EX-10.4



 





Exhibit 10.4




PAYMENT AND PERFORMANCE GUARANTY AGREEMENT




     THIS PAYMENT AND PERFORMANCE GUARANTY AGREEMENT (this “Guaranty”) is made effective as of the
7th day of August, 2006, by ADVOCAT INC., a Delaware corporation (the “Guarantor”), for
the benefit of CAPMARK FINANCE INC., a California corporation, formerly known as GMAC Commercial
Mortgage Corporation (including its successors, transferees and assigns, “Lender”).



R E C I T A L S:




     A. Diversicare Afton Oaks, LLC, a Delaware limited liability company (the “Afton Oaks
Borrower”), Diversicare Assisted Living Services NC I, LLC, a Delaware limited liability company
(the “NC I Borrower”), Diversicare Assisted Living Services NC II, LLC, a Delaware limited
liability company (the “NC II Borrower”), Diversicare Briarcliff, LLC, a Delaware limited liability
company (the “Briarcliff Borrower”), Diversicare Chisolm, LLC, a Delaware limited liability company
(the “Chisolm Borrower”), Diversicare Hartford, LLC, a Delaware limited liability company (the
“Hartford Borrower”), Diversicare Hillcrest, LLC, a Delaware limited liability company (the
“Hillcrest Borrower”), Diversicare Lampasas, LLC, a Delaware limited liability company (the
“Lampasas Borrower”), Diversicare Pinedale, LLC, a Delaware limited liability company (the “Newport
Borrower”), Diversicare Windsor House, LLC, a Delaware limited liability company (the “Windsor
Borrower”), and Diversicare Yorktown, LLC, a Delaware limited liability company (the “Yorktown
Borrower”; the Afton Oaks Borrower, the NC I Borrower, the NC II Borrower, the Briarcliff Borrower,
the Chisolm Borrower, the Hartford Borrower, the Hillcrest Borrower, the Lampasas Borrower, the
Newport Borrower, the Windsor Borrower and the Yorktown Borrower, together with their successors
and/or assigns, may be referred to collectively herein as the “Borrowers” or individually as a
“Borrower”), has borrowed the sum of THIRTY MILLION SIX HUNDRED TWENTY-FIVE THOUSAND AND NO/100
DOLLARS ($30,625,000.00) (the “Loan”) from Lender, evidenced by Borrowers’ Note I (as defined in
the Loan Agreement [as herein defined]) and Note II (as defined in the Loan Agreement) of even date
herewith (collectively, the “Note”) and that certain Loan Agreement by and between Lender and
Borrowers of even date herewith (the “Loan Agreement”), and secured by, among other things, those
certain Deed of Trust and Security Agreements and/or Mortgage and Security Agreements, of even date
herewith (collectively, the “Mortgage”) granting a first lien on the skilled care nursing
facilities and/or assisted living facilities more particularly described in the Loan Agreement
(collectively, the “Facility”).



     B. The Note, the Loan Agreement, the Mortgage and the other documents, certificates,
instruments and agreements executed by Borrowers in connection with the Loan or to otherwise
evidence or secure the Loan, and all renewals, supplements, or amendments thereto or a part
thereof, are collectively referred to as the “Loan Documents”.



     C. As a condition of making the Loan, Guarantor has agreed to guaranty, absolutely and
unconditionally, payment of the Guaranty Obligations (as defined below), subject to the terms and
conditions set forth in this Guaranty.



 









 





AGREEMENT




     NOW, THEREFORE, in consideration of the above and as an inducement to Lender to make the Loan
evidenced by the Note and the Loan Agreement, and as security for the payment of the Loan and all
interest from time to time accrued and unpaid thereon, and all expenses, fees, charges and other
amounts from time to time due and owing to Lender under the Note, and the other Loan Documents, and
for the performance of all covenants, agreements and other obligations from time to time owing to,
or for the benefit of, Lender pursuant to the Loan Documents, including, without limitation, the
payment and performance of all of Borrowers’ obligations pursuant to Article IV of the Loan
Agreement (collectively referred to herein as the “Guaranty Obligations”), Guarantor, intending to
be legally bound, hereby covenants, agrees, represents and warrants as follows:



     1. Guaranty. Guarantor hereby absolutely and unconditionally guarantees to the Lender
the full, regular and punctual payment and performance of the Guaranty Obligations within ten (10)
days of the Lender’s demand therefor. Without limiting the generality of the foregoing, “Guaranty
Obligations” is used herein in its most comprehensive sense to include all debts, obligations and
indebtedness described in the Loan Documents, whether now or hereafter made, incurred, or created,
voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and regardless of whether there is any recourse with respect to any
portion of such Guaranty Obligations as against Borrowers or any partner of Borrowers. In
addition, Guarantor guarantees the full payment of, and agrees to reimburse Lender for, all costs
of collection incurred by Lender in enforcing the Guaranty Obligations and pursuing any remedies
set forth in the Loan Documents and/or the Guaranty, including, without limitation, court costs and
actual attorneys’ fees (including, but not limited to, fees in any bankruptcy or appellate
proceeding).



     2. Payments. All payments to be made by Guarantor to Lender hereunder shall be made
in lawful money of the United States of America, in immediately available funds, at 200 Witmer
Road, Horsham, Pennsylvania 19044, or such other location designated by Lender in writing, and
shall be accompanied by a notice from Guarantor stating that such payments are made under this
Guaranty. All payments available to Lender for application in payment or reduction of the Guaranty
Obligations may be applied by Lender in such manner and in such amount, and at such time or times
and in such order and priority as Lender may see fit and to the payment or reduction of such
portion of the Guaranty Obligations as Lender may elect.



     3. Subsequent Acts by Lender. Lender may, in its sole discretion and without notice
to Guarantor, take any action which might otherwise be deemed a legal or equitable release or
discharge of Guarantor’s obligations hereunder without either impairing or affecting the liability
of Guarantor for payment of the Guaranty Obligations (but in no event shall Lender collect more
than the aggregate amount of the Guaranty Obligations), which actions might include, by way of
illustration and not limitation:



          (a) at any time or from time to time, the time for Borrowers’ performance of or compliance
with any provision of the Loan Documents may be extended or such performance or compliance may be
waived by Lender;




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          (b) the acceptance of partial payment of the Guaranty Obligations;




          (c) any of the acts permitted in the Loan Documents may be performed;




          (d) the Loan Documents may from time to time be amended and/or renewed by Borrowers and Lender
for the purpose of adding any provisions thereto or changing in any manner the rights of Lender or
of Borrowers thereunder;




          (e) the maturity date of the Note may be changed or renewed in whole or in part;




          (f) the maturity of the Note may be accelerated in accordance with the terms of the Loan
Documents or any future agreement between Borrowers and Lender or the holder of such Note;




          (g) any collateral security for all or any part of the Guaranty Obligations may be exchanged,
released, compromised, consolidated, surrendered or otherwise dealt with, and Lender’s interest
therein may be released and may or may not be perfected;




          (h) the settlement, release, compounding, compromise, cancellation, rearrangement or
consolidation of any of the Guaranty Obligations;




          (i) the collection of or other liquidation of any claims Lender may have in respect to the
Guaranty Obligations;




          (j) the granting of indulgences, forbearance, compromises, extensions or adjustments in
respect to any covenant or agreement under the Loan Documents; and/or




          (k) the release from liability of any Guarantor and/or any additional parties who may
guarantee payment of the Guaranty Obligations or any portion thereof.




4. Certain Rights, Subordination, Etc.




          (a) Lender may pursue its rights and remedies under this Guaranty and shall be entitled to
payment hereunder notwithstanding any other guaranty of all or any part of the Guaranty
Obligations, and notwithstanding any action taken by Lender to enforce any of its rights or
remedies under such other guaranty, or any payment received thereunder (but in no event shall
Lender collect more than the aggregate amount of the Guaranty Obligations).




          (b) Any obligation or debt of Borrowers now or hereafter held by Guarantor is hereby
subordinated to the Guaranty Obligations and, except for the obligations due under the Management
Agreement (as defined in the Loan Agreement), which obligations are governed by the Subordination
Agreement (as defined in the Loan Agreement), Guarantor shall not enforce or collect any such
indebtedness from Borrowers. Nevertheless, upon request by Lender, Guarantor shall collect,
enforce and receive such indebtedness of Borrowers to Guarantor. Any sums collected at Lender’s
request or collected in contravention of the prohibition set forth herein shall be held by
Guarantor as trustee for Lender and shall be paid over to Lender on account of the Guaranty
Obligations; provided, however, that such payments shall not impair, reduce or affect in any manner
the liability of Guarantor under the other




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provisions of this Guaranty (but in no event shall Lender collect more than the aggregate
amount of the Guaranty Obligations).




          (c) Guarantor agrees that if any event of default exists under the Loan Documents (“Event of
Default”) and is continuing, (i) such Guarantor shall not accept payment from any other guarantor
of any Guaranty Obligations by way of contribution or similar rights on account of any payment made
hereunder by Guarantor to Lender, all of which rights are hereby subordinated to Guarantor’s
obligations hereunder to Lender, (ii) Guarantor will not take any action to exercise or enforce any
rights to such contribution, and (iii) if Guarantor should receive payment, satisfaction or
security for any indebtedness of Borrowers to Lender, the same shall be delivered to Lender in the
form received, endorsed or signed as may be appropriate for application on account of or as
security for the indebtedness of Borrowers to Lender and, until so delivered, shall be held in
trust for Lender as security for the indebtedness of Borrowers to Lender.




          (d) In the event of any default by Borrowers with respect to the Guaranty Obligations,
Guarantor agrees to pay or perform on demand the Guaranty Obligations in the time and manner as
provided in Paragraph 1 hereof. Lender shall not be under a duty to protect, secure or insure or
be required to liquidate any security or lien provided by the Mortgage or other such collateral
held by Lender prior to making such demand.




          (e) Notwithstanding any payment or payments made by Guarantor under this Guaranty, Guarantor
expressly, irrevocably and unconditionally waives and releases any and all “claims” (as that term
is defined in the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. Sections 101 et
seq., and the regulations adopted and promulgated pursuant thereto (collectively, the
“Bankruptcy Code”)) it may now or hereafter have against Borrowers, and shall not be entitled to,
and hereby expressly waives, any and all rights of subrogation, reimbursement, indemnity,
exoneration and contribution against Borrowers, which Guarantor may now or hereafter have against
Borrowers without regard to whether any such right or claim arises expressly; provided, that such
waiver and release shall not be effective as to any such claim or entitlement or such subrogation
and other rights that accrue after the indefeasible payment, performance or other satisfaction in
full of the Guaranty Obligations.




     5. Representations and Warranties. Guarantor represents and warrants to Lender that:



          (a) Existence, Power and Qualification. Guarantor is a duly organized and validly
existing corporation, has the power to own its properties and to carry on its business as is now
being conducted, and is duly qualified to do business and is in good standing in every jurisdiction
in which the character of the properties owned by it or in which the transaction of its business
makes its qualification necessary.




          (b) Power and Authority. Guarantor has full power and authority to incur the Guaranty
Obligations provided for herein, all of which have been authorized by all proper and necessary
action.




          (c) Financial Position. The financial statements of the Guarantor heretofore
furnished to Lender are complete and correct and fairly present the financial position of the




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Guarantor as of the date thereof. Since the date of said financial statements there has been
no material adverse change in the financial position or operations, or the business taken as a
whole, of Guarantor from that set forth therein.




          (d) Litigation. Except as shown on Exhibit A attached hereto, there are no legal or
arbitral proceedings or any proceedings by or before any governmental or regulatory authority or
agency now pending against Guarantor, in which an adverse decision could materially and adversely
affect the financial position of Guarantor.




          (e) No Breach. The execution and delivery of this Guaranty, the consummation of the
transactions herein contemplated and compliance with the terms and provisions hereof will not (i)
conflict with or result in a breach of, or require any consent (not heretofore obtained at the time
this representation is made) under, any applicable law, administrative proceeding or regulation, or
any order, writ, injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which Guarantor is a party or by which Guarantor is bound or to which
Guarantor is subject, (ii) constitute a default under any such agreement or instrument or under
Guarantor’s articles of incorporation, partnership agreement, operating agreement or any other
agreement or instrument binding upon Guarantor, or (iii) result in the creation or imposition of
any lien upon any of the revenues or assets of Guarantor pursuant to the terms of any such
agreement or instrument.




          (f) Approvals. To the best of Guarantor’s knowledge, no authorizations, approvals, or
consents of (other than those heretofore obtained and in full force and effect), and no filings or
registrations with (other than those heretofore obtained and in full force and effect), any
governmental or regulatory authority or agency are necessary for the execution, delivery or
performance by Guarantor of this Guaranty or for the validity or enforceability thereof.




          (g) Taxes, etc. Guarantor has filed all United States federal and state tax returns
and all other tax returns that are required to be filed by Guarantor and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by Guarantor, except such taxes,
the payment of which is not yet due, or which if due, is not yet delinquent or is being contested
in good faith or which has not been finally determined.




          (h) Benefit. The making of the Loan by Lender to Borrowers will directly benefit
Guarantor.




     6. Financial Covenants and Other Information. Guarantor shall provide Lender the
following financial statements and information on a continuing basis during the term of the Loan:



          (a) Within one hundred twenty (120) days after the end of each fiscal year of Guarantor,
audited financial statements of Guarantor prepared by a nationally recognized accounting firm or
independent certified public accountant acceptable to Lender, which statements shall be prepared in
accordance with GAAP and certified by the chief financial officer of Guarantor as true and correct
in all material respects and shall include a balance sheet and a statement of income and expenses
for the year then ended. In lieu of its obligations




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hereunder, Guarantor may submit to lender, upon its filing thereof, a copy of form 10K as
filed with the United States Securities and Exchange Commission.




          (b) Within forty-five (45) days of the end of each fiscal quarter of Guarantor, unaudited
financial statements of Guarantor, prepared in accordance with GAAP, which statements shall include
a balance sheet and statement of income and expenses for the quarter then ended, certified by the
chief financial officer of Guarantor as true and correct in all material respects. In lieu of its
obligations hereunder, Guarantor may submit to Lender, upon its filing thereof, a copy of Form 10Q
as filed with the United States Securities and Exchange Commission.




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




          (d) Within forty-five (45) days after the end of each fiscal quarter of Guarantor, a
certificate of the chief financial officer of Guarantor confirming compliance with the covenants
and requirements set forth herein.




     The Lender reserves the right to require such other financial information of Guarantor in such
form and at such other times (including monthly or more frequently, but not more frequently than
reasonable) as Lender shall deem necessary, and Guarantor agrees promptly to provide or to cause to
be provided, such information to Lender. All financial statements must be in form and detail as
Lender may from time to time request.



     7. Guarantor Covenants. Guarantor covenants and agrees that it shall achieve and
maintain the following covenants so long as the Guaranty Obligations are outstanding, to be tested
on a quarterly basis (the “Guarantor Covenants”):



          (a) Fixed Charge Coverage Ratio, as defined herein, equal to or greater than 1.10x. “Fixed
Charge Coverage Ratio” means a ratio in which the first number is the sum of net income (loss) of
Guarantor as set forth in Guarantor’s consolidated statement of operations prepared in accordance
with GAAP, calculated based upon the preceding twelve (12) months and Non-Operating Expenses
(hereinafter defined) less the Payments of Professional Liability (hereinafter defined) and
the second number is the sum of interest expense, lease expense and the scheduled current
maturities of long-term debt (excluding balloon maturities). “Non-Operating Expenses” shall mean
the provision (benefit) for self-insured professional and general liability, depreciation and
amortization, interest expense, lease expense, asset impairment expense, and income tax expense
(benefit). “Payments of Professional Liability” shall mean the total out of pocket expense
associated with professional and general liability related settlements, legal fees or
administration for all facilities owned and/or operated by entities related to Guarantor;




          (b) Liquidity, as defined herein, equal to or greater than $2,000,000.00. “Liquidity” shall
mean the sum of Guarantor’s unrestricted cash and availability as defined pursuant to the
Guarantor’s A/R Loan (as defined in the Loan Agreement); and




          (c) Funded Debt to Adjusted EBITDA Ratio, as defined herein, equal to or less than 4.25x.
“Funded Debt to Adjusted EBITDA Ratio” means a ratio in which the first number




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is the sum of interest bearing debt obligations of the Guarantor, its affiliates and/or its
subsidiaries and Settlement Promissory Notes, as defined herein, and the second number is the sum
of net income (loss) of Guarantor as set forth in Guarantor’s consolidated statement of operations
prepared in accordance with GAAP, calculated based upon the preceding twelve (12) months, income
tax expense (benefit), the provision (benefit) for self-insured professional liability,
depreciation and amortization and interest expense less the Payments of Professional
Liability. “Settlement Promissory Notes” shall mean promissory notes issued by Guarantor, its
affiliates and/or its subsidiaries associated with the settlement of certain professional liability
claims and other disputes.




          (d) Guarantor agrees that the occurrence of an event of default as specified herein with
respect to that certain Consolidated Amended and Restated Master Lease dated as of November 8,
2000, and any documents and instruments executed in connection therewith, together with any
amendments thereto, and any modifications, renewals and extensions thereof (the “Omega Master
Lease”) by and between Divericare Leasing Corp., as Lessee, and Sterling Acquisition Corp., a
subsidiary of Omega Healthcare Investors, Inc., as Lessor (collectively, “Omega”) will result in an
Event of Default under the Loan Documents (collectively, the “Omega Default”). Specifically, this
covenant will be triggered by the following:




               (i) an Event of Default under the Omega Master Lease declared by Omega in writing;



               (ii) an Event of Default in any payment due under the Omega Master Lease; or



               (iii) subject to any applicable notice, cure or grace periods provided for under the Omega
Master Lease, other events that could result in the termination of the Omega Master Lease or any
facility leases associated with Leased Properties (as defined in the Omega Master Lease),
repossession of the Lease Properties by Lessor, or acceleration of the Rent due under the Omega
Master Lease.



     Notwithstanding the above, upon the satisfaction of the Loan Obligations associated with the
Note II Loan, the Guarantor Covenants defined above shall no longer apply.



     8. Guaranty is a Continuing Obligation. The obligations of the Guarantor under this
Guaranty shall be continuing, absolute, irrevocable and unconditional under all circumstances, and
shall remain in full force and effect or be reinstated, until all of the Guaranty Obligations shall
have been paid and performed in full, irrespective of the bankruptcy, insolvency, merger,
reorganization, termination, discontinuation or dissolution of a Borrower or any assignment for the
benefit of creditors by a Borrower. The Guarantor acknowledges and agrees that Guarantor’s
obligations hereunder shall apply to and continue with respect to any of the obligations of a
Borrower under the Loan Documents which are subsequently recovered from the Lender for the reasons
set forth below. In the event that any payment by or on the behalf of a Borrower to Lender is held
to constitute a preference, fraudulent transfer or other voidable payment under any bankruptcy,
insolvency or similar law, or if for any other reason the Lender is required to refund such payment
or pay the amount thereof to any other party, including, without limitation, as a result of the
appointment of a receiver, intervenor, or conservator of, or trustee or similar officer



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for, any Borrower or of any substantial part of its property or otherwise, such payment by the
Borrower or any other party to the Lender shall not constitute a release of the Guarantor from any
liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated
(notwithstanding any prior release, surrender or discharge by the Lender of this Guaranty or of the
Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all
amounts so refunded by the Lender or paid by the Lender to another party (which amounts shall
constitute part of the Guaranty Obligations), and any interest paid by the Lender and any
attorneys’ fees, costs and expenses paid or incurred by the Lender in connection with any such
event. It is the intent of the Guarantor and the Lender that the obligations and liabilities of
the Guarantor hereunder are absolute and unconditional under any and all circumstances and that
until the Guaranty Obligations are fully and finally paid and performed, and not subject to refund
or disgorgement, the obligations and liabilities of the Guarantor hereunder shall not be discharged
or released, in whole or in part, by any act or occurrence that might, but for the provisions of
this Guaranty, be deemed a legal or equitable discharge or release of a guarantor. The Lender
shall be entitled to continue to hold this Guaranty in its possession for a period of one year from
the later of (a) the date the Guaranty Obligations are paid and performed in full, or (b) if not
paid in accordance with the Guaranty Obligations, the expiration or termination of the Loan, and
for so long thereafter as may be necessary to enforce any obligation of the Guarantor hereunder
and/or to exercise any right or remedy of the Lender hereunder.



     9. Waiver and Release of Subrogation and Participation. Guarantor shall have no right
of subrogation in or under the Guaranty Obligations, and no rights of reimbursement, indemnity or
contribution from the Borrowers or any other rights by law, equity, statute or contract that would
give rise to a creditor-debtor relationship between Guarantor and the Borrowers. Guarantor shall
have no right to participate in any way in any of the collateral which is conveyed under the Loan
Documents as security for the Guaranty Obligations. Guarantor hereby explicitly waives and
releases any of the above-described rights of subrogation, reimbursement, indemnity, contribution,
participation, and any right to require the marshalling of Borrowers’ assets under any
circumstances.



     10. Continuing Validity. Guarantor further agrees that the validity of this Guaranty
and the obligations of Guarantor hereunder shall in no way be terminated, affected or impaired (a)
by reason of the assertion by Lender of any rights or remedies which it may have under or with
respect to either the Note, the Mortgage, or the other Loan Documents, against any person obligated
thereunder or against the owner of the premises covered by the Mortgage, (b) by reason of any
failure to file or record any of such instruments or to take or perfect any security intended to be
provided thereby, (c) by reason of the commencement of a case under the Bankruptcy Code by or
against any person obligated under the Note, the Mortgage or the other Loan Documents, or the death
of any Guarantor, or (d) by reason of any payment made on the Guaranty Obligations or any other
indebtedness arising under the Note, the Mortgage or the other Loan Documents, whether made by
Borrowers or Guarantor or any other person, which is required to be refunded pursuant to any
bankruptcy or insolvency law; it being understood that no payment so refunded shall be considered
as a payment of any portion of the Guaranty Obligations, nor shall it have the effect of reducing
the liability of Guarantor hereunder. It is further understood, that if a Borrower shall have
taken advantage of, or be subject to the protection of, any provision in the Bankruptcy Code, the
effect of which is to prevent or delay Lender from taking any remedial action against Borrowers,
including the exercise of any option



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Lender has to declare the Guaranty Obligations due and payable on the happening of any default
or event by which under the terms of the Note, the Mortgage or the other Loan Documents, the
Guaranty Obligations shall become due and payable, Lender may, as against Guarantor, nevertheless,
declare the Guaranty Obligations due and payable and enforce any or all of its rights and remedies
against Guarantor provided for herein.



     11. Notice. All notices given under this Guaranty shall be in writing and shall be
either hand delivered or mailed, by certified U.S. mail, return receipt requested, first class
postage prepaid, to the other party, at its address set forth below or at such other address as
such party may designate by notice to the other party:



          (a) If to Guarantor:



Advocat Inc.

1621 Galleria Blvd.

Brentwood, Tennessee 37027

Attn: Glynn Riddle



with a copy to:



Harwell Howard Hyne Gabbert & Manner, P.C.

315 Deaderick Street, Suite 1800

Nashville, Tennessee 37238

Attention: John N. Popham, IV, Esq.




          (b) If to Lender:



Capmark Finance Inc.

200 Witmer Road

Horsham, Pennsylvania 19044

Attention: Servicing Department



with a copy to:



Bradley Arant Rose & White llp

One Federal Place

1819 Fifth Avenue North

Birmingham, Alabama 35203-2119

Attention: Shannon B. Lisenby, Esq.




     12. No Waiver by Lender; Remedies. No failure on the part of Lender or the holder of
the Note to exercise, and no delay in exercising, any right hereunder or thereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other right. Guarantor
hereby agrees that all rights and remedies that Lender is afforded by reason of this Guaranty are
separate and cumulative and may be pursued separately, successively, or concurrently, as Lender
deems advisable. In addition, all such rights and remedies are non-exclusive and shall in no way



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limit or prejudice Lender’s ability to pursue any other legal or equitable rights or remedies
that may be available. Failure of Lender to insist upon strict performance or observance of any of
the terms, provisions and covenants hereof or to exercise any right herein contained shall not be
construed as a waiver or relinquishment of the right to demand strict performance at another time.
Receipt by Lender of any payment or performance on the Guaranty Obligations shall not be deemed a
waiver of the breach of any provision hereof or of any of the Loan Documents. Without limiting the
generality of the foregoing, Guarantor agrees that in any action by Lender by reason of the
Guaranty Obligations, Lender, at its election, may proceed (a) against Guarantor together with
Borrowers, (b) against Guarantor and Borrowers, individually, or (c) against Guarantor only without
having commenced any action against, or having obtained any judgment against, Borrowers.



     13. Certain Waivers by Guarantor. AS A FURTHER INDUCEMENT TO LENDER TO MAKE THE LOAN
AND IN CONSIDERATION THEREOF, GUARANTOR FURTHER COVENANTS AND AGREES THAT SERVICE OF ANY SUMMONS
AND COMPLAINT OR OTHER PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL DIRECTED TO GUARANTOR AT GUARANTOR’S ADDRESS HEREINABOVE SET FORTH, GUARANTOR HEREBY
WAIVING PERSONAL SERVICE THEREOF. GUARANTOR HEREBY WAIVES THE PLEADING OF ANY STATUTE OF
LIMITATIONS AS A DEFENSE TO THE OBLIGATIONS HEREUNDER. GUARANTOR HEREBY WAIVES NOTICE OF THE
ACCEPTANCE HEREOF, PRESENTMENT, DEMAND FOR PAYMENT, PROTEST, NOTICE OF PROTEST, OR ANY AND ALL
NOTICE OF NON-PAYMENT, NON-PERFORMANCE OR NON-OBSERVANCE, OR OTHER PROOF, OR NOTICE OR DEMAND.



     THE GUARANTOR FURTHER WAIVES AND AGREES NOT TO ASSERT: (A) ANY RIGHT TO REQUIRE LENDER TO
PROCEED AGAINST ANY BORROWER OR TO PROCEED AGAINST ANY OTHER GUARANTOR, OR TO PROCEED AGAINST OR
EXHAUST ANY SECURITY FOR THE GUARANTY OBLIGATIONS, OR TO PURSUE ANY OTHER REMEDY AVAILABLE TO
LENDER, OR TO PURSUE ANY REMEDY IN ANY PARTICULAR ORDER OR MANNER, (B) THE BENEFIT OF ANY STATUTE
OF LIMITATIONS AFFECTING GUARANTOR’S LIABILITY HEREUNDER OR THE ENFORCEMENT HEREOF, (C) NOTICE OF
THE EXISTENCE, CREATION OR INCURRING OF NEW OR ADDITIONAL INDEBTEDNESS OF ANY BORROWER TO LENDER,
(D) THE BENEFITS OF ANY STATUTORY PROVISION LIMITING THE LIABILITY OF A SURETY, (E) ANY DEFENSE
ARISING BY REASON OF ANY DISABILITY OR OTHER DEFENSE OF BORROWERS OR BY REASON OF THE CESSATION
FROM ANY CAUSE WHATSOEVER (OTHER THAN PAYMENT IN FULL) OF THE LIABILITY OF BORROWERS FOR THE
GUARANTY OBLIGATIONS, (F) THE BENEFITS OF ANY STATUTORY PROVISION LIMITING THE RIGHT OF LENDER TO
RECOVER A DEFICIENCY JUDGMENT, OR TO OTHERWISE PROCEED AGAINST ANY PERSON OR ENTITY OBLIGATED FOR
PAYMENT OF THE GUARANTY OBLIGATIONS, AFTER ANY FORECLOSURE OR TRUSTEE’S SALE OF ANY SECURITY FOR
THE GUARANTY OBLIGATIONS, AND (G) ANY OTHER DEFENSE OR CIRCUMSTANCE WHICH MIGHT OTHERWISE
CONSTITUTE A LEGAL OR



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EQUITABLE DISCHARGE OF GUARANTOR’S LIABILITY HEREUNDER, ARISING FROM OR OUT OF THE LOAN, THE
LOAN DOCUMENTS AND/OR THE FACILITY.



     14. Waiver of Automatic Stay. GUARANTOR HEREBY AGREES THAT, IN CONSIDERATION OF
LENDER’S AGREEMENT TO MAKE THE LOAN AND IN RECOGNITION THAT THE FOLLOWING COVENANT IS A MATERIAL
INDUCEMENT FOR LENDER TO MAKE THE LOAN, IN THE EVENT THAT GUARANTOR SHALL (A) FILE WITH ANY
BANKRUPTCY COURT OF COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER ANY SECTION OR
CHAPTER OF TITLE 11 OF THE UNITED STATES CODE, AS AMENDED (“BANKRUPTCY CODE”), OR SIMILAR LAW OR
STATUTE, (B) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE BANKRUPTCY CODE OR SIMILAR LAW
OR STATUTE, (C) FILE OR BE THE SUBJECT OF ANY PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT,
COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE
FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR DEBTORS, (D)
HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF ANY TRUSTEE, RECEIVER, CONSERVATOR,
OR LIQUIDATOR, OR (E) BE THE SUBJECT OF AN ORDER, JUDGMENT OR DECREE ENTERED BY ANY COURT OF
COMPETENT JURISDICTION APPROVING A PETITION FILED AGAINST GUARANTOR FOR ANY REORGANIZATION,
ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY
PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY OR RELIEF FOR
DEBTORS, THEN, SUBJECT TO COURT APPROVAL, LENDER SHALL THEREUPON BE ENTITLED, AND GUARANTOR HEREBY
IRREVOCABLY CONSENTS TO, AND WILL NOT CONTEST, AND AGREES TO STIPULATE TO RELIEF FROM, ANY
AUTOMATIC STAY OR OTHER INJUNCTION IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR SIMILAR LAW OR
STATUTE (INCLUDING, WITHOUT LIMITATION, RELIEF FROM ANY EXCLUSIVE PERIOD SET FORTH IN SECTION 1121
OF THE BANKRUPTCY CODE) OR OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES
OTHERWISE AVAILABLE TO LENDER AS PROVIDED IN THIS AGREEMENT AND/OR THE LOAN DOCUMENTS, AND AS
OTHERWISE PROVIDED BY LAW, AND GUARANTOR HEREBY IRREVOCABLY WAIVES GUARANTOR’S RIGHTS TO OBJECT TO
SUCH RELIEF.



     15. Guaranty of Payment. This is a guaranty of payment and not of collection and upon
any default of a Borrower under the Note, the Mortgage, the Loan Agreement or the other Loan
Documents, Lender may, at its option, proceed directly and at once, without notice, against
Guarantor to collect and recover the full amount of the liability hereunder or any portion thereof,
without proceeding against Borrowers or any other person, or foreclosing upon, selling, or
otherwise disposing of or collecting or applying against any of the Facility or other collateral
for the Loan.



          (a) Joint and Several Liability. The term “Guarantor” as used in this Guaranty shall
refer individually and collectively to all signers of this Guaranty. Each undertaking herein




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contained shall be the joint and several undertaking of each signer hereof if more than one,
and it is specifically agreed that Lender may enforce the provisions hereof with respect to one or
more of such signers without seeking to enforce the same as to all or any such signers. Guarantor
hereby waives any requirement of joinder of all or any other of the parties hereto in any suit or
proceeding to enforce the provisions hereof.




          (b) Assignment. Lender may assign this Guaranty or any rights or powers hereunder, in
whole or in part, in connection with the sale of the Note and assignment of the Mortgage. The
duties and obligations of Guarantor may not be delegated or transferred by Guarantor without the
prior written consent of Lender which may be withheld in its absolute discretion. Each reference
herein to Lender shall be deemed to include its successors and assigns, to whose favor the
provisions of this Guaranty shall also inure. Each reference herein to Guarantor shall be deemed
to include the heirs, executors, administrators, legal representatives, successors and assigns of
Guarantor, all of whom shall be bound by the provisions of this Guaranty. If any party hereto
shall be a partnership or a limited liability company, the agreements and obligations on the part
of Guarantor herein contained shall remain in force and application notwithstanding any changes in
the individuals or entities composing the partnership or the limited liability company, and the
term “Guarantor” shall include any altered or successive partnerships and any altered or successive
limited liability companies but the predecessor partnerships and their partners, and the
predecessor limited liability companies and their members, shall not thereby be released from any
obligations or liability hereunder.




     16. Intentionally Deleted.



     17. Waiver of Trial by Jury; Service of Process. GUARANTOR HEREBY WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE GUARANTOR AND THE LENDER MAY BE PARTIES ARISING OUT
OF, IN CONNECTION WITH, OR IN ANY WAY PERTAINING TO, THIS AGREEMENT AND/OR ANY OF THE OTHER LOAN
DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF
ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO
ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
GUARANTOR, AND THE GUARANTOR HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN
MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY
ITS EFFECT. THE GUARANTOR FURTHER REPRESENTS AND WARRANTS THAT GUARANTOR HAS BEEN REPRESENTED IN
THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS
HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED BY GUARANTOR OF
GUARANTOR’S OWN FREE WILL, AND THAT GUARANTOR HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL. GUARANTOR HEREBY IRREVOCABLY DESIGNATES NATIONAL REGISTERED AGENTS, INC., AND HIS/HER
SUCCESSORS IN OFFICE, AS THE TRUE AND LAWFUL ATTORNEY OF GUARANTOR FOR THE PURPOSE OF RECEIVING
SERVICE OF ALL LEGAL NOTICES AND PROCESS ISSUED BY ANY COURT IN THE STATE OF ALABAMA AS WELL AS
SERVICE OF ALL PLEADINGS AND OTHER



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DOCUMENTS RELATED TO ANY LEGAL PROCEEDING OR ACTION ARISING OUT OF THE NOTE. GUARANTOR AGREES
THAT SERVICE UPON SAID NATIONAL REGISTERED AGENTS, INC. SHALL BE VALID REGARDLESS OF GUARANTOR’S
WHEREABOUTS AT THE TIME OF SUCH SERVICE AND REGARDLESS OF WHETHER GUARANTOR RECEIVES A COPY OF
SUCH SERVICE, PROVIDED THAT THE LENDER SHALL HAVE MAILED A COPY TO GUARANTOR IN ACCORDANCE WITH THE
NOTICE PROVISIONS HEREIN. GUARANTOR AGREES TO PAY ALL COURT COSTS AND REASONABLE ATTORNEY’S FEES
INCURRED BY LENDER IN CONNECTION WITH ENFORCING ANY PROVISION OF THIS AGREEMENT. NOTWITHSTANDING
THE FOREGOING, LENDER AGREES TO USE REASONABLE EFFORTS TO PROVIDE GUARANTOR WITH NOTICE OF THE
FILING OF ANY LAWSUIT BY LENDER AGAINST GUARANTOR.



     18. Power and Authority. Guarantor (and its representative, executing below, if any)
has full power, authority and legal right to execute this Guaranty and to perform all its
obligations under this Guaranty.



     19. Complete Agreement; Modification; Waiver. All understandings, representations and
agreements heretofore had with respect to this Guaranty are merged into this Guaranty which are
incorporated herein which alone fully and completely expresses the agreement of Guarantor and
Lender. In no event shall any modification or waiver of the provisions of this Guaranty be
effective unless in writing executed by Lender. Any waiver granted by Lender shall be applicable
only in the specific instance for which it is given.



     20. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ALABAMA AND APPLICABLE FEDERAL LAW.



     21. Counterparts; Construction. This Guaranty may be executed in any number of
counterparts, all of which when taken together shall constitute one and the same instrument. Words
of any gender used in this Guaranty shall be held and construed to include the other gender, and
words in the singular shall be held and construed to include the plural, and words in the plural
shall be held and construed to include the singular, unless this Guaranty or the context otherwise
requires.



     22. Review by Guarantor. GUARANTOR HAS RECEIVED COPIES OF, AND HAS HAD THE
OPPORTUNITY TO REVIEW, ALL OF THE LOAN DOCUMENTS REFERRED TO IN THIS GUARANTY. GUARANTOR HAS
DISCUSSED THIS GUARANTY WITH GUARANTOR’S LEGAL COUNSEL, AND GUARANTOR UNDERSTANDS THE NATURE AND
EXTENT AND THE LEGAL AND PRACTICAL CONSEQUENCES OF GUARANTOR’S LIABILITY UNDER THIS GUARANTY.



     23. No Oral Agreement. To the extent allowed by law, Guarantor agrees to be bound by
the terms of the following notice:




			
	     NOTICE: THIS GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE A WRITTEN AGREEMENT WHICH
REPRESENTS




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THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES.






			
		 	THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE
LOAN.





[SIGNATURES APPEAR ON THE FOLLOWING PAGE]




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     IN WITNESS WHEREOF, this Guaranty has been duly executed by the undersigned as of the day and
year first written above.



	 	 	 	 	 
	 	GUARANTOR:





ADVOCAT INC., a Delaware corporation

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Print Name:  Glynn Riddle  	 
	 	Its:  Chief Financial Officer 	 
	 



	 	 	 	 	 	 	 	 	 
	STATE OF

	 	 	 	 	 	 	)	 
	 

	 	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 	:	 
	COUNTY

	 	 	 	 	 	 	)	 
	 

	 

	 	 	 	 	 	 






     I, the undersigned, a Notary Public in and for said County in said State, hereby certify that
                    , whose name as                      of Advocat Inc., a Delaware corporation, is
signed to the foregoing instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of said instrument, he, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation.



     Given under my hand and official seal this the ___day of ___, 2006.



	 	 	 	 	 
	 	
 	 
	 	Notary Public 	 
	 	 	 
	 



AFFIX SEAL

My commission expires:                     





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