11

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IN WITNESS WHEREOF, the parties hereto have executed this Limited Waiver
Agreement Under Amended and Restated Credit Agreement as of the date first
written above.

 

BORROWERS:

SUNLINK HEALTH SYSTEMS, INC.,

as a Borrower and Borrowers’ Agent

By:     Name:     Title:    

SUNLINK HEALTHCARE, LLC,

as a Borrower

By its Sole Member SunLink Health Systems, Inc.

By:     Name:     Title:    

DEXTER HOSPITAL, LLC,

as a Borrower

By its Sole Member SunLink Healthcare, LLC

  By its Sole Member SunLink Health Systems, Inc.     By:         Name:         
Title:    

CLANTON HOSPITAL, LLC,

as a Borrower

By its Sole Manager Central Alabama Medical

Associates, LLC

  By its sole member, SunLink Healthcare, LLC     By its Sole Member SunLink
Health Systems, Inc.     By:         Name:         Title:    

SOUTHERN HEALTH CORPORATION OF ELLIJAY, INC.,

as a Borrower

By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

SOUTHERN HEALTH CORPORATION OF DAHLONEGA, INC.,

as a Borrower

By:     Name:     Title:    

SOUTHERN HEALTH CORPORATION OF HOUSTON, INC.,

as a Borrower

By:     Name:     Title:     HEALTHMONT OF GEORGIA, INC.,
as a Borrower By:     Name:     Title:     HEALTHMONT, LLC,
as a Borrower By its Sole Member SunLink Health Systems, Inc. By:     Name:    
Title:    

HEALTHMONT OF MISSOURI, LLC,
as a Borrower

By its Sole Member HealthMont, LLC

  By its Sole Member SunLink Health Systems, Inc.     By:         Name:        
Title:    

SUNLINK SERVICES, INC.,

as a Borrower

By:     Name:     Title:    

 

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

SUNLINK SCRIPTSRX, LLC

(f/k/a Sunlink Homecare Services, LLC),
as a Borrower

By its sole member SunLink Health Systems, Inc.

By:     Name:     Title:    

CENTRAL ALABAMA MEDICAL ASSOCIATES, LLC, as a Borrower

By its Sole Member SunLink Healthcare, LLC

  By its Sole Member SunLink Health Systems, Inc.     By:         Name:        
Title:    

DAHLONEGA CLINIC, LLC,

as a Borrower

By its Sole Member Southern Health Corporation of Dahlonega, Inc.

    By:         Name:         Title:    

CARMICHAEL’S CASHWAY PHARMACY, INC.,

as a Borrower

By:     Name:     Title:    

CARMICHAEL’S NUTRITIONAL DISTRIBUTOR, INC.,

as a Borrower

By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

BREATH OF LIFE HOME HEALTH EQUIPMENT, INC.,

as a Borrower

By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

AGENT:

CHATHAM CREDIT MANAGEMENT III, LLC,

as Agent

By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

FUNDING AGENT:

UNION BANK OF CALIFORNIA, N.A.,

as Funding Agent

By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

LENDERS:

CHATHAM CREDIT MANAGEMENT III, LLC, not individually, but as agent for

CHATHAM INVESTMENT FUND QP III, LLC, as a Lender and CHATHAM INVESTMENT FUND
III, LLC, as a Lender

By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

LENDERS: UNION BANK OF CALIFORNIA, N.A.,
as a Lender By:     Name:     Title:    

[SIGNATURE PAGE TO THE LIMITED WAIVER AGREEMENT UNDER

AMENDED AND RESTATED CREDIT AGREEMENT]

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

Annex A

 

Calculation Date

  

Period ending as of 9/30/2010

  

Period ending as of 12/31/2010

  

Period ending as of 3/31/20111

Pricing Effective Date

   November 15, 2010    February 15, 2011    May 15, 2011

Waiver Fees

   0.50% of the sum of the outstanding principal balance of the Term Loan and
the Revolving Commitment Amount    0.50% of the sum of the outstanding principal
balance of the Term Loan and the Revolving Commitment Amount    0.50% of the sum
of the outstanding principal balance of the Term Loan and the Revolving
Commitment Amount

Applicable Revolving Margin

   7.50%    8.50%    9.50%

Applicable Term Loan Margin

   9.07%    10.07%    11.07%

 

1

To the extent that (i) Borrowers are in compliance with all Specified Financial
Covenants other than Section 6.21 for the period ending 3/31/11 (or an amendment
to the Credit Agreement retroactively amending Section 6.21 to avoid
noncompliance for such period shall have been executed by all applicable parties
and become effective) and (ii) the Alternate Minimum EBITDA Test in Section 2 of
this Amendment to the continuation of the limited waiver of Non-Compliance with
Specified Financial Covenants have been satisfied for the period ending 3/31/11,
no waiver fee or increase in the Applicable Revolving Margin or Applicable Term
Loan Margin described under the heading “Period ending as of 3/31/11” shall
occur or become due and owing and the Applicable Revolving Margin shall remain
at 8.50% and the Applicable Term Loan Margin shall remain at 10.07%.