##### 



Exhibit 10.3
 LOAN AND SECURITY AGREEMENT
 dated as of August 10, 2007
 by and among
 DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation,
as a Borrower
 and
 those certain additional Borrowers set forth on Schedule 1 hereto,
 and
 LASALLE BANK NATIONAL ASSOCIATION,
as Lender




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##### 



Exhibit 10.3
 TABLE OF CONTENTS
 Page1. DEFINITIONS
    
    
    11.1 General Terms
    
    
    11.2 Interpretation
    
    
    252. COMMITMENTS; INTEREST; FEES
    
    
    252.1 Revolving Loans
    
    
    252.2 Term Loan
    
    
    282.3 Reduction of Revolving Loan Commitment by the Revolving Loan Borrower
    
    
    292.4 Principal Balance of Liabilities Not to Exceed the Maximum Facility
    
    
    292.5 The Borrowers Loan Account
    
    
    292.6 Statements
    
    
    302.7 Interest
    
    
    302.8 Method for Making Payments
    
    
    302.9 Term of this Agreement
    
    
    312.10 Optional Prepayment of Loans
    
    
    312.11 Limitation on Charges
    
    
    312.12 Method of Selecting Rate Options; Additional Provisions Regarding
Libor Loans
    
    
    322.13 Setoff
    
    
    322.14 Termination of Commitments by the Lender
    
    
    332.15 Mandatory Prepayments
    
    
    332.16 Closing Fee
    
    
    332.17 Late Charge
    
    
    332.18 L/C Fees
    
    
    34
 -i-




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Page2.19 Unused Line Fee
    
    
    343. CHANGE IN CIRCUMSTANCES
    
    
    343.1 Yield Protection
    
    
    343.2 Availability of Rate Options
    
    
    353.3 Taxes
    
    
    353.4 Funding Indemnification
    
    
    363.5 Lender Statements
    
    
    363.6 Basis for Determining Interest Rate Inadequate or Unfair
    
    
    363.7 Illegality
    
    
    364.
ELIGIBILITY REQUIREMENTS; CASH COLLATERAL ACCOUNT; ATTORNEY-IN-FACT
    
    
    364.1 Account Warranties; Schedule of Accounts
    
    
    364.2 Account Covenants
    
    
    374.3 Collection of Accounts and Payments
    
    
    374.4 Appointment of the Lender as the Borrowers Attorney-in-Fact
    
    
    384.5 Notice to Account Debtors
    
    
    394.6 Equipment Warranties
    
    
    404.7 Equipment Records
    
    
    405. CONDITIONS OF LOANS
    
    
    405.1 Conditions to all Loans
    
    
    405.2 Initial Loans
    
    
    416. COLLATERAL
    
    
    436.1 Security Interest
    
    
    446.2 Preservation of Collateral and Perfection of Security Interests Therein
    
    
    446.3 Loss of Value of Collateral
    
    
    456.4 Right to File Financing Statements
    
    
    45




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Page6.5 Third Party Agreements
    
    
    456.6 All Loans One Obligation
    
    
    456.7 Commercial Tort Claim
    
    
    467. REPRESENTATIONS AND WARRANTIES
    
    
    467.1 Existence
    
    
    467.2 Corporate Authority
    
    
    467.3 Binding Effect
    
    
    467.4 Financial Data.
    
    
    477.5 Collateral
    
    
    477.6 Solvency
    
    
    477.7 Principal Place of Business; State of Organization
    
    
    477.8 Other Names
    
    
    477.9 Tax Liabilities
    
    
    487.10 Loans
    
    
    487.11 Margin Securities
    
    
    487.12 Organizational Chart
    
    
    487.13 Litigation and Proceedings
    
    
    487.14 Other Agreements
    
    
    487.15 Compliance with Laws and Regulations
    
    
    487.16 Intellectual Property
    
    
    497.17 Environmental Matters
    
    
    497.18 Disclosure
    
    
    497.19 Pension Related Matters
    
    
    507.20 Perfected Security Interests
    
    
    507.21 Acquisition Documents
    
    
    50




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Page7.22 Brokers Fees
    
    
    507.23 Investment Company Act
    
    
    517.24 Transactions
    
    
    517.25 Representations and Warranties in Acquisition Documents
    
    
    517.26 Offenses and Penalties Under the Medicare/Medicaid Programs
    
    
    517.27 Medicaid/Medicare and Private Insurance/Managed Care Contracts
    
    
    517.28 Consideration
    
    
    537.29 USA Patriot Act
    
    
    537.30 Absence of Foreign or Enemy Status
    
    
    537.31 HIPAA Compliance
    
    
    537.32 Labor Matters
    
    
    537.33 Capitalization
    
    
    537.34 Government Contracts
    
    
    547.35 OFAC
    
    
    547.36 Commercial Leases
    
    
    548. AFFIRMATIVE COVENANTS
    
    
    548.1 Reports, Certificates and Other Information
    
    
    548.2 Inspection; Audit Fees
    
    
    578.3 Conduct of Business
    
    
    578.4 Claims and Taxes
    
    
    578.5 State of Incorporation or Formation
    
    
    578.6 Liability and Malpractice Insurance
    
    
    588.7 Property and Other Insurance
    
    
    588.8 Environmental
    
    
    598.9 Banking Relationship
    
    
    59




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Page8.10 Intellectual Property
    
    
    598.11 Change of Location; Etc
    
    
    608.12 Health Care Related Matters
    
    
    608.13 US Patriot Act
    
    
    608.14 Government Accounts
    
    
    618.15 Further Assurances
    
    
    618.16
Compliance with Anti-Terrorism Orders
    
    
    618.17 Blocked Account Agreements and Account Debtors
    
    
    619. NEGATIVE COVENANTS
    
    
    629.1 Encumbrances
    
    
    629.2 Indebtedness; Capital Expenditures
    
    
    629.3 Consolidations, Mergers or Transactions
    
    
    639.4 Investments or Loans
    
    
    639.5 Guarantees
    
    
    639.6 Disposal of Property
    
    
    649.7 Use of Proceeds
    
    
    649.8 Loans to Officers; Consulting and Management Fees
    
    
    649.9 Dividends and Stock Redemptions
    
    
    649.10 Payments in Respect of Subordinated Debt
    
    
    659.11 Transactions with Affiliates
    
    
    659.12 Financial Ratios
    
    
    659.13 Change in Nature of Business
    
    
    669.14 Other Agreements
    
    
    669.15 Blocked Accounts and Lock Box Accounts
    
    
    669.16 Amendments to Restricted Agreements
    
    
    66




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Page9.17 State of Incorporation or Formation
    
    
    679.18 Environmental
    
    
    679.19 Fiscal Year
    
    
    679.20 Restrictions on Fundamental Changes
    
    
    679.21 Margin Stock
    
    
    679.22 Truth of Statements and Certificates
    
    
    679.23 Negative Pledge Assets
    
    
    6810. HEALTH CARE MATTERS
    
    
    6810.1 Funds from Restricted Grants
    
    
    6810.2 Certificate of Need
    
    
    6810.3 Licenses. The Licenses
    
    
    6811. DEFAULT, RIGHTS AND REMEDIES OF THE LENDER
    
    
    6911.1 Event of Default
    
    
    6911.2 Acceleration
    
    
    7311.3 Rights and Remedies Generally
    
    
    7311.4 Entry Upon Premises and Access to Information
    
    
    7411.5 Sale or Other Disposition of Collateral by the Lender
    
    
    7411.6 Waivers (General)
    
    
    7511.7 Waiver of Notice
    
    
    7711.8 Injunctive Relief
    
    
    7711.9 Marshalling
    
    
    7711.10 Advice of Counsel
    
    
    7712. MISCELLANEOUS
    
    
    7812.1 Waiver
    
    
    7812.2 Costs and Attorneys Fees
    
    
    78




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Page12.3 Expenditures by the Lender
    
    
    7912.4 Custody and Preservation of Collateral
    
    
    7912.5 Reliance by the Lender
    
    
    7912.6 Assignability; Parties
    
    
    7912.7 Severability; Construction
    
    
    8012.8 Application of Payments
    
    
    8012.9 Marshalling; Payments Set Aside
    
    
    8012.10 Sections and Titles; UCC Termination Statements
    
    
    8012.11 Continuing Effect; Inconsistency
    
    
    8012.12 Notices
    
    
    8112.13 Equitable Relief
    
    
    8212.14 Entire Agreement
    
    
    8212.15 Participations and Assignments
    
    
    8212.16 Indemnity
    
    
    8212.17 Representations and Warranties
    
    
    8312.18 Counterparts; Electronically Transmitted Signatures
    
    
    8312.19 Limitation of Liability of Lender
    
    
    8312.20 Borrower Authorizing Accounting Firm
    
    
    8412.21 Joint and Several Liability; Binding Obligations
    
    
    8412.22 Confidentiality
    
    
    8712.23 Expenses and Taxes
    
    
    8812.24 Release
    
    
    8912.25 Time; Reliance
    
    
    8912.26 Relationship
    
    
    8912.27 Borrower Agent
    
    
    90




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Page12.28 Agents; Borrower Authorizing Accounting Firm
    
    
    9012.29 Additional Provisions
    
    
    9012.30 Nonliability of Lender
    
    
    9312.31 INTENTIONALLY OMITTED
    
    
    9412.32 SUBMISSION TO JURISDICTION; WAIVER OF VENUE
    
    
    9412.33 GOVERNING LAW
    
    
    9512.34 JURY TRIAL
    
    
    95SCHEDULES
    
    
    96EXHIBITS
    
    
    105




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LOAN AND SECURITY AGREEMENT
 LOAN AND SECURITY AGREEMENT Agreement Schedule 1 Borrower LASALLE BANK
NATIONAL ASSOCIATION Lender
 W I T N E S S E T H:
 WHEREAS Parent
 WHEREAS Acquisition Agreement Transfer Acquisition Transactions
 WHEREAS
 WHEREAS
 NOW, THEREFORE
 DEFINITIONS
 General Terms
 Account Debtor
 - 1 -




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Accounts
 Acquisition Recitals
 Acquisition Agreement Recitals
 Acquisition Documents Section 9.16
 Adjusted EBITDA
 Adjusted EBITDAR plus
 Adjusted Leased Asset EBITDA Schedule 1.1(a)
 Affiliate
 Agreement
 - 2 -




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Allocable Amount Section
12.21(g)
 AmSouth Bank
 AmSouth Blocked Account
 AmSouth Blocked Account Agreement
 AmSouth Letter of Credit
 Applicable Libor Margin
 Bankruptcy Court
 Base Rate
 Base Rate Loan
 Base Rent
 Blocked Account Agreements
 Blocked Persons List Section
7.29
 Borrower Agent
 - 3 -




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Borrower Cash Management Program
 Borrowing Base
 Borrowing Date
 Borrowing Notice Section
2.12
 Business Day
 Capital Expenditures
 Capitalized Lease Obligations
 - 4 -




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Capmark
 Capmark Debt Documents Section 9.16
 Capmark Intercreditor Agreement
 Capmark Mortgage
 Capmark Mortgage Loan
 Capmark Mortgage Loan Documents
 Capmark Restricted Accounts Schedule
1.1(b)
 Capmark Security Interest
 Cash Collateral Account Section
4.3
 Cash Cost of Self-Insured Professional and General Liability
 CERCLA
 Certificates Section 5.2
 CHAMPUS
 - 5 -




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Closing Date
 Closing Fee Section 2.16
 CMS
 Collateral Section 6.1
 Commercial Blocked Account Agreement
 Commercial Leases
 Commitments
 Compliance Certificate Section
8.1(c)
 CON Section 10.2
 Credit Party
 Credit Termination Date Section 11.2
 Default
 Default Rate Section 2.7(a)
 Demand Deposit Account Section
4.3
 Deposit Accounts
 Diversicare Parties
 - 6 -




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Duly Authorized Officer
 EBITDA
 EBITDAR
 Eligible Accounts
        provided however
 - 7 -




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provided further
 Environmental Laws
 - 8 -




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Environmental Notice
 Equipment
 ERISA
 ERISA Affiliate
 Event of Default Section
11.1
 Excess Cash Flow minus
 Facility Facilities Schedule 1.1(a)
 Financing Agreements
 - 9 -




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Fiscal Quarter
 Fiscal Year
 Fixed Charge Coverage Ratio
 Fixed Charges
 GAAP
 General Intangibles
 - 10 -




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Governing Documents Section
9.14
 Government Accounts
 Governmental Approvals
 Governmental Authority
 Government Blocked Account Section 4.4
 Government Blocked Account Agreement
 Guarantor
 Guaranty
 Hazardous Substances
 Healthcare Laws
 - 11 -




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Hedging Agreement
 Hedging Obligation
 HHS
 HIPAA
 Indebtedness
 Indemnified Parties Section
12.16
 - 12 -




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Insurer
 Intellectual Property
 Intercreditor Agreements
 Inventory
 Joint Liability Payment Section
12.21(g)
 Laws
 L/C Fee Section 2.18
 Leased Asset Adjusted EBITDA
 - 13 -




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Leased Assets Schedule 1.1(e) Schedule
1.1(d)
 Leased Real Property
 Leases
 Lender Parties Section 12.24
 Letter of Credit
 Letter of Credit Obligations plus
 Leverage Ratio
 Liabilities
 Libor Base Rate
 - 14 -




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Bloomberg Financial Markets
 Libor Interest Period provided however provided further
 Libor Loan
 Libor Rate
 Licenses Section 10.2
 Lien
 Loan Account Section 2.5
 Loans
 Location Locations Schedule 1.1(c)
 Manage Management
 - 15 -




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Management Agreements
 Master Lease
 Master Letter of Credit Agreement Section 2.1B
 Material Adverse Change Material Adverse Effect
 Maximum Facility
 Maximum Revolving Facility
 - 16 -




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Medicaid Certification
 Medicaid Provider Agreement
 Medicaid Regulations Medicaid
 Medical Services
 Medicare Certification
 Medicare Provider Agreement
 Medicare Regulations Medicare
 Morris Memorial Section 9.4
 Multiemployer Plan Section
7.19
 - 17 -




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Negative Pledge Assets Schedule
1.1.(d)
 Net Capital Expenditures
 Net Cash Proceeds
 Notes
 OFAC Lists
 Omega
 Omega Debt Documents Section 9.16
 Omega-Florida Intercreditor Agreement
 Omega Intercreditor Agreements
 - 18 -




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Omega Letter of Credit
 Omega Master Lease Agreement DLC
 Omega Security Interests
 Omega Senior Leases Schedule 1.1(e)
 Omega Senior Lessors
 Omega-Sterling Increditor Agreement
 Operating Lease
 Operators Operator
 Parent Recitals
 Patient
 - 19 -




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Patriot Act Section 8.16
 PBGC Section 7.19
 Permitted Liens Section 9.1
 Person
 Plan Section 7.19
 Pledge Agreements
 Pledgor
 Possession Date
 Preferred Stock
 Preferred Stock Certificate of Designation
 Private Insurance/Managed Care Account
 Private Insurance/Managed Care Contracts
 - 20 -




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Private Pay Accounts
 Prohibited Transaction
 Property
 Rate Option
 Release
 Released Parties Section
12.24
 Releasing Parties Section
12.24
 Required Dividends and Redemption Amounts
 Respond Response
 Restricted Agreements
 Restrictions Section 10.3
 Restructuring Stock Issuance and Subscription Agreement
 - 21 -




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Revolving Credit Not Section
2.1
 Revolving Loan Borrowe Schedule 1
 Revolving Loan Commitment Section 2.1
 Revolving Loans Section 2.1
 Rose Terrace Acquired Assets
 Rose Terrace Acquisition
 Rose Terrace Lease
 Sale Order
 Schedule of Accounts Section 8.1(d)
 Service Fee Section 8.9
 SMS Parties
 Solvent
 - 22 -




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Stated Maturity Date
 Stock
 Subleases
 Subordinated Debt
 Subordination Agreement
 Subsidiary
 Tax Code Section 7.19
 Taxes Section 3.3
 Tenant
 Term Loan Section 2.2
 Term Loan Borrower Schedule 1.1(f)
 - 23 -




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Term Loan Commitmen Section
2.2
 Term Loan Note Section 2.2
 Transactions Recitals
 Transfer Recitals
 TRICARE
 Trust Collection Services Agreement
 Trustee
 Trust Loan
 Trust Loan Agreement
 Trust Loan Documents
 Trust Note
 Undrawn Revolving Loan Amount
 Uniform Commercial Code UCC Code
 - 24 -




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##### 



provided further
 Interpretation
 All accounting terms used in this Agreement or the other Financing Agreements shall
have, unless otherwise specifically provided herein or therein, the meaning customarily given such
term in accordance with GAAP, and all financial computations thereunder shall be computed, unless
otherwise specifically provided therein, in accordance with GAAP consistently applied; provided,
however, that all financial covenants and calculations in the Financing Agreements shall be made in
accordance with GAAP as in effect on the Closing Date unless Borrower and Lender shall otherwise
specifically agree in writing. That certain items or computations are explicitly modified by the
phrase in accordance with GAAP shall in no way be construed to limit the foregoing. Unless
otherwise specified, references in this Agreement or any of the attachments hereto or appendices
hereof to a Section, subsection or clause refer to such Section, subsection or clause as contained
in this Agreement. The words herein, hereof and hereunder and other words of similar import
refer to this Agreement as a whole, including all annexes, exhibits and schedules attached hereto,
as the same may from time to time be amended, restated, modified or supplemented, and not to any
particular section, subsection or clause contained in this Agreement or any such annex, exhibit or
schedule.
 Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, feminine and neuter genders. The words
including, includes and include shall be deemed to be followed by the words without
limitation; the word or is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the Financing Agreements)
or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations
shall include any amendments of the same and any successor statutes and regulations. Whenever any
provision in any Financing Agreement refers to the knowledge (or an analogous phrase) of Borrower,
except as otherwise expressly provided for herein, such words are intended to signify that a Duly
Authorized Officer of Borrower has actual knowledge or awareness of a particular fact or
circumstance or that a prudent individual in the position of such Duly Authorized Officer of
Borrower, would reasonably be expected to have known or been aware of such fact or circumstance in
the course of performing his or her duties.
 COMMITMENTS; INTEREST; FEES
 Revolving Loans
 - 25 -




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Section 2.1(b) Section 2.1(b) Section 3.4 provided however Reborrowing Date Section 5.1 Revolving Loan
Commitment Section 12.21
 Each advance to the Revolving Loan Borrower under this Section 2.1 shall be in
integral multiples of Ten Thousand Dollars ($10,000) and shall, on the day of such advance, be
deposited, in immediately available funds, in the Revolving Loan Borrowers demand deposit account
with the Lender, or in such other account as the Borrower Agent may, from time to time, designate
in writing with the Lenders approval.
 The Borrower acknowledges and agrees that the Lender may from time to time (i) upon
five (5) calendar days notice, increase or decrease the advance rates with respect to Eligible
Accounts in the Lenders reasonable discretion (provided, prior to a Default, the Lender will not
reduce any such advance rate by more than ten percent (10%), but after the occurrence and during the period of any Default, the Lender may reduce any such
advance rate in any amount in its reasonable discretion), and/or (ii) establish reserves against
the Borrowing Base, the Eligible Accounts in the Lenders reasonable discretion.
 The Revolving Loans shall be evidenced by a promissory note (hereinafter, as the same
may be amended, modified or supplemented from time to time, and together with any renewals or
extensions thereof or exchanges or substitutions therefor, called the Revolving Credit Note),
duly executed and delivered by the Revolving Loan Borrower, substantially in the form set forth in
Exhibit A attached hereto, with appropriate insertions, dated the Closing Date, payable to the
order of the Lender in the principal amount of the Maximum Revolving Facility. THE PROVISIONS OF
THE REVOLVING CREDIT NOTE NOTWITHSTANDING, THE REVOLVING LOANS THEN OUTSTANDING SHALL BECOME
IMMEDIATELY DUE AND PAYABLE UPON THE EARLIEST TO OCCUR OF (X) STATED MATURITY DATE; (Y) THE
ACCELERATION OF THE LIABILITIES PURSUANT TO SECTION 11.2 HEREOF; AND (Z) TERMINATION OF THIS
AGREEMENT (WHETHER BY PREPAYMENT OR OTHERWISE) IN ACCORDANCE WITH ITS TERMS.
 - 26 -




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##### 



Accrued interest on the Revolving Loans shall be due and payable and shall be made by
the Revolving Loan Borrower to the Lender in accordance with Section 2.7 hereof. Monthly interest
payments on the Revolving Loans shall be computed using the interest rate then in effect and based
on the outstanding principal balance of the Revolving Loans. Upon maturity, the outstanding
principal balance of the Revolving Loans shall be immediately due and payable, together with any
remaining accrued interest thereon.
 Letters of Credit
 Master Letter of Credit Agreement Section 2.1(c)
  - 27 -




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Term Loan Term Loan
 - 28 -




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##### 



Section 2.7 Term Loan
Commitment Section 12.21
 Term Loan Note Exhibit B SECTION 11.2
 Reduction of Revolving Loan Commitment by the Revolving Loan Borrower
 Principal Balance of Liabilities Not to Exceed the Maximum Facility
 The Borrowers Loan Account Loan Account
 - 29 -




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##### 



Statements
 Interest provided however
 Accrued interest on each Base Rate Loan shall be payable on the first calendar day of
each month and at maturity, commencing with the first day of the calendar month after the initial
disbursement of such loan. Accrued interest on each Libor Loan shall be payable on the last day of
the Libor Interest Period relating to such Libor Loan and at maturity, commencing with the first
such last day of the initial Libor Interest Period. Monthly interest payments on the Loans shall
be computed using the interest rate then in effect and based on the outstanding principal balance
of the Loans. Upon maturity, the outstanding principal balance of all Loans shall be immediately
due and payable, together with any remaining accrued interest thereon. Interest shall be computed
on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed. If
any payment of principal of, or interest on, any of the Notes falls due on a day that is not a
Business Day, then such due date shall be extended to the next following Business Day, and
additional interest shall accrue and be payable for the period of such extension.
 Method for Making Payments
 - 30 -




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##### 



Term of this Agreement Section 2.10 provided however Section 6.1 Section 11.2
 Optional Prepayment of Loans
 Borrower may, at its option, permanently prepay, without penalty or premium (other
than as specified in Section 3.4 hereof), at any time during the term of this Agreement all or any
portion of any of the Revolving Loans.
 Borrower may, at its option, permanently prepay, without penalty or premium (other
than as specified in Section 3.4 hereof) at any time during the term of this Agreement all or any
portion of the Term Loan, subject to the following conditions: (a) not less than three (3) days
prior to the date upon which Borrower desires to make such prepayment, Borrower Agent shall deliver
to the Lender a written notice of its intention to prepay all or such portion of the Term Loan
which notice shall be irrevocable and state the amount of the prepayment and the prepayment date,
and (b) the amount of any such prepayment will be in an amount of not less than Two Hundred Fifty
Thousand Dollars ($250,000), and (c) Borrower shall, on a joint and several basis, pay to the
Lender, concurrently with such payment, any amounts charged in accordance with Section 3.4 hereof.
Prepayments of the Term Loan shall be applied against installments payable under the Term Note in
the inverse order of maturity.
 Limitation on Charges
 - 31 -




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##### 



Method of Selecting Rate Options; Additional Provisions Regarding Libor Loans Section 2.12
 The Borrowing Date, which shall be a Business Day, of such Loan;
 The type and aggregate amount of such Loan;
 The Rate Option selected for such Loan; and
 The Libor Interest Period applicable thereto.
  Setoff
 Without limitation of Section 2.13(a) hereof, the Borrower agrees that, upon and after
the occurrence of any Event of Default, the Lender is hereby
 - 32 -




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##### 



authorized, at any time and from time
to time, without prior notice to the Borrower (provided, however, prior to an Event of Default the
Lender shall use reasonable efforts to provide notice of any such action within a reasonable time
thereafter but the Lender shall not be liable for any failure to provide such notice), (i) to set
off against and to appropriate and apply to the payment of any and all Liabilities any and all
amounts which the Lender is obligated to pay over to the Borrower (whether matured or unmatured,
and, in the case of deposits, whether general or special, time or demand and however evidenced),
and (ii) pending any such action, to the extent necessary, to deposit such amounts with the Lender
as Collateral to secure such Liabilities and to dishonor any and all checks and other items drawn
against any deposits so held as the Lender in its sole discretion may elect.
 The rights of the Lender under this Section 2.13 are in addition to all other rights
and remedies which the Lender may otherwise have in equity or at law.
 Termination of Commitments by the Lender Section 11.2
 Mandatory Prepayments
 Within seventy-five (75) calendar days of the end of each Fiscal Year of Borrower, the
Borrower shall make an annual prepayment of principal of the Term Loan in an amount equal to fifty
percent (50%) of the Borrowers Excess Cash Flow for the immediately preceding Fiscal Year;
provided that the annual Excess Cash Flow prepayment computation for the year ending December 31,
2007, shall be for the period from the Closing Date through December 31, 2007.
 Upon receipt by Borrower of the proceeds of any sale or other disposition of any of
the Negative Pledged Assets or Collateral, the Borrower shall make a prepayment of the Term Loan in
an amount equal to fifty percent (50%) of the Net Cash Proceeds of such sale or disposition.
 The foregoing mandatory prepayments set forth in subsection (a) through (b) of this
Section 2.15 shall be applied to outstanding installments of the Term Loan in the inverse order of
maturity. Such mandatory prepayments shall not be subject to any prepayment penalty or charge.
Nothing contained in this Section 2.15 shall be construed to permit the Borrower to consummate any
transaction in violation of any other provision contained in this Agreement.
 Closing Fee Closing Fe
 Late Charge
 - 33 -




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##### 



L/C Fees L/C Fee provided
 Unused Line Fee
 CHANGE IN CIRCUMSTANCES
 Yield Protection
 subjects the Lender to any tax, duty, charge or withholding on or from payments due
from the Borrower (excluding taxation of the overall net income or receipts of the Lender or any
branch profits taxes), or changes the basis of taxation of payments to the Lender in respect of its
Loans or other amounts due it hereunder, or
 imposes, modifies, or increases or deems applicable any reserve, assessment, insurance
charge, special deposit or similar requirement against assets of, deposits with or for the account
of, or credit extended by, the Lender (other than reserves and assessments taken into account in
determining the interest rate applicable to Libor Loans), or
 imposes any other condition the result of which is to increase the cost to the Lender
of making, funding or maintaining advances or reduces any amount receivable by the Lender in
connection with advances, or requires the Lender to make any payment calculated by reference to the
amount of advances held or interest received by it, by an amount deemed material by the Lender,
or
 affects the amount of capital required or expected to be maintained by the Lender or
any corporation controlling the Lender and the Lender determines the amount of capital required is
increased by or based upon the existence of this Agreement or its obligation to make Loans
hereunder or of commitments of this type,
 - 34 -




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##### 



Availability of Rate Options Section 3.4 Section 3.1 clause (ii)
 Taxes Taxes
 pay directly to the relevant authority the full amount required to be so withheld or
deducted;
 promptly forward to the Lender an official receipt or other documentation satisfactory
to the Lender evidencing such payment to such authority; and
 pay to the Lender such additional amount or amounts as is necessary to ensure that the
net amount actually received by the Lender will equal the full amount the Lender would have
received had no such withholding or deduction been required.
  - 35 -




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Funding Indemnification
 Lender Statements Sections 3.1 3.3 3.4
 Basis for Determining Interest Rate Inadequate or Unfair
 Illegality
 ELIGIBILITY REQUIREMENTS; CASH COLLATERAL ACCOUNT; ATTORNEY-IN-FACT
 Account Warranties; Schedule of Accounts
 - 36 -




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Section 8.1
 Verification of Accounts. The Lender shall have the right, at any time or times
hereafter, in the name of the Lender or a nominee of the Lender, to verify the validity, amount or
any other matter relating to any Accounts of the Borrower, by mail, telephone, facsimile or
otherwise.
 Account Covenants
 Collection of Accounts and Payments Commercial Blocked
Account Government Blocked Account Demand Deposit
Account
 - 37 -




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Cash Collateral Account
 Appointment of the Lender as the Borrowers Attorney-in-Fact
 - 38 -




---



##### 



Section 4.4
 Notice to Account Debtors
 - 39 -




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Section 4.5
 Equipment Warranties
 Equipment Records
 CONDITIONS OF LOANS
 Conditions to all Loans
 The Borrowers Request. The Lender shall have received, (i) with respect to a request
by Borrower for a Base Rate Loan, by no later than 11:00 a.m. (Chicago time) on the day on which
such Loan is requested to be made hereunder, a telephonic request from any Person who the Lender
reasonably believes is authorized by Borrower to make a borrowing request on behalf of Borrower,
for a Loan in a specific amount, and (ii) with respect to a request by Borrower for a Libor Loan,
by no later than 1:00 p.m. (Chicago time) two (2) Business Days prior to the day on which a Libor
Loan is requested, the Borrowing Notice required under Section 2.12 hereof. In addition, each
request for a Loan shall be accompanied or preceded by all other documents not previously delivered
as required to be delivered to the Lender under Section 5.2 hereof, and a request for any Revolving
Loan shall be accompanied or preceded by a borrowing base certificate from the Borrower, signed by
a Duly Authorized Officer, in form and substance satisfactory to the Lender. The Lender shall have
no liability to the Borrower or any other Person as a result of acting on any telephonic request
that the Lender believes in good faith to have been made by any Person authorized by Borrower to
make a borrowing request on behalf of Borrower.
 Financial Condition. No Material Adverse Change (or material adverse change, as
determined by the Lender in its reasonable good faith discretion, in the prospects of Borrower)
shall have occurred at any time or times subsequent to the most recent request for any Loan under
this Agreement.
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No Default. Neither a Default nor an Event of Default shall have occurred and be
continuing.
 Other Requirements. The Lender shall have received, in form and substance reasonably
satisfactory to the Lender, all certificates, orders, authorities, consents, affidavits, schedules,
instruments, agreements, financing statements, and other documents which are provided for hereunder
or under or in connection with any Financing Agreement, or which the Lender may at any time
reasonably request.
 Representations and Warranties. All of the representations and warranties contained
in the Financing Agreements to which the Borrower is a party and in this Agreement (including,
without limitation, those set forth in Section 7 hereof), shall be true and correct in all material
respects (without duplication of materiality) as of the date the request for the Loan is made, as
though made on and as of such date (unless expressly stated to relate to an earlier date, in which
case such representations and warranties shall be true and correct as of such earlier date).
 Initial Loans Section
5.1
 Fees and Expenses. The Borrower shall have paid all fees owed to the Lender and
reimbursed the Lender for all costs, disbursements, fees and expenses due and payable hereunder on
or before the Closing Date, including, without limitation, the Lenders counsel fees provided for
in Section 12.2(a) hereof.
 Documents. The Lender shall have received all of the following, each duly executed
and delivered and dated the Closing Date, or such earlier date as shall be satisfactory to the
Lender, each in form and substance reasonably satisfactory to the Lender in its sole
determination:
 Financing Agreements
 Resolutions; Incumbency and Signatures
 - 41 -




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Consents
 Opinion of Counsel
  Financial Condition Certificate
 Governing Documents and Good Standings Certificates
 AmSouth Blocked Account Agreement
 UCC Financing Statements; Termination Statements; UCC Searches
 Insurance Certificates
 - 42 -




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Pay Off Letters
 Acquisition Documents
 Capmark Debt Documents and Omega Debt Documents
 Bankruptcy Court Orders
 Trust Loan Documents
 Other
 Field Examinations. At the Lenders sole option., the Lender shall have completed its
field examinations of the Borrowers books and records, assets, and operations which examinations
will be satisfactory to the Lender in its sole and absolute discretion.
 Certificate. The Lender shall have received a certificate signed on behalf of the
Borrower by a Duly Authorized Officer and dated the Closing Date certifying satisfaction of the
conditions specified in Sections 5.1 and 5.2 hereof.
 Closing Fee. The Borrower shall have paid the Lender the Closing Fee.
 Commitment Letter. The Lender shall have delivered, performed and satisfied, in the
sole discretion of the Lender, of any other items set forth in that certain commitment letter dated
July ___, 2007, accepted by Guarantor on behalf of Borrower and made in favor of the Lender.
 Omega Letter of Credit. The Omega Letter of Credit shall have been issued to Omega on
terms and conditions satisfactory to the Lender in its sole and absolute discretion.
 Miscellaneous. The Transactions shall have closed and funded concurrently with the
transactions contemplated by this Agreement.
 COLLATERAL.
 - 43 -




---



##### 



Security Interest Collateral
 Preservation of Collateral and Perfection of Security Interests Therein
 - 44 -




---



##### 



Loss of Value of Collateral
 Right to File Financing Statements provided however
 Third Party Agreements
 All Loans One Obligation
 - 45 -




---



##### 



Commercial Tort Claim
 REPRESENTATIONS AND WARRANTIES.
  Existence
 Corporate Authority
 Binding Effect
 - 46 -




---



##### 



Financial Data.
 All income statements, balance sheets, cash flow statements, statements of operations,
and other financial data which have been or shall hereafter be furnished to the Lender for the
purposes of or in connection with this Agreement do and will present fairly in all material
respects in accordance with GAAP, consistently applied, the financial condition of the Borrower as
of the dates thereof and the results of its operations for the period(s) covered thereby. The
foregoing notwithstanding all unaudited financial statements furnished or to be furnished to the
Lender by or on behalf of Borrower are not and will not be prepared in accordance with GAAP to the
extent that such financial statements (a) are subject to cost report and other year-end audit
adjustments, (b) do not contain footnotes, (c) were prepared without physical inventories, (d) are
not restated for subsequent events, (e) may not contain a statement of construction in process, and
(f) may not fully reflect the following liabilities: (i) vacation, holiday and similar accruals,
(ii) liabilities payable in connection with workers compensation claims, (iii) liabilities payable
to any employee welfare benefit plan (within the meaning of Section 3(1) of ERISA) maintained by
Borrower or its affiliates on account of Borrowers employees, (iv) federal, state and local income
or franchise taxes and (v) bonuses payable to certain employees (collectively, the GAAP
Exceptions).
 Since March 31, 2007, there has been no Material Adverse Change with respect to
Borrower.
 Collateral Schedule 1
 Solvency
 Principal Place of Business; State of Organization Schedule
1
 Other Names
 - 47 -




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##### 



Schedule
7.8
 Tax Liabilities
 Loans Section 9.2
 Margin Securities
 Organizational Chart Schedule 7.12
 Litigation and Proceedings Section 11.1 Schedule 7.13 Section 8.1(e)
 Other Agreements
 Compliance with Laws and Regulations
 - 48 -




---



##### 



Intellectual Property
 Environmental Matters Schedule 7.17
 Disclosure
 - 49 -




---



##### 



Pension Related Matters Multiemployer Plan Plan Tax Code PBGC
 Perfected Security Interests Section 6.1
 Acquisition Documents
 Brokers Fees
 - 50 -




---



##### 



Investment Company Act
 Transactions
 Representations and Warranties in Acquisition Documents
 Offenses and Penalties Under the Medicare/Medicaid Programs Schedule 7.26 Schedule 7.26
 Medicaid/Medicare and Private Insurance/Managed Care Contracts
 - 51 -




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The Borrower has:
   There are no proceedings pending, or, to the best knowledge of the Borrower, after due
inquiry, threatened by any governmental authority seeking to modify, revoke or suspend, to the
extent required for reimbursement, any Medicaid Provider Agreement, Medicare Provider Agreement,
Medicare Certification or Medicaid Certification. Since the date of the most recent Medicare
Certification and Medicaid Certification, the Borrower has not taken any action that would have a
material adverse effect on the Certification or the Medicare Provider Agreement or Medicaid
Provider Agreement.
 Neither the Borrower nor any Affiliate of the Borrower nor any current officer or
director of the foregoing has engaged in any of the following: (i) knowingly and willfully making
or causing to be made a false statement or representation of a material fact in any application for
any benefit or payment under Medicare or Medicaid; (ii) knowingly and willfully making or causing
to be made any false statement or representation of a material fact for use in determining rights
to any benefit or payment under Medicare or Medicaid; (iii) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right to any benefit or
payment under Medicare or Medicaid on its own behalf or on behalf of another, with intent to secure
such benefit or payment fraudulently; (iv) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay such remuneration: (A) in return for referring any
individual to a Person for the furnishing or arranging for the furnishing of any item or service
for which payment may be made in whole or in party by Medicare or Medicaid; or (B) in return for
purchasing, leasing or ordering or arranging for or recommending the purchasing, leasing or
ordering of any good, facility, service or item for which payment may be made in whole in part by
Medicare or Medicaid.
 The Borrower is not out of material compliance with any applicable conditions of
participation of the Medicare or Medicaid programs nor with any Private Insurance/Managed Care
Contracts, nor does any condition exist or has any event occurred which, in itself, or with the
giving of notice or lapse of time, or both, would reasonably be expected to result in the
suspension, revocation, impairment, forfeiture or non-renewal of (i) any contract of the Borrower
in connection with the Medicare or Medicaid programs or (ii) any Private Insurance/Managed Care
Contracts.
 - 52 -




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Consideration
 USA Patriot Act Blocked Persons Lists
 Absence of Foreign or Enemy Status et seq.
 HIPAA Compliance
 Labor Matters Schedule 7.32 Schedule 7.32
 Capitalization Schedule 7.33
 - 53 -




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##### 



Government Contracts
 OFAC
 Commercial Leases Schedule 7.36
 AFFIRMATIVE COVENANTS.
  Reports, Certificates and Other Information
 Financial Statements.
  Section 8.1(a)(1)
 - 54 -




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Borrower Base Certificates. On or before the thirtieth (30th) day after the end of
each calendar month, a borrowing base certificate (in form and substance satisfactory to the
Lender), signed on behalf of the Borrower by a Duly Authorized Officer.
 Compliance Certificates. Contemporaneously with the furnishing of each quarterly
financial statements, a duly completed compliance certificate with appropriate insertions, in form
and substance satisfactory to the Lender (a Compliance Certificate), dated the date of such
annual financial statement or such calendar month and signed on behalf of the Borrower by a Duly
Authorized Officer, which Compliance Certificate shall state that no Default or Event of Default
has occurred and is continuing, or, if there is any such event, describes it and the steps, if any,
being taken to cure it. Each Compliance Certificate shall contain a computation of, and show
compliance with, each of the financial ratios and restrictions set forth in Section 9.12 hereof
(each such computation and calculation to be in form and substance acceptable to the Lender).
 Schedule of Accounts. On or before the tenth (10th) day of each calendar month, a
Schedule of Accounts, as of the last day of the immediately preceding calendar month and in form
and substance reasonably satisfactory to the Lender.
 Notice of Default, Regulatory Matters, Litigation Matters or Adverse Change in
Business. Forthwith upon learning of the occurrence of any of the following, written notice
thereof which describes the same and the steps being taken by the Borrower with respect thereto:
(i) the occurrence of a Default or an Event of Default; (ii) the institution or threatened
institution of, or any adverse determination in, any litigation (other than a personal injury tort
claim), arbitration proceeding or governmental proceeding in which any injunctive relief or money
damages is sought which if adversely determined could have a Material Adverse Effect; (iii) the
receipt of any notice from any governmental agency concerning any violation or potential violation
of any regulations, rules or laws applicable to Borrower which could have a Material Adverse
Effect; or (iv) any Material Adverse Change. With regard to personal injury tort claims, upon
request by Lender, Borrower shall review with Lender the occurrence of any personal injury or other
action which could reasonably give rise to a personal injury tort claim against the Borrower as to
which (i) litigation has been instituted and is pending or (ii) a request for medical records has
been made upon Borrower by an attorney for the claimant on or after January 1, 2006.
 Insurance Reports. (i) At any time after a Default and upon the request of the
Lender, a certificate signed by a Duly Authorized Officer that summarizes the property, casualty,
liability and malpractice insurance policies carried by the Borrower, and (ii) written notification
of any material change in any such insurance by the Borrower within five (5) Business Days after
receipt of any notice (whether formal or informal) of such change by any of its insurers.
 Annual Projections. On or before the ninetieth (90th) day after each of Borrowers
Fiscal Years, an annual projection for the current Fiscal Year showing Borrowers projected
operating plan, revenues and expenses on a monthly basis and a balance
 - 55 -




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##### 



sheet and cash flow statement for the Borrower, in form and substance reasonably
satisfactory to Lender.
 Affiliate Transactions. Upon the Lenders reasonable request from time to time, a
reasonably detailed description of each of the material transactions between the Borrower and any
of its Affiliates during the time period reasonably requested by the Lender, which shall include,
without limitation, the amount of money either paid or received, as applicable, by the Borrower in
such transactions.
 Health Care. Furnish to the Lender each of the following, to the extent applicable:
(i) upon Lenders request, a copy of any healthcare related licensure and annual or biannual
certification survey report and any statement of deficiencies and any survey (other than the annual
or biannual survey) indicating a violation or deficiency, and within the time period required by
the particular agency for submission, a copy of the plan of correction with respect thereof if such
plan of correction is required by such agency issuing the statement of deficiency or notice of
violation, and correct or cause to be corrected any deficiency or violation within the time period
required for cure by such agency, subject to such agencys normal appeal process, if such
deficiency or violation could adversely affect either the right to continue participation in
Medicare, Medicaid or other reimbursement programs for existing patients or the right to admit new
Medicare patients, Medicaid patients or other reimbursement program patients or result in the loss
or suspension of Borrowers licenses and permits to operate Borrowers business; (ii) within five
(5) Business Days of the receipt by the Borrower, any and all notices disclosing an adverse finding
from any licensing, certifying and/or reimbursement agencies that Borrowers license, Medicare or
Medicaid certification or entitlement to payments pursuant to any reimbursement contract or program
of Borrower is being downgraded to a substandard category, revoked, or suspended, or that action is
pending or being considered to downgrade to a substandard category, revoke, or suspend any rights
pursuant to the Borrowers license, certification or reimbursement contract or program; and (iii)
upon request of Lender, a complete and accurate copy of the annual Medicaid, Medicare and other
cost reports for Borrower.
 Interim Reports. Promptly upon receipt thereof, copies of any reports submitted to
Parent or Borrower by the independent accountants in connection with any interim audit of the books
of any such Person and copies of each management control letter provided to Parent or Borrower by
independent accountants.
 Purchase Price Adjustments. Prior to the closing of the Acquisition, promptly upon
such information becoming available, a summary of all purchase price and other monetary adjustments
that are made pursuant to any of the Acquisition Documents, to the extent such amounts exceed Two
Hundred and Fifty Thousand Dollars ($250,000).
 Other Information. Such other information, certificates, schedules, exhibits or
documents (financial or otherwise) concerning the Borrower and its operations, business,
properties, condition or otherwise as the Lender may reasonably request from time to time.
 - 56 -




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##### 



Inspection; Audit Fees
 Conduct of Business
 Claims and Taxes
 State of Incorporation or Formation Schedule 1
 - 57 -




---



##### 



Liability and Malpractice Insurance Section 8.6 Section 8.7
 Property and Other Insurance
  - 58 -




---



##### 



Environmental
 Banking Relationship Section 4.3 Service Fee
 Intellectual Property
 - 59 -




---



##### 



Change of Location; Etc
 Health Care Related Matters
 US Patriot Act Section
7.29
 - 60 -




---



##### 



Government Accounts
 Further Assurances
 Compliance with Anti-Terrorism Orders Patriot Act nolo
contendere
 Blocked Account Agreements and Account Debtors
 Within thirty (30) calendar days following the Closing Date, the Borrower shall have
entered into the Blocked Account Agreements.
 Within forty-five (45) calendar days following the Closing Date, the Borrower shall
instruct and direct each Account Debtor to send all payments with
 - 61 -




---



##### 



respect to each Account to the Commercial Blocked Account and the Government Blocked
Account, as the case may be, for deposit established pursuant to this Agreement.
 NEGATIVE COVENANTS
  Encumbrances Permitted Liens
 Indebtedness; Capital Expenditures
 - 62 -




---



##### 



Section 9.1 Section 9.4
 Consolidations, Mergers or Transactions
 Investments or Loans Section 9.8 Morris
Memorial
 Guarantees
 - 63 -




---



##### 



Section 9.2 Section 9.2
 Disposal of Property
 Use of Proceeds
 Loans to Officers; Consulting and Management Fees Section 9.8
 Dividends and Stock Redemptions Section
9.9
 - 64 -




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##### 



Payments in Respect of Subordinated Debt
 The Borrower shall not make any payment, directly or indirectly, to (i) Capmark (or
any Affiliate or Subsidiary thereof) in contravention of the Capmark Intercreditor Agreement or
(ii) Omega (or any Affiliate or Subsidiary thereof) in contravention of either Omega Intercreditor
Agreement.
 The Borrower shall not make any payment in respect of any Indebtedness for borrowed
money that is subordinated to the Liabilities (including, without limitation, the Subordinated
Debt); provided, however, the Borrower shall be permitted to make solely those payments expressly
permitted pursuant to the terms of the Subordination Agreements, in each case, as long as the
Borrower is in compliance with Section 9.12 hereof both immediately before and after any such
contemplated or actual payment, provided, further, that both immediately before any such
contemplated payment or after giving effect to any such payments no Default or Event of Default
shall exist or have occurred or result therefrom, unless otherwise permitted expressly under the
terms of the Subordinations Agreements.
 Transactions with Affiliates provided however
 Financial Ratios
 Minimum Fixed Charge Coverage Ratio. Permit its Fixed Charge Coverage Ratio to be
less than 1.10 to 1.00, measured as of the last day of each Fiscal Quarter for the trailing twelve
(12) month period.
 Minimum Adjusted EBITDA. Permit its Adjusted EBITDA to be less than Ten Million Five
Hundred Thousand and No/100 Dollars ($10,500,000.00), measured as of the last day of each Fiscal
Quarter for the trailing twelve (12) month period.
 Maximum Leverage Ratio. Permit the Leverage Ratio to be greater than (i) 1.75 to
1.00, for the period commencing on the Closing Date and continuing until the day of the two year
anniversary of the Closing Date; (ii) 1.50 to 1.00, for the period commencing on the day
immediately following the two year anniversary of the Closing Date and continuing until the day of
the four year anniversary of the Closing Date, and (iii) 1.25 to 1.00
 - 65 -




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##### 



thereafter. The Leverage Ratio shall be measured as of the last day of each Fiscal
Quarter for the trailing twelve (12) month period.
 Computation. The Borrower acknowledges and agrees that the calculation and
computation of the foregoing financial ratios and covenants shall be pursuant to and in accordance
with Section 8.1(c) hereof. For purposes of these computations, measurements of EBITDA will be
adjusted to analyze actual results of the Acquisition until such time as a full twelve (12) months
of Acquisition results are included in the computations.
 Change in Nature of Business
 Other Agreements Governing Document
 Blocked Accounts and Lock Box Accounts
 Amendments to Restricted Agreements
 - 66 -




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##### 



State of Incorporation or Formation Schedule 1
 Environmental
 Fiscal Year
 Restrictions on Fundamental Changes
 liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution);
 transfer, assign, convey or grant to any other Person, other than another Borrower,
the right to operate or control any Location, whether by lease, sublease, management agreement,
joint venture agreement or otherwise;
 without providing Lender with thirty (30) days prior written notice, change its legal
name;
 suffer or permit to occur any change in the legal or beneficial ownership of the
capital stock, partnership interests or membership interests, or in the capital structure, or any
material change in the organizational documents or governing documents, of Borrower;
 change the licensed operator, manager or property manager for any Property; or
 consent to or acknowledge any of the foregoing.
 Margin Stock
 Truth of Statements and Certificates
 - 67 -




---



##### 



Negative Pledge Assets
 Article 9
 HEALTH CARE MATTERS
 Article 7 Articles 8 9
 Funds from Restricted Grants et seq
 Certificate of Need CON Licenses
 Licenses Restrictions
 - 68 -




---



##### 



Rescind, withdraw, revoke, amend, modify, supplement, or otherwise alter the nature,
tenor or scope of the Licenses for any Property without Lenders prior written consent;
 Amend or otherwise change any Propertys licensed beds capacity and/or the number of
beds approved by the State Regulator without Lenders prior written consent; or
 Replace, assign or transfer all or any part of any Propertys beds to another site or
location (other than to any other Property) without Lenders prior written consent.
 DEFAULT, RIGHTS AND REMEDIES OF THE LENDER
 Event of Default
 the Borrower fails to pay (i) any principal or interest payable hereunder or under any
of the Notes on the date due, declared due or demanded (including, without limitation, any amount
due under Section 2.15) or (ii) any other amount payable to the Lender under this Agreement or
under any other Financing Agreement to which the Borrower is a party (including, without
limitation, any of the Notes) within five (5) calendar days after the date when any such payment is
due and, with respect to clause (ii) only, such failure is not cured within five (5) calendar days
after notice to Borrower by Lender;
 the Borrower fails or neglects to perform, keep or observe any of the covenants,
conditions or agreements set forth in (i) Sections 2.4, 4.4, 8.5, 8.6, 8.9, 8.11, or Section 8.12
hereof (ii) any Section of Article 9 hereof or (iii) any Section of Article 10 hereof and, with
respect to such Sections in Article 10 only, such failure or neglect shall continue for a period of
five (5) calendar days after the earlier of (1) the date the Borrower actually knew of such failure
or neglect and (2) notice to the Borrower by the Lender.
 the Borrower fails or neglects to perform, keep or observe any of the covenants,
conditions, promises or agreements contained in this Agreement (other than those specified in
Section 11.1(b) hereof) and such failure or neglect shall continue for a period of thirty (30)
calendar days after the earlier of (i) the date the Borrower actually knew of such failure or
neglect and (ii) notice to the Borrower by the Lender;
 any representation or warranty heretofore, now or hereafter made by the Borrower in
connection with this Agreement or any of the other Financing Agreements to which Borrower is a
party is untrue, misleading or incorrect in any material respect, or any schedule, certificate,
statement, report, financial data, notice, or writing furnished at any time by the Borrower to the
Lender is untrue, misleading or incorrect in any material respect, on the date as of which the
facts set forth therein are stated or certified;
 - 69 -




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a judgment, decree or order requiring payment in excess of Two Hundred Fifty Thousand
Dollars ($250,000) shall be rendered against the Borrower and such judgment or order shall remain
unsatisfied or undischarged and in effect for thirty (30) consecutive days without a stay of
enforcement or execution, provided that this clause (e) shall not apply to any judgment, decree or
order for which the Borrower is fully insured and with respect to which the insurer has admitted
liability, or such judgment, decree or order is being contested or appealed by appropriate
proceedings;
 a notice of Lien, levy or assessment is filed or recorded with respect to any of the
assets of the Borrower (including, without limitation, the Collateral), by the United States, or
any department, agency or instrumentality thereof, or by any state, county, municipality or other
governmental agency or any taxes or debts owing at any time or times hereafter to any one or more
of them become a Lien, upon any of the assets of the Borrower (including, without limitation, the
Collateral), provided that this clause (f) shall not apply to any Liens, levies, or assessments
which a Borrower is contesting in good faith (provided the Borrower has complied with the
provisions of clauses (a) and (b) of Section 8.4 hereof) or which relate to current taxes not yet
due and payable;
 any material portion of the Collateral is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors;
 a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statute is filed against the Borrower or any guarantor
of the Liabilities, including Parent, and any such proceeding is not dismissed within sixty (60)
days of the date of its filing, or a proceeding under any bankruptcy, reorganization, arrangement
of debt, insolvency, readjustment of debt or receivership law or statute is filed by the Borrower
or any guarantor of the Liabilities, including Parent, or the Borrower or any guarantor of the
Liabilities, including Parent, makes an assignment for the benefit of creditors, or the Borrower or
any guarantor of the Liabilities, including Parent, takes any action to authorize any of the
foregoing;
 except as permitted for an Inactive Subsidiary, the Borrower or Parent voluntarily or
involuntarily dissolves or is dissolved, or its existence terminates or is terminated; provided
that in the case of an administrative dissolution or revocation of existence for failure to file
the proper reports or returns with the applicable governmental authorities, no Event of Default
shall be deemed to have occurred if an application for reinstatement is (i) filed promptly (but in
any event, within fifteen (15) calendar days) upon Parent or Borrower receiving notice of such
dissolution or revocation from the applicable governmental authority and (ii) diligently pursued to
completion (if reasonably capable of being completed), as determined by the Lender in its sole and
absolute discretion;
 the Credit Parties, taken as a whole, fail, at any time, to be Solvent;
 the Borrower or any guarantor of the Liabilities, including Parent, is enjoined,
restrained, or in any way prevented by the order of any court or any
 - 70 -




---



##### 



administrative or regulatory agency from conducting all or any material part of its business affairs;
 a breach by the Borrower shall occur under any agreement, document or instrument
(other than an agreement, document or instrument evidencing the lending of money), whether
heretofore, now or hereafter existing between the Borrower and any other Person and the effect of
such breach if not cured within any applicable cure period will or is likely to have or create a
Material Adverse Effect;
 the Borrower shall fail to make any payment due on any other obligation for borrowed
money or shall be in breach of any agreement evidencing the lending of money and the effect of such
failure or breach if not cured within any applicable cure period would be to permit the
acceleration of any obligation, liability or indebtedness in excess of Five Hundred Thousand
Dollars ($500,000);
 there shall be instituted in any court criminal proceedings against the Borrower, or
the Borrower shall be indicted for any crime, in either case for which forfeiture of a material
amount of its property is a potential penalty, unless (i) such actions are being contested or
appealed in good faith by appropriate proceedings, (ii) the potential forfeiture has been stayed
during the pendency of such proceeds, and (iii) no Medicare or Medicaid reimbursement obligations
are materially adversely affected by such proceedings;
 Parent shall at any time after the Closing Date have voting power over less than one
hundred percent (100%) of the issued and outstanding Stock of Diversicare Management Services Co.;
 any Lien securing the Liabilities shall, in whole or in part, cease to be a perfected
first priority Lien (subject only to the Permitted Liens); this Agreement or any of the Financing
Agreements to which the Borrower is a party, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid, binding and
enforceable obligations of the Borrower; or the Borrower shall directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability;
 any default or event of default shall occur under or pursuant to any Capmark Debt
Document or Omega Debt Document, or any breach of, noncompliance with or default under any
Intercreditor Agreement, any Subordination Agreement, or any other Financing Agreement (including,
without limitation, the Guaranty, each Pledge Agreement and the Master Letter of Credit Agreement)
by any party thereto (other than by the Lender), and the same is not cured or remedied within any
applicable cure period, provided that if such default or event of default, breach, noncompliance or
default, requires the giving of notice by Lender to any party in addition to or other than
Borrower, Lender shall have provided Borrower with such notice at the same time as it provides such
notice to such other party;
 if the Borrower fails, within three (3) Business Days of receipt to forward any
collections it receives with respect to any Accounts to the Commercial Blocked Account or the
Government Blocked Account, as the case may be;
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institution by the PBGC, the Borrower or any ERISA Affiliate of steps to terminate
any Plan or to organize, withdraw from or terminate a Multiemployer Plan if as a result of such
reorganization, withdrawal or termination, the Borrower or any ERISA Affiliate could be required to
make a contribution to such Plan or Multiemployer Plan, or could incur a liability or obligation to
such Plan or Multiemployer Plan, in excess of Two Hundred Fifty Thousand Dollars ($250,000), or
(ii) a contribution failure occurs with respect to any Plan sufficient to give rise to a Lien under
ERISA, which Lien is not fully discharged within fifteen (15) days;
 a Material Adverse Change shall occur;
 Borrower or any Affiliate of Borrower, shall challenge or contest, in any action,
suit or proceeding, the validity or enforceability of this Agreement, or any of the other Financing
Agreements, the legality or the enforceability of any of the Liabilities or the perfection or
priority of any Lien granted to the Lender;
 Parent shall revoke or attempt to revoke, terminate or contest its obligations under
the Guaranty, or the Guaranty or any provision thereof shall cease to be in full force and effect
in accordance with its terms and provisions;
 Any Pledgor shall revoke or attempt to revoke, terminate or contest in any way any
Pledge Agreement, or any provision thereof shall cease to be in full force and effect in accordance
with its terms and provisions;
 Borrower shall be prohibited or otherwise restrained from conducting the business
theretofore conducted by it in any manner that has or could reasonably be expected to have or
result in a Material Adverse Effect;
 There shall occur with respect to the Operator of any Location any Medicare or
Medicaid survey deficiencies at Level I, J, K, L or worse (i) which deficiencies are not cured
within the amount of time permitted by the applicable reviewing agency; (ii) which result in the
imposition by any Government Authority or the applicable state survey agency of sanctions in the
form of either a program termination, temporary management, denial of payment for new admission
(which continues for thirty (30) days or more or pertains to more than one Location) or facility
closure and (iii) which sanctions could have a Material Adverse Effect as determined by Lender in
its reasonable discretion. Upon the occurrence of such Event, Borrower shall submit to Lender its
Plan of Correction for dealing with such Event, and shall periodically review its progress under
the Plan of Correction with Lender. Provided that Lender remains satisfied with the progress under
the Plan of Correction, then such Event shall not be an Event of Default unless formal notice is
given by Lender to Borrower;
 A state or federal regulatory agency shall have revoked any license, permit,
certificate or Medicaid or Medicare qualification pertaining to the Real Property or any Location,
regardless of whether such license, permit, certificate or qualification was held by or originally
issued for the benefit of Borrower, a tenant or any other Person, the revocation of which could
reasonably be expected to have a Material Adverse Effect;
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Any material default by Borrower under the terms of any material Lease following the
expiration of any applicable notice and cure period (if any);
 William Council, Glynn Riddle or Ray Tyler shall not be senior officers of the
Borrower and devote significant time and energy to the business of the Borrower; provided, however,
it shall not constitute an Event of Default if any such individual shall fail for any reason to be
a senior officer of the Borrower or fail to devote significant time and energy to the business of
the Borrower, and such individual shall be promptly replaced by the Borrower, whether on an interim
or permanent basis, with an individual with substantially similar skills and experience (but in no
event later than within 90 calendar days of the former individuals resignation, termination,
permanent disability or death) and otherwise acceptable to the Lender in its reasonable and good
faith determination;
 Any subordination provision in any document or instrument governing Subordinated
Debt, or any subordination provision in any guaranty by any Subsidiary of any Subordinated Debt,
shall cease to be in full force and effect, or any Credit Party or any other Person (including the
holder of any applicable Subordinated Debt) shall contest in any manner the validity, binding
nature or enforceability of any such provision.
 Any event shall occur (or fail to occur) that could result in the Possession Date
occurring, as determined by the Lender in its sole and absolute discretion.
  Acceleration Sections
11.1(h) (i) (j)
 Rights and Remedies Generally
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Upon the occurrence of any Event of Default, the Lender shall have, in addition to any
other rights and remedies contained in this Agreement and in any of the other Financing Agreements,
all of the rights and remedies of a secured party under the Code or other applicable laws, all of
which rights and remedies shall be cumulative, and non-exclusive, to the extent permitted by Law,
including, without limitation, the right of Lender to sell, assign, or lease any or all of the
Collateral. The exercise of any one right or remedy shall not be deemed a waiver or release of any
other right or remedy, and the Lender, upon the occurrence of an Event of Default, may proceed
against Borrower, and/or the Collateral, at any time, under any agreement, with any available
remedy and in any order. All sums received from Borrower and/or the Collateral in respect of the
Loans may be applied by the Lender to any Liabilities in such order of application and in such
amounts as the Lender shall deem appropriate in its discretion. Borrower waives any right it may
have to require the Lender to pursue any Person for any of the Liabilities.
 Upon notice to Borrower after an Event of Default, Borrower at its own expense shall
assemble all or any part of the Collateral as determined by Lender and make it available to Lender
at any location designated by Lender. In such event, Borrower shall, at its sole cost and expense,
store and keep any Collateral so assembled at such location pending further action by Lender and
provide such security guards and maintenance services as shall be necessary to protect and preserve
such Collateral. In addition to all such rights and remedies, the sale, lease or other disposition
of the Collateral, or any part thereof, by the Lender after an Event of Default may be for cash,
credit or any combination thereof, and the Lender may purchase all or any part of the Collateral at
public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price,
may set-off the amount of such purchase price against the Liabilities of the Borrower then owing.
Any sales of such Collateral may be adjourned from time to time with or without notice. The Lender
may, in its sole discretion, cause the Collateral to remain on the Borrowers premises, at the
Borrowers expense, pending sale or other disposition of such Collateral. The Lender shall have
the right after an Event of Default to conduct such sales on the Borrowers premises, at the
Borrowers expense, or elsewhere, on such occasion or occasions as the Lender may see fit.
 Entry Upon Premises and Access to Information
 Sale or Other Disposition of Collateral by the Lender
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Section 12.12 Sections 8.2 11.2
 Waivers (General)
 Except as otherwise provided for in this Agreement and to the fullest extent permitted
by applicable law, Borrower hereby waives: (i) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all Financing Agreements, the Notes
or any other notes, commercial paper, Accounts, contracts, documents, instruments, chattel paper
and guaranties at any time held by Lender on which Borrower may in any way be liable, and hereby
ratifies and confirms whatever Lender may do in this regard; (ii) all rights to notice and a
hearing prior to Lenders taking possession or control of, or to Lenders replevy, attachment or
levy upon, any Collateral or any bond or security which might be required by any court prior to
allowing Lender to exercise any of its remedies; and (iii) the benefit of all valuation, appraisal
and exemption Laws. Borrower acknowledges that it has been advised by counsel of its choice and
decision with respect to this Agreement, the other Financing Agreements and the transactions
evidenced hereby and thereby.
 Borrower for itself and all endorsers, guarantors and sureties and their heirs, legal
representatives, successors and assigns, (i) agrees that its liability shall not be in any manner
affected by any indulgence, extension of time, renewal, waiver, or modification granted or
consented to by Lender; (ii) consents to any indulgences and all extensions of time, renewals,
waivers, or modifications that may be granted by Lender with respect to the payment or other
provisions of this Agreement, the Notes, and to any substitution, exchange or release of the
Collateral, or any part thereof, with or without substitution, and agrees to the addition or
release of any Borrower, endorsers, guarantors, or sureties, or whether
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primarily or secondarily
liable, without notice to Borrower and without affecting its liability hereunder; (iii) agrees that
its liability shall be unconditional and without regard to the liability of any other tax; and (iv)
expressly waives the benefit of any statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to or in conflict with the
foregoing.
 Each and every covenant and condition for the benefit of Lender contained in this
Agreement and the other Financing Agreements may be waived by Lender; provided, however, that to
the extent that Lender may have acquiesced in any noncompliance with any requirements or conditions
precedent to the Closing of any Loan or to any subsequent disbursement of Loan proceeds, such
acquiescence shall not be deemed to constitute a waiver by Lender of such requirements with respect
to any future disbursements of Loan proceeds and Lender may at any time after such acquiescence
require Borrower to comply with all such requirements. Any forbearance by Lender in exercising any
right or remedy under any of the Financing Agreements, or otherwise afforded by applicable law,
including any failure to accelerate the Maturity Date shall not be a waiver of or preclude the
exercise of any right or remedy nor shall it serve as a novation of the Notes or as a reinstatement
of the Loan or a waiver of such right of acceleration or the right to insist upon strict compliance
of the terms of the Financing Agreements. Lenders acceptance of payment of any sum secured by any
of the Financing Agreements after the due date of such payment shall not be a waiver of Lenders
right to either require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of insurance or the payment of taxes
or other liens or charges by Lender shall not be a waiver of Lenders right to accelerate the
maturity of the Loan, nor shall Lenders receipt of any condemnation awards, insurance proceeds, or
damages under this Agreement operate to cure or waive Borrowers or Guarantors default in payment
of sums secured by any of the Financing Agreements.
 Without limiting the generality of anything contained in this Agreement or the other
Financing Agreements, Borrower agrees that if an Event of Default is continuing (i) Lender is not
subject to any one action or election of remedies law or rule, and (ii) all liens and other
rights, remedies or privileges provided to Lender shall remain in full force and effect until
Lender has exhausted all of its remedies against the Collateral and any other properties owned by
Borrower and the Financing Agreements and other security instruments or agreements securing the
Loan has been foreclosed, sold and/or otherwise realized upon in satisfaction of Borrowers
obligations under the Notes.
 Nothing contained herein or in any other Financing Agreement shall be construed as
requiring Lender to resort to any part of the Collateral for the satisfaction of any of Borrowers
obligations under the Financing Agreements in preference or priority to any other Collateral, and
Lender may seek satisfaction out of all of the Collateral or any part thereof, in its absolute
discretion in respect of Borrowers obligations under the Financing Agreements. In addition,
Lender shall have the right from time to time to partially foreclose upon any Collateral in any
manner and for any amounts secured by the Financing Agreements then due and payable as determined
by Lender in its sole discretion, including, without limitation, the following circumstances: (i)
if Borrower defaults beyond any applicable grace period in the payment of one or more scheduled
payments of principal and interest, Lender may foreclose upon all or any part of the Collateral to
recover such delinquent payments, or (ii)
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if Lender elects to accelerate less than the entire
outstanding principal balance of the Notes, Lender may foreclose all or any part of the Collateral
to recover so much of the principal balance of the Notes as Lender may accelerate and such other
sums secured by one or more of the Financing Agreements as Lender may elect. Notwithstanding one
or more partial foreclosures, any unforeclosed Collateral shall remain subject to the Financing
Agreements to secure payment of sums secured by the Financing Agreements and not previously
recovered.
 To the fullest extent permitted by law, Borrower, for itself and its successors and
assigns, waives in the event of foreclosure of any or all of the Collateral any equitable right
otherwise available to Borrower which would require the separate sale of the any of the Collateral
or require Lender to exhaust its remedies against any part of the Collateral before proceeding
against any other part of the Collateral; and further in the event of such foreclosure Borrower
does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale
either separately or together of each part of the Collateral.
 Waiver of Notice
 Injunctive Relief
 Marshalling
 Recourse to Borrower. Notwithstanding anything to the contrary contained herein or in
any other Financing Agreement, the Loans shall be fully recourse to Borrower, and Lender shall be
authorized, in its sole and absolute discretion, to enforce any or all of its remedies hereunder
against Borrower, including all present and future revenue and assets of Borrower, whether or not
such assets have been pledged as collateral for the Loans.
 Advice of Counsel
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MISCELLANEOUS
 Waiver
 Costs and Attorneys Fees
 The Borrower agrees to pay jointly and severally on demand all of the costs and
expenses of the Lender (including, without limitation, the reasonable fees and out-of-pocket
expenses of the Lenders counsel, and all UCC filing and lien search fees, and, if applicable, real
estate appraisal fees, survey fees, recording and title insurance costs, and any environmental
report or analysis) in connection with the structuring, preparation, negotiation, execution, and
delivery of: (i) this Agreement, the Financing Agreements and all other instruments, agreements,
certificates or documents provided for herein or delivered or to be delivered hereunder, and (ii)
any and all amendments, modifications, supplements and waivers executed and delivered pursuant
hereto or any Financing Agreement or in connection herewith or therewith. The Borrower further
agrees that the Lender, in its sole discretion, may deduct all such unpaid amounts from the
aggregate proceeds of the Loans or debit such amounts from the operating accounts of the Borrower
maintained with the Lender.
 The costs and expenses that the Lender incurs in any manner or way with respect to the
following shall be part of the Liabilities, payable jointly and severally by the Borrower on demand
if at any time after the date of this Agreement the Lender: (i) employs counsel in good faith for
advice or other representation, (ii) with respect to the amendment, modification or enforcement of
this Agreement or the Financing Agreements, or with respect to any Collateral securing the
Liabilities hereunder, (iii) to represent the Lender in any work-out or any type of restructuring
of the Liabilities, or any litigation, contest, dispute, suit or proceeding or to commence, defend
or intervene or to take any other action in or with respect to any litigation, contest, dispute,
suit or proceeding (whether instituted by the Lender, the Borrower or any other Person) in any way
or respect relating to this Agreement, the Financing Agreements, the Borrowers affairs or any
Collateral hereunder or (iv) to enforce any of the rights of the Lender with respect to the
Borrower provided in this Agreement, under any of the Financing Agreements, or otherwise (whether
at law or in equity); (v) takes any action to protect, preserve, store, ship, appraise, prepare
for sale, collect, sell, liquidate or otherwise dispose of any Collateral hereunder; and/or (vi)
seeks to enforce or enforces any of the rights and remedies of the Lender with respect to the
Borrower or any guarantor of the Liabilities. Without
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limiting the generality of the foregoing,
such expenses, costs, charges and fees include: reasonable fees, costs and expenses of attorneys,
accountants and consultants; court costs and expenses; court reporter fees, costs and expenses;
long distance telephone charges; and courier and telecopier charges.
 The Borrower further agrees to pay, and to save the Lender harmless from all liability
for, any documentary stamp tax, intangible tax, or other stamp tax or taxes of any kind which may
be payable in connection with or related to the execution or delivery of this Agreement, the
Financing Agreements, the borrowings hereunder, the issuance of the Notes or of any other
instruments, agreements, certificates or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith, provided that the Borrower shall not be liable for
Lenders income tax liabilities.
 All of the Borrowers obligations provided for in this Section 12.2 shall be
Liabilities secured by the Collateral and shall survive repayment of the Loans or any termination
of this Agreement or any Financing Agreements.
 Expenditures by the Lender
 Custody and Preservation of Collateral
 Reliance by the Lender
 Assignability; Parties
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Severability; Construction
 Application of Payments
 Marshalling; Payments Set Aside
 Sections and Titles; UCC Termination Statements
 Continuing Effect; Inconsistency
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Section 2.9
 Notices
 If to the Lender, at:
 
  
 If to the Borrower or Borrower Agent, at:
 
  
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Equitable Relief
 Entire Agreement
 Participations and Assignments
 Indemnity Indemnified Parties provided
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Section 12.16
 Representations and Warranties
 Counterparts; Electronically Transmitted Signatures
 Limitation of Liability of Lender
 Lender may conclusively rely and shall be protected in acting or refraining from
acting upon any document, instrument, certificate, instruction or signature believed to be genuine
and may assume and shall be protected in assuming that any Person purporting to give any notice or
instructions in connection with any transaction to which this Agreement relates has been duly
authorized to do so. Lender shall not be obligated to make any inquiry as to the authority,
capacity, existence or identity of any Person purporting to have executed any such document or
instrument or have made any such signature or purporting to give any such notice or
instructions;
 Lender shall not be liable for any acts, omissions, errors of judgment or mistakes of
fact or law, including, without limitation, acts, omissions, errors or mistakes with respect to the
Collateral, except for those arising out of or in connection with Lenders gross negligence,
willful misconduct or illegal activity. Without limiting the generality of the foregoing, Lender
shall be under no obligation to take any steps necessary to preserve
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rights in the Collateral
against any other parties, but may do so at its option, and all expenses incurred in connection
therewith shall be payable by Borrower; and
 Lender shall not be liable for any action taken in good faith and believed to be
authorized or within the rights or powers conferred by this Agreement and the other Financing
Agreements.
 Borrower Authorizing Accounting Firm
 Joint and Several Liability; Binding Obligations
 Borrower is defined collectively to include all Persons constituting the Borrower;
provided, however, that any references herein to any Borrower, each Borrower or similar
references, shall be construed as a reference to each individual Person comprising the Borrower;
provided, further, in case of any question as to which particular Person is to be deemed a Borrower
in any given context for purposes of any term or provision contained in this Agreement, the Lender
shall make such determination. Each Person comprising Borrower shall be jointly and severally
liable for all of the liabilities and obligations of Borrower under this Agreement, regardless of
which of the Borrowers actually receives the proceeds of the Loans or the benefit of any other
extensions of credit hereunder, or the manner in which the Borrowers, or the Lender accounts
therefor in their respective books and records. In addition, each entity comprising Borrower
hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations,
conditions, agreements and other terms contained in this Agreement shall be applicable to and shall
be binding upon and measured and enforceable individually against each Person comprising Borrower
as well as all such Persons when taken together. By way of illustration, but without limiting the
generality of the foregoing, the terms of Article XI of this Agreement are to be applied to each
individual Person comprising the Borrower (as well as to all such Persons taken as a whole), such
that the occurrence of any of the events described in Article XI of this Agreement as to any Person
comprising the Borrower shall constitute an Event of Default even if such event has not occurred as
to any other Persons comprising the Borrower or as to all such Persons taken as a whole (except as
otherwise expressly provided therein by, for example, the use of the term Material Adverse
Effect).
 Each Borrower acknowledges that it will enjoy significant benefits from the business
conducted by the other Borrowers because of, inter alia, their combined ability to bargain with
other Persons including, without limitation, their ability to receive the credit facilities
hereunder and other Financing Agreements which would not have been available to an individual
Borrower acting alone. Each Borrower has determined that it is in its best interest to procure the
Loans with the credit support of the other Borrowers as contemplated by this Agreement and the
other Financing Agreements.
 The Lender has advised the Borrowers that it is unwilling to enter into this Agreement
and the other Financing Agreements and make available the Loans extended hereby or thereby to any
Borrower unless each Borrower agrees, among other things, to
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be jointly and severally liable for
the due and proper payment of the Liabilities of each other Borrower under this Agreement and other
Financing Agreements. Each Borrower has determined that it is in its best interest and in pursuit
of its purposes that it so induce the Lender to extend credit pursuant to this Agreement and the
other documents executed in connection herewith (i) because of the desirability to each Borrower of
the Loans and the interest rates and the modes of borrowing available hereunder, (ii) because each
Borrower may engage in transactions jointly with other Borrowers and (iii) because each Borrower
may require, from time to time, access to funds under this Agreement for the purposes herein set
forth. Each Borrower, individually, expressly understands, agrees and acknowledges, that the Loans
would not be made available on the terms herein in the absence of the collective credit of all of
the Persons constituting the Borrower, the joint and several liability of all such Persons, and the
cross-collateralization of the collateral of all such Persons hereunder and under the other
Financing Agreements. Accordingly, each Borrower, individually acknowledges that the benefit to
each of the Persons comprising the Borrower as a whole constitutes reasonably equivalent value,
regardless of the amount of the Loans actually borrowed by, advanced to, or the amount of
collateral provided by, any individual Borrower.
 Each Borrower has determined that it has and, after giving effect to the transactions
contemplated by this Agreement and the other Financing Agreements (including, without limitation,
the inter-Borrower arrangement set forth in this Section) will have, assets having a fair saleable
value in excess of the amount required to pay its probable liability on its existing debts as they
fall due for payment and that the sum of its debts is not and will not then be greater than all of
its property at a fair valuation, that such Borrower has, and will have, access to adequate capital
for the conduct of its business and the ability to pay its debts from time to time incurred in
connection therewith as such debts mature and that the value of the benefits to be derived by such
Borrower from the access to funds under this Agreement (including, without limitation, the
inter-Borrower arrangement set forth in this Section) is reasonably equivalent to the obligations
undertaken pursuant hereto.
 The Borrower Agent (on behalf of each Borrower) shall maintain records specifying (a)
all Liabilities incurred by each Borrower, (b) the date of such incurrence, (c) the date and amount
of any payments made in respect of such Liabilities and (d) all inter-Borrower obligations pursuant
to this Section. The Borrower Agent shall make copies of such records available to the Lender,
upon request.
 To the extent that applicable law otherwise would render the full amount of the joint
and several obligations of any Borrower hereunder and under the other Financing Agreements invalid
or unenforceable, such Borrowers obligations hereunder and under the other Financing Agreements
shall be limited to the maximum amount which does not result in such invalidity or
unenforceability, provided, however, that each Borrowers obligations hereunder and under the other
Financing Agreements shall be presumptively valid and enforceable to their fullest extent in
accordance with the terms hereof or thereof, as if this Section were not a part of this
Agreement.
 To the extent that any Borrower shall make a payment under this Section of all or any
of the Liabilities (other than any Loan made to that Borrower for which it is primarily liable) (a
Joint Liability Payment) which, taking into account all other
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Joint Liability Payments then
previously or concurrently made by any other Borrower, exceeds the amount which such Borrower would
otherwise have paid if each Borrower had paid the aggregate Liabilities satisfied by such Joint
Liability Payments in the same proportion that such Borrowers Allocable Amount (as defined
below) (as determined immediately prior to such Joint Liability Payments) bore to the aggregate
Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such
Joint Liability Payments, then, following indefeasible payment in full in cash of the Liabilities
and termination of the Loans, such Borrower shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each other Borrower for the amount of such
excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such
Joint Liability Payments. As of any date of determination, the Allocable Amount of any Borrower
shall be equal to the maximum amount of the claim which could then be recovered from such Borrower
under this Section without rendering such claim voidable or avoidable under Section 548 of Chapter
11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform
Fraudulent Conveyance Act or similar statute or common law.
 The term Borrower as used herein shall mean either one or more particular Borrowers
or all of the Borrowers collectively as the Lender shall determine in its sole and absolute good
faith discretion.
 The term Revolving Borrower as used herein shall mean either one or more particular
Revolving Borrowers or all of the Revolving Borrowers collectively as the Lender shall determine in
its sole and absolute good faith discretion.
 The term Term Loan Borrower as used herein shall mean either one or more particular
Term Loan Borrowers or all of the Term Loan Borrowers collectively as the Lender shall determine in
its sole and absolute good faith discretion.
 Each Borrower hereby agrees that, except as hereinafter provided, its obligations
hereunder shall be unconditional, irrespective of (i) the absence of any attempt to collect the
Liabilities from any obligor or other action to enforce the same; (ii) the waiver or consent by
Lender with respect to any provision of any instrument evidencing the Liabilities, or any part
thereof, or any other agreement heretofore, now or hereafter executed by a Borrower and delivered
to Lender; (iii) failure by Lender to take any steps to perfect and maintain its security interest
in, or to preserve its rights to, any security or collateral for the Liabilities; (iv) the
institution of any proceeding under the United States Bankruptcy Code, or any similar proceeding,
by or against a Borrower or Lenders election in any such proceeding of the application of Section
1111(b)(2) of the United States Bankruptcy Code; (v) any borrowing or grant of a security interest
by a Borrower as debtor-in-possession, under Section 364 of the United States Bankruptcy Code; (vi)
the disallowance, under Section 502 of the United States Bankruptcy Code, of all or any portion of
Lenders claim(s) for repayment of any of the Liabilities; or (vii) any other circumstance other
than payment in full of the Liabilities which might otherwise constitute a legal or equitable
discharge or defense of a guarantor or surety.
 Until all Liabilities have been paid and satisfied in full, no payment made by or for
the account of a Borrower including, without limitation, (i) a payment made by such Borrower on
behalf of the liabilities of any other Borrower or (ii) a payment made
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by any other Person under
any guaranty, shall entitle such Borrower, by subrogation or otherwise, to any payment from any
other Borrower or from or out of any other Borrowers property and such Borrower shall not exercise
any right or remedy against any other Borrower or any property of any other Borrower by reason of
any performance of such Borrower of its joint and several obligations hereunder.
 Any notice given by one Borrower hereunder shall constitute and be deemed to be
notice given by all Borrowers, jointly and severally. Notice given by Lender to any one Borrower
hereunder or pursuant to any Financing Agreements in accordance with the terms hereof or thereof
shall constitute notice to each and every Borrower. The knowledge of one Borrower shall be imputed
to all Borrowers and any consent by one Borrower shall constitute the consent of and shall bind all
Borrowers.
 This Section is intended only to define the relative rights of Borrower and nothing
set forth in this Section is intended to or shall impair the obligations of Borrower, jointly and
severally, to pay any amounts as and when the same shall become due and payable in accordance with
the terms of this Agreement or any other Financing Agreements. Nothing contained in this Section
shall limit the liability of any Borrower to pay the Loans made directly or indirectly to that
Borrower and accrued interest, fees and expenses with respect thereto for which such Borrower shall
be primarily liable.
 The parties hereto acknowledge that the rights of contribution and indemnification
hereunder shall constitute assets of each Borrower to which such contribution and indemnification
is owing. The rights of any indemnifying Borrower against the other Borrowers under this Section
shall be exercisable upon the full and indefeasible payment of the Liabilities and the termination
of the Loans.
 Confidentiality Section 12.22
 - 87 -




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Expenses and Taxes
 Borrower agrees to jointly and severally pay (or cause Guarantor to pay) on demand all
of the reasonable out-of-pocket costs and expenses of the Lender (including, without limitation,
the reasonable fees and out-of-pocket expenses of the Lenders counsel, and all UCC lien, tax,
judgment, pending suit, and bankruptcy searches, UCC filings and fees for pre- and post-Closing
UCC, title and other lien searches, real estate appraisal fees, field examination costs and fees,
survey fees, recording and title insurance costs, and environmental report and analysis, and the
costs of Intralinks or other similar transmission system, if applicable) in connection with the due
diligence, structuring, preparation, negotiation, revision, execution, and delivery of: (i) this
Agreement, the other Financing Agreements and all other instruments, agreements, certificates or
documents provided for herein or therein or delivered or to be delivered hereunder or thereunder,
and (ii) any and all amendments, modifications, supplements and waivers executed and delivered
pursuant hereto or any other Financing Agreements or in connection herewith or therewith after the
Closing Date. Lender, in its sole discretion, may deduct all such unpaid amounts from the
aggregate proceeds of the Loans or debit such amounts from the operating accounts of Borrowers
maintained with Lender. If Lender uses in-house counsel for any of these purposes, Borrower
further agrees that its Liabilities hereunder and under the other Financing Agreements include
reasonable charges for such work commensurate with the fees that would otherwise be charged by
outside legal counsel selected by Lender for the work performed.
 Borrower also agrees to jointly and severally pay all out-of-pocket charges and
expenses incurred by Lender (including the court costs and fees and expenses of Lenders counsel,
advisers and consultants) in connection with (i) the administration, enforcement, protection or
preservation of any right or claim of Lender (including any foreclosure sale, deed in lieu
transaction or costs incurred in connection with any litigation or bankruptcy or administrative
hearing and any appeals therefrom and any post-judgment enforcement action including, without
limitation, supplementary proceedings in connection with the enforcement of this Agreement), (ii)
recording, filing and registration fees and charges, mortgage or documentary taxes, UCC searches,
title and survey charges, (iii) all fees and disbursements of Lenders consultants as provided
herein, (iv) the termination of this Agreement, (v) the creation, preservation, perfection,
maintenance, amendment and termination of any Liens of Lender on the Collateral, (vi) the
determination of whether or not Borrower has performed the obligations undertaken by Borrower
hereunder or has satisfied any conditions precedent to the obligations of the Lender hereunder, and
(vii) the collection of any amounts due under the Financing Agreements. If Lender uses in-house
counsel for any of these purposes (i.e., for any task in connection with the enforcement,
protection or preservation of any right or claim of Lender and the collection of any amounts due
under its Financing Agreements), Borrower further agrees that its Liabilities under the Financing
Agreements include reasonable charges for such
 - 88 -




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work commensurate with the fees that would otherwise
be charged by outside legal counsel selected by Lender for the work performed.
 Borrower shall pay all taxes (other than taxes based upon or measured by Lenders
income or revenues or any personal property tax or any branch profits tax), if any, in connection
with the issuance of the Notes and the recording of any Financing Agreements. The obligations of
Borrower under this clause (c) shall survive the payment of Borrowers indebtedness under this
Agreement and the termination of this Agreement. All of each Borrowers obligations provided for
in this Section 12.1 shall be Liabilities secured by the Collateral.
 Release Releasing Parties Lender Parties Released Parties
 Time; Reliance
 Relationship
 - 89 -




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Borrower Agent
 Agents; Borrower Authorizing Accounting Firm
 Additional Provisions
 Consents. Each Borrower, as joint and several primary obligor of the Liabilities
directly incurred by any other Borrower, authorizes Lender, without giving notice to such Borrower
or to any other Borrower (to the extent permitted hereunder) or obtaining such Borrowers consent
or any other Borrowers consent (to the extent permitted hereunder) and without affecting the
liability of such Borrower for the Liabilities directly incurred by the other Borrower, from time
to time to:
  - 90 -




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Waivers. Each Borrower, as a primary, joint and several obligor with respect to the
Liabilities directly incurred by any other Borrower, hereby waives:
      - 91 -




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- 92 -




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Additional Waivers. Each Borrower authorizes Lender to exercise, in its sole
discretion, any right, remedy or combination thereof which may then be available to Lender, since
it is such Borrowers intent that the Liabilities be absolute, independent and unconditional
obligations of such Borrower under all circumstances. Notwithstanding any foreclosure of any Lien
with respect to any or all of any property securing the Liabilities, whether by the exercise of the
power of sale contained therein, by an action for judicial foreclosure or by an acceptance of a
deed in lieu of foreclosure, each Borrower shall remain bound under such Borrowers guaranty of the
Liabilities directly incurred by any other Borrower.
 Primary Obligations. This Agreement is a primary and original obligation of each of
the Borrowers and each of the Borrowers shall be liable for all existing and future Liabilities of
any other Borrower as fully as if such Liabilities were directly incurred by such Borrower.
 Nonliability of Lender
 - 93 -




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INTENTIONALLY OMITTED
 SUBMISSION TO JURISDICTION; WAIVER OF VENUE
 SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT AND THE OTHER FINANCING AGREEMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
COURTS OF THE STATE OF ILLINOIS, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE NORTHERN
DISTRICT OF ILLINOIS AND APPELLATE COURTS FROM ANY THEREOF;
 CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES
TO THE FULLEST EXTENT PERMITTED BY LAW IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING (i) ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME, (ii) THE RIGHT TO ASSERT OR IMPOSE ANY CLAIM, NONCOMPULSORY SET-OFF,
COUNTERCLAIM OR CROSS-CLAIM IN RESPECT THEREOF IN SUCH PROCEEDING; PROVIDED, HOWEVER, THIS WAIVER
DOES NOT PRECLUDE THE RIGHT TO ASSERT A DEFENSE IN SUCH ACTION OR PROCEEDING OR TO ASSERT OR IMPOSE
ANY CLAIM, COUNTERCLAIM OR CROSS-CLAIM WHICH THE BORROWER WISHES TO
 - 94 -




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PURSUE IN A SEPARATE PROCEEDING
AT ITS SOLE COST AND EXPENSE, AND (iii) ALL STATUTES OF LIMITATIONS WHICH MAY BE RELEVANT THERETO;
AND
 AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY
MAILING A COPY THEREOF BY CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, RETURN RECEIPT REQUESTED, TO THE BORROWER AT ITS ADDRESS SET FORTH ABOVE OR AT SUCH OTHER
ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. THE BORROWER AGREES THAT
SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW (i) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE BORROWER IN ANY SUIT, ACTION OR PROCEEDING, AND (ii) SHALL BE TAKEN AND
HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO THE BORROWER. SOLELY TO THE EXTENT
PROVIDED BY APPLICABLE LAW, SHOULD THE BORROWER, AFTER BEING SERVED, FAIL TO APPEAR OR ANSWER TO
ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW
AFTER THE DELIVERY OR MAILING THEREOF, THE BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR
JUDGMENT MAY BE ENTERED BY THE COURT AGAINST THE BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS. NOTHING HEREIN SHALL AFFECT THE LENDERS RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR LIMIT THE LENDERS RIGHT TO BRING PROCEEDINGS
AGAINST THE BORROWER OR ITS PROPERTY IN ANY COURT OR ANY OTHER JURISDICTION.
 GOVERNING LAW
 JURY TRIAL
  - 95 -




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IN WITNESS WHEREOF
 DIVERSICARE MANAGEMENT SERVICES CO.,a
Tennessee corporation, as Borrower AgentBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerADVOCAT ANCILLARY SERVICES, INC., a Tennessee corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerADVOCAT FINANCE, INC.,a Delaware corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE MANAGEMENT SERVICES CO.,a Tennessee corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerADVOCAT DISTRIBUTION SERVICES, INC.,a Tennessee corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer - 96 -




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DIVERSICARE ASSISTED LIVING SERVICES, INC.,a Tennessee corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE ASSISTED LIVING SERVICES NC, LLC,a Tennessee limited liability companyBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE LEASING CORP.,a Tennessee corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerSTERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporationBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerSENIOR CARE CEDAR HILLS, LLC,a Delaware limited liability companyBY:

SENIOR CARE FLORIDA LEASING, LLC,
its sole memberBY:
DIVERSICARE LEASING CORP., its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer - 97 -




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SENIOR CARE GOLFCREST, LLC, a Delaware limited liability companyBY:
    SENIOR CARE FLORIDA LEASING,
LLC, its sole memberBY: DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerSENIOR CARE GOLFVIEW, LLC, a Delaware limited liability companyBY:
    SENIOR CARE FLORIDA LEASING,
LLC, its sole memberBY: DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerSENIOR CARE FLORIDA LEASING, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerSENIOR CARE SOUTHERN PINES, LLC,a Delaware limited liability companyBY:
    SENIOR CARE FLORIDA LEASING,
LLC, its sole memberBY: DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE AFTON OAKS, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer - 98 -




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##### 



DIVERSICARE ASSISTED LIVING SERVICES NC I, LLC,a Delaware limited liability companyBY:
    DIVERSICARE ASSISTED LIVING
SERVICES NC, LLC, its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE ASSISTED LIVING SERVICES NC II, LLC, a Delaware limited liability companyBY:
    DIVERSICARE ASSISTED LIVING
SERVICES NC, LLC, its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE BRIARCLIFF, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE CHISOLM, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE HARTFORD, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer - 99 -




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##### 



DIVERSICARE HILLCREST, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE LAMPASAS, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE PINEDALE, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE WINDSOR HOUSE, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE YORKTOWN, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING CORP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer - 100 -




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DIVERSICARE BALLINGER, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE DOCTORS, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE ESTATES, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE HUMBLE, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE KATY, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer - 101 -




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DIVERSICARE NORMANDY TERRACE, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE TEXAS I, LLC,a Delaware limited liability companyBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE TREEMONT, LLC,a Delaware limited liability companyBY:
    DIVERSICARE TEXAS I, LLC,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial OfficerDIVERSICARE ROSE TERRACE, LLC,a Delaware limited liability companyBY:
    DIVERSICARE LEASING COPP.,
its sole memberBy:
    /s/ Glynn RiddleName:
    Glynn RiddleIts:
    Executive Vice President & Chief Financial Officer LENDER:
LASALLE BANK NATIONAL ASSOCIATIONBy:
    /s/ Adam PanosAdam PanosAssistant Vice President - 102 -




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SCHEDULES
 Schedule 1
    
    BorrowersSchedule 1.1(a)
    
    FacilitiesSchedule 1.1(b)
    
    Capmark Restricted AccountsSchedule 1.1(c)
    
    LocationsSchedule 1.1(d)
    
    Negative Pledge AssetsSchedule 1.1(e)
    
    Omega LeasesSchedule 1.1(f)
    
    Term Loan BorrowerSchedule 7.8
    
    Other NamesSchedule 7.12
    
    Organizational ChartSchedule 7.13
    
    LitigationSchedule 7.17
    
    Environmental MattersSchedule 7.26
    
    Medicare and Medicaid PenaltiesSchedule 7.32
    
    Labor MattersSchedule 7.33
    
    CapitalizationSchedule 7.36
    
    Commercial Leases
 EXHIBITS
 Exhibit A
    
    Form of Revolving Credit NoteExhibit B
    
    Form of Term Loan NoteExhibit C
    
    Form of Borrowing Notice
 - 103 -