Document:

EX-10.4

 

Exhibit 10.4

PAYMENT AND PERFORMANCE GUARANTY AGREEMENT

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

R E C I T A L S:

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

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

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

 

 

AGREEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4. Certain Rights, Subordination, Etc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          (a) If to Guarantor:

Advocat Inc.

1621 Galleria Blvd.

Brentwood, Tennessee 37027

Attn: Glynn Riddle

with a copy to:

Harwell Howard Hyne Gabbert & Manner, P.C.

315 Deaderick Street, Suite 1800

Nashville, Tennessee 37238

Attention: John N. Popham, IV, Esq.

          (b) If to Lender:

Capmark Finance Inc.

200 Witmer Road

Horsham, Pennsylvania 19044

Attention: Servicing Department

with a copy to:

Bradley Arant Rose & White llp

One Federal Place

1819 Fifth Avenue North

Birmingham, Alabama 35203-2119

Attention: Shannon B. Lisenby, Esq.

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

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

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

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

10

 

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

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

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

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

11

 

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

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

     16. Intentionally Deleted.

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

12

 

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

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

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

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

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

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

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

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

13

 

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

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

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

14

 

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

	 	 	 	 	 
	 	GUARANTOR:

ADVOCAT INC., a Delaware corporation

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

	 	 	 	 	 	 	 	 	 
	STATE OF

	 	 	 	 	 	 	)	 
	 

	 	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 	:	 
	COUNTY

	 	 	 	 	 	 	)	 
	 

	 

	 	 	 	 	 	 

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

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

	 	 	 	 	 
	 	
 	 
	 	Notary Public 	 
	 	 	 
	 

AFFIX SEAL

My commission expires:                     

15EX-10.5

 

Exhibit 10.5

REPLACEMENT INTERCREDITOR AGREEMENT

(Accounts Receivable)

     THIS INTERCREDITOR AGREEMENT is made as of the 4th day of August, 2006 (the “Effective Date”),
by and between AMSOUTH BANK, an Alabama state banking corporation
(“AmSouth”), Diversicare Afton
Oaks, LLC, a Delaware limited liability company (the “Afton Oaks Borrower”); Diversicare Pinedale,
LLC, a Delaware limited liability company (the “Newport Borrower”); Diversicare Windsor House, LLC,
a Delaware limited liability company (the “Windsor Borrower”); Diversicare Briarcliff, LLC, a
Delaware limited liability company (the “Briarcliff Borrower”); Diversicare Hartford, LLC, a
Delaware limited liability company (the “Hartford Borrower”); Diversicare Chisolm, LLC, a Delaware
limited liability company (the “Chisolm Borrower”); Diversicare Hillcrest, LLC, a Delaware limited
liability company (the “Hillcrest Borrower”); Diversicare Yorktown, LLC, a Delaware limited
liability company (the “Yorktown Borrower”); Diversicare Lampasas, LLC: a Delaware limited
liability company (the “Lampasas Borrower”); and Diversicare Assisted Living Services NC I, LLC, a
Delaware limited liability company (the “NC I Borrower”) and Diversicare Assisted Living Services
NC II, LLC, a Delaware limited liability company (the “NC II Borrower”; NC I Borrower and NC II
Borrower are collectively known as the “Carolina Beach Borrower”), (Afton Oaks Borrower, Newport
Borrower, Windsor Borrower, Briarcliff Borrower, Hartford Borrower, Chisolm Borrower, Hillcrest
Borrower, Yorktown Borrower, Lampasas Borrower, and the Carolina Beach Borrower may be referred to
collectively herein as, the “Borrower”), and CAPMARK FINANCE INC., a California corporation
(formerly known as GMAC COMMERCIAL MORTGAGE CORPORATION, a California
corporation) (the “Lender”).

R E C I T A L S

       A. (i) Lender is the present owner and holder of that certain loan (the “Note I
Loan”) in the original principal amount of $22,500,000.00 made to Borrower, which Note I Loan is
secured by, among other things, the following (collectively, the
“Note I Security”): (i) first
lien deed of trust or mortgage (collectively, the “Note I
Mortgage”) with respect to each
Borrower’s right, title, and interest in and to its facilities (which are more particularly
described on Schedule A attached hereto (the “Note I Facilities”), including the underlying
real property (the “Note I Real Property”), the improvements thereon, and all equipment, fixtures,
inventory, and personal property used in connection therewith, (ii) a first lien security interest
and an assignment of Borrower’s interest in all general intangibles, licenses, permits,
reimbursement contracts, leases and contracts, (iii) a first lien security interest and an
assignment of Borrower’s interest in all rents and leases relating to the Note I Facilities, (iv)
an assignment of the management contract and subordination of management fees, and (v) a second
lien security interest in accounts receivable issuing from the Note I Facilities.

 

 

     (ii) Lender
is the present owner and holder of that certain Loan (the “Note II Loan”) in the
original principal amount of $8,125,000 made to Borrower, which Note II Loan is secured by, among
other things, the following (collectively, the “Note II
Security”):

     (a) first lien deed of trust or mortgage (collectively, the “Note II Mortgage”;
the Note I Mortgage, the Note II Mortgage, and the Second Mortgage, as defined
below, are collectively referred to herein as the
“Mortgage”) with respect to each
Borrower’s right, title, and interest in and to its facilities (which are more
particularly described on Schedule A attached hereto (the “Note II
Facilities”; the Note I Facilities and the Note II Facilities are collectively
referred to herein as the “Facilities”), including the underlying real property (the
“Note II Real Property”; Note I Real Property and Note II Real Property are
collectively referred to herein as the “Real Property”), the improvements thereon,
and all equipment, fixtures, inventory, and personal property used in connection
therewith, (b) a first lien security interest and an assignment of Borrower’s
interest in all general intangibles, licenses, permits, reimbursement contracts,
leases and contracts, (c) a first lien security interest and an assignment of
Borrower’s interest in all rents and leases relating to the Note II Facilities, (d)
an assignment of the management contract and subordination of management fees, (e) a
second lien security interest in accounts receivable issuing from the Note II
Facilities, (f) an assignment of the DCMS Note Receivable and the Workers’ Comp
Retro Premiums (both hereinafter defined on Schedule B), and (g) a second lien deed
of trust or mortgage (the “Second Mortgage”) with respect to the Borrower’s right,
title, and interest in and to the Note I Facilities securing Note I Loan, including
the Real Property.

     The Note I Security and the Note II Security may be referred to collectively herein as the
“Security”. The Note I Loan and Note II Loan may be referred to collectively herein as the
“Mortgage Loan”. The Note I Facilities and the Note II Facilities maybe referred to collectively
herein as the “Facilities”. The loan agreement, as defined herein, and all other documents or
instruments listed on Schedule C attached hereto and made a part hereof, and all other
documents or instruments now or hereafter executed by Borrower evidencing, securing or relating to
the Mortgage Loan, as herein defined, and all amendments thereto and restatements or replacements
thereof, as the same may be amended from time to time, are hereinafter referred to collectively as
the “Mortgage Loan Documents.” Capitalized terms not otherwise defined herein shall have the same
meaning as set forth in the Mortgage Loan Documents.

     B. Pursuant to the terms of that Replacement Reduced and Modified Renewal Revolving Promissory
Note executed by Diversicare Management Services, Co., a Tennessee corporation (“DMS”) as of
October 29, 2004, as amended in the maximum principal amount of $2,500,000.00, as further amended
and decreased to the maximum principal amount of $2,300,000.00 (the “AmSouth Priority Amount”),
AmSouth will continue to provide for the benefit of DMS, Borrower and certain entities related to
Borrower or Corporate Guarantor, as defined below, a secured revolving credit facility, secured by,
among other things, the Accounts (as hereinafter defined) of Borrower, the guaranty of Advocat
Inc., a Delaware corporation (the “Corporate Guarantor”), the Stock (as hereinafter defined) and
other things as set forth in that Master Amendment to Loan Documents and Agreement executed by
AmSouth, Lender and

 

 

certain Debtors as defined therein on November 8, 2000 to be effective as of October 1, 2000,
as subsequently amended (the “Master Amendment”). (The Replacement Reduced and Modified Renewal
Revolving Promissory Note, as amended is herein referred to as the “AmSouth Note”).

     C. AmSouth and Lender executed an Intercreditor Agreement, signed by DMS, Diversicare Leasing
Corp., a Tennessee corporation (“DLC”) and wholly owned subsidiary of Advocat Finance, Inc., a
Tennessee corporation (“AFI”) and wholly owned subsidiary of the Corporate Guarantor, and by
Corporate Guarantor, dated as of Decmeber 27, 1996, as subsequently amended (the “Original
Intercreditor Agreement”), which Original Intercreditor Agreement set forth certain rights and
priorities with respect to the collateral securing AmSouth’s and Lender’s respective credit
accommodations to Borrower, and Subsidiaries as defined therein.

     D. Since execution of the Original Intercreditor Agreement, AmSouth’s and Lender’s respective
credit accommodations have changed substantially, and the parties heretohave entered into this
Replacement Intercreditor Agreement in order to agree upon, reaffirm and restate the relative
rights and priorities with respect to the collateral securing their credit accommodations to
Borrower.

ARTICLE I

DEFINITIONS

     Section 1.1. Certain Definitions. Words and terms defined in the Recitals of this
Agreement shall have the meanings therein ascribed to them, and, in addition, the following words
and terms when used herein shall have the respective meanings indicated:

          “Accounts” has the meaning set forth on Schedule B attached hereto.

          “AmSouth Accounts” means certain assets of the Borrower as set forth on attached Schedule
B hereto.

          “AmSouth Loan Agreement” means the Master Amendment.

          “AmSouth Loan Documents” shall mean, collectively, the Master Amendment, all Loan Documents as
defined therein, all other documents or instruments now or hereafter executed by Borrower
evidencing, securing or relating to the AmSouth Note, and all amendments thereto and restatements
or replacements thereof.

          “AmSouth Obligations” means the loan obligations of the Borrower as more particularly set
forth in the AmSouth Note and the AmSouth Loan Documents.

          “Availability” means the maximum loan availability of DMS in the amount of the AmSouth
Priority Amount.

          “Business Day” means a day, other than Saturday or Sunday and legal holidays, when AmSouth and
Lender are both open for business.

 

 

          “Ceased Funding” means, with respect to the Possession Date, the date that AmSouth has
notified Lender in writing that it has determined to cease making further advances under the
AmSouth Loan Documents.

          “Common Collateral” has the meaning given such term in Section 2.5 hereof.

          “Default Notice” means a notice by Lender to AmSouth that an Event of Default (as defined in
the Mortgage Loan Documents) exists pursuant to the Mortgage Loan Documents, a copy of which notice
of Event of Default has been given to Borrower, unless Lender is prevented from giving notice to
Borrower by bankruptcy or other applicable law.

          “Lender Accounts” has the meaning given such term in Section 2.2 hereof.

          “Lender Obligations” means the “Loan Obligations” as defined in the Mortgage Loan Documents.

          “Managed Health Care Plans” means, collectively, any health maintenance organization,
preferred provider organization or the like.

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

          “Medicare” means that certain federal program providing health insurance for eligible elderly
and other individuals, under which physicians, hospitals, skilled nursing homes, home health care
and other providers are reimbursed for certain covered services they provide to the beneficiaries
of such program, which program is more fully described in Title XVIII of the Social Security Act
(42 U.S.C. §§ 1395 et seq.) and the regulations promulgated thereunder.

          “Mortgage Loan Documents” has the meaning set forth in the Recitals hereof.

          “Patient Agreements” means collectively any and all contracts, authorizations, agreements or
consents made by or on behalf of any patient or resident of the Facilities, or any other person
seeking or obtaining services or Goods from Borrower, pursuant to which a Borrower provides skilled
nursing care, intermediate care and/or assisted living facility, or any form of patient or
residential care, as well as related services at the Facilities (as such contracts, authorizations,
agreements or consents may be amended, supplemented, renewed, replaced, extended or modified from
time to time). The Patient Agreements include consents to treatment and assignments of payment of
benefits.

          “Payors” means and includes any and all patients or residents of the Facilities of Borrower,
Managed Health Care Plans or other Third Party Payors, and all other persons or entities obligated
on any Account, Document, Instrument, Chattel Paper or otherwise under any agreement for the
payment or reimbursement for services rendered, Goods provided, or costs incurred by Borrower, or
otherwise obligated on any indebtedness owing to Borrower.

 

 

          “Permits” means: (a) the operating licenses for the Facilities, any certificate of need, and
any other license, permit, approval or certificate which from time to time, may be issued or is
required to be issued by the United States, any state or local government, or any agency or
instrumentality of any of the foregoing with respect to the construction, installation or operation
of the Facilities or any portion or component of the Facilities, the providing of any profession or
other services by the Borrower, the purchase, sale, dispensing, storage, prescription or use of
drugs, medications or the like by Borrower, or any other operations or businesses of Borrower; and
(b) certifications and eligibility for participation by Borrower, with respect to its operation of
the Facilities and any related businesses or operations, in programs or arrangements with, or
reimbursement from Third Party Payors including Medicare and Medicaid; and (c) all other licenses,
permits and certificates used or useful in connection with the ownership, operation, use or
occupancy of the Facilities.

          “Possession Date” means, with respect to the Facilities, the earlier to occur of the date upon
which (a) Lender, or its nominee, has taken actual physical possession and control of such
Facility, whether by foreclosure, deed in lieu of foreclosure, appointment of a receiver or other
legal process and AmSouth has received five (5) Business Days notice thereof in accordance with
Section 3.1 hereof, (b) Lender, or its nominee, has begun the operation and management of such
Facility to the exclusion of the direct or indirect operation or management of such Facility by the
Borrower and/or its agents and AmSouth has received five (5) Business Days notice thereof in
accordance with Section 3.1 hereof, (c) sixty (60) days after Lender has given AmSouth a Default
Notice with respect to an Event of Default (as defined in the Mortgage Loan Documents) which was
not cured within such sixty (60) day period and AmSouth has received notice thereof in accordance
with Section 3.1 hereof, (d) the date upon which all of the AmSouth Obligations have been
indefeasibly paid in full and the AmSouth Loan Agreement has been terminated, or (e) the date upon
which AmSouth has Ceased Funding.

          “Proceeds” means all proceeds (but specifically excluding all proceeds of insurance and
condemnation) from the sale, exchange, transfer, collection, loss, damage, disposition,
substitution or replacement of any of the Accounts.

          “Secured Lenders” shall mean, collectively, Lender and AmSouth.

          “Stock” shall mean, collectively, all stock of the Corporate Guarantor, and all stock,
membership or partnership interests of the Subsidiaries.

          “Subsidiaries” shall mean, collectively, DMS, the Corporate Guarantor, AFI, DLC, Advocat
Ancillary Services, Inc., a Tennessee corporation (“AAS”)and wholly-owned subsidiary of DMS,
Diversicare General Partner, Inc., a Texas corporation (“DGP”) and wholly-owned subsidiary of DLC,
First American Health Care, Inc., an Alabama corporation (“FAHC”) and wholly-owned subsidiary of
DLC, Diversicare Leasing Corp. of Alabama, an Alabama corporation (“DLCA”) and wholly-owned
subsidiary of DLC, Advocat Distribution Services, Inc.., a Tennessee corporation (“ADS”) and
wholly-owned subsidiary of DMS, Diversicare Assisted Living Services, Inc., a Tennessee corporation
(“DALS”) and a wholly-owned subsidiary of AFI, Diversicare Assisted Living Services, NC, LLC, a
Tennessee limited liability company formed by DMS and DALS (“DALS-NC”), Sterling Health Care
Management, Inc., a Kentucky corporation (“SHCM”) and wholly-owned subsidiary of DLC, and any and
all other

 

 

entities subsidiaries of the Borrower, DMS, DLC or any entity herein named, formed subsequent
to the execution of this Agreement.

          “Third Party Payors” means any and all Managed Health Care Plans, private insurers, Blue Cross
and/or Blue Shield plans, employee medical expense assistance programs, programs established,
maintained and/or administered by any federal, state or local governmental authority (including,
without limitation, Medicare and Medicaid programs), and other similar third party payors.

     The following terms shall have the same respective meanings as are given to those terms in the
Uniform Commercial Code of the State of California, as amended: “Chattel Paper”, “Contracts”,
“Contract Rights”, “Documents”, “General Intangibles”, “Goods”, “Instruments.” Without limiting
the foregoing, the following kinds and types of property to the extent related to the Facilities
shall be included within the definition of “General Intangibles”:

     (a) Permits, Patient Agreements, Provider Agreements and all other agreements
(whether now existing or hereafter made) between any of the Borrower and any Third
Party Payor relating to any rights of any Borrower or to payment and/or
reimbursement from, or claims of Borrower against, any Third Party Payor;

     (b) All franchises, sub franchises, rights to distribute, sales agencies,
licenses, permits, leases, rights to indemnification, rights as insured, including
the right to be provided a defense, warranty rights, concessions and concession
rights, customer lists, yellow page or trade journal listing, telephone numbers, and
any and all other property or rights necessary, convenient, or proper with respect
to the continued operation of the business of Borrower as now or hereafter conducted
by any of the Borrower with respect to the operation or use of the Facilities;

     (c) All patents and patent applications, together with the right to sue for
past, present, and future infringements, all rights corresponding thereto throughout
the world and all reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof and all improvements thereon;

     (d) All trademarks, trade names, and trade secrets, together with the right to
sue for past, present, and future violations corresponding thereto, and all good
will associated therewith; and

          All copyrights, together with the right to sue for past, present, or future violations or
infringements of rights of the copyrights, and all renewals, extension and continuations thereof.

     Section 1.2. Singular terms shall include the plural forms and vice versa, as applicable, of
the terms defined.

 

 

     Section 1.3. Terms contained in this Agreement shall, unless otherwise defined herein or
unless the context otherwise indicates, have the meanings, if any, assigned to them by Uniform
Commercial Code in effect in the State of Tennessee.

     Section 1.4. All accounting terms used in this Agreement shall be construed in accordance with
general accounting principles, except as otherwise defined.

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

     Section 1.6. Upon execution of this Agreement, the Original Intercreditor Agreement shall be
terminated.

ARTICLE II

INTERCREDITOR AGREEMENT

     Section 2.1. Relative Security Interests in the Accounts. The rights and priorities
in the Accounts described herein between the Secured Lenders shall be as set forth in this
Agreement irrespective of: (a) the validity of any security interest of either of the Secured
Lenders in any or all of the Accounts, (b) whether and in what order the security interests of the
Secured Lenders in the Accounts were perfected, (c) the provisions of applicable law (bankruptcy or
otherwise), or (d) which of the Secured Lenders has possession of the Accounts.

     Section 2.2. Rights in the Accounts and Related Collateral.

          (a) AmSouth Accounts. Except as provided in Section 2.2(b) below, AmSouth and Lender
agree that at all times, whether before, during or after the pendency of any bankruptcy,
reorganization or other insolvency proceeding, and notwithstanding the priorities that ordinarily
would result under the Uniform Commercial Code as enacted in each and every applicable
jurisdiction, and as amended from time to time, and other applicable law for the order of granting
or perfecting of any security interests referred to herein, AmSouth shall have a first and prior
security interest in, upon and to the AmSouth Accounts, and if AmSouth has advanced funds pursuant
to the terms of the AmSouth Note within ninety (90) days immediately preceding the Possession Date
(collectively, the “Prepossession Advance”), AmSouth shall have a first and prior security interest
in, upon and to any Accounts which accrue or arise after the Possession Date but only up the total
amount of the Prepossession Advance, and Lender shall have a second priority security interest in
such AmSouth Accounts or Accounts. AmSouth shall have no interest in any collateral securing the
Mortgage Loan Documents or any tangible or intangible property of Borrower or Corporate Guarantor
other than the Accounts and Common Collateral to the extent described herein, and the Stock.

          (b) Lender Accounts. AmSouth and Lender agree that at all times, whether before,
during or after the pendency of any bankruptcy, reorganization or other insolvency proceeding, and
notwithstanding the priorities that ordinarily would result under the Uniform Commercial Code as
enacted in each and every applicable jurisdiction, and as amended from time to time, and other
applicable law for the order of granting or perfecting of any security interests referred to
herein, on and after the Possession Date, Lender shall have a first priority

 

 

security interest in all of Borrower’s future Accounts, arising on or after a Possession Date
(except that AmSouth shall have a first lien on future Accounts arising or accruing after the
Possession Date but only up to the total amount of the Prepossesion Advance and such Accounts shall
not be considered “Lender Accounts” as defined below), and thereafter acquired or arising and any
and all additions and accessions to any of the foregoing, and any and all replacements, products
and Proceeds of any of the foregoing (“Lender Accounts”). Subject to Section 2.3(a), on and after
the Possession Date, AmSouth shall have a second priority security interest in such Lender Accounts
until such time as the AmSouth Obligations are paid in full or AmSouth’s rights are terminated in
accordance with Section 2.3(c) herein. AmSouth and Borrower covenant and agree that, for so long
as the AmSouth Obligations remain outstanding, the Availability shall not be increased and the
Maturity Date of the AmSouth Note, which date is January 29, 2008, shall not be extended, without
Lender’s prior written consent.

          (c) General Intangibles, Contract Rights and Agreements. Until such time as Lender
has received payment in full of all Lender Obligations, Lender shall hold a first priority security
interest in and to all of the General Intangibles and Contract Rights of the Borrower, including,
but not limited to, all Patient Agreements, Permits and Provider Agreements, and the Proceeds and
products thereof; provided; however, that to the extent any such Proceeds or products, or
any other payments derived from such General Intangibles or Contract Rights are inextricably
related to the collection of AmSouth Accounts, then the same shall be deemed to be AmSouth
Accounts, and the relative interest of Lender and AmSouth shall be determined in accordance with
Sections 2.2(a) and 2.2(b) hereof. Notwithstanding anything herein to the contrary, AmSouth
Accounts shall not include any Permits related to the operation of the Facilities, and AmSouth
shall have no right to transfer, sell, convey or otherwise affect the Permits related to the
operation of the Facilities.

     Section 2.3. Release of Security Interest.

          (a) Upon receipt by AmSouth of payment in full of all AmSouth Obligations and termination of
the AmSouth Loan Documents, AmSouth will notify Lender of such event in accordance with Section 3.1
below, and AmSouth, at Borrower’s expense, will execute any and all termination statements, UCC-3
amendments or releases (as applicable) to fully effectuate AmSouth’s release and extinguishment of
its security interest in the AmSouth Accounts, Accounts, Lender Accounts, Common Collateral and the
Stock.

          (b) Notwithstanding anything to the contrary contained herein or in the Mortgage Loan
Documents, if any AmSouth Accounts are sold, transferred or conveyed or otherwise disposed of: (i)
as permitted under the AmSouth Loan Documents, or (ii) as otherwise consented to by AmSouth and
Borrower, or (iii) in conjunction with the exercise of AmSouth’s rights and remedies under the
AmSouth Loan Documents, then, subject to the terms of this Agreement, Lender shall and hereby
agrees to release any and all rights to and interests in such AmSouth Accounts (but not to the
Proceeds thereof to the extent set forth in the last sentence of this Section 2.3(b)), and such
AmSouth Accounts shall be transferred free and clear of all liens and security interests (including
the lien of Lender). Lender shall execute such release documents as AmSouth may request, from time
to time, to effectuate the terms hereof. To the extent that the Proceeds of any such sale of
AmSouth Accounts exceed the AmSouth Obligations, then any such excess shall be delivered to Lender
(to the extent that Lender is

 

 

otherwise entitled thereto in accordance with the Mortgage Loan Documents and/or applicable
law).

     Section 2.4. Collection of Accounts.

          (a) Until such time as the AmSouth Obligations have been indefeasibly paid in full and the
AmSouth Loan Documents have been terminated, Lender shall immediately deliver to AmSouth any
payment it receives with respect to the AmSouth Accounts in precisely the same form received (but
with the endorsement of Lender receiving the same where necessary) for application in reduction of
the AmSouth Obligations, and agrees that until so delivered, the payment shall be held in trust for
AmSouth as the property of AmSouth. Until the AmSouth Obligations are indefeasibly paid in full,
Lender agrees that it will not institute any legal proceeding against Borrower with respect to any
AmSouth Accounts or otherwise enforcing or exercising rights in the AmSouth Accounts for all or
part of any amount due under the Mortgage Loan Documents. Any Proceeds received by Lender in
excess of an amount necessary to satisfy in full the Lender Obligations shall otherwise be held by
Lender in trust for AmSouth and remitted to AmSouth (to the extent that AmSouth is otherwise
entitled thereto in accordance with the AmSouth Loan Documents and applicable law). Until all of
the Lender Obligations are indefeasibly paid in full, AmSouth agrees that it will not institute any
legal proceeding against Borrower with respect to any Lender Accounts or otherwise enforcing or
exercising rights in the Lender Accounts for all or part of any amount due under the AmSouth Loan
Documents.

          (b) At Lender’s option, at any time subsequent to the Possession Date, Lender may pay or cause
to be paid the AmSouth Obligations to AmSouth. If Lender pays the AmSouth Obligations, Lender
shall have a first priority security interest in and lien on all of the AmSouth Accounts and the
Common Collateral, and AmSouth will execute and deliver to Lender releases and satisfactions of its
security interests in all Accounts, Common Collateral and the Stock. In the event AmSouth fails to
file such release and satisfaction within thirty (30) days after Lender’s written demand therefor,
Lender is hereby authorized to file in AmSouth’s name, any releases and satisfactions necessary to
effectuate the release contemplated hereby, and Lender will provide to AmSouth a copy of such
release. AmSouth hereby constitutes and appoints Lender its true and lawful attorney-in-fact, with
full power of substitution in the premises, to exercise such rights. This power of attorney shall
be deemed to be a power coupled with an interest and shall be irrevocable so long as any of the
Lender Obligations are outstanding. If Lender pays the AmSouth Obligations, Borrower agrees such
payment, together with interest thereon at the interest rate set forth in the Mortgage Loan
Documents, from the date paid, shall be a debt owing, jointly and severally, by Borrower to Lender
and shall, together with all costs of collection, be secured by all of the Accounts and other
Lender Collateral, and all such indebtedness, interest thereon and costs of collection, if any,
shall be due and payable promptly on demand by Lender.

          (c) Subject to the limitations set forth in this Agreement, Lender agrees that it will not
make any assertion or claim in any action, suit or proceeding of any nature whatsoever in any way
challenging the priority, validity or effectiveness of the liens and security interests granted to
AmSouth with respect to the AmSouth Accounts, the Accounts that accrue subsequent to the Possession
Date up to the total amount of any Preposession Advance made by AmSouth,

 

 

and the Stock, or the validity or effectiveness of the subordinate liens and security
interests of AmSouth with respect to the Lender Accounts, under and in connection with the AmSouth
Loan Documents or related agreement between AmSouth and Borrower. Lender further agrees that
AmSouth’s lien and security interest in the AmSouth Accounts, and the Accounts that accrue
subsequent to the Possession Date up to the total amount of any Preposession Advance made by
AmSouth, and the Stock, at all times while any AmSouth Obligations or the AmSouth Priority Amount
are owing from Borrower to AmSouth shall be superior and prior to the liens and security interests
granted to Lender pursuant to the Mortgage Loan Documents (which liens and security interests of
Lender shall be subject and inferior to those of AmSouth) in such AmSouth Accounts, Accounts or
Stock, irrespective of the time, order or method of attachment or perfection of AmSouth’s and
Lender’s liens and security interests, or the filing of financing statements or the taking of
possession of the AmSouth Accounts, or any portion thereof.

          (d) Subject to the limitations set forth in this Agreement, AmSouth agrees that it will not
make any assertion or claim in any action, suit or proceeding of any nature whatsoever in any way
challenging the priority, validity or effectiveness of the liens and security interests granted to
Lender with respect to the Lender Accounts that accrue or arise from and after the Possession Date,
or the validity or effectiveness of the subordinate liens and security interests granted to Lender
with respect to the AmSouth Accounts that accrued before the Possession Date, under and in
connection with the Mortgage Loan Documents, or any amendment, extension or replacement thereof or
related agreements in favor of Lender. Borrower further agrees that Lender’s lien and security
interest in the Lender Accounts which accrue or arise from and after the Possession Date, at all
times while any indebtedness or other obligations are owing to Lender that are secured by such
Lender Accounts, shall be superior and prior to the liens and security interests granted to AmSouth
pursuant to the AmSouth Loan Documents (which liens and security interests of AmSouth shall be
subject and inferior to those of Lender), in such Lender Accounts, irrespective of the time, order
or method of attachment or perfection of AmSouth’s and Lender’s liens and security interests, or
the filing of financing statements or the taking of possession of the AmSouth Accounts, or any
portion thereof.

          (e) No sale or other disposition of AmSouth Accounts by or at the direction of AmSouth in an
aggregate amount in excess of the AmSouth Priority Amount may be made at a discounted price (i.e.,
for less than the present value of the AmSouth Accounts using a discount rate of 10%) without first
providing written notice to Lender accompanied by a term sheet or summary of written terms from a
prospective third party purchaser of such AmSouth Accounts, and offering Lender a period of ten
(10) business days within which to purchase such AmSouth Accounts on the same terms. In the event
Lender purchases such AmSouth Accounts (which it shall have no obligation to purchase), AmSouth
agrees that upon receipt of the purchase price (x) all such AmSouth Accounts, all liens or security
interests therein, and all Proceeds thereof, shall be assigned by AmSouth to Lender.

     Section 2.5. Rights in the Collateral. AmSouth and Lender acknowledge that the books
and records of Borrower relating to the Accounts (including but not limited to electronic records
and related software and related computer equipment) may be included among the collateral for both
the AmSouth Loan and the Mortgage Loan (the “Common Collateral”). As to the Common Collateral,
Lender agrees that AmSouth’s security interest shall be prior to that of Lender prior to the
Possession Date, but AmSouth agrees, in the exercise of Lender’s security

 

 

interest, to allow Lender to have reasonable access to the Common Collateral in AmSouth’s
possession and will, upon Lender’s request and upon payment of AmSouth’s actual out-of-pocket
costs, provide copies of all Common Collateral to Lender. Within five (5) Business Days after the
Possession Date, AmSouth shall turn over to Lender all Common Collateral in AmSouth’s possession.
After the Possession Date, Lender shall have a first priority security in and to the Common
Collateral pursuant to the terms of Section 2.4 (b).

     Section 2.6. Access to the Facilities. AmSouth acknowledges that among other
Security, Lender holds a first lien mortgage on the Facilities, including the premises upon which
the Accounts and Common Collateral may be located. Lender agrees that if it or its nominee should
acquire possession of the Facilities, it will allow AmSouth reasonable access to the Facilities,
Accounts and Common Collateral, at AmSouth’s cost and expense, after Lender or its nominee attains
possession thereof for the purpose of examining and copying the records relating to the Accounts
and pursuing collection thereof, and no such possession of the Facilities shall affect the relative
priorities of Secured Lenders as set forth herein with respect to Accounts and Common Collateral.

     Section 2.7. Agreement to Give Notice of Default.

          (a) AmSouth agrees to send Lender a copy of any notice of default given to Borrower under the
AmSouth Loan Documents simultaneously with AmSouth giving of such notice to Borrower (provided that
failure of AmSouth to provide such notice of default shall not create or result in any liability of
AmSouth to Lender), and Lender shall have the right (but not the obligation) to cure such
default within any grace or cure period provided to Borrower under the AmSouth Loan Documents. The
giving of such notice of default shall not affect the relative rights of the parties under this
Agreement.

          (b) Lender agrees to send AmSouth a copy of any Default Notice given to Borrower under the
Mortgage Loan Documents simultaneously with Lender’s giving of such notice to Borrower (provided
that failure of Lender to provide such notice of default shall not create or result in any
liability of Lender to AmSouth), and AmSouth shall have the right (but not the obligation) to cure
such default within any grace or cure period provided to Borrower under the Mortgage Loan
Documents. The giving of the Default Notice shall not affect the relative rights of the parties
under this Agreement except as otherwise set forth herein.

ARTICLE III

MISCELLANEOUS

     Section 3.1. Notices etc. Any notice or other communication required or permitted to
be given by this Agreement or by applicable law shall be in writing and shall be deemed received,
with confirmation of receipt or delivery by such carrier or courier: (a) on the date delivered, if
sent by hand delivery (to the person or department if one is specified below) or by facsimile
(provided that such facsimile transmission is confirmed on the date the facsimile is sent by one of
the other methods of giving notice provided for in this Section), or (b) one (1) Business Day
following the date deposited with Federal Express or other reputable national overnight carrier,
and in each case addressed as follows:

 

 

	 	 	 
	If to AmSouth:

	 	Tim McCarthy, Sr., Vice President
	 

	 	AmSouth Bank
	 

	 	315 Deaderick Street
	 

	 	Nashville, TN 37219
	 
	 	 
	 

	 	with a copy to:
	 
	 	 
	 

	 	Marcy S. Hardee, Attorney
	 

	 	Gullett, Sanford, Robinson & Martin, PLLC
	 

	 	315 Deaderick Street, Suite 1100
	 

	 	P.O. Box 198888
	 

	 	Nashville, TN 37219-8888
	 
	 	 
	If to Lender:

	 	Capmark Finance Inc.
	 

	 	200 Witmer Road
	 

	 	P.O. Box 1015
	 

	 	Horsham, PA 19044-0809
	 

	 	Attn: Servicing Account Manager
	 

	 	Fax: (215) 328-3620
	 
	 	 
	 

	 	and
	 
	 	 
	 

	 	Capmark Finance Inc.
	 

	 	2801 Highway 280 South, Suite 305
	 

	 	Birmingham, AL 35223
	 

	 	Attn: Laura York McDonald
	 
	 	 
	 

	 	with a copy to:
	 
	 	 
	 

	 	Shannon B. Lisenby, Esquire
	 

	 	Bradley Arant Rose & White llp
	 

	 	One Federal Place
	 

	 	1819 Fifth Avenue North
	 

	 	Birmingham, AL 35203-2119
	 
	 	 
	If to Borrower:

	 	Advocat Inc.
	 

	 	1621 Galleria Blvd.
	 

	 	Brentwood, TN 37027-2926
	 

	 	Attn: R. Glynn Riddle
	 
	 	 
	 

	 	with a copy to:

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

 

 

effective. If the notice is tendered pursuant to the provisions of this Section and is refused
by the intended recipient thereof, the notice, nevertheless, shall be considered to have been given
and shall be effective as of the date herein provided.

     Section 3.2. Successors and Assigns. This Agreement shall be binding upon the parties
hereto and their respective legal representatives, successors and assigns.

     Section 3.3. Separability. If any provision of this Agreement be deemed invalid or
unenforceable as contrary to applicable law, the parties hereto agree that such provision shall
automatically be deemed to be reformed as to be consistent with applicable law.

     Section 3.4. Amendments. This Agreement may not be amended or modified except by a
written instrument signed by the parties hereto.

     Section 3.5. Relation of Parties. This Agreement is entered into solely for the
purposes set forth in the Recitals above, and, except as is expressly provided otherwise herein, no
party to this Agreement assumes any responsibility to the other party regarding the financial
condition of the Borrower or any other party regarding any Accounts of the Borrower or of any
property of Borrower or any other circumstances bearing upon the risk of non-payment of the
obligations of Borrower to the parties hereto. Lender and AmSouth each shall be responsible for
maintaining its relationship with the Borrower, and no party shall be deemed the agent of any other
party for any purpose.

     Section 3.6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be an original, but such
counterparts shall together constitute one and the same instrument.

     Section 3.7. Miscellaneous.

          (a) This Agreement shall be governed by, and construed in accordance with, the laws of the
State of Tennessee.

          (b) Borrower agrees to pay all reasonable costs and expenses now or hereafter incurred by
AmSouth and Lender in connection with the preparation, execution, recording and/or enforcement of
this Agreement, including, without limitation, all taxes, recording fees and reasonable attorneys’
fees and expenses.

          (c) At the option of Lender, the failure by the Borrower or AmSouth to act in all respects in
conformity with the requirements of this Agreement shall constitute an “Event of Default” under
each of the Mortgage Loan Documents. At the option of AmSouth, the failure by the Borrower or
Lender to act in all respects in conformity with the requirements of this Agreement shall
constitute an “Event of Default” under each of the AmSouth Loan Documents.

     Section 3.8. Related Documents. AmSouth and Lender hereby acknowledge that in the
event of any conflict between this Agreement and the AmSouth Loan Documents and/or the Mortgage
Loan Documents, the provisions of this Agreement shall govern and control the relative rights and
priorities of the Secured Lenders with respect to the AmSouth Accounts and

 

 

Lender Accounts. Borrower hereby agrees to provide Lender with a fully signed copy of the
AmSouth Loan Documents and all amendments thereto upon request by Lender.

     Section 3.9. Authorized Signatories. Borrower, AmSouth and Lender and their
undersigned representatives respectively represents and warrant that they have the full power and
authority to execute and deliver this Agreement and that this Agreement constitutes the valid and
binding obligations of such respective parties enforceable in accordance with its terms.

     Section 3.10. Termination of this Agreement. The subordinations, agreements, and
priorities set forth in this Agreement shall remain in full force and effect until the AmSouth Loan
or the Mortgage Loan, as the case may be, have been paid and satisfied in full and any commitments
to lend by AmSouth and Lender, respectively, have been terminated.

     Section 3.11. No Third Party Beneficiaries. This Agreement and the terms and
provisions hereof are solely for the benefit of Lender and AmSouth and shall not benefit any other
person, including, but not limited to, Borrower, Corporate Guarantor, guarantors or any affiliates
of any such parties. Nothing in this Agreement is intended to affect, limit, alter or in any way
diminish the security interests or mortgage liens which AmSouth or Lender hold in the assets of
Borrower or any other party insofar as the rights of Borrower, or such other parties are concerned.
Lender and AmSouth specifically reserve any and all of their respective rights, security interests
and mortgage liens and right to assert security interests and mortgage liens against the Borrower
or other parties.

     Section 3.12. Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE ANY RIGHT THAT
ANY OF THEM MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND,
ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR (B) IN ANY
WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF THE PARTIES HERETO
WITH RESPECT TO THIS AGREEMENT OR THE EXERCISE OF ANY PARTY’S RIGHTS AND REMEDIES UNDER THIS
AGREEMENT OR OTHERWISE OR THE CONDUCT OR THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE
FOREGOING CASES WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES HERETO AGREE THAT ANY
PARTY MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY, AND BARGAINED AGREEMENT OF THE PARTIES HERETO TO IRREVOCABLY WAIVE THEIR RESPECTIVE
RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT TO THE PARTIES TO ENTER INTO THIS AGREEMENT, AND THAT, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT
MODIFIED HEREIN) BETWEEN THE PARTIES HERETO SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement intending to be an
instrument under seal. This Agreement may be executed and delivered in counterparts.

[SIGNATURES ON FOLLOWING PAGES]

 

 

	 	 	 	 	 
	 	AMSOUTH:

AMSOUTH BANK,

an Alabama state banking corporation

 	 
	 	By:  	/s/ Tim McCarthy
 	 
	 	 	Tim McCarthy, Sr. Vice President 	 
	 	 	 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	LENDER:

CAPMARK FINANCE INC.,

a California corporation,

f/k/a GMAC Commercial Mortgage Corporation

 	 
	 	By:  	/s/ Laura Y. McDonald
 	 
	 	Name:  	                       Laura Y. McDonald
 	 
	 	Title:  	                       Senior Vice President
 	 
	 	 	 	 
	 	 	 	 
	 

 

 

	 	 	 	 	 
	 	BORROWER:

AFTON OAKS BORROWER:

DIVERSICARE AFTON OAKS, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	NEWPORT BORROWER:

DIVERSICARE PINEDALE, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	WINDSOR BORROWER:

DIVERSICARE WINDSOR HOUSE, LLC, a Delaware

limited liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	 CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	BRIARCLIFF BORROWER:

DIVERSICARE BRIARCLIFF, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	 CFO
 	 
	 	 	 	 
	 	 	 	 
	 

 

 

	 	 	 	 	 
	 	HARTFORD BORROWER:

DIVERSICARE HARTFORD, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	CHISOLM BORROWER:

DIVERSICARE CHISOLM, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	HILLCREST BORROWER:

DIVERSICARE HILLCREST, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	YORKTOWN BORROWER:

DIVERSICARE YORKTOWN, LLC, a Delaware limited

liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	LAMPASAS BORROWER:

DIVERSICARE LAMPASAS, LLC, a Delaware limited liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	CAROLINA BEACH BORROWER:

DIVERSICARE ASSISTED LIVING SERVICES NC I, LLC, a Delaware limited liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	DIVERSICARE ASSISTED LIVING SERVICES
NC II, LLC, a Delaware limited liability company

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO
 	 
	 	 	 	 
	 	 	 	 
	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	CORPORATE GUARANTOR:

ADVOCAT INC., a Delaware corporation

 	 
	 	By:  	/s/ Glynn Riddle
 	 
	 	Its:  	                   CFO

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