Exhibit 10.27

EXECUTION VERSION

AMENDED AND RESTATED CREDIT AGREEMENT

Between

SUNLINK HEALTH SYSTEMS, INC.,

SUNLINK HEALTHCARE, LLC,

DEXTER HOSPITAL, LLC,

CLANTON HOSPITAL, LLC,

SOUTHERN HEALTH CORPORATION OF ELLIJAY, INC.,

SOUTHERN HEALTH CORPORATION OF DAHLONEGA, INC.,

SOUTHERN HEALTH CORPORATION OF HOUSTON, INC.,

SOUTHERN HEALTH CORPORATION OF JASPER, INC.,

HEALTHMONT OF GEORGIA, INC.,

HEALTHMONT, LLC,

HEALTHMONT OF MISSOURI, LLC,

SUNLINK SERVICES, INC.,

SUNLINK HOMECARE SERVICES, LLC.,

KRUG PROPERTIES, INC.,

CENTRAL ALABAMA MEDICAL ASSOCIATES, LLC

DAHLONEGA CLINIC, LLC

CARMICHAEL’S CASHWAY PHARMACY, INC.,

CARMICHAEL’S NUTRITIONAL DISTRIBUTOR, INC., and

BREATH OF LIFE HOME HEALTH EQUIPMENT, INC.

(“Borrowers”)

And

THE OTHER PERSONS PARTY HERETO THAT

ARE DESIGNATED AS CREDIT PARTIES,

And

CHATHAM CREDIT MANAGEMENT III, LLC,

as Agent

UNION BANK OF CALIFORNIA, N.A.,

as Funding Agent

And

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO,

as Lenders

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TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS    1

Section 1.1

     Defined Terms    1

Section 1.2

     Accounting Terms and Calculations    27

Section 1.3

     Computation of Time Periods    27

Section 1.4

     Other Definitional Terms    27 ARTICLE II TERMS OF THE CREDIT FACILITIES   
28

Section 2.1

     Loans    28

Section 2.2

     Procedure for Revolving Loans    29

Section 2.3

     Records    29

Section 2.4

     Interest Rates, Interest Payments and Default Interest    30

Section 2.5

     Repayment    31

Section 2.6

     Prepayments    31

Section 2.7

     Mandatory Prepayment of Term Loan from Excess Cash Flow    32

Section 2.8

     Optional Reduction of Revolving Commitment Amount or Termination of
Revolving Commitment    33

Section 2.9

     Revolving Commitment Fee    33

Section 2.10

     Prepayment Fee    33

Section 2.11

     Fee Letter    34

Section 2.12

     Computation    34

Section 2.13

     Payments    34

Section 2.14

     Use of Loan Proceeds    35

Section 2.15

     Adjustment of NCV    35

Section 2.16

     Taxes    35

Section 2.17

     Appraisals    36

Section 2.18

     Wire Transfer Fee    36

Section 2.19

     Application and Allocation of Payments    36

Section 2.20

     Yield Protection    37 ARTICLE III CONDITIONS PRECEDENT    37

Section 3.1

     Conditions Precedent to Effectiveness    37

Section 3.2

     Conditions Precedent to the Term Loan and all Advances    39 ARTICLE IV
REPRESENTATIONS AND WARRANTIES    39

Section 4.1

     Organization, Standing, Etc.    40

Section 4.2

     Authorization and Validity    40

Section 4.3

     No Conflict; No Default    40

Section 4.4

     Government Consent    40

Section 4.5

     Financial Statements and Condition    41

Section 4.6

     Litigation    41

Section 4.7

     Conduct of Business; Permits    41

Section 4.8

     Environmental, Health and Safety Laws    42

 

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Section 4.9

     Compliance With Health Care Laws    42

Section 4.10

     Compliance with Health Plans    43

Section 4.11

     Physician Agreements    43

Section 4.12

     Funds from Restricted Grants    43

Section 4.13

     HIPAA Compliance    44

Section 4.14

     ERISA    44

Section 4.15

     Federal Reserve Regulations    44

Section 4.16

     Title to Property; Leases; Liens; Subordination    45

Section 4.17

     Taxes    45

Section 4.18

     Trademarks, Patents    45

Section 4.19

     Existing Foreign Subsidiaries    45

Section 4.20

     Force Majeure    45

Section 4.21

     Investment Company Act    45

Section 4.22

     [Intentionally Omitted]    45

Section 4.23

     Retirement Benefits    45

Section 4.24

     Full Disclosure    46

Section 4.25

     Subsidiaries    46

Section 4.26

     Restrictions on Subsidiaries    46

Section 4.27

     Labor Matters    46

Section 4.28

     Deposit and Other Accounts    46

Section 4.29

     Offsets    46

Section 4.30

     Solvency    47

Section 4.31

     Management Procedures    47

Section 4.32

     For-Profit Entities    47

Section 4.33

     Carmichael’s Acquisition    47

Section 4.34

     Insurance    47

Section 4.35

     Anti-Terrorism Law    48 ARTICLE V AFFIRMATIVE COVENANTS    48

Section 5.1

     Financial Statements and Reports    49

Section 5.2

     Existence    52

Section 5.3

     Insurance    52

Section 5.4

     Payment of Taxes and Claims    53

Section 5.5

     Inspection; Collateral Audits    53

Section 5.6

     Maintenance of Properties    53

Section 5.7

     Books and Records    54

Section 5.8

     Compliance; Permits    54

Section 5.9

     ERISA    54

Section 5.10

     Environmental Matters; Reporting    54

Section 5.11

     Accreditation; Compliance Program    55

Section 5.12

     Further Assurances    55

Section 5.13

     Compliance with Terms of Material Contracts    56

Section 5.14

     Joinder of Domestic Subsidiaries    56

Section 5.15

     Collection of Receivables; Control Agreements    56

Section 5.16

     Post-Closing Deliveries    57

 

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ARTICLE VI NEGATIVE COVENANTS    57

Section 6.1

     Merger    57

Section 6.2

     Disposition of Assets    57

Section 6.3

     Plans    58

Section 6.4

     Change in Nature of Business; Organization Documents    58

Section 6.5

     Negative Pledges; Subsidiary Restrictions    58

Section 6.6

     Restricted Payments    59

Section 6.7

     Transactions with Affiliates    59

Section 6.8

     Accounting Changes    59

Section 6.9

     Deposit and Other Accounts    59

Section 6.10

     Capital Expenditures    60

Section 6.11

     Subordinated Debt    60

Section 6.12

     Investments    60

Section 6.13

     Indebtedness    61

Section 6.14

     Liens    62

Section 6.15

     Contingent Liabilities    63

Section 6.16

     Leverage Ratio    63

Section 6.17

     Senior Leverage Ratio    64

Section 6.18

     Minimum Liquidity    65

Section 6.19

     Collateral Coverage Ratio    65

Section 6.20

     Fixed Charge Coverage Ratio    65

Section 6.21

     Minimum EBITDA    66

Section 6.22

     Executive Compensation    67

Section 6.23

     Restrictions on Leases, etc.    67

Section 6.24

     Loan Proceeds    67

Section 6.25

     Sale and Leaseback Transactions    68

Section 6.26

     Hedging Agreements    68 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES    68

Section 7.1

     Events of Default    68

Section 7.2

     Remedies    70

Section 7.3

     Lockbox; Rights Under Control Agreements    71

Section 7.4

     Offset    71 ARTICLE VIII MISCELLANEOUS    72

Section 8.1

     Amendments and Waivers    72

Section 8.2

     Expenses    73

Section 8.3

     Waivers, etc.    74

Section 8.4

     Notices    74

Section 8.5

     Taxes    74

Section 8.6

     Successors and Assigns    75

Section 8.7

     Confidentiality of Information    75

Section 8.8

     Governing Law and Construction    75

Section 8.9

     Consent to Jurisdiction    76

 

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Section 8.10

     Waiver of Jury Trial    76

Section 8.11

     Survival of Agreement    76

Section 8.12

     Indemnification    76

Section 8.13

     Captions    77

Section 8.14

     Entire Agreement    77

Section 8.15

     Counterparts    77

Section 8.16

     Borrower Acknowledgements    77

Section 8.17

     Appointment of and Acceptance by Borrowers’ Agent    78

Section 8.18

     Relationship Among Borrowers    78

Section 8.19

     Interest Rate Limitation    81

Section 8.20

     Deposit on Termination of Revolving Commitments    81

Section 8.21

     Replacement of Lenders    81

Section 8.22

     Lenders’ Obligations Several; Independent Nature of Lenders’ Rights    83

Section 8.23

     Patriot Act Notice    83 ARTICLE IX ASSIGNMENT AND PARTICIPATION    83

Section 9.1

     Assignment and Participations    83

Section 9.2

     Agent and Funding Agent    85

Section 9.3

     Set Off and Sharing of Payments    92

Section 9.4

     Disbursement of Funds    92

Section 9.5

     Disbursements of Advances; Payment    93 ARTICLE X Amendment and
Restatement    94

Section 10.1

     Amendment and Restatement; No Novation    94

Section 10.2

     Effect on Original Credit Agreement and on the Obligations    94

Section 10.3

     No Implied Waivers    95

Section 10.4

     Reaffirmation of Liens and obligations    95

 

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EXHIBITS     

Exhibit A

     Form of Revolving Note

Exhibit B

     Form of Term Note

Exhibit C

     Form of Subordination Agreement

Exhibit D

     Form of Security Agreement

Exhibit E

     Form of Pledge Agreement

Exhibit F

     Form of Borrowing Base Certificate

Exhibit G

     Form of Compliance Certificate

Exhibit H

     NCV Calculation

Exhibit I-1

     Matters to be Covered in Opinion of Counsel

Exhibit 1-2

     Matters to be Covered in Supplemental Opinion of Counsel

Exhibit J

     Business Associate Agreement

Exhibit J-1

     Covered Entities

Exhibit K-1

     Wire Instructions (Funding Agent)

Exhibit K-2

     Wire Instructions (Agent)

Exhibit L

     Form of Assignment and Assumption

Exhibit M

     Form of Guaranty

Exhibit N

     Form of Local Bank Account Agreement SCHEDULES     

Schedule 1.1(a)

     Encumbered Real Estate

Schedule 1.1(b)

     Required Control Agreements

Schedule 3.1

     Leased Locations/Locations of Inventory

Schedule 4.6

     Litigation

Schedule 4.8

     Environmental Matters

Schedule 4.9

     Health Care Laws Compliance Matters

Schedule 4.12

     Restricted Grants

Schedule 4.14

     ERISA

Schedule 4.16

     List of Real Properties

Schedule 4.25

     Subsidiaries

Schedule 4.28

     Deposit Accounts

Schedule 4.29

     Offsets

Schedule 4.34

     Insurance

Schedule 5.15

     Local Bank Accounts

Schedule 5.16

     Post-Closing Deliveries

Schedule 6.2

     Intercompany Conveyances Property

Schedule 6.12

     Existing Investments

Schedule 6.13

     Existing Indebtedness

Schedule 6.14

     Existing Liens

Schedule 6.15

     Contingent Obligations

Schedule 6.23

     Leases

 

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ANNEXES     

Annex A

     Pro Rata Shares and Loan Amounts

Annex B

     Closing Checklist

 

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AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 1, 2008, is by
and between 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, SOUTHERN HEALTH CORPORATION OF
JASPER, 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
HOMECARE SERVICES, LLC, a limited liability company organized under the laws of
the State of Georgia, KRUG PROPERTIES, INC., a corporation organized under the
laws of the State of Ohio, 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 or hereafter become parties to this Agreement as Lenders, CHATHAM CREDIT
MANAGEMENT III, LLC, a Georgia limited liability company (in its individual
capacity “Chatham”), as Agent, and UNION BANK OF CALIFORNIA, N.A. (in its
individual capacity “UBOC”), as Funding Agent, amends and restates in its
entirety the Credit Agreement (as amended to the date hereof, without giving
effect to the amendments and restatements set forth herein, the “Original Credit
Agreement”), dated as of April 23, 2008, among the Borrowers, the other persons
designated as “Credit Parties” on the signature pages thereof, the financial
institutions parties to the Original Credit Agreement as lenders, and Chatham,
as agent for such lenders.

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

Section 1.1 Defined Terms. As used in this Agreement the following terms shall
have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):

“Acquisition”: The purchase or other acquisition by one or more Borrowers or any
Subsidiary of assets constituting a business, division, or product line of any
Person or of the Equity Interest of any Person.

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“Adjusted Consolidated Net Income”: For any period the Consolidated Net Income
for such period and without giving effect to any extraordinary gains or losses
from sales of assets plus, without duplication, (i) the sum of the amount of all
non cash charges (including, without limitation, depreciation, amortization,
depletion, deferred tax expense and non cash interest expense) and non cash
losses which were included in arriving at Consolidated Net Income for such
period less (ii) all non cash gains included in arriving at Consolidated Net
Income for such period.

“Adjusted Consolidated Working Capital”: At any time shall mean Consolidated
Current Assets (but excluding therefrom all cash and Cash Equivalents) less
Consolidated Current Liabilities (but excluding therefrom any unpaid principal
balance of the Revolving Loan and the current maturities of the Term Loan).

“Advance”: As defined in Section 2.1(a).

“Advance Date”: The date of the making of any Advance hereunder.

“Affiliate”: When used with reference to any Person, (a) each Person that,
directly or indirectly, controls, is controlled by or is under common control
with, the Person referred to, (b) each Person which beneficially owns or holds,
directly or indirectly, twenty (20%) percent or more of any class of voting
Equity Interests of the Person referred to, (c) each Person, twenty
(20%) percent or more of the voting Equity Interests (or if such Person is not a
corporation, twenty (20%) percent or more of the equity interest) of which is
beneficially owned or held, directly or indirectly, by the Person referred to,
and (d) each of such Person’s officers, directors, joint venturers and partners.
The term control (including the terms “controlled by” and “under common control
with”) means the possession, directly, of the power to direct or cause the
direction of the management and policies of the Person in question.

“Applicable Insolvency Laws”: As defined in Section 8.18(j).

“Applicable Revolving Margin”: 3.50%.

“Applicable Percentage”: As defined in Section 2.10.

“Applicable Term Loan Margin”: 5.07%

“Assessments”: As defined in Section 4.13.

“Availability”: As of any date of calculation, the amount equal to (i) the
lesser of (a) the Revolving Commitment Amount then in effect and (b) the
Borrowing Base, less (ii) the unpaid principal balance of the Revolving Loan.

“Beneficiaries”: Agent, Funding Agent and each Lender.

 

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“Board”: The Board of Governors of the Federal Reserve System or any successor
thereto.

“Borrower” and “Borrowers”: As defined in the opening paragraph hereof.

“Borrowers’ Agent”: SunLink Health Systems, Inc., a corporation organized under
the laws of the State of Ohio.

“Borrowing Base”: As of any date of calculation, a dollar amount equal to the
lesser of:

(A) 85% of the Net Collectible Value of Borrowers’ Eligible Accounts at such
time less reserves established from time to time by Agent in its reasonable
credit judgment. and

(B) (x) the product of (X)(i) Consolidated EBITDA of the Borrowers, as
determined as of the end of the most recent fiscal month of the Borrowers for
the twelve months ending thereon for which Financial Statements have been
furnished to Agent (such twelve month being the “Relevant Period” for the
purposes of this definition) plus (ii) with respect to each Person and any of
its Subsidiaries acquired in a Permitted Acquisition during such Relevant
Period, 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, multiplied by (Y) 3.5 less (y) the
unpaid principal balance of the Term Loan;

“Borrowing Base Certificate”: A certificate in the form of Exhibit F hereto.

“Business Day”: Any day which is not a day on which banking institutions in any
of the cities of Atlanta, Georgia and New York, New York are authorized or
obligated by law or executive order to close.

“Capital Expenditures”: For any period, for the Borrowers, the sum of (a) all
amounts that would be included as additions to property, plant and equipment set
forth in the consolidated statement of cash flows in the section entitled Cash
Flows from Investing Activities and (b) the amount for Assets Acquired under
Capital Lease Obligations set forth in the consolidated statement of cash flows
in the section entitled Non-cash Investing and Financing Activities, as prepared
in accordance with GAAP, in respect of (a) the acquisition, construction,
improvement, replacement or betterment of land, buildings, machinery, equipment
or of any other fixed assets or leaseholds, (b) to the extent related to and not
included in (a) above, materials, contract labor (excluding expenditures
properly chargeable to repairs or maintenance in accordance with GAAP), and
(c) other capital expenditures and other uses recorded as capital expenditures
or similar terms having substantially the same effect.

“Capitalized Lease”: A lease of (or other agreement conveying the right to use)
real or personal property with respect to which at least a portion of the rent
or other amounts thereon constitute Capitalized Lease Obligations.

 

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“Capitalized Lease Obligations”: As to any Person, the obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board), and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement
No. 13).

“Captive Insurance Subsidiary”: CastleLink Assurance, Ltd., an exempted company
organized under the law of Cayman Islands, which is a company solely engaged in
the business of providing insurance coverage to the Borrowers and their
Subsidiaries and, to the extent the insurance coverage provided covers risks
that (i) would be covered by a standard general malpractice liability policy and
(ii) arise solely from providing services and products in the ordinary course of
business of the Borrowers and their Subsidiaries.

“Carmichael’s”: Carmichael’s Cashway Pharmacy, Inc., a corporation organized
under the laws of Louisiana.

“Carmichael’s Acquisition”: the acquisition of all of the issued and outstanding
Equity Interest in Carmichael’s pursuant to the Carmichael’s Acquisition
Agreement.

“Carmichael’s Acquisition Agreement”: that certain Stock Purchase Agreement,
dated as of April 23, 2008, by and among Sellers, Carmichael’s and SunLink
Homecare Services, LLC, a Georgia limited liability company, as the same may be
amended, restated or otherwise modified from time to time prior to the Original
Closing Date.

“Carmichael’s Acquisition Documents” means the Carmichael’s Acquisition
Agreement and all other agreements, instruments, documents and certificates
entered into in connection with the Carmichael’s Acquisition Agreement.

“Carmichael’s Entity” means Carmichael’s and each of its Subsidiaries which are
consolidated with Carmichael’s in accordance with GAAP.

“Cash Equivalents”: As to any Person, (i) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than one
year from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank having, or which is the principal banking
subsidiary of a bank holding company organized under the laws of the United
States, any State thereof or the District of Columbia having capital, surplus
and undivided profits aggregating in excess of $100,000,000, with maturities of
not more than one year from the date of acquisition by such Person,
(iii) repurchase obligations with a term of not more than 90 days for underlying
securities of the types described in clause

 

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(i) above entered into with any bank meeting the qualifications specified in
clause (ii) above, (iv) commercial paper issued by any Person incorporated in
the United States rated at least A2 or the equivalent thereof by Standard &
Poor’s Corporation or at least P2 or the equivalent thereof by Moody’s Investors
Service, Inc. and in each case maturing not more than one year after the date of
acquisition by such Person, and (v) investments in money market funds
substantially all of whose assets are comprised of securities of the types
described in clauses (i) through (iv) above.

“CHAMPVA”: Collectively, the Civilian Health and Medical Program of the
Department of Veteran Affairs, a program of medical benefits covering retirees
and dependents of former members of the armed services administered by the
United States Department of Veteran Affairs, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in 38 U.S.C. §1713 or elsewhere)
affecting such program or, to the extent applicable to CHAMPVA, and (b) all
rules, regulations (including 38 C.F.R. § 17.54), manuals, orders and
administrative, reimbursement and other guidelines of all governmental
authorities promulgated in connection with such program (whether or not having
the force of law), in each case as the same may be amended, supplemented or
otherwise modified from time to time.

“Chatham Fee Letter”: As defined in Section 2.11.

“Change of Control”: The occurrence, after the Original Closing Date, of any of
the following circumstances: (a) any Person or two or more Persons acting in
concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934),
directly or indirectly, of Equity Interests of any Borrower representing forty
(40%) percent or more of the combined voting power of all Equity Interests of
such Borrower entitled to vote in the election of directors; or (b) during any
period of up to twelve consecutive months, whether commencing before or after
the Original Closing Date, individuals who at the beginning of such twelve-month
period were directors of any Borrower ceasing for any reason to constitute a
majority of the Board of Directors of any Borrower (other than by reason of
death, disability or scheduled retirement); provided, however, that,
notwithstanding anything to the contrary herein, Agent and Lenders acknowledge
and agree that SHSI shall be permitted to reduce the number of directors on its
Board of Directors to five (5) members during the term hereof; or (c) any Person
or two or more Persons acting in concert acquiring by contract or otherwise, or
entering into a contract or arrangement which upon consummation will result in
its or their acquisition of, control over Equity Interests of any Borrower
representing forty (40%) percent or more of the combined voting power of all
Equity Interests of any Borrower entitled to vote in the election of directors.

“Charges”: As defined in Section 8.19.

“Code”: The Internal Revenue Code of 1986, as amended.

 

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“Collateral”: The property of the Credit Parties described in the Security
Documents as “Collateral” and Encumbered Real Estate.

“Collateral Account”: As defined in Section 7.3.

“Collateral Coverage Ratio”: The ratio as of the last day of any fiscal quarter
or other date of determination of (i) the sum of (A) Receivables Collateral
Coverage, (B) Real Estate Collateral Coverage, (C) Equipment Collateral
Coverage, and (D) Inventory Collateral Coverage, to (ii) Total Outstandings.

“Collections”: Means all funds received from or on behalf of Obligors in payment
of any amount owed with respect to Receivables.

“Compliance Certificate”: A certificate in the form of Exhibit G hereto.

“Concentration Account”: Means, (i) Account No. 129544 maintained in the name of
SunLink Health Systems, Inc. at the Bank of North Georgia, (ii) Account
No. 130351 maintained in the name of Healthmont, LLC at the Bank of North
Georgia, (iii) Account No. 0099002 maintained in the name of SunLink Healthcare,
LLC at the Bank of North Georgia, (iv) Account No. 5510206409 maintained in the
name of Carmichael’s Cashway Pharmacy, Inc. at the Bank of Commerce, and
(v) Accounts Nos. 330152269, 330161527 and 161527 maintained in the name of
Carmichael’s Cashway Pharmacy, Inc. at the First National Bank of Louisiana, or
any other account which the Agent may designate as a “Concentration Account” in
writing from time to time, each of which shall be subject to a Control Agreement
in favor of the Agent, in form and substance satisfactory to the Agent.

“Consolidated” or “consolidated”: Except as otherwise provided herein, with
reference to any term defined herein, that term as applied to the accounts of
the Borrowers and their Subsidiaries, consolidated in accordance with GAAP.

“Consolidated Current Assets”: As of any date, the consolidated current assets
of the Borrowers, determined in accordance with GAAP.

“Consolidated Current Liabilities”: As of any date, the consolidated current
liabilities of the Borrowers, determined in accordance with GAAP.

“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 capital assets by the Borrowers and

 

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their Subsidiaries (including any fixed assets, whether tangible or intangible,
all inventory sold in conjunction with the disposition of fixed assets and all
securities), and (v) 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)
for such period, (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.

Notwithstanding the foregoing, it is agreed that, for purposes of determining
compliance with the financial covenants set forth in Section 6.16{Leverage
Ratio}, Section 6.17{Senior Leverage Ratio} and Section 6.21{Minimum EBITDA} and
for the purpose of determining the Borrowing Base on each date of determination
occurring on or prior to April 30, 2009, Consolidated EBITDA of the Borrowers
and their Subsidiaries (and, in the case of determining the Borrowing Base, the
Consolidated EBITDA of the Borrowers) shall be equal to the sum of (A) actual
Consolidated EBITDA of the Consolidated SunLink Entity for the twelve
(12) consecutive months ending on such date of determination plus
(B) Consolidated EBITDA of the Carmichael’s Entity for the twelve
(12) consecutive months ending on such date of determination; provided, however,
that, in the case of determining the Consolidated EBITDA of the Carmichael’s
Entity for any 12-consecutive month measuring period that includes any month
ending prior to May 1, 2008, the Consolidated EBITDA of the Carmichael’s Entity
for each such month shall be deemed to be $316,667.

“Consolidated Excess Cash Flow”: For any period, the remainder of (a) the sum of
(i) Adjusted Consolidated Net Income for such period, and (ii) the decrease, if
any, in Adjusted Consolidated Working Capital from the first day to the last day
of such period, minus (b) the sum of (i) the amount of Capital Expenditures made
by the Borrowers and its Subsidiaries on a consolidated basis during such period
in accordance with Section 6.10 funded from cash flow that is generated by the
operations of the Borrowers and, in any event, other than any such Capital
Expenditure to the extent financed through the incurrence of Capitalized Lease
Obligations or any other Indebtedness (including Revolving Loans), (ii) the
aggregate amount of permanent principal payments of Indebtedness for borrowed
money of the Borrowers and their Subsidiaries and the

 

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permanent repayment of the principal component of Capitalized Lease Obligations
of the Borrowers and their Subsidiaries (excluding (A) payments as a result of a
Prepayment Event hereunder with proceeds of asset sales and Net
Insurance/Condemnation Proceeds other than the portion thereof which resulted in
a gain on conversion of assets under GAAP and (B) payments with the proceeds of
other Indebtedness or equity or equity contributions (but in the case of a
voluntary prepayment of the Revolving Loans, only to the extent accompanied by a
voluntary reduction to the Revolving Commitments, and in the case of any other
Indebtedness which may be reborrowed, to the extent such payment results in a
permanent reduction in commitments thereof)) during such period, (iii) the
increase, if any, in Adjusted Consolidated Working Capital from the first day to
the last day of such period and (iv) the aggregate amount of cash consideration
paid from cash flow that is generated by the operations of the Borrowers to make
Permitted Acquisitions during such period.

“Consolidated Interest Expense”: For any period of determination, the aggregate
consolidated amount, without duplication, of interest (whether cash or non-cash)
paid, accrued or scheduled to be paid in respect of any Indebtedness of the
Borrowers and its Subsidiaries, including (a) all but the principal component of
payments in respect of conditional sale contracts, Capitalized Leases and other
title retention agreements, (b) commissions, discounts and other fees and
charges with respect to letters of credit and bankers’ acceptance financings and
(c) net costs under interest rate protection agreements, in each case determined
in accordance with GAAP.

“Consolidated Net Income”: For any period, the consolidated net after tax income
of the Borrowers and their Subsidiaries determined in accordance with GAAP;
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) fees, expenses and charges
incurred in connection with the consummation of the Carmichael’s Acquisition,
(v) all amounts charged to expense by the Borrowers related to unsolicited
takeover offer from Resurgence Health Group LLC, Berggruen Holdings Ltd and
related parties as long as such amounts are charged to expense during the period
through December 31, 2008, (vi) all amounts charged to expense by the Borrowers,
including for consulting, legal and related expenses and committee meeting fees,
for the Special Committee of the SunLink Board of Directors formed to review
strategic alternatives in November 2007 as long as such amounts are charged to
expense and excluded in computing Consolidated Net Income for any period ending
on or prior to December 31, 2008; (vii) all amounts (other than legal fees and
expenses) charged to expense by the Borrowers for the

 

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litigation between Piedmont Heathcare 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 as long as such amounts are charged to expense and
excluded in computing Consolidated Net Income for any period ending on or prior
to the Original Closing Date, (vii) legal fees and expenses relating to the
litigation described in the preceding clause (vi), (viii) all amounts (other
than legal fees and expenses) charged to expense by the Borrowers for the
settlement of the UK Obligations as long as such amounts are charged to expense
and excluded in computing Consolidated Net Income for any period ending on or
prior to the Original Closing Date, and (ix) legal fees and expenses relating to
the settlement of the UK Obligations.

“Consolidated Pro Forma EBITDA”: Consolidated EBITDA of any Person and any of
its Subsidiaries acquired in a Permitted Acquisition calculated in a manner
satisfactory to the Agent (and agreed to in writing by the Agent), adjusted by
verifiable expense reductions, if any, which are reasonably expected to be
realized, in each case calculated by the Borrowers’ Agent and approved by the
Agent in its reasonable discretion based on Agent’s customary underwriting
policy.

“Consolidated SunLink Entity”: SHSI and each of its Subsidiaries (other than
Carmichael’s Entity) which are consolidated with SHSI in accordance with GAAP.

“Contingent Obligations”: With respect to any Person at the time of any
determination, without duplication, any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the “primary obligor”) in any manner, whether
directly or otherwise: (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor,
(b) to purchase property, securities, Equity Interests or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness, (c) to maintain working capital, equity capital or other financial
statement condition of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or otherwise to protect the owner thereof against loss
in respect thereof, or (d) entered into for the purpose of assuring in any
manner the owner of such Indebtedness of the payment of such Indebtedness or to
protect the owner against loss in respect thereof; provided, that the term
“Contingent Obligations” shall not include endorsements for collection or
deposit, in each case in the ordinary course of business.

“Control Agreement”: An agreement which satisfies the requirements of “control”
in favor of the Agent over a Deposit Account, investment property, electronic
chattel paper or letter-of-credit rights, within the meaning of the UCC.

“Credit Party”: Any Borrower or any Guarantor and “Credit Parties” means,
collectively, Borrowers and Guarantors.

 

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“Cut-off Period”: 150 days after the original invoice date for the applicable
Receivable.

“Default”: Any event which, with the giving of notice (whether such notice is
required under Section 7.1, or under some other provision of this Agreement, or
otherwise) or lapse of time, or both, would constitute an Event of Default.

“Deposit Account”: Any demand, lockbox, time, savings, passbook or similar
account now or hereafter maintained by or for the benefit of a Credit Party,
with an organization that is engaged in the business of banking (including,
without limitation, banks, savings banks, savings and loan associations, credit
unions and trust companies), and all funds and amounts therein, whether or not
restricted or designated for a particular purpose, including without limitation,
all Collateral Accounts, and all “deposit accounts” as defined in the UCC.

“Domestic Subsidiary”: Any Subsidiary incorporated in any of the states of the
United States or in the District of Columbia.

“Effective Date”: August 1, 2008.

“Eligible Inventory”: Inventory owned by a Borrower which at all times continues
to be acceptable to the Agent in its reasonable credit judgment exercised in
good faith. In general, Inventory shall be Eligible Inventory if it meets all of
the criteria set forth below:

(a) Such Inventory is not obsolete or unreasonably aged, as determined by the
Agent in its reasonable credit judgment;

(b) Such Inventory is subject to a valid, first priority perfected security
interest in favor of the Agent, for the benefit of the Beneficiaries, subject
only to Permitted Liens; and

(c) Such Inventory is not held by a Borrower as a consignee or pursuant to a
similar title retention arrangement with a vendor of such Inventory.

The criteria for Eligible Inventory set forth above may be changed and the Agent
may establish any new criteria for Eligible Inventory from time to time in the
Agent’s reasonable credit judgment exercised in good faith.

“Eligible Receivables”: Receivables created by a Borrower that continue to be
acceptable to the Agent based on the Agent’s criteria of eligibility set forth
below. In general, Receivables shall be Eligible Receivables if they meet all of
the criteria set forth below:

(a) Such Receivables arise from the actual and bona fide sale and delivery of
goods or rendition of services by a Borrower in the ordinary course of its
business to a Person which is not an Affiliate of such Borrower, for which an
invoice has been issued in accordance with such Borrower’s customary billing
procedures;

 

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(b) Such Receivables are not unpaid more than the Cut-off Period;

(c) Such Receivables do not arise from sales on consignment, guaranteed sale,
sale and return, sale on approval, or other terms under which payment by the
Obligor may be conditional or contingent;

(d) The chief executive office of the Obligor with respect to such Receivables
is located in the United States;

(e) The Obligor with respect to such Receivables has not asserted or threatened
to assert a counterclaim, defense or dispute and does not have any right of
setoff or recoupment against such Receivables (but the portion of the
Receivables of such Obligor in excess of the amount at any time and from time to
time subject to setoff or counterclaim may be deemed Eligible Receivables);

(f) There are no facts, events or occurrences which would impair the validity,
enforceability or collectability of such Receivables or reduce the amount
payable or delay payment thereunder;

(g) Such Receivables are subject to the first priority, valid and perfected
security interest of the Agent, for the benefit of the Beneficiaries;

(h) There are no proceedings or actions (including, without limitation,
Insolvency Proceedings) which are threatened or pending against the Obligor with
respect to such Receivables which would reasonably be expected to result in any
material adverse change in any such Obligor’s financial condition;

(i) Such Receivables are not evidenced by or arising under any instrument or
chattel paper (as such terms are defined in the UCC);

(j) Such Receivables for a single Obligor do not constitute more than 50% of the
total aged beyond the Cut-off Period;

(k) Such Receivables are owed by Obligors deemed creditworthy at all times by
the Agent in good faith;

(l) The Obligor obligated upon such Receivable has not suspended business, made
a general assignment for the benefit of creditors or failed to pay its debts
generally as they come due;

(m) A petition is not filed by or against any Obligor obligated upon such
Receivable under any bankruptcy law or any other federal, state or foreign
(including any provincial) receivership, insolvency relief or other law or laws
for the relief of debtors;

 

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(n) Such Receivables are not owed by Obligors who are individual patients and do
not constitute self-pay accounts;

(o) Such Receivables are not owed by any Credit Party or director, officer,
other employee or Affiliate of any Credit Party, or any entity that has any
common officer or director with any Credit Party; and

(p) Any other Receivables which the Agent, in its sole discretion, deems
Eligible Receivables.

The criteria for Eligible Receivables set forth above may be changed and the
Agent may establish any new criteria for Eligible Receivables from time to time
in the Agent’s reasonable credit judgment exercised in good faith.

“Encumbered Equipment”: All equipment of Credit Parties subject to the first
priority, valid and perfected security interest of the Agent, for the benefit of
the Beneficiaries.

“Encumbered Real Estate”: All real property listed in Schedule 1.1(a) attached
hereto and such additional real property as the Agent may request be mortgaged
to it pursuant to Section 5.14, which real property is subject to the first
priority, valid and perfected Lien of the Agent, for the benefit of the
Beneficiaries.

“Equipment Collateral Coverage”: The amount equal to the net book value of the
Encumbered Equipment, unless there exists a Qualifying Appraisal for such
property issued no more than one year prior to any date of determination, in
which case the applicable amount shall be the appraised value.

“Equity Interests”: All shares, interests, participation or other equivalents,
however designated, of or in a corporation or limited liability company, whether
or not voting, including but not limited to common stock, member interests,
warrants, preferred stock, convertible debentures, and all agreements,
instruments and documents convertible, in whole or in part, into any one or more
or all of the foregoing.

“ERISA”: The Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate”: Any trade or business (whether or not incorporated) that is a
member of a group of which a Borrower is a member and which is treated as a
single employer under Section 414 of the Code.

“Event of Default”: Any event described in Section 7.1.

“Existing Foreign Subsidiaries”: The UK Subsidiaries and Klippan S.A.R.L., a
company organized under the laws of France, and Klippan GmbH, a company
organized under the laws of Germany.

“Fees”: Revolving Commitment Fees, Prepayment Fees, fees specified in the
Chatham Fee Letter and any other fees due pursuant to the Loan Documents.

 

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“Financial Statements”: The consolidated financial statements, including,
without limitation, income statements, statements of cash flows and balance
sheets of SunLink Health Systems, Inc., Borrowers and their Subsidiaries, to be
delivered in accordance with Section 5.1.

“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.

“Funded Debt”: As of each date of determination, without duplication (a) all
Indebtedness for borrowed money of the Borrowers and their consolidated
Subsidiaries on that date (including without limitation all obligations under
Capitalized Lease Obligations) and other interest bearing Indebtedness of the
Borrowers and their consolidated Subsidiaries maturing more than one year from
the date of original issuance (including current maturities), (b) the aggregate
amount available for drawing under all letters of credit outstanding on that
date (net of the amount of any related certificate of deposit posted as security
therefor) for which the Borrowers or a consolidated Subsidiary of the Borrowers
is the account party (excluding, however, the aggregate amount available for
drawing under letters of credit issued to lenders and lessors of Indebtedness of
the type described in clause (a) in support of such Indebtedness), (c) the
aggregate amount drawn under all letters of credit (net of the amount of any
related certificate of deposit posted as security therefor) for which the
Borrowers or a consolidated Subsidiary of the Borrowers is the account party and
for which the issuer of such letters of credit has not been reimbursed on that
date, (d) all Indebtedness for borrowed money of the Borrowers and their
consolidated Subsidiaries on that date owed to any bank or financial
institution, and (e) all Indebtedness secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including accounts and contracts rights) owned
by the Borrowers or a consolidated Subsidiary of the Borrowers, even though the
Borrowers or such consolidated Subsidiary has not assumed or become liable for
the payment of such Indebtedness.

 

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“GAAP”: Generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of any date of determination.

“Governmental Authority”: Any federal, state, local or other governmental
department, commission, board, bureau, agency, central bank, court, tribunal or
other instrumentality or authority or subdivision thereof, domestic or foreign,
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

“Guarantor”: Any Person who or which executes a Guaranty or similar agreement in
favor of Agent, for the benefit of the Beneficiaries.

“Guaranty”: Guaranty dated as of the Original Closing Date made by the Credit
Parties party thereto for the benefit of the Agent, on behalf of the
Beneficiaries, substantially in the form attached thereto as Exhibit M and any
other guaranty executed by any Person in favor of Agent, for the benefit of the
Beneficiaries, with respect to the Obligations, in form and substance
satisfactory to Agent.

“Health Care Laws”: Means (i) any and all federal, state and local healthcare
fraud and abuse laws, including, without limitation, the federal Anti–Kickback
Statute (42 U.S.C. § 1320a–7(b)), the Stark Law (42 U.S.C. § 1395nn and
§1395(q)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), Sections
1320a–7 and 1320a–7a of Title 42 of the United States Code and the regulations
promulgated pursuant to such statutes; (ii) the federal Food, Drug & Cosmetic
Act (21 U.S.C. §§ 301 et seq.) and the regulations promulgated thereunder;
(iii) the Health Insurance Portability and Accountability Act of 1996 (Pub. L.
No. 104–191) and the regulations promulgated thereunder; (iv) Medicare (Title
XVIII of the Social Security Act) and the regulations promulgated thereunder;
(v) Medicaid (Title XIX of the Social Security Act) and the regulations
promulgated thereunder; (vi) the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Pub. L. No. 108–173) and the regulations promulgated
thereunder; (vi) quality, safety and accreditation standards and requirements of
all applicable state laws or regulatory bodies; (vii) federal, state and local
laws regulating the ownership or operation of a health care facility or
business, or assets used in connection therewith; (viii) federal, state and
local laws relating to the billing or submission of claims, collection of
accounts receivable, underwriting the cost of, or provision of management or
administrative services in connection with, any and all of the foregoing, by any
Credit Party and its Subsidiaries, including, but not limited to, laws and
regulations relating to practice of medicine and other health care professions,
professional fee splitting, tax–exempt organization and charitable trust law
applicable to health care organizations, certificates of need, certificates of
operations and authority; and (ix) any and all other applicable health care
laws, regulations, manual provisions, policies and material administrative
guidance, each of (i) through (ix) as may be amended from time to time.

 

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“HIPAA”: Means the Health Insurance Portability and Accountability Act of 1996,
as the same may be amended, modified or supplemented from time to time, and any
successor statute thereto, and any and all rules or regulations promulgated from
time to time thereunder.

“HIPAA Compliance Plan”: As defined in Section 4.13.

“HIPAA Compliant”: Means that to the extent applicable, the applicable Credit
Party or Subsidiary (A) is, or on or before any applicable compliance date will
be, in material compliance with any and all of the applicable requirements of
HIPAA, including all requirements of the Transactions Rule and the Privacy and
Security Rules and (B) is not subject to, and would not reasonably be expected
to become subject to, any civil or criminal penalty or any investigation, claim
or process that would reasonably be expected to cause a Material Adverse
Occurrence in connection with any violation by a Credit Party or Subsidiary of a
Credit Party of the then effective requirements of HIPAA.

“Immediately Available Funds”: Funds with good value on the day and in the city
in which payment is received.

“Immaterial Subsidiary”: Each Subsidiary of SHSI (other than Borrowers (except
for KRUG Properties, Inc. and Dahlonega Clinic LLC) with respect to which each
of the following is satisfied (a) the aggregate revenues of such Subsidiary do
not exceed $5,000,000 in any calendar year and during the period of twelve
consecutive months most recently ended prior to such Subsidiary being designated
as an Immaterial Subsidiary, and (b) the book value of the tangible assets of
such Subsidiary does not exceed $5,000,000, in each case that has been
designated as an Immaterial Subsidiary by the Borrowers’ Agent in a written
notice delivered to the Agent but other than any such Subsidiary as to which the
Borrowers’ Agent has revoked such designation by written notice to the Agent. On
the Original Closing Date, KRUG Properties, Inc., Dahlonega Clinic LLC, KRUG
International (UK) Limited, Bradley International Holdings Limited, Klippan
S.A.R.L. and Klippan GmbH are Immaterial Subsidiaries.

“Indebtedness”: With respect to any Person at the time of any determination,
without duplication, all obligations, contingent or otherwise, of such Person
which in accordance with GAAP should be classified upon the balance sheet of
such Person as liabilities, but in any event including: (a) all obligations of
such Person for borrowed money (including non-recourse obligations), (b) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid or accrued, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person, (e) all obligations of such Person issued or assumed
as the deferred purchase price of property or services, (f) all obligations of
others secured by any Lien on property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (g) all Capitalized
Lease Obligations of such Person,

 

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(h) all obligations of such Person in respect of interest rate swap agreements,
cap or collar agreements, interest rate futures or option contracts, currency
swap agreements, currency futures or option agreements and other similar
contracts (i) all obligations of such Person, actual or contingent, as an
account party in respect of letters of credit or bankers’ acceptances, (j) all
obligations of any partnership or joint venture as to which such Person is or
may become personally liable, (k) all obligations of such Person under any
Equity Interests issue by such Person, and (l) all Contingent Obligations of
such Person.

“Indemnitee” and “Indemnitees”: As defined in Section 8.12.

“Insolvency Proceeding”: Any proceeding commenced by or against any Person,
under any provision of any bankruptcy, insolvency or receivership law,
including, but not limited to, assignments for the benefit of creditors, formal
or informal moratoriums, compositions, receiverships, readjustments of debt,
dissolutions, liquidations, or extensions with some or all creditors.

“Inventory”: Goods, other than farm products, which are leased by a Person as
lessor, are held by a person for sale or lease or to be furnished under a
contract of service, are furnished by a Person under a contract of service, or
consist of raw materials, work in process, or materials used or consumed in a
business or incorporated or consumed in the production of any of the foregoing
and supplies, in each case wherever the same shall be located, whether in
transit, on consignment, in retail outlets, warehouses, terminals or otherwise,
and all property the sale, lease or other disposition of which has given rise to
an Account and which has been returned to a Borrower or repossessed by a
Borrower or stopped in transit.

“Inventory Collateral Coverage”: The amount equal to the net book value of all
Eligible Inventory of the Borrowers, unless there exists a Qualifying Appraisal
for all Eligible Inventory issued no more than three months prior to any date of
determination, in which case the applicable amount shall be the appraised value.

“Investment”: The acquisition, purchase, making or holding of any Equity
Interests or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment or option to
purchase Equity Interests, securities or other debt of or any interest in
another Person or any integral part of any business or the assets comprising
such business or part thereof and the formation of, or entry into, any
partnership as a limited or general partner or the entry into any joint venture.
The amount of any Investment shall be the original cost of such Investment plus
the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.

 

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“Keyman Life Insurance”: a keyman life insurance policy on the life of Robert M.
Thornton, Jr. in an amount of at least $5,000,000 and on other terms and
conditions and from an insurance company acceptable to the Agent.

“KRUG Pension Plan”: The defined benefit pension plan of SHSI, formerly known as
KRUG International Corp., an Ohio corporation, which is entitled the “KRUG
International Corp. Retirement Plan.”

“Leverage Ratio”: For any period of determination, the ratio of (i) Total Debt
as of the end of such period to (ii) the sum of (A) Consolidated EBITDA for such
period plus (B) with respect to each Person and any of its Subsidiaries acquired
in a Permitted Acquisition during such period, the Consolidated Pro Forma EBITDA
of such Person and any of its Subsidiaries for all times during such period
prior to the acquisition of such Person and any of its Subsidiaries.

“LIBOR Rate”: The greater of (a) 2.75% per annum or (b) the Thirty-Day LIBOR
rate, as published in the Bloomberg Professional Service page BBAM 1 for the
last Business Day of the month immediately preceding the month for which
interest is being calculated or if such published rate ceases to be available,
such other published “LIBOR Rate” as the Agent may reasonably select; provided,
however, that in no event shall “LIBOR Rate” exceed 5.5% per annum. For purposes
of clarity, the Borrowers, Agent, Funding Agent and Lenders agree that it is
their intention to utilize the Thirty-Day LIBOR rate described above for each
one-month period with the applicable LIBOR Rate being reset for each successive
one-month period as described above, including with respect to outstanding
Advances.

“Lien”: With respect to any Person, any security interest, mortgage, pledge,
lien, charge, encumbrance, title retention agreement or analogous instrument or
device (including the interest of each lessor under any Capitalized Lease), in,
of or on any assets or properties of such Person, now owned or hereafter
acquired, whether arising by agreement or operation of law.

“Loan”: The Revolving Loan or Term Loan.

“Loan Documents”: This Agreement, the Security Documents, the Notes and all
other 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.

“Local Bank Account”: As defined in Section 5.15(a).

“Local Bank Account Agreement”: As defined in Section 5.15(a).

“Material Adverse Occurrence”: Any occurrence of whatsoever nature (including,
without limitation, any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding) which would reasonably be expected to
materially and adversely affect (a) the financial condition or operations of the
Credit Parties and their Subsidiaries taken as a whole, (b) impair the ability
of the Credit Parties

 

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and their Subsidiaries, taken as a whole, to perform their obligations under any
Loan Document, (c) the validity or enforceability of the material obligations of
any Credit Party or any Subsidiary other than an Immaterial Subsidiary under any
Loan Document, (d) the rights and remedies of the Agent or any Lender against
any Credit Party or any Subsidiary other than an Immaterial Subsidiary, (e) the
timely payment of the principal of and interest on the Loans or other amounts
payable by the Credit Parties hereunder, or (f) the validity of the joint and
several nature of the obligations of the Borrowers with respect to all of the
Obligations.

“Maximum Rate”: As defined in Section 8.19.

“Medicaid”: Collectively, the healthcare assistance program established by Title
XIX of the Social Security Act (42 U.S.C. §§1396 et seq.) and any statutes
succeeding thereto, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program, including (a) all federal
statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program, (b) all state statutes and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program, and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.

“Medicare”: Collectively, the health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 U.S.C. §§1395 et seq.)
and any statutes succeeding thereto, and all laws, rules, regulations, manuals,
orders or guidelines pertaining to such program, including (a) all federal
statutes (whether set forth in Title XVIII of the Social Security Act or
elsewhere) affecting such program, and (b) all applicable provisions of all
rules, regulations, manuals, orders and administrative, reimbursement,
guidelines and requirements of all governmental authorities promulgated in
connected with such program (whether or not having the force of law), in each
case as the same may be amended, supplemented or otherwise modified from time to
time.

“Mortgages”: Each of the mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, collateral assignments of leases or other real estate
security documents with respect to the Encumbered Real Estate.

“Multiemployer Plan”: A multiemployer plan, as such term is defined in
Section 4001(a)(3) of ERISA, which is maintained (on the Original Closing Date,
within the five years preceding the Original Closing Date, or at any time after
the Original Closing Date) for employees of a Credit Party or any ERISA
Affiliate.

“Net Collectible Value” or “NCV”: With respect to any Type of Eligible
Receivables, the percentage determined by the Agent, in its reasonable credit
judgment, by which the gross amount of such Eligible Receivables is multiplied
to determine the net collectible value of such Receivables. Net Collectible
Value is generally calculated in the manner described in Exhibit H. The initial
Net Collectible Value for each Obligor Type shall be as set forth on Exhibit H.
The Agent may adjust Net Collectible Value for any Type of Receivables as
provided in Section 2.15.

 

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“Net Insurance/Condemnation Proceeds”: Any cash payments or proceeds received by
any of the Credit Parties (i) under any casualty insurance policy in respect of
a covered loss thereunder or (ii) as a result of the taking of any assets of the
Credit Parties by any Person pursuant to the power of eminent domain,
condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, in each case net of any
actual and documented fees, expenses and costs incurred by the Credit Parties in
connection with the adjustment or settlement of any claims of the Credit Parties
in respect thereof, including (i) income taxes reasonably estimated to be
actually payable within two years of the date of receipt of such payments or
proceeds as a result of any gain recognized in connection with the receipt of
such payment or proceeds and (ii) payment of the outstanding amount of
principal, premium or penalty, if any, and interest of any Indebtedness (other
than the Loans) that is secured by a Lien on the stock or assets in question and
that is repaid as a result of receipt of such payments or proceeds.

“Note”: Each Term Note or the Revolving Note (collectively, the “Notes”).

“Obligations”: All loans, advances, debts, liabilities and obligations for the
performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such amounts
are liquidated or determinable) owing by any Credit Party to Agent, Funding
Agent or any Lender, and all covenants and duties regarding such amounts, of any
kind or nature, present or future, whether or not evidenced by any note,
agreement, letter of credit agreement or other instrument, arising under the
Agreement or any of the other Loan Documents. This term includes all principal,
interest (including all interest that accrues after the commencement of any case
or proceeding by or against any Credit Party in bankruptcy, whether or not
allowed in such case or proceeding), Fees, expenses, attorneys’ fees and any
other sum chargeable to any Credit Party under the Agreement or any of the other
Loan Documents.

“Obligor”: Any Person that is obligated to make payment with respect to any
Receivables.

“Offset”: Any amount, including any overpayment made to any Borrower or any of
its Affiliates, with respect to any Obligor that is to be repaid by offset
against amounts then due to such Borrower by such Obligor. Offsets shall include
any amounts constituting penalties or assessments due to any state or federal
tax authorities, amounts deemed by any Obligor to be recoupments, inter-agency
or inter-creditor offsets and recoupments and any other amounts withheld or paid
to any person or entity other than the Agent and the Lender to offset against
any purported liability of the Borrowers.

“Original Closing Date”: April 23, 2008.

“Original Credit Agreement”: As defined in the opening paragraph hereof.

 

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“Original Lenders” means, collectively, all “Lenders” (as defined in the
Original Credit Agreement on the date hereof) under the Original Credit
Agreement on the Effective Date.

“Original Loans” means collectively, all “Loans” (as defined in the Original
Credit Agreement on the date hereof) under the Original Credit Agreement on the
Effective Date.

“Original Obligations” collectively, all “Obligations” (as defined in the
Original Credit Agreement on the date hereof) under the Original Credit
Agreement on the Effective Date.

“Other Taxes”: As defined in Section 2.16(b).

“PBGC”: The Pension Benefit Guaranty Corporation, established pursuant to
Subtitle A of Title IV of ERISA, and any successor thereto or to the functions
thereof.

“Permitted Acquisitions”: (i) Any Acquisition by any Borrower where (a) the
business or division acquired is for use, or the Person acquired is engaged, in
a business similar to that engaged in by the Borrowers on the Original Closing
Date, (b) immediately before and after giving effect to such Acquisition, no
Default or Event of Default shall exist, (c) not less than ten (10) Business
Days prior to the consummation of such Acquisition, Agent shall have received
pro forma financial statements, certified by the chief financial officer of SHSI
as to the matters described in Section 4.5(b), giving effect to the Acquisition
showing that the Borrowers are, and are reasonably anticipated to remain in pro
forma compliance with all the financial ratios and restrictions set forth in
Section 6.16, Section 6.17, Section 6.18, Section 6.19, Section 6.20 and
Section 6.21, (d) reasonably prior to such Acquisition, the Agent shall have
received drafts of each material document, instrument and agreement to be
executed in connection with such Acquisition together with all lien search
reports and lien release letters and other documents as the Agent may require to
evidence the termination of Liens on the assets or business to be acquired and
including subordination agreement in form and substance satisfactory to the
Agent with respect to Indebtedness permitted to be incurred, if any, under
Section 6.13(f), (e) no less than ten Business Days prior the consummation of
such Acquisition, the Agent shall have received the financial statements of the
Person or business to be acquired for the lesser time period of the prior three
years or the period from the inception of such Person or business, in form and
substance satisfactory to the Agent, (f) the provisions of Section 5.14 have
been satisfied with respect to any Subsidiary to be formed or acquired in
connection with such Acquisition and (g) the Agent has consented to such
Acquisition in advance in writing; or (ii) any other Acquisition consented to in
advance in writing by the Agent and Lenders.

“Permitted Encumbrances”: As defined in Section 6.14.

“Permitted Investments”: As defined in Section 6.12.

“Permitted Refinancing Indebtedness”: Any Indebtedness of the Borrowers issued
or given in exchange for, or the proceeds of which are used to, extend,
refinance,

 

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renew, replace, substitute or refund Indebtedness incurred pursuant to
Section 6.13(b), Section 6.13(c), Section 6.13(d), Section 6.13(e), or
Section 6.13(f) or any Indebtedness issued to so extend, refinance, renew,
replace, substitute or refund any such Indebtedness, so long as (a) such
Indebtedness has a weighted average life to maturity greater than or equal to
the weighted average life to maturity of the Indebtedness being refinanced,
(b) such refinancing or renewal does not add any Borrower as guarantor, obligor
or grantor of security from that which applied to such Indebtedness being
refinanced or renewed, (c) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, substituted or refunded (plus all
accrued interest thereon and the amount of all fees, commissions, discounts,
costs, expenses and premiums incurred in connection therewith), and (d) such
refinancing or renewal Indebtedness has substantially the same (or, from the
perspective of Lender, more favorable) subordination provisions, if any, as
applied to the Indebtedness being renewed or refinanced.

“Person”: Any natural person, corporation, partnership, limited partnership,
limited liability company, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.

“Plan”: Each employee benefit plan (whether in existence on the Original Closing
Date or thereafter instituted), as such term is defined in Section 3 of ERISA,
maintained for the benefit of employees, officers or directors of a Credit Party
or of any ERISA Affiliate.

“Pledge Agreement”: Pledge Agreement dated as of the Original Closing Date made
by the Credit Parties for the benefit of the Agent, on behalf of the
Beneficiaries, substantially in the form attached thereto as Exhibit E.

“Prepayment Event”: Means:

(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 in the case of dispositions permitted
only pursuant to Section 6.2(d) that result in net proceeds in excess of
$5,000,000 in the aggregate for the term of this Agreement such excess amount
shall be subject to prepayment pursuant to Section 2.6(a); provided, further,
however, that notwithstanding the foregoing, as long as no Default or Event of
Default has occurred and is continuing, no Prepayment Event arising from the
dispositions described in this clause (a) shall occur to the extent net proceeds
of such dispositions have been reinvested, or committed pursuant to a written
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;

 

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(b) any casualty or other insured damage to, or any taking under power of
eminent domain or by condemnation or similar proceeding of, any property or
asset of any Credit Party, but only to the extent that the Net
Insurance/Condemnation Proceeds therefrom have not been applied, or committed
pursuant to a written agreement (including any purchase orders) to be applied,
to repair, restore or replace such property or asset within 180 days after such
event, or within such longer period as agreed to by the Agent with respect to
the repair, restoration, or replacement of any real property;

(c) any receipt by any Credit Party of any indemnity payments under the
Carmichael’s Acquisition Agreement from any of the Sellers or under any purchase
agreement relating to any Permitted Acquisition from any sellers thereof which
exceed (A) $100,000 individually or (B) when added to all other such indemnity
payments received after the Original Closing Date, $500,000 in the aggregate
(the “Indemnity Payment Deductibles”); provided, however, that (i) any indemnity
payments that relate to the reimbursement of, or payment by, any Credit Party of
any out-of-pocket costs in connection with the Carmichael’s Acquisition or a
Permitted Acquisition and (ii) any indemnity amounts that are offset against the
principal amounts of any promissory notes issued to any of the Sellers in
connection with the Carmichael’s Acquisition or any of the sellers in connection
with a Permitted Acquisition shall be excluded from the determination of the
foregoing Indemnity Payment Deductibles; and

(d) any issuance of (i) Equity Interest in any Credit Party (other than pursuant
to stock options issued in accordance with stock option plans or other benefit
plans for management or employees of any Credit Party) or (ii) Indebtedness of
any Credit Party.

“Prepayment Fees”: As defined in Section 2.10.

“Privacy and Security Rules”: As defined in Section 4.13.

“Pro Rata Share”: With respect to all matters relating to any Lender (a) with
respect to the Revolving Loan, the percentage obtained by dividing (i) the
Revolving Commitment of that Lender by (ii) the aggregate Revolving Commitments
of all Lenders, (b) with respect to any Term Loan, the percentage obtained by
dividing (i) the applicable Term Loan of that Lender by (ii) the aggregate
applicable Term Loan of all Lenders, (c) with respect to all Loans, the
percentage obtained by dividing (i) the aggregate Revolving Commitments and Term
Loan of that Lender by (ii) the aggregate Revolving Commitments and Term Loans
of all Lenders, and (d) with respect to all Loans on and after the Termination
Date, the percentage obtained by dividing (i) the aggregate outstanding
principal balance of the Loans held by that Lender, by (ii) the outstanding
principal balance of the Loans held by all Lenders, as any such percentages may
be adjusted by assignments pursuant to Section 9.1.

“Prohibited Transaction”: The respective meanings assigned to such term in
Section 4975 of the Code and Section 406 of ERISA.

 

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“Qualifying Appraisal”: As defined in Section 2.17.

“Qualified Transferee”: (a) Any Lender or any Affiliate of any Lender that
extends or invests in commercial loans, and (b) any commercial bank, savings and
loan association or savings bank or any other entity having total assets in
excess of $500,000,000, which extends credit or buys loans as one of its
businesses, and which, through its applicable lending office, is capable of
lending to Borrowers without the imposition of any withholding or similar taxes;
provided that no Person proposed to become a Lender after the Original Closing
Date and reasonably determined by the Borrowers’ Agent to be acting in the
capacity of a vulture fund or distressed debt purchaser shall be a Qualified
Transferee.

“Rate Protection Agreement”: Any interest rate swap, cap or option agreement, or
any other agreement pursuant to which any Borrower hedges interest rate risk
with respect to a portion of the Obligations.

“Real Estate Collateral Coverage”: The amount equal to the net book value of the
Encumbered Real Estate, unless there exists a Qualifying Appraisal for such
property issued no more than three (3) years prior to any date of determination,
in which case the applicable amount shall be the appraised value.

“Receivables”: Any right to payment, whether constituting an account, chattel
paper, instrument, general intangible, payment intangible, healthcare insurance
receivable, contract or otherwise, arising from the sale, rental or lease of
healthcare goods or equipment, or the provision of services and any ancillary
sales, including all rights and remedies to payment relating thereto, together
with any and all proceeds in any way derived, directly or indirectly therefrom.
The term “Receivables” shall include amounts due under capitation and similar
agreements, amounts due the Borrowers for cost adjustments or undercharges for
prior services, amounts due as any part of a disproportionate share or risk
share payment, workmen’s compensation claims, or other right to payment for any
work, service, work in progress or other thing of value performed by the
Borrowers whether billed or not by the Borrowers, and any other claims to
payment held by the Borrowers.

“Receivables Collateral Coverage”: The amount equal to the Net Collectible Value
of all Eligible Receivables.

“Remittance Account”: As defined in Section 2.2.

“Reportable Event”: A reportable event as defined in Section 4043 of ERISA and
the regulations issued under such Section, with respect to a Plan, excluding,
however, such events as to which the PBGC by regulation has waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any waiver in accordance with
Section 412(d) of the Code.

 

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“Required Control Agreements”: The Control Agreements described on Schedule
1.1(b) hereto by and among the Agent and each Borrower, bank, issuer or
securities intermediary listed thereon.

“Required Lenders”: means Lenders having (a) 51% or more of the sum of the
Revolving Commitments of all Lenders plus the Term Loans held by all Lenders, or
(b) if the Revolving Commitments have been terminated, 51% or more of the
aggregate outstanding amount of the Loans.

“Required Revolving Lenders” means Revolving Lenders having (a) 51% or more of
the Revolving Commitments of all Revolving Lenders, or (b) if the Revolving
Commitments have been terminated, 51% or more of the aggregate outstanding
amount of the Revolving Loan.

“Restricted Payments”: With respect to any Borrower and its Subsidiaries,
collectively, (i) all dividends or other distributions of any nature (cash,
Equity Interests other than common stock of such Borrower, assets or otherwise),
(ii) all payments on any class of Equity Interests (including warrants, options
or rights therefor) issued by such Borrower, whether such Equity Interests are
authorized or outstanding on the Original Closing Date or at any time thereafter
and any redemption or purchase of, or distribution in respect of, any of the
foregoing, whether directly or indirectly, and (iii) all payments or prepayments
of interest on, principal of, premium, if any, fees, redemptions, conversions,
exchanges, purchases, retirements, defeasances, sinking fund or similar payments
with respect to, any Indebtedness subordinated in right of payment to the
Obligations.

“Revolving Commitment”: (a) As to any Lender, the obligation of such Lender to
make its Pro Rata Share of Advances to the Borrowers, which commitment shall be
as set forth on Annex A or in the most recent Assignment Agreement, if any,
executed by such Lender and (b) as to all Lenders, the obligations of all
Lenders to make the Advances, which aggregate commitment shall be equal to the
Revolving Commitment Amount on the Effective Date, as such amount may be
adjusted, if at all, from time to time in accordance with this Agreement.

“Revolving Commitment Amount”: Initially $12,000,000 but as the same may be
reduced from time to time, if at all, in accordance with this Agreement,
including pursuant to Section 2.8.

“Revolving Commitment Fees”: As defined in Section 2.9.

“Revolving Lenders”: Those Lenders having a Revolving Commitment or holding a
Revolving Loan.

“Revolving Loan” and “Revolving Loans”: As defined in Section 2.1(a).

“Revolving Note”: As defined in Section 2.1(a); one or more promissory notes of
the Borrowers evidencing the obligation of the Borrowers to repay the Revolving
Loan.

 

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“Security Agreement”: Security Agreement dated as of the Original Closing Date
made by the Credit Parties for the benefit of the Agent, on behalf of the
Beneficiaries, substantially in the form attached thereto as Exhibit D.

“Security Documents”: The Security Agreement, the Required Control Agreements
and any other Control Agreements, the Pledge Agreement, the Guaranty, the
Mortgages and any other security agreements, pledge agreements, control
agreements, mortgages, financing statements and other security documents entered
into by the parties hereto or any other Persons or authorized to be filed or
recorded pursuant to or in connection with this Agreement.

“Senior Officer”: As to any Person, the Chief Executive Officer, President,
Executive Vice President, Vice President, Chief Financial Officer, or
Controller, of such Person.

“Senior Leverage Ratio”: For any period of determination, the ratio of (i) Total
Debt as of the end of such period less Subordinated Debt as of the end of such
period to (ii) the sum of (A) Consolidated EBITDA for such period plus (B) with
respect to each Person and any of its Subsidiaries acquired in a Permitted
Acquisition during such period, the Consolidated Pro Forma EBITDA of such Person
and any of its Subsidiaries for all times during such period prior to the
acquisition of such Person and any of its Subsidiaries.

“Sellers” means Theodore S. Carmichael and Judy Chiasson Carmichael.

“SHSI”: SunLink Health Systems, Inc., an Ohio corporation.

“Specified Lien”: As defined in Section 8.18(j).

“Subordinated Debt”: Any Indebtedness of any Borrower, now existing or hereafter
created, incurred or arising, which is subordinated in right of payment to the
payment of the Obligations in a manner and to an extent (a) that the Agent have
approved in writing prior to the creation of such Indebtedness, or (b) as to any
Indebtedness of any Borrower existing on the date of this Agreement, that the
Agent have approved as Subordinated Debt in a writing delivered by the Agent to
the Borrowers’ Agent on or prior to the Original Closing Date.

“Subordinated Intercompany Note” Master Subordinated Intercompany Note, executed
by each Credit Party in favor of each other Credit Party, which is subordinated
to the payment of the Obligations in a manner satisfactory to Agent and having
other terms reasonably satisfactory to Agent, and which is pledged and delivered
to Agent, for the benefit of the Beneficiaries, as security for the Obligations.

“Subsidiary”: Any corporation or other entity of which Equity Interests having
ordinary voting power for the election of a majority of the board of directors
or other Persons performing similar functions are owned by any Credit Party
either directly or through one or more Subsidiaries, excluding Existing Foreign
Subsidiaries.

 

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“Taxes”: As defined in Section 2.16(a).

“Termination Date”: The earliest of (a) the seventh anniversary of the Original
Closing Date, (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.

“Term Loan”: As defined in Section 2.1(b).

“Term Loan Lenders” Those Lenders holding the Term Loan.

“Term Notes”: One or more Notes described in Section 2.1(b)(iii), evidencing the
obligation of the Borrowers to repay the Term Loan.

“Total Liabilities”: At the time of any determination, the amount, on a
consolidated basis, of all items of Indebtedness of the Borrowers and their
Subsidiaries that would constitute “liabilities” for balance sheet purposes in
accordance with GAAP.

“Total Debt”: At the time of any determination, the aggregate stated balance
sheet amount of the Funded Debt of the Borrowers and their Subsidiaries
determined on a consolidated basis.

“Total Outstandings”: At the time of any determination, the sum of the unpaid
principal balance of the Revolving Loan and the unpaid principal balance of the
Term Loan and all interest, cost or expenses due to the Agent and Lenders under
this Agreement and the other Loan Documents.

“Transactions Rule”: As defined in Section 4.13.

“TRICARE”: Collectively, a program of medical benefits covering former and
active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, which program was formerly known as
CHAMPUS (Civilian Health and Medical Program of the Uniformed Services), and all
laws, rules, regulations, manuals, orders and administrative, reimbursement and
other guidelines of all governmental authorities promulgated in connection with
such program (whether or not having the force of law), in each case as the same
may be amended, supplemented or otherwise modified from time to time.

“Type”: Relative to any Receivables, each applicable aging category (e.g., 0-30
days, 31-60 days, 61-90 days, etc.) up to and exceeding the Cut-off Period,
Obligor type (e.g., Medicare, Medicaid, MediCal, institutional payors,
commercial insurance payors, or individual/self pay (if applicable)), and/or
other category or subset of Receivables used by the Agent to calculate the Net
Collectible Value applicable to Receivables pursuant to the Agent’s NCV
calculation methodology described in Exhibit H.

“UCC”: The Uniform Commercial Code, as adopted in the State of Georgia, as
amended or supplemented from time to time.

 

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“UK Subsidiaries”: KRUG International (“U.K.”), Ltd., a company organized under
the laws of the United Kingdom, and Bradley International Holdings, Ltd., a
company organized under the laws of the United Kingdom.

“UK Obligations”: The inter-company payables and other obligations, including,
without limitation, any contingent obligations (including those arising under
certain preferred stock issued and outstanding to KRUG International (“U.K.”),
Ltd. by SunLink Healthcare Investments, Inc.) due from the Borrowers or any of
them to, or on behalf of, the UK Subsidiaries, as set forth on Schedule 6.15
hereto.

“Unused Revolving Commitment”: As of any date of determination, the amount by
which the Revolving Commitment Amount exceeds the principal amount of unpaid
Advances on such date.

“United States”: Shall have the meanings specified in Section 7701 of the
Internal Revenue Code.

“U.S. Taxes”: As defined in Section 2.16(e).

“Working Capital”: The amount of the excess, if any, of the Consolidated Current
Assets over the Consolidated Current Liabilities of the Borrowers.

Section 1.2 Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP. To the extent any change in GAAP affects any computation
or determination required to be made pursuant to this Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless the Borrowers and the Agent agree in writing on an adjustment to
such computation or determination to account for such change in GAAP.

Section 1.3 Computation of Time Periods. In this Agreement, in the computation
of a period of time from a specified date to a later specified date, unless
otherwise stated the word “from” means “from and including” and the word “to” or
“until” each means “to but excluding”.

Section 1.4 Other Definitional Terms. The words “hereof,” “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation.” Unless the context in which used herein otherwise clearly requires,
“or” has the inclusive meaning represented by the phrase “and/or.” All
incorporation by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and such incorporation shall include all necessary
definitions and related provisions from such other agreements but including only
amendments thereto agreed to by the Lenders required pursuant to Section 8.1
hereof, and shall survive any termination of such other agreements until the
obligations of the Borrowers under this Agreement and the Notes are irrevocably
paid in full, and the commitments of the Lenders to advance funds to any
Borrower are terminated. Whenever the word “knowledge” or a word of

 

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similar import relating to the knowledge or awareness of the Borrowers is used
in this Agreement or the other Loan Documents, such phrase shall mean or refer
to the actual knowledge of a Senior Officer of Borrower having responsibility
for such matters and assumes that each Borrower maintains and applies
appropriate policies and procedures to ensure that each Senior Officer is
advised of all material matters and occurrences within the responsibility of
such Senior Officer.

ARTICLE II

TERMS OF THE CREDIT FACILITIES

Section 2.1 Loans. On the terms and subject to the conditions hereof:

(a) Revolving Credit.

(i) Each Revolving Lender agrees, severally and not jointly, to make available
to the Borrowers jointly and severally its Pro Rata Share of advances (each, an
“Advance”) as part of a revolving loan facility (each a “Revolving Loan” and,
collectively, the “Revolving Loans”) on a revolving basis at any time and from
time to time from the Original Closing Date to the Termination Date, during
which period the Borrowers may borrow, repay and reborrow in accordance with the
provisions hereof as long as the amount of each such requested Advance does not
exceed Availability then in effect and each of the other conditions precedent in
Section 3.2 are satisfied; provided, however, that Borrowers shall not be
entitled to request more than one (1) Advance during any period of 7 consecutive
days without the consent of the Agent (it being understood and agreed that the
Revolving Loans made pursuant to Section 2.5(c) shall be disregarded for the
purposes of determining compliance with the foregoing limitation on requests) .
No Revolving Lender shall have any obligation to make, and the Borrowers shall
have no right to obtain or to permit to remain outstanding, any Advance or
Advances that would cause such Revolving Lender’s Pro Rata Share of the total
outstanding Advances to exceed its separate Revolving Commitment.

(ii) At the request of Agent on behalf of any Revolving Lender, the Borrowers
shall jointly and severally execute and deliver to Agent for delivery to such
Revolving Lender a note to evidence the Revolving Loans. The note shall be in
the principal amount of the Revolving Commitment of such Revolving Lender,
substantially in the form of Exhibit A (the “Revolving Note”).

(iii) The aggregate principal amount of Revolving Loan advanced to each Borrower
shall be the primary obligation of that Borrower (but shall also be guaranteed,
jointly and severally, by all other Borrowers pursuant to Section 8.18).

(b) Term Loan. On the Original Closing Date, each Term Loan Lender (as defined
in the Original Credit Agreement on such date), severally and not jointly, made
to Borrowers, jointly and severally, in one draw, its Pro Rata Share (as defined
in the Original Credit Agreement) of a term loan in an aggregate amount of
$35,000,000 (the “Term Loan”). The aggregate principal amount of Term Loan
outstanding on the Effective Date is $34,708,333.34.

 

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(i) The Borrowers, jointly and severally, shall repay the Term Loan through
periodic payments as indicated in Section 2.5(b) below.

(ii) The final installment of the Term Loan shall in all events equal the entire
remaining principal balance of the Term Loan and shall be due and payable in
full on the Termination Date. Amounts borrowed under this Section 2.1(b) and
repaid may not be reborrowed.

(iii) At the request of Agent on behalf of any Term Loan Lender, the Borrowers
shall jointly and severally execute and deliver to Agent for delivery to such
Term Loan Lender a promissory note substantially in the form of Exhibit B (“Term
Note”), to evidence the Term Loan in the amount of such Term Loan Lender’s Pro
Rata Share of the Term Loan. Each Term Note shall represent the joint and
several obligation of each Borrower to pay Term Loan, together with interest
thereon.

(iv) The aggregate principal amount of Term Loan advanced to each Borrower shall
be the primary obligation of that Borrower (but shall also be guaranteed,
jointly and severally, by all other Borrowers pursuant to Section 8.18).

Section 2.2 Procedure for Revolving Loans. Any request by the Borrowers’ Agent
for an Advance hereunder shall be in writing, or by telephone and in writing,
and must be given so as to be received by the Funding Agent (with a copy to the
Agent when in writing) not later than noon (New York time) two (2) Business Days
prior to the requested Advance Date. Each request for an Advance hereunder shall
be irrevocable and shall be deemed a representation by each Borrower that on the
requested Advance Date and after giving effect to the requested Advance the
applicable conditions specified in Article III have been and will be satisfied,
except for those conditions waived in writing by the Required Revolving Lenders
with respect to such request. Each request for an Advance hereunder shall
specify (i) the requested Advance Date and (ii) the amount of the Advance to be
made on such date which shall be in a minimum amount of $100,000 or, if more,
integral multiples of $100,000 in excess thereof. The Funding Agent may rely on
any telephone request by a Senior Officer of the Borrowers’ Agent for an Advance
hereunder which it believes in good faith to be genuine (provided that the
Borrowers’ Agent shall also be required to promptly confirm to the Funding Agent
each telephone request in writing, with a copy to the Agent); and each Borrower
hereby waives the right to dispute the Funding Agent’s record of the terms of
such telephone request. Unless the Required Revolving Lenders or the Agent
determine that any applicable condition specified in Article III has not been
satisfied, the Funding Agent will make available to the Borrowers’ Agent by
remittance to the deposit account designated by the Borrowers’ Agent from time
to time in writing to the Funding Agent, provided that such deposit account is
subject to a security interest in favor of the Agent, for the benefit of the
Beneficiaries, (the “Remittance Account”) in Immediately Available Funds not
later than 4:00 p.m. (New York time) on the requested Advance Date the amount of
the requested Advance.

Section 2.3 Records. The Funding Agent shall enter in its ledgers and records
(the “Funding Agent Loan Account”) the amount of the Term Loan and the Advances
made or distributed by the Funding Agent and the repayments thereon made to or
distributed by the Funding Agent, and the Agent shall enter in its ledgers and
records (the “Agent Loan Account”;

 

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and together with the Funding Agent Loan Account, the “Loan Accounts”) all other
the amount of the Term Loan and the Advances made and the repayments made
thereon. All entries in the Loan Accounts shall be made in accordance with the
customary accounting practices of the Funding Agent as in effect from time to
time. The balance in the Loan Accounts, as recorded on the most recent printout
or other written statement of the Funding Agent and the Agent, as the case may
be, shall, absent manifest error, be presumptive evidence of the amounts due and
owing to the Funding Agent, the Agent and Lenders by the Borrowers; provided
that any failure to so record or any error in so recording shall not limit or
otherwise affect Borrowers’ duty to pay the Obligations. Each Lender is
authorized by each Borrower to enter on a schedule attached to a Term Note or
the Revolving Note, as appropriate, a record of the Term Loan, Advances and
repayments; provided, however that the failure by any Lender to make any such
entry or any error in making such entry shall not limit or otherwise affect the
obligation of the Borrowers hereunder and on the Notes, and, in all events, the
principal amounts owing by the Borrowers in respect of the Revolving Note shall
be the aggregate amount of all Revolving Loans made by Lenders less all payments
of principal thereof made by the Borrowers and the principal amount owing by the
Borrowers in respect of the Term Notes shall be the aggregate amount of the Term
Loan less all payments of principal thereof made by the Borrowers.

Section 2.4 Interest Rates, Interest Payments and Default Interest.

(a) The Advances. Interest shall accrue and be payable on the Revolving Loans as
follows:

(i) Subject to subsection (a)(ii) below, each Advance shall bear interest on the
unpaid principal amount thereof at a varying rate per annum equal to the sum of
(A) the LIBOR Rate, plus (B) the Applicable Revolving Margin.

(ii) Upon the occurrence and during the continuation of an Event of Default,
each Advance shall, at the option of the Agent or Required Lenders, bear
interest at a rate per annum equal to the sum of (A) the LIBOR Rate, plus
(B) the Applicable Revolving Margin, plus (C) 2.0%.

(iii) Interest shall be payable (A) on the first Business Day of each month in
respect of the immediately preceding month, (B) upon any permitted prepayment
(on the amount prepaid) made in connection with a reduction of the Revolving
Commitment Amount, and (C) on the Termination Date; provided that interest under
subsection (a)(ii) of this Section shall be payable on demand.

(b) The Term Loan. Interest shall accrue and be payable on the Term Loan as
follows:

(i) Subject to subsection (b)(ii) below, the Term Loan shall bear interest on
the unpaid principal balance thereof at a varying rate per annum equal to the
sum of (A) the LIBOR Rate, plus (B) the Applicable Term Loan Margin.

(ii) Upon the occurrence and during the continuation of an Event of Default,
Term Loan shall, at the option of the Agent or Required Lenders, bear interest
at a rate per annum equal to the sum of (A) the LIBOR Rate, plus (B) the
Applicable Term Loan Margin, plus (C) 2.0%.

 

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(iii) Interest shall be payable (A) on the first Business Day of each month in
respect of the immediately preceding month; (B) upon any permitted prepayment
(on the amount prepaid); and (C) on the scheduled maturity date of the Term
Notes; provided that interest under subsection (b)(ii) of this Section shall be
payable on demand.

Section 2.5 Repayment.

(a) The unpaid principal balance of the Revolving Loan, together with all
accrued and unpaid interest thereon, shall be due and payable on the Termination
Date.

(b) The principal of the Term Loan shall be payable in (i) equal installments of
One Hundred Forty-Five Thousand Eight Hundred Thirty-Three Dollars and 33/100
cents ($145,833.33) on the first Business Day of each month and (ii) one balloon
payment on the Termination Date equal to any unpaid principal balance, together
with all accrued and unpaid interest.

(c) Each of the Borrowers hereby authorizes the Funding Agent and each Lender to
make a Revolving Loan to pay interest and principal and Revolving Commitment
Fees, in each instance, on the date due, and each of the Borrowers hereby
authorizes the Agent and each Lender to make a Revolving Loan to pay agent fees
on the date due and other fees, costs or expenses payable by any Borrower or any
of its Subsidiaries hereunder or under the other Loan Documents.

(d) All of the Obligations shall become due and payable as otherwise set forth
herein, but in any event all of the remaining Obligations shall become due and
payable upon the Termination Date. Until all Obligations have been fully paid
and satisfied (other than contingent indemnification obligations to the extent
no unsatisfied claim has been asserted) and the Revolving Commitment has been
terminated, Agent shall be entitled to retain the security interests in the
Collateral granted under the Security Documents and otherwise and the ability to
exercise all rights and remedies available to them under the Loan Documents and
applicable laws.

Section 2.6 Prepayments.

(a) Mandatory Prepayments for a Prepayment Event. If at any time a Prepayment
Event occurs, the Borrowers shall immediately repay the Loans in the amount of
(i) 100% of the net cash proceeds realized by a Prepayment Event described in
clause (a), clause (b) or clause (c) of the definition of the term “Prepayment
Event” and (ii) 50% of the net cash proceeds realized by a Prepayment Event
described in clause (d) of the definition of the term “Prepayment Event”. Any
such prepayments shall be applied to the Loans in accordance with
Section 2.6(e).

(b) Prepayments from Proceeds of Keyman Life Insurance. Any and all proceeds of
Keyman Life Insurance (whether such proceeds arise by reason of death benefit,
at

 

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maturity, surrendering the policy and receiving the surrender value thereof or
otherwise) shall be immediately used to prepay the Obligations in an amount
equal to such proceeds, which shall be applied in accordance with
Section 2.6(e).

(c) Other Mandatory Prepayments.

(i) If at any time Availability is less than zero Dollars ($0), the Borrowers
shall immediately pay to the Funding Agent, for the ratable benefit of the
Revolving Lenders, the amount of such deficiency to the extent of Revolving Loan
then outstanding.

(ii) If at any time a Change of Control shall occur (other than, so long as no
Event of Default has occurred and is continuing, a Change of Control resulting
from an acquisition of Borrowers by any one or more of Resurgence Health Group,
LLC and/or its affiliates, Berggruen Holdings North America Ltd. and/or its
affiliates) or Health Management Associates, Inc., the Borrowers shall
immediately prepay the Loans in full and terminate all Revolving Commitments
hereunder.

(d) Optional Prepayments. The Borrowers may prepay Advances or the Term Loan, in
whole or in part, at any time, subject to the payment of the fees specified in
Section 2.10, if applicable, upon prior written notice given by Borrowers’ Agent
and received by Funding Agent, with a copy to Agent, not later than 11 a.m. (New
York time) two Business Days prior to the date of the prepayment. Any such
prepayment of the Term Loan and any prepayments in full of all Advances and
termination of the Revolving Commitment shall be made to the Funding Agent, for
the ratable benefit of the applicable Lenders, and must be accompanied by
accrued and unpaid interest on the amount prepaid. Each partial prepayment on
the Term Loan shall be in a minimum amount of $100,000 or an integral multiple
thereof. Amounts paid (unless following an acceleration or upon termination of
the Revolving Commitment in whole) or prepaid on the Revolving Loan under this
subsection (d) may be reborrowed upon the terms and subject to the conditions
and limitations of this Agreement. Amounts prepaid on the Term Loan may not be
reborrowed.

(e) Application of Proceeds. With respect to any prepayments made by any
Borrower pursuant to Section 2.6(d), the Borrowers’ Agent may elect to have any
such prepayment applied to the Advances or the Term Loan. With respect to any
prepayments made by any Borrower pursuant to Section 2.6(c)(i), such prepayments
shall be applied to reduce the outstanding principal balance of the Advances
(without any reduction of the Revolving Commitment Amount). With respect to any
prepayments made by any Borrower pursuant to Section 2.6(a) or Section 2.6(b),
such prepayments shall first be applied in payment of the Term Loan, and, in
each instance, against remaining payments thereon in the inverse order of
maturity (starting with the balloon payment thereon due on the Termination Date)
and, at any time after Term Loan shall have been prepaid in full, such
prepayments shall, second, be applied to reduce the outstanding principal
balance of the Advances if applicable (without any reduction of the Revolving
Commitment Amount).

Section 2.7 Mandatory Prepayment of Term Loan from Excess Cash Flow. Within one
hundred twenty (120) days after the end of each fiscal year commencing with the
fiscal year

 

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ended June 30, 2009, Borrowers, jointly and severally, shall prepay the
outstanding principal of the Term Loan in an amount equal to twenty-five percent
(25%) of the Consolidated Excess Cash Flow for such fiscal year, which
prepayment shall be made to Funding Agent, for the ratable benefit of Lenders,
and shall be applied in payment of the Term Loan, and, in each instance, against
remaining payments thereon in the inverse order of maturity (starting with the
balloon payment thereon due on the Termination Date) until the Term Loan shall
have been prepaid in full. The calculation shall be based on the consolidated
audited Financial Statements for the Borrowers and their Subsidiaries. Such
prepaid amounts may not be reborrowed.

Section 2.8 Optional Reduction of Revolving Commitment Amount or Termination of
Revolving Commitment. The Borrowers may, at any time, upon not less than three
(3) Business Days prior written notice from the Borrowers’ Agent to the Funding
Agent, with a copy to the Agent, reduce the Revolving Commitment Amount with any
such reduction in a minimum amount of $500,000, or, if more, in integral
multiples of $100,000 in excess thereof; provided, however, that the Borrowers
may not at any time reduce the Revolving Commitment Amount below the unpaid
principal balance of the Revolving Loan. The Borrowers’ Agent may, at any time,
upon not less than three (3) Business Days prior written notice from the
Borrowers’ Agent to the Funding Agent, with a copy to the Agent, terminate the
Revolving Commitment in its entirety. Upon termination of the Revolving
Commitment pursuant to this Section, the Borrowers shall pay to the Funding
Agent the full amount of all outstanding Advances, all accrued and unpaid
interest thereon, all unpaid Revolving Commitment Fees accrued to the date of
such termination, all Prepayment Fees, if applicable, and all other unpaid
Obligations of the Borrowers to the Agent, Funding Agent and Lenders hereunder.

Section 2.9 Revolving Commitment Fee. From the Original Closing Date until all
Advances have been paid in full and the Revolving Commitments have expired or
been terminated, the Borrowers shall pay, without duplication of any such fee
paid pursuant to the Original Credit Agreement, to the Funding Agent for the
account of the Revolving Lenders fees (the “Revolving Commitment Fees”) in an
amount determined by applying a rate of 0.30% per annum to the average daily
Unused Revolving Commitment during the period for which such fee is due. Such
Revolving Commitment Fees are payable in arrears monthly on the first Business
Day of each month in respect of the immediately preceding month and on the
Termination Date.

Section 2.10 Prepayment Fee. If any Borrower pays after acceleration or prepays
all or any portion of the Term Loan or prepays the Revolving Loan and terminates
or reduces the Revolving Commitment, whether voluntarily or involuntarily and
whether before or after acceleration of the Obligations or if any of the
Revolving Commitments are terminated as a result of the occurrence of an Event
of Default or otherwise, Borrower shall pay to Funding Agent, for the benefit of
Lenders, as liquidated damages and compensation for the costs of being prepared
to make funds available hereunder a fee (the “Prepayment Fee”) in an amount
equal to the Applicable Percentage (as defined below) multiplied by the sum of
(i) the principal amount of the Term Loan paid after acceleration or prepaid,
and (ii) the amount of the Revolving Commitment terminated or reduced. As used
herein, the term “Applicable Percentage” shall mean (w) two percent (2.0%), in
the case of a prepayment on or prior to the first anniversary of the Original
Closing Date, (x) one and a half percent (1.5%), in the case of a prepayment
after the first anniversary of the Original Closing Date but prior to the second
anniversary thereof, (y) one percent (1.0%), in the case of a prepayment after
the second anniversary of the Original

 

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Closing Date but prior to the third anniversary thereof and (z) thereafter no
prepayment fee shall be payable. The Credit Parties agree that the Applicable
Percentages are a reasonable calculation of Lenders’ lost profits in view of the
difficulties and impracticality of determining actual damages resulting from an
early termination of the Revolving Commitments and the related loan facility
provided hereunder. Notwithstanding the foregoing, no Prepayment Fee shall be
payable by Borrowers upon a repayment made pursuant to Section 2.5(b), a
mandatory prepayment made pursuant to Section 2.6(a), 2.6(b), 2.6(c)(i) or 2.7
or a repayment of Advances without a simultaneous reduction in or termination of
the Revolving Commitment, provided that Borrowers do not terminate the Revolving
Commitment upon any such prepayment and, in the case of prepayments made
pursuant Section 2.6(a), the transaction giving rise to the applicable
prepayment is expressly permitted under Section 6.2.

Section 2.11 Fee Letter. Borrowers shall pay to Chatham, for the account of
Chatham, the fees specified in that certain fee and syndication letter dated on
or about the Original Closing Date among Borrowers and Chatham (the “Chatham Fee
Letter”), at the times specified for payment therein; it being acknowledged by
Chatham that those fees that were payable pursuant thereto on the Original
Closing Date have been paid by the Borrowers on the Original Closing Date.

Section 2.12 Computation. The Fees and interest on the Loans shall be computed
on the basis of actual days elapsed and a year of 360 days.

Section 2.13 Payments.

(a) Payments and prepayments of principal of, and interest on, the Loans under
Sections 2.4(a), 2.4(b), 2.5(a), 2.5(b), 2.6(c)(i), 2.6(d), and 2.7, all
Revolving Commitment Fees under Section 2.9 and all Prepayment Fees under
Section 2.10 payable to the Funding Agent and/or Lenders shall be made without
setoff or counterclaim in Immediately Available Funds not later than 1:00 p.m.
(New York time) on the dates called for under this Agreement to the Funding
Agent for the benefit of the Funding Agent, Agent and/or Lenders, as applicable,
in accordance with the wire instructions set forth on the attached Exhibit K-1
or to such other account as the Funding Agent may from time to time designate in
writing. Funds received after such time shall be deemed to have been received on
the next Business Day. Whenever any payment to be made hereunder shall be stated
to be due on a day which is not a Business Day, such payment shall be made on
the next succeeding Business Day and such extension of time, in the case of a
payment of principal, shall be included in the computation of any interest on
such principal payment.

(b) All other payments and other obligations under this Agreement and the other
Loan Documents payable to the Agent and/or Lenders shall be made without setoff
or counterclaim in Immediately Available Funds not later than 1:00 p.m. (New
York time) on the dates called for under this Agreement to the Agent for the
benefit of the Agent, Funding Agent and/or Lenders, as applicable, in accordance
with the wire instructions set forth on the attached Exhibit K-2 or to such
other account as the Agent may from time to time designate in writing. Funds
received after such time shall be deemed to have been received on the next
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time, in the case of a payment of
principal, shall be included in the computation of any interest on such
principal payment.

 

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Section 2.14 Use of Loan Proceeds. The proceeds of Term Loan shall be used for
refinancing the Borrower’s existing Indebtedness, funding the payment of the
purchase price for the Carmichael’s Acquisition (and any related transaction
expenses), funding the payment of fees and expenses hereunder and for general
business purposes in a manner not in conflict with any of the Borrowers’
covenants in this Agreement, but excluding funding of Permitted Acquisitions.
The proceeds of the Advances shall be used for refinancing the Borrower’s
existing indebtedness, funding the payment of fees and expenses hereunder,
funding the payment of expenses relating to Carmichael’s Acquisition and general
business purposes in a manner not in conflict with any of the Borrowers’
covenants in this Agreement, but excluding funding of Permitted Acquisitions.

Section 2.15 Adjustment of NCV. Until notice of a change has been delivered to
Borrowers’ Agent by the Agent, the applicable NCV of Eligible Receivables by
Obligor Type shall be as set forth in Exhibit H. The Agent has the right, in its
reasonable credit judgment, to adjust any applicable NCV Percentage at any time,
based upon the criteria, and in accordance with the Agent’s methodology of
calculating such NCV, as set forth in Exhibit H. Each change in any NCV shall be
effective immediately upon receipt by the Borrowers’ Agent of the Agent’s
notification of such change.

Section 2.16 Taxes.

(a) Any and all payments by the Borrowers hereunder or under the Notes shall be
made free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of the Agent, the Funding Agent and
Lenders, taxes imposed on its overall net income and franchise taxes imposed on
it in lieu of net income taxes (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as “Taxes”).

(b) The Borrowers agree to pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or under the Notes or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement
or the Notes (hereinafter referred to as “Other Taxes”).

(c) The Borrowers shall indemnify the Agent, the Funding Agent and Lenders for
the full amount of Taxes or Other Taxes imposed on or paid by the Agent, the
Funding Agent or any Lender and any penalties, interest and expenses with
respect thereto. Payments on this indemnification shall be made within 30 days
from the date the Agent, the Funding Agent and such Lender makes written demand
therefor.

(d) The Borrowers shall furnish to the Agent, upon the Agent’s request, at the
Agent’s address referred to on the signature page hereof a certified copies of
receipts evidencing payment of Taxes.

 

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(e) If any Borrower shall be required by law or regulation to make any
deduction, withholding or backup withholding of any taxes, levies, imposts,
duties, fees, liabilities or similar charges of the United States, any
possession or territory of the United States (including the Commonwealth of
Puerto Rico) or any area subject to the jurisdiction of the United States (“U.S.
Taxes”) from any payments to the Agent, the Funding Agent or any Lender pursuant
to any Loan Document in respect of the Obligations payable to the Agent, the
Funding Agent or any Lender then or thereafter outstanding, such Borrower shall
make such withholdings or deductions and pay the full amount withheld or
deducted to the relevant taxation authority or other authority in accordance
with applicable law, unless such payments are being diligently contested and
such Borrower has established adequate reserves with respect to such amounts,
but in any event, the sum payable hereunder shall be increased as may be
necessary so that, after making all required withholdings or deductions, such
Lender or Agent receives an amount equal to the sum it would have received had
no such withholding or deductions been made.

Section 2.17 Appraisals. The Agent, in its reasonable credit judgment, may, and
upon the written request of the Borrowers’ Agent will, obtain an appraisal of
any Encumbered Real Estate, Encumbered Equipment or Eligible Inventory from an
AMI certified appraiser reasonably satisfactory to the Agent and the Borrowers’
Agent in case of the Encumbered Real Estate and any experienced equipment or
inventory appraiser reasonably satisfactory to the Agent and the Borrowers’
Agent in case of the Encumbered Equipment or Eligible Inventory, each of which
shall be conducted on a “going concern” basis in the case of assets of any
Borrower that is a going concern and otherwise on an orderly liquidation value
basis (a “Qualifying Appraisal”). Upon obtaining any such Qualifying Appraisal,
the Agent shall notify the Borrowers’ Agent of the appraised value of the
property that is the subject thereof and upon such notification such appraised
value shall be used to determine the Collateral Coverage Ratio for one year
after the date of the issuance of the appraisal in the case of Encumbered Real
Estate and Encumbered Equipment, and three months in the case of Eligible
Inventory, except as otherwise provided herein. Unless an Event of Default has
occurred and is continuing, (a) the Borrowers shall be responsible only for the
payment of costs and expenses for a Qualified Appraisal requested by it and
(b) no more than one appraisal shall be conducted for any particular item of
Collateral during each calendar year in the case of Encumbered Real Estate and
Encumbered Equipment, and each calendar quarter in the case of Eligible
Inventory. If an Event of Default has occurred and is continuing the Borrowers
shall be responsible for the payment of costs and expenses for a Qualified
Appraisal.

Section 2.18 Wire Transfer Fee. The Borrowers shall pay to the Agent and the
Funding Agent, as the case may be, $20.00 for each wire transfer initiated by
the Agent and the Funding Agent, as the case may be, in connection with this
Agreement.

Section 2.19 Application and Allocation of Payments. So long as no Event of
Default has occurred and is continuing, (i) payments matching specific scheduled
payments then due shall be applied to those scheduled payments; (ii) voluntary
prepayments shall be applied in accordance with the provisions of Section 2.6(d)
and (iii) mandatory prepayments shall be applied as set forth in Section 2.6(e).
All payments and prepayments applied to a particular Loan shall be applied
ratably to the portion thereof held by each Lender as determined by its Pro Rata
Share. As to any other payment, and as to all payments made when an Event of
Default has occurred and is continuing or following the Termination Date,
Borrowers hereby irrevocably

 

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waives the right to direct the application of any and all payments received from
or on behalf of any Borrower, and Borrowers hereby irrevocably agrees that Agent
shall have the continuing exclusive right to apply any and all such payments
against the Obligations as Agent may deem advisable. In all circumstances, after
acceleration or maturity of the Obligations, all payments and proceeds of
Collateral shall be applied to amounts then due and payable in the following
order: (1) to Fees and Agent’s expenses reimbursable hereunder; (2) to interest
on the Loans, ratably in proportion to the interest accrued as to each Loan;
(3) to principal payments on the Loans, ratably to the aggregate, combined
principal balance of the Loans and (4) to all other Obligations including
expenses of Lenders to the extent reimbursable hereunder.

Section 2.20 Yield Protection. In the event that any Lender shall have
determined that the adoption after the Effective Date of any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy, reserve requirements or similar
requirements (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) from any central bank or governmental
agency or body having jurisdiction does or shall have the effect of increasing
the amount of capital, reserves or other funds required to be maintained by such
Lender or any corporation controlling such Lender and thereby reducing the rate
of return on such Lender’s or such corporation’s capital as a consequence of its
obligations hereunder, then Borrowers shall from time to time within fifteen
(15) days after notice and demand from such Lender (together with the
certificate referred to in the next sentence and with a copy to the Agent and
the Funding Agent) pay to the Funding Agent, for the account of such Lender,
additional amounts sufficient to compensate such Lender for such reduction. A
certificate as to the amount of such cost and showing the basis of the
computation of such cost submitted by such Lender to Borrowers’ Agent and the
Funding Agent shall, absent manifest error, be final, conclusive and binding for
all purposes.

ARTICLE III

CONDITIONS PRECEDENT

Section 3.1 Conditions Precedent to Effectiveness. The effectiveness of this
Agreement, including the making of any Advance on the Revolving Loan on the
Effective Date, shall be subject to the prior or simultaneous fulfillment of the
following conditions, unless waived in writing by the Agent and Lenders:

(a) Documents. The Agent shall have received the following:

(i) Counterparts to this Agreement, duly executed by Borrowers, each other
Credit Party, Funding Agent, Agent and Lenders;

(ii) The Revolving Notes and Term Notes, as requested by Lenders, executed by a
duly authorized officer (or officers) of the Borrowers.

(iii) A certificate of the Secretary or Assistant Secretary (or other
appropriate officer), of the Borrower’s Agent, on behalf of each Credit Party
dated as of the Effective Date and certifying to the following:

(A) A true and accurate copy of the corporate (or other) resolutions of each
Credit Party authorizing the execution, delivery and performance of the Loan
Documents to which such Credit Party is a party contemplated hereby and thereby;

 

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(B) The incumbency, names, titles and signatures of the officers of each Credit
Party authorized to execute the Loan Documents to which such Credit Party is a
party and, in the case of the Borrowers’ Agent to request Advances (or a
certification that there has been no change to such incumbency name, title and
signature of the respective officers from the date such incumbency was last
delivered to Agent and certified to be correct and complete);

(C) A true and accurate copy of the Articles of Incorporation or Certificate of
Incorporation (or the equivalent) of each Credit Party with all amendments
thereto, certified by the appropriate governmental official of the jurisdiction
of organization as of a date not more than thirty (30) days prior to the
Effective Date (or a certification that there have been no changes to such
Articles of Incorporation or Certificate of Incorporation (or the equivalent)
from the date such Articles of Incorporation or Certificate of Incorporation (or
the equivalent) (or a copy thereof) was last delivered to the Agent and
certified to be complete and correct); and

(D) A true and accurate copy of the bylaws (or other constitutive documents) for
each Credit Party (or a certification that there have been no changes to such
bylaws (or other constitutive documents) from the date such bylaws (or other
constitutive documents) (or a copy thereof) was last delivered to the Agent and
certified to be complete and correct).

(iv) A certificate dated the Effective Date of the chief executive officer or
chief financial officer (or other appropriate officer) of the Borrower’s Agent
on behalf of each Credit Party, certifying that (x) with respect to each Credit
Party (other than the Carmichael’s Entity) there has been no Material Adverse
Occurrence since June 30, 2007, (y) with respect to each Carmichael Entity that
there has been no Material Adverse Occurrence since December 31, 2007, and
(z) the conditions set forth in Section 3.2(a) and Section 3.2(b) below have
been satisfied.

(b) Compliance. Each Credit Party shall have performed and complied with all
agreements, terms and conditions contained in this Agreement required to be
performed or complied with by such Credit Party prior to or simultaneously with
the Effective Date.

(c) Other Matters. All corporate and legal proceedings relating to the Credit
Parties and all instruments and agreements in connection with the transactions
contemplated by this Agreement shall be satisfactory in scope, form and
substance to the Agent and its counsel, and the Agent shall have received all
information and copies of all documents, including records of corporate
proceedings, as the Agent or its counsel may reasonably have requested in
connection therewith, such documents where appropriate to be certified by proper
corporate or governmental authorities.

 

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(d) Assignment of Original Loans. All Lenders on the Effective Date that are not
Original Lenders shall have purchased, for a purchase price equal to the
principal amount thereof, from the Original Lenders their Pro Rata Share of the
Original Loans and other Original Obligations. Upon such purchase, such Original
Loans shall be assigned to such Lenders. The purchase price shall be allocated
among such Original Lenders according to their “Pro Rata Share” thereof, under
and as defined in the Original Credit Agreement.

Any one or more of the conditions set forth above which have not been satisfied
by the Borrowers on or prior to the Effective Date shall not be deemed
permanently waived by the Agent and Lenders unless the Agent and Lenders shall
waive the same in a writing which expressly states that the waiver is permanent,
and in all cases in which the waiver is not stated to be permanent the Agent and
Lenders may at any time subsequent thereto insist upon compliance and
satisfaction of any such condition as a condition to any subsequent Loan
hereunder and failure by the Borrowers to comply with any such condition within
five (5) Business Day’s written notice from the Agent to the Borrowers’ Agent
shall constitute an Event of Default under this Agreement.

Section 3.2 Conditions Precedent to the Term Loan and all Advances. The
obligation of the Lenders to make any Advances hereunder are further conditioned
upon the satisfaction of the following, except those conditions waived by the
Agent and Lenders (with respect to conditions to be satisfied on the Effective
Date) and by the Agent and Required Revolving Lenders (with respect to
conditions to be satisfied on the date of each Advance) in writing:

(a) Representations and Warranties. The representations and warranties contained
in Article IV 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
and as of the Original Closing Date, Effective Date and on the date of each
Advance, as the case may be, 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.

(b) No Default. No Default or Event of Default shall have occurred and be
continuing on the Effective Date and on the date of each Advance, as the case
may be, or will exist after giving effect to the Loans made on such date.

(c) Notices and Requests; Borrowing Base Certificate. The Funding Agent (with a
copy to the Agent) shall have received the Borrowers’ Agent’s request for
Advance as required under Section 2.2, accompanied by a Borrowing Base
Certificate and a certificate of the chief financial officer of SHSI certifying
that after giving effect to such requested Advance, the outstanding amount of
the Revolving Loan would not exceed the remaining Availability.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

To induce the Agent and Lenders to enter into this Agreement and the Lenders to
make Term Loan and Advances hereunder, each Borrower and each other Credit Party
executing this Agreement, jointly and severally, represents and warrants to the
Agent and each Lender for itself and each other Borrower and Credit Party that
as of the Original Closing Date:

 

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Section 4.1 Organization, Standing, Etc. Each Credit Party is a duly organized
and validly existing and in good standing under the laws of the jurisdiction of
its organization. Each Credit Party has all requisite power and authority to
carry on its business as now conducted, to enter into this Agreement and to
perform its obligations under the Loan Documents, and each Borrower has all
requisite power and authority to issue the Notes. Each Subsidiary is duly
organized and validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority to
carry on its business as now conducted. Each of the Credit Parties and
Subsidiaries is duly qualified and in good standing as a foreign corporation (or
other organization) in each jurisdiction in which the character of the
properties owned, leased or operated by it or the business conducted by it makes
such qualification necessary and the failure so to qualify would reasonably be
expected to result in or be a Material Adverse Occurrence.

Section 4.2 Authorization and Validity. The execution, delivery and performance
by each Credit Party of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action by such Credit Party. This
Agreement constitutes, and the Notes and other Loan Documents when executed will
constitute, the legal, valid and binding obligations of each Credit Party
executing the same, enforceable against each Borrower in accordance with their
respective 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.

Section 4.3 No Conflict; No Default. The execution, delivery and performance by
each Credit Party of the Loan Documents 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 Borrower, (b) violate or
contravene any provision of the Articles or Certificates of Incorporation,
bylaws 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. No Credit Party nor any Subsidiary is in default under or in
violation of any such law, statute, rule or regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture, loan or credit
agreement or other agreement, lease or instrument in any case in which the
consequences of such default or violation would reasonably be expected to
constitute a Material Adverse Occurrence.

Section 4.4 Government Consent. 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, the Loan Documents, except for any necessary filing
or recordation of or with respect to any of the Security Documents. 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 Subsidiary to authorize,

 

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or is required in connection with the execution, delivery and performance of, or
the legality, validity, binding effect or enforceability of, the Loan Documents
to which it is a party, except for any necessary filing or recordation of or
with respect to any of the Security Documents.

Section 4.5 Financial Statements and Condition.

(a) All annual and quarterly financial statements delivered by the Credit
Parties to the Agent or any Lender (including, without limitation, all such
financial statements delivered in connection with the Agent’s or Lenders’ due
diligence and underwriting with respect to this transaction), have been prepared
in accordance with GAAP on a consistent basis (except for the absence of
footnotes and subject to year-end audit adjustments as to the interim
statements) and fairly present the financial condition of the Credit Parties and
their Subsidiaries as at such dates and the results of their operations and
changes in financial position for the respective periods then ended. All monthly
financial statements delivered by the Credit Parties to the Agent or any Lender
(including, without limitation, all such financial statements delivered in
connection with the Agent’s or Lenders’ due diligence and underwriting with
respect to this transaction) fairly present the financial condition of the
Credit Parties and their Subsidiaries as at such dates and the results of their
operations for the respective periods then ended. As of the dates of such
financial statements, no Credit Party or any Subsidiary had any material
obligation, contingent liability, liability for taxes or long-term lease
obligation which is not reflected in such financial statements or in the notes
thereto. With respect to the Credit Parties, other than the Carmichael’s Entity,
since June 30, 2007, there has been no Material Adverse Occurrence and with
respect to the Carmichael’s Entity, since December 31, 2007, there has been no
Material Adverse Occurrence.

(b) All financial projections and certificates delivered by the Credit Parties
to the Agent or any Lender (including, without limitation, all such financial
information delivered in connection with the Agent’s or Lenders’ due diligence
and underwriting with respect to this transaction) have been prepared in good
faith, based on assumptions which, in the reasonable opinion of the Credit
Parties, were reasonable when made and reflect, in the reasonable opinion of the
Credit Parties, reasonable estimates of the results of operation and other
information projected therein. To the knowledge of the Credit Parties, no facts
exist that (individually or in the aggregate) would result in any material
change in any of such projections.

Section 4.6 Litigation. Except as set forth on Schedule 4.6, there are no
actions, suits or proceedings pending or, to the knowledge of any Credit Party,
threatened against or affecting any Credit Party or any Subsidiary or any of
their properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which, if determined adversely to any
Credit Party or any Subsidiary, would constitute a Material Adverse Occurrence,
and there are no unsatisfied judgments against any Credit Party or Subsidiary,
the satisfaction or payment of which would constitute a Material Adverse
Occurrence.

Section 4.7 Conduct of Business; Permits. The primary business of the Credit
Parties is, and will at all times continue to be, the provision of healthcare
services, healthcare products, ancillary healthcare support and/or healthcare
goods and equipment. The Credit Parties have all necessary permits, licenses,
agreements, accreditations, certifications, contracts and governmental consents
necessary to operate and conduct their business as it is presently being
conducted, subject to minor exceptions and deficiencies which would not
reasonably be expected to result in a Material Adverse Occurrence.

 

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Section 4.8 Environmental, Health and Safety Laws. There does not exist any
violation by any Credit Party or any Subsidiary of any applicable federal, state
or local law, rule or regulation or order of any government, governmental
department, board, agency or other instrumentality relating to environmental,
pollution, health or safety matters which has, will or threatens to impose a
material liability on a Credit Party or a Subsidiary or which has required or
would require a material expenditure by a Credit Party or a Subsidiary to cure.
No Credit Party nor any Subsidiary has received any notice to the effect that
any part of its operations or properties is not in material compliance with any
such law, rule, regulation or order or notice that it or its property is the
subject of any governmental investigation evaluating whether any remedial action
is needed to respond to any release of any toxic or hazardous waste or substance
into the environment, which non-compliance or remedial action would reasonably
be expected to constitute a Material Adverse Occurrence. Except as set out on
Schedule 4.8 attached hereto, no Credit Party has knowledge that it or its
property or any Subsidiary or the property of any Subsidiary will become subject
to environmental laws or regulations during the term of this Agreement,
compliance with which would reasonably be expected to require Capital
Expenditures which would constitute a Material Adverse Occurrence.

Section 4.9 Compliance With Health Care Laws.

(a) Except as set forth on Schedule 4.9, each Credit Party, and to the knowledge
of each Credit Party, its officers, directors and employees and each of its
respective Subsidiaries has complied in all material respects during the past
six years and presently complies in all material respects with all applicable
statutes, laws, ordinances, rules and regulations of all applicable governmental
authorities affecting the conduct of each Credit Party and its respective
Subsidiaries with respect to its health care businesses (including, without
limitation, all applicable Health Care Laws).

(b) Each Credit Party and each of its respective Subsidiaries has maintained in
all material respects all records required to be maintained by the Joint
Commission on Accreditation of Health Care Organizations (if necessary for the
services provided by any Borrower or for any program in which any of them
participate), the Food and Drug Administration, Drug Enforcement Agency, State
Boards of Pharmacy and the Medicare, Medicaid and other governmental health care
programs as and as to the extent required by the Health Care Laws. Each Credit
Party and each of its respective Subsidiaries has all applicable permits,
approvals, accreditations and other authorizations of Governmental Authorities
and other Persons (including, without limitation, such permits, approvals,
accreditations and other authorizations as are required under Health Care Laws)
to participate in and receive reimbursement under Medicare, Medicaid and other
governmental health care programs.

(c) None of the Credit Parties nor any of their respective Subsidiaries is or,
to the best knowledge of each Credit Party and each of its respective
Subsidiaries, is likely to become the subject of audits outside of the ordinary
course, investigations, restrictions, deficiencies, required plans of corrective
action, corporate integrity agreements or other such remedial measures with
respect to Medicare and/or Medicaid certifications, licensure or the

 

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Health Care Laws. None of the Credit Parties nor any of their respective
Subsidiaries, officers and/or directors has been convicted of, charged with or
investigated for any material Medicare, Medicaid or other governmental health
program-related offense, or have been debarred, excluded or suspended from
participation in Medicare, Medicaid or any other governmental health care
program, or has been subject to any order or consent decree of, or material
criminal or civil fine or penalty imposed by, any court or governmental
authority related to the Health Care Laws. Each Credit Party and each of its
respective Subsidiaries is in compliance with Medicare Conditions of
Participation, is a participating provider in good standing with Medicare and
Medicaid, and has no knowledge of any material overpayments from Medicare or
another governmental health care program other than those for which appropriate
reserves have been taken on the books and records of the Credit Parties. None of
the Credit Parties nor any of their respective Subsidiaries have arranged or
contracted with (by employment or otherwise) any individual or entity that any
Credit Party or any of its Subsidiaries knows or should know is excluded from
participation in a federal health care program, as defined in 42 U.S.C. §
1320a-7b(f), for the provision of items or services for which payment may be
made under such federal health care program. To the best knowledge of each
Credit Party and each of its respective Subsidiaries, there is no basis upon
which any of the Credit Parties or any of their respective Subsidiaries may be
subject to permissive exclusion from participation in a federal health care
program pursuant to 42 C.F.R. 1001.1001.

(d) Compliance Program. The Credit Parties and each of their respective
Subsidiaries have in place compliance policies and procedures designed to ensure
compliance with the Health Care Laws.

Section 4.10 Compliance with Health Plans. None of the Credit Parties nor any of
their respective Subsidiaries are in material default or breach under any
agreement or arrangement with any nongovernmental health plan, insurance
company, employer or third party payor that is currently doing business with a
Credit Party or its respective Subsidiaries (collectively, “Third Party Payors”
and individually, “Third Party Payor”). Each Credit Party and each of its
respective Subsidiaries has provided services and billed all Third Party Payors
for such services in material compliance with its agreement and arrangement with
such Third Party Payors, as well as any applicable rules and regulations of such
Third Party Payors. None of the Credit Parties nor any of their respective
Subsidiaries have received notice that any Third Party Payor intends to
terminate, limit or restrict its relationship with any of the Credit Parties or
their respective Subsidiaries.

Section 4.11 Physician Agreements. None of the Credit Parties nor any of their
respective Subsidiaries have in place any agreement, contract or other
arrangement with any physician or physician group other than those in writing
that are in substantial compliance with the form agreements provided to the
Agent prior to the Original Closing Date.

Section 4.12 Funds from Restricted Grants. Except as described on Schedule 4.12,
none of the Collateral is subject to, and each of the Credit Parties shall
indemnify and hold the Agent and Lenders harmless from and against, any
liability in respect of amounts received by any Credit Party, any of their
respective Subsidiaries or others for the purchase or improvement of the
Collateral or any part thereof under restricted or conditioned grants or
donations, including, without limitation, monies received under the Public
Health Service Act, 42 U.S.C. Section 291 et seq.

 

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Section 4.13 HIPAA Compliance. To the extent applicable to a Credit Party and
for so long as (a) any of the Credit Parties or any of their respective
Subsidiaries is a “covered entity” as defined in 45 C.F.R. § 160.103, (b) any
Credit Party, any Subsidiary of any Credit Party and/or any of their respective
businesses or operations are subject to or covered by the HIPAA Administrative
Requirements codified at 45 C.F.R. Parts 160 & 162 (the “Transactions Rule”)
and/or the HIPAA Security and Privacy Requirements codified at 45 C.F.R. Parts
160 & 164 (the “Privacy and Security Rules”), and/or (c) any Credit Party or any
Subsidiary of a Credit Party sponsors any “group health plans” as defined in 45
C.F.R. § 160.103, the applicable Credit Party or Subsidiary of a Borrower, as
the case may be has: (i) completed, or will complete on or before any applicable
compliance date, thorough and detailed surveys, audits, inventories, reviews,
analyses and/or assessments, including risk assessments, (collectively
“Assessments”) of all material areas of its business and operations subject to
HIPAA and/or that would reasonably be expected to be materially and adversely
affected by the failure of a Credit Party or Subsidiary of a Credit Party, as
the case may be, to be HIPAA Compliant to the extent these Assessments are
appropriate or required for a Borrower or Subsidiary of a Credit Party, as the
case may be, to be HIPAA Compliant; (ii) developed, or will develop on or before
any applicable compliance date, a detailed plan and time line for becoming HIPAA
Compliant (a “HIPAA Compliance Plan”); and (iii) implemented, or will implement
on or before any applicable compliance date, those provisions of its HIPAA
Compliance Plan necessary to ensure that such Credit Party or Subsidiary of a
Credit Party, as the case may be, is HIPAA Compliant.

Section 4.14 ERISA. Each Plan is in substantial compliance with all applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
reasonably be expected to result in the institution of proceedings to terminate
any Plan under Section 4042 of ERISA. With respect to each Plan subject to Title
IV of ERISA (other than the KRUG Pension Plan), as of the most recent valuation
date for such Plan, the present value (determined on the basis of reasonable
assumptions employed by the independent actuary for such Plan and previously
furnished in writing to the Agent) of such Plan’s projected benefit obligations
did not exceed the fair market value of such Plan’s assets. With respect to the
KRUG Pension Plan, the amount by which the present value of such Plan’s benefit
obligations (determined as of March 31, 2008 on a plan termination basis using
GATT assumptions) exceeds the fair market value of the Plan’s assets, is set
forth on Schedule 4.14 (hereinafter, the “KRUG Pension Plan Deficiency”).

Section 4.15 Federal Reserve Regulations. No Credit Party nor any Subsidiary is
engaged principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Board). The value of all margin stock owned by
each Credit Party does not constitute more than 25% of the value of the assets
of such Credit Party.

 

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Section 4.16 Title to Property; Leases; Liens; Subordination. Each Credit Party
and each Subsidiary has (a) good and marketable fee simple title or leasehold
estate in and to the Encumbered Real Estate and (b) good and sufficient title to
the Collateral other than Encumbered Real Estate. Schedule 4.16 is a list of all
real properties owned or leased by the Credit Party and their Subsidiaries as of
the Original Closing Date. None of the Encumbered Real Estate is subject to a
Lien, except for Permitted Encumbrances. No Credit Party has subordinated any of
its rights in and to that portion of the Collateral constituting an obligation
owing to it to the rights of any other Person.

Section 4.17 Taxes. Each Credit Party and each Subsidiary has filed all federal,
state and local tax returns required to be filed and has paid or made provision
for the payment of all taxes due and payable pursuant to such returns and
pursuant to any assessments made against it or any of its property and all other
taxes, fees and other charges imposed on it or any of its property by any
governmental authority (other than taxes, fees or charges the amount or validity
of which is currently being contested in good faith by appropriate proceedings
and with respect to which reserves in accordance with GAAP have been provided on
the books of such Credit Party). No tax Liens have been filed and no material
claims are being asserted with respect to any such taxes, fees or charges. The
charges, accruals and reserves on the books of the Credit Parties in respect of
taxes and other governmental charges are adequate and the Credit Parties know of
no proposed material tax assessment against it or any Subsidiary or any basis
therefor.

Section 4.18 Trademarks, Patents. Each Credit Party and each Subsidiary
possesses or has the right to use all of the patents, trademarks, trade names,
service marks and copyrights, and applications therefor, and all technology,
know-how, processes, methods and designs used in or necessary for the conduct of
its business, without known conflict with the rights of others.

Section 4.19 Existing Foreign Subsidiaries. Except for the UK Obligations, no
Credit Party has any obligations to, or liabilities to any Person on account of,
the Existing Foreign Subsidiaries, in excess of $100,000 in the aggregate for
all Credit Parties.

Section 4.20 Force Majeure. Since the date of the most recent financial
statement referred to in Section 5.1 hereof, the business, properties and other
assets of the Credit Parties and the Subsidiaries have not been materially and
adversely affected in any way as the result of any fire or other casualty,
strike, lockout, or other labor trouble, embargo, sabotage, confiscation,
condemnation, riot, civil disturbance, activity of armed forces or act of God.

Section 4.21 Investment Company Act. No Credit Party nor any Subsidiary is an
“investment company” or a company “controlled” by an investment company within
the meaning of the Investment Company Act of 1940, as amended.

Section 4.22 [Intentionally Omitted].

Section 4.23 Retirement Benefits. Except as required under Section 4980B of the
Code, Section 601 of ERISA or applicable state law, no Credit Party nor any
Subsidiary is obligated to provide post-retirement medical or insurance benefits
with respect to employees or former employees.

 

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Section 4.24 Full Disclosure. Neither the financial statements referred to in
Section 5.1 hereof nor any other certificate, written statement, exhibit or
report furnished by or on behalf of the Credit Parties in connection with or
pursuant to this Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained therein not misleading.

Section 4.25 Subsidiaries. Schedule 4.25 sets forth as of the date of this
Agreement a list of all Subsidiaries and Existing Foreign Subsidiaries and the
number and percentage of the shares of each class of Equity Interests owned
beneficially or of record by the Credit Parties or any Subsidiary or Existing
Foreign Subsidiary therein, and the jurisdiction of incorporation of each
Subsidiary and Existing Foreign Subsidiary.

Section 4.26 Restrictions on Subsidiaries. Except as set forth on Schedule 4.26
hereof and for restrictions contained in this Agreement or any other agreement
with respect to Indebtedness of the Credit Parties permitted hereunder as in
effect on the Original Closing Date, there are no contractual or consensual
restrictions on the Credit Parties or any of their Subsidiaries which prohibit
or otherwise restrict (i) the transfer of cash or other assets (A) between the
Credit Parties and any of their Subsidiaries or (B) between any Subsidiaries of
the Credit Parties, or (ii) the ability of the Credit Parties or Subsidiaries to
incur Indebtedness or grant Liens to the Agent, for the benefit of the
Benficiaries, in the Collateral.

Section 4.27 Labor Matters. There are no pending or, to the knowledge of the
Credit Parties, any threatened strikes, lockouts or slowdowns against the Credit
Parties or any Subsidiary. No Credit Party nor any Subsidiary has been or is in
violation in any material respect of the Fair Labor Standards Act or any other
applicable Federal, state, local or foreign law dealing with such matters. All
payments due from any Credit Party or any Subsidiary on account of wages and
employee health and welfare insurance and other benefits (in each case, except
for de minimus amounts), have been paid or accrued as a liability on the books
of such Credit Party or such Subsidiary. The consummation of the transactions
contemplated under the Loan Documents will not give rise to any right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which any Credit Party or any Subsidiary is
bound.

Section 4.28 Deposit and Other Accounts. A complete list of all of Credit
Parties’ Deposit Accounts, Lockboxes, Lockbox Accounts, investment accounts and
securities accounts (including account numbers and addresses for each Deposit
Account bank and each bank or other entity holding each investment account and
securities account as of the Original Closing Date) is set forth on Schedule
4.28.

Section 4.29 Offsets. Except as set forth on Schedule 4.29 attached hereto,
there is no basis for (a) any Offsets asserted or, to the knowledge of the
Credit Parties, threatened to be asserted against any Credit Party or any of its
Subsidiaries by any Obligor (including but not limited to amounts due to
Medicare or the IRS), or (b) any overdue or delinquent liabilities or
Indebtedness which would reasonably be expected to give rise to a right of a
federal Governmental Authority or any other Person to offset or levy with
respect to such liabilities or Indebtedness against any Receivables, or payments
due thereon.

 

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Section 4.30 Solvency. After the making of any Loan and after giving effect
thereto, (a) the fair value of the assets of each Credit Party, at a fair
valuation, will exceed its debts and liabilities, subordinated, contingent or
otherwise; (b) the present fair saleable value of the property of each Credit
Party will be greater than the amount that will be required to pay the probable
liability of its debts and other liabilities, subordinated, contingent or
otherwise, as such debts and other liabilities become absolute and matured;
(c) each Credit Party will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) no Credit Party will have unreasonably small
capital with which to conduct the business in which it is engaged as such
business is proposed to be conducted following the Original Closing Date.

Section 4.31 Management Procedures. The Credit Parties have (and will continue
to have and maintain) such appropriate and customary risk management and
information sharing procedures and policies so as to allow the Senior Officers
to be and remain informed about the material aspects of the operations of the
Credit Parties’ businesses for which each is primarily responsible.

Section 4.32 For-Profit Entities. Each Credit Party conducts its business as a
for profit enterprise, and is not and has not filed to be qualified under
Section 501(c)(3) of the Code.

Section 4.33 Carmichael’s Acquisition. As of the Original Closing Date, Credit
Parties have delivered to Agent a complete and correct copy of the Carmichael’s
Acquisition Agreement (including all schedules, exhibits, amendments,
supplements, modifications, assignments and all other documents delivered
pursuant thereto or in connection therewith). No Credit Party and, to the best
of each Credit Parties’ knowledge, no other Person party thereto is in default
in the performance or compliance with any provisions thereof. The Carmichael’s
Acquisition Agreement complies with, and the Carmichael’s Acquisition has been
consummated in accordance with, all applicable laws. The Carmichael’s
Acquisition Agreement is in full force and effect as of the Original Closing
Date and has not been terminated, rescinded or withdrawn. All requisite
approvals by Governmental Authorities having jurisdiction over Sellers, any
Credit Party and other Persons referenced therein, with respect to the
transactions contemplated by the Carmichael’s Acquisition Agreement, have been
obtained, and no such approvals impose any conditions to the consummation of the
transactions contemplated by the Carmichael’s Acquisition Agreement or to the
conduct by any Credit Party of its business thereafter. To the best of each
Credit Party’ knowledge, none of the Sellers’ representations or warranties in
the Carmichael’s Acquisition Agreement contain any untrue statement of a
material fact or omit any fact necessary to make the statements therein not
misleading. Notwithstanding anything contained in the Carmichael’s Acquisition
Agreement to the contrary, such representations and warranties of the Credit
Parties are incorporated into this Agreement by this Section 4.33 as of the
Original Closing Date and shall, solely for purposes of this Agreement and the
benefit of Agent and Lenders, survive the consummation of the Carmichael’s
Acquisition.

Section 4.34 Insurance. Schedule 4.34 lists all insurance policies of any nature
maintained, as of the Original Closing Date, for current occurrences by each
Credit Party, as well as a summary of the key business terms of each such policy
such as deductibles, coverage limits and term of policy.

 

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Section 4.35 Anti-Terrorism Law.

(a) No Credit Party and, to the knowledge of the Credit Parties, none of its
Affiliates is in violation of any laws relating to terrorism or money laundering
(“Anti-Terrorism Laws”), including Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001 (the “Executive Order”), and the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, Public Law 107-56.

(b) No Credit Party and to the knowledge of the Credit Parties, no Affiliate or
other agent of any Credit Party acting or benefiting in any capacity in
connection with the Loans is any of the following:

(i) a person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order;

(ii) a person owned or controlled by, or acting for or on behalf of, any person
that is listed in the annex to, or is otherwise subject to the provisions of,
the Executive Order;

(iii) a person with which any Lender is prohibited from dealing or otherwise
engaging in any transaction by any Anti-Terrorism Law;

(iv) a person that commits, threatens or conspires to commit or support
“terrorism” as defined in the Executive Order; or

(v) a person that is named as a “specialty designated national and blocked
person” on the most current list published by the U.S. Treasury Department
Office of Foreign Assets Control (“OFAC”) at its official website or any
replacement website or other replacement official publication of such list.

(c) No Credit Party and, to the knowledge of the Credit parties, no other agent
of any Credit Party acting in any capacity in connection with the Loans
(i) conducts any business or engages in making or receiving any contribution of
funds, goods or services to or for the benefit of any person described in
paragraph (b) above, (ii) deals in, or otherwise engages in any transaction
relating to, any property or interests in property blocked pursuant to the
Executive Order, or (iii) engages in or conspires to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in any Anti-Terrorism Law.

ARTICLE V

AFFIRMATIVE COVENANTS

Until all obligations of the Lenders hereunder to make the Term Loan and
Advances shall have expired or been terminated and the Notes and all of the
other Obligations have been paid in full, unless the Agent and Required Lender
shall otherwise consent in writing:

 

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Section 5.1 Financial Statements and Reports. The Borrowers’ Agent will furnish
to the Agent (with, in the case of the items described in subsections (a), (c),
(d), (e), (f) and (h) below, a copy to Funding Agent):

(a) As soon as available and in any event within one hundred twenty (120) days
after the end of each fiscal year of the Borrowers, the consolidated financial
statements of the Borrowers and the Subsidiaries consisting of at least
statements of income, cash flow and changes in stockholders’ equity, and a
consolidated balance sheet as at the end of such year, setting forth in each
case in comparative form corresponding figures from the previous annual audit,
certified without qualification by Cherry Bekaert & Holland or any other
independent certified public accountants of recognized national or regional
standing selected by the Borrowers and acceptable to the Agent, together with
any management letters, management reports or other supplementary comments or
reports addressed to or furnished to SHSI or its board of directors by such
accountants.

(b) [Reserved]

(c) As soon as available and in any event within 45 days after the end of each
fiscal quarter, unaudited consolidated statements of income, cash flow and
changes in stockholders’ equity for the Borrowers and the Subsidiaries for such
quarter and for the period from the beginning of such fiscal year to the end of
such quarter, and a consolidated balance sheet of the Borrowers as at the end of
such quarter, setting forth, in accordance with requirements of the Securities
and Exchange Commission or any successor or similar Governmental Authority,
comparative form figures for the corresponding period for the preceding fiscal
year, accompanied by a certificate signed by the chief financial officer of the
SHSI stating that such financial statements present fairly the financial
condition of the Borrowers and the Subsidiaries and that the same have been
prepared in accordance with GAAP (except for the absence of footnotes and
subject to year-end audit adjustments as to the interim statements).

(d) As soon as available and in any event within 30 days after the end of each
fiscal month, unaudited consolidated statements of income, for the Borrowers and
the Subsidiaries for such month, and a consolidated balance sheet of the
Borrowers as at the end of such month, setting forth in comparative form figures
for the corresponding period for the preceding fiscal year presenting fairly the
financial condition of the Borrowers and the Subsidiaries and prepared in
accordance with GAAP (except for the absence of footnotes and subject to
year-end audit adjustments as to the interim statements).

(e) As soon as available and in any event within 30 days after the end of each
fiscal month, unaudited operating reports for each SunLink facility operated by
a Credit Party or a Subsidiary.

(f) (i) No less frequently than noon (New York time) on Wednesday of each week
in respect of the immediately preceding week, aging reports for all Receivables
and a Borrowing Base Certificate setting forth Availability based on the updated
Net Collectible Value of Eligible Accounts of (A) Borrowers that are members of
the Consolidated SunLink Entity and (B) as soon as systems are such that will
enable weekly reporting for the Carmichael’s Entity and in any event within 180
days following the Original Closing Date, Borrowers that are members

 

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of the Carmichael’s Entity, and (ii) within 30 days after the end of each fiscal
month, a report of Consolidated EBITDA of SHSI and its Subsidiaries and
Consolidated Pro Forma EBITDA for twelve (12) consecutive months ending on the
last day of each fiscal month for which the most recent financial are available,
in each case accompanied by a Borrowing Base Certificate and a certificate of
the chief financial officer of SHSI that such reports present fairly and
accurately the financial information that is the subject thereof. Upon the
occurrence and during the continuance of an Event of Default, upon request by
the Agent, Borrowing Base Certificates and reports set forth in this clause
(f) shall be delivered more frequently as the Agent may elect.

(g) Upon request by the Agent, copies of (A) Credit Parties’ annual federal
income tax returns as filed with the Internal Revenue Service, (B) Credit
Parties’ payroll tax return as filed with the Internal Revenue Service on Form
941 for any calendar quarter requested, together with documentation of payment
of any sums due in respect of payroll taxes, and (C) any applicable sale tax
filings, together with documentation of payment of any sums due in respect of
sales taxes.

(h) As soon as practicable and in any event within forty-five (45) days after
the end of each fiscal quarter, a Compliance Certificate in the form attached
hereto as Exhibit G signed by the chief financial officer of SHSI demonstrating
in reasonable detail compliance (or noncompliance, as the case may be) with
Section 6.10, Section 6.16, Section 6.17, Section 6.18, Section 6.19,
Section 6.20 and Section 6.21, as at the end of such quarter and stating that as
at the end of such quarter there did not exist any Default or Event of Default
or, if such Default or Event of Default existed, specifying the nature and
period of existence thereof and what action the Borrowers proposes to take with
respect thereto.

(i) As soon as practicable and in any event within forty five (45) days after
the beginning of each fiscal year of the Borrowers, statements of forecasted
consolidated income for the Borrowers and the Subsidiaries for each fiscal
quarter in such fiscal year and a forecasted consolidated balance sheet of the
Borrowers and the Subsidiaries, together with supporting assumptions, as at the
end of each fiscal quarter, all in reasonable detail and reasonably satisfactory
in scope to the Agent.

(j) Immediately upon any Senior Officer of any Credit Party becoming aware of
any Default or Event of Default, a notice describing the nature thereof and what
action Borrowers propose to take with respect thereto.

(k) Within three (3) Business Days after any Senior Officer of any Credit Party
becoming aware of the occurrence, with respect to any Plan, of any Reportable
Event or any Prohibited Transaction, a notice specifying the nature thereof and
what action the Borrowers propose to take with respect thereto, and, when
received, copies of any notice from PBGC of intention to terminate or have a
trustee appointed for any Plan.

(l) Immediately upon any Senior Officer of any Credit Party becoming aware of
any matter that has resulted or is reasonably likely to result in a Material
Adverse Occurrence, Default or an Event of Default a notice from the Borrowers’
Agent describing the nature thereof and what action Borrowers propose to take
with respect thereto.

 

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(m) Within three (3) Business Days after any Senior Officer of any Credit Party
becoming aware of the commencement of any action, suit, investigation,
proceeding or arbitration before any court or arbitrator or any governmental
department, board, agency or other instrumentality, including without
limitation, any agency of the Department of Health and Human Services or its
Office of Inspector General, affecting a Credit Party or any Subsidiary or any
property of such Person, or to which a Credit Party or any Subsidiary is a party
(other than litigation where the insurance insures against the damages claimed
and the insurer has assumed defense of the litigation without reservation) and
in which an adverse determination or result would constitute a Material Adverse
Occurrence; or (ii) any adverse development which occurs in any litigation,
arbitration or governmental investigation or proceeding previously disclosed by
a Credit Party or any Subsidiary which, if determined adversely to a Credit
Party or a Subsidiary would constitute a Material Adverse Occurrence, a notice
from the Borrowers’ Agent describing the nature and status thereof and what
action the Credit Parties propose to take with respect thereto.

(n) Promptly upon the mailing or filing thereof, copies of all financial
statements, reports and proxy statements mailed to any Credit Party’s
shareholders, and copies of all registration statements, periodic reports and
other documents filed with the Securities and Exchange Commission (or any
successor thereto) or any national securities exchange.

(o) Within three (3) Business Days after a Senior Officer of any Credit Party
becoming aware of any of the following for which an adverse determination or
result would reasonably be expected to constitute or result in a Material
Adverse Occurrence:

(i) Notice of any investigation or audit outside of ordinary course, or pending
or threatened proceedings relating to any violation by any Credit Party, any of
its Subsidiaries, or any health care facility to which a Credit Party or any of
its Subsidiaries provides services, of any Health Care Laws (including, without
limitation, any investigation or audit or proceeding involving violation of any
of the Medicare and/or Medicaid fraud and abuse provisions);

(ii) Copies of any written recommendation from any Governmental Authority or
other regulatory body that a Credit Party or any Subsidiary should have its
licensure or accreditation revoked, have its eligibility to participate in, or
to accept assignments or rights to reimbursement revoked under any governmental
health care program, including, without limitation, CHAMPVA, TRICARE, Medicare
and Medicaid;

(iii) Notice of any claim to recover any alleged material overpayments with
respect to any Receivables, except with respect to those for which an
appropriate reserve has been established, including, without limitation,
payments received from any private insurance carrier and from any governmental
health care program, including, without limitation, CHAMPVA, TRICARE, Medicare
and Medicaid;

(iv) Notice of termination of eligibility of a Credit Party, any Subsidiary, or
any health care facility to which a Credit Party provides services to
participate in any reimbursement program of any private insurance carrier or
other Obligor applicable to it;

 

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(v) Notice of any material reduction in the level of reimbursement expected to
be received with respect to any Receivables;

(vi) Notice of any reimbursement payment contract or process that results or may
result in any claim against a Credit Party or any Subsidiary (including on
account of overpayments, settlement payments, appeals, repayment plan requests);
and

(vii) Copies of any report or communication from any Governmental Authority in
connection with any inspection of any facility of a Credit Party or any
Subsidiary.

(p) Prior notice of any proposed replacement of the Borrowers’ accountants and
such information that Agent may reasonably request in connection therewith,
including, without limitation, the reasons for such replacement.

(q) From time to time, such other information regarding the business, operation
and financial condition of any Credit Party and the Subsidiaries as the Agent
may reasonably request.

Section 5.2 Existence. Each Credit Party will maintain, and cause each
Subsidiary to maintain, its legal existence in good standing under the laws of
its jurisdiction of organization and its qualification to transact business in
each jurisdiction where failure so to qualify would permanently preclude such
Credit Party or such Subsidiary from enforcing its rights with respect to any
material asset or would reasonably be expected to result in or be a Material
Adverse Occurrence; provided, however, that nothing herein shall prohibit the
merger or liquidation of any Subsidiary allowed under Section 6.1.

Section 5.3 Insurance. The Credit Parties will keep the Collateral insured with
financially sound and reputable insurers against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses. The Credit
Parties shall maintain business interruption, public liability, and other
property damage insurance relating to the Credit Parties’ ownership and use of
the Collateral, as well as insurance against larceny, embezzlement, and criminal
misappropriation and the Keyman Life Insurance. All policies or insurance shall
be in such form, with such companies, and in such amounts as may be reasonably
satisfactory to the Agent. Contemporaneously with the execution of this
Agreement, and within fifteen (15) days of any date when any additional or
replacement insurance coverage is obtained or any such policy is renewed (and in
any event no less frequently than annually), the Credit Parties shall deliver to
the Agent true copies of certificates of insurance with respect to such policies
or additional insurance or replacement policies, which certificates (i) in the
case of property and casualty policies, shall contain an endorsement or rider
satisfactory to the Agent showing the Agent, on behalf of the Beneficiaries, as
loss payee and additional insured thereof, and (ii) in the case of general
liability policies, shall contain an endorsement or rider showing the Agent, on
behalf of the Beneficiaries, as an additional insured. Every policy of insurance
referred to in this Section 5.3 shall contain an agreement by the insurer that
it will not cancel such policy except after thirty (30) days prior written
notice to the Agent and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of the Credit Parties, or any of them, or
the Agent or any

 

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Lender that might, absent such agreement, result in a forfeiture of all or a
part of such insurance payment and notwithstanding occupancy or use of the real
property for purposes more hazardous than permitted by the terms of such policy.
The Borrowers shall deliver to the Agent, within five (5) Business Days of any
request by the Agent, copies of such policies of insurance and evidence of the
payment of all premiums therefor.

Section 5.4 Payment of Taxes and Claims. Each Credit Party shall file, and cause
each Subsidiary to file, all tax returns and reports which are required by law
to be filed by it and will pay, and cause each Subsidiary to pay, before they
become delinquent all taxes, assessments and governmental charges and levies
imposed upon it or its property and all claims or demands of any kind (including
but not limited to those of suppliers, mechanics, carriers, warehouses,
landlords and other like Persons) which, if unpaid, would reasonably be expected
to result in the creation of a Lien upon its property; provided that the
foregoing items need not be paid if they are being contested in good faith by
appropriate proceedings, and as long as such Credit Party’s or such Subsidiary’s
title to its property is not materially adversely affected, its use of such
property in the ordinary course of its business is not materially interfered
with and adequate reserves with respect thereto have been set aside on Credit
Parties’ or such Subsidiary’s books in accordance with GAAP.

Section 5.5 Inspection; Collateral Audits. Each Credit Party shall permit any
Person designated by the Agent to, in the absence of an Event of Default upon 48
hours prior written notice (which may be given by e-mail), visit and inspect
during normal business hours any of the properties, books and financial records
of such Credit Party and the Subsidiaries, to examine and to make copies of the
books of accounts and other financial records of such Credit Party and the
Subsidiaries, and to discuss the affairs, finances and accounts of such Credit
Party and the Subsidiaries with, and to be advised as to the same by, its
officers at such times and intervals as the Agent may designate, but no more
often than once per fiscal quarter so long as no Event of Default exists. The
Agent (or its designee) may conduct Collateral audits no more frequently than
once each quarter unless any Event of Default exists and the Credit Parties
shall pay to the Agent (or its designee) a fee of $1,000 for each day of any
such Collateral audit, which, so long as no Event of Default has occurred and is
continuing, shall not exceed $40,000 per annum. Notwithstanding the foregoing,
unless an Event of Default has occurred and is continuing, the Credit Parties
shall be responsible for the payment of costs and expenses for an inspection and
examination of the properties, books and financial records of the Credit Parties
only two times each calendar year. Without limiting the foregoing, the
aforementioned limitations on the frequency of and payments of costs and
expenses and audit fees associated with visits, inspections and/or audits and
any notice requirements shall cease to be applicable when any Event of Default
exists.

Section 5.6 Maintenance of Properties. Each Credit Party will maintain, and
cause each Subsidiary to maintain its properties used or useful in the conduct
of its business in good condition, repair and working order, and supplied with
all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly conducted at all
times.

 

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Section 5.7 Books and Records. Each Credit Party will keep, and will cause each
Subsidiary to keep, adequate and proper records and books of account in which
full and correct entries will be made of its dealings, business and affairs.

Section 5.8 Compliance; Permits. Each Credit Party will comply, and will cause
each Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject, including, without limitation, all Health Care Laws;
provided, however, that failure so to comply shall not be a breach of this
covenant if such failure does not constitute a Material Adverse Occurrence and
such Credit Party or such Subsidiary is acting in good faith and with reasonable
dispatch to cure such noncompliance. The Credit Parties shall maintain all
necessary permits, licenses, agreements, accreditations, certifications,
contracts and governmental consents necessary to operate and conduct their
business as it is being conducted, subject to minor exceptions and deficiencies
which would not reasonably be expected to have a Material Adverse Occurrence.

Section 5.9 ERISA. Each Credit Party will (a) maintain, and cause each
Subsidiary to maintain, each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings
and regulations issued under the provisions of ERISA and of the Code; provided,
however, that the Credit Parties shall be permitted to terminate the KRUG
Pension Plan in accordance with the provisions and requirements of ERISA, the
Code and the KRUG Pension Plan, and (b) will not permit any of the ERISA
Affiliates to (i) engage in any transaction in connection with which such Credit
Party or any of the ERISA Affiliates would be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code, in either case in an amount exceeding $50,000, (ii) fail to make full
payment when due of all amounts which, under the provisions of any Plan, such
Borrower or any ERISA Affiliate is required to pay as contributions thereto, or
permit to exist any accumulated funding deficiency (as such term is defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, with
respect to any Plan in an aggregate amount exceeding $50,000 or (iii) fail to
make any payments in an aggregate amount exceeding $50,000 to any Multiemployer
Plan that such Borrower or any of the ERISA Affiliates may be required to make
under any agreement relating to such Multiemployer Plan or any law pertaining
thereto.

Section 5.10 Environmental Matters; Reporting. Each Credit Party will observe
and comply with, and cause each Subsidiary to observe and comply with, all laws,
rules, regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters to
the extent non-compliance would reasonably be expected to result in a material
liability or otherwise constitute a Material Adverse Occurrence. The Borrowers’
Agent will give the Agent prompt written notice of any violation as to any
environmental matter by any Credit Party or any Subsidiary and of the
commencement of any judicial or administrative proceeding relating to health,
safety or environmental matters (a) in which an adverse determination or result
would reasonably be expected to result in the revocation of or have a material
adverse effect on any operating permits, air emission permits, water discharge
permits, hazardous waste permits or other permits held by any Credit Party or
any Subsidiary which are material to the operations of such Credit Party or such
Subsidiary, or (b) which will or threatens to impose a material liability on
such Credit Party or such Subsidiary to any Person or which will require a
material expenditure by such Credit Party or such Subsidiary to cure any alleged
problem or violation.

 

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Section 5.11 Accreditation; Compliance Program.

(a) To the extent applicable to a Credit Party in the conduct of its business,
such Credit Party shall maintain its qualification for participation in, and
payment under, third party payors and government health care programs,
including, without limitation, Medicare, Medicaid, TRICARE, and CHAMPVA that
provide for payment or reimbursement for services, except to the extent such
loss or relinquishment would not reasonably be expected to have a material
adverse effect on the business, operations, condition (financial or otherwise),
prospects or properties of the Borrowers taken as a whole. If required,
Medicaid/Medicare cost reports will be properly filed by each Credit Party. In
addition, to the extent each Credit Party or its respective Subsidiary is
qualified as a Critical Access Hospital pursuant to 42 C.F.R. Part 485, Subpart
F, et. seq. (Conditions of Participation: Critical Access Hospitals), each
Credit Party and its respective Subsidiaries as applicable shall file such
information with the appropriate authorities to maintain its status as a
Critical Access Hospital, except to the extent such loss or relinquishment would
not reasonably be expected to have a material adverse effect on the business,
operations, condition (financial or otherwise), prospects or properties of the
Credit Parties taken as a whole. Each Credit Party will promptly furnish or
cause to be furnished to the Agent copies of all reports and correspondence, if
any, it sends or receives relating to any material loss or revocation (or
material threatened loss or revocation) of any qualification described in this
Section 5.11.

(b) Each Credit Party shall, and shall cause each of its Subsidiaries to,
regularly review and revise their policies and procedures to ensure continuing
compliance by such Credit Party and such Subsidiary, their officers, directors
and employees and all healthcare providers under contract with such Credit Party
and such Subsidiary with all applicable Health Care Laws and maintain
appropriate programs and procedures for communicating such policies and
procedures to all officers, directors and employees of such Credit Party and
such Subsidiary and for making sure that all officers, directors and employees
of such Credit Party and such Subsidiary are able to report violations of any
Health Care Laws and have such reports adequately addressed and corrected as
soon as practicable.

Section 5.12 Further Assurances. Each Credit Party shall promptly correct any
defect or error that may be discovered in any Loan Document by it, or if when
discovered by the Agent, by the Agent or in the execution, acknowledgment or
recordation thereof. Promptly upon request by the Agent, each Credit Party also
shall, and shall cause each Subsidiary to do, execute, acknowledge, deliver,
record, re-record, file, re-file, register and re-register, any and all deeds,
conveyances, mortgages, deeds of trust, trust deeds, assignments, estoppel
certificates, financing statements and continuations thereof, notices of
assignment, transfers, certificates, assurances and other instruments as the
Agent may reasonable require from time to time in order: (a) to carry out more
effectively the purposes of the Loan Documents; (b) to perfect and maintain the
validity, effectiveness and priority of any security interests intended to be
created by the Loan Documents including, without limitation, the delivery of a
landlord waiver from any landlord required by the Agent; and (c) to better
assure, convey, grant, assign, transfer, preserve, protect and confirm unto the
Agent and Lenders the rights granted now or hereafter intended to be

 

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granted to the Agent and Lenders under any Loan Document or under any other
instrument executed in connection with any Loan Document or that any Credit
Party may be or become bound to convey, mortgage or assign to the Agent, for the
benefit of the Beneficiaries, in order to carry out the intention or facilitate
the performance of the provisions of any Loan Document. The Borrowers’ Agent
shall furnish to the Agent evidence satisfactory to the Agent of every such
recording, filing or registration.

Section 5.13 Compliance with Terms of Material Contracts. Each Credit Party
shall, and shall cause each Subsidiary to, make all payments and otherwise
perform all obligations in respect of all material contracts to which such
Credit Party or any Subsidiary is a party unless such payments or obligations
are being properly and diligently contested and an appropriate reserve with
respect thereto is made in the accounting records of the Credit Parties.

Section 5.14 Joinder of Domestic Subsidiaries. The Borrowers’ Agent shall
promptly notify the Agent at any time that any Person becomes a Subsidiary and
provide to the Agent such information about the Subsidiary as the Agent may
reasonably request. The Credit Parties shall promptly cause each Domestic
Subsidiary (other than any Domestic Subsidiary qualified as a non-profit
enterprise under Section 501(c)(3) of the Code) (a) to become a Borrower by
executing and delivering to the Agent a signature page hereto and to each Note
and/or a joinder agreement as the Agent may require, and (b) to execute and
deliver to the Agent (i) signature pages to the Security Agreement, Pledge
Agreement and such other Loan Documents and/or joinder agreements as the Agent
may require and (ii) any Mortgages requested by Agent on real property interests
held by such Domestic Subsidiary. Such Domestic Subsidiary shall also deliver to
the Agent such other documents of the types described in Section 3.1(a)(iv),
(v), (vi), (vii) (if such Domestic Subsidiary is a Borrower) and (viii) and
Section 3.1(b) of the Original Credit Agreement. All signature pages, joinder
and other agreements, documents and instruments delivered to the Agent pursuant
hereto shall be in form, content and scope reasonably satisfactory to the Agent.

Section 5.15 Collection of Receivables; Control Agreements. (a) On or prior to
the Original Closing Date, the Credit Parties have established and shall
maintain one or more local bank accounts with one or more financial institutions
acceptable to the Agent in its discretion (each, a “Bank”) which are set forth
on Schedule 5.15 hereto (each, together with such local accounts listed and
identified on Part B of Schedule 1.1(b) and together with any other local bank
account of similar nature opened in the future, a “Local Bank Account” and
collectively the “Local Bank Accounts”), which shall at all times be subject to
an agreements in favor of the Agent, for the benefit of the Beneficiaries,
substantially in the form of Exhibit N hereto (“Local Bank Account Agreement”).
All amounts in any Local Bank Account shall be automatically transmitted for
deposit on each Business Day of the applicable Bank into the appropriate
Concentration Account or any other account subject to a Control Agreement in
favor of the Agent as the Agent may designate in writing from time to time.

(b) From and after the Original Closing Date, Credit Parties shall direct each
Obligor to make payments of Collections directly to a Local Bank Account that is
subject to a Local Bank Account Agreement. Further, Credit Parties shall at all
times cause (i) all Local Bank Accounts to be subject to a Local Bank Account
Agreement pursuant to which, inter alia, the relevant Bank and/or Credit Party
agree to provide prior written notice to the Agent of any

 

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proposed change of the standing instructions of such Credit Party to transfer
all funds deposited into such Local Bank Account each Business Day to the
appropriate Concentration Account and (ii) all amounts in any Local Bank Account
to be transmitted for deposit on each Business Day of the applicable Bank into
the appropriate Concentration Account. No such direction given by Credit Parties
to any Obligor shall be changed, modified or superseded without the express
prior written consent of the Agent.

(c) Each Credit Party shall, and shall cause each of its Subsidiaries to,
promptly deliver to the Agent duly executed (i) Control Agreements with respect
to any new Deposit Accounts (other than with respect to any new Local Bank
Accounts), investment accounts and securities account and (ii) Local Bank
Account Agreements in the case of any new Local Bank Accounts, in each case in
form and substance acceptable to the Agent.

(d) After the occurrence and during the continuance of an Event of Default,
Agent shall be entitled to exercise its rights in respect of the Control
Agreement as described in Section 7.3 hereof.

Section 5.16 Post-Closing Deliveries. Credit Parties shall (a) deliver (or cause
the delivery of) to the Agent each item set forth on Schedule 5.16 in form and
substance reasonably satisfactory to the Agent and (b) perform each action set
forth in Schedule 5.16 in a manner reasonably satisfactory to the Agent, each
within the time periods set forth opposite each such item or action on such
Schedule or such later date as shall be acceptable to the Agent in its sole
discretion.

ARTICLE VI

NEGATIVE COVENANTS

Until any obligation of the Lenders hereunder to make the Term Loan and Advances
shall have expired or been terminated and the Notes and all of the other
Obligations have been paid in full, unless the Agent and Required Lenders shall
otherwise consent in writing:

Section 6.1 Merger. No Credit Party will merge or consolidate or enter into any
similar reorganization or transaction with any Person other than another Credit
Party (provided, that if a Borrower is a party to such merger, consolidation or
reorganization, such Borrower shall be the surviving corporation) or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution) or permit
any Subsidiary to do any of the foregoing; provided, however, any Subsidiary may
be merged with or liquidated into a Borrower or any wholly-owned Subsidiary (if
such Borrower or such wholly-owned Subsidiary is the surviving corporation).

Section 6.2 Disposition of Assets. No Credit Party will, nor permit any
Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or
otherwise dispose of (whether in one transaction or a series of transactions)
any property (including accounts and notes receivable, with or without recourse)
or enter into any agreement to do any of the foregoing, except dispositions
listed below so long as no Default or Event of Default has occurred and is
continuing or would be caused by such disposition:

(a) dispositions of inventory, or used, worn-out or surplus equipment all in the
ordinary course of business;

 

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(b) the sale of equipment to the extent that such equipment is exchanged for
credit against the purchase price of similar replacement equipment, or the
proceeds of such sale are applied within one hundred eighty (180) days thereof
to the purchase price of such replacement equipment;

(c) dispositions to another Credit Party that is a Borrower hereunder, subject
to Liens (if any) in favor of the Agent, for the benefit of the Beneficiaries,
which shall continue in favor of the Agent, which dispositions may include, but
shall not be limited to, the conveyance by Clanton Hospital, LLC to Central
Alabama Medical Associates, LLC of certain real property located in Clanton,
Chilton County, Alabama, and being more particularly described on Schedule 6.2
attached hereto and incorporated herein by this reference (or such other legal
description as may be reasonably approved by Agent) and the conveyance by
Southern Health Corporation of Dahlonega, Inc. to SunLink Services, Inc. of
certain real property located in Dahlonega, Lumpkin County, Georgia, and being
more particularly described on Schedule 6.2 (or such other legal description as
may be reasonably approved by Agent); and

(d) other dispositions of property during the term of this Agreement whose net
book value in the aggregate for all such dispositions of property does not
exceed $5,000,000.

Section 6.3 Plans. (a) No Credit Party will permit, nor allow any Subsidiary to
permit, any event to occur or condition to exist which would permit any Plan to
terminate under any circumstances which would cause the Lien provided for in
Section 4068 of ERISA to attach to any assets of any Credit Party or any
Subsidiary; and (b) except with respect to the KRUG Pension Plan Deficiency
disclosed on Schedule 4.14, no Credit Party will permit, as of the most recent
valuation date for any Plan subject to Title IV of ERISA, the present value
(determined on the basis of reasonable assumptions employed by the independent
actuary for such Plan and previously furnished in writing to the Agent) of such
Plan’s projected benefit obligations to exceed the fair market value of such
Plan’s assets.

Section 6.4 Change in Nature of Business; Organization Documents. No Credit
Party will, nor permit any Subsidiary to, make any material change in the nature
of the business of such Credit Party or such Subsidiary, as carried on at the
Original Closing Date, or amend any of its Articles or Certificates of
Incorporation, bylaws or partnership agreement or other organization documents
in any material respect or in any respect adverse to the Agent or Lenders,
except that any Credit Party that is a corporation may be converted into a
limited liability company so long as such Credit Party gives Agent twenty
(20) days prior written notice thereof and all steps to maintain the perfection
of the Liens of the Agent as the Agent may reasonably request have been taken
prior to such conversion.

Section 6.5 Negative Pledges; Subsidiary Restrictions. No Credit Party will, nor
permit any Subsidiary to, enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Agent and
Lenders which would (i) prohibit such Credit Party or such Subsidiary from
granting, or otherwise limit the ability of the such Credit Party or such
Subsidiary to grant, to the Agent, for the benefit of the Beneficiaries, any
Lien on any assets or properties of such Credit Party or such Subsidiary, or
(ii) require such Credit Party or such Subsidiary to grant a Lien to any other
Person if such Credit Party or such Subsidiary grants any Lien to the Agent, for
the benefit of the beneficiaries. No Credit Party will permit any

 

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Subsidiary to place or allow any restriction, directly or indirectly, on the
ability of such Subsidiary to (a) pay dividends or any distributions on or with
respect to such Subsidiary’s capital stock or (b) make loans or other cash
payments to such Credit Party.

Section 6.6 Restricted Payments. Except as otherwise expressly permitted under
the terms of this Agreement, no Credit Party will make any Restricted Payments;
provided, however that, so long as no Default or Event of Default has occurred
and continues to exist, or would result from any of the following, the Credit
Parties shall be permitted to (i) distribute cash (by loan, dividend or
distribution) to SHSI, (ii) make payments to the KRUG Pension Plan sufficient to
fund the KRUG Pension Plan Deficiency therein relating to the excess of the
benefit obligations over the plan assets in an amount not to exceed $900,000 in
the aggregate (the “KRUG Pension Plan Deficiency Payments”); (iii) make annual
payments sufficient to fund the Credit Parties’ Self Insured Retention Fund
insurance program (A) during the first year of this Agreement, in an amount up
to the actuarially determined unpaid liability (the “Estimated Insurance
Liability”) and (B) in each year of this Agreement thereafter, in an amount
equal to the increase in the Estimated Insurance Liability, in each case as set
forth in an actuarial report issued by an independent actuary selected by the
Credit Parties and reasonably satisfactory to the Agent; provided that prior to
such funding the Borrowers deliver to the Agent the actuarial report evidencing
the amount of the Estimated Insurance Liability for such period, (iv) make
payments satisfying the UK Obligations not to exceed $3,000,000 in the aggregate
during the term of this Agreement; provided that after giving effect to each
such payment, the Borrowers shall be in pro forma compliance with all the
financial ratios and restrictions set forth in Section 6.16, Section 6.17,
Section 6.18, Section 6.19, Section 6.20 and Section 6.21,, and (v) make
payments or prepayments with respect to Indebtedness subordinated in right of
payment to the Obligations solely to the extent such payments or prepayments are
expressly permitted pursuant to the terms of a related Subordination Agreement.

Section 6.7 Transactions with Affiliates. No Credit Party will, nor permit any
Subsidiary to, enter into any transaction with any Affiliate of such Credit
Party except upon fair and reasonable terms no less favorable than such Credit
Party, or such Subsidiary, would obtain in a comparable arm’s-length transaction
with a Person not an Affiliate; provided, however, the Credit Parties shall be
permitted to (i) make the transfers, distributions, payments or prepayments
permitted under Section 6.6 hereof to its Subsidiaries and Affiliates and
(ii) make loans to other Borrowers provided such loans are evidenced by the
Subordinated Intercompany Note.

Section 6.8 Accounting Changes. No Credit Party will, nor permit any Subsidiary
to, make any significant change in accounting treatment or reporting practices,
except as required by GAAP, or change its fiscal year or the fiscal year of any
Subsidiary.

Section 6.9 Deposit and Other Accounts. No Credit Party will, nor permit any
Subsidiary to (a) establish any Deposit Accounts investment accounts or
securities accounts other than those described on Schedule 4.28, except for
Deposit Accounts, investment accounts or securities accounts as to which the
applicable Credit Party or Subsidiary(ies), as applicable, shall have delivered
to the Agent a Control Agreement in form and substance satisfactory to the Agent
(except in the case of any Local Bank Account as to which the applicable Credit
Party shall have delivered to the Agent a Local Bank Account Agreement in form
and substance satisfactory to the Agent), (b) violate directly or indirectly any
bank agency agreement, Control

 

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Agreement, Local Bank Account Agreement or other agreement in favor of the Agent
or (c) revoke or attempt to revoke any instructions or directions given by it
under any Control Agreement, Local Bank Account Agreement or other agreement
with respect to or altering the rights of the Agent and Lenders thereunder,
including, without limitation, attempting to make any withdrawal from or
requesting the reduction of funds on deposit in any Local Bank Account without
the prior written consent of the Agent; provided, however, that Healthmont of
Georgia, Inc. may maintain account #20354 with Park Avenue Bank that is not
subject to a Control Agreement as long as the aggregate amount of funds on
deposit in such account does not exceed $6,000 at any time.

Section 6.10 Capital Expenditures. The Credit Parties will not make, or permit
any Subsidiary to make, Capital Expenditures in an amount exceeding
(a) $6,000,000 on a consolidated basis during the period from the Original
Closing Date through the last day of each calendar month occurring on or prior
to the first anniversary of the Original Closing Date and (b) during any twelve
consecutive month period thereafter, $6,000,000 on a consolidated basis, not
including any Permitted Investments.

Section 6.11 Subordinated Debt. No Credit Party will, nor permit any Subsidiary
to, 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; (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.

Section 6.12 Investments. No Credit Party will, nor permit any Subsidiary to,
acquire for value, make, have or hold any Investments, except for (collectively,
“Permitted Investments”):

(a) Investments existing on the date of this Agreement and disclosed on Schedule
6.12 hereto.

(b) Travel advances to management personnel and employees in the ordinary course
of business.

(c) Investments in readily marketable direct obligations issued or guaranteed by
the United States or any agency thereof and supported by the full faith and
credit of the United States.

 

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(d) Certificates of deposit or bankers’ acceptances issued by any commercial
bank organized under the laws of the United States or any State thereof which
has (i) combined capital and surplus of at least $100,000,000, and (ii) a credit
rating with respect to its unsecured indebtedness from a nationally recognized
rating service that is satisfactory to the Agent.

(e) Commercial paper given the highest rating by a nationally recognized rating
service.

(f) Repurchase agreements relating to securities issued or guaranteed as to
principal and interest by the United States with a term of not more than ninety
(90) days; provided, however, that all such agreements shall require physical
delivery of the securities securing such repurchase agreement, except those
delivered through the Federal Reserve Book Entry System.

(g) Other readily marketable Investments in debt securities which are reasonably
acceptable to the Agent.

(h) Investments by SHSI in a Captive Insurance Subsidiary not to exceed at any
time $1,000,000 in the aggregate outstanding.

(i) Permitted Acquisitions.

(j) Any other Investment if the aggregate consideration therefor does not exceed
$500,000.

Any Investments under clauses (c), (d), (e) or (f) above must mature within one
year of the acquisition thereof by a Credit Party or a Subsidiary.

Section 6.13 Indebtedness. No Credit Party will, nor permit any Subsidiary to,
incur, create, issue, assume or suffer to exist any Indebtedness, except:

(a) The Obligations.

(b) Consolidated Current Liabilities, other than for borrowed money, incurred in
the ordinary course of business.

(c) Indebtedness existing on the date of this Agreement and disclosed on
Schedule 6.13 hereto.

(d) Indebtedness secured by Liens permitted under Section 6.14 hereof provided,
that with respect to Capitalized Lease Obligations and Indebtedness secured by
purchase money Liens, such Indebtedness shall not exceed $500,000 in the
aggregate at any time.

(e) Indebtedness owed by a Borrower to another Borrower.

(f) Indebtedness that may be incurred in connection with a Permitted
Acquisition, to the extent expressly approved by the Agent and Lenders in
writing.

 

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(g) Permitted Refinancing Indebtedness, so long as no Default or Event of
Default is in existence at the time of the incurrence of such Permitted
Refinancing Indebtedness and immediately after giving effect thereto.

(h) Subordinated Debt owing by one or more Credit Parties to the Sellers in an
aggregate principal amount not to exceed $3,000,000.

Section 6.14 Liens. No Credit Party will, nor permit any Subsidiary to, create,
incur, assume or suffer to exist any Lien, or enter into, or make any commitment
to enter into, any arrangement for the acquisition of any property through
conditional sale, lease-purchase or other title retention agreements, with
respect to any property now owned or hereafter acquired by a Credit Party or a
Subsidiary (collectively, “Permitted Encumbrances”), except:

(a) Liens granted to the Agent, for the benefit of the Beneficiaries, under the
Security Documents to secure the Obligations.

(b) Liens existing on the date of this Agreement and disclosed on Schedule 6.14
hereto.

(c) Deposits or pledges to secure payment of workers’ compensation, unemployment
insurance, old age pensions or other social security or similar statutory public
liability obligations, in the ordinary course of business of a Credit Party or a
Subsidiary.

(d) Liens for taxes, fees, assessments and governmental charges not delinquent
or to the extent that payment therefor shall not at the time be required to be
made in accordance with the provisions of Section 5.4.

(e) Liens of carriers, warehousemen, mechanics and materialmen, and other like
Liens arising in the ordinary course of business, for sums not due or to the
extent that payment therefor shall not at the time be required to be made in
accordance with the provisions of Section 5.4.

(f) Liens incurred or deposits or pledges made or given in connection with, or
to secure payment of, indemnity, performance or other similar bonds.

(g) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies as
to deposit accounts or other funds maintained with a creditor depository
institution; provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restriction against access by a Credit
Party or a Subsidiary in excess of those set forth by regulations promulgated by
the Board, and (ii) such deposit account is not intended by a Credit Party or
any Subsidiary to provide collateral to the depository institution.

(h) Encumbrances in the nature of zoning restrictions, easements and rights or
restrictions of record on the use of real property and landlord’s Liens under
leases on the premises rented, which do not materially detract from the value of
such property or impair the use thereof in the business of a Credit Party or a
Subsidiary, the Liens and encumbrances, if any, described in the loan policies
of title insurance covering the Encumbered Real Estate delivered to and accepted
by Agent in connection with the Mortgages and leases entered into by a Credit
Party or a Subsidiary in the ordinary course of business.

 

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(i) The interest of any lessor under any Capitalized Lease entered into after
the Original Closing Date or purchase money Liens on property acquired after the
Original Closing Date; provided, that, (i) the Indebtedness secured thereby is
otherwise permitted by Section 6.13(d) and (ii) such Liens are limited to the
property acquired and do not secure Indebtedness other than the related
Capitalized Lease or the purchase price of such property.

(j) Liens securing Indebtedness permitted by Section 6.13(f) to the extent such
Liens are expressly approved by the Agent and Lenders in writing.

(k) Liens on the property securing the Permitted Refinancing of any Indebtedness
to the extent Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded is secured by such Liens and without any change in the
property subject to such Liens.

Section 6.15 Contingent Liabilities. No Credit Party will, nor permit any
Subsidiary to, be or become liable on any Contingent Obligations except
Contingent Obligations existing on the date of this Agreement and disclosed on
Schedule 6.15 and Contingent Obligations for the benefit of the Agent and
Lenders.

Section 6.16 Leverage Ratio. The Credit Parties will not permit the Leverage
Ratio, for the twelve (12) consecutive months ending on the last day of each
fiscal quarter set forth below, to exceed the maximum ratio set forth opposite
such fiscal quarter:

 

FISCAL QUARTER ENDING

  

MAXIMUM LEVERAGE RATIO

June 30, 2008    3.60 to 1.00 September 30, 2008    3.60 to 1.00 December 31,
2008    3.50 to 1.00 March 31, 2009    3.40 to 1.00 June 30, 2009    2.90 to
1.00 September 30, 2009    2.60 to 1.00 December 31, 2009    2.60 to 1.00
March 31, 2010    2.40 to 1.00 June 30, 2010    2.20 to 1.00 September 30, 2010
   2.10 to 1.00 December 31, 2010    2.10 to 1.00 March 31, 2011    2.00 to 1.00
June 30, 2011    2.00 to 1.00 September 30, 2011    2.00 to 1.00

 

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FISCAL QUARTER ENDING

  

MAXIMUM LEVERAGE RATIO

December 31, 2011    1.90 to 1.00 March 31, 2012    1.90 to 1.00 June 30, 2012
   1.90 to 1.00 September 30, 2012    1.80 to 1.00 December 31, 2012    1.80 to
1.00 March 31, 2013    1.70 to 1.00 June 30, 2013    1.70 to 1.00 September 30,
2013    1.70 to 1.00 December 31, 2013    1.60 to 1.00 March 31, 2014    1.60 to
1.00 June 30, 2014    1.60 to 1.00 September 30, 2014    1.50 to 1.00
December 31, 2014    1.50 to 1.00 March 31, 2015    1.50 to 1.00 June 30, 2015
and each fiscal quarter thereafter    1.40 to 1.00

Section 6.17 Senior Leverage Ratio. The Credit Parties will not permit the
Senior Leverage Ratio, for the twelve (12) consecutive months ending on the last
day of each fiscal quarter set forth below, to exceed the maximum ratio set
forth opposite such fiscal quarter:

 

FISCAL QUARTER ENDING

  

MAXIMUM SENIOR LEVERAGE RATIO

June 30, 2008    3.30 to 1.00 September 30, 2008    3.40 to 1.00 December 31,
2008    3.30 to 1.00 March 31, 2009    3.10 to 1.00 June 30, 2009    2.70 to
1.00 September 30, 2009    2.50 to 1.00 December 31, 2009    2.40 to 1.00
March 31, 2010    2.30 to 1.00 June 30, 2010    2.00 to 1.00 September 30, 2010
   2.00 to 1.00 December 31, 2010    1.90 to 1.00

 

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FISCAL QUARTER ENDING

  

MAXIMUM SENIOR LEVERAGE RATIO

March 31, 2011    1.90 to 1.00 June 30, 2011    1.90 to 1.00 September 30, 2011
   1.90 to 1.00 December 31, 2011    1.80 to 1.00 March 31, 2012    1.80 to 1.00
June 30, 2012    1.80 to 1.00 September 30, 2012    1.80 to 1.00 December 31,
2012    1.70 to 1.00 March 31, 2013    1.70 to 1.00 June 30, 2013    1.70 to
1.00 September 30, 2013    1.60 to 1.00 December 31, 2013    1.60 to 1.00
March 31, 2014    1.60 to 1.00 June 30, 2014    1.60 to 1.00 September 30, 2014
   1.50 to 1.00 December 31, 2014    1.50 to 1.00 March 31, 2015    1.50 to 1.00
June 30, 2015 and each fiscal quarter thereafter    1.40 to 1.00

Section 6.18 Minimum Liquidity. The Credit Parties (on a consolidated basis)
will not permit at any time the sum of their (i) actual cash and Cash
Equivalents and (ii) Availability to be less than $2,500,000.

Section 6.19 Collateral Coverage Ratio. The Borrowers will not permit the
Collateral Coverage Ratio to be less than (i) 1.4 to 1.0 at any time on or prior
to December 31, 2008 and (ii) 1.5 to 1.0 at any thereafter.

Section 6.20 Fixed Charge Coverage Ratio. The Credit Parties will not permit the
Fixed Charge Coverage Ratio for the twelve (12) consecutive months ending on the
last day of for each fiscal quarter set forth below (or with respect to the
fiscal quarters ending on or before April 30, 2009, the period commencing on
May 1, 2008, and ending on the last day of such fiscal month) to be less than
the minimum ratio set forth opposite such fiscal quarters:

 

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FISCAL QUARTER ENDING

  

MINIMUM FIXED CHARGE COVERAGE RATIO

June 30, 2008    1.40 to 1.00 September 30, 2008    1.40 to 1.00 December 31,
2008    1.40 to 1.00 March 31, 2009    1.50 to 1.00 June 30, 2009    1.50 to
1.00 September 30, 2009    1.60 to 1.00 December 31, 2009    1.70 to 1.00
March 31, 2010    1.70 to 1.00 June 30, 2010    1.70 to 1.00 September 30, 2010
   1.80 to 1.00 December 31, 2010    1.90 to 1.00 March 31, 2011    2.00 to 1.00
June 30, 2011    2.10 to 1.00 September 30, 2011    2.10 to 1.00 December 31,
2011    2.10 to 1.00 March 31, 2012    2.10 to 1.00 June 30, 2012    2.20 to
1.00 September 30, 2012    2.30 to 1.00 December 31, 2012    2.40 to 1.00
March 31, 2013    2.60 to 1.00 June 30, 2013    2.70 to 1.00 September 30, 2013
   2.70 to 1.00 December 31, 2013    2.70 to 1.00 March 31, 2014    2.70 to 1.00
June 30, 2014    2.70 to 1.00 September 30, 2014    2.90 to 1.00 December 31,
2014    3.00 to 1.00 March 31, 2015    3.30 to 1.00 June 30, 2015 and each
fiscal quarter thereafter    3.40 to 1.00

Section 6.21 Minimum EBITDA. The Credit Parties will not permit the sum of
(i) the Consolidated EBITDA plus (ii) 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 less
than the minimum amount set forth opposite such fiscal quarter:

 

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FISCAL QUARTER ENDING

  

MINIMUM CONSOLIDATED EBITDA

June 30, 2008    $12,000,000 September 30, 2008    $12,000,000 December 31, 2008
   $12,500,000 March 31, 2009    $13,000,000 June 30, 2009    $13,500,000
September 30, 2009    $14,300,000 December 31, 2009    $15,000,000 March 31,
2010 and each fiscal quarter thereafter    $15,500,000

Section 6.22 Executive Compensation. No Credit Party will, nor permit any
Subsidiary to, make any payments of management, consulting or other fees for
management or similar services, or any payment on account of any Indebtedness
owing to any officer, employee, shareholder, director or other Affiliate of such
Credit Party, except reasonable compensation to officers, employees and
directors of such Credit Party for services rendered to such Borrower in the
ordinary course of business. Without limiting the foregoing, no Credit Party
shall not pay or commit to pay cash compensation to any member of such Credit
Party’s senior management in an amount in any fiscal year in excess of 110% of
the aggregate cash compensation paid during the prior fiscal year except as may
be approved by the Compensation Committee of the Board of Directors so long as
the common stock of SHSI continues to be publicly traded on the American Stock
Exchange, the New York Stock Exchange or the NASDAQ National Market.

Section 6.23 Restrictions on Leases, etc. No Credit Party will, nor permit any
Subsidiary to, create, incur, assume, or suffer to exist, any obligation as a
lessee for the rental or hire of any real or personal property, other than:
(a) leases described on Schedule 6.23 attached hereto; (b) renewals of existing
operating leases, provided that the periodic payments thereunder shall not
exceed 110% of the periodic payments required under the original term thereof;
and (c) additional operating leases requiring payments (including taxes,
insurance, maintenance, and similar expenses) in an aggregate amount not to
exceed $1,000,000 at any time.

Section 6.24 Loan Proceeds. No Borrower will, nor permit any Subsidiary to, use
any part of the proceeds of the Loans or Advances directly or indirectly, and
whether immediately, incidentally or ultimately, (a) to purchase or carry margin
stock (as defined in Regulation U of the Board) or to extend credit to others
for the purpose of purchasing or carrying margin stock or to refund Indebtedness
originally incurred for such purpose or (b) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of Regulations U or
X of the Board.

 

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Section 6.25 Sale and Leaseback Transactions. No Credit Party will, nor permit
any Subsidiary to, enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property, real or personal, and thereafter lease
such property for the same or a substantially similar purpose or purposes as the
property sold or transferred.

Section 6.26 Hedging Agreements. No Credit Party will, nor permit any Subsidiary
to, enter into any hedging arrangements, other than any Rate Protection
Agreements that are approved by the Agent.

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

Section 7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:

(a) The Borrowers shall fail to make when due, whether by acceleration or
otherwise, any payment of principal of or interest on any of the Loans or any
other Obligation required to be made pursuant to this Agreement and not
corrected within 3 days.

(b) Any representation or warranty made by or on behalf of any Credit Party or
any Subsidiary in this Agreement or any other Loan Document or by or on behalf
of any Credit Party or any Subsidiary in any certificate, statement, report or
document herewith or hereafter furnished to the Agent or any Lender pursuant to
this Agreement or any other Loan Document shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.

(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 or 5.16 hereof or any
Section of Article VI hereof.

(d) (A) Any Credit Party or any of its respective Subsidiaries shall fail to
comply with Section 5.1 (other than Section 5.1(f)) and such failure to comply
shall continue unremedied for fifteen (15) calendar days or (B) any Credit Party
shall fail to comply with any other agreement, covenant, condition, provision or
term contained in this Agreement (other than those hereinabove set forth in this
Section 7.1) and such failure to comply shall continue for thirty (30) calendar
days after whichever of the following dates is the earliest: (i) the date any
Credit Party or the Borrowers’ Agent gives notice of such failure to the Agent,
(ii) the date any Credit Party should have given notice of such failure to the
Agent pursuant to Section 5.1, or (iii) the date the Agent gives notice of such
failure to the Borrowers’ Agent.

(e) Any default (however denominated or defined) shall occur under any Security
Document and any applicable grace period thereunder shall have lapsed.

(f) Any Credit Party or any Subsidiary other than any Immaterial Subsidiary,
shall become insolvent or shall generally not pay its debts as they mature or
shall apply for, shall consent to, or shall acquiesce in the appointment of a
custodian, trustee or receiver of such Credit Party or such Subsidiary or for a
substantial part of the property thereof or, in the absence of such application,
consent or acquiescence, a custodian, trustee or receiver shall be appointed for

 

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any such Credit Party or any such Subsidiary or for a substantial part of the
property thereof and shall not be discharged within sixty (60) days, or any
Borrower or any Subsidiary other than any Immaterial Subsidiary, shall make an
assignment for the benefit of creditors.

(g) Any bankruptcy, reorganization, debt arrangement or other proceedings under
any bankruptcy or insolvency law shall be instituted by or against any Credit
Party or any Subsidiary other than any Immaterial Subsidiary, and, if instituted
against any such Credit Party or any such Subsidiary, shall have been consented
to or acquiesced in by such Credit Party or such Subsidiary, or shall remain
undismissed for sixty (60) days, or an order for relief shall have been entered
against such Credit Party or such Subsidiary.

(h) Any dissolution or liquidation proceeding not permitted by Section 6.1 shall
be instituted by or against any Credit Party or a Subsidiary other than any
Immaterial Subsidiary, and, if instituted against any such Credit Party or any
such Subsidiary, shall be consented to or acquiesced in by such Credit Party or
such Subsidiary or shall remain for sixty (60) days undismissed.

(i) A judgment or judgments for the payment of money in excess of the sum of
$750,000 in the aggregate shall be rendered against any Credit Party or a
Subsidiary and either (i) the judgment creditor executes on such judgment (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) or (ii) such judgment remains unpaid or
undischarged for more than 60 days from the date of entry thereof or such longer
period during which execution of such judgment shall be stayed during an appeal
from such judgment.

(j) The maturity of any material Indebtedness of any Credit Party (other than
Indebtedness under this Agreement) or a Subsidiary shall be accelerated, or any
Credit Party or a Subsidiary shall fail to pay any such material Indebtedness
when due (after the lapse of any applicable grace period) or, in the case of
such Indebtedness payable on demand, when demanded (after the lapse of any
applicable grace period), or any event shall occur or condition shall exist and
shall continue for more than the period of grace, if any, applicable thereto and
shall have the effect of causing, or permitting the holder of any such
Indebtedness or any trustee or other Person acting on behalf of such holder to
cause, such material Indebtedness to become due prior to its stated maturity or
to realize upon any collateral given as security therefor. For purposes of this
Section, Indebtedness of any Credit Party or a Subsidiary shall be deemed
“material” if it exceeds $750,000 as to any item of Indebtedness or in the
aggregate for all items of Indebtedness with respect to which any of the events
described in this Section 7.1(j) has occurred.

(k) Any execution or attachment shall be issued whereby any material part of the
property of any Credit Party or any Subsidiary shall be taken or attempted to be
taken and the same shall not have been vacated or stayed within 30 days after
the issuance thereof.

(l) Any Security Document shall, at any time, cease to be in full force and
effect or shall be judicially declared null and void, or the validity or
enforceability thereof shall be contested by any Credit Party, or the Agent
shall cease to have a valid and perfected security interest having the priority
contemplated thereunder in all of the collateral described therein,

 

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other than by action or inaction of the Agent if (i) the aggregate value of the
collateral affected by any of the foregoing exceeds $750,000 and (ii) any of the
foregoing shall remain unremedied for ten (10) days or more after receipt of
notice thereof by the Borrowers’ Agent from the Agent.

(m) The indictment by any Governmental Authority of a Credit Party or Affiliate
of any Credit Party as to which there is a reasonable probability of an adverse
determination under any criminal statute, or commencement of criminal or civil
proceedings against any Credit Party or Affiliate of any Credit Party, pursuant
to which statute or proceeding the penalties or remedies sought or available
include forfeiture of any material portion of the Collateral or any other assets
of any Credit Party which are necessary or material to the conduct of its
business; or the indictment by any Governmental Authority of a Credit Party
regarding any matter that may serve as the basis for the exclusion under 42
C.F.R. Part 1001, Subparts B and C, of any Credit Party, a Subsidiary or
Affiliate of a Credit Party from a federal health care program, as defined in 42
C.F.R. § 1001.2; or the initiation or, as Agent may reasonably and in good faith
determine the threatened initiation, by the United States Department of Health
and Human Services Office of Inspector General of or, the occurrence of any
event which could reasonably be likely to give rise to, an action to exclude any
Credit Party under 42 C.F.R. Part 1001, Subparts B and C.

(n) The loss, suspension or revocation of, or failure to renew, any license,
permit, approval, accreditation or other authorization of any Governmental
Authority or other Person now held or hereafter acquired by any Credit Party or
any of their Subsidiaries if such loss, suspension, revocation or failure to
renew would have a Material Adverse Occurrence.

(o) Any occurrence, after the Original Closing Date, of whatsoever nature
(including, without limitation, any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding) which would reasonably
be expected to materially and adversely affect (a) the financial condition or
operations of the Credit Parties and their Subsidiaries taken as a whole,
(b) impair the ability of the Credit Parties and their Subsidiaries, taken as a
whole, to perform their obligations under any Loan Document, or any writing
executed pursuant thereto, (c) the validity or enforceability of the material
obligations of any Credit Party other than an Immaterial Subsidiaries under any
Loan Document, or (d) the rights and remedies of the Agent or any Lender against
any Credit Party or any Subsidiary, (e) the timely payment of the principal of
and interest on the Loans or other amounts payable by the Credit Parties
hereunder, or (f) the validity of the joint and several nature of the
obligations of the Borrowers with respect to all of the Obligations.

Section 7.2 Remedies. If (a) any Event of Default described in Sections 7.1(f),
(g) or (h) shall occur with respect to any Credit Party , the Revolving
Commitments shall automatically terminate and the Loans and all other
Obligations shall automatically become immediately due and payable; or (b) any
other Event of Default shall occur and be continuing, then, the Agent may, and
at the request of the Required Lenders shall, (i) declare the Revolving
Commitments terminated, whereupon the Revolving Commitments shall terminate,
(ii) declare the outstanding unpaid principal balance of the Loans, the accrued
and unpaid interest thereon and all other Obligations to be forthwith due and
payable, whereupon the Loans, all accrued and unpaid interest thereon and all
such Obligations shall immediately become due and payable, in each case without
presentment, demand, protest or other notice of any kind, all of which are
hereby

 

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expressly waived, anything in this Agreement or in the Notes to the contrary
notwithstanding, and/or (iii) exercise on behalf of itself and the Beneficiaries
all rights and remedies available to it and the Lenders under the Loan Documents
or applicable law.

Section 7.3 Lockbox; Rights Under Control Agreements. After the occurrence and
during the continuance of an Event of Default, the Agent shall be entitled to
send notice to any financial institutions party to a Control Agreement to assert
exclusive control over all funds held in the Concentration Account or any other
Deposit Accounts (other than any Local Bank Account), investment accounts and/or
securities accounts subject to a Control Agreement. After an Event of Default
has occurred and is continuing, except as otherwise may be required by
Section 2.19, the Agent may apply all Collections and other payments against the
Obligations in such order as the Agent deems appropriate. Any application of any
Collection to the payment of any Obligation is conditioned upon final payment of
any check or other instrument. In addition, the Agent, at any time after the
occurrence of an Event of Default, whether or not any such Event of Default
continues to exist, may require that each Borrower instruct all or, if so
elected by the Agent, certain of its current and future account debtors and
obligors on other Collateral to make all payments directly to one or more
lockboxes (each a “Lockbox”) controlled by the Agent or to the extent not
permitted by applicable law, shall make such other arrangements as the Agent may
require to cause transfer of Collateral proceeds to a Collateral Account and the
Agent may exercise its rights under Control Agreements. All payments received in
a Lockbox shall be transferred to one or more special bank accounts (each a
“Collateral Account”) controlled by the Agent subject to withdrawal by the Agent
only. After the Agent’s exercise of its rights to direct account debtors or
other obligors on any Collateral to make payments directly to the Agent or to
require a Borrower to establish a Lockbox, each Borrower shall immediately
deliver all full and partial payments on any Collateral received by such
Borrower to the Agent in their original form, except for endorsements where
necessary. Until such payments are so delivered to the Agent, such payments
shall be held in trust by the Borrowers for and as the Agent’s property, and
shall not be commingled with any funds of any of the Borrowers.

Section 7.4 Offset. In addition to the remedies set forth in Section 7.3, upon
the occurrence of any Event of Default and thereafter while the same be
continuing, each Credit Parties hereby irrevocably authorizes the Agent and
Lenders to set off any Obligations against all deposits and credits of such
Credit Party with, and any and all claims of such Credit Party against, Agent or
any Lender. Such right shall exist whether or not the Agent or Lenders shall
have made any demand hereunder or under any other Loan Document, whether or not
the Obligations, or any part thereof, or deposits and credits held for the
account of the Credit Parties is or are matured or unmatured, and regardless of
the existence or adequacy of any collateral, guaranty or any other security,
right or remedy available to the Agent or any Lender. The Agent and Lenders
agree that, as promptly as is reasonably possible after the exercise of any such
setoff right, it shall notify the Borrowers’ Agent of its exercise of such
setoff right; provided, however, that the failure of the Agent or any Lender to
provide such notice shall not affect the validity of the exercise of such setoff
rights. Nothing in this Agreement shall be deemed a waiver or prohibition of or
restriction on the Agent or any Lender to all rights of banker’s Lien, setoff
and counterclaim available pursuant to law.

 

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ARTICLE VIII

MISCELLANEOUS

Section 8.1 Amendments and Waivers.

(a) Except for actions expressly permitted to be taken by Agent, no amendment,
modification, termination or waiver of any provision of this Agreement or any
other Loan Document, or any consent to any departure by any Credit Party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Borrowers, the Agent and by Required Lenders, Required Revolving
Lenders or all affected Lenders, as applicable. Except as set forth in
subsections (b) and (c) below, all such amendments, modifications, terminations
or waivers requiring the consent of any Lenders shall require the written
consent of Required Lenders.

(b) No amendment, modification, termination or waiver of or consent with respect
to any provision of this Agreement that increases the percentage advance rates
above the percentage advance rates set forth in the definition of terms
“Borrowing Base” and “Availability” as of the Original Closing Date shall be
effective unless the same shall be in writing and signed by Agent, Required
Revolving Lenders and Borrowers. No amendment, modification, termination or
waiver of or consent with respect to any provision of this Agreement that waives
compliance with the conditions precedent set forth in Section 3.2 to the making
of any Revolving Loan shall be effective unless the same shall be in writing and
signed by Agent, Required Revolving Lenders and Borrowers. Notwithstanding
anything contained in this Agreement to the contrary, no waiver or consent with
respect to any Default or any Event of Default shall be effective for purposes
of the conditions precedent to the making of Revolving Loans set forth in
Section 3.2 unless the same shall be in writing and signed by Agent, Required
Revolving Lenders and Borrowers.

(c) No amendment, modification, termination or waiver shall, unless in writing
and signed by Agent and each Lender directly affected thereby: (i) increase the
principal amount, or postpone or extend the scheduled date of expiration, of any
Lender’s Revolving Commitment or Term Loan (which action shall be deemed to
directly affect all Lenders); (ii) reduce the principal of, rate of interest on
(other than any determination or waiver to charge or not charge interest at the
Default Rate) or Fees payable with respect to any Loan of any affected Lender;
(iii) extend any scheduled payment date or final maturity date of the principal
amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or
postpone any payment of interest or Fees as to any affected Lender (which action
shall be deemed only to affect those Lenders to whom such payments are made);
(v) release any Guaranty or release all or substantially all of the Collateral,
except as otherwise provided in this Credit Agreement or the other Loan
Documents; (vi) change the percentage of the Revolving Commitments or of the
aggregate unpaid principal amount of the Loans that shall be required for
Lenders or any of them to take any action hereunder (which action shall be
deemed to directly affect all Lenders); and (vii) amend or waive this
Section 8.1 or the definitions of the terms “Required Lenders”, or “Required
Revolving Lenders” insofar as such definitions affect the substance of this
Section 8.1 or the term “Pro Rata Share” (which action shall be deemed to
directly affect all Lenders). Furthermore, no amendment, modification,
termination or waiver affecting the respective rights or duties of Agent or
Funding Agent under this Agreement or any other Loan Document shall be

 

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effective unless in writing and signed by Agent or Funding Agent, as applicable,
in addition to Lenders required hereinabove to take such action. Each amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given. No amendment,
modification, termination or waiver shall be required for Agent to take
additional Collateral pursuant to any Loan Document. No amendment, modification,
termination or waiver of any provision of any Note shall be effective without
the written concurrence of the holder of that Note. No notice to or demand on
any Credit Party in any case shall entitle such Credit Party or any other Credit
Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 8.1 shall be binding upon each holder
of the Notes at the time outstanding and each future holder of the Notes.

Section 8.2 Expenses. Whether or not the transactions contemplated hereby are
consummated, the Credit Parties agree to pay to the Agent upon demand: (a) the
reasonable costs of producing this Agreement, the other Loan Documents and other
agreements and instruments mentioned herein; (b) the reasonable costs and
expenses of the Agent incurred in connection with the administration, including
electronic interfaces fees and periodic auditing, Collateral monitoring,
modification and amendment of this Agreement; (c) any taxes (including interest
and penalties in respect thereto) payable by the Agent, Funding Agent or any
Lender (other than taxes based upon the Agent’s, Funding Agent’s or Lenders’ net
income or profits) on or with respect to the transactions contemplated by this
Agreement; (d) the reasonable fees, expenses and disbursements of the Agent’s
counsel and any local counsel to the Agent incurred in connection with the
preparation, administration or interpretation of the Loan Documents and other
instruments mentioned herein, the closing of the transactions contemplated
hereby, and amendments, modifications, approvals, consents or waivers hereto or
hereunder; (e) the reasonable fees, expenses and disbursements of the Agent
incurred by the Agent in connection with the preparation, administration or
interpretation of the Loan Documents and other instruments mentioned herein,
including all title insurance premiums and surveyor, engineering and appraisal
charges and all expenses related to Phase I environmental assessments; (f) the
reasonable fees, costs, expenses and bank charges, including bank charges for
returned checks, incurred by the Agent in establishing, maintaining or handling
the Lockbox or that Collateral Account and any other accounts for the
disbursement of the Loans and/or the collection of any of the Collateral;
(g) all reasonable out-of-pocket expenses (including without limitation
reasonable attorneys’ fees and costs, which attorneys may be employees of the
Agent, Funding Agent and Lenders, and reasonable consulting, accounting,
appraisal, investment banking and similar professional fees and charges)
incurred by the Agent, Funding Agent and Lenders in connection with (i) the
enforcement of or preservation of rights under any of the Loan Documents against
Credit Parties or the administration thereof, and (ii) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way related
to the Agent’s or any Lender’s relationship with Credit Parties or any of its
Affiliates; and (h) all reasonable fees, expenses and disbursements of the Agent
incurred in connection with UCC or title searches, UCC filings or mortgage
recordings. In addition, the Credit Parties agree to pay to the Funding Agent
upon demand the reasonable fees, expenses and disbursements of the Funding
Agent, without duplication as to fees, expenses and disbursements of the Agent
that have been paid to the Agent by the Credit Parties pursuant to this
Section 8.2, incurred by the Funding Agent in connection with administration or
interpretation of the Loan Documents and other instruments mentioned herein, and
amendments, modifications, approvals, consents or waivers hereto or hereunder,
in

 

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each case solely as the same relates to or affects the performance by the
Funding Agent of its functions in its capacity as the Funding Agent under the
Loan Documents. All such costs and expenses shall constitute Obligations
hereunder secured by the Agent’s Liens in the Collateral. The covenants of this
Section 8.2 shall survive payment and satisfaction of the Obligations. Anything
herein to the contrary notwithstanding, the Credit Parties shall not be required
to pay any costs of drafting, negotiating and producing this Agreement incurred
by the Agent, Funding Agent or any Lender.

Section 8.3 Waivers, etc. No failure on the part of the Agent or any Lender or
the holder of a Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in the other Loan Documents provided are cumulative and
not exclusive of any remedies provided by law.

Section 8.4 Notices.

(a) Except when telephonic notice is expressly authorized by this Agreement, any
notice or other communication to any party in connection with this Agreement
shall be in writing and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid)
addressed to such party at the address specified on the signature page hereof,
or at such other address as such party shall have specified to the other party
hereto in writing. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if sent
by facsimile transmission, from the first Business Day after the date of sending
if sent by overnight courier, or from four days after the date of mailing if
mailed; provided, however, that any notice to the Agent and/or Funding Agent
under Article II hereof shall be deemed to have been given only when received by
the Agent.

(b) Notices and other communications to the Agent hereunder may be delivered or
furnished by e-mail pursuant to procedures approved by the Agent, and/or Funding
Agent, as applicable provided that the foregoing shall not apply to notices to
the Agent and/or Funding Agent pursuant to Article II. The Agent, Funding Agent
or the Credit Parties may, in its discretion, agree to accept notices and other
communications to it hereunder by e-mail pursuant to procedures approved by it,
provided that approval of such procedures may be limited to particular notices
or communications. Unless the Agent and/or Funding Agent otherwise prescribes,
notices and other communications sent to an e-mail address shall be deemed
received upon the sender’s receipt of an acknowledgement from the intended
recipient (such as by the “return receipt requested” function, as available,
return e-mail or other written acknowledgement), provided that if such notice or
other communication is not sent during the normal business hours of the
recipient, such notice or communication shall be deemed to have been sent at the
opening of business on the next business day for the recipient.

Section 8.5 Taxes. The Credit Parties agree to pay, and save the Agent and
Lenders harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Agreement or the
issuance of the Notes, which obligation of the Credit Parties shall survive the
termination of this Agreement.

 

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Section 8.6 Successors and Assigns. Subject to Section 10.1 hereof, this
Agreement shall be binding upon and inure to the benefit of the Credit Parties,
Agent, Funding Agent, Lenders, all future holders of the Notes, and their
respective successors and assigns, except that the Credit Parties may not assign
or transfer any of their rights or obligations under this Agreement without the
prior written consent of the Lenders.

Section 8.7 Confidentiality of Information. The Agent, Funding Agent and Lenders
shall use the same level of efforts and care as it uses with respect to its own
confidential information to ensure that information about the Credit Parties and
their operations, affairs and financial condition, not generally disclosed to
the public or to trade and other creditors, which is furnished to the Agent,
Funding Agent and Lenders pursuant to the provisions hereof is used only for the
purposes of this Agreement and any other relationship between the Agent, Funding
Agent, Lenders and the Credit Parties and shall not be divulged to any Person
other than the Agent and Lenders, their Affiliates and their respective
officers, directors, employees and agents (each a “Representative”) (it being
understood that the Representatives to whom such disclosure is made will be
informed of the confidential nature of such information and instructed to keep
such information confidential), except: (a) to their attorneys and accountants,
(b) in connection with the enforcement of the rights of the Agent, Funding Agent
or any Lender hereunder and under the Loan Documents or otherwise in connection
with applicable litigation, (c) in connection with assignments and
participations and the solicitation of prospective assignees and participants
referred to in Section 9.1, (d) if such information is generally available to
the public other than as a result of disclosure by the Agent, Funding Agent or a
Lender, (e) to any direct or indirect contractual counterparty in any hedging
arrangement or such contractual counterparty’s professional advisor, (f) to any
nationally recognized rating agency that requires information about the Agent’s,
Funding Agent’s or any Lender’s investment portfolio in connection with ratings
issued with respect to the Agent, Funding Agent or any Lender, and (g) as may
otherwise be required or requested by any regulatory authority having
jurisdiction over the Agent, Funding Agent or any Lender or by any applicable
law, rule, regulation or judicial process, the opinion of the Agent’s, Funding
Agent’s or any Lender’s counsel concerning the making of such disclosure to be
binding on the parties hereto; provided, however, that in case of a required
disclosure pursuant to the preceding clause (g), the Agent shall notify
Borrowers’ Agent of such required or requested disclosure to the extent
practicable, unless prohibited by law, and reasonably cooperate with the
Borrowers, at the Credit Parties’ sole expense, to enjoin, stay or limit such
disclosure. None of the Agent, Funding Agent nor any Lender shall incur any
liability to the Borrowers by reason of any disclosure permitted by this
Section.

Section 8.8 Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF GEORGIA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF. Whenever possible, each provision of this Agreement and the
other Loan Documents and any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto shall be
interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto.

 

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Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE AGENT, THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY STATE COURT LOCATED WITHIN
COBB COUNTY, STATE OF GEORGIA, OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT
OF GEORGIA; AND EACH CREDIT PARTY CONSENTS TO THE JURISDICTION AND VENUE OF ANY
SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT.
IN THE EVENT ANY CREDIT PARTY COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR
VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS AGREEMENT, THE AGENT AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

Section 8.10 Waiver of Jury Trial. EACH CREDIT PARTY, AGENT, FUNDING AGENT AND
EACH LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 8.11 Survival of Agreement. All representations, warranties, covenants
and agreement made by each Credit Party herein or in the other Loan Documents
and in the certificates or other instruments prepared or delivered in connection
with or pursuant to this Agreement or any other Loan Document shall be deemed to
have been relied upon by the Agent and Lenders and shall survive the making of
the Loan by the Lenders and the execution and delivery to the Agent and Lenders
by the Borrowers of the Notes, regardless of any investigation made by or on
behalf of the Agent or any Lender, and shall continue in full force and effect
as long as any Obligation is outstanding and unpaid and so long as the Revolving
Commitment has not been terminated; provided, however, that the Credit Parties’
obligations under Sections 2.16, 8.2, 8.5 and 8.12 shall survive payment in full
of the Obligations and the termination of the Revolving Commitment.

Section 8.12 Indemnification. The Credit Parties hereby agree to defend,
protect, indemnify and hold harmless the Agent, the Funding Agent, Lenders and
their Affiliates and the directors, officers, employees, attorneys and agents of
the Agent, the Funding Agent, Lenders and their Affiliates (each of the
foregoing being an “Indemnitee” and all of the foregoing being collectively the
“Indemnitees”) from and against any and all claims, actions, damages,
liabilities, judgments, costs and expenses (including all reasonable fees and
disbursements of counsel which may be incurred in the investigation or defense
of any matter) imposed upon, incurred by or asserted against any Indemnitee,
whether direct, indirect or consequential and whether based on any federal,
state, local or foreign laws or regulations (including securities laws,
environmental laws, commercial laws and regulations), under common law or on
equitable cause, or on contract or otherwise:

(a) by reason of, relating to or in connection with the execution, delivery,
performance or enforcement of any Loan Document, any commitments relating
thereto, or any transaction contemplated by any Loan Document; or

 

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(b) by reason of, relating to or in connection with any credit extended or used
under the Loan Documents or any act done or omitted by any Person, or the
exercise of any rights or remedies thereunder, including the acquisition of any
collateral by the Agent or any Lender by way of foreclosure of the Lien thereon,
deed or bill of sale in lieu of such foreclosure or otherwise;

provided, however, that the Credit Parties shall not be liable to any Indemnitee
for any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee’s gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.

This indemnification applies, without limitation, to any act, omission, event or
circumstance existing or occurring on or prior to the later of the Termination
Date or the date of payment in full of the Obligations, including specifically
Obligations arising under clause (b) of this Section. The indemnification
provisions set forth above shall be in addition to any liability the Credit
Parties may otherwise have. Without prejudice to the survival of any other
obligation of the Credit Parties hereunder the indemnities and obligations of
the Credit Parties contained in this Section shall survive the payment in full
of the other Obligations.

Section 8.13 Captions. The captions or headings herein and any table of contents
hereto are for convenience only and in no way define, limit or describe the
scope or intent of any provision of this Agreement.

Section 8.14 Entire Agreement. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Credit Parties, the
Agents, the Funding Agent and the Lenders with respect to the subject matter
hereof and thereof. This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof. Nothing contained in this
Agreement or in any other Loan Document, expressed or implied, is intended to
confer upon any Persons other than the parties hereto any rights, remedies,
obligations or liabilities hereunder or thereunder.

Section 8.15 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.

Section 8.16 Borrower Acknowledgements. Each Credit Party hereby acknowledges
that (a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents, (b) None of the Agent,
the Funding Agent nor any Lender has any fiduciary relationship to such Credit
Party, the relationship being solely that of debtor and creditor, (c) no joint
venture exists between such Credit Party and the Agent, the Funding Agent or any
Lender, and (d) the Agent, the Funding Agent and Lenders undertake no
responsibility to such Credit Party to review or inform such Credit Party of any
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connection with any phase of the business or operations of such Credit Party and
such Credit Party shall rely entirely upon its own judgment with respect to its
business, and any review, inspection or supervision of, or information supplied
to, the Credit Parties by the Agent, the Funding Agent or any Lender is for the
protection of the Agent, the Funding Agent and such Lender and neither such
Credit Party nor any third party is entitled to rely thereon.

Section 8.17 Appointment of and Acceptance by Borrowers’ Agent. Each Credit
Party other than SunLink Health Systems Inc. hereby appoints and authorizes the
Borrowers’ Agent as its representative and agent on its behalf for the purposes
of issuing borrowing requests, notices of conversion, giving instructions with
respect to the disbursement of the proceeds of the Loans, selecting interest
rate options, giving and receiving all other notices and consents hereunder or
under any of the other Loan Documents and taking all other actions (including in
respect of compliance with covenants) on behalf of any Credit Party or Credit
Parties under the Loan Documents and to exercise such powers under the Loan
Documents as are delegated to the Borrowers’ Agent by the terms thereof,
together with such power that are reasonably incidental thereto. SunLink Health
Systems, Inc. hereby accepts such appointment. Agent and each Lender may regard
any request, notice or other communication pursuant to any Loan Document from
Borrowers’ Agent as a request, notice or communication from all Credit Parties.
Each warranty, covenant, agreement and undertaking made on its behalf by
Borrowers’ Agent shall be deemed for all purposes to have been made by such
Credit Party and shall be binding upon and enforceable against such Credit Party
to the same extent as it if the same had been made directly by such Credit
Party.

Section 8.18 Relationship Among Borrowers.

(a) Joint and Several Liability. EACH BORROWER AGREES THAT IT IS LIABLE, JOINTLY
AND SEVERALLY WITH EACH OTHER BORROWER, FOR THE PAYMENT OF ALL OBLIGATIONS OF
THE BORROWERS UNDER THIS AGREEMENT, AND THAT THE AGENT CAN ENFORCE SUCH
OBLIGATIONS AGAINST ANY OR ALL BORROWERS, IN THE AGENT’S SOLE AND UNLIMITED
DISCRETION.

(b) Waivers of Defenses. The obligations of the Borrowers hereunder shall not be
released, in whole or in part, by any action or thing which might, but for this
provision of this Agreement, be deemed a legal or equitable discharge of a
surety or guarantor, other than irrevocable payment and performance in full of
the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) at a time after any obligation of the
Lenders hereunder to make the Term Loan and Revolving Loan shall have expired or
been terminated. The purpose and intent of this Agreement is that the
Obligations constitute the direct and primary obligations of each Borrower and
that the covenants, agreements and all obligations of each Borrower hereunder be
absolute, unconditional and irrevocable. Each Borrower shall be and remain
liable for any deficiency remaining after foreclosure of any mortgage, deed of
trust or security agreement securing all or any part of the Obligations, whether
or not the liability of any other Person for such deficiency is discharged
pursuant to statute, judicial decision or otherwise.

(c) Other Transactions. The Agent and Lenders are expressly authorized to
exchange, surrender or release with or without consideration any or all
collateral and security which may at any time be placed with it by the Borrowers
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the Borrowers, or to forward or deliver any or all such collateral and security
directly to the Borrowers for collection and remittance or for credit. No
invalidity, irregularity or unenforceability of any security for the Obligations
or other recourse with respect thereto shall affect, impair or be a defense to
the Borrowers’ obligations under this Agreement. The liabilities of each
Borrower hereunder shall not be affected or impaired by any failure, delay,
neglect or omission on the part of the Agent or any Lender to realize upon any
of the Obligations of any other Borrower to the Agent and Lenders, or upon any
collateral or security for any or all of the Obligations, nor by the taking by
the Agent or any Lender of (or the failure to take) any guaranty or guaranties
to secure the Obligations, nor by the taking by the Agent or any Lender of (or
the failure to take or the failure to perfect its security interest in or other
lien on) collateral or security of any kind. No act or omission of the Agent or
any Lender, whether or not such action or failure to act varies or increases the
risk of, or affects the rights or remedies of a Borrower, shall affect or impair
the obligations of the Borrowers hereunder.

(d) Actions Not Required. Each Borrower, to the extent permitted by applicable
law, hereby waives any and all right to cause a marshaling of the assets of any
other Borrower or any other action by any court or other governmental body with
respect thereto or to cause the Agent or any Lender to proceed against any
security for the Obligations or any other recourse which the Agent or any Lender
may have with respect thereto and further waives any and all requirements that
the Agent or any Lender institute any action or proceeding at law or in equity,
or obtain any judgment, against any other Borrower or any other Person, or with
respect to any collateral security for the Obligations, as a condition precedent
to making demand on or bringing an action or obtaining and/or enforcing a
judgment against, such Borrower under this Agreement.

(e) No Subrogation. Notwithstanding any payment or payments made by any Borrower
hereunder or any setoff or application of funds of any Borrower by the Agent or
any Lender, such Borrower shall not be entitled to be subrogated to any of the
rights of the Agent or Lender against any other Borrower or any other guarantor
or any collateral security or guaranty or right of offset held by the Agent or
any Lender for the payment of the Obligations, nor shall such Borrower seek or
be entitled to seek any contribution or reimbursement from any other Borrower or
any other guarantor in respect of payments made by such Borrower hereunder,
until all amounts owing to the Agent and Lenders by the Borrowers on account of
the Obligations are irrevocably paid in full. If any amount shall be paid to a
Borrower on account of such subrogation rights at any time when all of the
Obligations shall not have been irrevocably paid in full, such amount shall be
held by that Borrower in trust for the Agent and Lenders, segregated from other
funds of that Borrower, and shall, forthwith upon receipt by the Borrower, be
turned over to the Agent in the exact form received by such Borrower (duly
indorsed by the Borrower to the Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Agent may
determine.

(f) Application of Payments. Except as provided in Section 2.19 or as otherwise
required by the Required Lenders, any and all payments upon the Obligations made
by the Borrowers or by any other Person, and/or the proceeds of any or all
collateral or security for any of the Obligations, may be applied by the Agent
on such items of the Obligations as the Agent may elect.

 

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(g) Recovery of Payment. If any payment received by the Agent, the Funding Agent
or any Lender and applied to the Obligations is subsequently set aside,
recovered, rescinded or required to be returned for any reason (including,
without limitation, the bankruptcy, insolvency or reorganization of a Borrower
or any other obligor), the Obligations to which such payment was applied shall,
to the extent permitted by applicable law, be deemed to have continued in
existence, notwithstanding such application, and each Borrower shall be jointly
and severally liable for such Obligations as fully as if such application had
never been made. References in this Agreement to amounts “irrevocably paid” or
to “irrevocable payment” refer to payments that cannot be set aside, recovered,
rescinded or required to be returned for any reason.

(h) Borrowers’ Financial Condition. Each Borrower is familiar with the financial
condition of the other Borrowers, and each Borrower has executed and delivered
this Agreement based on that Borrower’s own judgment and not in reliance upon
any statement or representation of the Agent or any Lender. None of the Agent,
the Funding Agent nor any Lender shall have any obligation to provide any
Borrower with any advice whatsoever or to inform any Borrower at any time of the
Agent’s, the Funding Agent’s or any Lender’s actions, evaluations or conclusions
on the financial condition or any other matter concerning the Borrowers.

(i) Bankruptcy of the Borrowers. Each Borrower expressly agrees that, to the
extent permitted by applicable law, the liabilities and obligations of that
Borrower under this Agreement shall not in any way be impaired or otherwise
affected by the institution by or against any other Borrower or any other Person
of any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or any other similar proceedings for relief under any bankruptcy
law or similar law for the relief of debtors and that any discharge of any of
the Obligations pursuant to any such bankruptcy or similar law or other law
shall not diminish, discharge or otherwise affect in any way the obligations of
that Borrower under this Agreement, and that upon the institution of any of the
above actions, such obligations shall be enforceable against that Borrower.

(j) Limitation; Insolvency Laws. As used in this Section 8.18(j): (a) the term
“Applicable Insolvency Laws” means the laws of the United States or of any
State, province, nation or other governmental unit relating to bankruptcy,
reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution, insolvency, fraudulent transfers or conveyances or other similar
laws (including, without limitation, 11 U. S. C. §547, §548, §550 and other
“avoidance” provisions of Title 11 of the United States Code) as applicable in
any proceeding in which the validity and/or enforceability of this Agreement
against any Borrower, or any Specified Lien is in issue; and (b) “Specified
Lien” means any security interest, mortgage, lien or encumbrance granted by any
Borrower securing the Obligations, in whole or in part. Notwithstanding any
other provision of this Agreement, if, in any proceeding, a court of competent
jurisdiction determines that with respect to any Borrower, this Agreement or any
Specified Lien would, but for the operation of this Section, be subject to
avoidance and/or recovery or be unenforceable by reason of Applicable Insolvency
Laws, this Agreement and each such Specified Lien shall be valid and enforceable
against such Borrower, only to the maximum extent that would not cause this
Agreement or such Specified Lien to be subject to avoidance, recovery or
unenforceability. To the extent that any payment to, or realization by, the
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Funding Agent and Lenders on the Obligations exceeds the limitations of this
Section and is otherwise subject to avoidance and recovery in any such
proceeding, the amount subject to avoidance shall in all events be limited to
the amount by which such actual payment or realization exceeds such limitation,
and this Agreement as limited shall in all events remain in full force and
effect and be fully enforceable against such Borrower. This Section is intended
solely to reserve the rights of the Agent, the Funding Agent and Lenders
hereunder against each Borrower, in such proceeding to the maximum extent
permitted by Applicable Insolvency Laws and neither the Borrowers, any guarantor
of the Obligations nor any other Person shall have any right, claim or defense
under this Section that would not otherwise be available under Applicable
Insolvency Laws in such proceeding.

Section 8.19 Interest Rate Limitation. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together with
all fees, charges and other amounts that are treated as interest on such Loan
under applicable law (collectively, the “Charges”), shall exceed the maximum
lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken,
received or reserved by the Agent or any Lender in accordance with applicable
law, the rate of interest payable in respect of such Loan hereunder, together
with all Charges payable in respect thereof, shall be limited to the Maximum
Rate and, to the extent lawful, the interest and Charges that would have been
payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to the Agent and Lenders in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by the Agent and Lenders.

Section 8.20 Deposit on Termination of Revolving Commitments. In the event of
the payment in full of the Obligations and termination by the Borrowers of the
Revolving Commitments established hereunder, the Agent may, in its discretion,
require Borrowers to deposit with the Agent a reasonable amount, not to exceed
$10,000, to cover any and all reasonable costs and expenses which may be
incurred by the Agent in connection with terminating the Revolving Commitments
and Agent’s Liens on the Collateral. Upon the final payment in full of the
Obligations and termination of the Revolving Commitments hereunder, the Agent
shall take all actions and execute all documents reasonably required to
terminate this Agreement and any and all Liens of the Agent on the Collateral,
and all reasonable costs and expenses incurred by the Agent may be deducted from
such deposit, with any remaining balance to be returned by the Agent to the
Borrowers’ Agent no later than sixty (60) days after the final payment in full
of the Obligations.

Section 8.21 Replacement of Lenders.

(a) Within fifteen (15) days after receipt by Borrowers’ Agent of written notice
and demand from any Lender for payment pursuant to Section 2.16(e) or 2.20 or,
as provided in this Section 8.21(c), in the case of certain refusals by any
Lender to consent to certain proposed amendments, modifications, terminations or
waivers with respect to this Agreement that have been approved by Required
Lenders, Required Revolving Lenders or all affected Lenders, as applicable (any
such Lender demanding such payment or refusing to so consent being referred to
herein as an “Affected Lender”), Borrowers may, at their option, notify Agent
and such Affected Lender of its intention to do one of the following:

 

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(i) Borrowers may obtain, at Borrowers’ expense, a replacement Lender
(“Replacement Lender”) for such Affected Lender, which Replacement Lender shall
be reasonably satisfactory to Agent. In the event Borrowers obtain a Replacement
Lender that will purchase all outstanding Obligations owed to such Affected
Lender and assume its Revolving Commitments hereunder within ninety (90) days
following notice of Borrowers’ intention to do so, the Affected Lender shall
sell and assign all of its rights and delegate all of its obligations under this
Agreement to such Replacement Lender in accordance with the provisions of
Section 9.1, provided that Borrowers have reimbursed such Affected Lender for
any administrative fee payable pursuant to Section 9.1, and, in any case where
such replacement occurs as the result of a demand for payment pursuant to
Section 2.16(c) or 2.20, paid all amounts required to be paid to such Affected
Lender pursuant to Section 2.16(c) or 2.20 through the date of such sale and
assignment; or

(ii) Borrowers may, with Agent’s consent, prepay in full all outstanding
Obligations owed to such Affected Lender and terminate such Affected Lender’s
Pro Rata Share of the Revolving Commitment in which case the Revolving
Commitment will be reduced by the amount of such Pro Rata Share. Borrowers
shall, within ninety (90) days following notice of their intention to do so,
prepay in full all outstanding Obligations owed to such Affected Lender
(including, in any case where such prepayment occurs as the result of a demand
for payment for increased costs, such Affected Lender’s increased costs for
which it is entitled to reimbursement under this Agreement through the date of
such prepayment), and terminate such Affected Lender’s obligations under the
Revolving Commitment.

(b) In the case of a Non-Funding Lender pursuant to Section 9.5(a), at
Borrowers’ Agent’s request, Agent or a Person acceptable to Agent shall have the
right with Agent’s consent and in Agent’s sole discretion (but shall have no
obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender
agrees that it shall, at Agent’s request, sell and assign to Agent or such
Person, all of the Loans and Revolving Commitments of that Non-Funding Lender
for an amount equal to the principal balance of all Loans held by such
Non-Funding Lender and all accrued interest and Fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.

(c) If, in connection with any proposed amendment, modification, waiver or
termination pursuant to Section 8.1 (a “Proposed Change”): requiring the consent
of all affected Lenders, the consent of Required Lenders is obtained, but the
consent of other Lenders whose consent is required is not obtained (any such
Lender whose consent is not obtained as described above being referred to as a
“Non-Consenting Lender”) then, so long as Agent is not a Non-Consenting Lender,
at Borrowers Agent’s request Agent, or a Person reasonably acceptable to Agent,
shall have the right with Agent’s consent and in Agent’s sole discretion (but
shall have no obligation) to purchase from such Non-Consenting Lenders, and such
Non-Consenting Lenders agree that they shall, upon Agent’s request, sell and
assign to Agent or such Person, all of the Loans and Revolving Commitments of
such Non-Consenting Lenders for an amount equal to the principal balance of all
Loans held by the Non-Consenting Lenders and all accrued interest and Fees and
other Obligations owing with respect thereto through the date of sale, such
purchase and sale to be consummated pursuant to an executed Assignment
Agreement.

 

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Section 8.22 Lenders’ Obligations Several; Independent Nature of Lenders’
Rights. The obligation of each Lender hereunder is several and not joint and no
Lender shall be responsible for the obligation or commitment of any other Lender
hereunder. In the event that any Lender at any time should fail to make a Loan
as herein provided, the Lenders, or any of them, at their sole option, may make
the Loan that was to have been made by the Lender so failing to make such Loan.
Nothing contained in any Loan Document and no action taken by Agent or any
Lender pursuant hereto or thereto shall be deemed to constitute Lenders to be a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt.

Section 8.23 Patriot Act Notice. Each Lender and the Agent (for itself and not
on behalf of any other party) hereby notifies the Borrower that, pursuant to the
requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56, signed into
law October 26, 2001 (the “Patriot Act”), it is required to obtain, verify and
record information that identifies the Borrower, which information includes the
name and address of the Borrower and other information that will allow such
Lender or the Administrative Agent, as applicable, to identify the Borrower in
accordance with the Patriot Act.

ARTICLE IX

ASSIGNMENT AND PARTICIPATION

Section 9.1 Assignment and Participations.

(a) Subject to the terms of this Section 9.1, any Lender may make an assignment
to a Qualified Transferee of, or sale of participations in, at any time or
times, the Loan Documents, Loans and any Revolving Commitment or any portion
thereof or interest therein, including any Lender’s rights, title, interests,
remedies, powers or duties thereunder. Any assignment by a Lender shall:
(i) require the consent of Agent (which consent shall not be unreasonably
withheld or delayed with respect to a Qualified Transferee) and the execution of
an assignment agreement (an “Assignment Agreement” substantially in the form
attached hereto as Exhibit L and otherwise in form and substance reasonably
satisfactory to, and acknowledged by, Agent); (ii) be conditioned on such
assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof;
(iii) (except with respect to any assignment by a Lender to an Affiliate of such
Lender) after giving effect to any such partial assignment, the assignee Lender
shall have Revolving Commitments in an aggregate principal amount at least equal
to $5,000,000 and the assigning Lender shall have retained Revolving Commitments
and/or Term Loans in an aggregate principal amount at least equal to $3,000,000;
and (iv) require a payment to Agent of an assignment fee of $3,500.
Notwithstanding the above, Agent may, in its sole and absolute discretion,
permit any assignment by a Lender to a Person or Persons that are not Qualified
Transferee; provided, that, so long as no Event of Default has occurred and is
continuing, Borrower’s Agent has consented to such assignment, which consent
shall not be unreasonably withheld or delayed. In the case of an assignment by a
Lender under this Section 9.1, the assignee shall have, to the extent of such
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benefits and obligations as all other Lenders hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Revolving
Commitments or assigned portion thereof and the Loans and other interests
assigned by it from and after the date of such assignment. Borrowers hereby
acknowledge and agree that any assignment shall give rise to a direct obligation
of Borrowers to the assignee and that the assignee shall be considered to be a
“Lender.” In all instances, each Lender’s liability to make Loans hereunder
shall be several and not joint and shall be limited to such Lender’s Pro Rata
Share of the applicable Revolving Commitment. In the event Agent or any Lender
assigns or otherwise transfers all or any part of the Obligations, Agent or any
such Lender shall so notify Borrowers and Borrowers shall, upon the request of
Agent or such Lender, execute new Notes in exchange for the Notes, if any, being
assigned. Notwithstanding the foregoing provisions of this Section 9.1(a),
(A) any Lender may at any time pledge the Obligations held by it and such
Lender’s rights under this Agreement and the other Loan Documents to a Federal
Reserve Bank or to any Person providing funding to such Lender, (B) any Lender
that is an investment fund may assign the Obligations held by it and such
Lender’s rights under this Agreement and the other Loan Documents to another
investment fund managed by the same investment advisor or pledge such
Obligations and rights to trustee for the benefit of its investors and (C) any
Lender may assign the Obligations to an Affiliate of such Lender or to a Person
that is a Lender prior to the date of such assignment.

(b) Any participation by a Lender of all or any part of its Revolving
Commitments and/or Term Loans shall be made with the understanding that all
amounts payable by Borrowers hereunder shall be determined as if that Lender had
not sold such participation, and that the holder of any such participation shall
not be entitled to require such Lender to take or omit to take any action
hereunder except actions directly affecting (i) any reduction in the principal
amount of, or interest rate or Fees payable with respect to, any Loan in which
such holder participates, (ii) any extension of the scheduled amortization of
the principal amount of any Loan in which such holder participates or the final
maturity date thereof, and (iii) any release of all or substantially all of the
Collateral (other than in accordance with the terms of this Agreement, the
Collateral Documents or the other Loan Documents). Solely for purposes of
Sections 2.16, 2.19, 8.12 and 9.3, Borrowers acknowledge and agree that a
participation shall give rise to a direct obligation of Borrowers to the
participant and the participant shall be considered to be a “Lender.” Except as
set forth in the preceding sentence no Borrower or any other Credit Party shall
have any obligation or duty to any participant. Neither Agent nor any Lender
(other than the Lender selling a participation) shall have any duty to any
participant and may continue to deal solely with the Lender selling a
participation as if no such sale had occurred.

(c) Except as expressly provided in this Section 9.1, no Lender shall, as
between Borrowers and that Lender, or Agent and that Lender, be relieved of any
of its obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender.

(d) Each Credit Party shall assist each Lender permitted to sell assignments or
participations under this Section 9.1 as required to enable the assigning or
selling Lender to effect any such assignment or participation, including the
execution and delivery of any and all agreements, notes and other documents and
instruments as shall be requested and the prompt preparation of informational
materials for, and the participation of management in meetings with,

 

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potential assignees or participants, all on a timetable reasonably established
by Agent. Each Credit Party executing this Agreement shall certify, to the same
extent and on the same basis as certified in this Agreement, the correctness,
completeness and accuracy of all descriptions of the Credit Parties and their
respective affairs contained in any selling materials provided by it and all
other information provided by it and included in such materials, except that any
projections or statements of forecasted consolidated income and statements of
forecasted consolidated balance sheets delivered by Borrowers shall only be
certified by Borrowers as having been prepared by Borrowers in compliance with
the representations contained in Section 4.5. Agent shall maintain, on behalf of
Borrowers, in its offices located at 400 Galleria Parkway, Suite 1950, Atlanta,
Georgia 30339 a “register” for recording the name, address, commitment and Loans
owing to each Lender. The entries in each such register shall be presumptive
evidence of the amounts due and owing to each Lender in the absence of manifest
error. Borrowers, Agent and each Lender may treat each Person whose name is
recorded in such register pursuant to the terms hereof as a Lender for all
purposes of this Agreement. Each such register described herein shall be
available for inspection by Borrower and any Lender, at any reasonable time upon
reasonable prior notice.

(e) A Lender may furnish any information concerning Credit Parties in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants); provided that such Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section 8.7.

(f) Each Lender agrees to and shall be bound by the same restrictions, terms and
conditions that apply to Agent under any Business Associate Agreement that may
be entered into from time to time by and among Agent and any Credit Party. The
requirements of this Section 9.1(f) shall apply to each Lender who is a party to
this Agreement as the date first written above and to any individual or entity
who becomes a Lender at any time thereafter.

Section 9.2 Agent and Funding Agent.

(a) Appointment.

(i) Each Lender and Funding Agent hereby designates and appoints Chatham, and
reaffirms and confirms its designation and appointment of Chatham under the
Original Credit Agreement, as its Agent under this Agreement and the other Loan
Documents, and each Lender and Funding Agent hereby irrevocably authorizes
Agent, and reaffirms and confirm their authorization of the Agent under the
Original Credit Agreement, to execute and deliver the Security Documents and to
take such action or to refrain from taking such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers as are set forth herein or therein, together with such other powers as
are reasonably incidental thereto. Agent is authorized and empowered to amend,
modify, or waive any provisions of this Agreement or the other Loan Documents on
behalf of Lenders subject to the requirement that certain of Lenders’ consent be
obtained in certain instances as provided in this Section 9.2 and Section 8.1.
In performing its functions and duties under this Agreement, Agent shall act
solely as agent of the applicable Lenders and Funding Agent, and Agent does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Borrowers or any other Credit Party.
Agent may perform any of its duties hereunder, or under the Loan Documents, by
or through its agents or employees.

 

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(ii) Each Lender and Agent hereby designates and appoints UBOC as its Funding
Agent under this Agreement and the other Loan Documents, and each Lender and
Agent hereby irrevocably authorizes Funding Agent to take such action or to
refrain from taking such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers as are set
forth herein or therein, together with such other powers as are reasonably
incidental thereto. In performing its functions and duties under this Agreement,
Funding Agent shall act solely as agent of the applicable Lenders and Agent, and
Funding Agent does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Borrowers or
any other Credit Party. Funding Agent may perform any of its duties hereunder,
or under the Loan Documents, by or through its agents or employees.

(iii) The provisions of this Section 9.2 are solely for the benefit of Agent,
Funding Agent and Lenders and neither Borrowers nor any other Credit Party shall
have any rights as a third party beneficiary of any of the provisions hereof.

(b) Nature of Duties. The duties of Agent and Funding Agent shall be mechanical
and administrative in nature. Neither Agent nor Funding Agent shall have by
reason of this Agreement any fiduciary relationship in respect of any Lender.
Nothing in this Agreement or any of the Loan Documents, express or implied, is
intended to or shall be construed to impose upon Agent or Funding Agent any
obligations in respect of this Agreement or any of the Loan Documents except as
expressly set forth herein or therein. Each Lender shall make its own
independent investigation of the financial condition and affairs of each Credit
Party in connection with the extension of credit hereunder and shall make its
own appraisal of the creditworthiness of each Credit Party and neither Agent nor
Funding Agent shall have any duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto (other than as expressly required herein). If Agent or
Funding Agent seeks the consent or approval of any Lenders to the taking or
refraining from taking any action hereunder, then Agent and Funding Agent, as
the case may be, shall send notice thereof to each applicable Lender. Agent and
Funding Agent shall promptly notify each applicable Lender any time that the
Required Lenders, and/or Required Revolving Lenders have instructed Agent or
Funding Agent, as the case may be, to act or refrain from acting pursuant
hereto.

(c) Rights, Exculpation, Etc. Neither Agent, Funding Agent nor any of their
respective officers, directors, employees or agents shall be liable to any
Lender for any action taken or omitted by them hereunder or under any of the
Loan Documents, or in connection herewith or therewith, except that Agent and
Funding Agent shall be liable to the extent of their own gross negligence or
willful misconduct as determined by a final non-appealable order by a court of
competent jurisdiction. Neither Agent nor Funding Agent shall be liable for any
apportionment or distribution of payments made by it in good faith and if any
such apportionment or distribution is subsequently determined to have been made
in error the sole recourse of any Lender to whom payment was due but not made,
shall be to recover from other Lenders any payment in excess of the amount to
which they are determined to be entitled (and

 

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such other Lenders hereby agree to return to such Lender any such erroneous
payments received by them). In no event shall Agent or Funding Agent be liable
for punitive, special, consequential, incidental, exemplary or other similar
damages. In performing its respective functions and duties hereunder, each of
Agent and Funding Agent shall exercise the same care which it would in dealing
with loans for its own account, but neither Agent, Funding Agent nor any of
their respective agents or representatives shall be responsible to any Lender
for any recitals, statements, representations or warranties herein or for the
execution, effectiveness, genuineness, validity, enforceability, collectibility,
or sufficiency of this Agreement or any of the Loan Documents or the
transactions contemplated thereby, or for the financial condition of any Credit
Party. Neither Agent nor Funding Agent shall be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any of the Loan Documents or the financial
condition of any Credit Party, or the existence or possible existence of any
Default or Event of Default. Agent and Funding Agent, as the case may be, may at
any time request instructions from Required Lenders, and/or Required Revolving
Lenders or all affected Lenders with respect to any actions or approvals which
by the terms of this Agreement or of any of the Loan Documents, Agent and
Funding Agent, as applicable, is permitted or required to take or to grant. If
such instructions are promptly requested, Agent and Funding Agent, as the case
may be, shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents until it shall have received such instructions from the
Required Lenders, and/or Required Revolving Lenders or such other portion of the
Lenders as shall be prescribed by this Agreement. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent or
Funding Agent as a result of Agent or Funding Agent, as the case may be, acting
or refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of Required Lenders, and/or
Required Revolving Lenders or all affected Lenders, as applicable; and,
notwithstanding the instructions of Required Lenders and/or Required Revolving
Lenders or all affected Lenders, as applicable, neither Agent nor Funding Agent
shall have any obligation to take any action if it believes, in good faith, that
such action is deemed to be illegal by Agent or Funding Agent, as applicable, or
exposes Agent or Funding Agent, as applicable, to any liability for which it has
not received satisfactory indemnification in accordance with Section 9.2(e).

(d) Reliance. Agent and Funding Agent shall be entitled to rely, and shall be
fully protected in relying, upon any written or oral notices, statements,
certificates, orders or other documents or any telephone message or other
communication (including any writing, telex, fax or telegram) believed by Agent
or Funding Agent, as the case may be, in good faith to be genuine and correct
and to have been signed, sent or made by the proper Person, and with respect to
all matters pertaining to this Agreement or any of the Loan Documents and its
duties hereunder or thereunder. Agent and Funding Agent shall be entitled to
rely upon the advice of legal counsel, independent accountants, and other
experts selected by Agent or Funding Agent, as the case may be, in its sole
discretion.

(e) Indemnification. Lenders will reimburse and indemnify Agent and Funding
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, attorneys’ fees and expenses), advances or disbursements of any kind
or nature whatsoever (collectively, “Lender

 

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Indemnified Liabilities”) which may be imposed on, incurred by, or asserted
against Agent in its capacity as such and Funding Agent in its capacity as such,
as the case may be, in any way relating to or arising out of this Agreement or
any of the Loan Documents or any action taken or omitted by Agent in its
capacity as such and by Funding Agent in its capacity as such, as the case may
be, in under this Agreement or any of the Loan Documents, in proportion to each
Lender’s Pro Rata Share, but only to the extent that any of the foregoing is not
reimbursed by Borrowers; provided, however, that no Lender shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements to the
extent resulting from Agent’s or Funding Agent’s, as applicable, gross
negligence or willful misconduct as determined by a final non-appealable order
by a court of competent jurisdiction. If any indemnity furnished to Agent or
Funding Agent, as the case may be, for any purpose shall, in the opinion of
Agent or Funding Agent, as applicable, be insufficient or become impaired, Agent
and Funding Agent, as applicable, may call for additional indemnity and cease,
or not commence, to do the acts indemnified against even if so directed by the
Required Lenders and/or Required Revolving Lenders or such other portion of the
Lenders as shall be prescribed by this Agreement until such additional indemnity
is furnished. The obligations of Lenders under this Section 9.2(e) shall survive
the payment in full of the Obligations and the termination of this Agreement.
Notwithstanding anything to the contrary contained in this Section 9.2(e), the
Lenders shall not have any obligation under this Section 9.2(e) to reimburse or
indemnify Funding Agent for any Lender Indemnified Liability for which the
Credit Parties party hereto are not obligated to reimburse or indemnify Funding
Agent under Section 8.2 {Expenses} or Section 8.12 {Indemnification} of this
Agreement.

(f) Chatham (or any Successor Agent) and UBOC (or any Successor Agent)
Individually.

(i) With respect to its Revolving Commitments and Term Loans hereunder, Chatham
(or any Successor Agent) shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein for any other Lender. Chatham (or any Successor Agent),
either directly or through strategic affiliations, may lend money to, acquire
equity or other ownership interests in, provide advisory services to and
generally engage in any kind of banking, trust or other business with any Credit
Party as if it were not acting as Agent pursuant hereto and without any duty to
account therefor to Lenders. Chatham (or any Successor Agent), either directly
or through strategic affiliations, may accept fees and other consideration from
any Credit Party for services in connection with this Agreement or otherwise
without having to account for the same to Lenders.

(ii) With respect to its Revolving Commitments and Term Loan hereunder, UBOC (or
any Successor Funding Agent) shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Lender. UBOC (or any Successor
Funding Agent), either directly or through strategic affiliations, may lend
money to, acquire equity or other ownership interests in, provide advisory
services to and generally engage in any kind of banking, trust or other business
with any Credit Party as if it were not acting as Funding Agent pursuant hereto
and without any duty to account therefor to Lenders. UBOC (or any Successor
Funding Agent), either directly or through strategic affiliations, may accept
fees and other consideration from any Credit Party for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.

 

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(g) Successor Agents.

(i) Resignation of Agent. Agent may resign from the performance of all its
agency functions and duties hereunder at any time by giving at least thirty
(30) Business Days’ prior written notice to Borrowers’ Agent and Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (ii) below or as otherwise provided in clause
(ii) below.

(ii) Appointment of Successor. Upon any such applicable notice of resignation
pursuant to clause (i) above, Required Lenders shall appoint a successor Agent,
which, unless an Event of Default has occurred and is continuing, shall be
reasonably acceptable to Borrowers’ Agent. If a successor Agent shall not have
been so appointed within the thirty (30) Business Day period referred to in
clause (i) above, the retiring Agent upon notice to Borrowers’ Agent, shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
Required Lenders appoint a successor Agent in the manner as provided above.

(iii) Successor Agents. Upon the acceptance of any appointment as Agent or under
the Loan Documents by a successor Agent such successor Agent or shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its duties
and obligations under the Loan Documents. After any retiring Agent’s resignation
as Agent the provisions of this Section 9.2 shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it in its capacity as
Agent.

(iv) Resignation of Funding Agent. Funding Agent may resign from the performance
of all its agency functions and duties hereunder at any time by giving at least
thirty (30) Business Days’ prior written notice to Borrowers’ Agent, Agent and
Lenders. Such resignation shall take effect upon the acceptance by a successor
Funding Agent of appointment pursuant to clause (v) below or as otherwise
provided in clause (v) below.

(v) Appointment of Successor. Upon any such applicable notice of resignation
pursuant to clause (iv) above, Agent shall become a successor Funding Agent
hereunder, unless Required Lenders or Agent shall appoint a different successor
Funding Agent (acceptable to Agent) within the thirty (30) Business Day period
referred to in clause (iv) above, which, unless an Event of Default has occurred
and is continuing, shall also be reasonably acceptable to Borrowers’ Agent.

(vi) Successor Funding Agents. Upon the acceptance of any appointment as Funding
Agent under clause (v) above, such successor Funding Agent or shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Funding Agent and the retiring Funding Agent shall be discharged
from its duties and obligations under the Loan Documents. After any retiring
Funding

 

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Agent’s resignation as Funding Agent the provisions of this Section 9.2 shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it in its capacity as Funding Agent.

(h) Collateral Matters.

(i) Release of Collateral. Lenders hereby irrevocably authorize Agent, at its
option and in its discretion, to release any Lien granted to or held by Agent
upon any Collateral (x) upon termination of the Revolving Commitments and
payment and satisfaction of all Obligations (other than contingent
indemnification obligations to the extent no claims giving rise thereto have
been asserted), (y) constituting property being sold or disposed of if Borrowers
(or any of them) certify to Agent that the sale or disposition is made in
compliance with the provisions of this Agreement (and Agent may rely in good
faith conclusively on any such certificate, without further inquiry) or (z) in
accordance with the provisions of the next sentence. In addition, with the
consent of Required Lenders, Agent may release any Lien granted to or held by
Agent upon any Collateral having a book value not greater than ten percent
(10%) of the total book value of all Collateral, either in a single transaction
or in a series of related transactions; provided, however, that in no event will
Agent, acting under the authority granted to it pursuant to this sentence,
release Collateral having a total book value in excess of twenty percent
(20%) of the book value of all Collateral, as determined by Agent.

(ii) Confirmation of Authority; Execution of Releases. Without in any manner
limiting Agent’s authority to act without any specific or further authorization
or consent by Lenders (as set forth in Section 9.2(h)(i)), each Lender agrees to
confirm in writing, upon request by Agent or Borrowers’ Agent, the authority to
release any Collateral conferred upon Agent under clauses (x) and (y) of
Section 9.2(h)(i). Upon receipt by Agent of any required confirmation from the
Required Lenders of its authority to release any particular item or types of
Collateral, and upon at least ten (10) Business Days’ prior written request by
Borrowers’ Agent, Agent shall (and is hereby irrevocably authorized by Lenders
to) execute such documents as may be necessary to evidence the release of the
Liens granted to Agent upon such Collateral; provided, however, that (x) Agent
shall not be required to execute any such document on terms which, in Agent’s
opinion, would expose Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (y) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of any Credit Party, in respect
of), all interests retained by any Credit Party, including the proceeds of any
sale, all of which shall continue to constitute part of the Collateral.

(iii) Absence of Duty. Agent shall have no obligation whatsoever to any Lender
or any other Person to assure that the property covered by the Collateral
Documents exists or is owned by Borrowers or any other Credit Party or is cared
for, protected or insured or has been encumbered or that the Liens granted to
Agent have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are

 

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entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Agent in this Section 9.2(h) or in any of the Loan Documents, it being
understood and agreed that in respect of the property covered by the Security
Documents or any act, omission or event related thereto, Agent may act in any
manner it may deem appropriate, in its discretion, given Agent’s own interest in
property covered by the Security Documents as one of the Lenders and that Agent
shall have no duty or liability whatsoever to any of the other Lenders, provided
that Agent shall exercise the same care which it would in dealing with loans for
its own account.

(iv) Agency for Perfection. Agent and each Lender hereby appoint each other
Lender as agent for the purpose of perfecting Agent’s security interest in
assets which, in accordance with the Code in any applicable jurisdiction, can be
perfected by possession or control. Should any Lender (other than Agent) obtain
possession or control of any such assets, such Lender shall notify Agent
thereof, and, promptly upon Agent’s request therefor, shall deliver such assets
to Agent or in accordance with Agent’s instructions or transfer control to Agent
in accordance with Agent’s instructions. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce any Security Document
or to realize upon any collateral security for the Loans unless instructed to do
so by Agent in writing, it being understood and agreed that such rights and
remedies may be exercised only by Agent.

(i) Notice of Default. Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default except with respect to
defaults in the payment of principal, interest and Fees required to be paid to
Agent for the account of Lenders, unless Agent shall have received written
notice from a Lender or Borrowers’ Agent referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a “notice of
default”. Agent will use reasonable efforts to notify each Lender of its receipt
of any such notice, unless such notice is with respect to defaults in the
payment of principal, interest and fees, in which case Agent will notify each
Lender of its receipt of such notice. Agent shall take such action with respect
to such Default or Event of Default as may be requested by Required Lenders in
accordance with Article VII. Unless and until Agent has received any such
request, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable or in the best interests of Lenders.

(j) Lender Actions Against Collateral. Each Lender agrees that it will not take
any enforcement action, nor institute any actions or proceedings, with respect
to the Loans, against any Borrower or any Credit Party hereunder or under the
other Loan Documents or against any Collateral (including the exercise of any
right of set-off) without the consent of the Agent or Required Lenders. All such
enforcement actions and proceedings shall be taken in concert and at the
direction with the consent of Agent or Required Lenders. Agent is authorized to
issue all notices to be issued by or on behalf of Lenders with respect to any
Subordinated Debt. With respect to any action by Agent to enforce the rights and
remedies of Agent and the Lenders under this Agreement and the other Loan
Documents, each Lender hereby consents to the jurisdiction of the court in which
such action is maintained, and agrees to deliver its Notes to Agent to the
extent necessary to enforce the rights and remedies of Agent for the benefit of
the Lenders under the Mortgages in accordance with the provisions hereof.

 

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Section 9.3 Set Off and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, during the continuance of any Event of Default, each Lender is hereby
authorized by Borrowers at any time or from time to time, with reasonably prompt
subsequent notice to Borrowers’ Agent (any prior or contemporaneous notice being
hereby expressly waived) to set off and to appropriate and to apply any and all
(A) balances held by such Lender at any of its offices for the account of any
Borrower or any of its Subsidiaries (regardless of whether such balances are
then due to any Borrower or its Subsidiaries), and (B) other property at any
time held or owing by such Lender to or for the credit or for the account of any
Borrower or any of its Subsidiaries, against and on account of any of the
Obligations; except that no Lender shall exercise any such right without the
prior written consent of Agent. Notwithstanding anything herein to the contrary,
the failure to give notice of any set off and application made by such Lender to
Borrowers’ Agent shall not affect the validity of such set off and application.
Any Lender exercising a right to set off shall purchase for cash (and the other
Lenders shall sell) interests in each of such other Lender’s Pro Rata Share of
the Obligations as would be necessary to cause all Lenders to share the amount
so set off with each other Lender entitled to share in the amount so set off in
accordance with their respective Pro Rata Shares in a manner consistent with
Section 2.19. Borrowers agree, to the fullest extent permitted by law, that,
upon the occurrence and during the continuation of an Event of Default, any
Lender may exercise its right to set off with respect to amounts in excess of
its Pro Rata Share of the Obligations and upon doing so shall deliver such
amount so set off to the Agent for the benefit of all Lenders entitled to share
in the amount so set off in accordance with their Pro Rata Shares in a manner
consistent with Section 2.19.

Section 9.4 Disbursement of Funds. Funding Agent may, on behalf of Revolving
Lenders, disburse funds to Borrowers for Revolving Loans requested. Each
Revolving Lender shall reimburse Funding Agent on demand for all funds disbursed
on its behalf by Funding Agent, or if Funding Agent so requests, each Revolving
Lender will remit to Funding Agent its Pro Rata Share of any Revolving Loan
before Funding Agent disburses same to Borrowers. If Funding Agent elects to
require that each Revolving Lender make funds available to Funding Agent prior
to a disbursement by Funding Agent to Borrowers, Funding Agent shall advise each
Revolving Lender by telephone or fax of the amount of such Revolving Lender’s
Pro Rata Share of the Revolving Loan requested by Borrowers’ Agent no later than
2:00 p.m. (New York time) on the date of funding an Advance applicable thereto,
and each such Revolving Lender shall pay Funding Agent such Revolving Lender’s
Pro Rata Share of such requested Revolving Loan, in same day funds, by wire
transfer to Funding Agent’s account on the date of funding such Advance. If any
Revolving Lender fails to pay the amount of its Pro Rata Share within one
(1) Business Day after Funding Agent’s demand, Funding Agent shall promptly
notify Borrowers’ Agent, and Borrowers shall immediately repay such amount to
Funding Agent. Any repayment required pursuant to this Section 9.4 shall be
without premium or penalty. Nothing in this Section 9.4 or elsewhere in this
Agreement or the other Loan Documents, including the provisions of Section 9.5,
shall be deemed to require Funding Agent to advance funds on behalf of any
Lender or to relieve any Revolving Lender from its obligation to fulfill its
commitments hereunder or to prejudice any rights that Funding Agent or Borrowers
may have against any Lender as a result of any default by such Revolving Lender
hereunder.

 

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Section 9.5 Disbursements of Advances; Payment.

(a) Advances; Payments. At least once each calendar month or more frequently at
Funding Agent’s election (each, a “Settlement Date”), Funding Agent shall advise
each Lender by telephone or fax of the amount of such Lender’s Pro Rata Share of
principal, interest and Fees paid for the benefits of Lenders with respect to
each applicable Loan. Provided that each Lender has funded all payments and
Advances required to be made by it and purchased all participations required to
be purchased by it under this Agreement and the other Loan Documents as of such
Settlement Date, Funding Agent shall pay to each Lender such Lender’s Pro Rata
Share of principal, interest and Fees paid by Borrowers to Agent since the
previous Settlement Date for the benefit of such Lender on the Loans held by it.
Such payments shall be made by wire transfer to such Lender’s account (as
specified by such Lender in such Lender’s signature page to this Agreement or
the applicable Assignment Agreement) not later than 3:00 p.m. (New York time) on
the next Business Day following each Settlement Date. To the extent that any
Lender (a “Non-Funding Lender”) has failed to fund all such payments and
Advances or failed to fund the purchase of all such participations required to
be funded or purchased by such Lender pursuant to this Agreement, Funding Agent
and/or Agent shall be entitled to set off the funding shortfall against that
Non-Funding Lender’s Pro Rata Share of all payments received from or in respect
of Borrowers.

(b) Availability of Lender’s Pro Rata Share. Funding Agent may assume that each
Revolving Lender will make its Pro Rata Share of each Advance available to
Funding Agent on date of funding of such Advance. If such Pro Rata Share is not,
in fact, paid to Funding Agent by such Revolving Lender when due, Funding Agent
will be entitled to recover such amount on demand from such Revolving Lender
without setoff, counterclaim or deduction of any kind. If any Revolving Lender
fails to pay the amount of its Pro Rata Share forthwith upon Funding Agent’s
demand, Funding Agent shall promptly notify Borrowers’ Agent and Borrowers shall
immediately repay such amount to Funding Agent. Nothing in this Section 9.5(b)
or elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Agent to advance funds on behalf of any Revolving Lender or to relieve
any Revolving Lender from its obligation to fulfill its Revolving Commitments
hereunder or to prejudice any rights that Borrowers may have against any
Revolving Lender as a result of any default by such Revolving Lender hereunder.
To the extent that Funding Agent advances funds to Borrowers on behalf of any
Revolving Lender and is not reimbursed therefor on the same Business Day as such
Advance is made, Funding Agent shall be entitled to retain for its account all
interest accrued on such Advance until reimbursed by the applicable Revolving
Lender.

(c) Return of Payments.

(i) If Funding Agent or Agent, as the case may be, pays an amount to a Lender
under this Agreement in the belief or expectation that a related payment has
been or will be received by Funding Agent or Agent, as the case may be, from
Borrowers and such related payment is not received by Funding Agent or Agent
then Funding Agent and Agent, as applicable, will be entitled to recover such
amount from such Lender on demand without setoff, counterclaim or deduction of
any kind.

 

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(ii) If Agent or Funding Agent determines at any time that any amount received
by Agent or Funding Agent, as the case may be, under this Agreement must be
returned to any Borrower or paid to any other Person pursuant to any insolvency
law or otherwise, then, notwithstanding any other term or condition of this
Agreement or any other Loan Document, Agent and Funding Agent, as applicable,
shall not be required to distribute any portion thereof to any Lender. In
addition, each Lender will repay to Agent or Funding Agent, as the case may be,
on demand any portion of such amount that Agent and Funding Agent, as
applicable, has distributed to such Lender, together with interest at such rate,
if any, as Agent and Funding Agent, as the case may be, is required to pay to
any Borrower or such other Person, without setoff, counterclaim or deduction of
any kind.

(iii) Non-Funding Lenders. The failure of any Non-Funding Lender to make any
Advance or any payment required by it hereunder on the date specified therefor
shall not relieve any other Lender (each such other Revolving Lender, an “Other
Lender”) of its obligations to make such Advance or purchase such participation
on such date, but neither any Other Lender, neither Funding Agent nor Agent
shall be responsible for the failure of any Non-Funding Lender to make an
Advance, purchase a participation or make any other payment required hereunder.
Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender
shall not have any voting or consent rights under or with respect to any Loan
Document or constitute a “Lender”, or a “Revolving Lender” (or be included in
the calculation of “Required Lenders” or “Required Revolving Lenders” hereunder)
for any voting or consent rights under or with respect to any Loan Document.

ARTICLE X

AMENDMENT AND RESTATEMENT

Section 10.1 Amendment and Restatement; No Novation. On the Effective Date, the
Original Credit Agreement shall be amended and restated in its entirety by this
Agreement and (i) all references to the Original Credit Agreement in any Loan
Document other than this Agreement (including in any amendment, waiver or
consent) shall be deemed to refer to the Original Credit Agreement as amended
and restated hereby, (ii) all references to any section (or subsection) of the
Original Credit Agreement in any Loan Document (but not herein) shall be amended
to be, mutatis mutandis, references to the corresponding provisions of this
Agreement and (iii) except as the context otherwise provides, all references to
this Agreement herein (including for purposes of indemnification and
reimbursement of fees) shall be deemed to be reference to the Original Credit
Agreement as amended and restated hereby. This Agreement is not intended to
constitute, and does not constitute, a novation of the obligations and
liabilities under the Original Credit Agreement (including the Obligations) or
to evidence payment of all or any portion of such obligations and liabilities.

Section 10.2 Effect on Original Credit Agreement and on the Obligations. On and
after the Effective Date, (i) the Original Credit Agreement shall be of no
further force and effect except as amended and restated hereby and except to
evidence (A) the incurrence by any Credit

 

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Party of the “Obligations” under and as defined therein (whether or not such
“Obligations” are contingent as of the Effective Date), (B) the representations
and warranties made by any Credit Party prior to the Effective Date and (C) any
action or omission performed or required to be performed pursuant to such
Original Credit Agreement prior to the Effective Date (including any failure,
prior to the Effective Date, to comply with the covenants contained in such
Original Credit Agreement) and (ii) the terms and conditions of this Agreement
and the Beneficiaries’ rights and remedies under the Loan Documents, shall apply
to all Obligations incurred under the Original Credit Agreement and the Notes
issued thereunder.

Section 10.3 No Implied Waivers. Except as expressly provided in any Loan
Document, this Agreement (x) shall not cure any breach of the Original Credit
Agreement or any “Default” or “Event of Default” thereunder existing prior to
the date hereof and (y) is limited as written and is not a consent to any other
modification of any term or condition of any Loan Document, each of which shall
remain in full force and effect.

Section 10.4 Reaffirmation of Liens and obligations.

(a) Each of the Borrowers and the other Credit Parties reaffirms the Liens
granted pursuant to the Security Documents to the Administrative Agent for the
benefit of the Beneficiaries, which Liens shall continue in full force and
effect during the term of this Agreement and any renewals or extensions thereof
and shall continue to secure the Obligations.

(b) Each of the Credit Parties signatory hereto reaffirms all of its obligations
and undertakings under each of the Loan Documents to which it is a party and
acknowledges and agrees that subsequent to, and after taking account of the
provisions of this Agreement, each such Loan Document is and shall remain in
full force and effect in accordance with the terms thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

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 Member SunLink Healthcare, LLC   By its Sole Member SunLink Health
Systems; Inc.       By:  

 

      Name:  

 

      Title:  

 

[Signature Page 1 to the Amended and Restated Credit Agreement]

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

SOUTHERN HEALTH CORPORATION OF ELLIJAY, INC., as a Borrower By:  

 

Name:  

 

Title:  

 

SOUTHERN HEALTH CORPORATION OF DAHLONEGA, INC.,

as a Borrower

By:  

 

Name:  

 

Title:  

 

SOUTHERN HEALTH CORPORATION OF HOUSTON, INC.,

as a Borrower

By:  

 

Name:  

 

Title:  

 

SOUTHERN HEALTH CORPORATION OF JASPER, INC.,

as a Borrower

By:  

 

Name:  

 

Title:  

 

HEALTHMONT OF GEORGIA, INC.,

as a Borrower

By:  

 

Name:  

 

Title:  

 

[Signature Page 2 to the Amended and Restated Credit Agreement]

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

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:  

 

SUNLINK HOMECARE SERVICES, LLC,

as a Borrower

By:  

 

Name:  

 

Title:  

 

KRUG PROPERTIES, INC.,

as a Borrower

By:  

 

Name:  

 

Title:  

 

[Signature Page 3 to the Amended and Restated Credit Agreement]

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

CENTRAL ALABAMA MEDICAL ASSOCIATES, LLC, as a Borrower By its Sole Member
HealthMont, 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 4 to the Amended and Restated Credit Agreement]

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

BREATH OF LIFE HOME HEALTH EQUIPMENT, INC., as a Borrower By:  

 

Name:  

 

Title:  

 

GUARANTORS/CREDIT PARTIES:

SUNLINK HEALTHCARE INVESTMENTS, INC.,

as a Guarantor and a Credit Party

By:  

 

Name:  

 

Title:  

 

Address for All Borrowers and other Credit Parties

For Purposes of Notice:

900 Circle 75 Parkway

Suite 1120

Atlanta, GA 30339

Fax: (770) 933-7010

Attention: Mark J. Stockslager

[Signature Page 5 to the Amended and Restated Credit Agreement]

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

CHATHAM CREDIT MANAGEMENT III, LLC, as Agent By:  

 

Name:  

 

Title:  

 

Address for Agent:

400 Galleria Parkway, Suite 1950

Atlanta, GA 30339

ATTN: Account Officer

Fax: (770) 618-2101

[Signature Page 6 to the Amended and Restated Credit Agreement]

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

UNION BANK OF CALIFORNIA, N.A., as Funding Agent By:  

 

Name:  

 

Title:  

 

Address for Funding Agent:

445 South Figueroa Street, 16th Floor

Los Angeles, CA 90771

ATTN: Michael Tschida/Sean Conlon

Fax: (213) 236-7636

[Signature Page 7 to the Amended and Restated Credit Agreement]

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

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:  

 

Address for Lender:

400 Galleria Parkway, Suite 1950

Atlanta, GA 30339

ATTN: Account Officer

Fax: (770) 618-2101

[Signature Page 8 to the Amended and Restated Credit Agreement]

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

UNION BANK OF CALIFORNIA, N.A.,

as a Lender

By:  

 

Name:  

 

Title:  

 

Address for Lender:

445 South Figueroa Street, 16th Floor

Los Angeles, CA 90771

ATTN: Michael Tschida/Sean Conlon

Fax: (213) 236-7636

[Signature Page 9 to the Amended and Restated Credit Agreement]

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

ANNEX A to

CREDIT AGREEMENT

PRO RATA SHARE AND LOAN AMOUNTS

 

Revolving Commitments

  

Lender

  

Pro Rata Share

Revolving Commitment

$10,000,000

   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    83.333%

Revolving Commitment

$2,000,000

   UNION BANK OF CALIFORNIA, N.A.    16.667%

Total Revolving Commitments:

$12,000,000

     

Term Loan

  

Lender

    

Term Loan

$21,816,666.69

   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    62.857%

Term Loan

$12,891,666.65

   UNION BANK OF CALIFORNIA, N.A.    37.143%

Total Term Loan:

$34,708,333.34

     

Annex A to the Credit Agreement