UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
CHECK ONE:
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM _________ TO _________.
COMMISSION FILE NO.: 1-12996
DELAWARE 62-1559667
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS AND UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 1,492 $ 4,496
Receivables, less allowance for doubtful
accounts of $5,037 and $5,035, respectively 15,021 15,111
Inventories 547 633
Prepaid expenses and other assets 1,748 2,100
----- -----
Total current assets 18,808 22,340
------ ------
PROPERTY AND EQUIPMENT, at cost 89,665 89,567
Less accumulated depreciation and amortization (25,693) (24,418)
------ ------
Net property and equipment 63,972 65,149
------ ------
OTHER ASSETS:
Deferred financing and other costs, net 593 572
Deferred lease costs, net 2,031 2,085
Assets held for sale or redevelopment 1,476 1,476
Investments in and receivables from joint ventures 8,724 8,333
Other 1,888 1,801
----- -----
Total other assets 14,712 14,267
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$ 97,492 $ 101,756
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(Continued)
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
MARCH 31, DECEMBER 31,
2001 2000
---- ----
CURRENT LIABILITIES:
Current portion of long-term debt $ 57,234 $ 61,229
Trade accounts payable 8,047 6,875
Accrued expenses:
Payroll and employee benefits 4,714 5,241
Interest 229 232
Self-insurance reserves 4,674 4,445
Other 4,879 4,387
--------- ---------
Total current liabilities 79,777 82,409
--------- ---------
NONCURRENT LIABILITIES:
Long-term debt, less current portion 4,846 5,016
Self-insurance reserves, less current portion 3,975 3,586
Other 5,236 5,245
--------- ---------
Total noncurrent liabilities 14,057 13,847
--------- ---------
COMMITMENTS AND CONTINGENCIES
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK authorized 600,000 shares, $.10
par value, 393,658 shares issued and outstanding at March 31, 2001 and
December 31, 2000, respectively, at redemption value 3,416 3,358
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 1,000,000 shares, $.10 par value,
none issued and outstanding -- --
Common stock, authorized 20,000,000 shares, $.01 par value,
5,492,000 issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 55 55
Paid-in capital 15,907 15,907
Accumulated deficit (15,720) (13,820)
--------- ---------
Total shareholders' equity 242 2,142
--------- ---------
$ 97,492 $ 101,756
========= =========
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The accompanying notes are an integral part of these interim consolidated balance sheets.
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2001 2000
---- ----
REVENUES:
Patient revenues $ 38,312 $35,972
Resident revenues 10,420 10,425
Management fees 911 901
Interest 46 40
-------- -------
Net revenues 49,689 47,338
-------- -------
EXPENSES:
Operating 39,735 36,425
Lease 5,175 5,276
General and administrative 3,235 2,817
Interest 1,516 1,454
Depreciation and amortization 1,411 1,234
-------- -------
Total expenses 51,072 47,206
-------- -------
INCOME (LOSS) BEFORE INCOME TAXES (1,383) 132
PROVISION FOR INCOME TAXES 90 47
-------- -------
NET INCOME (LOSS) $ (1,473) $ 85
======== =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic $ (.27) $ .02
======== =======
Diluted $ (.27) $ .02
======== =======
WEIGHTED AVERAGE SHARES:
Basic 5,492 5,492
======== =======
Diluted 5,492 5,492
======== =======
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The accompanying notes are an integral part of these interim consolidated financial statements.
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS AND UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
NET INCOME (LOSS) $(1,473) $ 85
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments (676) 19
Income tax benefit (expense) 249 (7)
------- ----
(427) 12
------- ----
COMPREHENSIVE INCOME (LOSS) $(1,900) $ 97
======= ====
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The accompanying notes are an integral part of these interim consolidated financial statements.
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,473) $ 85
Items not involving cash:
Depreciation and amortization 1,411 1,234
Provision for doubtful accounts 760 819
Provision for self-insured professional liability 2,330 1,437
Equity earnings in joint ventures (33) (59)
Amortization of deferred balances 258 (150)
Amortization of discount on non-interest bearing
promissory note 67 -0-
Series B redeemable convertible preferred stock dividends 58 -0-
Provision for leases in excess of cash payments 406 -0-
Changes in other assets and liabilities:
Receivables (933) (1,036)
Inventories 86 (99)
Prepaid expenses and other assets 354 (1,026)
Trade accounts payable and accrued expenses (911) (240)
------- -------
Net cash provided by operating activities 2,380 965
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (727) (368)
Investment in TDLP (609) -0-
Mortgages receivable, net 155 273
Deposits and other deferred balances -0- (207)
Investment in and advances (to) from joint ventures, net 269 (322)
TDLP partnership distributions 136 53
------- -------
Net cash used in investing activities (776) (571)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayment of) bank line of credit (2,804) 750
Repayment of debt obligations (1,180) (384)
Advances from (to) TDLP, net (515) 182
Increase in lease obligations -0- 23
Financing costs (109) -0-
------- -------
Net cash provided by (used in) financing activities (4,608) 571
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(Continued)
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(3,004) $ 965
CASH AND CASH EQUIVALENTS, beginning of period 4,496 1,913
------- ------
CASH AND CASH EQUIVALENTS, end of period $ 1,492 $2,878
======= ======
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 1,388 $1,519
======= ======
Cash payments (refunds) of income taxes, net $ 0 $ 18
======= ======
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The accompanying notes are an integral part of these interim consolidated financial statements.
ADVOCAT INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
1. BUSINESS
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") provides long-term care services to nursing home patients and residents of assisted living facilities in 12 states, primarily in the Southeast, and four Canadian provinces. The Company's facilities provide a range of health care services to their patients and residents. In addition to the nursing, personal care and social services usually provided in long-term care facilities, the Company offers a variety of comprehensive rehabilitation services as well as medical supply and nutritional support services.
As of March 31, 2001, the Company operates 120 facilities consisting of 64 nursing homes with 7,230 licensed beds and 56 assisted living facilities with 5,245 units. The Company owns 7 nursing homes, leases 36 others, and manages 21 nursing homes. The Company owns 16 assisted living facilities, leases 25 others, and manages the remaining 15 assisted living facilities. The Company holds a minority interest in seven of these managed assisted living facilities. The Company operates 51 nursing homes and 33 assisted living facilities in the United States and 13 nursing homes and 23 assisted living facilities in Canada. The Company operates facilities in Alabama, Arkansas, Florida, Georgia, Kentucky, North Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia, West Virginia and the Canadian provinces of Alberta, British Columbia, Nova Scotia and Ontario.
In recent periods, the long-term health care environment has undergone substantial change with regards to reimbursement and other payor sources, compliance regulations, competition among other health care providers and relevant patient liability issues. The Company continually monitors these industry developments as well as other factors that affect its business. See Item 2 for further discussion of recent changes in the long-term health care industry and the related impact on the operations of the Company.
2. BASIS OF FINANCIAL STATEMENTS
The interim consolidated financial statements for the three month periods ended March 31, 2001 and 2000, included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management of the Company, the accompanying interim consolidated financial statements reflect all adjustments necessary to present fairly the financial position at March 31, 2001 and the results of operations and the cash flows for the three month periods ended March 31, 2001 and 2000.
The results of operations for the three month periods ended March 31, 2001 and 2000 are not necessarily indicative of the operating results for the entire respective years. These interim financial statements should be read in connection with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
The accompanying consolidated financial statements have been prepared assuming that Advocat will continue as a going concern. The Company has incurred operating losses in the three months ended March 31, 2001 and the years ended December 31, 2000, 1999 and 1998 and has limited resources available to meet its operating, capital expenditure and debt service requirements during 2001. The Company has a net working capital deficit of $61.0 million as of March 31, 2001. Effective March 9, 2001, the Company has also obtained professional liability insurance coverage that, based on historical claims experience, could be substantially less than the claims to be incurred during 2001. The ultimate payments on professional liability claims accrued as of March 31, 2001 and claims that could be incurred during 2001 could require cash resources during 2001 that would be in excess of the Company's available cash or other resources. The Company is also not in compliance with certain debt covenants that allow the holders of substantially all of the Company's debt to demand immediate repayment. Although the Company does not anticipate that such demand will be made, the continued forbearance on the part of the Company's lenders cannot be assured at this time. Accordingly, the Company has classified the related debt principal amounts as current liabilities in the accompanying consolidated financial statements as of March 31, 2001 and December 31, 2000. Given that events of default exist under the Company's working capital line of credit, there can be no assurance that the lender will continue to provide working capital advances. An event of default under the Company's debt agreements could lead to actions by the lenders that could result in an event of default under the Company's lease agreements covering a majority of its United States nursing facilities. Should such a default occur in the related lease agreements, the lessor would have the right to terminate the lease agreements. At a minimum, the Company's cash requirements during 2001 include funding operations (including potential payments related to professional liability claims), capital expenditures, scheduled debt service, and working capital requirements. No assurance can be given that the Company will have sufficient cash to meet its requirements during 2001.
The Company is currently discussing potential waiver, amendment and refinancing alternatives with its lenders. If the Company's lenders force immediate repayment, the Company would not be able to repay the related debt outstanding. The Company's management has implemented a plan to enhance revenues related to the operations of the Company's nursing homes and assisted living facilities. Management believes that revenues in future periods will increase as a result of increased occupancy rates resulting from an increased emphasis on attracting and retaining patients and residents. On May 9, 2001, the Company received confirmation that the Arkansas Department of Human Services was implementing a new reimbursement methodology, with an effective date of January 12, 2001. This new methodology has the effect of increasing the daily reimbursement in Arkansas by approximately 24.7%, resulting in additional revenue to the Company of approximately $755,000 in the first quarter. The Arkansas Department of Human Services is partially funding this revenue increase by assessing a quality assurance fee to all the Arkansas facilities, with an effective date of March 9, 2001. As a result, the Company recorded as additional operating expenses $114,000 for the quality assurance fee in the first quarter.
Management has implemented a plan to attempt to minimize future expense increases through the elimination of excess operating costs. Management will also attempt to minimize professional liability claims in future periods by vigorously defending itself against all such claims and through the additional supervision and training of staff employees. The Company is unable to predict if it will be successful in reducing operating losses, in negotiating waivers, amendments, or refinancings of outstanding debt, or if the Company will be able to meet any amended financial covenants in the future. Any demands for repayment by lenders or the inability to obtain waivers or refinance the related debt would have a material adverse impact on the financial position, results of operations and cash flows of the Company. If the Company is unable to generate sufficient cash flow from its operations or successfully negotiate debt or lease amendments, it will explore a variety of other options, including but not limited to other sources of equity or debt financings, asset dispositions, or relief under the United States Bankruptcy code. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset carrying amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.
3. INSURANCE MATTERS
The entire United States long-term care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to patients and residents. As a result, the Company has numerous liability claims and disputes outstanding for professional liability and other related issues. Professional liability insurance up to certain limits is carried by the Company and its subsidiaries for coverage of such claims. However, due to the increasing number of claims against the Company and throughout the long-term care industry, the Company's professional liability insurance premiums and deductible amounts have increased substantially during 1999, 2000 and 2001.
As a result of the substantial premium increases for the 2001 policy year, effective March 9, 2001, the Company has obtained professional liability insurance coverage for its United States nursing homes that, based on historical claims experience, could be substantially less than the claims to be incurred. For claims made after March 9, 2001, the Company maintains general and professional liability insurance with coverage limits of $2,000,000 per medical incident and total aggregate policy coverage limits of $3,000,000 for its long-term care services. The 2001 policy is on a claims made basis and the Company is self-insured for the first $50,000 per occurrence.
For claims made during the period March 9, 2000 through March 9, 2001, the Company is self-insured for the first $500,000 per occurrence with no aggregate limit for the Company's United States nursing homes. The policy has coverage limits of $1,000,000 per occurrence, $3,000,000 per location and $12,000,000 in the aggregate. The Company also maintains umbrella coverage of $15,000,000 in the aggregate for claims made during the period March 9, 2000 through March 9, 2001. The Company provides reserves on an actuarial basis for known and expected claims incurred during the policy period. For all policy periods beginning on or after March 9, 2000, all of the Company's professional liability policies are on a claims made basis. Prior to March 9, 2000, all of these policies are on an occurrence basis.
For the policy periods January 1, 1998 through February 1, 1999, the Company is self-insured for the first $250,000 per occurrence and $2,500,000 in the aggregate per year with respect to the majority of its United States nursing homes. Effective February 1, 1999, all United States nursing homes became part of the $250,000/$2,500,000 deductible program.
The Company has recorded total liabilities for reported professional liability claims and estimates for incurred but unreported claims of $7,515,000 and $6,859,000 at March 31, 2001 and December 31, 2000, respectively. Based on its assessment of claims currently outstanding against the Company and estimates for claims incurred but not reported, management currently believes that there have been no incurred claims that are in excess of established reserves and related insurance coverage. However, the ultimate results of the Company's professional liability claims and disputes are unknown at the present time. Any future judgments or settlements above the Company's per occurrence, per location or umbrella coverage could have a material adverse impact on the Company's financial position, cash flows and results of operations. Based on historical claims experience, the Company's professional liability insurance coverage for the period beginning March 9, 2001 could be substantially less than the claims to be incurred during 2001. The ultimate payments on professional liability claims accrued as of March 31, 2001 and claims that could be incurred during 2001 could require cash resources during 2001 that would be in excess of the Company's available cash or other resources. In addition, the ultimate payment of professional liability claims accrued as of March 31, 2001 and claims that could be incurred during 2001 could require cash resources during 2001 that would be in excess of the Company's available cash or other resources. These potential future payments could have a material adverse impact on the Company's financial position and cash flows.
4. OTHER COMPREHENSIVE INCOME
The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
Information with respect to the accumulated other comprehensive income balance is presented below:
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
Foreign currency items:
Beginning balance $(448,000) $(173,000)
Current-period change, net of income tax (427,000) 12,000
--------- ---------
Ending balance $(875,000) $(161,000)
========= =========
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Positive amounts represent unrealized gains and negative amounts represent unrealized losses.
5. OPERATING SEGMENT INFORMATION
The Company has three reportable segments: U.S. nursing homes, U.S. assisted living facilities, and Canadian operations, which consists of both nursing home and assisted living services. Management evaluates each of these segments independently due to the geographic, reimbursement, marketing, and regulatory differences between the segments. Management evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses. The following information is derived from the Company's segments' internal financial statements and includes information related to the Company's unallocated corporate revenues and expenses:
THREE MONTHS ENDED MARCH 31,
----------------------------
(IN THOUSANDS)
2001 2000
---- ----
Net revenues:
U.S. nursing homes $ 37,658 $ 35,376
U.S. assisted living facilities 8,099 8,033
Canadian operations 3,929 3,930
Corporate 3 (1)
-------- --------
Total $ 49,689 $ 47,338
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Depreciation and amortization:
U.S. nursing homes $ 874 $ 696
U.S. assisted living facilities 424 423
Canadian operations 95 98
Corporate 18 17
-------- --------
Total $ 1,411 $ 1,234
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Operating income (loss):
U.S. nursing homes $ (997) $ 227
U.S. assisted living facilities 4 104
Canadian operations 422 388
Corporate (812) (587)
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Total $ (1,383) $ 132
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MARCH 31, DECEMBER 31,
2001 2000
---- ----
Long-lived assets:
U.S. nursing homes $ 33,586 $ 33,178
U.S. assisted living facilities 32,837 33,216
Canadian operations 11,423 12,164
Corporate 838 858
-------- ---------
Total $ 78,684 $ 79,416
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Total assets:
U.S. nursing homes $ 55,206 $ 56,387
U.S. assisted living facilities 35,510 36,075
Canadian operations 15,778 17,154
Corporate 1,137 2,860
Eliminations (10,139) (10,720)
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Total $ 97,492 $ 101,756
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6. RECLASSIFICATIONS
Certain amounts in the 2000 interim financial statements have been reclassified to conform with the 2001 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") provides long-term care services to nursing home patients and residents of assisted living facilities in 12 states, primarily in the Southeast, and four Canadian provinces. The Company's facilities provide a range of health care services to their patients and residents. In addition to the nursing, personal care and social services usually provided in long-term care facilities, the Company offers a variety of comprehensive rehabilitation services as well as medical supply and nutritional support services. The Company completed its initial public offering in May 1994; however, its operational history can be traced to February 1980 through common senior management who were involved in different organizational structures.
As of March 31, 2001, the Company operates 120 facilities, consisting of 64 nursing homes with 7,230 licensed beds and 56 assisted living facilities with 5,245 units. In comparison, at March 31, 2000, the Company operated 120 facilities composed of 65 nursing homes containing 7,307 licensed beds and 55 assisted living facilities containing 5,412 units. As of March 31, 2001, the Company owns 16 nursing homes, leases 36 others and manages the remaining 21 nursing homes. Additionally, the Company owns 16 assisted living facilities, leases 25 others and manages the remaining 15 assisted living facilities. The Company holds a minority interest in seven of these managed assisted living facilities. The Company operates 51 nursing homes and 33 assisted living facilities in the United States and 13 nursing homes and 23 assisted living facilities in Canada.
Basis of Financial Statements. The Company's patient and resident revenues consist of the fees charged for the care of patients in the nursing homes and residents of the assisted living facilities owned and leased by the Company. Management fee revenues consist of the fees charged to the owners of the facilities managed by the Company. The management fee revenues are based on the respective contractual terms of the Company's management agreements, which generally provide for management fees ranging from 3.5% to 6.0% of the net revenues of the managed facilities. As a result, the level of management fees is affected positively or negatively by the increase or decrease in the average occupancy level rates of the managed facilities. The Company's operating expenses include the costs, other than lease, depreciation and amortization expenses, incurred in the operation of the nursing homes and assisted living facilities owned and leased by the Company. The Company's general and administrative expenses consist of the costs of the corporate office and regional support functions, including the costs incurred in providing management services to other owners. The Company's depreciation, amortization and interest expenses include all such expenses across the range of the Company's operations.
RESULTS OF OPERATIONS
The following tables present the unaudited interim statements of operations and related data for the three months ended March 31, 2001 and 2000.
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000 CHANGE %
---- ---- ------ ---
REVENUES:
Patient revenues $ 38,312 $35,972 $ 2,340 6.5
Resident revenues 10,420 10,425 (5) 0.0
Management fees 911 901 10 1.1
Interest 46 40 6 15.0
-------- ------- ------- ----
Net revenues 49,689 47,338 2,351 5.0
-------- ------- ------- ----
EXPENSES:
Operating 39,735 36,425 3,310 9.1
Lease 5,175 5,276 (101) (1.9)
General and administrative 3,235 2,817 418 14.8
Interest 1,516 1,454 62 4.3
Depreciation and amortization 1,411 1,234 177 14.3
-------- ------- ------- ----
Total expenses 51,072 47,206 3,866 8.2
-------- ------- ------- ----
INCOME (LOSS) BEFORE INCOME TAXES (1,383) 132 (1,515)
PROVISION FOR INCOME TAXES 90 47 43
-------- ------- -------
NET INCOME (LOSS) $ (1,473) $ 85 $(1,558)
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PERCENTAGE OF NET REVENUES THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
REVENUES:
Patient revenues 77.1% 76.0%
Resident revenues 21.0 22.0
Management fees 1.8 1.9
Interest 0.1 0.1
------ ------
Net revenues 100.0% 100.0%
------ ------
OPERATING EXPENSES:
Operating 80.0 76.9
Lease 10.4 11.1
General and administrative 6.5 6.0
Interest 3.1 3.1
Depreciation and amortization 2.8 2.6
------ ------
Total expenses 102.8 99.7
------ ------
INCOME (LOSS) BEFORE INCOME TAXES (2.8) 0.3
PROVISION FOR INCOME TAXES 0.2 0.1
------ ------
NET INCOME (LOSS) (3.0)% 0.2%
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THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2000
Revenues. Net revenues increased to $49.7 million in 2001 from $47.3 million in 2000, an increase of $2,351,000, or 5.0%. Patient revenues increased to $38.3 million in 2001 from $36.0 million in 2000, an increase of $2,340,000, or 6.5%. The increase in patient revenues is due to increased Medicare utilization and PPS rate increases at several facilities which became effective in April 2000 and increased Medicaid rates in Arkansas, partially offset by a 2.7% decline in occupancy in 2001 as compared to 2000. In addition, the Company closed a facility in August 2000. On May 9, 2001, the Company received confirmation that the Arkansas Department of Human Services was implementing a new reimbursement methodology, with an effective date of January 12, 2001. This new methodology has the effect of increasing the daily reimbursement in Arkansas by approximately 24.7%, resulting in additional revenue to the Company of approximately $755,000 in the first quarter. The Arkansas Department of Human Services is partially funding this revenue increase by assessing a quality assurance fee to all the Arkansas facilities, with an effective date of March 9, 2001. As a result, the Company recorded as additional operating expenses $114,000 for the quality assurance fee in the first quarter. As a percent of patient revenues, Medicare increased to 21.5% in 2001 from 20.4% in 2000 while Medicaid and similar programs decreased to 65.1% from 66.8% in 2000. Resident revenues total $10.4 million in both 2001 and 2000. The Company experienced increased revenue rates, offset by a 5.7% decline in resident days.
Ancillary service revenues, prior to contractual allowances, decreased to $5.4 million in 2001 from $5.8 million in 2000, a decrease of $460,000 or 7.9%. The decrease is primarily attributable to reductions in revenue availability under Medicare and is consistent with the Company's expectations. Although the $1,500 per patient annual ceiling has now been lifted for a two year period on physical, speech and occupational therapy services, the impact of the relief is not expected to be sufficient to offset the substantial losses that have been incurred by the Company and the long-term care industry from the provision of therapy services. The ultimate effect on the Company's operations cannot be predicted at this time because the extent and composition of the ancillary cost limitations are subject to change.
Operating Expense. Operating expense increased to $39.7 million in 2001 from $36.4 million in 2000, an increase of $3.3 million, or 9.1%. As a percent of patient and resident revenues, operating expense increased to 81.5% in 2001 from 78.5% in 2000. The increase as a percent of patient and resident revenues is primarily attributable to cost increases related to wages, professional liability and utilities. The largest component of operating expenses is wages, which increased to $21.1 million in 2001 from $19.9 million in 2000, an increase of $1.2 million, or 6.1%. The increase in wages is due to tighter labor markets in most of the areas in which the Company operates. The Company's professional liability costs for United States nursing homes, including insurance premiums and reserves for self-insured claims, increased to $2,494,000 in 2001 from $1,431,000 in 2000, an increase of $1,063,000 or 74.3%.
Lease Expense. Lease expense decreased to $5.2 million in 2001 from $5.3 million in 2000, a decrease of $101,000, or 1.9%. Effective October 1, 2000, the Company entered into an amended lease agreement with the primary lessor of the Company's United States nursing homes, which resulted in reduced lease costs. Partially offsetting this decrease, the majority of the Company's lease agreements include annual adjustments generally tied to inflation.
General and Administrative Expense. General and administrative expense increased to $3.2 million in 2001 from $2.8 million in 2000, an increase of $418,000, or 14.8%. As a percent of total net revenues, general and administrative expense increased to 6.5% in 2001 from 6.0% in 2000. This increase is attributable to various corporate expenses, including employee recruitment and relocation, legal and accounting costs.
Interest Expense. Interest expense increased to $1.5 million in 2001 from $1.4 million in 2000, an increase of $62,000, or 4.3%. The Company's average outstanding debt balance increased in 2001 as compared to 2000.
Depreciation and Amortization. Depreciation and amortization expenses increased to $1.4 million in 2001 from $1.2 million in 2000, an increase of $177,000, or 14.3%. This increase includes depreciation on future capital expenditures required as a result of certain provisions of the lease covering the majority of the Company's United States nursing homes.
Income Before Income Taxes; Net Income (Loss); Earnings (Loss) Per Share. As a result of the above, the income before income taxes and the cumulative effect of the change in accounting principle was a loss of $1.4 million in 2001 as compared to income of $132,000 in 2000, a decrease of $1.5 million. The income tax provision in 2000 relates to provincial taxes in Canada. The effective combined federal, state and provincial income tax rate was 36.0% in 2000. Net income was a loss of $1.5 million in 2001 as compared to income of $85,000 in 2000, a decrease of $1.6 million. The basic and diluted earnings (loss) per share were $(.27) each in 2001 as compared to $.02 each in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had negative working capital of $61.0 million and a current ratio of 0.24, compared with negative working capital of $60.1 million and a current ratio of 0.27 at December 31, 2000. The Company has incurred losses during 2001, 2000, and 1999 and has limited resources available to meet its operating, capital expenditure and debt service requirements during 2001.
Certain of the Company's debt agreements contain various financial covenants, the most restrictive of which relate to current ratio requirements, tangible net worth, cash flow, net income (loss), and limits on the payment of dividends to shareholders. As of December 31, 2000 and March 31, 2001, the Company was not in compliance with certain of these financial covenants. The Company has not obtained waivers of the non-compliance. Cross-default or material adverse change provisions contained in the debt agreements allow the holders of substantially all of the Company's debt to demand immediate repayment. The Company would not be able to repay this indebtedness if the applicable lenders demanded repayment. Although the Company does not anticipate that such demand will be made, the continued forbearance on the part of the Company's lenders cannot be assured at this time. Given that events of default exist under the Company's working capital line of credit, there can be no assurance that the lender will continue to provide working capital advances.
Based on regularly scheduled debt service requirements, the Company has a total of $5.1 million of debt that must be repaid or refinanced during 2001 and an additional $6.7 million that must be repaid or refinanced in January 2002. As a result of the covenant non-compliance and other cross-default provisions, the Company has classified a total of $57.2 million of debt as current liabilities as of March 31, 2001.
An event of default under the Company's debt agreements could lead to actions by the lenders that could result in an event of default under the Company's lease agreements covering a majority of its United States nursing facilities. Should such a default occur in the related lease agreements, the lessor would have the right to terminate the lease agreements.
The Company is currently discussing potential waiver, amendment and refinancing alternatives with its lenders. Of the total $5.1 million of scheduled debt maturities during 2001, the Company plans to repay $2.1 million from cash generated from operations and intends to refinance the remaining $3 million. The Company's management has implemented a plan to enhance revenues related to the operations of the Company's nursing homes and assisted living facilities. Management believes that revenues in future periods will increase as a result of increased occupancy rates resulting from an increased emphasis on attracting and retaining patients and residents. On May 9, 2001, the Company received confirmation that the Arkansas Department of Human Services was implementing a new reimbursement methodology, with an effective date of January 12, 2001. This new methodology has the effect of increasing the daily reimbursement in Arkansas by approximately 24.7%, resulting in additional revenue to the Company of approximately $755,000 in the first quarter. The Arkansas Department of Human Services is partially funding this revenue increase by assessing a quality assurance fee to all the Arkansas facilities, with an effective date of March 9, 2001. As a result, the Company recorded as additional operating expenses $114,000 for the quality assurance fee in the first quarter. Management has implemented a plan to attempt to minimize future expense increases through the elimination of excess operating costs. The Company is unable to predict if it will be successful in reducing operating losses, in negotiating waivers, amendments, or refinancings of outstanding debt, or if the Company will be able to meet any amended financial covenants in the future. Any demands for repayment by lenders or the inability to obtain waivers or refinance the related debt would have a material adverse impact on the financial position, results of operations and cash flows of the Company.
As of March 31, 2001, the Company had drawn $762,000 under its working capital line of credit. The total maximum outstanding balance of the working capital line of credit, including letters of credit outstanding, is $4,500,000. Of the total $4,500,000 of maximum availability, $1,000,000 is limited to certain maximum time period restrictions. There are certain additional restrictions based on certain borrowing base restrictions. As of March 31, 2001, the Company had $587,000 of letters of credit outstanding with the same bank lender, which further reduce the maximum available amount outstanding under the working capital line of credit. As of March 31, 2001, the Company had total additional borrowing availability of $3,158,000 under its working capital line of credit. In conjunction with the Company's execution of the Settlement and Restructuring Agreement with Omega Healthcare Investors, Inc., the Company amended the terms of the working capital line of credit, extending the maturity through January 2004 and modifying the interest rate from LIBOR plus 2.50% to the bank's prime rate plus .50% (up to a maximum of 9.50%) effective October 1, 2000.
Effective March 9, 2001, the Company has obtained professional liability insurance coverage that, based on historical claims experience, could be substantially less than the claims that could be incurred during 2001. The ultimate payments on professional liability claims accrued as of December 31, 2000 and claims that could be incurred during 2001 could require cash resources during 2001 that would be in excess of the Company's available cash or other resources.
Any future operating losses, demands for repayment by lenders, failure to refinance debt maturing during 2001 or payments of professional liability claims judgments in excess of insurance coverage would have a material adverse impact on the financial position, results of operations and cash flows of the Company. If the Company is unable to generate sufficient cash flows from its operations, unable to refinance or repay debt maturities during 2001, or unable to minimize the amount of future professional liability claims payments, it will explore a variety of other options, including but not limited to other sources of equity or debt financing, asset dispositions, or relief under the United States Bankruptcy code.
Net cash provided by operating activities totaled $2.4 million and $1.0 million for the three month periods ended March 31, 2001 and 2000, respectively. These amounts primarily represent the cash flows from net operations plus changes in non-cash components of operations and by working capital changes.
Net cash used in investing activities totaled $776,000 and $571,000 for the three months periods ended March 31, 2001 and 2000, respectively. These amounts primarily represent purchases of property plant and equipment, investments in and advances to joint ventures and additional investments in TDLP, a limited partnership for which the Company serves as the general partner. The Company has used between $2.7 million and $5.2 million for capital expenditures in the three calendar years ending December 31, 2000. Substantially all such expenditures were for facility improvements and equipment, which were financed principally through working capital. For the year ended December 31, 2001, the Company anticipates that capital expenditures for improvements and equipment for its existing facility operations will be approximately $4.2 million, including $1.0 million for non-routine projects.
Net cash provided by (used in) financing activities totaled $(4,608,000) and $571,000 for the three month periods ended March 31, 2001 and 2000, respectively. The net cash provided from (used in) financing activities primarily represents net proceeds from issuance and repayment of debt.
RECEIVABLES
The Company's operations could be adversely affected if it experiences significant delays in reimbursement of its labor and other costs from Medicare, Medicaid and other third-party revenue sources. The Company's future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash, accounts receivable and inventories) and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on the Company's liquidity. Continued efforts by governmental and third-party payors to contain or reduce the acceleration of costs by monitoring reimbursement rates, by increasing medical review of bills for services, or by
negotiating reduced contract rates, as well as any delay by the Company in the processing of its invoices, could adversely affect the Company's liquidity and results of operations.
Net accounts receivable attributable to the provision of patient and resident services at March 31, 2001 and December 31, 2000, totaled $19.2 million and $18.1 million, respectively, representing approximately 35 and 34 days in accounts receivable, respectively. Included in receivables as of March 31, 2001 is $755,000 related to the increase in Arkansas reimbursement. This amount is expected to be collected in the second quarter of 2001. Accounts receivable from the provision of management services were $856,000 and $721,000 at March 31, 2001 and December 31, 2000, respectively representing approximately 85 and 67 days in accounts receivable, respectively. The allowance for bad debt was $5.0 million at both March 31, 2001 and December 31, 2000.
The Company continually evaluates the adequacy of its bad debt reserves based on patient mix trends, agings of older balances, payment terms and delays with regard to third-party payors, collateral and deposit resources, as well as other factors. The Company continues to evaluate and implement additional procedures to strengthen its collection efforts and reduce the incidence of uncollectible accounts.
HEALTH CARE INDUSTRY
The health care industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for patient services, quality of resident care and Medicare and Medicaid fraud and abuse. Changes in these laws and regulations, such as reimbursement policies of Medicare and Medicaid programs as a result of budget cuts by federal and state governments or other legislative and regulatory actions, could have a material adverse effect on the Company's financial position, results of operations, and cash flows. Future federal budget legislation and federal and state regulatory changes may negatively impact the Company.
All of the Company's facilities are required to obtain annual licensure renewal and are subject to annual surveys and inspections in order to be certified for participation in the Medicare and Medicaid programs. In order to maintain their operator's license and their certification for participation in Medicare and Medicaid programs, the nursing facilities must meet certain statutory and administrative requirements. These requirements relate to the condition of the facilities, the adequacy and condition of the equipment used therein, the quality and adequacy of personnel, and the quality of resident care. Such requirements are subjective and subject to change. There can be no assurance that, in the future, the Company will be able to maintain such licenses for its facilities or that the Company will not be required to expend significant sums in order to do so.
Recently, government activity has increased with respect to investigations and allegations concerning possible violations by health care providers of fraud and abuse statutes and regulations. Violations of these laws and regulations could result in exclusion from government health care programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes
that the Company is in compliance with fraud and abuse laws and regulations as well as other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. The Company is currently a defendant in two pending false claims actions as described below.
On October 17, 2000, the Company was served with a civil complaint by the Florida Attorney General's office, in the case of State of Florida ex rel. Mindy Myers v. R. Brent Maggio, et al. In this case, the State of Florida has accused multiple defendants of violating Florida's False Claims Act. The Company, in its capacity as the manager of four nursing homes owned by Emerald Coast Healthcare, Inc. ("Emerald"), is named in the complaint, which accuses the Company of making illegal kickback payments to R. Brent Maggio, Emerald's sole shareholder, and fraudulently concealing such payments in the Medicaid cost reports filed by the nursing homes. At a hearing held April 25, 2001 in the Circuit Court of Leon County, Florida, the Court dismissed the State of Florida's complaint in its entirety based on the State's failure to plead false claims violations with sufficient particularity as required by law. The State was, however, granted 60 days to file an amended complaint. To date, the State of Florida has not filed an amended complaint, nor has it indicated whether the Company will be named as a defendant in any amended complaint that may be filed subsequently.
Under the Federal False Claims Act, health care companies may be named as a defendant in an action which is filed under court seal, without being informed of this fact until the government has substantially completed its investigation. In such cases, there sometimes occurs a provision for "partial lifting of the seal," in which the trial court orders that the seal may be lifted for purposes of giving the named defendant the opportunity to informally present its defenses and discuss settlement prospects with the government. In cases in which the judge orders such a "partial lifting of the seal," the defendant becomes aware of the case but is precluded from discussing it publicly. Management is aware of one such case being filed in federal court against the Company regarding billing practices at one of its nursing homes. The Company has retained counsel to defend it in the case and, while cooperating with the government in its investigation of the matter, intends to vigorously pursue its defense of the case. Based on all information currently known, the Company currently does not believe that the claims being made in this case are material to the Company's financial condition, cash flows or results of operations.
While the Company cannot currently predict with certainty the ultimate impact of either of the above cases on the Company's financial condition, cash flows or results of operations, an unfavorable outcome in any state or federal False Claims Act case could subject the Company to fines, penalties and damages. Moreover, the Company could be excluded from the Medicare, Medicaid or other federally-funded health care programs, which could have a material adverse impact on the Company's financial condition, cash flows or results of operations.
During 1999, 2000 and 2001, the Company also experienced the increased regulatory scrutiny that has been exerted on the industry in the form of increased fines and penalties. During 2000, one of the Company's facilities in Texas was decertified from the Medicaid and Medicare programs. The Company is actively engaged in the application and appeal process for the recertification of this facility.
Medicare Reimbursement Changes. During 1997, the federal government enacted the Balanced Budget Act of 1997 ("BBA"), which contains numerous Medicare and Medicaid cost-saving measures. The BBA requires that nursing homes transition to a prospective payment system ("PPS") under the Medicare program during a three-year "transition period," commencing with the first cost reporting period beginning on or after July 1, 1998. The BBA also contains certain measures that have and could lead to further future reductions in Medicare therapy reimbursement and Medicaid payment rates. Revenues and expenses have both been reduced significantly from the levels prior to PPS. The BBA has negatively impacted the entire long-term health care industry.
During 1999 and 2000, certain amendments to the BBA have been enacted, including the Balanced Budget Reform Act of 1999 ("BBRA") and the Benefits Improvement and Protection Act of 2000 ("BIPA"). The BBRA has provided legislative relief in the form of increases in certain Medicare payment rates during 2000. The BIPA is expected to continue to provide additional increases in certain Medicare payment rates during 2001.
Although refinements resulting from the BBRA and the BIPA have been well received by the United States nursing home industry, it is the Company's belief that the resulting revenue enhancements are still significantly less than the losses sustained by the industry due to the BBA. Current levels of or further reductions in government spending for long-term health care would continue to have an adverse effect on the operating results and cash flows of the Company. The Company will attempt to maximize the revenues available from governmental sources within the changes that have occurred and will continue to occur under the BBA. In addition, the Company will attempt to increase revenues from non-governmental sources, including expansion of its assisted living and Canadian operations to the extent capital is available to do so, if at all.
FOREIGN CURRENCY TRANSLATION
The Company has obtained its financing primarily in U.S. dollars; however, it incurs revenues and expenses in Canadian dollars with respect to Canadian management activities and operations of the Company's eight Canadian retirement facilities (three of which are owned) and two owned Canadian nursing homes. Although not material to the Company as a whole, if the currency exchange rate fluctuates, the Company may experience currency translation gains and losses with respect to the operations of these activities and the capital resources dedicated to their support. While such currency exchange rate fluctuations have not been material to the Company in the past, there can be no assurance that the Company will not be adversely affected by shifts in the currency exchange rates in the future.
EXECUTIVE MANAGEMENT CHANGES
William R. Council, III, joined the Company effective March 5, 2001 as Executive Vice President, Chief Financial Officer and Secretary. James F. Mills, Jr., the former Senior Vice President, Chief Financial Officer and Assistant Secretary left the Company effective March 31, 2001.
STOCK EXCHANGE
On November 10, 1999, the Company's stock began being quoted on the NASD's OTC Bulletin Board under the symbol AVCA. Previously, the Company's common stock was traded on the New York Stock Exchange under the symbol AVC.
INFLATION
Management does not believe that the Company's operations have been materially affected by inflation. The Company expects salary and wage increases for its skilled staff to continue to be higher than average salary and wage increases, as is common in the health care industry. To date, these increases as well as normal inflationary increases in other operating expenses have been adequately covered by revenue increases.
RECENT ACCOUNTING PRONOUNCEMENTS
From June 1998 through June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and various amendments and interpretations. SFAS 133, as amended, establishes accounting and reporting standards requiring that any derivative instrument be recorded in the balance sheet as either in an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company has adopted SFAS 133, as amended, effective January 1, 2001. The impact of the adoption of SFAS 133 had no impact on the Company's financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis provides information deemed by Management to be relevant to an assessment and understanding of the Company's consolidated results of operations and its financial condition. It should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Certain statements made by or on behalf of the Company, including those contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties including, but not limited to, changes in governmental reimbursement, government regulation and health care reforms, the increased cost of borrowing under the Company's credit agreements, covenant waivers from the Company's lenders, possible amendments to the Company's credit agreements, ability to control ultimate professional liability costs, the impact of future licensing surveys, the ability to execute on the Company's acquisition program, both in obtaining suitable acquisitions and financing therefor, changing economic conditions as well as others. Investors also should refer to the risks identified in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as risks identified in the Company's Form 10-K for the year ended December 31, 2000 for a discussion of various risk factors of the Company and that are inherent in the health care industry. Given these risks and uncertainties, the Company can give no assurances that these forward-looking statements will, in fact, transpire and, therefore,
cautions investors not to place undue reliance on them. Actual results may differ materially from those described in such forward-looking statements. Such cautionary statements identify important factors that could cause the Company's actual results to materially differ from those projected in forward-looking statements. In addition, the Company disclaims any intent or obligation to update these forward-looking statements.
PART II -- OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
The Company is not currently in compliance with certain covenants of its loan agreements and certain other indebtedness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of the report on Form 10-Q are listed in the Exhibit Index immediately following the signature page.
(b) Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADVOCAT INC.
May 15, 2001
By: /s/ William R. Council, III
-----------------------------------------
William R. Council, III
Executive Vice-President, Secretary,
Principal Financial Officer and Chief
Accounting Officer and An Officer Duly
Authorized to Sign on Behalf of the
Registrant
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Exhibit
Number Description of Exhibits
------- -----------------------
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement No. 33-76150 on Form
S-1).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement No. 33-76150 on Form S-1).
3.3 Amendment to Certificate of Incorporation dated March 23, 1995
(incorporated by reference to Exhibit A of Exhibit 1 to the Company's Form
8-A filed March 30, 1995).
3.4 Certificate of Designation of Registrant.
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4 to
the Company's Registration Statement No. 33-76150 on Form S-1).
4.2 Rights Agreement dated March 13, 1995, between the Company and Third
National Bank in Nashville (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated March 13, 1995).
4.3 Summary of Shareholder Rights Plan adopted March 13, 1995 (incorporated
by reference to Exhibit B of Exhibit 1 to Form 8-A filed March 30, 1995).
4.4 Rights Agreement of Advocat Inc. dated March 23, 1995 (incorporated by
reference to Exhibit 1 to Form 8-A filed March 30, 1995).
4.5 Amended and Restated Rights Agreement dated as of December 7, 1998
(incorporated by reference to Exhibit 1 to Form 8-A/A filed December 7,
1998).
10.1 Settlement and Restructuring Agreement dated as of October 1, 2000
among Registrant, Diversicare Leasing Corp., Sterling Health Care
Management, Inc., Diversicare Management Services Co., Advocat Finance,
Inc., Omega Healthcare Investors, Inc. and Sterling Acquisition Corp.
10.2 Consolidated Amended and Restated Master Lease dated November 8,
2000, effective October 1, 2000, between Sterling Acquisition Corp. (as
Lessor) and Diversicare Leasing Corp. (as Lessee)
10.3 Management Agreement effective October 1, 2000, between Diversicare
Leasing Corp. and Diversicare Management Services Co.
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10.4 Amended and Restated Security Agreement dated as of November 8, 2000
between Diversicare Leasing Corp and Sterling Acquisition Corp.
10.5 Security Agreement dated as of November 8, 2000 between Sterling Health
Care Management, Inc. and Sterling Acquisition Corp.
10.6 Guaranty given as of November 8, 2000 by Registrant, Advocat Finance,
Inc., Diversicare Management Services Co., in favor of Sterling Acquisition
Corp.
10.7 Reaffirmation of Obligations (Florida Managed Facilities) by Registrant and
Diversicare Management Services Co. to and for the benefit of Omega
Healthcare Investors.
10.8 Subordinated Note dated as of November 8, 2000 in the amount of
$1,700,000 to Omega Healthcare Investors, Inc. from Registrant.
10.9 Master Amendment to Loan Documents and Agreement dated as of
November 8, 2000, effective October 1, 2000, among Registrant, its
subsidiaries and AmSouth Bank.
10.10 Reimbursement Promissory Note dated October 1, 2000 in the amount of
$3,000,000 to AmSouth Bank from Registrant.
10.11 Second Amendment to Intercreditor Agreement among GMAC, AmSouth,
Registrant and its subsidiaries.
10.12 Renewal Promissory Note dated October 1, 2000 in the amount of
$3,500,000 to AmSouth Bank from Diversicare Management
Services Co.
10.13 Renewal Promissory Note dated October 1, 2000 in the amount of
$9,412,383.87 to AmSouth Bank from Diversicare Assisted Living Services
NC, LLC.
10.14 Renewal Promissory Note dated October 1, 2000 in the amount of
$4,500,000 made payable to AmSouth Bank from Diversicare Management
Services Co.
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EXHIBIT 3.4
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "ADVOCAT INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF NOVEMBER, A.D. 2000, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL] /s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0780342
DATE: November 8, 2000
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CERTIFICATE OF DESIGNATION
OF
ADVOCAT INC.
Pursuant to the Provisions of the
Delaware General Corporation Law
To the Secretary of State of the State of Delaware:
Pursuant to the provisions of Section 151 of the Delaware General Corporation Law (the "Delaware Act"), the undersigned corporation submits this Certificate of Designation for the purpose of designating a series of shares and fixing and determining the relative rights and preferences thereof:
1. The name of the corporation is Advocat Inc.
2. The following resolution, designating a series of shares of Advocat Inc. (the "Corporation") and fixing and determining the relative rights and preferences thereof, was duly adopted by the Board of Directors of the Corporation at a duly called meeting held on November 7, 2000.
RESOLVED, that pursuant to the powers expressly delegated to the Board of Directors by Sections 4 and 12 of the Certificate of Incorporation of the Corporation and pursuant to Section 102 of the Delaware Act, the Corporation designates as Series B Convertible Preferred Stock (the "Series B Preferred Stock") that number of shares having the powers, preferences and rights as is set forth below.
RESOLVED, that the President, Chairman of the Board of Directors, Vice President or Secretary of the Corporation, and each of them, be, and hereby are, authorized and directed to execute, file and deliver all such instruments, agreements, applications or other documents or amendments to any thereof that may be required, necessary or desirable to carry fully into effect the foregoing resolution and that the execution, filing or delivery of all of such shall be deemed conclusive evidence of the approval and authorization by this Corporation of such acts.
All terms used herein which are defined in the Certificate of Incorporation of the Corporation shall have the same meaning herein, unless defined herein or the context otherwise requires.
Section 1. Designation and Amount. Of the authorized 800,000 shares of undesignated Preferred Stock, 600,000 shall be designated Series B Convertible Preferred Stock. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no resolution shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding.
Section 2. Dividends and Distributions. (a) The holders of
Series B Preferred Stock shall be entitled to receive, when and as declared by
the Board of Directors of the Corporation (the "Board of Directors"), out of the
net profits of the Corporation, dividends per share equal to 7% per annum of the
Stated Value (as herein defined) of such Series B Preferred Stock, payable
quarterly. No dividend shall be paid in cash prior to the later of (1) October
1, 2002, and (2) the end of the fiscal quarter following the date that certain
reimbursement promissory note issued by the Corporation to AmSouth Bank dated
November ____, 2000 (the "Reimbursement Note") has been paid in full (the
"Dividend Payment Date"). Dividends on the outstanding shares of Series B
Preferred shall begin to accrue and accumulate (whether or not declared) from
the Issue Date of the Series B Preferred Stock, calculated on the basis of a
360-day year consisting of twelve 30-day months, and shall accrue and accumulate
on a daily basis and compound on a quarterly basis (to the extent not otherwise
declared and paid as set forth above), in each case whether or not declared. In
the event the Series B Preferred Stock is converted as provided in Section 8
below prior to the Dividend Payment Date, accrued but unpaid dividends payable
upon such conversion shall be payable by promissory note maturing no later than
the Dividend Payment Date in substantially the same form as the Subordinated
Note (as defined in Section 11 below) or by conversion as provided in Section
8(e) below, but not in cash. Notwithstanding anything to the contrary in this
Section 2, after the Dividend Payment Date, the Board of Directors shall declare
dividends on the Series B Preferred Stock to the extent, in its good faith
judgment, there are Available Funds (defined in Section 12 below) to pay such
quarterly dividends. To the extent there are insufficient Available Funds to pay
all holders of the Preferred Stock the full quarterly dividend for any quarter,
the Board of Directors shall declare a dividend to all holders of the Preferred
Stock on a pro rata basis to the extent of Available Funds, if any. Holders of
shares of the Preferred Stock shall be entitled to receive such dividends in
preference to and in priority over dividends upon Junior Stock (defined in
Section 12 below). All dividends declared upon the Series B Preferred Stock
shall be declared pro rata per share. For purposes hereof, the term "Stated
Value" shall mean $8.3829 per share, subject to appropriate adjustment in the
event of any stock dividend, stock split, stock distribution or combination with
respect to the Series B Preferred Stock.
(b) Dividends on the Series B Preferred Stock shall be cumulative and compounded quarterly and shall continue to accrue whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal year.
Section 3. Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the
holders of Junior Stock, an amount in cash equal to the Stated Value per share plus any dividends thereon accrued but unpaid. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for the distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect to the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full.
(b) If any shares of Series A Preferred Stock are then outstanding
based upon a Distribution Date (as defined in the Rights Agreement dated as of
March 13, 1995 by and between Advocat and Third National Bank in Nashville - the
"Rights Agreement") caused by an Acquiring Person (as defined in the Rights
Agreement) other than the holder of the Series B Preferred Stock, then after the
payment of all preferential amounts required to be paid to the holders of Series
B Preferred Stock pursuant to Section 3(a) above and any other series of
Preferred Stock which is senior in priority to the Series A Preferred Stock upon
the dissolution, liquidation or winding up of the Corporation, no distribution
shall be made (1) as to the holders of shares of stock ranking junior to the
Series A Preferred Stock unless prior thereto the holders of Series B Preferred
Stock shall have received an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus an amount equal to the greater of (i) $100.00 per share or (ii) an
aggregate amount per share, subject to adjustment, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, or (2)
to the holders of Series A Preferred Stock or any other stock ranking on a
parity with the Series A Preferred Stock, except distributions made ratably on
the Series B Preferred Stock and all other such parity stock in proportion to
the total amount to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. Notwithstanding the foregoing, in the
event a holder of Series B Preferred Stock transfers any shares of Series B
Preferred Stock to an Acquiring Person, then the rights to distributions
subsequent to the date of such transfer provided to such holder pursuant to this
Section 3(b) shall be null and void. In the event the Corporation shall at any
time after the date hereof declare or pay any dividend on Common Stock payable
in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the aggregate amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to the event described under
clause (1) above of the immediately prior sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(c) If no shares of Series A Preferred Stock are then outstanding, then after the payment of all preferential amounts required to be paid to the holders of Series B Preferred Stock and any other series of Preferred Stock upon the dissolution, liquidation or winding up of the Corporation,
the holders of shares of Common Stock then outstanding shall be entitled to receive the remaining assets and funds of the Corporation available for distribution to stockholders.
(d) The Corporation will mail written notice of any distribution upon liquidation, dissolution or winding up, not less than 30 days prior to the payment date stated therein, to each record holder of Series B Preferred Stock.
Section 4. Certain Restrictions. (a) At any time when there are accrued and unpaid dividends and distributions, whether or not declared and whether before or after the Dividend Payment Date, on shares of Series B Preferred Stock outstanding, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of Junior Stock (provided that the Corporation may redeem shares of Common Stock from employees pursuant to rights of the Corporation under employment agreements or employee benefit plans);
(ii) except as permitted in subparagraph 4(a)(iii) below, redeem, purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Preferred Stock; or
(iii) purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, except in accordance with a pro rata purchase offer for all or any portion of the shares of Series B Preferred Stock made in writing to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under subparagraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
(c) So long as any shares of Series B Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting together as a single class:
(i) authorize or issue, or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to or on a
parity with the Series B Preferred Stock as to dividend rights or redemption rights or liquidation preferences;
(ii) permit any subsidiary to issue or sell, or obligate itself to issue or sell, except to the Corporation or any wholly owned subsidiary, any stock or other equity interest of such subsidiary;
(iii) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock.
Section 5. Voting Rights. Except as otherwise provided by law and Sections 4 and 14 of this Designation, the holders of shares of Series B Preferred Stock shall have no voting rights and their consent shall not be required for taking corporation action.
Section 6. Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock that may be reissued as a part of a new series of Preferred Stock, subject to the restrictions set forth in other Certificates of Designation, or to Certificates of Amendment, creating a series of Preferred Stock or any other similar stock or is otherwise required by law.
Section 7. Consolidation, Merger, Etc. If the Corporation shall
enter into any consolidation, merger, share exchange, combination or other
transaction in which all or substantially all of the shares of the Corporation
are exchanged for or changed into other stock or securities, cash, and/or any
other property, and if any shares of Series A Preferred Stock are then
outstanding based upon a Distribution Date caused by an Acquiring Person other
than the holder of the Series B Preferred Stock, then in any such case, at the
option of the holders of Series B Preferred Stock, each share of Series B
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provisions hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged. If the Corporation shall at any time declare or pay any
dividend on the Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. Notwithstanding the foregoing, in
the event a holder of Series B Preferred Stock transfers any shares of Series B
Preferred Stock to an Acquiring Person, then the rights to distributions
subsequent to the date of such transfer provided to such holder pursuant to this
Section 7 shall be null and void.
Section 8. Conversion. (a) Each share of Series B Preferred Stock may be converted at any time, at the option of the holder thereof, into the number of fully-paid and nonassessable shares of Common Stock obtained by dividing the Stated Value by the Conversion Price then in effect (the "Conversion Rate"), provided, however, that on any redemption of any Series B Preferred Stock or any liquidation of the Corporation, the right of conversion shall terminate at the close of business on the full business day next preceding the date fixed for such redemption or for the payment of any amounts distributable on liquidation to the holders of Series B Preferred Stock. The initial conversion price, subject to adjustment as provided herein, is equal to $4.6705 (the "Conversion Price"). The initial Conversion Rate for the Series B Preferred Stock shall be 1.7949 shares of Common Stock for each one share of Series B Preferred Stock surrendered for conversion.
(b) The Corporation shall not issue fractions of shares of Common
Stock upon conversion of Series B Preferred Stock or scrip in lieu thereof. If
any fraction of a share of Common Stock would, except for the provisions of this
Section 8(b), be issuable upon conversion of any Series B Preferred Stock, the
Corporation shall in lieu thereof pay to the person entitled thereto an amount
in cash equal to the Current Value (as defined in Section 12 below) of such
fraction of a share of Common Stock, calculated to the nearest one-one hundredth
(1/100) of a share.
(c) In order to exercise the conversion privilege, the holder of any Series B Preferred Stock to be converted shall surrender its certificate or certificates therefor to the principal office of the transfer agent for the Series B Preferred Stock (or if no transfer agent be at the time appointed, then the Corporation at its principal office), and shall give written notice to the Corporation at such office that the holder elects to convert the Series B Preferred Stock represented by such certificates, or any number thereof. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, subject to any restrictions on transfer relating to shares of the Series B Preferred Stock or shares of Common Stock upon conversion thereof. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly authorized in writing. The date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of the certificates and notice shall be the conversion date. As soon as practicable after receipt of such notice and the surrender of the certificate or certificates for Series B Preferred Stock as aforesaid, the Corporation shall cause to be issued and delivered at such office to such holder, or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion and, if less than all shares of Series B Preferred Stock represented by the certificate or certificates so surrendered are being converted, a residual certificate or certificates representing the shares of Series B Preferred Stock not converted.
(d) The Corporation shall at all times when the Series B Preferred Stock shall be outstanding reserve and keep available out of its authorized but unissued stock, for the purposes of effecting the conversion of the Series B Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series B Preferred Stock.
(e) Upon any such conversion, any accrued but unpaid dividends on the Series B Preferred Stock surrendered for conversion (the "Unpaid Dividends") shall be paid:
(1) to the extent available and subject to the limitations contained in Section 9(c)(1), by conversion into additional shares of Common Stock;
(2) to the extent the Unpaid Dividends can not be converted into Common Stock, if the Reimbursement Note has been paid in full, then in cash; and
(3) any remaining Unpaid Dividends, by promissory note.
A holder of shares of Series B Preferred Stock may waive the payment of accrued but unpaid dividends in its sole discretion. If the holder of shares of the Series B Preferred Stock to be converted accepts a promissory note as payment for any unpaid dividends accrued on the shares to be converted, the promissory note shall be in substantially the same form as the Subordinated Note and will mature on the last day of the quarter following the payment in full of the Reimbursement Note. The number of additional shares of Common Stock to be issued in respect of any Unpaid Dividends shall be equal to the amount of such accrued but unpaid dividends divided by the Current Value of the Common Stock. To the extent that any such dividend would result in the issuance of a fractional share of Common Stock (which shall be determined with respect to the aggregate number of shares of Common Stock held of record by each holder) then the Current Value of such fraction of a Share shall be paid in cash (unless there are no legally available funds with which to make such cash payment, in which event such cash payment shall be made as soon as possible).
(f) All shares of Series B Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate except only the right to the holder thereof to receive shares of Common Stock in exchange therefor and payment of any accrued and unpaid dividends thereon.
Section 9. Mandatory Conversion. (a) Subject to the limitations
set forth in Section 9(c) below, the Corporation shall have the right to cause
the conversion of Series B Preferred Stock into shares of Common Stock at its
then effective Conversion Price at any time, provided that the Current Value of
the Corporation's Common Stock on the date of the notice described in Section
9(b) below and on the Conversion Date (as defined in Section 9(b) below) is
equal to or greater than 150% of the Conversion Price. In such a mandatory
conversion, the Corporation will pay accrued and unpaid dividends as provided in
Section 8(e).
(b) All holders of record of shares of Series B Preferred Stock will be given at least 30 days' prior written notice (the "Conversion Notice") of the date fixed (the "Conversion Date") and the place designated for mandatory conversion of all (or if limited pursuant to Section 9(c)(1), such portion) of such shares of Series B Preferred Stock pursuant to this Section 9. The Conversion Notice will be sent by mail, first class, postage prepaid, to each record holder of shares of Series B
Preferred Stock at such holder's address appearing on the stock register. On or
before the date fixed for conversion each holder of shares of Series B Preferred
Stock shall surrender its certificate or certificates for all such shares to the
Corporation at the place designated in the Conversion Notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 9. Subject to Section
9(c), on the date fixed for conversion, all rights with respect to the Series B
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series B Preferred Stock has been converted and payment of any accrued and
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his attorneys duly authorized in
writing. Subject to Section 9(c), all certificates evidencing shares of Series B
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions of Section 9(a) shall, from and after the date
such certificates are so required to be surrendered, be deemed to have been
retired and canceled and the shares of Series B Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date. As soon as practicable after the date of such mandatory
conversion and the surrender of the certificate or certificates for Series B
Preferred Stock as aforesaid, the Corporation shall cause to be issued and
delivered to such holder, or on its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Section 8(b)
hereof in respect of any fraction of a share of Common Stock otherwise issuable
upon such conversion.
(c) Notwithstanding anything in this Designation to the contrary, the Corporation may not require conversion of the shares of Series B Preferred Stock into shares of Common Stock pursuant to this Designation and the holders of the Series B Preferred Stock shall continue to hold shares of Series B Preferred Stock after delivery of a Conversion Notice, unless, as of the date of the proposed conversion:
(1) the accountants or legal counsel of the holders of such Series B Preferred Stock to be converted render a written opinion (the "Conversion Opinion") to such holders prior to conversion that such conversion will not result in, cause or create a material risk of, the holders losing its or their status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended; provided, however, that the Corporation may convert a portion of the Series B Preferred Stock to Common Stock pursuant to Section 9(a) if the accountants or legal counsel of the holders of such Series B Preferred Stock to be converted render a Conversion Opinion with respect to such portion and if subparagraphs (2) thru (5) of this Section 9(c) are satisfied as of the date of the proposed conversion;
(2) the Common Stock is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "34 Act") and the Corporation has timely filed all reports required to be filed by the Corporation under the 34 Act within the previous two years;
(3) no Event of Default (as defined in Section 12 below) has occurred and is continuing;
(4) the Common Stock is listed for trading on the Nasdaq National Market, the New York Stock Exchange or upon a comparable national stock exchange; and
(5) the average weekly trading volume of the Common Stock over the prior four weeks was at least 500,000 shares traded (as adjusted for stock splits, stock dividends or similar transactions).
All costs associated with the Conversion Opinion shall be paid by the Corporation.
(d) If the Corporation may not convert all or any portion of the shares of Series B Preferred Stock (the "Unconverted Shares") to the Corporation's Common Stock pursuant to Section 9(a) solely because of the limitation set forth in Section 9(c)(1), then, provided that the Reimbursement Note has been paid in full, on the Conversion Date, the Corporation may redeem all of the Unconverted Shares at a per share price in cash equal to the greater of (1) the Current Value on the date of the Conversion Notice and (2) the closing price on the last Trading Day (as defined in Section 12) immediately prior to the Conversion Date, plus an amount equal to any dividends accrued but unpaid thereon (such amount is hereinafter referred to as the "Corporation's Redemption Price").
(e) On or prior to the Conversion Date, each holder of Series B Preferred Stock to be redeemed shall surrender its certificate or certificates representing such shares to the Corporation, and thereupon the Corporation's Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Conversion Date, unless there shall have been a default in payment of the Corporation's Redemption Price, all rights of the holders of the Series B Preferred Stock redeemed (except the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
Section 10. Conversion Price. The Conversion Price per share for the Series B Preferred Stock shall be subject to adjustment from time to time as provided below.
(a) Adjustments to Conversion Price Based on Changes in Capitalization. If outstanding shares of the Junior Stock of the Corporation shall be subdivided into a greater number of shares, or a dividend in Junior Stock or other securities of the Corporation convertible into or exchangeable for Junior Stock (in which latter event the number of shares of Junior Stock issuable upon the conversion or exchange of such securities shall be deemed to have been distributed) shall be paid in respect to the Junior Stock of the Corporation, or upon any other event which would reasonably require equitable adjustment for the benefit of the holders of Series B Preferred Stock, the Conversion Price in effect immediately prior to such subdivision or at the record date of such dividend or at the date of such other event shall, simultaneously with the effectiveness of such subdivision or other event or immediately after the record date of such dividend, be proportionately reduced, and conversely, if outstanding shares of the Common Stock of the Corporation shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. Any adjustment to the Conversion Price under this subsection (a) shall become effective at the close of business on the date the subdivision or combination or other event referred to herein becomes effective.
(b) Adjustments to Conversion Price Based on Future Issuances. If at any time or from time to time the Corporation shall issue or sell Additional Shares of Junior Stock (as hereinafter defined) other than in a transaction which falls within subsection (a), for a consideration per share less than the then existing Conversion Price, then, and thereafter successively upon each such issuance or sale, the Conversion Price shall, pursuant to the following formula (the "Conversion Formula"), be adjusted to a Conversion Price (calculated to the nearest cent) determined by dividing:
(i) an amount equal to the sum of (A) the Conversion Price immediately prior to such issue or sale, multiplied by the number of shares of Junior Stock outstanding at the close of business on the day next preceding the date of such issue or sale, plus (B) the aggregate consideration, if any, received or to be received by the Corporation upon such issue or sale, by
(ii) the number of shares of Junior Stock outstanding at the close of business on the date of such issue or sale after giving effect to the issuance of such Additional Shares of Junior Stock.
(c) Definitions for Purposes of this Section 10.
Notwithstanding any contrary definitions in these Articles, for purposes of this
Section 10, the following definitions shall apply:
(1) Consideration. For the purpose of making any adjustment in the Conversion Price or number of shares of Common Stock acquired upon conversion of the Series B Preferred Stock, as provided above, the consideration received by the Corporation for any issue or sale of securities shall:
(i) to the extent it consists of cash, be deemed to be the amount of cash received by the Corporation for such shares (or, if such shares are offered by
the Corporation for subscription, the subscription price, or, if such shares are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price), without deducting therefrom any compensation or discount paid or allowed to underwriters or dealers or others performing similar services or for any expenses incurred in connection therewith;
(ii) to the extent it consists of property other than cash, be computed at the fair market value thereof as determined in good faith by the Board of Directors of the Corporation, at or about, but as of, the date of the adoption of the resolution specifically authorizing such issuance or sale, irrespective of any accounting treatment thereof; provided, however, that such fair market value as determined by the Board of Directors of the Corporation, when added to any cash consideration received in connection with such issuance or sale, shall not exceed the aggregate market price of the Additional Shares of Junior Stock being issued, as of the date of the adoption of such resolution; and
(iii) Additional Shares
(A) if Additional Shares of Junior
Stock or Convertible Securities (as hereinafter
defined) or rights or options to purchase either
Additional Shares of Junior Stock or Convertible
Securities are issued or sold together with other
stock or securities or other assets of the
Corporation for consideration which covers both, the
consideration received for the Additional Shares of
Junior Stock, Convertible Securities or rights or
options shall be computed as that portion of the
consideration so received which is reasonably
determined in good faith by the Board of Directors of
the Corporation to be allocable to such Additional
Shares of Junior Stock, Convertible Securities or
rights or options. For the purpose of making any
adjustment in the Conversion Price provided in this
Section 10, if at any time, or from time to time, the
Corporation issues any stock or other securities
convertible into Additional Shares of Junior Stock
(such stock or other securities being hereinafter
referred to as "Convertible Securities") or issues
any rights or options to purchase Additional Shares
of Junior Stock or Convertible Securities (such
rights or options being hereinafter referred to as
"Rights"), then, and in each such case, the
Corporation shall be deemed to have issued at the
time of the issuance of such Rights or Convertible
Securities the maximum number of Additional Shares of
Junior Stock issuable upon exercise or conversion
thereof and to have received in consideration for the
issuance of such shares an amount equal to the
aggregate Effective Conversion Price of such Rights
or Convertible Securities. For the purposes of this
Section 10, "Effective Conversion Price" shall mean
an amount equal to the sum of the lowest amount of
consideration, if any, received or receivable by the
Corporation with respect to any one Additional Share
of Junior Stock upon issuance of the Rights or
Convertible Securities and upon their exercise or conversion, respectively. No further adjustment of the Conversion Price shall be made as a result of the actual issuance of Additional Shares of Junior Stock on the exercise of any such Rights or the conversion of any such Convertible Securities;
(B) if the purchase price or rate at which any Rights or Convertible Securities are convertible into or exchangeable for Additional Shares of Junior Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution), the Conversion Price then in effect shall forthwith be readjusted as otherwise provided herein to the Conversion Price that would have been in effect at such time had such Rights or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion right, as the case may be, at the time initially issued, granted or sold. If the purchase price, or the rate or the additional consideration (if any) payable upon the exercise, conversion or exchange of any Rights or Convertible Securities shall be changed at any time or by reason of provisions with respect thereto designed to protect against dilution, then in the case of the delivery of shares of Junior Stock upon exercise, conversion or exchange of any such Rights or Convertible Security, the Conversion Price then in effect hereunder shall, upon issuance of such shares of Junior Stock, be adjusted to such amount as would have obtained had such Right or Convertible Security never been issued and had adjustments been made only upon the issuance of the shares of Junior Stock delivered as aforesaid and for the consideration actually received for such Convertible Security and the Junior Stock;
(C) in the event of the termination or expiration of any right to exercise, convert or exchange Rights or Convertible Securities, the Conversion Price then in effect shall, upon such termination, be changed to the Conversion Price that would have been in effect at the time of such expiration or termination had such Right or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the shares of Junior Stock issuable thereunder shall no longer be deemed to be outstanding Junior Stock.
(2) Outstanding Junior Stock. For purposes of this
Section 10, in determining the number of shares of the Junior Stock of
this Corporation outstanding at any time, there shall be included, in
addition to the Junior Stock then issued and outstanding, all Junior
Stock then issuable upon exercise of all outstanding Rights and
conversion of all outstanding Convertible Securities.
(3) Additional Shares of Junior Stock. "Additional Shares of Junior Stock" as used in this Section 10 shall mean all shares of Junior Stock or Convertible Securities and Rights issued by the Corporation subsequent to the date of these Designation, other than (i)
shares of Common Stock issued pursuant to the conversion of Series B Preferred Stock, and (ii) the issuance and sale of, or the grant of options to purchase Common Stock, to employees, directors or officers of, or bona fide consultants to, the Corporation and its subsidiaries pursuant to stock plans or options or agreements adopted or approved by the Corporation's Board of Directors (including shares issued or sold pursuant to the exercise of any stock option or purchased pursuant to a grant under the Corporation's stock option plans or stock purchase plans or pursuant to agreements entered into for employee compensation purposes prior to the date of this Designation).
(d) Certification of Adjustments. In each case of an adjustment or readjustment of the Conversion Price or the number of shares of Common Stock or other securities issuable upon conversion of the Series B Preferred Stock, if the change is greater than 1% from the previous change the Corporation, at its expense, shall cause independent public accountants selected by the Corporation to compute such adjustment or readjustment in accordance with this Certificate and to prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first-class mail, postage prepaid, to each registered holder of the Series B Preferred Stock at the holder's address as shown on the Corporation's stock transfer books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the Conversion Price at the time in effect for the Series B Preferred Stock, and (ii) the number of shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Series B Preferred Stock. The form of such certificate shall be reasonably acceptable to the holders of record of a majority of the shares of Series B Preferred Stock then outstanding.
Section 11. Mandatory Redemption.
(a) At any time on or after the earlier to occur of (1) an Event of Default and (2) September 30, 2007, holders of the Series B Preferred Stock may require the Corporation to redeem all or a portion of the shares of Series B Preferred Stock held by such holders (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price in cash equal to the Stated Value per share, plus an amount equal to any dividends accrued but unpaid thereon (such amount is hereinafter referred to as the "Redemption Price"); provided, however, that if the Reimbursement Note has not been paid in full as of the date the holders of the Series B Preferred Stock require the Corporation to redeem such shares of Series B Preferred Stock (the "Redemption Date"), the Corporation may pay the Redemption Price by delivery of a promissory note in the amount of the Redemption Price to the holder of the Series B Preferred Stock to be redeemed. If the holder of shares of the Series B Preferred Stock to be redeemed is to receive a promissory note as payment of the Redemption Price, the promissory note shall be in substantially the same form as the Subordinated Note and will mature on the last day of the quarter following the payment in full of the Reimbursement Note. If the Corporation is unable on the Redemption Date to redeem any shares of Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws.
(b) On or prior to the Redemption Date, each holder of Series B Preferred Stock to be redeemed shall surrender its certificate or certificates representing such shares to the Corporation, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Series B Preferred Stock redeemed (except the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
Section 12. Certain Definitions. As used in this Certificate, the following terms shall have the following respective meanings:
"Available Funds" shall mean any funds legally available for the payment of dividends and interest accrued with respect to shares of the Series B Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on which the Rights Agent is authorized or obligated by law or executive order to close.
"Current Value" of any share of Preferred Stock, Common Stock
or any other property on any date shall be determined as provided in this
Section 12. In the case of publicly traded securities, Current Value on any date
shall be deemed to be the average of the daily closing prices per share of such
stock for the thirty (30) consecutive Trading Days immediately prior to such
date; provided, however, that in the event the Current Value per share of any
security is determined during a period which includes any date that is within 30
Trading Days after the announcement by the issuer of such security of a dividend
or distribution payable in shares of such securities or securities convertible
into shares of such securities (other than the Rights), or any subdivision,
combination or reclassification of such securities, then, and in each such case,
the Current Value shall be properly adjusted to take into account ex-dividend or
post-effective date trading. The closing price for each day shall be the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc., Automated Quotation System or such other system
then in use, or, if on any such date such securities are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such securities selected by the
Board or, if the securities are listed or admitted to trading on the New York
Stock Exchange, the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system or, if such securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such securities are listed or admitted to trading.
If the security is not publicly held or not so listed or traded, "Current
Value" means the fair value of a share of Preferred Stock, Common Stock or other
property, as determined by a "Big Five" or other nationally recognized
accounting firm (jointly selected by the Corporation and holders of Series B
Preferred Stock), which shall be determined based on the fair market value of
the Corporation and the number of outstanding shares of stock of the Corporation
(assuming full conversion of all convertible shares of stock of the Corporation)
and without any discount relating to minority ownership, lack of liquidity or
similar factors. If the holders of Series B Preferred Stock (voting as a class)
and the Corporation are unable to agree on the accounting firm, then each shall
choose an accounting firm, and those accounting firms shall jointly select
another nationally recognized accounting firm to perform the value
determination.
"Event of Default" shall have such meaning as is ascribed to it in the Stock Issuance and Subscription Agreement between the Corporation and Omega Healthcare Investors, Inc., a Maryland corporation.
"Issue Date" means the date on which the shares of Series B Preferred are issued.
"Junior Stock" shall mean any shares of any series or class of capital stock of the Corporation, other than the Series B Preferred Stock.
"Subordinated Note" means the Subordinated Note in the original principal amount of $1,700,000 from the Corporation in favor of Omega Healthcare Investors, Inc., a Maryland corporation.
"Trading Day" shall mean a day on which the principal national securities exchange on which the shares of such security are listed or admitted to trading is open for the transaction of business or, if the shares of such security are not listed or admitted to trading on any national securities exchange, a Business Day.
Section 13. Costs. The Corporation shall pay all taxes and other governmental charges (other than any income or other taxes imposed upon the profits realized by the recipient) that may be imposed in respect of the issue or delivery of shares of Common Stock or other securities or property upon conversion of shares of Series B Preferred Stock, including without limitation, any tax or other charge (other than any transfer tax) imposed in connection with the issue and delivery of shares of Common Stock or other securities at the time of such conversion in a name other than that in which the shares of Series B Preferred Stock so converted were registered.
Section 14. Amendment. The Corporation shall not amend, alter or repeal its Certificate of Incorporation, its Bylaws or this Certificate of Designation in any manner which would materially alter or change the powers, preferences or rights of the Series B Preferred Stock so as to effect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock, voting together as a class.
This Certificate of Designation to the Certificate of Incorporation of the Corporation shall be effective immediately upon filing thereof with the Secretary of the State of Delaware.
ADVOCAT INC.
By: /s/ James F. Mills, Jr.
------------------------------
James F. Mills, Jr.
Title: Sr. VP & CFO
---------------------------
Dated: November 8, 2000
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EXHIBIT 10.1
SETTLEMENT AND RESTRUCTURING AGREEMENT
THIS AGREEMENT, made as of the 1st day of October, 2000, by and among ADVOCAT INC., a Delaware corporation ("Advocat"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, DIVERSICARE LEASING CORP., a Tennessee corporation ("DLC"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporation ("SHCM"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation ("DMSC"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, ADVOCAT FINANCE, INC., a Delaware corporation ("AFI"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation ("Omega"), of 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108, and STERLING ACQUISITION CORP., a Kentucky corporation ("Acquisition"), of 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108.
RECITALS:
A. Omega, individually and/or through its wholly-owned subsidiary Acquisition, as lessor, and Advocat, through its wholly owned subsidiary DLC, and/or DLC's wholly owned subsidiary SHCM, as lessees, are parties, via mesne assignments, subleases and other agreements, to four (4) master leases (identified on Schedule 1 hereto as the "1992 Master Lease", the "1994 Master Lease", the "1997 Master Lease", and the "West Liberty Master Sublease", and collectively referred to herein as the "Master Leases") covering, in the aggregate, twenty-eight (28) nursing care facilities located variously in Kentucky, Tennessee, West Virginia, Alabama, Arkansas and Ohio, listed by name and location on Schedule 1 (the "Master Leased Facilities").
B. Omega is the mortgagee of three (3) nursing care facilities located in Florida (the "Florida Mortgaged Facilities"), listed by name and location on Schedule 2 hereto, owned by Counsel Nursing Properties, Inc., a Delaware corporation ("CNP"), and leased by CNP to DLC, pursuant to a Mortgage Note in the original principal amount of $7,031,250, as amended and restated (the "CNP Note"), secured by a Mortgage and Security Agreement and Fixture Filing of even date therewith (the "CNP Mortgage"). DLC is obligated, under the terms of the subject lease(s), to make debt service payments under the CNP Note directly to Omega.
C. Omega is also the mortgagee of four (4) nursing care facilities located in Florida (the "Florida Managed Facilities"), listed by name, location and owner on Schedule
3 hereto, owned by various sister corporations of Emerald Healthcare, Inc., a Florida corporation ("Emerald"), and managed by DMSC, a wholly owned subsidiary of Advocat.
D. Counsel Corporation, an Ontario corporation ("Counsel") has provided a financial undertaking to Omega relative to the obligations of the lessee under the 1992 Master Lease and of CNP under the CNP Note and CNP Mortgage.
E. Advocat and/or certain of its subsidiaries and/or affiliates have provided guaranties pertaining to the Master Leases and the CNP Note and CNP Mortgage (the "Advocat Guaranties"), and DMSC has (i) subordinated its management fees with respect to the Florida Managed Facilities, and (ii) undertaken to make certain advances to the Florida Managed Facilities, as provided in the relevant documents.
F. Advocat and its subsidiaries have been in default of their various obligations to Omega and its subsidiaries since March 1, 2000 by virtue of, among other things, non-payment of rental and other obligations under the Master Leases and debt service under the CNP Note.
G. Advocat has made partial payments to Omega since April 24, 2000, being the date of a Standstill Agreement (the "Standstill Agreement"), the expiration date of which has been extended by the parties through September 30, 2000.
H. The parties have reached a settlement of the foregoing defaults, and have agreed upon a restructuring of their various agreements and undertakings with respect to the Master Leased Facilities, the Florida Mortgaged Facilities and the Florida Managed Facilities, all as more particularly set forth hereinbelow.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged hereby, Omega, Acquisition, Advocat, DLC, SHCM, AFI and DMSC covenant and agree as follows:
1. Acknowledgment of Default. A. Advocat, DLC, SHCM, AFI and DMSC each acknowledges and agrees that: (i) DLC and SHCM are in material default under the Master Leases; (ii) CNP is in material default under the CNP Note and CNP Mortgage, and Advocat and DLC are in material default of their obligations to Omega with respect thereto; (iii) all required notices of default under the Master Leases, the CNP Note and CNP Mortgage, and the Advocat Guaranties have been given or waived by all necessary parties, (iv) all grace and cure periods relating to the aforementioned defaults under the
Master Leases, the CNP Note and CNP Mortgage, the Advocat Guaranties, or otherwise required by applicable law, have expired without the defaults having been cured, and (v) the existence of the defaults now entitles Omega and its subsidiaries to exercise (subject only to the terms of the Standstill Agreement) all of their respective rights and remedies under the Master Leases, the CNP Mortgage, the Advocat Guaranties and applicable law. Advocat, DLC, SHCM, AFI and DMSC further acknowledge that none of Advocat, DLC, SHCM, AFI or DMSC has any claim or cause of action against Omega, Acquisition, or any of their respective subsidiaries and affiliates, nor any defense to their respective obligations under the Master Leases or with respect to the CNP Note and CNP Mortgage or any defense to or right of set-off against the Master Lease Arrearage, the Interest Arrearage, and/or the CNP Principal (all as defined below). The parties hereto acknowledge and agree that the foregoing defaults under the Master Leases and the applicable and relevant obligations of Advocat under the Advocat Guaranties with respect thereto will be cured and/or settled upon and by virtue of the consummation of the transactions contemplated by this Agreement relating to the Master Leased Facilities. Further, the parties acknowledge and agree that the foregoing defaults under the CNP Note and CNP Mortgage, and the applicable and relevant obligations of Advocat under the Advocat Guaranties with respect thereto will be cured and/or settled upon consummation of the transactions contemplated by Paragraph 3 relating to the Florida Mortgaged Facilities. However, except as specifically provided herein, pending consummation of those transactions, Omega retains all rights under the CNP Note and the CNP Mortgage against CNP and Counsel and all rights under the Advocat Guaranties as they relate to the CNP Note and CNP Mortgage.
B. The parties to this Agreement acknowledge and agree that the unpaid balance (excluding out-of-pocket costs and expenses incurred by Omega and/or its subsidiaries, and net of payments made pursuant to the Standstill Agreement) for Minimum Rent, Additional Rent and franchise and similar tax obligations of DLC and SHCM under the Master Leases as of September 30, 2000 is $2,985,111.99 (the "Master Lease Arrearage"), and that the unpaid balance (excluding out-of-pocket costs and expenses incurred by Omega and/or its subsidiaries, and net of payments made pursuant to the Standstill Agreement) for interest, accrual interest, late charges and prepayment penalty under the CNP Note as of September 30, 2000, is $1,056,568.25 (the "Interest Arrearage"). The parties also acknowledge that the principal balance on the CNP Note, in the amount of $7,031,025 (the "CNP Principal") is due and owing.
2. Closings.
A. Initial Closing.
(I) Time and Place. The consummation of the transactions contemplated by this Agreement and pertaining to the Master Leased Facilities and the Florida Managed Facilities (the "Initial Closing") shall take place on or before November 15, 2000 (the "Initial Closing Date"), with an effective date of October 1, 2000 (the "Effective Date"). The Initial Closing Date may be extended by mutual agreement of the parties, but no such extension shall operate to postpone the Effective Date. The Initial Closing shall be held at the offices of Harwell Howard Hyne Gabbert & Manner, P.C., 315 Deaderick Street, Suite 1800, Nashville, Tennessee 37238-1800, or at such other place as shall be mutually agreed upon by Omega and Advocat.
(II) Initial Closing Documents. The following documents and instruments shall be executed and/or delivered at the Initial Closing:
(i) The Amended and Restated Master Lease (reference Paragraph 4.A);
(ii) The Amended and Restated Security Agreement (reference Paragraph 4.B);
(iii) UCC Financing Statements (reference Paragraph 4.B);
(iv) The Amended and Restated Guaranty (reference Paragraph 4.C);
(v) The Amended and Restated Memoranda of Leases (reference Paragraph 4.D);
(vi) The Reaffirmation of Obligations (reference Paragraph 5);
(vii) The intercreditor agreement to be executed by and between Omega, Acquisition and AmSouth (reference Paragraphs 4 and 8);
(viii) The Subordinated Note (reference Paragraph 10);
(ix) The Stock Subscription Agreement (reference Paragraph 11);
(x) The parties shall execute a closing statement reflecting the transactions contemplated to occur at the Initial Closing;
(xi) In addition, Advocat, DLC, SHCM, AFI and DMSC shall each deliver to Omega and Acquisition a certificate, signed by the Secretary or Assistant Secretary of
each such entity, confirming the incumbency of its respective officers, and to which are attached the following:
(aa) a copy of the articles of incorporation or certificate of incorporation of each entity, as amended, and certified by the Secretary of State of the jurisdiction of incorporation as of a date not more than 40 days prior to the Initial Closing;
(bb) a true, correct and complete copy of the current bylaws of each entity, as amended;
(cc) a true, correct and complete copy of the resolutions adopted by the Board of Directors of each entity, authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated herein;
(dd) a certificate of good standing for each entity, issued as of a date not earlier than 40 days prior to the Initial Closing by the Secretary of State of the jurisdiction of its incorporation; and
(ee) a certificate of authority issued by the relevant Secretaries of State of the jurisdictions in which the Master Leased Facilities are located, confirming that DLC, SHCM and DMSC, as appropriate, are authorized to transact business as a foreign corporation in such states.
(III) Initial Closing Actions. At the Initial Closing, the following actions shall be taken:
(i) Acquisition shall call, and AmSouth Bank shall fund, $3,000,000 of the 1992 Letter of Credit (reference Paragraph 7), for payment to Omega and for application against amounts owing under the CNP Note. Upon receipt by Omega of the $3,000,000, the amount of any claim which Omega may assert on the CNP Note shall be reduced by the amount by which the claim would have been reduced if the $3,000,000 were applied first against the Interest Arrearage, second against the applicable Prepayment Premium (as defined in the CNP Note), and third against the CNP Principal.
(ii) Acquisition shall release the balance of the 1992 letter of credit over and above the foregoing $3,000,000 and shall release the Other Letter of Credit (as defined in Paragraph 7).
(IV) Prorations. There will be no prorations with respect to the Master Leased Facilities between and among the parties hereto, as DLC and SHCM are, and DLC will remain solely responsible for all taxes, insurance, utilities and other items typically prorated under the terms of the existing leases thereof and continuing under the Amended and Restated Master Lease.
B. Deferred Closing.
(I) Time and Place. The consummation of the transactions contemplated by this Agreement and pertaining to the Florida Mortgaged Facilities and CNP/Counsel obligations (the "Deferred Closing") shall take place on or before one hundred twenty (120) days after the Initial Closing Date (the "Deferred Closing Date"). The parties acknowledge that Omega's limited forbearance under Paragraph 3.D shall expire at the end of the foregoing one hundred twenty (120) day period, unless extended by Omega in writing, at Omega's sole election. The Deferred Closing Date may be extended by mutual agreement of the parties, but no such extension shall operate to postpone the Effective Date. The Deferred Closing shall be held at the offices of Harwell Howard Hyne Gabbert & Manner, P.C., 315 Deaderick Street, Suite 1800, Nashville, Tennessee 37238-1800, or at such other place as shall be mutually agreed upon by Omega and Advocat.
(II) Deferred Closing Documents. The following documents and instruments shall be executed and/or delivered at the Deferred Closing:
(i) All documents and instruments necessary or appropriate to the conveyance of the Hardee Manor facility from CNP to Acquisition, and its incorporation into the Amended and Restated Master Lease (reference Paragraph 3.A);
(ii) An escrow agreement with respect to Desoto Manor and Leesburg, and amendment of the CNP Mortgage related thereto (reference Paragraph 3.B);
(iii) An amendment to the Amended and Restated Security Agreement (reference Paragraph 4.B), adding Hardee Manor thereto;
(iv) UCC Financing Statements for Hardee Manor (reference Paragraph 4.B);
(v) An Amended and Restated Memorandum of Lease for Hardee Manor (reference Paragraph 4.D);
(vi) The Mutual Release by and between Counsel and Omega (reference Paragraph 9);
(vii) The parties shall execute a closing statement reflecting the transactions contemplated hereby;
(III) Prorations. There will be no prorations with respect to Hardee Manor between and among the parties hereto, as DLC is and will remain solely responsible for all taxes, insurance, utilities and other items typically prorated under the terms of the existing leases thereof and continuing under the Amended and Restated Master Lease.
3. Disposition of Florida Mortgaged Facilities; Forbearance. The Florida Mortgaged Facilities shall be transferred and/or closed, in accordance with the following and subject to the limitations contained in Paragraph 3.D:
A. Hardee Manor. At or before the Deferred Closing, Advocat shall cause CNP to convey, transfer and assign Hardee Manor (including without limitation, land, building and other improvements, all furniture, fixtures and equipment located therein and used or usable in connection with the operation thereof) to Acquisition, in lieu of partial foreclosure of the mortgage covering the Florida Mortgaged Facilities. Such conveyance and assignment shall be free and clear of the existing lease to DLC, all mortgages and other liens and/or encumbrances whatsoever other than the existing CNP Mortgage. Upon conveyance to Acquisition, Hardee Manor shall be added to the Amended and Restated Master Lease to be executed by Acquisition, as lessor, and DLC, as lessee, pursuant to Paragraph 4, below. Advocat and DLC agree to promptly and timely cooperate, and to cause CNP to cooperate, with Acquisition in connection with any necessary certificate of need ("CON") and/or licensing transfers necessary or appropriate to effect the conveyance of Hardee Manor to Acquisition and the addition thereof to the Amended and Restated Master Lease.
B. Desoto Manor and Leesburg. Within one hundred twenty (120) days after the Initial Closing, Advocat shall cause CNP to place warranty deeds and bills of sale covering Desoto Manor and Leesburg irrevocably into escrow with a title company designated by Omega. The deeds and bills of sale shall be in recordable form, but blank as to grantee.
At the same time, the CNP Mortgage shall be amended to (i) discharge Hardee
Manor from the lien of the CNP Mortgage; (ii) provided that the conditions of
Subparagraph 3.D and Paragraph 9 hereof have been met, release CNP, Advocat and
DLC from their respective obligations to pay the debt under the CNP Note and CNP
Mortgage; and (iii) have the CNP Mortgage continue in full force and effect for
the purpose of securing the continuing post-Closing obligations of Advocat,
DMSC, SHCM and DLC under this Agreement. DLC shall have the period of one
hundred twenty (120) days from and after the Initial Closing (the "Advocat
Option Period") during which to elect to either retain or sell Desoto Manor
and/or Leesburg. Written notice of such election shall be given by DLC to
Acquisition not later than two (2) business days following the expiration of the
Advocat Option Period. If DLC elects to retain either or both facilities,
Acquisition's name shall be inserted as grantee in the applicable warranty
deed(s) and bill(s) of sale, and such instruments shall be released from escrow
to Acquisition. Simultaneously, Desoto Manor and/or Leesburg, as the case may
be, shall be added to the Amended and Restated Master Lease, which shall be
amended for such purpose and to provide for rent at fair market value for the
added facility or facilities. If Acquisition and DLC cannot in good faith agree
upon fair market value rental, then such determination shall be made by an
arbitrator jointly selected by Acquisition and DLC, whose decision shall be
final. If DLC elects to sell either or both of Desoto Manor and/or Leesburg,
then in such event Omega and Acquisition shall have the period of forty-five
(45) days from and after receipt of DLC's notice to that effect (the "Omega
Option Period"), during which to elect (as to each applicable facility), by
written notice to Advocat and DLC given within two (2) business days following
expiration of the Omega Option Period, either to acquire the facility(ies) for a
purchase price of one dollar ($1.00), or to permit DLC to sell the facility(ies)
to one or more unrelated third parties. If Omega elects to acquire either or
both facilities, Acquisition's name (or such other name as Omega may designate
in writing) shall be inserted as grantee in the applicable warranty deed(s) and
bill(s) of sale, and such instruments shall be released from escrow to Omega. If
Omega elects not to acquire either or both facilities, DLC's name (or such other
name as Advocat may designate in writing) shall be inserted as grantee in the
applicable warranty deed(s) and bill(s) of sale, and such instruments shall be
released from escrow to Advocat. If Omega and Acquisition permit the sale of the
facility(ies), Advocat and DLC shall promptly commence marketing the
facility(ies). Advocat and DLC shall have the period of one hundred eighty (180)
days during which to attempt to sell the facility(ies) as operating nursing
homes. If they are unable to accomplish the sale of one or both (as applicable)
facility(ies) within such one hundred eighty (180) days, the applicable
facility(ies) shall be closed, and the real estate and other assets comprising
the facilities sold as soon as reasonably practicable. In any event, eighty
percent (80%) of the Net Sales Proceeds from the sale of either or both of
Desoto Manor and/or Leesburg shall be paid over to or at the direction of Omega.
As used herein, "Net Sale Proceeds" shall be
the gross sale price less (i) bona fide commissions payable to third party brokers not related to or affiliated with Advocat, DLC, CNP or any subsidiary or affiliate thereof, and (ii) ordinary and customary closing costs and expenses, including title insurance premiums, transfer or stamp taxes, and property tax prorations).
C. Indemnity Obligation. Advocat, DLC and DMSC, jointly and severally, shall defend, indemnify and hold harmless Omega, Acquisition, and their respective officers, directors, shareholders, successors and assigns (the "Indemnified Parties"), with respect to any of the Florida Mortgaged Facilities conveyed to Omega, Acquisition, or designees thereof, from and against:
1. Health Care Laws.
All cost report settlements and audits arising from CNP's, Advocat's or DLC's ownership or operation of such Florida Mortgaged Facilities prior to the conveyance of such Facilities to the Indemnified Parties or their designees, and any liability, including without limitation Medicare and/or Medicaid clawback liability, pursuant to any federal, state or local laws, rules, ordinances, regulations and all administrative and judicial interpretations applicable to it pertaining to operation of a skilled nursing facility prior to such conveyance, including without limitation, Title XVIII of the Social Security Act, 42 U.S.C. Sections 1395-1395ccc (the Medicare statute); Title XIX of the Social Security Act, 42 U.S.C. Sections 1396 et seq. (the Medicaid statute); the Federal Programs Anti-Kickback Statute, 42 U.S.C. Section 1320a-7b(b); the Stark Law, 42 U.S.C. Section 1395nn; the False Claims Act, 31 U.S.C. Sections 3729 et seq. (as amended); the Program Fraud Civil Remedies Act, 31 U.S.C. Section 3801 et seq.; the federal Anti-Kickback Act, 42 U.S.C. Sections 52 et seq.; the Civil Monetary Penalties Law, 42 U.S.C. Section 1320a-7a; and the Criminal Penalties Law for Acts Involving Federal Health Care Programs, 42 U.S.C. Section 1320a-7b; and all applicable implementing regulations, rules, ordinances and orders, as well as any similar state and local statutes and regulations relating to health care service providers and suppliers (the "Health Care Laws").
2. Environmental.
Any claims, (including, without limitation, third party claims for personal injury or real or personal property damage or damage to natural resources or the environment), actions, administrative proceedings (including formal proceedings), judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlements of claims), interest or losses, including reasonable attorneys' fees and expenses (including any such fees and expenses incurred in enforcing this Agreement or collecting any sums due hereunder), reasonable
consultant fees, and reasonable expert fees, together with all other costs and expenses of any kind or nature (collectively, the "Costs") that arise directly or indirectly from or in connection with the violation of any applicable Environmental Law (as defined below) by CNP, Advocat and/or DLC or the presence, storage, transportation, disposal or release of any Hazardous Substance (as defined below) in or into the structure, building, air, soil, surface water, groundwater or soil vapor (collectively, the "Environment") at, on, under, from, or within the Florida Mortgaged Facilities or any portion thereof, to the extent that such Costs result from such conditions or events occurring prior to the date of conveyance of the Facility(ies) to the Indemnified Parties, their designees, or any of them.
As used herein, "Environmental Laws" shall mean and refer to all federal, state and local, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, policies or guidance, common law, or judicial or administrative orders relating to pollution or protection of the environmental, natural resources or human health and safety, including, without limitation, laws relating to releases or threatened releases of Hazardous Substances [as defined below] (including, without limitation, releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport, disposal or handling of Hazardous Substances. "Environmental laws" includes, without limitation, CERCLA, the Hazardous Materials Transportation Act (19 U.S.C.ss.ss.1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.ss.ss.6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.ss.ss.1251 et seq.), the Clean Air Act (42 U.S.C.ss.ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C.ss.ss.2601 et seq.), the Oil Pollution Act (33 U.S.C.ss.ss.2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C.ss.ss.11001 et seq.), the Occupational Safety and Health Act (29 U.S.C.ss.ss.651 et seq.), and all other state and local laws analogous to any of the above. "Hazardous Substances" shall mean and refer to any hazardous or toxic substance, material or waste, pollutant or contaminant, flammable or explosive material, radioactive material, dioxins, heavy metals, radon gas, asbestos, petroleum products or by-products, polychlorinated biphenyls, medical or infectious waste or materials, or any other substance, waste or material which is included under or regulated by any Environmental Law.
3. Other Matters.
Any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including, without limitation, reasonable attorney fees and other legal costs and expenses) which the Indemnified Parties may at any time suffer or incur, or become subject to, as a result of or in connection with:
(a) the operation of the Florida Mortgaged Facilities prior to the respective date(s) of conveyance thereof to the Indemnified Parties, their designees, or any of them; or
(b) any suit, action or other proceeding brought by any governmental authority or person arising out of, or in any way related to, any of the matters referred to in this Paragraph 3.C.
D. Limited Forbearance; Action upon/Release of CNP Note
Indebtedness. Subject to the timely consummation of those transactions covered
by the Initial Closing, and provided that (i) DLC shall make current interest
payments, in arrears, on the CNP Note in the amount of $16,666.00 per month from
the Initial Closing Date (commencing November 15, 2000) through the Deferred
Closing Date, (ii) Advocat, DLC, SHCM and DMSC shall otherwise comply in all
respects with the terms and conditions of this Agreement, and (iii) no
Triggering Event shall have occurred as defined in Paragraph 4.G, Omega agrees
to forbear from exercising its remedies under the CNP Note and CNP Mortgage, and
based on the undertakings of Counsel and/or Advocat (including the Advocat
Guaranty) with respect thereto, for the period of one hundred twenty (120) days
following the Initial Closing. During the time, and so long as, DLC shall timely
make the interest payments under sub-subparagraph 3.D.(i), Acquisition shall
reduce the monthly Base Rent installments under the Amended and Restated Master
Lease by an equal amount. If the Deferred Closing timely occurs, including the
consummation of the transfer of Hardee Manor and its incorporation into the
Amended and Restated Master Lease pursuant to and as contemplated in Paragraph
3.A, and further conditioned upon Omega's receipt at the Initial Closing of the
$3,000,000 payment in accordance with Paragraph 7, below, Omega shall release
Advocat and DLC from their obligations to pay the principal and any further
unpaid interest indebtedness (beyond that to which the $3,000,000 payment is
applied) under the CNP Note and the CNP Mortgage; provided, however, that
Advocat shall not be released from its guaranty of the CNP Mortgage to the
extent of any continuing obligations following its amendment as contemplated by
Paragraph 3.B. If the Deferred Closing does not occur within one hundred twenty
(120) days following the Initial Closing, Omega shall be free to exercise any
and all its rights and remedies under the CNP
Note, the CNP Mortgage, the Advocat Guaranty with respect thereto, and the undertakings of Counsel with respect thereto.
4. Amended and Restated Master Lease; Divestiture of Certain Facilities; Cash Management System Requirements.
A. Omega shall cause title to the Master Leased Facilities to be consolidated into Acquisition at or prior to the Initial Closing. SHCM shall simultaneously assign its interest in the Master Leased Facilities covered by the 1997 Master Lease to DLC. At the Initial Closing, Acquisition, as lessor, and DLC, as lessee, shall enter into an Amended and Restated Master Lease consolidating, amending and restating the Master Leases, and adding (or providing for the subsequent addition, pursuant to Paragraph 3.A, of) Hardee Manor to the Master Leased Facilities, all in substantially the form attached hereto as Exhibit "B" (the "Amended and Restated Master Lease"). In connection therewith:
B. At Initial Closing, DLC shall enter into and execute an Amended and Restated Security Agreement, covering all of the Master Leased Facilities, in substantially the form attached hereto as Exhibit "C", together with amended and restated UCC financing statements for each of the Master Leased Facilities in form satisfactory to Acquisition.
C. Also at Initial Closing, Advocat, AFI and DMSC shall execute an Amended and Restated Guaranty, in substantially the form attached hereto as Exhibit "D".
D. Also at Initial Closing, Acquisition and DLC shall enter into an Amended and Restated Memorandum of Lease for each of the jurisdictions in which the Master Leased Facilities are located, in substantially the form attached hereto as Exhibit "E"; provided, however, that an Amended and Restated Memorandum of Lease for Hardee Manor shall be entered into at the Deferred Closing.
E. Also at Initial Closing, DLC and SHCM shall enter into a sublease of the Master Leased Facilities covered by the 1997 Master Lease, in conformity with the requirements of Paragraph 13 of this Agreement. DLC and SHCM shall, at Initial Closing, execute and deliver to Acquisition the collateral documents for subleases as described in Paragraph 13.
F. No later than one hundred eighty (180) days following the Initial Closing, Advocat and DLC shall create a new wholly owned subsidiary of DLC ("NewSub"), and shall transfer to NewSub all of DLC's ownership, tenancy and/or operation of each facility,
including all accounts receivable and personal property, included in the Master Leased Facilities (including within the Master Leased Facilities for purposes of this determination Hardee Manor, Desoto Manor and Leesburg) leased by DLC under the Amended and Restated Master Lease, so that the assets of NewSub shall be limited to the Master Leased Facilities. NewSub shall assume all obligations of DLC with respect to the Master Leased Facilities. NewSub shall be created as a single purpose entity, and its articles of incorporation and bylaws (or articles of organization and operating agreement, if NewSub is created as a limited liability company) shall contain language reasonably satisfactory to Omega and in compliance with its obligations, if any, to AmSouth with respect, and limited, to potential guaranty of DLC's obligations to AmSouth and/or pledge of its stock/membership interests to AmSouth, to effectuate such status. In connection with the foregoing, DLC shall promptly initiate and diligently pursue to completion all necessary and appropriate actions to make SHCM and all other Sublessees wholly owned subsidiaries of NewSub. Upon the completion of the requirements of this Paragraph 4.F, all references to DLC in Paragraph 4.G shall be deemed to be requirements of NewSub.
G. Within ninety (90) days from the Initial Closing, DLC (or NewSub, as the case may be) and its permitted sublessees (the "Sublessees") will, as a material inducement to Omega and Acquisition to enter into this Agreement, and as an express covenant under the Amended and Restated Master Lease, establish a new cash management system (the "New Cash Management System"). The new Cash Management System will include the following procedures:
(i) If a Facility is operated by a Sublessee, all receipts related to that Facility shall be deposited daily into one or more accounts in the name of Sublessee.
(ii) If a Facility is operated by DLC or NewSub, all receipts related to that Facility shall be deposited daily into one or more accounts maintained by DLC or NewSub in the name of the Facility. The accounts maintained by each Sublessee and by DLC or NewSub in the name of Facilities into which funds are deposited as set forth in this clause (ii) and in clause (i) are herein referred to as the "Facility Accounts".
(iii) On a daily basis, the balance in each Facility Account may, at DLC's (NewSub's) option, be transferred into a concentration account maintained by Advocat (the "Advocat Concentration Account").
(iv) DLC ("NewSub") shall promptly establish, with AmSouth Bank or another financial institution satisfactory to Omega and Acquisition, a separate concentration
account, unrelated to the Advocat Concentration Account, and which shall be referred to herein as the "DLC Concentration Account". DLC (NewSub) shall make, and thereafter maintain, a deposit or deposits in amounts sufficient to keep the DLC Concentration Account open and operative at all times.
(v) In the absence of a Triggering Event, funds from Facility Accounts swept into the Advocat Concentration Account may continue to be commingled with funds from other facilities owned or operated by Advocat, DLC and/or their respective affiliates, and utilized in accordance with existing practices. Advocat shall maintain financial records which will make it possible to identify (x) funds deposited into the Advocat Concentration Account from the Facilities, and (y) expenses of the Facilities paid with funds in the Advocat Concentration Account. For purposes hereof, "Triggering Event" shall mean any one or more of the following:
(1) DLC (or NewSub, as the case may be) shall fail to pay the Base Rent and/or Impositions as defined in the Amended and Restated Master Agreement, or Advocat fails to pay any principal or interest due under the Subordinated Note in accordance with its terms, and Omega shall provide a copy of notice of such default to AmSouth Bank;
(2) Acquisition gives notice of termination of the Amended and Restated Master Lease following an Event of Default, and provides a copy of such notice to AmSouth Bank;
(3) An involuntary bankruptcy proceeding is initiated against
Advocat, DLC (or NewSub, as the case may be), or Advocat or
DLC (or New Sub, as the case may be): (i) admits in writing
its inability to pay its debts generally as they become due,
(ii) files a petition in bankruptcy or a petition to take
advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to
the appointment of a receiver of itself or of the whole or any
substantial part of its property, or (v) files a petition or
answer seeking reorganization or arrangement under the Federal
bankruptcy laws or any other applicable law or statute of the
United States of America or any state thereof, subject to the
applicable provisions of the Bankruptcy Code (11 USC ss.101
et. seq.);
(4) AmSouth Bank or any successor thereto declares an event of default, and accelerates any or all of the indebtedness, or commences any action against DLC (or NewSub, as the case may be) or any sublessee, or takes any action
to realize on AmSouth's junior interest in accounts receivable, under any document or instrument evidencing an obligation of Advocat, DLC, NewSub or any affiliate of any of the foregoing to AmSouth Bank; or
(5) AmSouth Bank declines, for any reason, to fund a working capital or other advance under any line of credit or other credit facility of Advocat, DLC or any affiliate of either.
(vi) In connection with the foregoing, and as a material inducement to Omega and Acquisition to enter into this Agreement, Advocat and/or DLC shall provide AmSouth written notice clearly identifying the Facility Accounts at AmSouth and any other account at AmSouth which holds only funds of NewSub or any of its sublessees.
(vii) From and after a Triggering Event, except for incidental expenses paid at the Facility level, all expenses of DLC/NewSub and the Sublessees (the "Facility Expenses") shall be paid by DLC/NewSub, either on its own behalf or on behalf of the Sublessees, from the DLC Concentration Account. After a Triggering Event, under no circumstances will funds of DLC/NewSub or any Sublessee be commingled with funds belonging to Advocat or any affiliate of Advocat (except for the Sublessees).
H. As a material inducement for Omega and Acquisition to enter into this Agreement, and as an express covenant under the Amended and Restated Master Lease, Advocat and DLC/New Sub shall not transfer, or permit the transfer, of the Advocat Concentration Account or the DLC Concentration Account to any financial institution other than AmSouth Bank, unless the new depository institution (the "Replacement Bank") shall first execute an intercreditor agreement with Omega and Acquisition substantially similar to the intercreditor agreement executed with AmSouth Bank pursuant to Paragraph 8.D, below.
5. Florida Managed Facilities. All existing contractual relationships of the parties, including without limitation for purposes hereof the existing management agreements and subordination of management fees with and by DMSC and the Advocat guaranties of DMSC's performance, with respect to the Florida Managed Facilities shall remain in existence without modification. Omega, Advocat and DMSC shall execute, at the Initial Closing, a Reaffirmation of Obligations in substantially the form attached hereto as Exhibit "F". The parties acknowledge that DMSC has not heretofore executed and joined in the Cash Collateral Agreement dated as of August 1, 1998, pertaining to the Florida Managed Facilities. Advocat and Omega shall negotiate, prior to January 31, 2001, an amendment to that instrument which will (i) resolve, in a manner consistent with the
intent of the Cash Collateral Agreement, DMSC's reasonable objections to the flow of funds established thereby, and (ii) provide a consent by Advocat and DMSC to the sale or transfer of the Florida Managed Facilities, or any of them, to or at the direction of Omega, provided, however, that any such sale or transfer shall be subject to the concomitant assignment of the existing DMSC management agreement, which will remain in effect in accordance with its terms following such sale or transfer.
6. Capital Expenditures Undertaking. As a material inducement for Omega and Acquisition entering into this Agreement and consummating the transactions contemplated hereby, and as an express covenant under the Amended and Restated Master Lease, DLC (or NewSub, as applicable) agrees to undertake special project capital expenditures ("Special Project Capital Expenditures") with respect to the Master Leased Facilities (including, for purposes hereof, Hardee Manor if and when it is added to the Amended and Restated Master Lease pursuant to Paragraph 3.A) in the cumulative amount of not less than One Million and no/100 Dollars ($1,000,000.00) during the first two (2) Lease Years under the Amended and Restated Master Lease. The Special Project Capital Expenditures shall be for items intended to enhance the marketability and functionality of the Master Leased Facilities, and shall be subject to the reasonable approval of Acquisition, to be obtained in writing in advance of the expenditure. The Special Project Capital Expenditures shall be in addition to the annual Minimum Qualified Capital Expenditures required under Section 8.3.2 of the Amended and Restated Master Lease. Advocat shall guaranty the performance of and payment for the Special Project Capital Expenditures. DLC/NewSub shall in any event expend not less than Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) by June 30, 2001, and shall expend (unless prevented from doing so by Force Majeure, as defined in the Amended and Restated Master Lease) not less than Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00), on a cumulative basis, in each subsequent six (6) month period thereafter during the two (2) year period therefor. DLC/NewSub shall not receive a credit for expenditures on Special Project Capital Expenditures against its annual Minimum Qualified Capital Expenditures obligations under Section 8.3.2 of the Amended and Restated Master Lease; provided, however, that the Special Project Capital Expenditures shall be undertaken and performed in accordance with the requirements for Qualified Capital Expenditures projects under the Amended and Restated Master Lease, and that failure (i) to spend, or have plans in place reasonably acceptable to Omega to spend, for Special Project Capital Expenditures, at least Five Hundred Thousand and no/100 Dollars ($500,000.00), on a cumulative basis, by September 30, 2001 or to spend, or have plans in place reasonably acceptable to Omega to spend, for Special Project Capital Expenditures, at least One Million and no/100 Dollars ($1,000,000.00), on a cumulative basis, by May 31, 2002, or (ii) to timely deposit the required expenditure amount into the
Special Project Capital Expenditures Reserve described below, shall in either such event constitute an Event of Default under the Amended and Restated Master Lease. If and to the extent the Minimum Qualified Capital Expenditures budget of $325 per bed per year during the first two (2) Lease Years is not sufficient to fund all the scheduled capital expenditure items set forth on Schedule 4, attached hereto and incorporated herein by reference, DLC/NewSub may utilize funds from the Special Project Capital Expenditures funding to complete Schedule 4 items. Without limitation of the foregoing, if and to the extent DLC/NewSub fails to make Special Project Capital Expenditures of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) by June 20, 2001 and Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) in each six (6) month period thereafter, on a cumulative basis in accordance with the foregoing, an amount equal to the unexpended amount, less any funds already so deposited, shall be deposited on or before the fifteenth (15th) day of the month following the end of such applicable period, by DLC/NewSub into the Capital Expenditure Reserve Account established and administered under and pursuant to the Amended and Restated Lease. DLC/NewSub shall provide reports to Acquisition of the status of completion and funding of Special Project Capital Expenditures, commencing on June 30, 2001 for the prior six (6) month period, and at the end of each six (6) month period thereafter during the first two (2) Lease years.
7. Letters of Credit/Security Deposit. The parties acknowledge
that Omega and Acquisition now hold security deposits with respect to the CNP
Note and Master Leased Facilities as follows: (i) a letter of credit in the
amount of $3,800,000 (the "1992 Letter of Credit") which secures obligations
relating to the CNP Note and the 1992 Master Lease, (ii) a second letter of
credit (the "Other Letter of Credit") in the amount of $1,150,000 which secures
obligations under all of the Master Leases other than the 1992 Master Lease, and
(iii) a cash deposit in the amount of $340,304.35, which secures obligations
under all of the Master Leases other than the 1992 Master Lease. The cash
deposit was previously applied by Omega/Acquisition against unpaid rent, but the
letters of credit have not been called, pursuant to and based on the Standstill
Agreement. The letters of credit were issued by AmSouth Bank ("AmSouth") or its
predecessors. AmSouth maintains a first priority security interest in the
accounts receivable of the Master Leased Facilities, as security for, among
other things, the letters of credit. At the Initial Closing, and in connection
with (and conditioned upon) the consummation of the restructuring of
Advocat/DLC/SHCM's debt with and by AmSouth, including without limitation the
release by AmSouth of its first priority security interest in the accounts
receivable of the Master Leased Facilities (including, for purposes hereof,
Hardee Manor), Omega/Acquisition shall (x) call and retain $3,000,000 of the
1992 Letter of Credit, (y) release and relinquish the remaining $800,000 balance
of the 1992 Letter of Credit, and the $1,150,000 under the Other Letter of
Credit, and (z) reverse the prior application of the cash deposit. The
$3,000,000 shall be applied against the balance owing on the CNP Note as set forth in Paragraph 2B.(III). The prior cash deposit shall be held as the security deposit under the Amended and Restated Master Lease. In connection with the foregoing, Omega and Acquisition shall terminate and discharge the existing Letter of Credit Agreements. The parties hereto agree that (i) Acquisition is incurring substantial losses by the restructuring of the 1992 Master Lease into the Amended and Restated Master Lease, and (ii) not more than $3,000,000 of the 1992 Letter of Credit is fairly allocable to the CNP Note.
8. AmSouth Restructuring. The obligation of Omega and Acquisition to proceed to Initial Closing hereunder and to consummate the transactions contemplated hereby is expressly conditioned on the simultaneous consummation of a debt restructuring by and between AmSouth and Advocat/DLC (and their respective subsidiaries and affiliates), incorporating the following:
A. AmSouth shall release and relinquish its existing $3,000,000 first priority security interest in the accounts receivable of the Master Leased Facilities and the Florida Mortgaged Facilities. The parties acknowledge that AmSouth will continue to have a fully subordinated security interest in the subject accounts receivable, which shall be subject to the terms and conditions of the intercreditor agreement referred to in subparagraph 8.D, below.
B. The $3,000,000 draw by Omega on the letters of credit shall become a separate indebtedness of Advocat to AmSouth, in reduction of the existing promissory note, line of credit and overline indebtedness of Advocat to AmSouth. The new indebtedness shall be evidenced by a new promissory note (the "Non-Accrual Note"), which shall not bear interest, and which shall be paid solely as follows: (i) first, all net proceeds from the anticipated sale, if any, received by Advocat or its subsidiaries/affiliates of the nursing home facilities located in Texas and owned by Texas Diversicare Limited Partnership ("TDLP") and the Carteret nursing home facility, located in North Carolina, shall be applied against the Non-Accrual Note; (ii) in the event the foregoing amounts are not sufficient to liquidate the Non-Accrual Note in full, then surplus cash flow of Advocat (to be defined in terms satisfactory to Advocat, but in no event shall surplus cash include any amounts payable to Omega/Acquisition under the Amended and Restated Master Lease, or required for the operation of the Master Leased Facilities) shall be applied to the Non-Accrual Note until it has been paid in full.
C. At the Effective Date, the interest rate on the existing promissory note, overline and line of credit (the "AmSouth Debt") shall be established at nine and one-half
percent (9 1/2%) per annum. Principal payments on the AmSouth Debt shall be made solely from surplus cash flow (defined in accordance with and subject to subparagraph B, above) after payment in full of the Non-Accrual Note.
D. Documentation of the foregoing debt restructuring shall be in form satisfactory to Omega, and at Initial Closing, Omega, Acquisition and AmSouth shall enter into an intercreditor agreement in form satisfactory to Omega, implementing both the matters set forth in this Paragraph 8 and the matters set forth in Subparagraphs 4.F and 4.G.
9. Counsel. Upon the last to occur of (i) consummation of the transfer of Hardee Manor to Acquisition in accordance with Paragraph 3.A, (ii) execution by CNP of all documents and instruments necessary or appropriate to the consummation of the transactions contemplated by Paragraph 3.B, and (iii) Advocat's certification to Omega that it has satisfactorily reached an accommodation with Counsel with respect to Advocat's Canadian subsidiaries and affiliates and their contractual and other relationships with Counsel, Omega shall release Counsel and its subsidiaries, and the officers, directors, shareholders, attorneys, successors and assigns thereof, and Counsel shall release Omega, Acquisition and their respective subsidiaries, and the officers, directors, shareholders, attorneys, successors and assign thereof, pursuant to a Mutual Release in form satisfactory to the parties thereto.
10. Subordinated Note. At Initial Closing, Advocat shall execute and deliver to Omega a Subordinated Note in the par amount of $1,700,000, in substantially the form attached hereto as Exhibit "H".
11. Preferred Stock. At Initial Closing, Advocat shall issue to Omega its preferred stock having a liquidation preference valued at $3,300,000 plus accrued and unpaid dividends, if any, and having conversion rights, dividend provisions, mandatory conversion and mandatory redemption provisions and dates, and such other terms and conditions as are set forth in the Stock Subscription Agreement to be executed by Omega and Advocat at Initial Closing, in substantially the form attached hereto as Exhibit "I".
12. Closing and Sale of Facilities. Omega and Advocat shall use commercially reasonable efforts, following the Initial Closing, (i) to define an appropriate process under which certain of the Master Leased Facilities which are, or which may later become, no longer economically viable as skilled nursing facilities, and approving or implementing the alternative use of such facilities during the term of the Amended and Restated Master Lease, (ii) to work out structural issues relating to licensure and liability
compartmentalization by the potential use of subleases, and (iii) to work out
structural issues to minimize, to the extent practicable, the corporate state
tax in Alabama. The foregoing undertakings are independent of, and shall not
modify, impair or abrogate in any way the effectiveness of the Amended and
Restated Master Lease or any other undertakings or liabilities of
Advocat/DLC/SHCM under this Agreement or under any other document or instrument
executed in connection herewith or otherwise remaining in effect between or
among them following the Initial Closing hereunder. Any implementation of
agreement reached in connection with, or as a result of, the undertakings and
consideration by Omega and Advocat as described in this Paragraph shall be
implemented by written instrument, signed by Omega, Advocat, and any other party
to be charged therewith. Notwithstanding any of the foregoing, and in any event:
(a) none of the Master Leased Facilities listed on Schedule 5, attached hereto,
shall be subject to closure or alternative uses during the initial term of the
Amended and Restated Master Lease without the prior written consent of Omega and
any lender holding a first mortgage on the subject facilities; and (b) there
will be no adjustment in base rent under the Amended and Restated Master Lease
as a consequence of the closing or alternative use of any of the Master Leased
Facilities (provided, however, that with respect to closed facilities, the CPI
adjustments otherwise required by the Amended and Restated Master Lease shall
not apply after closure thereof).
13. Sublease of Facilities. Omega and Acquisition acknowledge that, at or following the Initial Closing, DLC/NewSub may desire to sublease certain of the Master Leased Facilities to wholly-owned subsidiaries of DLC, including in particular but without limitation SHCM. Omega and Acquisition hereby consent to such subleasing of certain of the Master Leased Facilities, provided the following conditions are satisfied prior to any such sublease: (a) each sublessee shall execute, as security for the Amended and Restated Master Lease, but subject to the terms and conditions of the AmSouth intercreditor agreement executed pursuant to Paragraph 8.D, (i) a Sublease Guaranty in the form attached hereto as Exhibit "J" whereby each sublessee jointly and severally guaranties Advocat's/DLC's/SHCM's obligations under the Amended and Restated Master Lease, (ii) a Security Agreement based upon the form of the Amended and Restated Security Agreement attached hereto as Exhibit "C", and (iii) those UCC financing statements as deemed necessary by Acquisition to secure those interests granted by the Security Agreement; and, (b) Advocat or DLC, as applicable, shall execute, as security for the Amended and Restated Master Lease, but subject to the terms and conditions of the AmSouth intercreditor agreement executed pursuant to Paragraph 8.D, (i) a pledge of the stock (or membership interests, if a limited liability company) of any such sublessee in the form of the Stock Pledge Agreement attached hereto as Exhibit "K", and (ii) a collateral assignment of the sublease.
14. Payments Until Initial Closing; Deferred Compensation. A. Advocat shall continue to pay Omega $209,134.62 per week during the period from October 1, 2000 through the Initial Closing Date, which shall be credited at Initial Closing against the accrued Base Rent otherwise due and payable at the Initial Closing.
B. Advocat and DLC acknowledge and agree that the amount of rent which Acquisition is forbearing from receiving as a consequence of entering into this Agreement and the Master Lease totals at least Five Million Dollars ($5,000,000). In order to induce Omega and Acquisition to enter into this Agreement, Advocat and DLC jointly and severally agree to pay Acquisition as damages the amount of ($5,000,000), together with interest thereon from the Effective Date through the date of payment at the rate of eleven percent (11%) per annum. Such amount shall be payable at the expiration of the Term (as defined in the Amended and Restated Master Lease) or earlier termination of the Lease. Omega and Acquisition agree to waive and forever forgive any obligation of either Advocat or DLC to pay such amount provided DLC/ NewSub fulfills in all material respects its obligations under the Amended and Restated Master Lease, to transfer the Facilities and Lessee's Personal Property (as defined in the Amended and Restated Master Lease, subject to the excluded items therein) to Acquisition at the expiration of the Term or earlier termination of the Amended and Restated Master Lease. However, unless waived and forgiven as set forth in the preceding sentence, such amount shall be immediately due and payable at the end of the Term or earlier termination of the Master Lease. Payment of the amount owing under this Paragraph 14.B shall be a non-recourse obligation of Advocat and DLC secured (which security interest shall be acknowledged and covered by the Amended and Restated Security Agreement to be executed at Initial Closing, and by the security agreements to be executed by any sublessees of the Facilities) solely by the Lessee's Personal Property located at the Facilities at the expiration of the Term or earlier termination of the Amended and Restated Master Lease. Advocat and DLC acknowledge that their obligations under this Paragraph 14.B are independent of and do not arise under the Amended and Restated Master Lease.
15. Survival of Provisions; Default. A. Representations made by any party hereto, as well as the provisions hereof which contemplate or necessarily involve actions or representations by any party hereto after the Initial Closing and/or the Deferred Closing, shall survive the Initial Closing and/or the Deferred Closing, as the case may be.
B. In the event of a default by Advocat, DLC, SHCM, AFI or DMSC in the timely performance of their respective obligations under this Agreement, Omega and Acquisition shall have the right, upon written notice to the defaulting party, to pursue an action for specific performance of this Agreement, and to pursue any other remedies under applicable law. In the event of a default by Omega or Acquisition in the timely performance of their respective obligations under this Agreement, Advocat, DLC, SHCM , AFI and DMSC shall have the right, upon written notice to the defaulting party, to pursue an action for specific performance of this Agreement, and to pursue any other remedies under applicable law.
16. Time of the Essence. Time shall be of the essence in all respects with respect to Advocat's and DLC's performance under this Agreement.
17. Notices. All notices given pursuant to this Agreement shall be in writing and shall be delivered by ordinary first class mail (postage prepaid), personal delivery, overnight courier service, or confirmed fax, at the addresses set forth below:
If to Advocat, DLC, SHCM, AFI or DMSC:
Advocat Inc.
277 Mallory Station Road, Suite 130
Franklin, Tennessee 37067
Attention: Chief Financial Officer
Telephone No.: (615) 771-7575
Facsimile No.: (615) 771-7409
With a copy to: Harwell Howard Hyne Gabbert & Manner, P.C.
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mark Manner
Telephone No.: (615) 256-0500
Facsimile No.: (615) 251-1059
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If to Omega or Acquisition:
Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, Michigan 48108
Attention: Susan Allene Kovach
Telephone No.: (734) 887-0200
Facsimile No.: (734) 887-0201
With a copy to: Fred J. Fechheimer
Dykema Gossett PLLC
39577 Woodward Avenue, Suite 300
Bloomfield Hills, Michigan 48304-2820
Telephone No.: (248) 203-0743
Facsimile No.: (248) 203-0763
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All notices given by personal delivery or confirmed fax will be conclusively deemed given upon the date of personal delivery or faxing, as applicable; all notices given by mail or overnight courier service will be conclusively deemed given on the business day immediately following the date the notice is deposited in the mail or with the overnight courier service.
18. Authority. Advocat, DLC, SHCM, AFI and DMSC jointly and severally represent and warrant to Omega and Acquisition that the execution, delivery and performance of this Agreement has been duly approved and authorized by all necessary corporate action of Advocat, DLC, SHCM, AFI and DMSC (including without limitation, all necessary action of the shareholders and directors of Advocat, DLC, SHCM, AFI and DMSC), and that no consent or approval from any other person or entity is required for the due and valid execution, delivery and performance of this Agreement by Advocat, DLC, SHCM, AFI and DMSC. Omega and Acquisition jointly and severally represent and warrant to Advocat, DLC, SHCM, AFI and DMSC that the execution, delivery and performance of this Agreement has been duly approved and authorized by all necessary corporate action of Omega and Acquisition (including without limitation, all necessary action of the shareholders and directors of Omega and Acquisition), and that no consent or approval from any other person or entity is required for the due and valid execution, delivery and performance of this Agreement by Omega and Acquisition.
19. Releases. A. Subject to, and in consideration for, Omega
entering into this Agreement and consummating the transactions contemplated
hereby, Advocat, DLC, SHCM, AFI and DMSC (collectively, the "Advocat Entities",
and individually, an "Advocat Entity"), conditioned upon and effective
simultaneously with the consummation of the transactions contemplated hereby at
Initial Closing, releases and forever discharges Omega, Acquisition and their
respective successors, assigns, agents, shareholders, directors, officers,
employees, agents, parent corporations, subsidiary corporations, affiliated
corporations, affiliates, and each of them, from any and all claims, debts,
liabilities, demands, obligations, costs, expenses, actions and causes of
action, of every nature and description, whether known or unknown, absolute,
mature, or not yet due, liquidated or non-liquidated, contingent,
non-contingent, direct or indirect or otherwise, which any Advocat Entity now
has or at any time may hold, by reason of any matter, cause or thing occurred,
done, omitted or suffered to be done on or prior to the Initial Closing
(collectively, "Omega Liabilities"), other than from Omega Liabilities arising
out of this Agreement or any document or instrument executed in connection
herewith or in consummation of the transactions contemplated hereby. Each
Advocat Entity waives the benefits of any law, which may provide in substance:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor." Each
Advocat Entity understands that the facts which it believes to be true at the
time of making the release provided for herein may later turn out to be
different than it believes now or at the time of granting such release, and that
information which is not now or then known or suspected may later be discovered.
Each Advocat Entity accepts this possibility, and each Advocat Entity assumes
the risk of the facts turning out to be different and new information being
discovered; and each Advocat Entity further agrees that the release provided for
herein shall in all respects continue to be effective and not subject to
termination or rescission because of any difference in such facts or any new
information.
B. Release of Advocat Entities. Subject to, and in consideration for, the Advocat Entities entering into this Agreement and consummating the transactions contemplated hereby, Omega and Acquisition (together, the "Omega Entities", and individually, an "Omega Entity"), conditioned upon and effective simultaneously with the consummation of the respective transactions contemplated hereby at Initial Closing or thereafter in accordance herewith, releases and forever discharges the Advocat Entities (expressly excluding, for purposes hereof, Counsel Corporation and CNP) and their respective successors, assigns, agents, shareholders, directors, officers, employees, agents, parent corporations, subsidiary corporations, affiliated corporations, affiliates, and each of them, from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions
and causes of action, of every nature and description, whether known or unknown, absolute, mature, or not yet due, liquidated or non-liquidated, contingent, non-contingent, direct or indirect or otherwise, which any Omega Entity now has or at any time may hold, with respect to the following obligations arising under the Master Leases and in existence as of September 30, 2000 (but not as to any such obligations arising from and after October 1, 2000 under the Amended and Restated Master Lease, nor as to any other obligations under the Master Leases not specifically included in the following listing):
(i). The payment of "Minimum Rent" and "Additional Fixed Rent" (as defined in and to the extent applicable to the Master Leases);
(ii). The payment of any franchise tax incurred by an Omega Entity in connection with the collection of any type of rent under the Master Leases;
(iii). The payment of any late fees or default interest incurred in connection with the failure to pay Minimum Rent and any franchise tax; and
(iv). The payment of attorneys' fees and costs incurred by an Omega Entity in connection with the collection of past due amounts owing under the Master Leases.
As of the last to occur of (aa) transfer of Hardee Manor to Acquisition, and incorporation of Hardee Manor into the Amended and Restated Master Lease in accordance with Paragraph 3.A, (bb) execution by CNP of all documents and instruments necessary to effect the disposition of DeSoto Manor and Leesburg in accordance with Paragraph 3.B, and (cc) receipt by Omega/Acquisition of the $3,000,000.00 in letter of credit proceeds pursuant to Paragraph 7, the foregoing release by the Omega Entities shall also extend to the payment of principal under the CNP Note and the CNP Mortgage (but not any continuing obligations under the CNP Mortgage following the amendment thereof as contemplated in Subparagraph 3.B, above, nor Advocat's guaranty of such continuing obligations under the CNP Mortgage, nor Advocat's and DLC's continuing obligations under Paragraph 14.B, above).
Each Omega Entity understands that the facts which it believes to be true at the time of making the release provided for herein may later turn out to be different than it believes now or at the time of granting such release, and that information which is not now or then known or suspected may later be discovered. Each Omega Entity accepts this possibility, and each Omega Entity assumes the risk of the facts turning out to be different and new information being discovered; and each Omega Entity further agrees that the release
provided for herein shall in all respects continue to be effective and not subject to termination or rescission because of any difference in such facts or any new information.
Notwithstanding anything to the contrary contained in this Paragraph 19 or otherwise, this release shall only be effective on and as of the Initial Closing or such later applicable date set forth in this Paragraph 19, as the case may be and not otherwise.
20. Non-Disclosure. A. Until Omega and Advocat mutually agree to
publicly announce this Agreement, (i) the parties hereto, and each of their
officers, directors, employees, agents, consultants and advisors, shall keep
confidential all terms hereof and information contained herein (except to the
extent required either (a) in connection with the satisfaction of the conditions
contained herein (including, without limitation, providing such information to
its creditors and their advisors), (b) by the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder (the "Exchange
Act"), or (c) reporting requirements, if any, of the New York Stock Exchange
("NYSE Requirements"), (ii) neither Advocat, DLC, SHCM, DMSC, nor any persons or
entities affiliated with any of them or their officers, directors, employees,
agents, consultants and advisors (within the meaning of Rule 405 under the
Securities Act of 1933, as amended) shall trade in Omega's stock, and (iii)
neither Omega, Acquisition, nor any persons or entities affiliated with any of
them or their officers, directors, employees, agents, consultants and advisors
(within the meaning of Rule 405 under the Securities Act of 1933, as amended)
shall trade in Advocat's stock. Advocat, DLC, SHCM and DMSC acknowledge that
Omega may disclose the existence of this Agreement and the transactions
contemplated hereby in appropriate public filings under the Exchange Act, or
pursuant to the NYSE Requirements. Omega and Acquisition acknowledge that
Advocat may disclose the existence of this Agreement and the transactions
contemplated hereby in appropriate public filings under the Exchange Act. No
press releases with respect to this Agreement or the transactions contemplated
hereby shall be issued absent the prior mutual approval of Omega and Advocat.
B. Notwithstanding subparagraph A, above, each party hereto may and shall give all required notices of the existence of this Agreement and the pending consummation of the transactions contemplated hereby to any and all appropriate governmental authorities.
C. The parties agree not to disclose or permit their respective representatives, attorneys, auditors or agents to disclose, except as may be required by law or performance hereunder, any confidential, non-public information of the others which is obtained by any of them in connection with the transactions contemplated by this Agreement.
21. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT, OR (ii) ANY CONDUCT, ACTS OR OMISSIONS OF ANY PARTY HERETO OR ANY OF THEIR DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH THEM; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
22. Miscellaneous. The recitals to this Agreement are incorporated into and made a part of this Agreement. This Agreement may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, but all such counterparts taken together shall constitute one and the same instrument. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legatees, personal representatives, successors and permitted assigns; provided, however, neither Advocat, DLC, SHCM, AFI nor DMSC may assign its respective rights or duties hereunder or in connection herewith or any interest herein (voluntarily, by operation of law, as security or otherwise) without the prior written consent of Omega, which consent may be withheld in the sole discretion of Omega. This Agreement shall not be construed so as to confer any right or benefit upon any person other than the parties to this Agreement and their respective successors and permitted assigns. This Agreement shall be governed by and construed only in accordance with Michigan law, without regard to conflicts of law principles; provided, however, that applicable state law shall control to the extent necessary to effect the real property remedies of Omega and Acquisition set forth herein. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction, which provisions shall remain in full force and effect. This Agreement, the Schedules and Exhibits hereto, constitute the entire agreement between the parties with respect to the transaction herein contemplated and, except as set forth herein, supersede all prior agreements or negotiations between the parties. Any modification or amendment to this Agreement shall be effective only if in writing and executed by the party against whom enforcement of the modification or amendment is sought. Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. ADVOCAT, DLC, SHCM, AFI AND DMSC EACH HAS ENTERED INTO THIS AGREEMENT VOLUNTARILY, WITHOUT DURESS OR INFLUENCE, WITHOUT RELYING ON ANY AGREEMENT OR REPRESENTATION NOT SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND
AFTER HAVING AN ADEQUATE OPPORTUNITY TO CONSULT WITH COUNSEL OF THEIR CHOICE.
23. Exhibits and Schedules. The following Exhibits and Schedules are attached to, and incorporated by reference in, this Agreement:
EXHIBITS:
Exhibit "A" [Intentionally Deleted] Exhibit "B" Amended and Restated Master Lease Exhibit "C" Amended and Restated Security Agreement Exhibit "D" Amended and Restated Guaranty Exhibit "E" Amended and Restated Memorandum of Lease Exhibit "F" Reaffirmation of Obligations (Florida Managed Facilities) Exhibit "G" [Intentionally Deleted] Exhibit "H" Subordinated Note Exhibit "I" Stock Subscription Agreement Exhibit "J" Sublease Guaranty Exhibit "K" Stock Pledge Agreement Exhibit "L [Intentionally Deleted] SCHEDULES: Schedule 1 Master Leased Facilities Schedule 2 Florida Mortgaged Facilities Schedule 3 Florida Managed Facilities Schedule 4 Certain Qualified Capital Expenditures Items Schedule 5 Master Leased Facilities Not Subject to Closure |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
[SIGNATURES ON FOLLOWING PAGE]
ADVOCAT INC., a Delaware corporation DIVERSICARE LEASING CORP., a Tennessee corporation
By: /s/ James F. Mills, Jr. By: /s/ James F. Mills, Jr.
--------------------------------- ---------------------------------
James F. Mills, Jr.
Its: Sr. Vice Pres. Its: Senior Vice President
--------------------------------
STERLING HEALTH CARE MANAGEMENT DIVERSICARE MANAGEMENT
INC., a Kentucky corporation SERVICES CO., a Tennessee
corporation
By: /s/ James F. Mills, Jr. By: /s/ James F. Mills, Jr.
--------------------------------- ---------------------------------
James F. Mills, Jr. James F. Mills, Jr.
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Its: Senior Vice President Its: Senior Vice President
ADVOCAT FINANCE, INC., a Delaware
corporation
By: /s/ James F. Mills, Jr.
---------------------------------
Its: Sr. Vice Pres.
--------------------------------
OMEGA HEALTHCARE INVESTORS, INC., STERLING ACQUISITION CORP., a
a Maryland corporation Kentucky corporation
By: /s/ Susan Allene Kovach By: /s/ Susan Allene Kovach
--------------------------------- --------------------------------
Susan Allene Kovach Susan Allene Kovach
Vice President Vice President
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EXHIBIT 10.2
MASTER LEASE
MULTIPLE LESSEE
MULTIPLE FACILITIES
STERLING ACQUISITION CORP., LESSOR
AND
DIVERSICARE LEASING CORPORATION, LESSEE
DATED: NOVEMBER 8, 2000
(effective October 1, 2000)
TABLE OF CONTENTS
Page
----
RECITALS .................................................................. 1
ARTICLE I ................................................................. 1
1.1 Lease ................................................... 1
1.2 Term .................................................... 2
1.3 Option to Renew ......................................... 2
ARTICLE II ................................................................ 3
2.1 Definitions ............................................. 3
ARTICLE III ............................................................... 25
3.1 Base Rent; Monthly Installments ......................... 25
3.2 Additional Charges ...................................... 26
3.3 Late Charge ............................................. 26
3.4 Net Lease ............................................... 26
3.5 Payments In The Event of a Rent Adjustment .............. 27
ARTICLE IV ................................................................ 27
4.1 Payment of Impositions .................................. 27
4.2 Notice of Impositions ................................... 28
4.3 Adjustment of Impositions ............................... 28
4.4 Utility Charges ......................................... 28
4.5 Insurance Premiums ...................................... 28
ARTICLE V ................................................................. 29
5.1 No Termination, Abatement, etc. ......................... 29
ARTICLE VI ................................................................ 29
6.1 Ownership of the Leased Properties ...................... 29
6.2 Lessor's Personal Property .............................. 30
6.3 Lessee's Personal Property .............................. 30
6.4 Grant of Security Interest in Lessee's Personal
Property and Accounts ................................. 31
ARTICLE VII ............................................................... 31
7.1 Condition of the Leased Properties ...................... 31
7.2 Use of the Leased Properties ............................ 32
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7.3 Certain Environmental Matters ........................................ 32
ARTICLE VIII ...................................................................... 37
8.1 Compliance with Legal and Insurance Requirements ..................... 37
8.2 ...................................................................... 37
Certain Covenants .......................................................... 37
8.4 Management Agreements ................................................ 40
8.5 Other Facilities ..................................................... 40
8.6 Separateness ......................................................... 40
ARTICLE IX ...................................................................... 41
9.1 Maintenance and Repair ............................................... 41
9.2 Encroachments, Restrictions, etc...................................... 42
ARTICLE X ...................................................................... 43
10.1 Construction of Alterations and Additions to the Leased Properties ... 43
ARTICLE XI ...................................................................... 44
11.1 Liens ................................................................ 44
ARTICLE XII ...................................................................... 44
12.1 Permitted Contests ................................................... 44
12.2 Lessor's Requirement for Deposits .................................... 45
ARTICLE XIII .......................................................................45
13.1 General Insurance Requirements ....................................... 45
13.2 Risks to be Insured .................................................. 46
13.3 Payment of Premiums; Copies of Policies, Certificates ................ 47
13.4 Premium Deposits ..................................................... 48
13.5 Umbrella Policies .................................................... 48
13.6 Additional Insurance ................................................. 48
13.7 No Liability; Waiver of Subrogation .................................. 48
13.8 Increase in Limits ................................................... 48
13.9 Blanket Policy ....................................................... 48
13.10 No Separate Insurance ................................................ 49
ARTICLE XIV ....................................................................... 49
14.1 Insurance Proceeds ................................................... 49
14.2 Restoration in the Event of Damage or Destruction .................... 50
14.3 Restoration of Lessee's Property ..................................... 50
14.4 No Abatement of Rent ................................................. 50
14.5 Waiver ............................................................... 50
14.7 Disbursement of Insurance Proceeds Equal to or Greater Than the
Approval Threshold ....................................................50
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14.8 Net Proceeds Paid to Facility Mortgagee..................52
ARTICLE XV.................................................................53
15.1 Total Taking or Other Taking with Leased Property
Rendered Unsuitable for Its Primary Intended Use........53
15.2 Allocation of Award......................................54
15.3 Partial Taking...........................................54
15.4 Temporary Taking.........................................54
15.5 Awards Paid to Facility Mortgagee........................55
ARTICLE XVI................................................................56
16.1 Lessor's Rights Upon an Event of Default.................56
16.2 Certain Remedies.........................................56
16.3 Damages..................................................56
16.4 .........................................................57
16.5 Waiver...................................................57
16.6 Application of Funds.....................................57
16.7 Bankruptcy...............................................58
ARTICLE XVII...............................................................58
17.1 Lessor's Right to Cure Lessee's Default..................58
ARTICLE XVIII..............................................................59
18.1 Holding Over.............................................59
18.2 Indemnity................................................59
ARTICLE XIX................................................................59
19.1 Subordination............................................59
19.2 Attornment...............................................60
19.3 Lessee's Certificate.....................................60
ARTICLE XX.................................................................60
20.1 Risk of Loss.............................................60
ARTICLE XXI................................................................61
21.1 Indemnification..........................................61
ARTICLE XXII...............................................................62
22.1 General Prohibition against Transfers....................62
22.2 Subordination and Attornment.............................62
22.3 Sublease Limitation......................................62
ARTICLE XXIII..............................................................63
23.1 Officer's Certificates and Financial Statements..........63
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23.2 Public Offering Information................................... 65
ARTICLE XXIV.................................................................... 66
24.1 Lessor's Right to Inspect..................................... 66
ARTICLE XXV..................................................................... 66
25.1 No Waiver..................................................... 66
ARTICLE XXVI.................................................................... 66
26.1 Remedies Cumulative........................................... 66
ARTICLE XXVII................................................................... 66
27.1 Acceptance of Surrender....................................... 66
ARTICLE XXIII................................................................... 66
28.1 No Merger of Title............................................ 66
28.2 No Partnership................................................ 67
ARTICLE XXIX.................................................................... 67
29.1 Conveyance by Lessor.......................................... 67
ARTICLE XXX..................................................................... 67
30.1 Quiet Enjoyment............................................... 67
ARTICLE XXXI.................................................................... 67
31.1 Notices....................................................... 67
ARTICLE XXXII................................................................... 68
32.1 Appraisers.................................................... 68
ARTICLE XXXIII.................................................................. 70
33.1 Breach by Lessor.............................................. 70
33.2 Compliance With Facility Mortgage............................. 70
ARTICLE XXXIV................................................................... 70
34.1 Disposition of Personal Property on Termination; Lessor's
Option to Purchase............................................ 70
34.2 Facility Trade Names.......................................... 71
34.3 Transfer of Operational Control of the Facilities............. 71
34.4 Intangibles and Personal Property............................. 73
ARTICLE XXXV.................................................................... 73
35.1 Arbitration................................................... 73
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ARTICLE XXXVI ...................................................... 74
36.1 Miscellaneous ........................................ 74
ARTICLE XXXVII ..................................................... 76
37.1 Commissions .......................................... 76
ARTICLE XXXVIII .................................................... 76
38.1 Memorandum or Short Form of Lease .................... 76
ARTICLE XXXIX ...................................................... 76
39.3 Application of Security Deposit ...................... 77
39.4 Transfer of Security Deposit ......................... 78
EXHIBIT A .......................................................... A-1
DESCRIPTION OF LAND ....................................... A-1
EXHIBIT B .......................................................... B-1
PERMITTED ENCUMBRANCES .................................... B-1
EXHIBIT C .......................................................... C-1
LESSEE'S CERTIFICATE ...................................... C-1
EXHIBIT D .......................................................... D-1
MEMORANDUM OR SHORT FORM OF LEASE ......................... D-1
SCHEDULE A
Excluded Personal Property of Lessee ...................... S-1
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CONSOLIDATED AMENDED AND RESTATED MASTER LEASE
THIS CONSOLIDATED AMENDED AND RESTATED MASTER LEASE ("Lease") is executed and delivered as of this 8th day of November, 2000, effective as of October 1, 2000, and is entered into by (i) STERLING ACQUISITION CORP., a Kentucky corporation ("Lessor"), the address of which is 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108, and (ii) DIVERSICARE LEASING CORPORATION, a Tennessee corporation, the address of which is 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 ("Lessee").
The circumstances underlying the execution and delivery of this Lease are as follows:
A. Capitalized terms used and not otherwise defined herein have the respective meanings given them in Article II, below.
B. The parties hereto are parties to the Existing Leases. Prior hereto, all of the lessor's interests in the Existing Leases have been consolidated into Lessor, and all of the lessee's interests in the Existing Leases have been consolidated into Lessee.
C. The parties hereto wish to amend, restate, and consolidate the Existing Leases on the terms and conditions set forth herein.
NOW THEREFORE Lessor and Lessee agree as follows:
Upon and subject to the terms and conditions hereinafter set forth, Lessor leases to Lessee the Leased Properties located in Alabama, Arkansas, Florida, Kentucky, Ohio, Tennessee, and West Virginia and comprising the Facilities described on EXHIBITS A-1 THROUGH A-28 (the "Leased Properties").
The Existing Leases are hereby amended, restated and consolidated in their entirety as set forth in this Lease to provide for the continued leasing of the Leased Properties by Lessee. From and after the Commencement Date, the leasing of the Leased Properties by Lessee from Lessor, and the rights and obligations of the parties with respect thereto, shall be determined as set forth and described in this Lease. However, the lessees and lessors pursuant to the Existing Leases are only released from those obligations under the Existing Leases only to the extent set forth in the Settlement and Restructuring Agreement.
The Leased Properties are leased subject to all covenants, conditions, restrictions, easements and other matters affecting each Leased Property, whether or not of record, including the Permitted Encumbrances and other matters which would be disclosed by an inspection of the Leased Properties or by an accurate survey thereof, provided, however, that the foregoing will not materially interfere with the Primary Intended Use of the Leased Property by Lessee as set forth in this Lease.
This Lease constitutes one indivisible lease of the Leased Properties to multiple tenants, and not separate leases governed by similar terms. The Leased Properties constitute one economic unit, and the Base Rent and all other provisions have been negotiated and agreed to based on a demise of all of the Leased Properties as a single, composite, inseparable transaction and would have been substantially different had separate leases or a divisible lease been intended. Except as expressly provided herein for specific, isolated purposes (and then only to the extent expressly otherwise stated), all provisions of this Lease apply equally and uniformly to all the Leased Properties as one unit. An Event of Default with respect to any Leased Property is an Event of Default as to all of the Leased Properties. The parties intend that the provisions of this Lease shall at all times be construed, interpreted and applied so as to carry out their mutual objective to create an indivisible lease of all the Leased Properties and, in particular but without limitation, that for purposes of any assumption, rejection or assignment of this Lease under 11 U.S.C. 365, this is one indivisible and non-severable lease and executory contract dealing with one legal and economic unit which must be assumed, rejected or assigned as a whole with respect to all (and only all) the Leased Properties covered hereby.
1.2 Term. The initial term of this Lease ("Initial Term") shall be ten
(10) Lease Years. The Initial Term shall commence on the Commencement Date and
end on the Initial Term Expiration Date, subject to renewal as set forth in
Section 1.3, below.
1.3 Option to Renew. Lessee is hereby granted one (1) option to renew this Lease for an additional, successive period of ten (10) Lease Years, for a maximum Term if such option is exercised of twenty (20) Lease Years, on the following terms and conditions: (a) the option to renew is exercisable only by Notice to Lessor at least three hundred sixty-five (365) days prior to the expiration of the Initial Term; (b) the absence of any Event of Default both at the time a renewal option is exercised and at the commencement of a Renewal Term is a condition precedent to any renewal of the Term; and (c) during a Renewal Term, all of the terms and conditions of this Lease shall remain in full force and effect.
1.4 Saving Provisions. If Lessee fails to notify Lessor of the exercise of the extension option which Lessee has the right to exercise hereunder within the required time, its option to extend shall nevertheless remain full force and effect for a period of fifteen (15) days after Notice from Lessor subsequent to the required time setting forth the expiration date of this Lease and advising Lessee that Notice of extension has not been received.
The right to renew as thereby extended shall expire on the close of business on the fifteenth day after Notice, and may be thereafter not be exercised by Lessee.
ARTICLE II
2.1 Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP as at the time applicable, (iii) all references in this Lease to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease, and (iv) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision.
Additional Charges: All Impositions and other amounts, liabilities and obligations which Lessee assumes or agrees to pay under this Lease, including, without limitation, the Annual Site Inspection Fee.
Adjustment Date: October 1, 2003, and each October 1 thereafter throughout the Term of this Lease.
Advocat: Advocat, Inc., a Delaware corporation.
Advocat Concentration Account: As defined in the Settlement and Restructuring Agreement.
Affiliate: Any Person which, directly or indirectly, Controls or is Controlled by or is under common Control with another Person.
AmSouth: AmSouth Bank.
AmSouth Loan Documents: The documents evidencing and securing the indebtedness of Advocat and its Affiliates to AmSouth as of the date hereof.
Annual Site Inspection Fee: An annual fee of One Thousand Dollars ($1,000.00) for each Facility included within the Leased Properties actually inspected by Lessor during each Lease Year throughout the Term beginning with the Second (2nd) Lease Year which shall be paid by Lessee within thirty (30) days after receipt by Lessee of an invoice therefor together with a copy of the complete site inspection report made with respect to each Facility for which payment is requested.
Approval Threshold: One Hundred Fifty Thousand Dollars ($150,000.00).
Assessment: Any governmental assessment on the Leased Properties or any part thereof for public or private improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term.
Assumed Indebtedness: Any indebtedness or other obligations of third parties from whom Lessor has acquired any Leased Property, expressly assumed in writing by Lessor, and existing at the time of acquisition of the Leased Property secured by a mortgage, deed of trust or other security agreement to which Lessor's title to the Leased Properties is subject.
Award: All compensation, sums or anything of value awarded, paid or received in connection with a total or partial Taking.
Base Rent:
(A) During the Initial Term, the Base Rent shall be:
(1) For the first (1st) Lease Year, Ten Million Eight Hundred Seventy Five Thousand Dollars ($10,875,000.00);
(2) For the second (2nd) Lease Year, Ten Million Eight Hundred Seventy Five Thousand Dollars ($10,875,000.00);
(3) For the third (3rd) Lease Year, Eleven Million Five Hundred Thousand Dollars ($11,500,000.00);
(4) For each of the fourth (4th) through tenth (10th)
Lease Years, the lesser of (i) the Base Rent for the third
(3rd) Lease Year increased by a percentage equal to two (2)
times the percentage increase in the CPI (if positive) from
the commencement date of the third (3rd) Lease Year to the
Adjustment Date in each of the fourth (4th) through tenth
(10th) Lease Years, as applicable and (ii) the following
amounts for each Lease Year:
Lease Year Base Rent
---------------------------- ---------
4 $11,845,000
5 $12,200,350
6 $12,566,360
7 $12,943,351
8 $13.331.651
9 $13,731,601
10 $14,143,549
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Under no circumstances will the Base Rent in any Lease Year be less than the Base Rent during the preceding Lease Year.
(B) During the Renewal Term, the Base Rent shall be:
(1) For the first Lease Year of the Renewal Term, the greater of (a) the Base Rent during the tenth (10th) Lease Year of the Initial Term and (b) the Fair Market Rent for the Leased Properties on the first day of such Renewal Term as agreed upon by Lessor and Lessee, or, if prior to the commencement of the Renewal Term they are unable to agree, as determined by an appraisal pursuant to Article XXXII of this Lease; provided, however, that the Base Rent for the first Lease Year of the Renewal Term shall not exceed one hundred ten percent (110%) of the Base Rent for the Lease Year immediately preceding the commencement of the Renewal Term; and
(2) For each of the second (2nd) through the tenth (10th ) Lease Years during the Renewal Term, the lesser of (i) the Base Rent for the first (1st) Lease Year of the Renewal Term, increased by a percentage equal to two (2) times the percentage increase in the CPI (if positive) from the commencement date of the Renewal Term to the Adjustment Date in each of the second (2nd) through tenth (10th) Lease Years, as applicable (the "Adjustment Date"), and (ii) the product of the Base Rent during the first (1st) Lease Year of the Renewal Term and the following percentage:
Lease Year During
Renewal Term Applicable Percentage
------------------ ---------------------
2 1.03%
3 1.061%
4 1.093%
5 1.126%
6 1.159%
7 1.194%
8 1.23%
9 1.267%
10 1.305%
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Under no circumstances will the Base Rent in any Lease Year during the Renewal Term be less than the Base Rent during the preceding Lease Year.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which national banks in the City of New York, New York are authorized, or obligated, by law or executive order, to close.
Capital Expenditures Reserve Account: As defined in Section 8.3.1.
Capitalization Rate: Nine percent (9%) (See Section 15.3).
Capitalized Leases: Leases that in accordance with GAAP are required to be capitalized for financial reporting purposes.
Capitalized Lease Obligations: All obligations under Capitalized Leases the amount of the indebtedness for which shall be the capitalized amount of such obligations determined in accordance with GAAP.
Casualty/Condemnation Reduction Percentage: The percentage obtained by dividing the Retained Amount by the Investment Amount.
Citation: Any operational or physical plant deficiency set forth in writing with respect to a Facility by any governmental body or agency, or Medicare intermediary, having regulatory oversight over a Facility, Lessee or Manager, with respect to which the scope and severity of the penalty for such deficiency, if not cured, is one or more of the following: loss of licensure, decertification of a Facility from participation in the Medicare and/or Medicaid programs, appointment of a temporary manager or denial of payment for new admissions.
Clean-Up: The investigation, removal, restoration, remediation and/or elimination of, or other response to, Contamination, in each case to the satisfaction of all governmental agencies having jurisdiction, in compliance with or as may be required by Environmental Laws.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: October 1, 2000, even though this Lease has been executed subsequent thereto. Base Rent and other payments made by Lessee under the Existing Leases attributable to the period on and after October 1, 2000 and prior to the date of execution of this Lease shall be applied to Base Rent and other payments due hereunder.
Condemnor: Any public or quasi-public authority, or private corporation or individual, having the power of condemnation.
Consolidated Financial Statement:
(a) For each quarter during Lessee's fiscal year, on a consolidated basis for Lessee, (i) a statement of earnings for the current period and fiscal year to the end of such period, with a comparison to the corresponding figures for the corresponding period in the preceding fiscal year from the beginning of the fiscal year to the end of such period,
and (ii) a balance sheet as of the end of the period, with a comparison to the corresponding figures for the corresponding period in the preceding fiscal year from the beginning of the fiscal year to the end of such period.
(b) For Lessee's fiscal year, the Consolidated Financial Statement shall be a financial report for Lessee on a consolidated basis, reviewed by a "big five" accounting firm or any other firm of independent certified public accountants reasonably acceptable to Lessor, containing the Lessee's balance sheet as of the end of that year, its related profit and loss, a statement of shareholder's equity for that year, a statement of cash flows for that year, and such comments and financial details as are customarily included in reports of like character. Lessor shall have the right upon reasonable Notice to Lessee to cause any such Consolidated Financial Statement to be audited at Lessor's expense by certified public accountants selected by Lessor. Lessee shall cooperate in any such audit and shall provide the auditors selected by Lessor with access to and the opportunity to copy at Lessor's expense such books, records and other materials as such auditors may reasonably request in order to perform their audit.
(c) For Advocat's fiscal year, the Consolidated Financial Statements shall be an audited financial report prepared by a "big five" accounting firm or any other firm of independent certified public accountants reasonably acceptable to Lessor, containing Advocat's balance sheet as of the end of that year, its related profit and loss, a statement of shareholder's equity for that year, a statement of cash flows for that year, and such comments and financial details as are customarily included in reports of like character and the opinion of the certified public accountants as to the fairness of the statements therein.
Construction Funds: The such additional funds as may be deposited with Lessor by Lessee pursuant to Section 14.6 for restoration or repair work pursuant to this Lease.
Contamination: The presence, Release or threatened Release of any Hazardous Substance at the Leased Properties in violation of any Environmental Law, or in a quantity that would give rise to any affirmative Clean-Up obligations under an Environmental Law, including, but not limited to, the existence of any injury or potential injury to public health, safety, natural resources or the environment associated therewith, or any other environmental condition at, in, about, under or migrating from or to the Leased Properties.
Control (and its corollaries "Controlled by" and "under common Control with"): Possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, through the ownership of voting securities, partnership interests or other equity interests, or by any other device.
CPI or Consumer Price Index: As of any date, the United States Department of Labor, Bureau of Labor Statistics Revised Consumer Price Index for All Urban
Consumers (1982=84=100), U.S. City Average, All Items, or, if that index is not available at the time in question, the index designated by such Department as the successor to such index, and if there is no index so designated, an index for an area in the United States that most closely corresponds to the entire United States, published by such Department, or if none, by any other instrumentality of the United States, calculated in this Lease as the CPI attributable to the month three months prior to the applicable date herein (e.g., the CPI used to calculate the adjustment in Base Rent as of October 1, 2005, shall be the CPI for the month of July, 2005, compared to the CPI for the month of July, 2002).
Coverage Ratio: For any period, the ratio of EBITDARM divided by Debt Service.
Current Ratio: At any period, Lessee's Current Assets divided by Lessee's Current Liabilities.
Date of Taking: The date on which the Condemnor has the right to possession of the Leased Property that is the subject of the Taking or Partial Taking.
Debt: As of any date, all (a) obligations of a , whether current or long-term, that in accordance with GAAP should be included as liabilities on such Person's balance sheet; (b) Capitalized Lease Obligations of such Person; (c) obligations of others for which that Person is liable directly or indirectly, by way of guaranty (whether by direct guaranty, suretyship, discount, endorsement, take-or-pay agreement, agreement to purchase or advance or keep in funds or other agreement having the effect of a guaranty) or otherwise; (d) liabilities and obligations secured by liens of any assets of that Person, whether or not those liabilities or obligations are recourse to that Person; and (e) liabilities of that Person, direct or contingent, with respect to letters of credit issued for the account of that Person or others or with respect to bankers acceptances created for that Person.
Debt Service: With respect to any fiscal period of a Person, the sum of (a) all interest due on Debt during the period (other than interest imputed, pursuant to GAAP, on any Capitalized Lease Obligations and interest on Debt that comprises Purchase Money Financing), (b) all payments of principal of Debt required to be made during the period and (c) all Rent due during the period.
Distribution: Any payment or distribution of cash or any assets of Lessee or a Sublessee to one or more shareholders of Lessee or to any Affiliate of Lessee, whether in the form of a dividend, a fee for management in excess of the fee required by the terms of a Management Agreement, a payment for services rendered (except as provided in the next sentence), a reimbursement for overhead incurred on behalf of Lessee, or a payment on any debt required by this Lease to be subordinated to the rights of Lessee. Notwithstanding the foregoing, none of the following are a Distribution: (i) payment of the fee permitted by the terms of the Management Agreement, (ii) any payment pursuant to a contract with an Affiliate of Lessee or Sublessee which contract is upon terms and
conditions that are fair and substantially similar to those that would be available on an arm's length basis, and (iii) reimbursement by Lessee or Sublessee to an Affiliate for third party expenses (but not overhead) paid by the Affiliate on behalf of or which are fairly allocable to Lessee or Sublessee.
DLC: Diversicare Leasing Corporation, a Tennessee corporation and a Lessee herein.
EBITDARM: For any period, the sum of (a) Net Income of Lessee
arising solely from the operation of the Facilities during the period, and (b)
the amounts deducted in computing the Net Income of Lessee for the period for
(i) depreciation. (ii) amortization, (iii) Base Rent, (iv) interest (including
payments in the nature of interest under Capitalized Leases and interest on any
Purchase Money Financing), (v) income taxes (or, if greater, income taxes
actually paid during the period) and (vi) management fees.
Encumbrance: Any mortgage, deed of trust, lien, encumbrance or other matter affecting title to the Leased Properties, or any portion thereof or interest therein, securing any borrowing or other means of financing or refinancing.
Environmental Audit: A written certificate, in form and substance satisfactory to Lessor, from an environmental consulting or engineering firm acceptable to Lessor, which states that there is no Contamination on the Leased Properties and that the Leased Properties are otherwise in strict compliance with Environmental Laws.
Environmental Documents: Each and every (i) document received by Lessee or any Affiliate from, or submitted by Lessee or any Affiliate to, the United States Environmental Protection Agency and/or any other federal, state, county or municipal agency responsible for enforcing or implementing Environmental Laws with respect to the condition of the Leased Properties, or Lessee's operations at the Leased Properties; and (ii) review, audit, report, or other analysis data pertaining to environmental conditions, including, but not limited to, the presence or absence of Hazardous Substances, at, in, or under or with respect to the Leased Properties that have been prepared by, for or on behalf of Lessee.
Environmental Laws: All federal, state and local laws (including, without limitation, common law), statutes, codes, ordinances, regulations, rules, orders, permits or decrees of the United States and the States (or any political subdivision thereof) in which any Leased Property is located relating to the introduction, emission, discharge or Release of Hazardous Substances into the indoor or outdoor environment (including without limitation, air, surface water, groundwater, land or soil) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, transportation, disposal, or Release of Hazardous Substances; or the Clean-Up of Contamination, all as are now or may hereinafter be in effect.
Event of Default: The occurrence of any of the following:
(a) Lessee fails to pay or cause to be paid the Rent when
due and payable and such failure is not cured by Lessee within a period of five
(5) days after Notice thereof from Lessor, provided that Lessee shall be
entitled to such Notice and may avail itself of such cure period no more than
two (2) times in any calendar year;
(b) Lessee, on a petition in bankruptcy filed against it,
is adjudicated a bankrupt or has an order for relief thereunder entered against
it, or a court of competent jurisdiction enters an order or decree appointing a
receiver of Lessee or any Guarantor or of the whole or substantially all of its
property, or approving a petition filed against Lessee seeking reorganization or
arrangement of Lessee under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof, and such
judgment, order or decree is not vacated or set aside or stayed within sixty
(60) days from the date of the entry thereof, subject to the applicable
provisions of the Bankruptcy Code (11 USC ss.101 et. seq.) and to the provisions
of Section 16.7, below;
(c) Lessee: (i) Admits in writing its inability to pay
its debts generally as they become due, (ii) files a petition in bankruptcy or a
petition to take advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the appointment of
a receiver of itself or of the whole or any substantial part of its property, or
(v) files a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, subject to the applicable provisions of
the Bankruptcy Code (11 USC ss.101 et. seq.) and to the provisions of Section
16.7, below;
(d) Lessee is finally liquidated or dissolved, or begins proceedings toward such liquidation or dissolution, or has filed against it a petition or other proceeding to cause it to be liquidated or dissolved and the proceeding is not dismissed within thirty (30) days thereafter, or Lessee in any manner permits the sale or divestiture of substantially all of its assets necessary or related to the use and operation of the Leased Properties;
(e) The estate or interest of Lessee in the Leased Properties or any part thereof is levied upon or attached in any proceeding and the same is not vacated or discharged within thirty (30) days thereafter (unless Lessee is in the process of contesting such lien or attachment in good faith in accordance with Article XII hereof);
(f) Lessee voluntarily ceases operation of any Facility for a period in excess of five (5) Business Days except upon prior Notice to, and with the express prior written consent of Lessor pursuant to the terms of the Settlement and Restructuring Agreement or other written agreement of the Lessor and Lessee, or as the unavoidable consequence of damage or destruction as a result of a casualty, or a Partial or total Taking;
(g) Any representation or warranty made by Lessee in the Settlement and Restructuring Agreement, the Stock Issuance and Subscription Agreement, or in the certificates delivered in connection therewith proves to be untrue when made in any material respect, Lessor is materially and adversely affected thereby, and Lessee fails within thirty (30) days after Notice from Lessor thereof to cure such condition by terminating such adverse effect and making Lessor whole for any damage suffered therefrom, or, if with due diligence such cure cannot be effected within thirty (30) days, if Lessee has failed to commence to cure the same within the thirty (30) days or failed thereafter to proceed promptly and with due diligence to cure such condition and complete such cure prior to the time that such condition causes a default in any Facility Mortgage or any other lease to which Lessee is subject and prior to the time that the same results in civil or criminal penalties to Lessor, Lessee, any Affiliates of either or the Leased Properties;
(h) Lessee (or, if applicable, any Sublessee or Manager):
(i) has its license to operate any Facility as a provider of health care services in accordance with its Primary Intended Use suspended or revoked, or its right to so operate a Facility suspended, and the effect of such suspension or revocation is not stayed or cured within forty-eight (48) hours of Lessee's first knowledge thereof;
(ii) has its right to accept patients suspended, and the effect is not stayed or cured within thirty (30) days of Lessee's first knowledge thereof;
(iii) receives a Citation with respect to a Facility and fails to cure the condition that is the subject of the Citation within the period of time required for such cure by the issuer of the Citation or, if longer, the period of time set forth in a Plan of Correction accepted by the issuer of the Citation;
Notwithstanding the foregoing, the conditions described in the Subsection (h)
shall not be an Event of Default if such conditions at any time are applicable
to two (2) or fewer Facilities, and if Lessee complies with the provisions of
Section 39.2 relating to increasing the Security Deposit.
(i) Lessee defaults, or permits a default (which default was not exclusively in Lessor's control) under any , related documents or obligations thereunder which default is not cured within any applicable cure period provided for therein;
(j) A default occurs under any , which default is not cured within the applicable cure period, if any;
(k) A Transfer occurs without the prior written consent of Lessor;
(l) A default occurs under the Security Agreement, which default is not cured within the applicable cure period, if any;
(m) A default occurs under the Settlement and Restructuring Agreement, which default is not cured within the applicable cure period, if any;
(n) Advocat fails to begin paying interest on the Subordinated Note, fails to begin paying cash dividends on the Preferred Stock (as defined in the Settlement and Restructuring Agreement) or defaults beyond any applicable notice and cure period in its obligations under the Subordinated Note or the instruments governing the Preferred Stock.
(o) A default occurs under the Subordinated Note, which default is not cured within the applicable cure period, if any;
(p) A default occurs under the Stock Issuance and Subscription Agreement, which default is not cured within the applicable cure period, if any;
(q) A default by Lessee occurs under any other contract affecting any which default results in a material adverse affect on any Facility or Lessee, and which default is not cured within the applicable time period, if any;
(r) Any "Triggering Event" occurs under the terms of the Settlement and Restructuring Agreement;
(s) Lessee or an of Lessee defaults beyond any applicable grace period in the payment of any material amount or the performance of any material act required of Lessee or such by the terms of any other lease or other agreement between Lessee or such and Lessor or any of Lessor;
(t) Lessee fails to observe or perform any other term, covenant or condition of this Lease and the failure is not cured by Lessee within a period of thirty (30) days after Notice thereof from Lessor, unless the failure cannot with due diligence be cured within a period of thirty (30) days, in which case such failure shall not be deemed an Event of Default if and for so long as Lessee proceeds promptly and with due diligence to cure the failure and completes the cure prior to the time that the same causes a default in any Facility Mortgage and prior to the time that the same results in civil or criminal penalties to Lessor, Lessee, any Affiliates of either or to the Leased Properties; or
(u) Lessee breaches any of the covenants set forth in
Article VIII hereof and the breach is not cured within a period of the shorter
of (i) thirty (30) days after the Notice thereof from Lessor, and (ii) fifteen
(15) days following the date of delivery of a certificate pursuant to Section
23.1 (i) or 23.1 (ii).
Lessor, at Lessor's sole discretion, may deliver Notice to Lessee electing to not treat a default as an Event of Default hereunder.
Executive Officer: The Chairman of the Board of Directors, the Chief Executive Officer, the Chief Operating Officer, the President, any Vice President and the Secretary of any corporation, a general partner of any partnership and a managing member of any limited liability company upon which service of a Notice is to be made.
Existing Leases: (i) That certain Master Lease dated August 14, 1992 by and between Diversicare Corporation of America, Inc., as lessee, and Omega Healthcare Investors, Inc., as lessor covering nineteen (19) of the Facilities located in Tennessee, Arkansas and Alabama, as amended by Consent, Assignment and Amendment Agreement dated May 10, 1994 and First Amendment to Master Lease dated as of March 3,1999, the lessee's interest in which has been assigned to and assumed by Lessee and the lessor's interest in which has been acquired by the lessor herein; and
(ii) That certain Master Lease dated December 1, 1994 by and between SHMC, as lessee, and the Lessor herein, as lessor, covering six (6) of the Facilities located in Kentucky and Ohio, as amended by First Amendment to Master Lease dated as of March 3, 1999, the lessee's interest in which has been assigned to and assumed by Lessee; and
(iii) That certain Master Sublease dated December 1, 1994 by and between Sterling Health Care Management, Inc., a Kentucky corporation, as sublessee, and OS Leasing Company, as sublessor and as lessee under an Overlease with Sterling Acquisition Corp. II, as lessor, covering one (1) of the Facilities located in Ohio, as amended by First Amendment to Master Sublease dated as of March 3, 1999, the Lessee's interest in which has been assigned to and assumed by Lessee and the sublessor's interest in which, as well as the lessor's interest under the Overlease, has been acquired by the Lessor herein; and
(iv) That certain Master Lease dated February 1, 1997 by and between Sterling Health Care Management, Inc., a Kentucky corporation, as lessee, and Lessor here, as lessor, covering the two (2) Facilities located in West Virginia, as amended by First Amendment to Master Lease dated as of August 10, 2000.
Expiration Date: The Initial Term Expiration Date or the Renewal Term Expiration Date, as applicable.
Facility(ies): Each health care facility on the Land, including the Leased Property associated with such Facility, and together, all such facilities on the Leased Properties.
Facility Mortgage: Any mortgage, deed of trust or other security agreement placed upon any or all of the Leased Properties and of which Notice together with a copy of such mortgage, deed of trust or other security agreement has been provided to Lessee, which with the express, prior, written consent of Lessor is a lien upon any or all of the Leased Properties, whether such lien secures an Assumed Indebtedness or another obligation or obligations.
Facility Mortgagee: The secured party to a Facility Mortgage.
Facility Trade Names: The name(s) under which the Facilities have done business during the Term. The Facility Trade Names in use by the Facilities on the Commencement Date are set forth on attached EXHIBIT A.
Fair Market Rent: The rent that, at the relevant time, a Facility would most probably command in the open market, under a lease on substantially the same terms and conditions as are set forth in this Lease with a lessee unrelated to Lessor having experience and a reputation in the health care industry and a credit standing reasonably equivalent to that of Lessee, and, if this Lease is guaranteed, with such lease being guaranteed by guarantors having a net worth at least equal to that of Guarantors, with evidence of such rent being the rent that is being asked and agreed to at such time under any leases of facilities comparable to such Facility being entered into at such time in which the lessees and lease guarantors meet the qualifications set forth in this sentence. Fair Market Rent shall be determined in accordance with the appraisal procedure set forth in Article XXXII or in such other manner as may be mutually acceptable to Lessor and Lessee.
Fair Market Value: The fair market value of a Facility at the relevant time (i) assuming the same is unencumbered by this Lease, and (ii) determined in accordance with the appraisal procedure set forth in Article XXXII or in such other manner as may be mutually acceptable to Lessor and Lessee.
Fixtures: Collectively, all permanently affixed equipment, machinery, fixtures, and other items of real and/or personal property (excluding Lessor's Personal Property), including all components thereof, now and hereafter located in, on or used in connection with, and permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus (other than individual units), sprinkler systems and fire and theft protection equipment, built-in oxygen and vacuum systems, towers and other devices for the transmission of radio, television and other signals, all of which, to the greatest extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto.
Force Majeure: An event or condition beyond the control of a Person, including without limitation a flood, earthquake, or other Act of God; a fire or other casualty resulting in a complete or partial destruction of the Facility in question; a war, revolution, riot, civil insurrection or commotion, terrorism, or vandalism; unusual governmental action, delay, restriction, or regulation not reasonably to be expected; a contractor or supplier delay or failure in performance (not arising from a failure to pay any undisputed amount due), or a delay in the delivery of essential equipment or materials; bankruptcy or other insolvency of a contractor, subcontractor, or construction manager (not an Affiliate of the party claiming Force Majeure); a strike, slowdown, or other similar labor action; or any other similar event or condition beyond the reasonable control of the party claiming that Force Majeure is delaying or preventing such party from timely and fully performing its obligations under this Lease; provided that in any such event, the party claiming the existence of Force Majeure shall have given the other party Notice of such claim within fifteen (15) days after becoming aware thereof, and if the party claiming Force Majeure shall fail to give such Notice, then the event or condition shall not be considered Force Majeure for any period preceding the date such Notice shall be given. No lack of funds shall be construed as Force Majeure.
GAAP: Generally accepted accounting principles in effect at the time in question.
Gross Revenues: All revenues received or receivable from or by reason of the operation of the Facilities, or any other use of the Leased Properties, including without limitation all patient revenues received or receivable for the use of or otherwise by reason of all rooms, beds, and other facilities provided, meals served, services performed, space or facilities subleased or goods sold on the Leased Properties and, except as provided below, any consideration received for any sublease, license or other arrangement with an unrelated third party in possession, or using, any portion of the Leased Properties. Gross Revenues shall not, however, include:
(i) revenue from professional fees or charges by physicians when and to the extent such charges are paid over to such physicians or are accompanied by separate charges for use of a Facility or any portion thereof,
(ii) non-operating revenues such as interest income or income from the sale of assets not sold in the ordinary course of business,
(iii) contractual allowances and reasonable reserves (relating to any period during the Term) for billings not paid by or received from the appropriate governmental agencies, third party providers or other payors,
(iv) all proper patient billing credits and adjustments according to generally accepted accounting principles relating to health care accounting, and
(v) federal, state or local sales or excise taxes and any tax based upon or measured by said revenues which is added to or made a part of the amount billed to the patient or other recipient of such services or goods, whether included in the billing or stated separately.
If any of the Leased Properties or any part thereof is subleased, or a license permitting the use thereof is granted to an Affiliate of Lessee, Gross Revenues shall include all revenues received or receivable by the sublessee or licensee from its use of the Leased Properties and any rent or equivalent payment by the sublessee or licensee received or receivable by Lessee from such sublease or licensee shall be excluded from Gross Revenues (provided, however, that in the case of a sublease of space for the placement or erection of antennae or similar device, the rent or equivalent payment shall be included in Gross Revenues).
Guarantor(s): Advocat, Diversicare Management Services Co., a Tennessee corporation, and Advocat Finance, Inc., a Delaware corporation.
Guaranty: The Amended and Restated Guaranty of even date herewith executed by the Guarantors.
Hazardous Substance: Any dangerous, toxic or hazardous material, substance, pollutant, contaminant, chemical, or waste (including, without limitation, medical waste) defined, listed or described as such under any Environmental Law, including, without limitation, petroleum products, asbestos and PCBs.
Impositions: Collectively, all taxes (including, without
limitation, all capital stock and franchise taxes of Lessor, and all ad valorem,
sales and use, single business, gross receipts, transaction privilege, rent or
similar taxes to the extent the same are assessed against Lessor on the basis of
its interest in the Leased Property), assessments (including Assessments),
ground rents, water, sewer or other rents and charges, excises, tax levies, fees
(including, without limitation, license, permit, inspection, authorization and
similar fees), and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Properties or the businesses conducted
thereon by Lessee and/or the Rent (including all interest and penalties
thereon), which at any time prior to, during or in respect of the Term may be
assessed or imposed on or in respect of or be a lien upon (i) Lessor or Lessor's
interest in the Leased Properties, (ii) the Leased Properties or any part
thereof or any rent therefrom or any estate, right, title or interest therein,
(iii) any occupancy, operation, use or possession of, or sales from, or activity
conducted on, or in connection with the Leased Properties or the leasing or use
of the Leased Properties or any part thereof, or (iv) the Rent; notwithstanding
the foregoing, Impositions shall not include: (i) except as provided above, any
tax imposed on Lessor's gross and/or net income whether generally or
specifically arising in connection with the Leased Properties, or (ii) any
transfer or other tax imposed with respect to the sale, exchange or other
disposition
by Lessor of the Leased Properties or any part thereof or the proceeds thereof. If a tax is assessed against Lessor in part based on Lessor's interest in the Leased property and in part based on Lessor's gross and/or net income, the portion of the tax which is based on Lessor's interest in the Leased property shall be treated as an Imposition.
Initial Term: As defined in Section 1.2 hereof.
Initial Term Expiration Date: September 30, 2010
Insurance Requirements: All terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy.
Intercreditor Agreement: Intercreditor Agreement of even date herewith by and between Lessor and AmSouth.
Investigation: Any soil and chemical test or any other environmental investigation, examination or analysis.
Investment Amount: $96,635,048.00, increased by a percentage equal to the percentage increase in the CPI from the Commencement Date through the applicable Proceeds Date.
Judgment Date: The date on which a judgment is entered against Lessee which establishes, without the possibility of appeal, the amount of liquidated damages to which Lessor is entitled hereunder.
Land: The real property described in EXHIBITS A-1 THROUGH A-28 attached hereto.
Lease: As defined in the Preamble.
Lease Year: October 1, 2000 through September 30, 2001, and each twelve month period thereafter.
Leased Improvements: Collectively, all buildings, structures, Fixtures and other improvements of every kind on the Land including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures.
Leased Property: The portion of the Land on which a Facility is located, the legal description of which is set forth beneath the Facility's name on EXHIBITS A-1 THROUGH A-28, the Leased Improvements on such portion of the Land, the Related Rights with respect to such portion of the Land, and Lessor's Personal Property with respect to such Facility.
Leased Properties: All of the Land, Leased Improvements, Related Rights and Lessor's Personal Property.
Legal Requirements: All federal, state, county, municipal and other governmental statutes, laws, rules, orders, waivers, regulations, ordinances, judgments, decrees and injunctions affecting the Leased Properties or any portion thereof, Lessee's Personal Property or the construction, use or alteration thereof, including but not limited to the Americans with Disabilities Act, whether enacted and in force before, after or on the Commencement Date, and including any which may (i) require repairs, modifications, alterations or additions in or to any portion or all of the Facilities, or (ii) in any way adversely affect the use and enjoyment thereof, and all permits, licenses and authorizations and regulations relating thereto including, but not limited to, those relating to existing health care licenses, those authorizing the current number of licensed beds and the level of services delivered from the Leased Properties, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Lessee (other than encumbrances created by Lessor without the consent of Lessee), in force at any time during the Term.
Lessee: The Lessee under this Lease from time to time, subject to Section 22.1.
Lessee's Certificate: A statement in writing in substantially the form of EXHIBIT C attached hereto (with such changes thereto as may reasonably be requested by the person relying on such certificate).
Lessee's Current Assets: At any date, all assets of Lessee and Sublessees that, on a consolidated basis in conformity with GAAP, should be carried as current assets on the balance sheet of Lessee at such date.
Lessee's Current Liabilities: At any date, all liabilities of Lessee and Sublessees that, on a consolidated basis in conformity with GAAP, should be carried as current liabilities on the balance sheet of Lessee at such date.
Lessee's Personal Property: Personal Property owned or leased by Lessee that is not included within the definition of Lessor 's Personal Property but is used by Lessee in the operation of the Facilities, including Personal Property provided by Lessee in compliance with Section 6.3 hereof.
Lessor's Future Rent Loss: An amount equal to the Rent which would have been payable by Lessee from and after the Liquidated Damages Payment Date through the Expiration Date had the Lease not been terminated.
Lessor's Interim Rent Loss: An amount equal to the Rent which would have been payable by Lessee from the Termination Date through the Judgment Date
had the Lease not been terminated (including interest and late charges determined on the basis of the date or dates on which Lessor's Interim Rent Loss is actually paid by Lessee).
Lessor's Monthly Rent Loss: For any month, an amount equal to the installment of Rent which would have been due in such month under the Lease if it had not been terminated, plus, if such amount is not paid on or before the day of the month on which such installment of Rent would have been due, the amount of interest and late charges thereon which would also have been due under the Lease.
Lessor's Personal Property: All Personal Property and intangibles, if any, now or hereafter owned by Lessor, together with any and all replacements thereof, and all Personal Property that pursuant to the terms of the Lease becomes the property of Lessor during the Term. Lessee hereby acknowledges that Lessor's Personal Property includes all Personal Property now located at or used in the operation of the Facilities as of the date hereof, except the Personal Property set forth on SCHEDULE __ attached hereto.
Liquidated Damages Payment Date: The date on which Lessee pays Lessor all of the liquidated damages for which it is liable under Article XVI.
Management Agreement: Any agreement pursuant to which management of a Facility is delegated by Lessee to any person not an employee of Lessee or to any other related or unrelated party.
Manager: The Person to which management of the operation of a Facility is delegated pursuant to a Management Agreement, which at the Commencement Date is Diversicare Management Services Co., a Tennessee corporation.
Minimum Qualified Capital Expenditures: As defined in Section 8.3.2.
Net Income: For any period, the net income (or loss) of Lessee and its subsidiaries for such period, determined on a consolidated basis and in accordance with GAAP, provided, however, that Lessee's Net Income shall not include:
(a) any after-tax gains or losses attributable to returned surplus assets of any pension-benefit plan;
(b) any extraordinary gains or nonrecurring gains;
(c) any gains or losses realized upon the sale or other disposition of property which is not sold or otherwise disposed of in the ordinary course of business;
(d) any gains or losses realized upon the sale or other disposition of any capital stock of any Person;
(e) any gains from the disposal of a discontinued business;
(f) the cumulative effect on prior years of any change in an accounting principle;
(g) the income or loss of any Person acquired by Lessee or an Affiliate in a pooling of interests transaction for any period prior to the date of such acquisition;
(h) the income from any sale of assets in which the book value of such assets had been the book value of any Person acquired in a pooling-of-interests transaction prior to the date such Person became an Affiliate of Lessee;
(i) the income (or loss) of any Person (other than a subsidiary) in which Lessee has an ownership interest; provided, however, that (i) Lessee's Net Income shall include amounts in respect of the income of such Person when actually received in cash by Lessee in the form of dividends or similar distributions and (ii) Lessee's Net Income shall be reduced by the aggregate amount of all investments, regardless of the form thereof, made by Lessee in such Person for the purpose of funding any deficit or loss of such Person;
(j) the income of Lessee to the extent the payment of such income is not permitted, whether on account of any law, statute, judgment, decree or governmental order, rule or regulation applicable to such Lessee;
(k) all amounts included in computing such net income (or loss) in respect of the write-up of any asset or the write-down of any Debt at less than face value after the later of the Commencement Date or the date on which such asset or Debt was first properly included on Lessee's balance sheet.
(l) the reduction in income tax expense resulting from an increase in a deferred income tax asset due to the anticipation of future income tax benefits; or
(m) the reduction in income tax expense resulting from an increase in a deferred income tax asset or from a decrease in a deferred income tax liability due to a change in a statutory tax rate.
Net Proceeds: All proceeds, net of any costs incurred by Lessor in obtaining such proceeds, payable by reason of any loss or damage to any Leased Property under any policy of insurance required by Article XIII of this Lease (including any proceeds with respect to Lessee's Personal Property that Lessee is required or elects to restore or
replace pursuant to Section 14.3) or paid by a Condemnor for the Taking of any of all or any portion of a Leased Property.
Net Reletting Proceeds: Proceeds of the reletting of any portion of the Leased Property received by Lessor, net of Reletting Costs.
New Sub: As defined in the Settlement and Restructuring Agreement.
Notice: A notice given in accordance with Article XXXI hereof.
Notice of Termination: A Notice from Lessor that it is terminating this Lease by reason of an Event of Default.
Officer's Certificate: If for a corporation, a certificate signed by one or more officers of the corporation authorized to do so by the bylaws of such corporation or a resolution of the Board of Directors thereof; if for a partnership, limited liability company or any other kind of entity, a certificate signed by a Person having the authority to so act on behalf of such entity.
Omega: Omega Healthcare Investors, Inc., a Maryland corporation.
Overdue Rate: On any date, the interest rate that is equal to three and one-half percent (3 1/2%) (three hundred fifty (350) basis points) above the Prime Rate, but in no event greater than the maximum rate then permitted under applicable law.
Partial Taking: A taking of less than the entire fee of a Leased Property that either (i) does not render the Leased Property Unsuitable for its Primary Use, or (ii) renders a Leased Property Unsuitable for its Primary Intended Use, but neither Lessor nor Lessee elects pursuant to Section 15.1 hereof to terminate this Lease.
Payment Date: Any due date for the payment of the installments of Base Rent or for the payment of Additional Charges or any other amount required to be paid by Lessee hereunder.
Permitted Encumbrances: Encumbrances listed on attached
EXHIBIT B.
Person: Any natural person, trust, partnership, corporation, joint venture, limited liability company or other legal entity.
Personal Property: All machinery, equipment, furniture, furnishings, movable walls or partitions, computers (and all associated software), trade fixtures and other personal property (but excluding consumable inventory and supplies owned by Lessee) used in connection with the Leased Properties, together with all replacements and
alterations thereof and additions thereto, except items, if any, included within the definition of Fixtures or Leased Improvements.
Present Value: The value of future payments, determined by discounting each such payment at a rate equal to the yield on the specified date on securities issued by the United States Treasury (bills, notes and bonds) maturing on the date closest to the date such future payment would have been due.
Primary Intended Use: Skilled nursing facilities, except as specifically set forth on SCHEDULE __ attached hereto.
Prime Rate: On any date, an interest rate equal to the prime rate published by the Wall Street Journal, but in no event greater than the maximum rate then permitted under applicable law. If the Wall Street Journal ceases to be in existence, or for any reason no longer publishes such prime rate, the Prime Rate shall be the rate announced as its prime rate by Fleet Bank, and if such bank no longer exists or does not announce a prime rate at such time, the Prime Rate shall be the rate of interest announced as its prime rate by a national bank selected by Lessor.
Proceeding: Any action, proposal or investigation by any agency or entity, or any complaint to such agency or entity.
Proceeds Date: Any date upon which Lessor or a Facility Mortgagee receives a Retained Amount.
Purchase Money Financing: Any financing provided by a Person to Lessee in connection with the acquisition of Personal Property used in connection with the operation of a Facility, whether by way of installment sale or otherwise.
Qualified Capital Expenditures: Expenditures capitalized on the books of Lessee for alterations, renovations, repairs and replacements to the Facilities including without limitation any of the following:
Replacement of furniture, fixtures and equipment, including refrigerators, ranges, major appliances, bathroom fixtures, doors (exterior and interior), central air conditioning and heating systems (including cooling towers, water chilling units, furnaces, boilers and fuel storage tanks) and major replacement of siding; major roof replacements, including major replacements of gutters, down spouts, eaves and soffits; major repairs and replacements of plumbing and sanitary systems; overhaul of elevator systems; major repaving, resurfacing and sealcoating of sidewalks, parking lots and driveways; repainting of entire building exterior; but excluding
additions, normal maintenance and repairs. For purposes of this definition, "additions" shall mean any expansion of a Facility, including the construction of a new wing or a new story on an existing Facility.
Regulatory Actions: Any claim, demand, notice, action or proceeding brought, threatened or initiated by any governmental authority in connection with any Environmental Law, including, without limitation, civil, criminal and administrative proceedings, whether or not the remedy sought is costs, damages, equitable remedies, penalties or expenses.
Related Rights: All easements, rights and appurtenances relating to the Land and the Leased Improvements.
Release: The intentional or unintentional spilling, leaking, dumping, pouring, emptying, seeping, disposing, discharging, emitting, depositing, injecting, leaching, escaping, abandoning, or any other release or threatened release, however defined, of any Hazardous Substance.
Reletting Costs: Expenses incurred by Lessor in connection with the reletting of the Leased Properties in whole or in part after an Event of Default, including without limitation attorneys' fees and expenses, brokerage fees and expenses, marketing expenses and the cost of repairs and renovations reasonably required for such reletting.
Renewal Term: A period for which the Term is renewed in accordance with Section 1.3.
Renewal Term Expiration Date: September 30, 2020.
Rent: Collectively, the Base Rent and Additional Charges.
Replacement Cost: As to each Leased Property, the actual replacement cost of such Leased Improvements, Fixtures and Personal Property, including an increased cost of construction endorsement, less exclusions provided in the standard form of fire insurance policy. In all events Replacement Cost shall be an amount sufficient that neither Lessor nor Lessee is deemed to be a co-insurer of the Leased Property in question. Lessor shall have the right from time to time, but no more frequently than once in any period of three (3) consecutive Lease Years, to have Replacement Cost reasonably redetermined by the fire insurance company which is then carrying the largest amount of fire insurance on the Leased Properties, which determination shall be final and binding on the parties hereto, and upon such determination Lessee shall forthwith increase, but not decrease, the amount of the insurance carried pursuant to Section 13.2.1 to the amount so determined, subject to the approval of any Facility Mortgagee. Lessee shall pay the fee, if any, of the insurer making such determination.
Retained Amount: An amount equal to either (a) Net Proceeds received by Lessor and/or a Facility Mortgagee pursuant to the terms of Article 14 of this Lease, if such Net Proceeds are not made available for the restoration of the Leased Property or (b) an Award received by Lessor and/or a Facility Mortgagee pursuant to Article 15 of this Lease, if such Award is not made available to the Lessee for the restoration of the Leased Property.
SEC: Securities and Exchange Commission.
Security Agreement: The Security Agreement dated as of the date hereof between Lessor as secured party and Lessee as debtor.
Security Deposit: Three Hundred Forty Thousand Three Hundred Four and 35/100 Dollars ($340,304.35), delivered and held in accordance with Article XXXIX hereof.
Settlement and Restructuring Agreement: The Settlement and Restructuring Agreement of even date herewith by and among Lessee, the Guarantors, Sterling Health Care Management, Inc., Lessor, and Omega.
Special Project Capital Expenditures: As defined in Section 8.3.1.
State(s): The State or States in which the Leased Properties are located.
Stock Issuance and Subscription Agreement: The Stock Issuance and Subscription Agreement of even date herewith by and between Advocat and Omega.
Stressed Coverage Ratio: For any period, a fraction, (1) the numerator of which is EBITDARM, less the sum of (a) Minimum Qualified Capital Expenditures and (b) management fees, and (2) the denominator of which is Debt Service.
Subordinated Note: The Subordinated Note of even date herewith from Advocat to Omega in the original principal amount of One Million Seven Hundred Thousand and 00/100 Dollars ($1,700,000.00).
Sublessee: A permitted sublessee of Lessee pursuant to the conditions of Section 22.4
Taken: Conveyed pursuant to a Taking.
Taking: A taking or voluntary conveyance during the Term of all or part of a Leased Property, or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of any condemnation or other eminent domain proceeding affecting the Leased Property whether or not the same shall have actually been commenced.
Term: Collectively, the plus the Renewal Term or Renewal Terms, if any, subject to earlier ---- termination pursuant to the provisions hereof.
Termination Date: The date on which a Notice of Termination is given.
Third Party Claims: Any claims, actions, demands or proceedings (other than Regulatory Actions) howsoever based (including without limitation those based on negligence, trespass, strict liability, nuisance, toxic tort or detriment to health welfare or property) due to Contamination, whether or not the remedy sought is costs, damages, penalties or expenses, brought by any person or entity other than a governmental agency.
Transfer: The (a) assignment, mortgaging or other encumbering of all or any part of Lessee's interest in this Lease or in the Leased Properties, or (b) subletting of the whole or any part of any Leased Property (except as specifically provided for in this Lease), or (c) entering into of any Management Agreement with any Person which is not a direct, or indirect, subsidiary of that entity which then owns the majority of assets now owned by Advocat, or (d) any arrangement under which any Facility is operated by or licensed to be operated by an entity other than Lessee or Sublessee, or (e) any transaction or agreement which results in a change of Control of Lessee or Manager to a person other than a direct, or indirect subsidiary of that entity which then owns the majority of assets now owned by Advocat, or otherwise results in Lessee or Manager no longer remaining a direct, or indirect, subsidiary of that entity which then owns the majority of assets now owned by Advocat.
Transferee: An assignee, subtenant or other occupant of a Leased Property pursuant to a Transfer.
Triggering Event: As defined in the Settlement and Restructuring Agreement.
Unsuitable for Its Primary Intended Use: A state or condition of a Facility such that by reason of damage or destruction, or a Partial Taking, the Facility cannot be operated on a commercially practicable basis for its Primary Intended Use, taking into account, among other relevant factors, the number of usable beds permitted by applicable law and regulation in the Facility after the damage or destruction or Partial Taking, the square footage damaged or Taken and the estimated revenue impact of such damage or destruction or Partial Taking.
ARTICLE III
3.1 Base Rent; Monthly Installments. In addition to all other payments to be made by Lessee under this Lease, Lessee shall pay Lessor the Base Rent in lawful money of the
United States of America which is legal tender for the payment of public and private debts, in advance, in equal, consecutive monthly installments, each of which shall be in an amount equal to one-twelfth (1/12) of the Base Rent payable for the Lease Year in which such installment is payable. The first installment of shall be payable on the Commencement Date, together with a prorated amount of Base Rent for the period from November 1, 2000 until the fifteenth (15th) day of November, 2000. Thereafter, installments of Base Rent shall be payable on the fifteenth (15th) day of each calendar month during the Term. Base Rent shall be paid to Lessor, or to such other Person as Lessor from time to time may designate by Notice to Lessee, by wire transfer of immediately available federal funds to the bank account designated in writing by Lessor. If Lessor directs Lessee to pay any Base Rent or Additional Charges to any Person other than Lessor, Lessee shall send to Lessor simultaneously with such payment a copy of the transmittal letter or invoice and check whereby such payment is made, or such other evidence of such payment as Lessor may require.
3.2 Additional Charges. In addition to the , Lessee will also pay as and when due (a) the Annual Site Inspection Fee and (b) all .
3.3 Late Charge. If any Rent payable to Lessor is not paid when due and such failure is not cured by Lessee within a period of five (5) days after Notice thereof from Lessor, provided that Lessee shall be entitled to such Notice and may avail itself of such cure period no more than two (2) times in any calendar year, Lessee shall pay Lessor on demand, as an Additional Charge, a late charge equal to the greater of (i) two percent (2%) of the amount not paid when due and (ii) any and all charges, expenses, fees or penalties imposed on Lessor by a Facility Mortgagee for late payment, and in addition, if such Rent (including the late charge) is not paid within thirty (30) days of the date on which such Rent was due, interest thereon at the Overdue Rate from such thirtieth (30th) day until such Rent (including the late charge and interest) is paid in full.
3.4 Net Lease.
3.4.1 The Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the full amount of the Rent payable to Lessor hereunder throughout the Term, subject only to any provisions of the Lease which expressly provide for adjustment or abatement of Rent or other charges.
3.4.2 If Lessor commences any proceedings for non-payment of Rent, Lessee will not interpose any counterclaim or cross complaint or similar pleading of any nature or description in such proceedings unless Lessee would lose or waive such claim by the failure to assert it, but Lessee does not waive any rights to assert such claim in a separate action brought by Lessee. The covenants to pay Rent are independent covenants, and Lessee shall have no right to hold back, offset or fail to pay any Rent because of any alleged default by Lessor or for any other reason whatsoever.
3.5 Payments In The Event of a Rent Adjustment. In the event this Lease provides for adjustment of the Base Rent on any basis that requires a determination of Base Rent which cannot be made on or before the due date of the first installment of Base Rent following the Adjustment Date, Lessee shall continue to pay the Base Rent at the rate previously in effect until Lessor gives Lessee Notice of its determination of the adjusted Base Rent. Upon such determination, the Base Rent shall be retroactively adjusted as of the Adjustment Date. On or before the second (2nd) Payment Date for Base Rent following receipt by Lessee of Lessor's Notice of the adjustment, Lessee shall make an additional payment of Base Rent in such amount as will bring the Base Rent, as adjusted, current on or before such second (2nd) Payment Date, plus interest on the amount of such additional payment (i.e. the difference between the monthly installment of Base Rent before and after the increase as of the Adjustment Date, divided by thirty (30) and multiplied by the number of days between the Adjustment Date and the date of payment by Lessee) at the Prime Rate from the Adjustment Date through the date of such additional payment, and thereafter Lessee shall pay the adjusted Base Rent in correspondingly adjusted monthly installments until the Base Rent is next adjusted as required herein. This Section 3.5 shall survive the expiration or termination of this Lease with respect to any adjustment which is not known or fully paid as of the date of expiration or termination.
ARTICLE IV
4.1 Payment of Impositions. Subject to Article XII relating to permitted contests, Lessee will pay all Impositions before any fine, penalty, interest or cost is added for non-payment, such payments to be made directly to the taxing authorities where feasible, and will promptly, upon request, furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. If at the option of the taxpayer any Imposition may lawfully be paid in installments, Lessee may pay the same in the required installments provided it also pays any and all interest due thereon as and when due.
Lessor shall, to the extent required or permitted by applicable law, prepare and file all tax returns and reports as may be required by governmental authorities in respect of Lessor's net income, gross receipts, sale and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock. Lessee shall, to the extent required or permitted by applicable law, prepare and file as and when required all other tax returns and reports required by governmental authorities with respect to all Impositions. Lessor and Lessee shall each, upon request, provide the other with such data, including without limitation cost and depreciation records, as is maintained by the party to whom the request is made as is necessary to prepare any required returns and reports. If any provision of any Facility Mortgage requires deposits for payment of Impositions, Lessee shall either pay the required deposits to Lessor monthly and Lessor shall make the required deposits, or, if directed in writing to do so by Lessor, Lessee shall make such deposits directly.
Lessee shall be entitled to receive and retain any refund from a taxing authority in respect of an Imposition paid by Lessee if at the time of the refund no Event of Default has occurred and is continuing, but if an Event of Default has occurred and is continuing at the time of the refund, Lessee shall not be entitled to receive or retain such refund and if and when received by Lessor such refund shall be applied as provided in Article XVI.
In the event governmental authorities classify any property covered by this Lease as personal property, Lessee shall file all personal property tax returns in such jurisdictions where it may legally so file. Where Lessor is legally required to file personal property tax returns, Lessee will be provided with copies of assessment notices in sufficient time for Lessee to file a protest. Billings for reimbursement by Lessee to Lessor of personal property taxes shall be accompanied by copies of a bill therefor and payments thereof which identify the personal property with respect to which such payments are made.
Lessee may, upon Notice to and with the prior written consent of Lessor, which consent shall not be unreasonably withheld, at Lessee's sole cost and expense, protest, appeal, or institute such other proceedings as Lessee may deem appropriate to effect a reduction of real estate or personal property assessments and Lessor, at Lessee's expense as aforesaid, shall cooperate with Lessee in such protest, appeal, or other action. In any such proceeding brought by Lessor, Lessee shall cooperate with Lessor at Lessee's sole cost and expense. Lessee shall reimburse Lessor for Lessor's direct costs of cooperating with Lessee for such protest, appeal or other action.
4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of all Impositions payable by Lessee hereunder of which Lessor at any time has knowledge, but Lessor's failure to give any such Notice shall in no way diminish Lessee's obligations hereunder to pay such Impositions, but such failure shall obviate any default hereunder for a reasonable time after Lessee receives Notice of any Imposition which it is obligated to pay.
4.3 Adjustment of Impositions. Impositions imposed in respect of the tax-fiscal period during which the Term ends shall be adjusted and prorated between Lessor and Lessee, whether or not imposed before or after the expiration of the Term or the earlier termination thereof, and Lessee's obligation to pay its prorated share thereof shall survive such expiration or earlier termination.
4.4 Utility Charges. Lessee will pay or cause to be paid when due all charges for electricity, power, gas, oil, water and other utilities used in each Leased Property during the Term and imposed upon the Leased Properties or upon Lessor or Lessee with respect to the Leased Properties.
4.5 Insurance Premiums. Lessee shall pay or cause to be paid when due all premiums for the insurance coverage required to be maintained pursuant to Article XIII during the Term.
ARTICLE V
5.1 No Termination, Abatement, etc. Except as otherwise specifically provided in this Lease, Lessee shall not take any action without the consent of Lessor to modify, surrender or terminate this Lease, and shall not seek or be entitled to any abatement, deduction, deferment or reduction of Rent, or setoff against Rent. Except as otherwise specifically provided in this Lease, the respective obligations of Lessor and Lessee shall not be affected by reason of (i) any damage to, or destruction of, the Leased Properties or any portion thereof from whatever cause or any Taking of the Leased Properties or any portion thereof, other than any damage to or destruction of a Leased Property that Lessee conclusively establishes was caused solely by Lessor; (ii) the lawful or unlawful prohibition of, or restriction upon, Lessee's use of the Leased Properties, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title, other than any prohibition or restriction of use of a Leased Property that Lessee conclusively establishes was solely caused by Lessor; (iii) any claim which Lessee has or might have against Lessor or by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and Lessee, or to which Lessor and Lessee are parties, except where such claims result in a termination of this Lease, (iv) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, or (v) any other cause whether similar or dissimilar to any of the foregoing other than a discharge of Lessee from any such obligations as a matter of law. For purposes of this Section 5.1, a matter shall be deemed to be conclusively established by Lessee if (a) Lessor agrees in writing or (b) (i) Lessee shall have given Lessor Notice thereof and a time reasonable under the circumstances to cure any claimed default of Lessor and (ii) Lessee thereafter establishes such contention in an arbitration proceeding as provided for in Article XXXV of this Lease. Lessee hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to (i) modify, surrender or terminate this Lease or quit or surrender the Leased Properties or any portion thereof, or (ii) entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Lessee hereunder except as otherwise specifically provided in this Lease.
ARTICLE VI
6.1 Ownership of the Leased Properties. Lessee acknowledges that the Leased Properties are the property of Lessor and that Lessee has only the right to the possession and use of the Leased Properties upon the terms and conditions of this Lease. Lessee will not (i) file any income tax return or other associated documents; (ii) file any other document with or submit any document to any governmental body or authority; (iii) enter into any written contractual arrangement with any Person; or (iv) release any Financial Statements or other financial statements of Lessee, in any case that take any position other than that
throughout the Term Lessor is the owner of the Leased Properties for federal, state and local income tax purposes and this Lease is a "true lease," and an "operating lease" and not a "capital lease".
6.2 Lessor's Personal Property. Lessee shall, during the entire Term, maintain all of Lessor's Personal Property in good order, condition and repair as shall be necessary in order to operate the Facilities for the Primary Intended Use in compliance with all applicable licensure and certification requirements, all applicable Legal Requirements and Insurance Requirements, and customary industry practice for the Primary Intended Use. Lessee shall not permit or suffer Lessor's Personal Property to be subject to any lien, charge, encumbrance, financing statement, contract of sale, equipment lessor's interest or the like, except for any purchase money security interest or equipment lessor's interest expressly approved in advance, in writing, by Lessor. At the expiration or earlier termination of this Lease, all of Lessor's Personal Property shall be surrendered to Lessor with the Leased Properties at or before the time of the surrender of the Leased Property in at least as good a condition as at the Commencement Date (or, as to replacements, in at least as good a condition as when placed in service at the Facilities) except for ordinary wear and tear.
6.3 Lessee's Personal Property. Lessee shall provide and maintain during the Term such Personal Property, in addition to Lessor's Personal Property, as shall be necessary and appropriate in order to operate the Facilities for the Primary Intended Use in compliance with all licensure and certification requirements, in compliance with all applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use. Except to the extent specifically allowed under Section 8.2.1.4, without the prior written consent of Lessor, which consent shall not be unreasonably withheld, Lessee shall not permit or suffer Lessee's Personal Property to be subject to any lien, charge, encumbrance, financing statement or contract of sale or the like other than that provided for in Section 6.4 below. Upon the expiration of the Term or the earlier termination of this Lease, without the payment of any additional consideration by Lessor, Lessee shall be deemed to have sold, assigned, transferred and conveyed to Lessor all of Lessee's right, title and interest in and to any of Lessee's Personal Property that, in Lessor's reasonable judgment, is integral to the Primary Intended Use of the Facilities (or if some other use thereof has been approved by Lessor as required herein, such other use as is then being made by Lessee) and, as provided in Section 34.1 hereof, Lessor shall have the option to purchase any of Lessee's Personal Property that is not then integral to such use. Without Lessor's prior written consent, Lessee shall not remove Lessee's Personal Property that is in use at the expiration or earlier termination of the Term from the Leased Properties until such option to purchase has expired or been sooner
waived in writing by Lessor. Any of Lessee's Personal Property that is not
integral to the use of the Facilities and is not purchased by Lessor pursuant to
Section 34.1 may be removed by Lessee upon the expiration or earlier termination
of this Lease, and, if not removed within twenty (20) days following the
expiration or earlier termination of this Lease, shall be considered abandoned
by Lessee and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without giving notice thereof to Lessee and without any payment to Lessee
or any obligation to account therefor. Lessee shall reimburse Lessor for any and
all expense incurred by Lessor in disposing of any of Lessee's Personal Property
that Lessee may remove but within such twenty (20) day period fails to remove,
and shall either at its own expense restore the Leased Properties to the
condition required by Section 9.1.5, including repair of all damage to the
Leased Properties caused by the removal of any of Lessee's Personal Property, or
reimburse Lessor for any and all expense incurred by Lessor for such restoration
and repair.
6.4 Grant of Security Interest in Lessee's Personal Property and Accounts. Lessee has concurrently granted to Lessor a security interest in the Collateral as defined in the Security Agreement, which includes, without limitation, Lessee' s Personal Property as defined herein and Lessee's Accounts as defined in the Security Agreement.
ARTICLE VII
7.1 Condition of the Leased Properties. Lessee acknowledges that prior to the execution of this Lease, Lessee has been operating the Leased Properties pursuant to the Existing Leases, and that as a consequence, Lessee has knowledge of the condition of the Leased Properties and has found the same to be in good order and repair and satisfactory for its purposes hereunder. Lessee is leasing the Leased Properties "as is" in their condition on the Commencement Date. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Properties. LESSOR MAKES NO WARRANTY OR REPRESENTATION EXPRESS OR IMPLIED, IN RESPECT OF ANY LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. Lessee further acknowledges that throughout the Term Lessee is solely responsible for the condition of the Leased Properties.
7.2 Use of the Leased Properties. Throughout the Term Lessee shall, except if otherwise agreed to in writing by Lessor, continuously use the Leased Properties for the Primary Intended Use and such other uses as may be necessary or incidental thereto. Lessee shall not use the Leased Properties or any portion thereof for any other use without the prior written consent of Lessor. No use shall be made or permitted to be made of, or allowed in, the Leased Properties, and no acts shall be done, which will cause the cancellation of, or be prohibited by, any insurance policy covering the Leased Properties or any part thereof, nor shall the Leased Properties or Lessee's Personal Property be used for any unlawful purpose. Lessee shall not commit or suffer to be committed any waste on the Leased Properties, or cause or permit any nuisance thereon, or suffer or permit the Leased Properties or any portion thereof, or Lessee's Personal Property, to be used in such a manner as (i) might reasonably tend to impair Lessor's (or Lessee's, as the case may be) title thereto or to any portion thereof, or (ii) may reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Properties or any portion thereof. Lessor covenants that during the Term of this Lease it will cooperate with Lessee and use commercially reasonable efforts, where necessary or required from Lessor as the owner of the Leased Properties, to enable Lessee to obtain and maintain in force and effect and good standing any licenses, permits, certifications, or approvals needed by Lessee to use and operate each Leased Property for its Primary Intended Use and will obtain and maintain in force and effect and good standing any licenses, permits, certificates, or approvals, including certificates of need, necessary or required to be owned and maintained by the owner of each Leased Property in order to use and operate the Leased Property for its Primary Intended Use.
7.3 Certain Environmental Matters.
(a) Prohibition Against Use of Hazardous Substances. Lessee shall not permit, conduct or allow on the Leased Properties, the generation, introduction, presence, maintenance, use, receipt, acceptance, treatment, manufacture, production, installation, management, storage, disposal or release of any Hazardous Substance except for those types and quantities of Hazardous Substances necessary for and ordinarily associated with the conduct of Lessee's business which are used in full compliance with all Environmental Laws.
(b) Notice of Environmental Claims, Actions or Contaminations. Lessee shall notify Lessor, in writing, immediately upon learning of any existing, pending or threatened: (a) investigation, inquiry, claim or action by any governmental authority
in connection with any Environmental Laws, (b) Third Party Claims, (c) Regulatory Actions, and/or (id) Contamination of any portion of the Leased Properties
(c) Costs of Remedial Actions with Respect to Environmental Matters. If any investigation and/or Clean-Up of Contamination or any other violation of Environmental Law with respect to a Leased Property is required by any Environmental Law, Lessee shall complete, at its own expense, such investigation and/or Clean-Up or cause any other Person that may be legally responsible therefore to complete such investigation and/or Clean-Up.
(d) Delivery of Environmental Documents. Lessee shall deliver to Lessor complete copies of any and all Environmental Documents that may now be in or at any time hereafter come into the possession of Lessee.
(e) Environmental Audit. At Lessee's expense, Lessee
shall from time to time, upon and within thirty (30) days of Lessor's
request therefor, deliver an Environmental Audit to Lessor. All tests
and samplings shall be conducted using generally accepted and
scientifically valid technology and methodologies. Lessee shall give
the engineer or environmental consultant conducting the Environmental
Audit reasonable and complete access to the Leased Properties and to
all records in the possession of Lessee that may indicate the presence
(whether current or past) of a Release or threatened Release of any
Hazardous Substances on, in, under, about and adjacent to any Leased
Property. Lessee shall also provide the engineer or environmental
consultant full access to and the opportunity to interview such persons
as may be employed in connection with the Leased Properties as the
engineer or consultant deems appropriate. However, Lessor shall not be
entitled to request an Environmental Audit from Lessee unless (i) after
the Commencement Date there have been changes, modifications or
additions to Environmental Laws as applied to or affecting any of the
Leased Properties; (ii ) a significant change in the condition of any
of the Leased Properties has occurred; (iii) there are fewer than six
(6) months remaining in the Term; or (iv) Lessor has another good
reason for requesting such certificate or certificates. If the
Environmental Audit discloses the presence of Contamination or any
noncompliance with Environmental Laws, Lessee shall immediately perform
all of Lessee's obligations hereunder with respect to such Hazardous
Substances or noncompliance.
(f) Entry onto Leased Properties for Environmental Matters. If Lessee fails to provide an Environmental Audit as and when required by Subparagraph (e) hereof, in addition to Lessor's other remedies Lessee shall permit Lessor from time to time, by its employees, agents, contractors or representatives, to enter upon the Leased Properties for the purpose of conducting such Investigations as Lessor may desire, the expense of which shall promptly be paid or reimbursed by Lessee as an Additional Charge. Lessor, and its employees, agents, contractors, consultants and/or representatives, shall conduct any such Investigation in a manner which
does not unreasonably interfere with Lessee's use of and operations on the Leased Properties (however, reasonable temporary interference with such use and operations is permissible if the investigation cannot otherwise be reasonably and inexpensively conducted). Other than in an emergency, Lessor shall provide Lessee with prior notice before entering any of the Leased Properties to conduct such Investigation, and shall provide copies of any reports or results to Lessor, and Lessee shall cooperate fully in such Investigation.
(g) Environmental Matters Upon Termination of the Lease or Expiration of Term. Upon the expiration or earlier termination of the Term of this Lease, Lessee shall cause the Leased Properties to be delivered free of any and all Regulatory Actions and Third Party Claims and otherwise in compliance with all Environmental Laws with respect thereto, and in a manner and condition that is reasonably required to ensure that the then present use, operation, leasing, development, construction, alteration, refinancing or sale of the Leased Property shall not be restricted by any environmental condition existing as of the date of such expiration or earlier termination of the Term.
(h) Compliance with Environmental Laws. Lessee shall comply with, and cause its agents, servants and employees, to comply with, and shall use reasonable efforts to cause each occupant and user of any of the Leased Properties, and the agents, servants and employees of such occupants and users, to comply with each and every Environmental Law applicable to Lessee, the Leased Properties and each such occupant or user with respect to the Leased Properties. Specifically, but without limitation:
(i) Maintenance of Licenses and Permits. Lessee shall obtain and maintain (and Lessee shall use reasonable efforts to cause each tenant, occupant and user to obtain and maintain) all permits, certificates, licenses and other consents and approvals required by any applicable Environmental Law from time to time with respect to Lessee, each and every part of the Leased Properties and/or the conduct of any business at a Facility or related thereto;
(ii) Contamination. Lessee shall not cause, suffer or permit any Contamination;
(iii) Clean-Up. If a Contamination occurs, the Lessee promptly shall Clean-Up and remove any Hazardous Substance or cause the Clean-Up and the removal of any Hazardous Substance and in any such case such Clean-Up and removal of the Hazardous Substance shall be effected to Lessor's reasonable satisfaction and in any event in strict compliance with and in accordance with the provisions of the applicable Environmental Laws;
(iv) Discharge of Lien. Within twenty (20) days of the date any lien is imposed against the Leased Properties or any part thereof under any Environmental Law, Lessee shall cause such lien to be discharged (by payment, by bond or otherwise to Lessor's absolute satisfaction);
(v) Notification of Lessor. Within five (5) Business Days after receipt by Lessee of notice or discovery by Lessee of any fact or circumstance which might result in a breach or violation of any covenant or agreement, Lessee shall notify Lessor in writing of such fact or circumstance; and
(vi) Requests, Orders and Notices. Within five
(5) Business Days after receipt of any request, order or other
notice relating to the Leased Properties under any
Environmental Law, Lessee shall forward a copy thereof to
Lessor.
(i) Environmental Related Remedies. In the event of a breach by Lessee beyond any applicable notice and/or grace period of its covenants with respect to environmental matters, Lessor may, in its sole discretion, do any one or more of the following (the exercise of one right or remedy hereunder not precluding the simultaneous or subsequent exercise of any other right or remedy hereunder):
(i) Cause a Clean-Up. Cause the Clean-Up of any Hazardous Substance or other environmental condition on or under the Leased Properties, or both, at Lessee's cost and expense; or
(ii) Payment of Regulatory Damages. Pay on behalf of Lessee any damages, costs, fines or penalties imposed on Lessee or Lessor as a result of any Regulatory Actions; or
(iii) Payments to Discharge Liens. On behalf of Lessee, make any payment or perform any other act or cause any act to be performed which will prevent a lien in favor of any federal, state or local governmental authority from attaching to the Leased Properties or which will cause the discharge of any lien then attached to the Leased Properties; or
(iv) Payment of Third Party Damages. Pay, on behalf of Lessee, any damages, cost, fines or penalties imposed on Lessee as a result of any Third Party Claims; or
(v) Demand of Payment. Demand that Lessee make immediate payment of all of the costs of such Clean-Up and/or exercise of the remedies set forth in this Section 7.2 incurred by Lessor and not theretofore paid by Lessee as of the date of such demand.
(j) Environmental Indemnification. Except to the extent
caused by Lessor's gross negligence or wilful misconduct, Lessee shall
and does hereby indemnify, and shall defend and hold harmless Lessor,
its principals, officers, directors, agents and employees from each and
every incurred and potential claim, cause of action, damage, demand,
obligation, fine, laboratory fee, liability, loss, penalty, imposition
settlement, levy, lien removal, litigation, judgment, proceeding,
disbursement, expense and/or cost (including without limitation the
cost of each and every Clean-Up), however defined and of whatever kind
or nature, known or unknown, foreseeable or unforeseeable, contingent,
incidental, consequential or otherwise (including, but not limited to,
attorneys' fees, consultants' fees, experts' fees and related expenses,
capital, operating and maintenance costs, incurred in connection with
(i) any Investigation or monitoring of site conditions, and (ii) any
Clean-Up required or performed by any federal, state or local
governmental entity or performed by any other entity or person because
of the presence of any Hazardous Substance, Release, threatened Release
or any Contamination on, in, under or about any of the Leased
Properties) which may be asserted against, imposed on, suffered or
incurred by, each and every indemnitee arising out of or in any way
related to, or allegedly arising out of or due to any environmental
matter that is created or first occurs during the Term of this Lease or
which is caused by or at any time arises from Lessee's and/or Lessee's
related or affiliated predecessors-in-interest use and occupancy of the
Leased Properties (whether under this Lease, the Existing Leases, or
otherwise), including, but not limited to, any one or more of the
following:
(i) Release Damage or Liability. The presence of Contamination in, on, at, under, or near a Leased Property or migrating to a Leased Property from another location;
(ii) Injuries. All injuries to health or safety (including wrongful death), or to the environment, by reason of environmental matters relating to the condition of or activities past or present on, at, in, under a Leased Property;
(iii) Violations of Law. All violations, and alleged violations, of any Environmental Law relating to a Leased Property or any activity on, in, at, under or near a Leased Property;
(iv) Misrepresentation. All material misrepresentations relating to environmental matters in any documents or materials furnished by Lessee to Lessor and/or its representatives in connection with the Lease;
(v) Event of Default. Each and every Event of Default relating to environmental matters;
(vi) Lawsuits. Any and all lawsuits brought or threatened, settlements reached and governmental orders relating to any Hazardous Substances at, on, in, under or near a Leased Property, and all demands of governmental authorities, and all policies and requirements of Lessor's, based upon or in any way related to any Hazardous Substances at, on, in, under a Leased Property; and
(vii) Presence of Liens. All liens imposed upon any of the Leased Properties in favor of any governmental entity or any person as a result of the presence, disposal, release or threat of release of Hazardous Substances at, on, in, from, or under a Leased Property.
(k) Rights Cumulative and Survival. The rights granted
Lessor under this Section are in addition to and not in limitation of
any other rights or remedies available to Lessor hereunder or allowed
at law or in equity or rights of indemnification provided to Lessor in
any agreement pursuant to which Lessor purchased any of the Leased
Property. The payment and indemnification obligations set forth in this
Section 7.3 shall survive the expiration or earlier termination of the
Term of this Lease.
ARTICLE VIII
8.1 Compliance with Legal and Insurance Requirements. In its use, maintenance, operation and any alteration of the Leased Properties, Lessee, at its expense, will, subject to the provisions of Article XII relating to permitted contests, promptly (i) comply with all Legal Requirements and Insurance Requirements, whether or not compliance therewith requires structural changes in any of the Leased Improvements (which structural changes shall be subject to Lessor's prior written approval, which approval shall not be unreasonably withheld or delayed) or interferes with or prevents the use and enjoyment of the Leased Properties, and (ii) procure, maintain and comply with all licenses, certificates of need, provider agreements and other authorizations required for the use of the Leased Properties and Lessee's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Properties or any part thereof. The judgment of any court of competent jurisdiction, or the admission of Lessee in any action or proceeding against Lessee, whether or not Lessor is a party thereto, that Lessee has violated any such Legal Requirements or Insurance Requirements shall be conclusive of that fact as between Lessor and Lessee.
8.2 Certain Covenants.
8.2.1 Certain Financial Covenants.
8.2.1.1 Limitation of Distributions. From and after the transfer of Lessee's interest to New Sub as contemplated by the Settlement and Restructuring Agreement, and in the absence of any Triggering Event, Event of Default, or other event
that with notice and/or the passage of time would become an Event of Default, in or with respect to any Lease Year, Lessee shall not make any Distributions, unless all three (3) of the following conditions have been met for the prior four (4) calendar quarters and such conditions will still be met following such payment or distribution: (1) Lessee's Coverage Ratio for the preceding four (4) calendar quarters equals or exceeds 1.7; (2) Lessee's Stressed Coverage Ratio for the preceding four (4) calendar quarters equals or exceeds 1.25; and (3) if such Distribution had been made on the last day of the preceding month, following such Distribution Lessee's Current Ratio would have equaled or exceeded 1.3. From and during a Triggering Event, Event of Default, or other event that with notice and/or the passage of time would become an Event of Default, Lessee shall not make any Distributions. The limitations on Distributions set forth in this Section 8.2.1.1 shall not prevent the deposit of Lessee's funds into the Advocat Concentration Account for the purposes and to the extent contemplated by the Settlement and Restructuring Agreement. This Subsection is a limitation on Distributions, and Lessee's failure to comply with one or more of the three (3) conditions set forth above shall not be a default or Event of Default hereunder, unless a Distribution is made during a period of time when any one or more of such conditions is not satisfied.
8.2.1.2 Accounts Receivable Financing. Except as may be expressly provided in the Settlement and Restructuring Agreement and the Intercreditor Agreement, Lessee and/or Sublessee shall not pledge or otherwise encumber any of the accounts receivable generated through the operation of the Facilities to secure principal and interest on any Debt.
8.2.1.3 Guarantees Prohibited. From and after the transfer of Lessee's interest to New Sub as contemplated by the Settlement and Restructuring Agreement, neither Lessee nor any Sublessee shall guarantee any indebtedness of any Affiliate or other third party, except those guarantees for the benefit of AmSouth in effect as of the date hereof or as may be required under the AmSouth Loan Documents.
8.2.1.4 Equipment Financing. The aggregate amount of principal, interest and lease payments due from Lessee and/or Sublessee with respect to any equipment leases or financing secured by equipment utilized in the operation of the Facilities shall not at any time during the Term exceed $609,000.00 in any one Lease Year.
8.3 Required Capital Expenditures.
8.3.1 Special Project Capital Expenditures. Lessee shall at its expense before the end of the second Lease Year complete and pay for "Special Project Capital Expenditures" (as defined in the Settlement and Restructuring Agreement) in the cumulative amount of not less than One Million and No/100 Dollars ($1,000,000.00). As set forth in the Settlement and Restructuring Agreement, Lessee shall expend an amount not less than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) on or before June 30, 2001, and shall expend, unless prevented from doing so by Force
Majeure, not less than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), on a cumulative basis, during each six-month period thereafter, through the date Lessee satisfies the requirement of this Section 8.3.1 to expend $1,000,000.00 for Special Project Capital Expenditures. To the extent Lessee fails to expend the funds within the time frames required by the immediately preceding sentence, a reserve account ("Capital Expenditures Reserve Account") shall be established to assure the payment thereof, and on or before the fifteenth (15 th) day of the month following a six-month period in which the required cumulative amount has not been expended, Lessee shall deposit with Lessor, an amount equal to the unexpended amount, less any funds already deposited in the Capital Expenditures Reserve Account. Lessee hereby grants to Lessor a security interest in such Capital Expenditure Reserve Account, as may from time to time exist, to secure all of Lessee's obligations under this Lease. From and after an Event of Default, Lessor may apply the funds held in the Capital Expenditure Reserve Account in the same manner as Lessor may apply the Security Deposit in accordance with Section 39.2 below. To evidence its compliance with the foregoing obligations, Lessee shall spend, or have plans in place reasonably acceptable to Omega to spend, for Special Project Capital Expenditures at least Five Hundred Thousand Dollars ($500,000.00) (on a cumulative basis) by September 30, 2001 and shall spend, or have plans in place reasonably acceptable to Omega to spend, for Special Project Capital Expenditures the required One Million Dollars ($1,000,000.00) (on a cumulative basis) by May 31, 2002.
8.3.2 Minimum Qualified Capital Expenditures. Each Lease Year Lessee shall expend with respect to each Leased Facility at least Three Hundred Twenty Five Dollars ($325.00) per-licensed-bed for Qualified Capital Expenditures to improve the applicable Facility, which amount shall be increased each Lease Year, beginning with the second Lease Year, in proportion to increases in the CPI from the Commencement Date to the commencement of each such Lease Year ("Minimum Qualified Capital Expenditures"). The parties acknowledge that the amount expended by Lessee in completion of the Special Project Capital Expenditures shall not be offset against Lessee's obligation to fund the Minimum Qualified Capital Expenditures set forth in this Section 8.3.2. If Lessee expends with respect to any Facility more than the Minimum Qualified Capital Expenditures in any Lease Year, the excess Minimum Qualified Capital Expenditures shall be credited against Lessee's Minimum Qualified Capital Expenditures required with respect to such Facility for the next Lease Year, and if the amount of the credit exceeds Lessee's Minimum Qualified Capital Expenditures required with respect to such Facility for the next Lease Year, such excess shall be credited against Lessee's Minimum Qualified Capital Expenditures required with respect to such Facility for the following Lease Years. At least annually, at the request of Lessor, Lessor and Lessee shall review capital expenditures budgets and reasonably agree on modifications, if any,
required by changed circumstances and the changed conditions of the Leased Properties.
8.4 Management Agreements. Lessee shall not enter into, amend, modify, renew, replace or otherwise change the terms of any Management Agreement without the prior written consent of Lessor as to the identity of the Manager and the terms of the agreement, which consent Lessor may withhold in its sole discretion, and in no event without the execution by Lessee, Manager and Lessor, of an agreement, satisfactory to Lessor in form and substance, pursuant to which Manager's right to receive its management fee is subordinated to the obligation of Lessee to pay the Rent to Lessor. Lessor hereby consents to the continued management of the Facilities by Diversicare Management Services Co. under its current Management Agreement with Lessee. In addition, prior to the employment of any Manager, such Manager must execute a Consent and Agreement of Manager in the form attached hereto as EXHIBIT E. Notwithstanding any of the foregoing terms of this Section 8.4, the annual management fee payable to any Manager during the term of this Lease shall not exceed five percent (5%) of Gross Revenues.
8.5 Other Facilities. Neither Lessee nor any Affiliate shall own, operate or manage any nursing home, rest home, assisted living facility, subacute facility, retirement center or similar health care facility within a ten (10) mile radius of any Facility, other than any Facility which is a Leased Property under this Lease or which Lessee or any Affiliate of Lessee owns or operates as of the Commencement Date and set forth on Schedule C attached hereto.
8.6 Separateness. Lessee (from and after the transfer of Lessee's interest to New Sub as contemplated by the Settlement and Restructuring Agreement) shall:
a. Maintain records and books of account separate from those of any Affiliate.
b. Conduct its own business in its own names and not in the name of any Affiliate (except to the extent that the business of the Facilities may be conducted in the name of the Manager).
c. Maintain financial statements separate from any Affiliate.
d. Maintain any contractual relationship with any and all Affiliates, except upon terms and conditions that are fair and substantially similar to those that would be available on an arm's length basis.
e. Except for the benefit of AmSouth as set forth in the Intercreditor Agreement or as otherwise required under the AmSouth Loan Documents, not guarantee or become obligated for the debts of any other entity, including any Affiliate, or hold out its credit, jointly or severally, as being available to satisfy the obligations of others,
except for obligations which represent Lessee's or Sublessee's trade payables or accrued expenses incurred by Manager in the ordinary course of owning and operating the Facilities.
f. Except for the benefit of AmSouth as set forth in the Intercreditor Agreement, not pledge its assets, jointly or severally, for the benefit of any other entity, including any Affiliate.
g. Hold itself out to the public as a legal entity separate from any Affiliates.
h. At all times cause its Board of Directors to hold appropriate meetings (or act by unanimous consent) to authorize all appropriate corporate actions, and in authorizing such actions, to observe all formalities.
ARTICLE IX
9.1 Maintenance and Repair.
9.1.1 Lessee, at its expense, will keep the Leased Properties, and all landscaping, private roadways, sidewalks and curbs appurtenant thereto which are under Lessee's control and Lessee's Personal Property in good order and repair, whether or not the need for such repairs arises out of Lessee's use, any prior use, the elements or the age of the Leased Property or any portion thereof, or any cause whatsoever except the act or negligence of Lessor, and with reasonable promptness shall make all necessary and appropriate repairs thereto of every kind and nature, whether interior or exterior, structural or non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the Commencement Date (concealed or otherwise); provided, however, that Lessee shall be permitted to prosecute claims against Lessor's predecessor in title for breach of any representation or warranty made to or on behalf of Lessor, or for latent defects in any Leased Property. Lessee shall at all times maintain, operate and otherwise manage the Leased Properties on a quality basis and in a manner consistent with the standards of the highest quality competing facilities in the market areas served by the Leased Properties. All repairs shall, to the extent reasonably achievable, be at least equivalent in quality to the original work or, subject to the provisions of Paragraph 9.1.4, below, the property to be repaired shall be replaced. Lessee will not take or omit to take any action the taking or omission of which might materially impair the value or the usefulness of the Leased Properties or any parts thereof for the Primary Intended Use.
9.1.2 Lessor shall not under any circumstances be required to maintain, build or rebuild any improvements on the Leased Properties (or any private roadways, sidewalks or curbs appurtenant thereto), or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Properties, whether
ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or upon any adjoining property, whether to provide lateral or other support or abate a nuisance, or otherwise, or to make any expenditure whatsoever with respect thereto, in connection with this Lease. Lessee hereby waives, to the extent permitted by law, the right to make repairs at the expense of Lessor pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted.
9.1.3 Nothing contained in this Lease shall be construed as (i) constituting the consent or request of Lessor, expressed or implied, to any contractor, subcontractor, laborer, materialmen or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to any Leased Property or any part thereof, or (ii) giving Lessee any right, power or permission to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Lessor in respect thereof or to make any agreement that may create, or in any way be the basis for any right, title, interest, lien, claim or other encumbrance upon the estate of Lessor in the Leased Properties, or any portion thereof. Lessor shall have the right to give, record and post, as appropriate, notices of non-responsibility under any mechanics' and construction lien laws now or hereafter existing.
9.1.4 Lessee shall promptly replace any of the Leased Improvements or Lessor's Personal Property which become worn out, obsolete or unusable or unavailable for the purpose for which intended. If any of Lessor's Personal Property requires replacement as a result of damage, theft, loss or destruction or a Taking, then Lessee shall be entitled to that portion of any insurance proceeds payable in respect thereof or any Award made therefore. All replacements shall have a then value (adjusted for inflation) and utility at least equal to that of the items replaced and shall become part of the Leased Properties immediately upon their acquisition by Lessee. Upon Lessor's request, Lessee shall promptly execute and deliver to Lessor a bill of sale or other instrument establishing Lessor's lien-free ownership of such replacements. Lessee shall promptly repair all damage to a Leased Property incurred in the course of such replacement.
9.1.5 Lessee will, upon the expiration or prior termination of the Term, vacate and surrender the Leased Properties to Lessor in the condition in which they were originally received from Lessor, in good operating condition, ordinary wear and tear excepted, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease.
9.2 Encroachments, Restrictions, etc. If any of the Leased Improvements shall, at any time, encroach upon any property, street or right-of-way adjacent to the Leased Property, or shall violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or shall impair the rights of others under any easement or right-of-way to which any Leased Property is subject, then promptly upon the request of Lessor or at the behest of any
person affected by any such encroachment, violation or impairment, Lessee shall, at its expense, subject to its right to contest the existence of any encroachment, violation or impairment as provided in Article XII and in such case, in the event of an adverse final determination, either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Lessor or Lessee or (ii) make such changes in the Leased Improvements, and take such other actions, as Lessee in the good faith exercise of its judgment deems reasonably practicable, to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements, and in any event take all such actions as may be necessary in order to be able to continue the operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment.
ARTICLE X
10.1 Construction of Alterations and Additions to the Leased Properties. Lessee shall not (a) make or permit to be made any structural alterations, improvements or additions of or to the Leased Properties or any part thereof, or (b) materially alter the plumbing, HVAC or electrical systems thereon or (c) make any other alterations, improvements or additions to any Leased Property or any part thereof, the cost of which exceeds One Hundred Thousand Dollars ($100,000.00), unless and until Lessee has (a) caused complete plans and specifications therefor to have been prepared by a licensed architect (or licensed plumbing contractor or electrical contractor in the case of alterations to the plumbing, HVAC or electrical systems) and submitted to Lessor at least thirty (30) Business Days before the planned start of construction thereof, (b) obtained Lessor's written approval thereof and the approval of any Facility Mortgagee, which approval shall not be unreasonably withheld, conditioned or delayed, and if no response has been received by Lessee within thirty (30) Business Days after submission of the plans and specifications for approval then such approval shall be deemed to have been given, and (c), if required to do so by Lessor, provide Lessor with reasonable assurance of the payment of the cost of any such alterations, improvements or additions, in the form of a bond, letter of credit or cash deposit. If Lessor requires a deposit, Lessor shall retain and disburse the amount deposited in the same manner as is provided for insurance proceeds in Section 14.6. If the deposit is reasonably determined by Lessor at any time to be insufficient for the completion of the alteration, improvement or addition, Lessee shall immediately increase the deposit to the amount reasonably required by Lessor. Lessee shall be responsible for the completion of such improvements in accordance with the plans and specifications approved by Lessor, and shall promptly correct any failure with respect thereto.
Alterations and improvements not falling within the categories described in the first sentence of the preceding paragraph may be made by Lessee without the prior approval of Lessor, but Lessee shall give Lessor at least fifteen (15) Business Days prior written Notice of any such alterations and improvements.
All alterations, improvements and additions shall be constructed in a first class, workmanlike, manner, in compliance with all Insurance Requirements and Legal Requirements, be in keeping with the character of the Leased Properties and the area in which the Leased Property in question is located and be designed and constructed so that the value of the Leased Properties will not be diminished or and that the Primary Intended Use of the Leased Properties will not be changed. All improvements, alterations and additions shall immediately become a part of the Leased Properties.
Lessee shall have no claim against Lessor at any time in respect of the cost or value of any such improvement, alteration or addition. There shall be no adjustment in the Rent by reason of any such improvement, alteration or addition. With Lessor's consent, which shall not be unreasonably withheld, expenditures made by Lessee pursuant to this Article X, other than expenditures for additions (as defined in the definition of Qualified Capital Expenditures), may be included as capital expenditures for purposes of inclusion in the capital expenditures budget for the Facilities and for measuring compliance with the obligations of Lessee set forth in Section 8.3 of this Lease.
In connection with any alteration which involves the removal, demolition or disturbance of any asbestos-containing material, Lessee shall cause to be prepared at its expense a full asbestos assessment applicable to such alteration, and shall carry out such asbestos monitoring and maintenance program as shall reasonably be required thereafter in light of the results of such assessment.
ARTICLE XI
11.1 Liens. Subject to the provisions of Article XII relating to
permitted contests, without the consent of Lessor or as expressly permitted
elsewhere herein, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Properties, and
any attachment, levy, claim or encumbrance in respect of the Rent, except for
(i) Permitted Encumbrances, (ii) restrictions, liens and other encumbrances
which are consented to in writing by Lessor and any Facility Mortgagee, (iii)
liens for those taxes of Lessor which Lessee is not required to pay hereunder,
(iv) any Facility Mortgage, (v) liens of mechanics, laborers, materialmen,
suppliers or vendors for sums either disputed, not yet due, or contested
pursuant to Section 12.1 below, and (vi) liens created by the wrongful acts or
negligence of Lessor.
ARTICLE XII
12.1 Permitted Contests. Lessee, on its own or on Lessor's behalf (or in Lessor's name), but at Lessee's sole cost and expense, shall have the right to contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity of any real or personal property assessment, Imposition, Legal Requirement or Insurance Requirement, or any lien, attachment, levy, encumbrance, charge or claim or
any encroachment or restriction burdening the Leased Property ("Claim"), provided (a) prior Notice of such contest is given to Lessor, (b) the Leased Properties would not be in any danger of being sold, forfeited or attached as a result of such contest, and there is no risk to Lessor of a loss of or interruption in the payment of, Rent, (c) in the case of an unpaid Imposition or Claim, collection thereof is suspended during the pendency of such contest, (d) in the case of a contest of a Legal Requirement, compliance may legally be delayed pending such contest. Upon request of Lessor, Lessee shall provide a bond or letter of credit, deposit funds or assure Lessor in some other manner reasonably satisfactory to Lessor that the amount to be paid by Lessee that is the subject of a contested Imposition, Legal Requirement, Insurance Requirement or Claim, together with interest and penalties, if any, thereon, and any and all costs for which Lessee is responsible will be paid if and when required upon the conclusion of such contest. Lessee shall defend, indemnify and save harmless Lessor from all costs or expenses arising out of or in connection with any such contest, including but not limited to attorneys' fees. If at any time Lessor reasonably determines that payment of any Imposition or Claim, or compliance with any Legal or Insurance Requirement being contested by Lessee is necessary in order to prevent loss of any of the Leased Properties or Rent or civil or criminal penalties or other damage, upon such prior Notice to Lessee as is reasonable in the circumstances Lessor may pay such amount, require Lessee to comply with such Legal or Insurance Requirement or take such other action as it may deem necessary to prevent such loss or damage. If reasonably necessary or legally required, upon Lessee's written request Lessor, at Lessee's expense, shall cooperate with Lessee in a permitted contest, provided Lessee upon demand makes arrangements satisfactory to Lessor to assure the reimbursement of any and all Lessor's costs incurred in cooperating with Lessee in such contest. Lessee shall be entitled to any refunds of any claim, and such charges and penalties or interest thereon, which have been paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed.
12.2 Lessor's Requirement for Deposits. Following an Event of Default, Lessor, in its sole discretion, shall be entitled to require Lessee to deposit with Lessor monthly, at the time of its payments of Base Rent, a pro rata portion of the amounts required to comply with Insurance Requirements, Impositions and Legal Requirements, and when such obligations become due, Lessor shall pay them (to the extent of the deposit) upon Notice from Lessee requesting such payment. In the event that sufficient funds have not been deposited to cover the amount of the obligations due at least thirty (30) days in advance of the due date, Lessee shall forthwith deposit the same with Lessor upon Notice from Lessor. Lessor shall not be obligated to segregate such deposited funds from its other funds, or to pay Lessee any interest on any deposit so held by Lessor. Upon an Event of Default, any of the funds remaining on deposit may be applied under this Lease in any manner and on such priority as may be determined by Lessor.
ARTICLE XIII
13.1 General Insurance Requirements. Lessee shall keep the Leased Properties, and all property located in or on the Leased Properties, including Lessor's Personal Property and Lessee's Personal Property, insured with insurance meeting the following
requirements: (a) all insurance shall be written by companies authorized to do insurance business in the applicable States and having a rating classification of not less than A- and a financial size category of "Class VII" or larger, according to the then most recent issue of Best's Key Rating Guide; (b) all policies must name Lessor as an additional insured, and name as an additional insured any Facility Mortgagee by way of a standard form of mortgagee's loss payable endorsement in use in the applicable States and in accordance with any such other requirements as may be established by such Facility Mortgagee; (c) casualty losses must be payable to Lessor or Lessee as provided in Article XIV, and loss adjustments shall require the written consent of Lessor, any Facility Mortgagee and, provided no Event of Default has occurred and is continuing at the time, Lessee, which consent shall not be unreasonably withheld by either Lessor or Lessee; (d) each insurer must agree that it will give Lessor and any Facility Mortgagee at least thirty (30) days' written notice before its policy shall be altered, allowed to expire or canceled; (e) the amount of any deductible or retention must be approved by Lessor prior to the issuance of any policy, which approval will not be unreasonably withheld, conditioned or delayed; and (f) the form of all policies shall be approved by Lessor and any Existing Facility Mortgagee, whose approval shall not unreasonably be withheld, conditioned or delayed, provided that such policies conform to the requirements of this article XIII. Notwithstanding the foregoing, Lessee may obtain so-called "umbrella" policies, comprehensive liability policies and professional liability policies of insurance from non-admitted surplus line carriers acceptable to Lessor.
13.2 Risks to be Insured. The policies covering the Leased Properties and Lessee's Personal Property shall insure against the following risks:
13.2.1 Loss or damage by fire, vandalism and malicious mischief, earthquake, extended coverage perils commonly known as "Special Risk," and all physical loss perils normally included in such Special Risk insurance, including but not limited to sprinkler leakage, in an amount not less than one hundred percent (100%) of Replacement Cost (provided that earthquake coverage may have a sublimit coverage of $5,000,000.00);
13.2.2 Loss or damage by explosion of steam boilers, pressure vessels or similar apparatus in such amounts as may be required by Lessor from time to time;
13.2.3 Business interruption insurance or a blanket earnings and expense coverage endorsement covering risk of loss during reconstruction necessitated by the occurrence of any of the hazards described in Sections 13.2.1 or 13.2.2 (but in no event for a period less than twelve (12) months) in an amount sufficient to prevent Lessor and Lessee from becoming a co-insurer;
13.2.4 Claims for personal injury or property damage under a policy of commercial general public liability insurance with a combined single limit per occurrence in respect of bodily injury and death and property damage of One Million Dollars ($1,000,000.00), and an aggregate limitation of Three Million Dollars ($3,000,000.00), with a minimum One Million Dollar ($1,000,000.00) excess policy, which insurance shall insure Lessee's contractual liability to Lessor under the indemnity provisions of Article XXI of this
Lease, and if written on a "claims-made" basis, Lessee shall also provide continuous liability coverage for claims arising during the Term either by obtaining an endorsement providing for an extended reporting period reasonably acceptable to Lessor in the event such policy is canceled or not renewed for any reason whatsoever, or by obtaining "tail" insurance coverage providing coverage for a period of at least three (3) years beyond the expiration of the Term;
13.2.5 Claims arising out of malpractice in an amount not less
than Two Million Dollars ($2,000,000.00) for each person and for each occurrence
and, if written on a "claims-made" basis, Lessee shall also provide continuous
liability coverage for claims arising during the Term either by obtaining an
endorsement providing for an extended reporting period reasonably acceptable to
Lessor in the event such policy is canceled or not renewed for any reason
whatsoever, or by obtaining "tail" insurance coverage providing coverage for a
period of at least three (3) years beyond the expiration of the Term;
13.2.6 Flood (with respect to any portions of the Leased
Properties located in whole or in part within a designated flood plain area) and
such other hazards and in such amounts as may be customary for comparable
properties in the area up to the maximum limit that can be obtained under the
Federal Flood Insurance Program;
13.2.7 During such time as Lessee is constructing any improvements, (i) worker's compensation insurance and employers' liability insurance covering all persons employed in connection with the improvements in statutory limits, (ii) builder's risk insurance, completed value form, covering all physical loss, in an amount satisfactory to Lessor, and (iii) such other insurance, in such amounts, as Lessor deems necessary to protect Lessor's interest in the Leased Properties from any act or omission of Lessee's contractors or subcontractors, and certificates of insurance evidencing such coverage, in form satisfactory to Lessor, shall be presented to Lessor prior to the commencement of construction of such improvements;
13.2.8 Primary automobile liability insurance with limits of One Million Dollars ($1,000,000.00) per occurrence each for owned and non-owned and hired vehicles.
13.3 Payment of Premiums; Copies of Policies; Certificates. Lessee shall pay when due all of the premiums for the insurance required by this Lease, and shall deliver to Lessor and to any Facility Mortgagee requesting such evidence, certificates of insurance in form satisfactory to Lessor and such Facility Mortgagee. Satisfactory evidence of insurance required by this Lease or certificates thereof shall be delivered to Lessor prior to their effective date (and, with respect to any renewal policy, Lessee will use commercially reasonable efforts to provide the same within twenty (20) days but in all events not less than five (5) Business Days prior to the expiration of the existing policy) with copies of such policies to be provided as available, and in the event of the failure of Lessee either to carry the required insurance or pay the premiums therefor, or to deliver copies of policies or certificates to Lessor as required, Lessor shall be entitled, but shall have no obligation, to obtain such insurance and pay the premiums therefor when due,
which premiums shall be repayable to Lessor upon written demand therefor as Additional Charges.
13.4 Premium Deposits. If any provision of a Facility Mortgage requires deposits of premiums for insurance to be made with the Facility Mortgagee, Lessee shall pay to Lessor monthly the amounts required and Lessor shall transfer such amounts to the Facility Mortgagee, unless, pursuant to written direction by Lessor, Lessee makes such deposits directly with the Facility Mortgagee.
13.5 Umbrella Policies. If Lessee chooses to carry umbrella liability coverage to obtain the limits of liability required under this Lease, the umbrella policies must provide coverage in the same manner as the primary commercial general liability policy and must contain no exclusions in addition to, or limitations materially different than, those of the primary policy.
13.6 Additional Insurance. In addition to the insurance described above, Lessee shall maintain such insurance as may be required from time to time by any Facility Mortgagee, and shall at all times comply with all Legal Requirements with respect to worker's compensation insurance coverage.
13.7 No liability; Waiver of Subrogation. Lessor shall have no liability to Lessee, and, provided Lessee provides the insurance required of it by this Lease, Lessee shall have no liability to Lessor, regardless of the cause, for any loss or expense resulting from or in connection with damage to or the destruction or other loss of any Leased Property or Lessee's Personal Property, and neither party will have any right or claim against the other for any such loss or expense by way of subrogation. Each insurance policy carried by either party covering any of the Leased Properties and Lessee's Personal Property, including without limitation, contents, fire and casualty insurance, shall contain an express waiver of any right of subrogation on the part of the insurer against the other party. Lessee shall pay any additional costs or charges for obtaining such waiver.
13.8 Increase in Limits. From time to time, but not more often than once every two (2) years, in the event that Lessor shall reasonably determine that the limits of the commercial general liability insurance then carried are insufficient, Lessor shall give Lessee Notice of acceptable increased limits for such insurance to be carried; and Lessee shall then obtain and maintain such insurance with such increased limits unless and until further increase as permitted under the provisions of this Section. Lessor's determination of increased limits shall be accompanied by a description of the basis for such determination.
13.9 Blanket Policy. Any insurance required by this Lease may be provided by so-called blanket policies of insurance carried by Lessee, provided, however, that the coverage afforded Lessor thereby may not thereby be less than or materially different from that which would be provided by a separate policies meeting the requirements of this Lease, and provided further that such policies meet the requirements of all Facility Mortgages.
13.10 No Separate Insurance.
13.10.1 Lessee shall not on its own initiative or pursuant to the request or requirement of any third party, take out separate insurance concurrent in form or contributing in the event of loss with that required by this Lease, to be furnished by, or which may reasonably be required to be furnished by, Lessee, or increase the amount of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including in all cases Lessor and all Facility Mortgagees, are named therein as additional insureds, and losses are payable thereunder in the same manner as losses are payable under this Lease.
13.10.2 Nothing herein shall prohibit Lessee, upon Notice to Lessor, from (i) securing insurance required to be carried hereby with higher limits of liability than required in this Lease, or (ii) securing insurance against risks not required to be insured pursuant to this Lease, and as to such insurance, Lessor and any Facility Mortgagee need not be included therein as additional insureds, nor must losses thereunder be payable in the same manner as losses are payable under this Lease, except to the extent required to avoid a default under a Facility Mortgage or any other encumbrance.
ARTICLE XIV
14.1 Insurance Proceeds. Net Proceeds shall be paid to Lessor and held, disbursed or retained by Lessor as provided herein.
14.1.1 Proceeds of Special Risk Insurance. If the Net Proceeds are less than the Approval Threshold, and no Event of Default has occurred and is continuing, Lessor shall pay the Net Proceeds to Lessee promptly after Lessor receives the Net Proceeds and Lessee shall apply the Net Proceeds solely to the completion of the restoration of the damaged or destroyed Leased Property. If the Net Proceeds equal or exceed the Approval Threshold, and no Event of Default has occurred and is continuing, the Net Proceeds shall be made available for restoration or repair as provided in Section 14.6. Within fifteen (15) days of the receipt of the Net Proceeds of Special Risk Insurance, Lessor and Lessee shall agree as to the portion thereof, if any, attributable to the Lessee's Personal Property that Lessee is not required and does not elect to restore or replace, and if they cannot agree they shall submit the matter to arbitration pursuant to Article XXXV hereof, and the portion of the proceeds of such Special Risk Insurance agreed or determined by arbitration to be attributable to the Lessee's Personal Property that Lessee is not required and does not elect to restore or replace shall be paid to Lessee.
14.2 Restoration in the Event of Damage or Destruction. If all or any
portion of a Leased Property is damaged by fire or other casualty, Lessee shall
(a) give Lessor Notice of such damage or destruction within five (5) Business
Days of the occurrence thereof, (b) within sixty (60) days of the occurrence
commence the restoration of such Leased Property and (c) thereafter diligently
proceed to complete such restoration to substantially the same (or better)
condition as such Leased Property was in immediately prior to the damage or
destruction as quickly as is reasonably possible, but subject to Force Majeure,
in any event within two hundred forty (240) days of the occurrence. Regardless
of the anticipated cost thereof, if the restoration of a Leased Property
requires any modification of structural elements, prior to commencing such
modification Lessee shall obtain Lessor's written approval of the plans and
specifications therefor. In performing such restoration or repair, and as a
condition to Lessee's obligation to restore or repair the Leased Property, the
Net Proceeds payable with respect to such damage or destruction shall be paid or
disbursed to Lessee as provided in Section 14.1 or Section 14.7 hereof. If there
remains any surplus of Net Proceeds after completion of the repair or
restoration of the Leased Property, such surplus shall belong and be paid to
Lessee.
14.3 Restoration of Lessee's Property. Notwithstanding the foregoing terms of Section 14.1, all insurance proceeds payable by reason of or damage to any of Lessee's Personal Property shall be paid to Lessee and Lessee shall hold such insurance proceeds in trust to pay the cost of repairing or replacing damaged Lessee's Personal Property. If Lessee is required to restore a Leased Property, Lessee shall also concurrently restore any of Lessee's Personal Property that is integral to the Primary Intended Use of such Leased Property at the time of the damage or destruction.
14.4 No Abatement of Rent. Absent termination of this Lease as provided herein, there shall be no abatement of Rent by reason of any damage to or the partial or total destruction of any Leased Property.
14.5 Waiver. Except as provided elsewhere in this Lease, Lessee hereby waives any statutory or common law rights of termination which may arise by reason of any damage to or destruction of a Leased Property.
14.6 Extension of Time Periods. In the event that Lessee is unable to complete any action required by this Article XIV in the time period provided, and Lessee establishes to the reasonable satisfaction of Lessor that Lessee has been acting in good faith and diligently, then Lessor shall grant to Lessee a reasonable extension of time in which to complete the repair or reconstruction of any damaged Facility, prior to the time that Lessee would otherwise be required to repurchase such damaged Facility.
14.7 Disbursement of Insurance Proceeds Equal to or Greater Than The Approval Threshold. If Lessee restores or repairs a Leased Property pursuant to this Article XIV,
and if the Net Proceeds equal or exceed the Approval Threshold, the restoration or repair and disbursement of funds to Lessee shall be in accordance with the following procedures:
(i) The restoration or repair work shall be done pursuant to plans and specifications approved by Lessor and a certified construction cost statement, to be obtained by Lessee from a contractor reasonably acceptable to Lessor, showing the total cost of the restoration or repair; to the extent the cost exceeds the Net Proceeds, Lessee shall deposit with Lessor the amount of the excess cost, and Lessor shall disburse the funds so deposited in payment of the costs of restoration or repair before any disbursement of Net Proceeds.
(ii) Construction Funds shall be made available to Lessee upon request, no more frequently than monthly, as the restoration and repair work progresses, pursuant to certificates of an architect selected by Lessee that, in the judgment of Lessor, reasonably exercised, is highly qualified in the design and construction of the type of Facility being repaired and is otherwise reasonably acceptable to Lessor, which certificates must be in form and substance reasonably acceptable to Lessor. Payment of Construction Funds shall be subject to a ten percent (10%) holdback until the architect certifies that the work is fifty percent (50%) complete, after which, so long as there is no Event of Default under this Lease and so long as the architect certifies that work is proceeding in accordance with the schedule and budget, there shall be no further retainage.
(iii) After the first disbursement to Lessee, sworn statements and lien waivers in an amount at least equal to the amount of Construction Funds previously paid to Lessee shall be delivered to Lessor from all contractors, subcontractors and material suppliers covering all labor and materials furnished through the date of the previous disbursement.
(iv) Lessee shall deliver to Lessor such other evidence as Lessor may reasonably request from time to time during the course of the restoration and repair, as to the progress of the work, compliance with the approved plans and specifications, the cost of restoration and repair and the total amount needed to complete the restoration and repair, and showing that there are no liens against such Leased Property arising in connection with the restoration and repair and that the cost of the restoration and repair at least equals the total amount of Construction Funds then disbursed to Lessee hereunder.
(v) If the Construction Funds are at any time determined by Lessor to be inadequate for payment in full of all labor and materials for the restoration and repair, Lessee shall immediately pay the amount of the deficiency to Lessor to be held and disbursed as Construction Funds prior to the disbursement of any other Construction Funds then held by Lessor.
(vi) The Construction Funds may be disbursed by Lessor to Lessee or to the persons entitled to receive payment thereof from Lessee, and such disbursement in either case may be made directly or through a third party escrow agent, such as, but not limited to, a title insurance company, or its agent, all as Lessor may determine in its sole discretion. Provided Lessee is not in default hereunder, any excess Construction Funds shall be paid to Lessee upon completion of the restoration or repair.
(vii) If Lessee at any time fails to promptly and fully perform the conditions and covenants set out in subparagraphs (i) through (vi) above, and the failure is not corrected within ten (10) days of written Notice thereof, or if during the restoration or repair an Event of Default occurs hereunder, Lessor may, at its option, immediately cease making any further payments to Lessee for the restoration and repair.
(viii) Lessor may reimburse itself out of the Construction Funds for its reasonable expenses incurred in administering the Construction Funds and inspecting the restoration and repair work, including without limitation attorneys' and other professional fees and escrow fees and expenses.
(ix) If damage or destruction shall occur either (a)
during the final Lease Year of the Initial Term and Lessee has not
exercised its option to extend the Term of this Lease pursuant to
Section 1.3 above or (b) during the final Lease Year of the Renewal
Term, then Lessor, at Lessor's sole option, may elect to terminate the
Lease as to the affected Facility (in which case Lessee shall surrender
possession of the affected Facility and Lessee shall transfer to Lessor
all of Lessee's interest in the Facility, including, without
limitation, Lessee's interest in the licenses pursuant to which the
Facility is then operated) and receive the Net Proceeds in lieu of
Lessee restoring or repairing the damage or destruction. The election
to terminate the Lease as to the affected Facility and receive the Net
Proceeds pursuant to this Section 14.7(ix) must be exercised by Lessor
by Notice to Lessee on or prior to the tenth (10th) Business Day
following Lessor's receipt of Notice of such event of damage or
destruction. If Lessor elects to terminate the Lease as to the affected
Facility and receive the Net Proceeds in lieu of Lessee restoring or
repairing the damage or destruction, then, as of the Proceeds Date, the
annual Base Rent due under this Lease during the remainder of the Term
shall be reduced by an amount equal to the product of the annual Base
Rent in effect from time to time and the Casualty/Condemnation
Reduction Percentage.
14.8 Net Proceeds Paid to Facility Mortgagee. Notwithstanding anything herein to the contrary, if any Facility Mortgagee is entitled to any Net Proceeds, or any portion thereof, under the terms of any Facility Mortgage, the Net Proceeds shall be applied, held and/or disbursed in accordance with the terms of the Facility Mortgage. Lessor shall make
commercially reasonable efforts to cause the Net Proceeds to be applied to the
restoration of the Leased Property. If the Facility Mortgagee elects to apply
the insurance proceeds to the indebtedness secured by the Facility Mortgage,
Lessee shall either (i) restore the Facility to substantially the same (or
better) condition as existed immediately before the damage or destruction, or
(ii) terminate this Lease as to such Leased Property upon Notice to Lessor, such
termination to be effective as of the first day of the calendar month following
the later of (a) the date Lessee learns of the action of the Facility Mortgagee
or (b) fifteen (15) days after the date Lessor learns of the action of the
Facility Mortgagee, unless within fifteen (15) days of the notice from the
Facility Mortgagee the Lessor agrees to make available to Lessee for restoration
to or repair of the Leased Property funds equal to the amount applied by the
Facility Mortgagee. Unless the damage or destruction is such as to entitle
Lessor or Lessee to otherwise terminate this Lease as to such Facility under
this Article XIV and Lessor or Lessee, as the case may be, shall fail to elect
to terminate this Lease as to such Facility, in the time and in the manner
provided, Lessor shall disburse such funds to Lessee as provided in Section 14.7
of this Master Lease and Lessee shall restore the Leased Property (as nearly as
possible under the circumstances) to a complete architectural unit of the same
general character and condition as the Leased Property existing immediately
prior to such damage or destruction.
In the event this Master Lease is so terminated as to such Facility (in which case Lessee shall surrender possession of the affected Facility and Lessee shall transfer to Lessor all of Lessee's interest in the Facility, including, without limitation, Lessee's interest in the licenses pursuant to which the Facility is then operated), as of the Proceeds Date, the annual Base Rent due under this Lease during the remainder of the Term shall be reduced by an amount equal to the product of the annual Base Rent in effect from time to time and the Casualty/Condemnation Reduction Percentage.
ARTICLE XV
15.1 Total Taking or Other Taking with Leased Property Rendered Unsuitable for Its Primary Intended Use. If title to the fee of the whole of a Leased Property is Taken, this Lease shall cease and terminate as to the Leased Property Taken as of the Date of Taking by the Condemnor and Rent shall be apportioned as of the termination date. If title to the fee of less than the whole of a Leased Property is Taken, but such Leased Property is thereby rendered Unsuitable for Its Primary Intended Use, Lessee and Lessor shall each have the option by written Notice to the other, at any time prior to the taking of possession by, or the date of vesting of title in, the Condemnor, whichever first occurs, to terminate this Lease with respect to such Leased Property as of the date so determined, in which event this Lease shall thereupon so cease and terminate as of the earlier of the date specified in such Notice or the date on which possession is taken by the Condemnor. If this Lease is so terminated as to a Leased Property (in which case Lessee shall surrender possession of the affected Facility and Lessee shall transfer to Lessor all of Lessee's interest in the
Facility, including, without limitation, Lessee's interest in the licenses pursuant to which the Facility is then operated), as of the Proceeds Date, the annual Base Rent due under this Lease during the remainder of the Term shall be reduced by an amount equal to the product of the annual Base Rent in effect from time to time and the Casualty/Condemnation Reduction Percentage.
15.2 Allocation of Award. The total Award made with respect to all or any portion of a Leased Property or for loss of Rent, or for loss of business, shall be solely the property of and payable to Lessor. Nothing contained in this lease will be deemed to create any additional interest in Lessee, or entitle Lessee to any payment based on the value of the unexpired term or so-called "bonus value" to Lessee of this Lease. Any Award made for the taking of Lessee's Personal Property, or for removal and relocation expenses of Lessee in any such proceedings shall be payable to Lessee. In any proceedings with respect to an Award, Lessor and Lessee shall each seek its own Award in conformity herewith, at its own expense. Notwithstanding the foregoing, Lessee may pursue a claim for loss of its business, provided that under the laws of the State, such claim will not diminish the Award to Lessor.
15.3 Partial Taking. In the event of a Partial Taking, Lessee, at its own cost and expense, shall within sixty (60) days of the taking of possession by, or the date of vesting of title in, the Condemnor, whichever first occurs, commence the restoration of the affected Leased Property to a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as existed immediately prior to the Partial Taking, and complete such restoration with all reasonable dispatch, but in any event, subject to Force Majeure, within two hundred forty (240) days of the date on which such Notice is given. Lessor shall contribute to the cost of restoration such portion of the Award as is made therefor, together with severance and other damages awarded for Leased Improvements Taken; provided, however, that the amount of such contribution shall not exceed such cost. As long as no Event of Default has occurred and is continuing, if such portion of the Award is in an amount less than the Approval Threshold, Lessor shall pay the same to Lessee upon commencement of such restoration. As long as no Event of Default has occurred and is continuing, if such portion of the Award is in an amount equal to or greater than the Approval Threshold, Lessor shall make such portion of the Award available to Lessee in the manner provided in Section 14.6 with respect to Net Proceeds in excess of the Approval Threshold. Notwithstanding anything to the contrary elsewhere herein, if the Fair Market Rent of the affected Leased Property is reduced by reason of the Partial Taking, from and after the date on which possession is taken by the Condemnor the annualized Base Rent shall be reduced by an amount determined by dividing the portion of the Award made to Lessor expressly for such reduction in Fair Market Rent by the Capitalization Rate.
15.4 Temporary Taking. If there is a Taking of possession or the use of all or part of a Leased Property, but the fee of such Leased Property is not Taken in whole or in part,
until such Taking of possession or use continues for more than six (6) months, all the provisions of this Lease shall remain in full force and effect and the entire amount of any Award made for such Taking shall be paid to Lessee provided there is then no Event of Default. Upon the termination of any such period of temporary use or occupancy, Lessee at its sole cost and expense shall restore the affected Leased Property, as nearly as may be reasonably possible, to the condition existing immediately prior to such Taking. If any temporary Taking continues for longer than six (6) months, and fifty percent (50%) or more of the patient capacity of the affected Facility is thereby rendered Unsuitable for Its Primary Use, such Taking shall be considered a Total Taking governed by Section 15.1 and this Lease shall cease and terminate as to the affected Leased Property only as of the last day of the sixth (6th) month, but if less than fifty percent (50%) of the patient capacity of such Facility is thereby rendered Unsuitable for Its Primary Use, Lessee and Lessor shall each have the option by at least sixty (60) day's prior written Notice to the other, at any time prior to the end of the temporary taking, to terminate this Lease as to the affected Leased Property of the date set forth in such Notice, and Lessee shall be entitled to any Award made for the period of such temporary Taking prior to the date of termination of the Lease. Rent shall not abate during the period of any temporary Taking.
15.5 Awards Paid to Facility Mortgagee. Notwithstanding anything herein to the contrary, if any Facility Mortgagee is entitled to any Award or any portion thereof, under the terms of any Facility Mortgage such Award shall be applied, held and/or disbursed in accordance with the terms of the Facility Mortgage. If the Facility Mortgagee elects to apply the Award to the indebtedness secured by the Facility Mortgage: (i) if the Award represents an Award for Partial Taking as described in Section 15.3 above, Lessee shall restore the affected Facility (as nearly as possible under the circumstances) to a complete architectural unit of the same general character and condition as that of the Facility existing immediately prior to such Taking; or (ii) if the Award represents an Award for a Total Taking as described in Section 15.1 above, Lessee shall transfer to Lessor all of Lessee's interest in the Facility, including, without limitation, Lessee's interest in the licenses pursuant to which the Facility is then operated. In any such restoration or purchase, Lessee shall receive full credit for any portion of any Award retained by Lessor and the Facility Mortgagee, and as of the Proceeds Date, the Base Rent shall be reduced by a percentage equal to the Casualty/Condemnation Reduction Percentage.
15.6 Extension of Time Periods. In the event that Lessee is unable to complete any action required by this Article XV in the time period provided, and Lessee establishes to the reasonable satisfaction of Lessor that Lessee has been acting in good faith and diligently, then Lessor shall grant to Lessee a reasonable extension of time in which to complete the repair or reconstruction of any Facility subject to Taking, prior to the time that Lessee would otherwise be required to repurchase such Facility subject to a Taking.
ARTICLE XVI
16.1 Lessor's Rights Upon an Event of Default. If an Event of Default shall occur Lessor may terminate this Lease by giving Lessee a Notice of Termination in accordance with the laws of the States in which each Facility is located, and in such event, the Term shall end and all rights of Lessee under this Lease shall cease on the Termination Date specified in the Notice of Termination. In addition to Lessor's right to terminate this Lease, Lessor shall have all other rights set forth in this Lease and all remedies available at law and in equity.
Lessee shall, to the extent permitted by law, pay as Additional Charges all costs and expenses incurred by or on behalf of Lessor, including, without limitation, reasonable attorneys' fees and expenses (whether or not litigation is commenced, and if litigation is commenced, including fees and expenses incurred in appeals and post-judgment proceedings) as a result of any default of Lessee hereunder. Lessor shall, to the extent permitted by law, pay Lessee all costs and expenses incurred by or on behalf of Lessee, including, without limitation, reasonable attorneys' fees and expenses (whether or not litigation is commenced, and if litigation is commenced, including fees and expenses incurred in appeals and post-judgment proceedings) as a result of any default of Lessor hereunder.
No Event of Default (other than a failure to make payment of money) shall be deemed to exist if and for so long as Lessee is unable to prevent such Event of Default because of Force Majeure, provided that upon the cessation of such Force Majeure, Lessee shall forthwith proceed to remedy the action or condition giving rise to such Event of Default within the applicable cure period as extended by such Force Majeure.
16.2 Certain Remedies. If an Event of Default shall occur, whether or not this Lease has been terminated pursuant to Section 16.1, if required to do so by Lessor Lessee shall immediately surrender the Leased Properties to Lessor in the condition required by Section 9.1.5 and quit the same, and Lessor may enter upon and repossess the Leased Properties by reasonable force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other persons and any and all personal properties from the Leased Properties, subject to rights of any residents or patients and to any Legal Requirements. In addition to all other remedies set forth or referred to in this Article XVI, Lessor shall have the right to suspend any Management Agreement as to one or more or all Facilities and to retain a manager of the affected Facility or all Facilities at the expense of Lessee, such manager to serve for such term and at such compensation as Lessor reasonably determines is necessary under the circumstances.
16.3 Damages. Neither (i) the termination of this Lease pursuant to
Section 16.1, (ii) the repossession of the Leased
Properties, (iii) the failure of Lessor to relet the Leased Properties, (iv) the reletting of all or any portion thereof, nor (v) the failure of Lessor to collect or receive any rentals due upon such any reletting, shall relieve Lessee of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting. In the event this Lease is terminated by Lessor, Lessee shall forthwith pay to Lessor all Rent due and payable with respect to the Leased Properties to and including the Termination Date, including without limitation all interest and late charges payable under Section 3.3 hereof with respect to any late payment of such Rent. Lessee shall also pay to Lessor, as liquidated damages, at Lessor's option, either:
(A) The sum of:
(i) Lessor's Interim Rent Loss, minus Net Reletting Proceeds for such period, and minus the portion of Lessor's Interim Rent Loss, if any, that Lessee prove could reasonably have been mitigated by Lessor, plus
(ii) the Present Value on the Judgment Date of Lessor's Future Rent Loss, assuming the Cost of Living Index were to increase four (4) percentage points per Lease Year from the Judgment Date through the Expiration Date, minus the Present Value on the Termination Date of the portion of Lessor's Future Rent Loss that Lessee proves could reasonably be mitigated by Lessor;
or
(B) Each month between the Termination Date and the Expiration Date, Lessor's Monthly Rent Loss, minus the Net Reletting Proceeds for such month, and minus the portion, if any, of Lessor's Monthly Rent Loss that Lessee proves could reasonably have been avoided. Any suit brought to recover liquidated damages payable under this subsection "(B)" shall not prejudice Lessor's right to collect liquidated damages for subsequent months in a similar proceeding.
16.4 Intentionally Omitted.
16.5 Waiver. If this Lease is terminated pursuant to Section 16.1, Lessee waives, to the extent permitted by applicable law, (i) any right of reentry, repossession or redesignation, (ii) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article XVI, and (iii) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt. Acceptance of Rent at any time does not prejudice or remove any right of Lessor as to any right or remedy. No course of conduct shall be held to bar Lessor from literal enforcement of the terms of this Lease.
16.6 Application of Funds. Any payments received by Lessor under any of the provisions of this Lease during the existence or continuance of any Event of Default shall be applied to Lessee's obligations in the order which Lessor may determine or as may be prescribed by law.
16.7 Bankruptcy.
(a) Neither Lessee's interest in this Lease, nor any estate hereby created in Lessee's interest nor any interest herein or therein, shall pass to any trustee or receiver or assignee for the benefit of creditors or otherwise by operation of law, except as may specifically be provided pursuant to the Bankruptcy Code (11 USC ss. 101 et. seq.), as the same may be amended from time to time.
(b) Rights and Obligations Under the Bankruptcy Code.
(1) Upon filing of a petition by or against Lessee under the Bankruptcy Code, Lessee, as debtor and as debtor-in-possession, and any trustee who may be appointed with respect to the assets of or estate in bankruptcy of Lessee, agree to pay monthly in advance on the fifteenth (15th) day of each month, as reasonable compensation for the use and occupancy of the Leased Premises, an amount equal to all Rent due pursuant to this Lease.
(2) Included within and in addition to any other conditions or obligations imposed upon Lessee or its successor in the event of the assumption and/or assignment of the Lease are the following: (i) the cure of any monetary defaults and reimbursement of pecuniary loss within not more than thirty (30) days of assumption and/or assignment; (ii) the deposit of an additional amount equal to not less than three (3) months' Base Rent, which amount is agreed to be a necessary and appropriate deposit to secure the future performance under the Lease of Lessee or its assignee; (iii) the continued use of the Leased Premises for the Primary Intended Use; and (iv) the prior written consent of any Facility Mortgagee.
ARTICLE XVII
17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make any payment or perform any act required to be made or performed under this Lease, and fails to cure the same within any grace or cure period applicable thereto, upon such Notice as may be expressly required herein (or, if Lessor reasonably determines that the giving of such Notice would risk loss to the Leased Properties or cause damage to Lessor, upon such Notice as is practical under the circumstances), and without waiving or releasing any obligation of Lessee, Lessor may make such payment or perform such act for the account and at the expense of Lessee, and may, to the extent permitted by law, enter upon the Leased Properties for such purpose and take all such action thereon as, in Lessor's sole
opinion, may be necessary or appropriate. No such entry shall be deemed an eviction of Lessee. All amounts so paid by Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) so incurred, together with the late charge and interest provided for in Section 3.3 thereon, shall be paid by Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor contained in this Article shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
18.1 Holding Over. If Lessee remains in possession of all or any of the Leased Properties after the expiration of the Term or earlier termination of this Lease, such possession shall be as a month-to-month tenant, and throughout the period of such possession Lessee shall pay as Rent for each month one and one-half (1 1/2) times the sum of:(i) one-twelfth (1/12th) of the Base Rent payable during the Lease Year in which such expiration or termination occurs, plus (ii) all Additional Charges accruing during the month, plus (iii) any and all other sums payable by Lessee pursuant to this Lease. During such period of month-to-month tenancy, Lessee shall be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by applicable law to month-to-month tenancies, to continue its occupancy and use of the Leased Properties until the month-to-month tenancy is terminated. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease.
18.2 Indemnity. If Lessee fails to surrender the Leased Properties in a timely manner and in accordance with the provisions of Section 9.1.5 upon the expiration or termination of this Lease, in addition to any other liabilities to Lessor accruing therefrom, Lessee shall defend, indemnify and hold Lessor, its principals, officers, directors, agents and employees harmless from loss or liability resulting from such failure, including, without limiting the generality of the foregoing, loss of rental with respect to any new lease in which the rental payable thereunder exceeds the Rent paid by Lessee pursuant to this Lease during Lessee's hold-over and any claims by any proposed new tenant founded on such failure. The provisions of this Section 18.2 shall survive the expiration or termination of this Lease.
ARTICLE XIX
19.1 Subordination. Upon written request of Lessor, any Facility Mortgagee, or the beneficiary of any deed of trust of Lessor, Lessee will enter into a written agreement subordinating its rights pursuant to this Lease (i) to the lien of any mortgage, deed of trust or the interest of any lease in which Lessor is the lessee and to all modifications, extensions, substitutions thereof (or, at Lessor's option, agree to the subordination to this Lease of the lien of said mortgage, deed of trust or the interest of any lease in which
Lessor is the lessee), and (ii) to all advances made or hereafter to be made
thereunder. In connection with any such request, Lessor shall provide Lessee
with a "Non-Disturbance Agreement" reasonably acceptable to such mortgagee,
beneficiary or lessor providing that if such mortgagee, beneficiary or lessor
acquires the Leased Properties by way of foreclosure or deed in lieu of
foreclosure, such mortgagee, beneficiary or lessor will not disturb Lessee's
possession under this Lease and will recognize Lessee's rights hereunder if and
for so long as no Event of Default has occurred and is continuing. Lessee agrees
to consent to amend this Lease as reasonably required by any Facility Mortgagee,
and shall be deemed to have unreasonably withheld or delayed its consent if the
required changes do not materially (i) alter the economic terms of this Lease,
(ii) diminish the rights of Lessee, or (iii) increase the obligations of Lessee,
provided that Lessee shall also have received the non-disturbance agreement
provided for in this Article.
19.2 Attornment. If any proceedings are brought for foreclosure, or if the power of sale is exercised under any mortgage or deed of trust made by Lessor encumbering the Leased Properties, or if a lease in which Lessor is the lessee is terminated, Lessee shall attorn to the purchaser or lessor under such lease upon any foreclosure or deed in lieu thereof, sale or lease termination and recognize the purchaser or lessor as Lessor under this Lease, provided the purchaser or lessor acquires and accepts the Leased Properties subject to this Lease.
19.3 Lessee's Certificate. Lessee shall, upon not less than ten (10) days prior Notice from Lessor, execute, acknowledge and deliver to Lessor a Lessee's Certificate containing then-current facts. It is intended that any Lessee's Certificate delivered pursuant hereto may be relied upon by Lessor, any prospective tenant or purchaser of the Leased Properties, any mortgagee or prospective mortgagee, and by any other party who may reasonably rely on such statement. Lessee's failure to deliver the Lessee's Certificate within such time shall constitute an Event of Default. In addition, Lessee hereby authorizes Lessor to execute and deliver a certificate to the effect (if true) that Lessee represents and warrants that (i) this Lease is in full force and effect without modification, and (ii) Lessor is not in breach or default of any of its obligations under this Lease.
ARTICLE XX
20.1 Risk of Loss. During the Term, the risk of loss or of decrease in the enjoyment and beneficial use of the Leased Properties in consequence of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures, attachments, levies or executions (other than those caused by Lessor and those claiming from, through or under Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful misconduct or material breach of this Lease by Lessor, Lessor shall in no event be answerable or accountable therefor nor shall any of the events mentioned in this Section entitle Lessee to any abatement of Rent, except as specifically provided in this Lease.
ARTICLE XXI
21.1 Indemnification. Notwithstanding the existence of any insurance or
self-insurance provided for in Article XIII, and without regard to the policy
limits of any such insurance or self-insurance, Lessee shall protect, indemnify,
save harmless and defend Lessor, its principals, officers, directors and agents
and employees from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of: (i) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Properties or adjoining sidewalks during the
Term, including without limitation any claims of malpractice, (ii) any use,
misuse, non-use, condition, maintenance or repair by Lessee of the Leased
Properties, (iii) the failure to pay any Impositions as herein provided which
are the obligation of Lessee to pay pursuant to this Lease, (iv) any failure on
the part of Lessee to perform or comply with any of the terms of this Lease, and
(v) the nonperformance of any contractual obligation, express or implied,
assumed or undertaken by Lessee or any party in privity with Lessee with respect
to the Leased Properties or any business or other activity carried on with
respect to the Leased Properties during the Term or thereafter during any time
in which Lessee or any such other party is in possession of the Leased
Properties or thereafter to the extent that any conduct by Lessee or any such
party (or failure of such conduct thereby if the same should have been
undertaken during such time of possession and leads to such damage or loss)
causes such loss or claim. Any amounts which become payable by Lessee under this
Section shall be paid within ten (10) days after liability therefor on the part
of Lessee is determined by litigation or otherwise, and if not timely paid,
shall bear interest (to the extent permitted by law) at the Overdue Rate from
the date of such determination to the date of payment. Nothing herein shall be
construed as indemnifying Lessor against its own grossly negligent acts or
omissions or willful misconduct.
Lessor shall indemnify, save harmless and defend Lessee from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Lessee as a result of the gross negligence or willful misconduct of Lessor.
Lessee's or Lessor's liability for a breach of the provisions of this Article arising during the Term hereof shall survive any termination of this Lease for three (3) years following any termination of this Lease, provided that Lessee's obligations to indemnify Lessor with respect to environmental matters shall continue for six (6) years after such termination.
ARTICLE XXII
22.1 General Prohibition against Transfers. Lessee acknowledges that a significant inducement to Lessor to enter into this Lease with Lessee on the terms set forth herein is the combination of financial strength, experience, skill and reputation possessed by the Lessee named herein, the Person or Persons in Control of Lessee, the Guarantor(s) (if any) and the Manager of the Facilities on the Commencement Date, together with Lessee's assurance that Lessor shall have the unrestricted right to approve or disapprove any proposed Transfer. Therefore, there shall be no Transfer except as specifically permitted by this Lease or consented to in advance by Lessor in writing. Lessor hereby consents to the sublease of the Boone and Laurel facilities to Sterling Health Care Management, Inc., a Kentucky corporation, for the purpose of continuing its lease of those facilities under the Existing Lease applicable to those facilities which are been consolidated, amended and restated as part of this Lease. Lessee agrees that Lessor shall have the right to withhold its consent to any proposed Transfer on the basis of Lessor's judgment as to the effect the proposed Transfer may have on the Facilities and the future performance of the obligations of the Lessee under this Lease, whether or not Lessee agrees with such judgment. Any attempted Transfer which is not specifically permitted by this Lease or consented to by Lessor in advance in writing shall be null and void and of no force and effect whatsoever. In the event of a Transfer, Lessor may collect Rent and other charges from the Transferee and apply the amounts collected to the Rent and other charges herein reserved, but no Transfer or collection of Rent and other charges shall be deemed to be a waiver of Lessor's rights to enforce Lessee's covenants or an acceptance of the Transferee as Lessee, or a release of the Lessee named herein from the performance of its covenants. Notwithstanding any Transfer, Lessee shall remain fully liable for the performance of all terms, covenants and provisions of this Lease. Any violation of this Lease by any Transferee shall be deemed to be a violation of this Lease by Lessee.
22.2 Subordination and Attornment. Lessee shall insert in any sublease permitted by Lessor provisions to the effect that (i) such sublease is subject and subordinate to all of the terms and provisions of this Lease and to the rights of Lessor hereunder, (ii) if this Lease terminates before the expiration of such sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor and waive any right the sublessee may have to terminate the sublease or to surrender possession thereunder, as a result of the termination of this Lease, and (iii) if the sublessee receives a written Notice from Lessor or Lessor's assignee, if any, stating that Lessee is in default under this Lease, the sublessee shall thereafter be obligated to pay all rentals accruing under the sublease directly to the party giving such Notice, or as such party may direct, which payments shall be credited against the amounts owing by Lessee under this Lease.
22.3 Sublease Limitation. Anything contained in this Lease to the contrary notwithstanding, even if a sublease of a Leased Property is permitted, Lessee shall not sublet such Leased Property on any basis such that the rental to be paid by the sublessee thereunder would be based, in whole or in part, on either (i) the income or profits derived
by the business activities of the sublessee, or (ii) any other formula such that any portion of the sublease rental received by Lessor would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. The parties agree that this paragraph shall not be deemed waived or modified by implication, but may be waived or modified only by an instrument in writing explicitly referring to this paragraph by number.
22.4 Permitted Sublease. Lessee shall be entitled to sublease any
Leased Property in its entirety to an Affiliate of Lessee upon Lessee's written
acknowledgment, provided that (i) Lessee submits an original copy of any such
sublease to Lessor for its reasonable approval and written acknowledgment prior
to the date of commencement of same, which such sublease shall memorialize that
the sublessee shall be fully liable for the performance of all of the
obligations of Lessee under this Lease with respect to such Leased Property;
(ii) each sublessee shall jointly and severally guaranty the obligations of
Lessee under the Lease; (iii) Lessor shall be provided security for the
performance by each sublessee of its obligations reasonably satisfactory to
Lessor, which security shall include, without limitation, a pledge of the stock
of or other membership interest of Lessee in each sublessee, an assignment of
the sublease, and a security interest in sublessee`s Personal Property and
Accounts as required of Lessee pursuant to Section 6.4 hereof; (iv) the sole
asset of any such sublessee shall be its interest in the contemplated sublease
and Lessee's Personal Property relating to such Facility(ies); and (v) the
sublessee shall be a wholly-owned subsidiary of Lessee. Lessee shall notify
Lessor at least thirty (30) days in advance of the date on which Lessee desires
to make such sublease. Lessee shall reimburse Lessor for the actual and
reasonable legal fees actually incurred by Lessor in connection with Lessee's
request. Lessee shall provide Lessor with a copy of the proposed sublease and
such information as Lessor reasonably requests concerning the proposed sublessee
to allow Lessor to make an informed judgment as to whether the sublease
satisfies the provisions of this Section 22.5 and to obtain the security
provided for herein.
ARTICLE XXIII
23.1 Officer's Certificates and Financial Statements. Lessee shall furnish (or as appropriate cause each Guarantor to furnish) to Lessor:
(i) Within ninety (90) days after the end of each of Advocat's fiscal years: (a) Consolidated Financial Statements for the Lessee (from and after the transfer of Lessee's interest to New Sub as contemplated by the Settlement and Restructuring Agreement) and Advocat, (b) separate financial statements for each of the Facilities, in each case certified by an financial officer of Lessee; and (c) an Officer's Certificate stating that to the best knowledge and belief of such officer after making due inquiry, Lessee is not in default in the performance or observance of
any of the terms of this Lease, or if Lessee is in default, specifying all such defaults, the nature thereof, and the steps being taken to remedy the same.
(ii) Within forty-five (45) days after the end of each of Advocat's quarters, quarterly consolidated financial reports of Advocat, together with an Officer's Certificate that Lessee is not in default of any covenant set forth in Section 8 of this Lease and Guarantor is not in default of any covenant under the Guaranty, or if Lessee or Guarantor is in default, specifying all such defaults, the nature thereof, and the steps being taken to remedy the same;
(iii) Within forty-five (45) days after the end of each of Advocat's quarters, a quarterly Financial Statement from Advocat (provided, however, that such quarterly Financial Statements need not be certified by a certified public accountant, but shall be certified by Advocat to be complete and accurate);
(iv) Within thirty-five (35) days after the end of each month, monthly financial reports for each Facility with detailed statements of income and expense and detailed operational statistics regarding occupancy rates, patient mix and patient rates by type for the Facility;
(v) A copy of each cost report filed with a governmental agency for any Facility;
(vi) Within fifteen (15) days after they are required to be filed with the SEC, copies of any annual or quarterly report and of information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which Advocat is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934;
(vii) Within thirty (30) days of Lessee's or Manager's receipt thereof, copies of surveys performed by the appropriate governmental agencies for licensing or certification purposes, and any plan of correction thereto as approved by the appropriate governmental agency for any Facility.
(viii) Immediate Notice to Lessor of any action, proposal or investigation by any agency or entity, or complaint to such agency or entity, known to Lessee, the result of which could be to (i) modify in a way adverse to Lessee or revoke or suspend or terminate, or fail to renew or fully continue in effect, any license or certificate or operating authority pursuant to which Lessee carries on any part of the Primary Intended Use of any Facility, or (ii) suspend, terminate, adversely modify, or fail to renew or fully continue in effect any cost reimbursement or cost sharing program by any state or federal governmental agency, including but not limited to Medicaid or Medicare or any successor or substitute therefor, or seek return of or reimbursement for any funds previously advanced or paid pursuant to any such program, or (iii) impose any bed hold, limitation on patient admission or similar
restriction on any Leased Property, or (iv) prosecute any party with respect to the operation of any activity on any Leased Property or enjoin any party or seek any civil penalty in excess of Ten Thousand Dollars ($10,000.00) in respect thereof;
(ix) As soon as it is prepared in each Lease Year, a capital and operating budget for the Facilities for that and the following Lease Year;
(x) With reasonable promptness, such other information respecting the financial condition and affairs of Lessee and the Facilities as Lessor may reasonably request from time to time including, without limitation, any such other information as may be available to the administration of the Leased Properties; and
(xi) At times reasonably required by Lessor, and upon request as appropriate, such additional information and unaudited quarterly financial information concerning the Leased Properties and Lessee as Lessor may require for its on-going filings with the Securities and Exchange Commission, under both the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, including, but not limited to 10-Q Quarterly Reports, 10-K Annual Reports and registration statements to be filed by Lessor during the Term of this Lease.
Lessor's right to the statements referred to in Subparagraph (x) shall be subject to any prohibitions or limitations on disclosure of any such data under applicable laws or regulations, including, without limitation, any duly enacted "Patients' Bill of Rights" or any similar legislation, including such limitations as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient privilege. Further, except for statements or information which are already public, Lessor shall not disclose the contents of any such statement, except to a Facility Mortgagee, proposed Facility Mortgagee, lender of Lessor, proposed Lender of Lessor, prospective investor, prospective purchaser, or Lessor's attorneys, accountants or agents, and except as permitted in Section 23.2.
23.2 Public Offering Information. Lessee specifically agrees that Lessor may include financial information and information concerning the operation of the Facilities that does not violate the confidentiality of the facility-patient relationship and the physician-patient privilege under applicable laws, in offering memoranda or prospectus, or similar publications in connection with syndications or public offerings of Lessor's securities or interests, and any other reporting requirements under applicable Federal and State Laws, including those of any successor to Lessor. Lessee agrees to provide such other reasonable information necessary with respect to Lessee and the Leased Properties to facilitate a public offering or to satisfy SEC or regulatory disclosure requirements. Lessor shall provide to Lessee a copy of any information prepared by Lessor to so be published and Lessee shall have a reasonable period of time (not to exceed three (3) Business Days) after receipt of such information to notify Lessor of any corrections. Lessor shall reimburse Lessee for its out-of-pocket costs to its qualified public accountants for their services in
connection with such public offering information and interim or "stub"
financial information and "comfort letters" required pursuant to Section 23.1
(xi) as requested by Lessor.
ARTICLE XXIV
24.1 Lessor's Right to Inspect. Lessee shall permit Lessor and its authorized representatives to inspect the Leased Properties and the books and records of Lessee and/or Sublessees relating to the operation of the Facilities during normal business hours at any time without Notice subject to any security, health, safety or confidentiality requirements any governmental agency or insurance requirement relating to the Leased Properties, or imposed by law or applicable regulations.
ARTICLE XXV
25.1 No Waiver. No failure by Lessor to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach hereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. No waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach.
ARTICLE XXVI
26.1 Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Lessor or Lessee now or hereafter provided either in this Lease or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Lessor or Lessee of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Lessor or Lessee of any or all of such other rights, powers and remedies.
ARTICLE XXVII
27.1 Acceptance of Surrender. No surrender to Lessor of this Lease or of the Leased Properties or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Lessor, and no act by Lessor or any representative or agent of Lessor, other than such a written acceptance by Lessor, shall constitute an acceptance of any such surrender.
ARTICLE XXVIII
28.1 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person, firm, corporation or other entity may acquire, own or hold, directly or indirectly, (i) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, and (ii) the fee estate in the Leased Properties.
28.2 No Partnership. Nothing contained in this Lease will be deemed or construed to create a partnership or joint venture between Lessor and Lessee or to cause either party to be responsible in any way for the debts or obligations of the other or any other party, it being the intention of the parties that the only relationship hereunder is that of Lessor and Lessee.
ARTICLE XXIX
29.1 Conveyance by Lessor. If Lessor or any successor owner of the Leased Properties conveys the Leased Properties other than as security for a debt, and the grantee or transferee of the Leased Properties shall expressly assume all obligations of Lessor hereunder arising or accruing from and after the date of such conveyance, Lessor or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Lessor under this Lease arising or accruing from and after the date of such conveyance or other transfer and all such future liabilities and obligations shall thereupon be binding upon the new owner.
ARTICLE XXX
30.1 Quiet Enjoyment. So long as Lessee pays all Rent as it becomes due and complies with all of the terms of this Lease and performs its obligations hereunder, Lessee shall peaceably and quietly have, hold and enjoy the Leased Properties for the Term, free of any claim or other action by Lessor or anyone claiming by, through or under Lessor, but subject to the Permitted Encumbrances and all liens and encumbrances hereafter provided for in this Lease or consented to by Lessee. Except as otherwise provided in this Lease, no failure by Lessor to comply with the foregoing covenant will give Lessee any right to cancel or terminate this Lease or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Lease, or to fail to perform any other obligation of Lessee. Lessee shall, however, have the right, by separate and independent action, to pursue any claim it may have against Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment contained in this Section.
ARTICLE XXXI
31.1 Notices. Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be sent by registered or certified mail, postage prepaid, or by hand delivery or facsimile transmission to the following address:
TO LESSEE: Diversicare Leasing Corp.
c/o Advocat, Inc.
277 Mallory Station Road, Suite 130
Franklin, TN 37067
Attn: Chief Financial Officer
Telephone No.: (615) 771-7575
Facsimile No.: (615) 771-7409
With copy to Harwell Howard Hyne Gabbert & Manner, P.C.
(which shall not 315 Deaderick Street, Suite 1800
constitute notice): Nashville, TN 37238
Attn: J. Mark Manner
Telephone No.: (615) 256-0500
Facsimile No.: (615) 251-1057
TO LESSOR: Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, Michigan 48108
Attn.: F. Scott Kellman and Susan Allene Kovach
Telephone No.: (734) 887-0200
Facsimile No.: (734) 887-0201
With copy to Dykema Gossett PLLC
(which shall not 39577 Woodward Ave., Suite 300
constitute notice): Bloomfield Hills, Michigan 48304
Attn: Fred J. Fechheimer
Telephone No.: (248) 203-0743
Facsimile No.: (248) 203-0763
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or to such other address as either party may hereafter designate. Notice shall be deemed to have been given on the date of delivery if such delivery is made on a Business Day, or if not, on the first Business Day after delivery. If delivery is refused, Notice shall be deemed to have been given on the date delivery was first attempted. Notice sent by facsimile transmission shall be deemed given upon confirmation that such Notice was received at the number specified above or in a Notice to the sender. If Lessee has vacated the Leased Properties, Lessor's Notice may be posted on the door of a Leased Property.
ARTICLE XXXII
32.1 Appraisers. If it becomes necessary to determine Fair Market Value or Fair Market Rent for any purpose under this Lease, the party required or permitted to give Notice of such required determination shall include in the Notice the name of a person selected to act as appraiser on its behalf. Within ten (10) days after such Notice, the party receiving such Notice shall give Notice to the other party of its selection of a person to act as appraiser on its behalf. The appraisers thus appointed, each of whom must be a member of the Appraisal Institute (or any successor organization thereto) and experienced in appraising facilities used for purposes similar to the Primary Intended Use of the Facilities, shall, within forty-five (45) days after the date of the Notice appointing the first appraiser, proceed to appraise the Leased Property or Leased Properties, as the case may be, to determine the Fair Market Value or Fair Market Rent thereof as of the relevant date (giving effect to the impact, if any, of inflation between the date of their decision and the relevant date); provided, however, that if only one appraiser has been so appointed, or if two appraisers have been so appointed but only one such appraiser has made such determination within fifty (50) days after the date of the Notice appointing the first appraiser, then the determination of such appraiser shall be final and binding upon the parties. To the extent consistent with sound appraisal practice at the time of any such appraisal, such appraisal shall be made on a basis consistent with the basis on which the Leased Property or Leased Properties were appraised for purposes of determining its Fair Market Value at the time of Lessor's acquisition thereof. If two appraisers have been appointed and have made their determinations within the respective requisite periods set forth above, and if the difference between the amounts so determined does not exceed ten percent (10%) of the lesser of such amounts, then the Fair Market Value or Fair Market Rent shall be an amount equal to fifty percent (50%) of the sum of the amounts so determined. If the difference between the amounts so determined exceeds ten percent (10%) of the lesser of such amounts, then such two appraisers shall within twenty (20) days appoint a third appraiser. If no such appraiser is appointed within such twenty (20) days or within ninety (90) days of the date of the Notice appointing the first appraiser, whichever is earlier, either Lessor or Lessee may apply to any court having jurisdiction to have such appointment made by such court. Any appraiser appointed by the original appraisers or by such court shall be instructed to determine the Fair Market Value or Fair Market Rent within forty-five (45) days after appointment of such appraiser. The determination of the appraiser which differs most in terms of dollar amount from the determinations of the other two appraisers shall be excluded, and the average of the remaining two determinations shall be final and binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rent of the Leased Property or Leased Properties, as the case may be. If the Fair Market Rent is being determined for more than one year, the Fair Market Rent may include such annual increases, if any, as the appraisers determine to be in accordance with the terms of this Lease.
This provision for determining by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and any determination hereunder shall be final and binding upon the parties except as otherwise provided by applicable law, and judgment may be entered upon such determination in a court of competent jurisdiction. Lessor and Lessee shall each pay the fees and expenses of the appraiser appointed by
it and each shall pay one-half of the fees and expenses of the third appraiser and one-half of all other costs and expenses incurred in connection with each appraisal.
ARTICLE XXXII
33.1 Breach by Lessor. Lessor shall not be in breach of this Lease unless Lessor fails to observe or perform any term, covenant or condition of this Lease on its part to be performed and such failure continues for a period of thirty (30) days after written Notice specifying such failure and the necessary curative action is received by Lessor from Lessee. If the failure cannot with due diligence be cured within a period of thirty (30) days, the failure shall not be deemed to continue if Lessor, within said thirty (30) day period, proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof. The time within which Lessor shall be obligated to cure any such failure shall also be subject to extension of time due to Force Majeure.
33.2 Compliance with Facility Mortgage. Except for payments due under any Facility Mortgage (which shall be the responsibility of the Mortgagor thereunder), Lessee covenants and agrees that it will duly and punctually observe, perform and comply with all of the terms, covenants and conditions (including, without limitation, covenants requiring the keeping of books and records and delivery of financial statements and other information) of any Facility Mortgage as to which Lessee has been given Notice and that it will not directly or indirectly, do any act or suffer or permit any condition or thing to occur, which would or might constitute a default under a Facility Mortgage as to which Lessee has been given Notice. Anything in this Lease to the contrary notwithstanding, if the time for performance of any act required of Lessee by the terms of a Facility Mortgage as to which Lessee has been given Notice is shorter than the time allowed by this Lease for performance of such act by Lessee, then Lessee shall perform such act within the time limits specified in such Facility Mortgage.
ARTICLE XXXIV
34.1 Disposition of Personal Property on Termination; Lessor's Option to Purchase. Upon the expiration or earlier termination of this Lease. Lessee shall immediately surrender, turn over and deliver to Lessor, without the payment of any additional consideration by Lessor, all Personal Property then located on or at or used in the operation of the Leased Properties, other than Lessee's Incidental Personal Property and the items of Personal Property listed on Schedule A attached hereto. Upon Lessor's request, Lessee shall, without any charge or cost to Lessor, execute and deliver to Lessor such bills of sale, assignments or other instruments necessary, appropriate or reasonably requested by Lessor to establish Lessor's ownership of such Personal Property. In addition, Lessor shall have the option on the terms hereinafter set forth to purchase all (but not less than all) of Lessee's Incidental Personal Property (specifically excluding, however, the items set forth on Schedule A), if any, at the expiration or termination of this Lease, for an
amount equal to the then book value thereof (acquisition cost less accumulated depreciation on the books of Lessee pertaining thereto), subject to, and with appropriate credits for, any obligations owing from Lessee to Lessor and for the then outstanding balances owing on all equipment leases, conditional sale contracts and any other encumbrances to which such Lessee's Personal Property is subject. Lessor's option shall be exercised by Notice to Lessee no more than one hundred eighty (180) days, nor less than ninety (90) days, before the expiration of the Initial Term or, if the Term is renewed as provided herein, before the expiration of the last Renewal Term, unless this Lease is terminated prior to its expiration date by reason of an Event of Default, in which event Lessor's option shall be exercised not more than thirty (30) days after the Termination Date. Lessor's option shall terminate upon Lessee's purchase of the Leased Properties. If Lessee does not receive Lessor's Notice exercising its option before the expiration of the relevant required time period, Lessee shall give Lessor Notice thereof and Lessor's option shall continue in full force and effect for a period of thirty (30) days after such Notice from Lessee. If Lessor exercises its option, Lessee shall, in exchange for Lessor's payment of the purchase price, deliver the purchased Lessee's Personal Property to Lessor, together with a bill of sale and such other documents as Lessor may reasonably request in order to carry out the purchase, and the purchase shall be closed by such delivery and such payment on the date set by Lessor in its Notice of exercise.
34.2 Facility Trade Names. If this Lease is terminated pursuant to
Section 16.1 or Lessor exercises its option to purchase Lessee's Personal
Property pursuant to Section 34.1, Lessee shall be deemed to have assigned to
Lessor the right to use the Facility Trade Names in the markets in which the
Facilities are located, and Lessee shall not after any such termination use the
Facility Trade Names in the same market in which any Facility is located in
connection with any business that competes with such Facility provided, however,
that nothing contained in this Section 34.2 grants Lessor any right to use the
name "Diversicare" for any Leased Property or Facility.
34.3 Transfer of Operational Control of the Facilities. Lessee shall cooperate fully in transferring operational control of the Facilities to Lessor or Lessor's nominee if the Term expires without renewal or purchase by Lessee, or this Lease is terminated upon the occurrence of an Event of Default or for any other reason, and shall use its reasonable best efforts to cause the business conducted at the Facilities to continue without interruption. To that end, pending completion of the transfer of the operational control of the Facilities to Lessor or its nominee:
(i) Lessee will not terminate the employment of any employees without just cause, or change any salaries, provided, however, that without the advance written consent of Lessor Lessee may grant pre-announced wage increases of which Lessor has knowledge, increases required by written employment agreements and normal raises to non-officers at regular review dates; and Lessee will not hire any additional employees except in good faith in the ordinary course of business;
(ii) Lessee will provide all necessary information requested by Lessor or its nominee for the preparation and filing of any and all necessary applications or notifications of any federal or state governmental authority having jurisdiction over a change in the operational control of the Facilities, and any other information reasonably required to effect an orderly transfer of the Facilities, and Lessee will use its best efforts to cause all operating health care licenses to be transferred to Lessor or to Lessor's nominee;
(iii) Lessee shall use its best efforts to keep the business and organization of the Facilities intact and to preserve for Lessor or its nominee the goodwill of the suppliers, distributors, residents and others having business relations with Lessee with respect to the Facilities;
(iv) Lessee shall engage only in transactions or other activities with respect to the Facilities which are in the ordinary course of its business and shall perform all maintenance and repairs reasonably necessary to keep the Facilities in satisfactory operating condition and repair, and shall maintain the supplies and foodstuffs at levels which are consistent and in compliance with all health care regulations, and shall not sell or remove any personal property except in the ordinary course of business and in accordance with the terms and conditions of this Lease;
(v) Lessee shall provide Lessor or its nominee with full and complete information regarding the employees of the Facilities and shall reimburse Lessor or its nominee for all outstanding accrued employee benefits, including accrued vacation, sick and holiday pay calculated on a true accrual basis, including all earned and a prorated portion of all unearned benefits;
(vi) Lessee shall use its best efforts to obtain the acknowledgment and the consent of any creditor, lessor or sublessor, mortgagee, beneficiary of a deed of trust or security agreement affecting the real and personal properties of Lessee or any other party whose acknowledgment and/or consent would be required because of a change in the operational control of the Facilities and transfer of personal property. The consent must be in form, scope and substance satisfactory to Lessor or its nominee, including, without limitation, an acknowledgment in respect to all such contracts, leases, deeds of trust, mortgage, security agreements, or other agreements that Lessee and all predecessors or successors-in-interest thereto are not in default in respect thereto, that no condition known to the consenting party exists which with the giving of notice or lapse of time would result in such a default, and, if requested, affirmatively consenting to the change in the operational control of the Facilities;
(vii) Lessee shall not encourage the transfer of any patients from the Facilities;
(viii) Lessee consents to Lessor, or its nominee, seeking to employ any on-site employees of the Facilities, but neither Lessor nor its nominee shall have any obligation to employ any employees of the Facilities;
(ix) To more fully preserve and protect Lessor's rights under this Section, Lessee does hereby make, constitute and appoint Lessor its true and lawful attorney-in-fact, for it and in its name, place and stead to execute and deliver all such instruments and documents, and to do all such other acts and things, as Lessor may deem to be necessary or desirable to protect and preserve the rights granted under this Section, including, without limitation, the preparation, execution and filing with the Board of Health (or similar agency) of each State or any and all required "Letters of Responsibility" or similar documents. Lessee hereby grants to Lessor the full power and authority to appoint one or more substitutes to perform any of the acts that Lessor is authorized to perform under this Section, with a right to revoke such appointment of substitution at Lessor's pleasure. The power of attorney granted pursuant to this Section is coupled with an interest and therefore is irrevocable. Any person dealing with Lessor may rely upon the representation of Lessor relating to any authority granted by this power of attorney, including the intended scope of the authority, and may accept the written certificate of Lessor that this power of attorney is in full force and effect. Photographic or other facsimile reproductions of this executed Lease may be made and delivered by Lessor, and may be relied upon by any person to the same extent as though the copy were an original. Anyone who acts in reliance upon any representation or certificate of Lessor, or upon a reproduction of this Lease, shall not be liable for permitting Lessor to perform any act pursuant to this power of attorney. Notwithstanding the foregoing, Lessor covenants with Lessee that Lessor shall refrain from exercising the power of attorney granted hereby except in the case of an Event of Default hereunder or in the event of a default, which, in Lessor's reasonable judgment, may lead to the suspension or revocation of any license of Lessee or of any sublessee.
34.4 Intangibles and Personal Property. Notwithstanding any other
provision of this Lease but subject to Section 6.4 relating to the security
interest in favor of Lessor, Lessor's Personal Property shall not include
goodwill nor shall it include any other intangible personal property that is
severable from Lessor's "interests in real property" within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto.
ARTICLE XXXV
35.1 Arbitration. Except with respect to the payment of Rent under this Lease and any proceedings to recover possession of one or more of the Leased Properties, in case any controversy arises between the parties hereto as to any of the provisions of this Lease or the performance thereof, and the parties are unable to settle the controversy by agreement or as otherwise provided herein, the controversy shall be decided by arbitration.
The arbitration shall be conducted by three arbitrators selected in accordance with the rules and procedures of the American Arbitration Association. The decision of the arbitrators shall be final and binding, and judgment may be entered thereon in any court of competent jurisdiction. The decision shall set forth in writing the basis for the decision. In rendering the decision and award, the arbitrators shall not add to, subtract from, or otherwise modify the provisions of this Lease. The expense of the arbitration shall be divided between Lessor and Lessee unless otherwise specified in the award. Each party in interest shall pay the fees and expenses of its own counsel. The arbitration shall be conducted in Ann Arbor, Michigan. In any arbitration, the parties shall be entitled to conduct discovery in the same manner as permitted under Federal Rules of Civil Procedure 26 through 37, as amended. No provision in this Article shall limit the right of any party to this Agreement to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration, and the exercise of such remedies does not constitute a waiver of the right of either party to arbitration.
ARTICLE XXXVI
36.1 Miscellaneous.
36.1.1 Survival, Choice of Law. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Lessee or Lessor arising prior to the date of expiration or termination of this Lease shall survive such expiration or termination. If any term or provision of this Lease or any application thereof is held invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing and in recordable form signed by Lessor and Lessee. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease shall be governed by and construed in accordance with the laws of the state of Michigan, as to all matters other than (i) those matters relating to the enforcement or exercise of any possessory or summary remedies of Lessor under this Lease, which shall be governed by the laws of the applicable State or States and (ii) matters which under applicable procedural conflicts of laws rules require the application of laws of another State.
LESSEE CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATES OF MICHIGAN AND EACH STATE IN WHICH A FACILITY IS LOCATED, AND AGREES THAT ALL DISPUTES CONCERNING THIS AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE
STATES OF MICHIGAN OR ANY STATE IN WHICH A FACILITY IS LOCATED. LESSEE AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATES OF MICHIGAN OR ANY STATE IN WHICH A FACILITY IS LOCATED AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATES OF MICHIGAN OR ANY SUCH STATE.
36.1.2 Limitation on Recovery. Lessee specifically agrees to look solely to Lessor's interest in the Leased Properties for recovery of any judgment from Lessor, it being specifically agreed that no constituent shareholder, officer or director of Lessor shall ever be personally liable for any such judgment or for the payment of any monetary obligation to Lessee. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Lessee might otherwise have to obtain injunctive relief against Lessor or Lessor's successors in interest or any action not involving the personal liability of Lessor (original or successor). Furthermore, except as otherwise expressly provided herein, Lessor (original or successor) shall never be liable to Lessee for any indirect or consequential damages suffered by Lessee from whatever cause. Lessor agrees to look solely to the assets of Lessee and not to any director, officer or shareholder (other than Guarantor pursuant to the Guaranty) of Lessee for payment of Lessee for payment of any monetary obligation to Lessor or for recovery of any judgment from Lessee.
36.1.3 Waivers. Lessee waives any defense by reason of any disability of Lessee, and waives any other defense based on the termination of Lessee's (including Lessee's successor's) liability from any cause. Lessee waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance, and waives all notices of the existence, creation, or incurring of new or additional obligations.
36.1.4 Consents. Whenever the consent or approval of Lessor or Lessee is required hereunder, Lessor or Lessee may in its sole discretion and without reason withhold that consent or approval unless otherwise specifically provided.
36.1.5 Counterparts. This Lease may be executed in separate counterparts, each of which shall be considered an original when each party has executed and delivered to the other one or more copies of this Lease.
36.1.6 Options Personal. The renewal options granted to Lessee in this Lease are granted solely to Lessee and are not assignable or transferrable except in connection with a Transfer permitted in Article XXII.
36.1.7 Rights Cumulative. Except as provided herein to the contrary, the respective rights and remedies of the parties specified in this Lease shall be cumulative and in addition to any rights and remedies not specified in this Lease.
36.1.8 Entire Agreement. There are no oral or written agreements or representations between the parties hereto affecting this Lease. This Lease supersedes and cancels any and all previous negotiations, arrangements, representations, brochures, agreements and understandings, if any, between Lessor and Lessee.
36.1.9 Amendments in Writing. No provision of this Lease may be amended except by an agreement in writing signed by Lessor and Lessee.
36.1.10 Severability. If any provision of this Lease or the application of such provision to any person, entity or circumstance is found invalid or unenforceable by a court of competent jurisdiction, such determination shall not affect the other provisions of this Lease and all other provisions of this Lease shall be deemed valid and enforceable.
36.1.11 Time of the Essence. Except for the delivery of possession of the Facilities to Lessee, time is of the essence of all provisions of this Lease of which time is an element.
ARTICLE XXXVII
37.1 Commissions. Lessor or Lessee each represent and warrant to the other that no real estate commission, finder's fee or the like is due and owing to any person in connection with this Lease. Lessor and Lessee each agree to save, indemnify and hold the other harmless from and against any and all claims, liabilities or obligations for brokerage, finder's fees or the like in connection with this Lease or the transactions contemplated hereby, asserted by any person on the basis of any statement or act alleged to have been made or taken by that party.
ARTICLE XXXVIII
38.1 Memorandum or Short Form of Lease. Lessor and Lessee shall, promptly upon the request of either, enter into a Memorandum or Short Form of this Lease, substantially in the form of attached EXHIBIT D with such modifications as may be appropriate under the laws and customs of the States and in the customary form suitable for recording under the laws of each of the States. Lessee shall pay all costs and expenses of recording such memorandum or short form of this Lease.
ARTICLE XXXIX
39.1 Security Deposit. Lessor acknowledges that it holds the Security Deposit in the form of cash. Lessor shall continue to hold the Security Deposit as security for the full and faithful performance by Lessee of each and every term, provision, covenant and condition of this Lease. The Security Deposit shall be deposited by Lessor into an account
which shall earn interest for the benefit of Lessee, which cash shall remain on
deposit as security and be available to Lessor as provided in this Article. The
Security Deposit shall not be considered an advance payment of Rent (or of any
other sum payable to Lessee under this Lease) or a measure of Lessor's damages
in case of a default by Lessee. The Security Deposit shall not be considered a
trust fund, and Lessee expressly acknowledges and agrees that Lessor is not
acting as a trustee or in any fiduciary capacity in controlling or using the
Security Deposit. Notwithstanding the foregoing, Lessor shall maintain the
Security Deposit separate and apart from Lessor's general and/or other funds.
Provided that Lessee is not then in default, Lessor shall disburse to Lessee the
earnings on the Security Deposit on a quarterly basis. The Security Deposit,
less any portion thereof applied as provided in Section 39.2 shall be returned
to Lessee within sixty (60) days following the expiration of the Term or earlier
termination of this Lease. Lessee may satisfy the Security Deposit obligation by
providing one or more letters of credit, subject to the following conditions:
(a) Lessor shall reasonable approve the form of any proposed letter of credit;
and (b) Lessee shall execute a letter of credit agreement in a form acceptable
to Lessor, in Lessor's sole discretion.
39.2 Additional Security Deposit. If a Facility is affected by any of
the conditions described in Subsection (h) under the definition of Event of
Default, and such condition continues beyond the shorter of (i) the period
during which Lessor is in good faith appealing such condition, and (ii) ninety
(90) days, then Lessee shall increase the amount of the Security Deposit. The
increase ("Increase") shall be in an amount equal to the fair market value which
the affected Facility would have if none of the conditions described in
Subsection (h) existed with respect to that Facility and if the Facility had
licensed beds equal to the number of licensed beds in the Facility as of the
Effective Date, an occupancy rate equal to the State average occupancy rate for
facilities utilized for the Primary Intended Use of the Facility, less the
actual fair market value of the Facility. If the parties cannot agree upon the
amount of the Increase, the amount of the Increase shall be determined in
accordance with the arbitration procedures set forth in Article XXXV. Lessee may
fund the Increase in equal monthly installments beginning on the first (1st) day
of the first (1st) month following the end of the time periods set forth above
and ending on the earlier of (i) three (3) years thereafter, and (ii) two (2)
years prior to the end of the Term; provided, however, that if the obligation to
fund occurs during the last two (2) years of the Term, the Increase shall be
funded immediately. If an Increase has been funded, the Facility is subsequently
no longer affected by any of the conditions described in Subsection (h), the
Facility has been reopened, and no Event of Default is continuing, the Increase
shall be returned to Lessee. Pending an agreement between Lessor and Lessee as
to the amount of the Increase, Lessee will fund the Increase based upon lessee's
good faith estimate of the amount thereof.
39.3 Application of Security Deposit. If Lessee defaults in respect of any of the terms, provisions, covenants and conditions of this Lease, including, but not limited to, payment of any Rent and other sums of money payable by Lessee, Lessor may, but shall not be required to, in addition to and not in lieu of any other rights and remedies available to Lessor use, apply all or any part of the Security Deposit to the payment of any sum in
default, or any other sum, including but not limited to, any damages or deficiency in reletting the Leased Properties, which Lessor may expend or be required to expend by reason of Lessee's default. Whenever, and as often as, Lessor has applied any portion of the Security Deposit to cure Lessee's default hereunder, Lessee shall, within ten (10) days after Notice from Lessor, deposit additional money with Lessor sufficient to restore the Security Deposit to the full amount originally provided or paid, and Lessee's failure to do so shall constitute an Event of Default hereunder without any further Notice.
39.4 Transfer of Security Deposit. If Lessor transfers its interest under this Lease, Lessor shall assign the Security Deposit to the new lessor and thereafter Lessor shall have no further liability for the return of the Security Deposit, and Lessee agrees to look solely to the new lessor for the return of the Security Deposit. The provisions of the preceding sentence shall apply to every transfer or assignment of Lessor's interest under this Lease. Lessee agrees that it will not assign or encumber or attempt to assign or encumber the Security Deposit and that Lessor, its successors and assigns, may return the Security Deposit to the last Lessee in possession at the last address for Notice given by such Lessee and that Lessor shall thereafter be relieved of any liability therefor, regardless of one or more assignments of this Lease or any such actual or attempted assignment or encumbrances of the Security Deposit.
SIGNATURE PAGES FOLLOW
IN WITNESS WHEREOF, the parties have executed this Lease by their duly authorized officers as of the date first above written.
LESSOR:
STERLING ACQUISITION CORP., a Kentucky
corporation
By: /s/ Susan A. Kovach ------------------------------------- Name: Susan A. Kovach Title: Vice President |
LESSEE:
DIVERSICARE LEASING CORPORATION,
a Tennessee corporation
By: /s/ James F. Mills, Jr. ------------------------------------- Name: James F. Mills, Jr. Title: Senior Vice President |
THE STATE OF TENNESSEE )
:ss
COUNTY OF DAVIDSON )
|
This instrument was acknowledged before me on the 8th day of November, 2000, by Susan A. Kovach, the Vice President of Sterling Acquisition Corp., a Delaware corporation, on behalf of the corporation
/s/ Andrea Neiderland --------------------------------------- Notary Public |
Davison, County, Tennessee
My commission expires:
THE STATE OF TENNESSEE )
:ss
COUNTY OF DAVIDSON )
|
This instrument was acknowledged before me on the 8th day of November, 2000, by James F. Mills, Jr., the Senior Vice President of Diversicare Leasing Corporation, a Tennessee corporation, on behalf of the corporation
/s/ Andrea Neiderland --------------------------------------- Notary Public |
Davidson, County, Tennessee
My commission expires:
LIST OF EXHIBITS TO LEASE
EXHIBIT A - Description of Land
EXHIBIT B - Permitted Encumbrances
EXHIBIT C - Form of Lessee's Certificate
EXHIBIT D - Form of Memorandum and Short Form of Lease
EXHIBIT E - Form of Consent and Agreement of Manager
LIST OF SCHEDULES TO LEASE
Schedule A - Excluded Personal Property of Lessee
Schedule B - Exceptions to Permitted Use
Schedule C - Excepted Facilities to Radius Restriction
EXHIBIT 10.3
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement") is made as of the 1st day of October, 2000 by and among DIVERSICARE LEASING CORP. a Tennessee corporation (the "Operator"), and DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation (the "Manager").
WHEREAS, Operator is the operator and/or licensee of nursing homes located in various states as described in Exhibit A attached hereto (individually a "Facility" or collectively the "Facilities"), and the personal property, fixtures, equipment, records and supplies used in connection therewith (the "Premises"); and
WHEREAS, Operator wishes to engage Manager to manage the Facilities; and
WHEREAS, Manager desires to manage the Facilities in accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:
1. DEFINITIONS. For the purposes of this Agreement:
(a) "Facility" means each of the nursing homes described on Exhibit A.
(b) "Gross Operating Revenues" means the revenue of the Facility from all sources during the term of this Agreement, including ancillary revenues, prior to bad debt adjustment.
(c) "Operating Expenses" means any and all expenses and costs related to and incurred in connection with the operation of a Facility, including, without limitation, the payment of salaries, taxes, capital expenditures, wages and fringe benefits for such Facility's personnel, including its administrator, but excluding federal, state or provincial income taxes; if the facility is leased, rental payments under the lease (the "Lease"), fees to be paid to the Manager under paragraph 4, and deprecation or amortization of real or personal property used in the operation of the Facility.
2. TERM. This Agreement shall commence on 12:01 a.m., October 1, 2000 and shall continue in effect for a period of one year, and shall be subject to successive renewal at the option of the Manager for successive one year periods commencing upon expiration of each term. The initial term and renewal terms, if exercised by Manager, shall be defined
herein as the "Term." The option to extend this Agreement on the same terms and conditions herein provided will be deemed automatically exercised unless the Manager gives written notice to the Operator at least sixty (60) days prior to the expiration of the then current term that the Manager does not intend to renew this Agreement. It is understood that if any option period is not exercised, all rights to exercise any subsequent option periods will automatically lapse.
3. DUTIES OF MANAGER. Subject to the provisions hereof and to the extent permitted by law consistent with the maintenance of Operator's licenses to operate the Facility granted by the applicable states, Operator hereby delegates to Manager the day to day responsibility of the management of the Facility and its operations in all respects, and Manager hereby assumes, and agrees to use its best efforts to exercise such control and responsibility with a view towards professional management of the Facility in accordance with customary industry standards. Such responsibility and control will include, without limiting the generality of the foregoing, the following powers, authorities and responsibilities:
(a) to have direct responsibility and authority for recruiting, negotiating with, hiring, training, supervising, promoting, assigning, setting the compensation level of (provided such amount is in compliance with applicable law), conducting labor negotiations to settling labor grievances with respect to, and discharging all operating and service personnel deemed by Manager to be necessary for the proper operation and maintenance of the Facility. All such employees, except the Facility's Administrator, (who shall be an employee of Manager) shall be employees of and shall be carried on the payroll of the Facility and shall not be employees of Manager; provided, however, that such employees shall be subject to the control of Manager on behalf of Operator;
(b) to supervise the rendering of all notices and statements required to be sent to the occupants of the Facility;
(c) to establish and maintain a system of patient care, including care planning, dietary care, use of staff, scheduling and quality assurance programs;
(d) to enter into contracts and take such other action in the ordinary course of business in the name of Operator as Manager deems appropriate to assure supply of pest control services, electricity, gas, fuel, water, telephone, television, linen services, garbage removal, snow removal, elevator maintenance, landscaping and other such services as may reasonably be required for the proper operation and maintenance of the Facility;
(e) to supervise the purchase of such inventories, food, beverages, provisions, supplies and equipment as may be required to properly maintain and operate the Facility and to contract for the purchase of same in the name of Operator;
(f) to take such steps and file such applications and reports as may be required to comply with the provisions of applicable legislation, rules and compliance orders issued by government agencies having jurisdiction over the Facility, including obtaining all necessary licenses and permits;
(g) to retain the services of counsel, accountants and other professional consultants as may be necessary for the purposes of carrying out Manager's duties hereunder;
(h) to perform or supervise the performance of financial services for the Facility, including the preparation and maintenance of the following:
(i) annual operating and capital budgets for the Facility outlining costs, charges, outlays and expenditures which the Manager anticipates will be made and incurred by the Facility in the ensuing year, together with anticipated revenues, including without limitation, changes to rates and personnel compensation levels;
(ii) an annual marketing plan, which will include estimated expenses for advertising and public relations programs, to encourage the highest possible levels of occupancy at the Facility;
(iii) a monthly information package specifying monthly revenues and expenses and a comparison of the same to revenues and expenses as set forth in the annual operating budget, aging of accounts receivable, a listing of capital expenditures, and a written report of material events and changes and variance analysis;
(iv) all records for patient billing, billing for all receivables and collection of same;
(v) all medical records, trust account records and other records pertaining to patients of each Facility;
(vi) all records for payables and the payment of the same out of Gross Operating Revenues;
(vii) all payroll records, payment of employees of each Facility out of Gross Operating Revenues of such Facility, withholding and remittance of payroll deductions;
(viii) all records of all reimbursable charges and mechanisms for achieving such reimbursement;
(ix) all returns for withheld income tax or other payroll deductions;
(x) all other books and records normally maintained by a reasonably prudent business manager;
(i) In Manager's discretion, to initiate in the name of and at the expense of the applicable Facility, any and all legal actions or proceedings necessary to collect charges or other income due such Facility, to enforce any agreements between such Facility and third parties, to collect damages for breach or default by any such third party, to adjust, compromise and settle all accounts, claims, disputes and differences which Operator may have in connection with the operation of a Facility and to write off or make allowance for such accounts, claims, disputes and differences as it may reasonably deem necessary; so long as there is, in the reasonable opinion of the Manager, no material adverse effect to the Operator from any such action;
(j) to advise the Operator, to the extent reasonably possible, at least four (4) weeks in advance of any material funding requirements; and
(k) to prepare, or at Manager's option, select a third party to prepare, all cost reports pertaining to the Facility. If Manager elects to prepare the foregoing, Manager will be reimbursed by Operator at prevailing market rates. If a third party is selected to prepare the foregoing, Operator will pay the expenses of such party.
(l) to use its best efforts to cause the Facility to comply with and abide by the terms and provisions of any collective bargaining or union agreements binding the Facility.
It is understood that, within the scope of the authority granted by this Agreement, Manager is acting as agent of Operator, and as such incurs no liability as principal with respect to any obligations undertaken by Manager hereunder other than in connection with its duty to act in such capacity. Manager will not have the obligation of preparing any tax returns or annual audits of the Facility, but will fully cooperate and supply all available information upon request as may be required in connection therewith.
4. MANAGEMENT FEES.
(a) In consideration of, and as remuneration for, the services provided in this Agreement with respect to the Facility, Operator agrees to pay to Manager a management fee equal to six percent (6 %) of monthly Gross Operating Revenues for the Facility. The fee will be paid monthly within ten days of the first of each month based upon the operating results of the prior month.
(b) Upon the occurrence of any material default in monetary payments by the Operator under the Lease, which default is a result of the insufficiency of the Facility's funds to make payments required under the Lease, then until the earlier of the time when funds are available to cure the default, or until such default has been waived or otherwise ceases to exist, the Manager will not be entitled to payment of its Management Fees from the Facility's funds and such fees shall accrue for the account of the Manager pursuant to subparagraph 4(c).
(c) The Management Fees will be cumulative, meaning that if any portion of the Management Fees is not paid to the Manager when due as a result of the subordination pursuant to subparagraph 4(b), or otherwise, the Manager will be entitled to receive such deficiency as soon as funds become available, together with interest thereon at the per annum fluctuating rate of interest publicly announced by AmSouth Bank in Nashville, Tennessee from time to time as its prime rate applicable to United States dollar denominated borrowings.
5. COVENANTS. Operator agrees with Manager as follows:
(a) The Facility, at the Operator's expense, will employ and retain the personnel and counsel, solicitors accountants and professional consultants referenced in subparagraphs 3(a) and 3(g) respectively.
(b) Operator will at all times comply with and perform all conditions and obligations required under any leases or indebtedness pertaining to the Facility, so as to avoid a default thereunder.
(c) Operator will not sell, lease, assign or otherwise transfer any or all of its assets related to the Facility or its interests in the Facility, including a sale, lease, assignment or transfer accomplished by a sale of stock, exchange of stock, merger, consolidation or similar transaction, without the prior written approval of the Manager, which approval will not be unreasonably withheld; provided, however, that the Operator may transfer to, and lease back from, a third party any or all of its interests in the Facility so long as (i) the Operator remains as licensee of the Facility, (ii) the transferee agrees, in writing reasonably satisfactory to the Manager to recognize the Manager as manager of the Facility under the terms of this Agreement, and (iii) the transferee agrees, in writing reasonably satisfactory to the Manager not to terminate or alter the Manager's role as manager of the
Facility under this Agreement due to any failure by the Operator or any affiliate of the Operator to satisfy any of its obligation under one or more leases or other agreements regarding any other adult care facilities in which both the transferee and the Operator and/or its affiliates hold an interest.
(d) The parties hereto recognize that irreparable damage will
result in the event that the provisions of subparagraph 5(c) are not
specifically enforced. If any dispute arises concerning subparagraph
5(c), the parties hereto agree that an injunction may be issued
restraining the consummation of any action prohibited by subparagraph
5(c) pending a determination of such controversy and that no bond or
other security will be required in connection therewith. In any dispute
arising with respect to subparagraph 5(c), without limiting in any way
any other rights or remedies to which Manager may be entitled, Operator
agrees that the provisions of subparagraph 5(c) will be enforceable by
a decree of specific performance.
(e) Operator represents and warrants to Manager that no consent or approval of any kind whatsoever is required by the landlord or any lender to landlord or Operator in order for Operator to execute and deliver this Agreement as a valid and binding contract or to perform its obligations hereunder.
(f) Manager may assign this Agreement to an affiliate or subsidiary. In addition, Manager may enter into an agreement with an affiliate or subsidiary (the "Sub Manager"), under which Sub Manager may agree to perform Manager's duties hereunder in exchange for Manager's benefits hereunder.
6. INDEMNIFICATION.
(a) The Manager will indemnify and hold the Operator and the employees of the Operator harmless from any claim, loss, liability, cost, damage or expense (including court costs and attorney fees) they may suffer or incur by reason of the gross negligence or dishonest acts of the Manager, its agents, representatives or employees or by reason of any of them exceeding their authority.
(b) Operator will indemnify and hold Manager, its affiliates, officers, directors, employees, agents, successors and assigns harmless from any claim, loss, liability, cost, damage or expense (including court costs and attorney fees) which may arise from the management of the Facility, provided that the foregoing does not result solely from the gross negligence or dishonest acts of Manager or its agents, representative, or employees or from any of them exceeding their authority.
7. TERMINATION BY OPERATOR OR MANAGER.
(a) Either party may terminate this Agreement if the other is in material default of any of its obligations under this Agreement and such breach continues for a period of thirty
(30) days after the defaulting party is notified by the other of such default in writing; provided, however, that if the nature of the breach is such that more than thirty (30) days are required for the cure, this Agreement may not be terminated if the defaulting party commences to cure such default within the thirty (30) day period and diligently and in good faith pursues completion of such curative measures.
(b) Either party may immediately terminate this Agreement if the other becomes the subject of a voluntary or involuntary bankruptcy, insolvency, reorganization, liquidation or similar proceeding (which, in the case of an involuntary proceeding, is not stayed within 30 days), makes a general assignment for the benefit of creditors or admits in writing its inability to pay its debts when due.
(c) In the event the Agreement is terminated under this paragraph 7, Manager will tender a final accounting to Operator and surrender all contracts, records, files and other information which may be pertinent to the continuing operation of the Facility, and Operator will pay to Manager any Management Fees and/or net profits due hereunder.
8. INSURANCE.
(a) Manager agrees to use its best efforts to negotiate, procure and maintain in full force and effect, at the expense of the Facility, insurance against fire and other hazards, including, without limitation, personal injury, workmen's compensation, property damage, liability and such other insurance in such amounts and covering such risks as are normally maintained by and for the protection of owners and operators of Facility of a type similar to the Facility, such as professional negligence insurance. Operator agrees that the insurance in force upon execution of this Agreement is acceptable.
(b) Operator and Manager hereby waive subrogation against the other for any claims that might be brought from any loss which is fully covered by insurance and agree to look solely to the insurance proceeds. To the extent that claims are not covered by insurance and paid out of insurance proceeds entirely, nothing in this clause will prevent the parties from enforcing their rights at law or in equity against each other.
9. USE OF PREMISES. Manager agrees that it will not at any time use, or permit to be used, the Facility for purposes other than a nursing home facility without the prior written consent of Operator.
10. BOOKS AND RECORDS. All books, records and reports prepared by Manager for use of or in connection with the operation of the Facility will be the property of Operator, provided that Manager may make copies thereof for its own use as Manager may desire.
11. ASSIGNMENT. The provisions of this Agreement will be binding upon the parties hereto and their respective successors and assigns; provided, however, that neither party will have the right to assign or delegate, by operation of law or otherwise, its rights or obligations
under this Agreement, other than as provided in Section 5; and, provided further that such assignment or delegation will not relieve either party from its obligations under this Agreement.
12. RIGHT TO INSPECT; AUDIT. The parties hereto agree that at all reasonable times Manager will permit the Operator or its representatives to inspect the buildings, premises and records of the Facility and to perform such audits of Manager's financial books and records relating to the Facility as Operator may request to confirm the financial results reported by Manager.
13. NOTICE. All notices required or permitted under this Agreement will be in writing and will be deemed delivered the same day as personally delivered or delivered by confirmed facsimile transmission, one day after confirmed delivery to an overnight courier service, or three (3) days after mailing by registered mail, return receipt requested, postage paid, at the addresses set forth below or such other addresses as either party may specify to the other in accordance with this paragraph 13:
Operator: Diversicare Leasing Corp.
277 Mallory Station Road
Suite 130
Franklin, Tennessee 37067
Attn: President
With a copy to: Harwell Howard Hyne Gabbert & Manner, P.C.
315 Deaderick Street, Suite 1800
Nashville, Tennessee 37238-1800
Attention: Mark Manner, Esq.
Manager: Diversicare Management Services Co.
277 Mallory Station Road
Suite 130
Franklin, Tennessee 37067
Attn: President
Attention: President
With a copy to: Harwell Howard Hyne Gabbert & Manner, P.C.
315 Deaderick Street, Suite 1800
Nashville, Tennessee 37238-1800
Attention: Mark Manner, Esq.
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14. GENERAL.
(a) Nothing herein contained will prevent either party from owning, leasing, operating, managing, cooperating or having an interest in any other nursing home, retirement center or other long term care or residential facility, whether or not neighboring one of the Facility, nor preclude either party from engaging in any other activity.
(b) This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee, without giving effect to conflict of law rules.
(c) It is understood and agreed that this Agreement contains all terms and conditions relating to the subject matter of this Agreement and supersedes all prior and contemporaneous agreements, negotiations, correspondence, undertakings and communications of the parties or their representatives, oral or written, respecting such subject matter.
(d) Any interpretation of the terms of this Agreement will not take into consideration which party hereto drafted this instrument, it being agreed and understood that the parties have agreed to the terms of this Agreement only after extensive negotiations.
(e) This Agreement shall not be amended or modified except by a writing duly executed by the parties hereto. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement.
(f) This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
(g) If any provision of this Agreement is deemed invalid, illegal or unenforceable, the validity, legality and enforceability of all other provisions will not be affected thereby. Further, a substitute and equitable provision shall be automatically substituted therefor in order to carry out, so far as may be valid, legal and enforceable, the intent and purpose of the invalid, illegal or unenforceable provision.
(h) If the Manager's role as manager under this Agreement is
terminated or significantly altered by any Landlord due to a default by
the Operator of its obligations under the Lease, the Operator will pay
the Manager an amount equal to the product of (i) one-half (1/2) of the
Management Fees earned by the Manager during the immediately preceding
fiscal year of the Facility, annualized if necessary, multiplied by
(ii) the number of years remaining in the then current term. Amounts
payable under this Section 15(h) shall be paid annually over the period
remaining in the then current term.
(i) The parties acknowledge that the Manager will sustain an
amount of damages which will be substantial and irreparable but
difficult to determine as a result of (i) the failure of the Operator
to provide the Manager notice of expiration as required by subparagraph
2(b); or (ii) the termination of this Agreement or the alteration of
the Manager's role due to the Operator's default under either the Lease
or the Indebtedness (collectively, the "Liquidated Damages Events").
Accordingly, the parties agree that the liquidated damages described in
subparagraphs 2(b) and 15(b) will constitute full satisfaction for the
respective claims for damages which the Manager shall have against the
Operator in respect of either of the Liquidated Damages Events, and
each of the parties hereby agrees not to contest the existence or the
amount of any damages resulting solely from either of the Liquidated
Damages Events.
(j) A party's decision to terminate this Agreement in accordance with its terms will not limit or alter in any way its right, at law or in equity, to seek damages or another form of remedy for the breach or other action which precipitated termination. If any party exercises any right hereunder against the other, the prevailing party in the exercise of such right will be entitled to costs and expenses associated with such enforcement, including without limitation, court costs and reasonable attorneys' fees.
(k) Nothing contained in this Agreement is intended or is to be construed to create any association, partnership or joint venture between Operator and Manager. Manager is an independent contractor retained by Operator.
(l) The headings contained in this Agreement are intended solely for convenience of reference and shall not affect the rights of the parties to this Agreement.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement as of the date set forth above.
MANAGER: OPERATOR:
-------- ---------
Diversicare Management Services Co. Diversicare Leasing Corp.
By: James F. Mills Jr. By:
--------------------------------- ---------------------------------
Title: Sr. Vice President Title: Sr. Vice President
------------------------------ ------------------------------
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EXHIBIT A TO MANAGEMENT AGREEMENT
LIST OF FACILITIES
LOCATION/ADDRESS
ALABAMA
CANTERBURY HEALTH FACILITY
1720 Knowles Road
Phenix City, Alabama 36869
LYNWOOD NURSING HOME
4164 Halls Mills Road
Mobile, Alabama 36693
NORTHSIDE HEALTHCARE
700 Hutchins Avenue
Gadsden, Alabama 35904
WESTSIDE HEALTHCARE
4320 Judith Lane
Huntsville, Alabama 35805
ARKANSAS
ASH FLAT NURSING & REHAB CENTER
HC-67, Box 5A
Ash Flat, Arkansas 72513
DES ARC NURSING & REHAB CENTER
2216 W. Main Street
Des Arc, Arkansas 72040
EUREKA SPRINGS NURSING & REHAB CENTER
235 Huntsville Road
Eureka Springs, Arkansas 72632
LOCATION/ADDRESS
FAULKNER NURSING & REHAB CTR.
2603 Dave Ward Drive
Conway, Arkansas 72032
POCAHONTAS NURSING & REHAB CTR.
105 Country Club Rd
Pocahontas, Arkansas 72455
WALNUT RIDGE NURSING & REHAB CTR.
1500 West Main
Walnut Ridge, Arkansas 72476
GARLAND NURSING & REHAB CTR.
610 Carpenter Dam Road
Hot Springs, Arkansas 71901
THE PINES NURSING & REHAB CTR.
534 Carpenter Dam Road
Hot Springs, Arkansas 71901
SHERIDAN NURSING & REHAB CTR.
113 South Briarwood Dr.
Sheridan, Arkansas 72150
OUACHITA NURSING & REHAB CTR.
1411 Country Club Road
Camden, Arkansas 71701
RICH MT. NURSING & REHAB CTR.
306 Hornbeck
Mena, Arkansas 71953
STILLMEADOW NURSING & REHAB CTR.
105 Russelville Road
Malvern, Arkansas 72104
FLORIDA
LOCATION/ADDRESS
MAYFIELD REHAB. & SPECIAL CARE CTR.
200 Mayfield Drive
Smyrna, Tennessee 37167
LAUREL MANOR HEALTH CARE FACILITY
902 Buchanan Road
New Tazwell, Tennessee 37825
MANOR HOUSE OF DOVER
Hwy 49 East P.O. Box 399
Dover, TN. 37058
KENTUCKY
CARTER NURSING & REHAB CTR.
P.O. Box 904 - 250 McDavid Blvd.
Grayson, Kentucky 41143
SOUTH SHORE NURSING & REHAB CTR.
P.O. BOX 489 (James Hannah Drive)
South Shore, Kentucky 41175
WEST LIBERTY NURSING & REHAB CTR.
P.O. Box 219 (744 Liberty Rd.)
West Liberty, Kentucky 41472
WURTLAND HEALTH CARE CENTER
P.O. Box 677 (100 Wurtland Ave.)
Greenup, Kentucky 41144-0677
BOYD NURSING & REHABILITATION
12800 Princeland Drive
Ashland, Kentucky 41102
ELLIOTT NURSING & REHAB CTR.
RTE 32 East, (P.O. Box 694) Howard Crk Rd.
Sandy Hook, Kentucky 41171
LOCATION/ADDRESS
OHIO
BEST CARE
2159 Dogwood Ridge
Wheelersburg, Ohio 45694
WEST VIRGINIA
BOONE HEALTHCARE
P.O. Box 605 (Route 119) Lick Creek Rd.
Danville, West Virginia 25053
LAUREL NURSING & REHAB CENTER
H.C. 75, Box 153 Clinic Rd.
Ivydale, West Virginia 25113
NOTES:
Omega(1) - 1992 Omega Master Lease Omega(2) - 1994 Omega Master Lease Omega(3) - 1994 Omega Master Sublease Omega(4) - 1997 Omega Master Lease |
EXHIBIT 10.4
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security Agreement") is made and entered into as of November 8, 2000 by and between DIVERSICARE LEASING CORP., a Tennessee corporation (the "Debtor"), and STERLING ACQUISITION CORP., a Kentucky corporation ("Secured Party").
RECITALS:
A. Capitalized terms used and not otherwise defined herein shall have the meanings given them in Article I below.
B. Concurrently herewith, Secured Party and Debtor have entered into the Lease, pursuant to which Secured Party has leased to Debtor the Facilities.
C. This Security Agreement is intended to consolidate, amend and restate those certain security agreements previously delivered to secure the 1992 Master Lease, the 1994 Master Lease, the 1997 Master Lease, and the West Liberty Master Lease into one document.
D. The obligations of the Original Security Agreements have been assigned to, and assumed by, the Debtor.
E. The rights, title and interests to the Collateral secured by the Original Security Agreements have been assigned to, and assumed by, the Debtor subject to the security interests of the Secured Party.
F. The rights and obligations of the lessee under the Original Master Leases have been assigned to, and assumed by, the Debtor, as the lessee thereunder.
G. The rights and obligations of the lessors under the Original Master Leases have been assigned to, and assumed by, the Secured Party, as the lessor thereunder.
H. As a condition to Secured Party's agreement to enter into the Lease, Secured Party has required Debtor to enter into this Security Agreement and to grant, amend and restate security interests to Secured Party as herein provided.
NOW, THEREFORE, in order to induce Secured Party to enter into the Lease, and for other good and valuable consideration the receipt and sufficiency of which hereby are acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
This Security Agreement is executed and delivered in connection with the Lease. Terms defined in the Commercial Code (as hereinafter defined) and not otherwise defined in this Security Agreement or in the Lease shall have the meanings ascribed to those terms in the Commercial Code. In addition to the other definitions contained herein, when used in this Agreement the following terms shall have the following meanings:
"1992 Master Lease" means the certain master lease dated August 14, 1992 between Omega Healthcare Investors, Inc. as lessor, and Diversicare Corporation of America, as lessee, for the facilities described therein.
"1994 Master Lease" means the certain master lease dated December 1, 1994 between Secured Party as lessor, and Sterling Health Care Management, Inc., as lessee, for the facilities described therein.
"1997 Master Lease" means the certain master lease dated March 1, 1997 between Secured Party as lessor, and Sterling Health Care Management, Inc., as lessee, for the facilities described therein.
"Collateral" means the collateral described in Article II, Section 2 below.
"Commercial Code" means the Uniform Commercial Code, as enacted and in force from time to time in the state in which the Facilities are located.
"Debtor's Personal Property" means any tangible personal property owned by Debtor and not used in connection with the operation of the Facilities.
"Facilities" means the healthcare facilities identified on attached
SCHEDULE 1.
"Lease" means the Consolidated Amended and Restated Master Lease executed concurrently herewith by Secured Party, as lessor, and Debtor, as lessee of the Facilities.
"Original Master Leases" means the 1992 Master Lease, the 1994 Master Lease, the 1997 Master Lease, and the West Liberty Master Lease, collectively.
"Original Security Agreements" means any and all security agreements delivered to secure the Original Master Leases or any one of them.
"Settlement and Restructuring Agreement" means that certain settlement and restructuring agreement by and among Advocat, Inc., a Delaware corporation, Debtor,
Sterling Health Care Management, Inc., a Kentucky corporation, Diversicare Management Services Co., a Tennessee corporation, Omega Healthcare Investors, Inc., a Maryland corporation, and Secured Party of even date herewith.
"Subordinated Note" means that certain subordinated note from Advocat, Inc., a Delaware corporation to Omega Healthcare Investors, Inc., a Maryland corporation in the original principal amount of Three Million Dollars ($3,000,000.00) Dollars of even date herewith.
"West Liberty Master Lease" means the certain first amendment to master sublease dated March 3, 1999 between OS Leasing Company as lessor, and Diversicare Leasing Corp., as lessee, for the facilities described therein.
ARTICLE II - AGREEMENT
1. GRANT OF SECURITY INTEREST. Debtor hereby grants to Secured Party a continuing security interest in the Collateral to secure the payment of all amounts now or hereafter due and owing to Secured Party from Debtor under the Lease, or any extension or renewal thereof, and any and all other obligations incurred in connection therewith, together with all other obligations or indebtedness of Debtor and/or Advocat, Inc. to Secured Party under the Lease, Settlement and Restructuring Agreement, and Subordinated Note however created, evidenced or arising, whether direct or indirect, absolute or contingent, now or hereafter existing, due or to become due, plus all interest, costs, out-of-pocket expenses and reasonable attorneys' fees which may be made or incurred by Secured Party in the administration, and collection thereof (the "Liabilities"), and in the protection, maintenance, and liquidation of the Collateral. This Security Agreement shall be and become effective when, and continue in effect as long as, any Liabilities of Debtor to Secured Party are outstanding and unpaid, and except as otherwise permitted pursuant to the terms of this Agreement, the Settlement and Restructuring Agreement, or the Lease, Debtor will not sell, assign, transfer, pledge or otherwise dispose of or encumber any Collateral to any third party while this Security Agreement is in effect without the prior and express written consent of Secured Party. Notwithstanding the foregoing, the obligation of Debtor to pay Secured Party Five Million Dollars ($5,000,000) plus interest thereon as set forth in Section 15 of the Settlement and Restructuring Agreement shall be secured only by the Equipment (as hereinafter defined).
2. COLLATERAL. The "Collateral" covered by this Agreement is all of the personal property described below that Debtor now owns or shall hereafter acquire or create, immediately upon the acquisition or creation thereof, and that is located at or used exclusively in connection with, or arises from or in connection with Debtor's use and operation of, the Facilities, consisting of the following:
(a) Accounts. To the extent permitted by law, all accounts, Health Care Insurance Receivables (as defined in Revised Article 9, hereinafter deferred), accounts receivable, deposits, prepaid items, documents, chattel paper, instruments, contract rights (including rights under any management agreement or franchise agreement with respect to the Facilities), general intangibles, choses in action, including any right to any refund of any taxes paid to any governmental authority prior to or after the date of this Agreement, and all ledgers, printouts, papers, data, file materials and information relating to any account debtors in respect thereof, and/or to the operation of the Debtor's business relating to the Facilities, and all rights of access to such books, records, ledgers, printouts, data, file materials and information, and all property in which such books, records, ledgers, printouts, data, file materials and information are stored (the "Accounts"); and
(b) Certificates of Need. To the extent permitted by law, all Certificates of Need now or hereafter issued in connection with the Facilities (the "Certificates"); and
(c) Equipment. All equipment, furniture, fixtures and other personal property used in connection with the operation of the Facilities, whether now owned or hereafter acquired by Debtor, together with all accessions, additions, parts, attachments, accessories, or appurtenances thereto including but not limited to linens, motor vehicles, furniture, fixtures and movable equipment, leasehold improvements, and all books and records now owned or hereafter acquired pertaining to any of the above described property other than Debtor's Personal Property, but specifically excluding any computer readable memory and any computer hardware or software necessary to process such memory (the "Equipment") and
(d) Insurance Rights. All rights under contracts of insurance now owned or hereafter acquired covering any of the Collateral ("Insurance Rights"); and
(e) Inventory. All inventory and goods, now owned or hereafter acquired, including but not limited to, raw materials, work in process, finished goods, food, medicines, tangible property, stock in trade, wares and merchandise used in or sold in the ordinary course of business at the Facilities (the "Inventory"); and
(f) Medicaid. To the extent permitted by law, all rights to reimbursement under 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.ss.ss.1396 et seq.) and the regulations promulgated thereunder; and
(g) Medicare. To the extent permitted by law, all rights to reimbursements under 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.ss.ss. 1395 et seq.) and the regulations promulgated thereunder; and
(h) Other Property. All other tangible and intangible property of Debtor now or hereinafter acquired by Debtor and located at the Facilities or used exclusively in connection with the operation of the Facilities, including without limitation, but specifically excluding Debtor's continuous quality improvement program, manuals and materials; management information systems; policy, procedure and educational manuals and materials; and similar proprietary property including any right to the use of the name "Diversicare"' and
(i) Patient Agreements. To the extent permitted by law, any and all contracts, authorizations, agreements or consents made by or on behalf of any patient or resident of any of the Facilities, or any other person seeking or obtaining services or goods from Debtor, pursuant to which Debtor provides skilled nursing care, intermediate care, personal care and/or assisted living facilities, or any form of patient or residential care, as well as related services at any of the Facilities (as such contracts, authorizations, agreements or consents may be amended, supplemented, renewed, replaced, extended or modified from time to time); including consents to treatment and assignments of payment of benefits (collectively, the "Patient Agreements");and
(j) Permits. To the extent permitted by law, (i) the operating licenses for each of the Facilities, any certificate of need, 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 any of the Facilities or any portion or component of any of the Facilities, the providing of any professional or other services by the Debtor, the purchase, sale, dispensing, storage, prescription or use of drugs, medications or the like by Debtor, or any other operations or businesses of Debtor; and (ii) certifications and eligibility for participation by Debtor, in respect of its operation of any of the Facilities, in programs or arrangements of or reimbursement from any third-party payors, including Medicare and Medicaid; and (iii) all other licenses permits and certificates used or useful in connection with the ownership, operation, use or occupancy of any of the Facilities (collectively, the "Permits"); and
(k) Investment Property. All Investment Property (as defined in the Uniform Commercial Code), other than a security, whether certificated or uncertificated, in a subsidiary or affiliate of Debtor; and,
(l) Proceeds. Proceeds arising out of the operation of the Facilities, including, without limitation, proceeds of hazard or other insurance policies and eminent domain or condemnation awards, of all of the foregoing described Inventory or Equipment, together with any and all deposits or other sums at any time credited by or due from Secured Party to Debtor and any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts receivable, choses in action, chattel paper, cash, property and the proceeds thereof (whether or not the same are Collateral or Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest, which are now or at any time hereafter in possession or under the control of Secured Party or in transit by mail or carrier to or from Secured Party or in the possession of any third party acting on behalf of Secured Party, without regard to whether Secured Party received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise, or whether Secured Party has conditionally released the same (the "Proceeds"); and
(m) Reimbursement Contracts. To the extent permitted by law, all rights to third-party reimbursement contracts for the Facilities which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including Medicare and Medicaid, managed care plans and private insurance agreements, and any successor program or other similar reimbursement program and/or private insurance agreements, now or hereafter existing; and
(n) Rights. All rights, remedies, powers and/or privileges of Debtor with respect to any of the foregoing.
The form of a description of the Collateral to be attached to financing statements executed by Debtor in connection herewith is attached hereto as EXHIBIT A. Except to the extent set forth above, the term "Collateral" does not include Debtor's Personal Property.
3. PERFECTION OF SECURITY INTEREST.
(a) Debtor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral pledged by Debtor hereunder, without the signature of Grantor where permitted by law. A copy of each such statement and amendment will be timely provided to Debtor. Debtor shall execute and deliver to Secured Party, concurrently with Debtor's execution of this Security Agreement, and at any time or times hereafter at the request of Secured Party, all financing statements and continuation financing statements (where not covered by the foregoing sentence), assignments, affidavits, reports, notices, letters of authority, vehicle title notations and all other documents that Secured Party may reasonably request, in a form reasonably satisfactory to Secured Party, to perfect and maintain perfected Secured Party's security interests in the Collateral. In order to fully consummate all of the
transactions contemplated hereunder, Debtor shall make appropriate entries on its books and records disclosing the security interests created hereby in the Collateral.
4. WARRANTIES AND COVENANTS. In addition to the warranties and representations, if any, made in the Lease, Debtor warrants, represents and agrees that:
(a) To the extent permitted by law, Debtor has rights in or the power to transfer the Collateral, and is and will be the lawful owner or lessee of all of the Collateral, with the right, to the extent permitted by law, to subject the owned or leased property to the security interests of Secured Party hereunder;
(b) Except for the security interests in the Collateral herein granted to Secured Party and as described in the Settlement and Restructuring Agreement, there are no other adverse claims, liens, restrictions on transfer or pledge, or security interests in the Collateral that are known to Debtor, and there are no financing statements covering any of the Collateral filed in any public office created by or known to Debtor prior to the date hereof, except as previously disclosed by Debtor to Secured Party. Debtor shall defend Secured Party against any claims and demands of any and all other persons to the Collateral inconsistent with this Agreement;
(c) All of the Collateral is or will be (upon delivery) located at the Facilities or at the chief executive offices of Debtor;
(d) Except as permitted under the Lease or hereunder, Debtor shall not remove the Collateral from the Facilities or its chief executive offices without Secured Party's prior written consent and shall not use or permit the Collateral to be used for any unlawful purpose whatsoever. Except as permitted under the Lease or hereunder, Debtor shall not remove any Collateral from the state in which the Facilities or its chief executive offices are located, without the prior written consent of Secured Party;
(e) Except as permitted under the Lease, Debtor shall not conduct business under any name at the Facilities other than that given above or set forth on attached SCHEDULE 1, nor will Debtor change or reorganize the type of business entity under which it presently does business, except upon prior and express written approval of Secured Party, and, if such approval is granted, Debtor agrees that all documents, instruments and agreements reasonably requested by Secured Party and relating to such change shall be prepared, filed and recorded at Debtor's expense before the change occurs;
(f) Debtor shall not remove any records concerning the Collateral located at the Facilities or its chief executive offices nor keep any of its records concerning the
same at any other location unless written notice thereof is given to Secured Party at least ten (10) days prior to the removal of such records to any new addresses; and
(g) Debtor has the right and power and is duly authorized to enter into this Security Agreement. The execution of this Security Agreement does not and will not constitute a breach of any provision contained in any agreement or instrument to which Debtor is or may become a party or by which Debtor is or may be bound or affected.
(h) Debtor shall not change the state of its incorporation, and shall not change its corporate name without providing Secured Party thirty (30) days prior written notice.
(i) Debtor's (i) chief executive office is located in the state of Tennessee, (ii) state of incorporation is the state first set forth in the first paragraph of this Security Agreement (the "Debtor State"), and (iii) exact legal name is as set forth in the first paragraph of this Security Agreement.
(j) Debtor shall at all times maintain the Collateral in good order and repair and with reasonable promptness make all necessary and appropriate repairs thereto of every kind and nature whether ordinary or extraordinary, foreseen or unforeseen, or arising by reason of a condition whether or not existing prior to the date of this Security Agreement. It is the intention of this provision that the level of maintenance of the Collateral shall be not less than that of a first class nursing home operator making use of the Collateral for its intended use.
(k) All agreements and papers required to be filed, registered or recorded in order to create in favor of the Secured Party a perfected lien in the Collateral have been, or will be, filed, registered or recorded in the appropriate filing offices, and to the best of Debtor's knowledge, no further or subsequent filing, refiling, registration, re-registration, recorded or re-recording is necessary in any jurisdiction, except as provided under applicable law with respect to the filing of continuation statements.
5. COLLECTION OF ACCOUNTS.
(a) Secured Party hereby authorizes and permits Debtor to collect the Accounts from its debtors. This privilege may be terminated by Secured Party at any time after notice from Secured Party upon the occurrence and during the continuance of a Triggering Event under the Settlement and Restructuring Agreement (a "Notice of Default"), and Debtor shall execute, upon demand therefor, such assignments so as to vest in Secured Party full title to the Accounts (to the extent permitted under applicable law), and Secured Party thereupon shall be entitled to and have all of the ownership, title, rights, securities and guarantees of Debtor with respect thereto, and with respect to the property
evidenced thereby, including the right of stoppage in transit, and Secured Party may notify any debtor or debtors of the assignments of the Accounts and collect the same; thereafter, Debtor will receive all payments on the Accounts as agent of and for Secured Party and will transmit to Secured Party, on the day of receipt thereof, all original checks, drafts, acceptances, notes and other evidence of payment received in payment of or on account of the Accounts, including all cash moneys similarly received by Debtor. Until such delivery, Debtor shall keep all such remittances separate and apart from Debtor's own funds, capable of identification as the property of Secured Party, and shall hold the same in trust for Secured Party. After Notice of Default from the Secured Party, all items or amounts that are delivered by Debtor to Secured Party on account of partial or full payment or otherwise as Proceeds of any of the Collateral shall be deposited in accordance with the terms of the Settlement and Restructuring Agreement. To the extent permitted by law, Secured Party or its representatives is hereby authorized to endorse, in the name of Debtor, any item, howsoever received by Secured Party, representing any payment on or other proceeds of any of the Collateral, and may endorse or sign the name of Debtor to any accounts, invoices, assignments, financing statements, notices to debtors, bills of lading, storage receipts, or other instruments or documents in respect to Accounts or the property covered thereby requested by Secured Party. Debtor shall promptly give Secured Party, upon demand, copies of all Accounts, to be accompanied by such information and by such documents or copies thereof as Secured Party may reasonably require. After Notice of Default from Secured Party, Debtor shall maintain such records with respect to the Accounts and the conduct and operation of its business as Secured Party may reasonably request, and will furnish to Secured Party all information with respect to the Accounts and the conduct and operation of its business, including balance sheets, operating statements and other financial information, as Secured Party may reasonably request from time to time.
(b) Until such time as Secured Party shall notify Debtor of the revocation of such power and authority by reason of an a Triggering Event (and effective only during the continuance thereof), Debtor (i) may, only in the ordinary course of business, at its own expense, sell, lease or furnish under contracts of service any of the Inventory normally held by Debtor for such purpose; (ii) may use and consume any raw materials, work in process or materials, the use and consumption of which is necessary in order to carry on Debtor's business at the Facilities; (iii) replace Equipment in accordance with the provisions of the Lease; and (iv) shall, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as Secured Party may reasonably request or, in the absence of such request, as Debtor may deem advisable. A sale in the ordinary course of business shall not include a transfer in partial or total satisfaction of a debt.
6. INSPECTIONS/INFORMATION. Debtor shall permit Secured Party or its agents upon reasonable written request and during business hours to have access to and
to inspect any of the Collateral. Secured Party may from time to time inspect, check, make copies of, or extracts from the books, records and files of Debtor relating to the Collateral, and Debtor shall make the same available to Secured Party upon reasonable written notice and during business hours. Secured Party's right of access and inspection shall be subject to any prohibitions or limitations on disclosure under applicable law, including any so-called "Patient's Bill of Rights" or similar legislation, including such limitations as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient relationship.
7. DEFAULT/REMEDIES
(a) The occurrence of any "Event of Default" under the Lease or a default under the Settlement and Restructuring Agreement shall constitute a Security Agreement Event of Default without any additional notice or grace period. In addition, the following shall also constitute a Security Agreement Event of Default:
(i) If any of the representations or warranties made by Debtor hereunder prove to be untrue when made in any material respect, the Secured Party or Collateral is materially and adversely affected thereby, and same is not cured within fifteen (15) days after written notice from Secured Party thereof; or
(ii) If Debtor fails to perform any term, covenant, or condition of this Security Agreement and such failure is not cured within fifteen (15) days after written notice from Secured Party thereof; unless such default by its nature cannot be cured within said fifteen (15) days in which event Debtor shall have such additional time, not to exceed sixty (60) days from the date of such notice, as may be reasonably required under the circumstances to cure such default, provided Debtor commences such cure within said fifteen (15) day period and diligently prosecutes such cure thereafter.
(b) Whenever a Security Agreement Event of Default shall have occurred and so long as its continues, Secured Party may exercise from time to time any rights and remedies, including the right to immediate possession of the Collateral, available to it under the Lease, this Security Agreement or applicable law. Secured Party shall have the right to hold any property then in or upon the Facilities (but excluding any property belonging to patients at the Facilities) at the time of repossession not covered by this Security Agreement until return is demanded in writing by Debtor. Debtor agrees, in case of the occurrence of a Security Agreement Event of Default and upon the request of Secured
Party, to assemble, at its expense, all of the Collateral at a convenient place acceptable to Secured Party and to pay all costs of Secured Party of collection of all the Liabilities, and enforcement of rights hereunder, including reasonable attorneys' fees and legal expenses, including participation in bankruptcy proceedings, and the expenses of locating the Collateral and the expenses of any repairs to any realty or other property to which any of the Collateral may be affixed or be a part. If the Collateral is disposed of at a public sale, the parties agree that a public sale with at least ten (10) calendar days prior notice to, Debtor and notice to the public by one publication in a local newspaper is commercially reasonable. If any notification of intended disposition of any of the Collateral is required by law, such notification, if mailed, shall be deemed reasonably and properly given if sent at least ten (10) days before such disposition, by first class mail, postage prepaid, addressed to the Debtor either at the address set forth in the notice section hereof, or at any other address of the Debtor appearing on the records of Secured Party.
(c) TO THE EXTENT PERMITTED BY LAW, DEBTOR AGREES THAT SECURED PARTY SHALL, UPON THE OCCURRENCE OF ANY SECURITY AGREEMENT EVENT OF DEFAULT, HAVE THE RIGHT TO PEACEFULLY RETAKE ANY OF THE COLLATERAL. DEBTOR WAIVES ANY RIGHT IT MAY HAVE, IN SUCH INSTANCE, TO A JUDICIAL HEARING PRIOR TO SUCH RETAKING.
8. INDEMNITY. In addition to the indemnities set forth in the Lease, Debtor shall protect (except to the extent same is caused by the gross negligence or wilful misconduct of Secured Party), indemnify and hold harmless Secured Party and its officers, employees, directors and agents from and against all liabilities, obligations, claims, damages, penalties, causes of action, and out-of-pocket costs and expenses whatsoever (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against Secured Party or its officers, employees, directors or agents, by reason of the ownership, use, construction and operation of the Collateral by Debtor, its officers, directors, servants, agents and employees or by reason of enforcement of Secured Party's rights hereunder or under the Lease. As used in this Security Agreement, the term "attorneys' fees" includes fees incurred in any appeal and/or enforcement proceedings. In case any action, suit or proceeding is brought against Secured Party by reason of any such occurrence, Debtor, upon request of Secured Party, shall at Debtor's expense cause such action, suit or proceeding to be resisted and defended by counsel approved by Secured Party with respect to proceedings and matters involving Secured Party. Any amounts payable to Secured Party under this Section 8 which are not paid within thirty (30) days after written demand therefor shall bear interest at the Overdue Rate as specified in the Lease from the date of such demand, and such amounts, together with such interest, shall be indebtedness secured by this Security Agreement. The obligations of Secured Party under this Section 8 shall survive the expiration or earlier termination of the Term of the Lease for a period of three (3) years; provided, however, if Secured Party has delivered notice to Debtor of a claim or potential
claim under this Section 8, then the obligations of Debtor shall be extended with respect to such claim or potential claim until the final resolution of such claim or potential claim by the parties thereto.
9. CONCERNING REVISED ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE. The parties acknowledge and agree to the following provisions of this Security Agreement in anticipation of the possible application, in one or more jurisdictions to the transactions contemplated hereby, of the revised Article 9 of the Uniform Commercial Code in the form or substantially in the form approved in 1998 by the American Law Institute and the National Conference of Commissioners on Uniform State Law ("Revised Article 9").
(a) Attachment. In applying the law of any jurisdiction in which Revised Article 9 is in effect, the Collateral is all assets of the Debtor, whether or not within the scope of Revised Article 9. The Collateral shall include, without limitation and without limitation to the Collateral as defined herein, the following categories of assets as defined in Revised Article 9: goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, general intangibles (including payment intangibles and software), supporting obligations and any and all proceeds of any thereof, wherever located, whether now owned and hereafter acquired. If the Debtor, or any of them, shall at any time, whether or not Revised Article 9 is in effect in any particular jurisdiction, acquire a commercial tort claim with respect to a Facility, as defined in Revised Article 9, Debtor shall immediately notify the Secured Party, in a writing signed by Debtor, of the details thereof and grant to Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Security Agreement, with such writing to be in form and substance satisfactory to Secured Party.
(b) Perfection by Filing. Secured Party may at any time and from time to time, pursuant to the provisions of this Agreement, file financing statements, continuation statements and amendments thereto that describe the Collateral as all assets of Debtor or words of similar effect and which contain any other information required by Part 5 of Revised Article 9 for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether that Debtor is an organization, the type of organization and any organization identification number(s) issued to the Debtor. Debtor agrees to furnish any such information to Secured Party promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Secured Party on behalf of Debtor, as provided in this Agreement, and may be filed at any time in any jurisdiction whether or not Revised Article 9 is then in effect in that jurisdiction.
(c) Other Perfection, etc. Debtor shall at any time and from time to time, whether or not Revised Article 9 is in effect in any particular jurisdiction, take such steps as Secured Party may reasonably request for Secured Party (a) to obtain an acknowledgment, in form and substance satisfactory to Secured Party, of any bailee having possession of any of the Collateral that the bailee holds such Collateral for Secured Party, (b) to obtain "control" of any investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such terms are defined in Revised Article 9 with corresponding provisions in Rev. ss.ss.9- 104, 9-105, 9-106 and 9-107 relating to what constitutes "control" for such items of Collateral), with any agreements establishing control to be in form and substance satisfactory to Secured Party, and (c) otherwise to insure the continued perfection and priority of Secured Party's security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation and following the effectiveness of Revised Article 9 in any jurisdiction.
(d) Savings Clause. Nothing contained in this Section 9 shall be construed to narrow the scope of Secured Party's security interest in any of the Collateral or the perfection or priority thereof or to impair or otherwise limit any of the rights, powers, privileges or remedies of Secured Party except (and then only to the extent) mandated by Revised Article 9 to the extent then applicable.
(e) Nothing contained in this Section 9 shall be construed as granting a security interest in any assets of Debtor, except assets which are located at or are used exclusively in connection with, or which arise from or in connection with Debtor's use and operation of, the Facilities.
10. GENERAL
(a) Time shall be deemed of the essence with respect to this Security Agreement.
(b) Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if it takes such action for that purpose as Debtor requests in writing, but failure of Secured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care. Failure of Secured Party to preserve or protect any rights with respect to such Collateral against any prior parties shall not be deemed a failure to exercise reasonable care in the custody and preservation of such Collateral.
(c) Any delay on the part of Secured Party in exercising any power, privilege or right under the Lease, this Security Agreement or under any other instrument or document executed by Debtor in connection herewith shall not operate as a waiver thereof. No single or partial exercise thereof, or the exercise of any other power, privilege
or right shall preclude other or further exercise thereof, or the exercise of any other power, privilege or right. The waiver by Secured Party of any default by Debtor shall not constitute a waiver of any subsequent defaults but shall be restricted to the default so waived.
(d) All rights, remedies and powers of Secured Party hereunder are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all rights, remedies and power is given by the Lease or the Commercial Code, or any other applicable laws now existing or hereafter enacted.
(e) Whenever the singular is used hereunder, it shall be deemed to include the plural (and vice-versa), and reference to one gender shall be construed to include all other genders, including neuter, whenever the context of this Security Agreement so requires. Section captions or headings used in this Security Agreement are for convenience and reference only and shall not affect the construction thereof.
(f) Whenever possible each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement.
(g) This Security Agreement may be executed in multiple counterparts, each of which shall be considered an original but all of which, when taken together, shall constitute one agreement.
(h) The rights and privileges of Secured Party hereunder shall inure to the benefit of its successors and assigns, and this Security Agreement shall be binding on all assigns and successors of Debtor as may be permitted under the Lease.
(i) In the event of any action to enforce this Security Agreement or to protect the security interest of Secured Party in the Collateral, or to protect, preserve, maintain, process, assemble, develop, insure, market or sell any Collateral, Debtor agrees to pay the costs owed and expenses thereof, together with reasonable and documented attorneys' fees (including fees incurred in appeals and post judgment enforcement proceedings).
(J) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND OBLIGATIONS OF THE DEBTOR AND SECURED PARTY SHALL BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, EXCEPT THAT THE LAWS OF THE STATE WHERE THE COLLATERAL IS LOCATED SHALL GOVERN THIS SECURITY AGREEMENT (A) TO THE EXTENT NECESSARY
TO PERFECT AND/OR ENFORCE THE LIENS CREATED BY THIS SECURITY AGREEMENT AND TO THE EXTENT NECESSARY TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE COLLATERAL, AND (B) FOR PROCEDURAL REQUIREMENTS THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED.
(K) DEBTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED AND MICHIGAN AND AGREES THAT ALL DISPUTES CONCERNING THIS SECURITY AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE IN WHICH THE COLLATERAL IS LOCATED OR IN MICHIGAN. DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED OR MICHIGAN, AND DEBTOR IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED AND MICHIGAN.
(l) No amendment to this Security Agreement shall be effective unless the same shall be in writing and signed by the parties.
(m) Nothing contained herein shall be construed as in any way modifying or limiting the effect of terms or conditions set forth in the Lease, but each and every term and condition hereof shall be in addition thereto.
(n) All notices required or permitted to be given hereunder shall be given and deemed effective as provided in the Lease. The parties hereby agree that a notice sent as specified in this paragraph at least ten (10) days before the date of any intended public sale or the date after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to be reasonable notice of such sale or other disposition.
(o) Upon the full payment, satisfaction and discharge of the Liabilities herein secured, the security interests provided for herein shall terminate and Secured Party shall file, register or record UCC-3 termination statements or other appropriate evidence of such termination with the appropriate filing offices in all jurisdictions necessary to evidence such termination of the security interests herein provided.
[signatures on next page]
IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the date first written above.
SECURED PARTY:
STERLING ACQUISITION CORP.
By: /s/ Susan A. Kovach
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Susan A. Kovach
Its: Vice President
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DEBTOR:
DIVERSICARE LEASING CORP.
By: /s/ James F. Mills, Jr.
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James F. Mills, Jr.
Its: Senior Vice President
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SCHEDULE 1
DEBTOR: DIVERSICARE LEASING CORP.
SECURED PARTY: STERLING ACQUISITION CORP.
FACILITIES:
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ALABAMA
CANTERBURY HEALTH FACILITY
1720 Knowles Road
Phenix City, Alabama 36869
Russell County
LYNWOOD NURSING HOME
4164 Halls Mills Road
Mobile, Alabama 36693
Mobile County
NORTHSIDE HEALTHCARE
700 Hutchins Avenue
Gadsden, Alabama 35904
Etowah County
WESTSIDE HEALTHCARE
4320 Judith Lane
Huntsville, Alabama 35805
Madison County
ARKANSAS
ASH FLAT NURSING AND REHABILITATION CENTER
HC 67, Box 5A
Ash Flat, Arkansas 72513
Sharp County
DES ARC NURSING AND REHABILITATION CENTER
2216 West Main Street
Des Arc, Arkansas 72040
Prairie County
EUREKA SPRINGS NURSING AND REHABILITATION CENTER
235 Huntsville Road
Eureka Springs, Arkansas 72632
Carroll County
FAULKNER NURSING AND REHABILITATION CENTER
2603 Dave Ward Drive
Conway, Arkansas 72032
Faulkner County
GARLAND NURSING AND REHABILITATION CENTER
610 Carpenter Dam Road
Hot Springs, Arkansas 71901
Garland County
OUACHITA NURSING AND REHABILITATION CENTER
1411 Country Club Road
Camden, Arkansas 71701
Ouachita County
THE PINES NURSING AND REHABILITATION CENTER
534 Carpenter Dam Road
Hot Springs, Arkansas 71901
Garland County
POCAHONTAS NURSING AND REHABILITATION CENTER
105 Country Club Road
Pocahontas, Arkansas 72455
Randolph County
RICH MOUNTAIN NURSING AND REHABILITATION CENTER
306 Hornbeck
Mena, Arkansas 71953
Polk County
SHERIDAN NURSING AND REHABILITATION CENTER
113 South Briarwood Drive
Sheridan, Arkansas 72150
Grant County
STILLMEADOW NURSING AND REHABILITATION CENTER
105 Russelville Road
Malvern, Arkansas 72104
Hot Spring County
WALNUT RIDGE NURSING AND REHABILITATION CENTER
1500 West Main
Walnut Ridge, Arkansas 72476
Lawrence County
KENTUCKY
BOYD NURSING AND REHABILITATION
12800 Princeland Drive
Ashland, Kentucky 41102
Boyd County
CARTER NURSING AND REHABILITATION CENTER
P.O. Box 904 (250 McDavid Boulevard)
Grayson, Kentucky 41143
Carter County
ELLIOTT NURSING AND REHABILITATION CENTER
P.O. Box 694 (Route 32 East, Howard Creek Road)
Sandy Hook, Kentucky 41171
Elliott County
SOUTH SHORE NURSING AND REHABILITATION CENTER
P.O. Box 489 (James Hannah Drive)
South Shore, Kentucky 41175
Greenup County
WEST LIBERTY NURSING AND REHABILITATION CENTER
P.O. Box 219 (774 Liberty Road)
West Liberty, Kentucky 41472
Morgan County
WURTLAND HEALTH CARE CENTER
P.O. Box 677 (100 Wurtland Avenue)
Greenup, Kentucky 41144
Greenup County
OHIO
BEST CARE
2159 Dogwood Ridge
Wheelersburg, Ohio 45694
Scioto County
TENNESSEE
LAUREL MANOR HEALTH CARE FACILITY
902 Buchanan Road
New Tazwell, Tennessee 37825
Claiborne County
MANOR HOUSE OF DOVER
Highway 49 East, P.O. Box 399
Dover, Tennessee 37058
Stewart County
MAYFIELD REHABILITATION AND SPECIAL CARE CENTER
200 Mayfield Drive
Smyrna, Tennessee 37167
Rutherford County
EXHIBIT A
FORM OF EXHIBIT TO FINANCING STATEMENT
Debtor: DIVERSICARE LEASING CORP.
Secured Party: STERLING ACQUISITION CORP.
Description of Collateral
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All personal property of Debtor described below, which it now owns or shall hereafter acquire or create, immediately upon the acquisition or creation thereof and wherever situated, including, without limitation, the following:
(a) Accounts. To the extent permitted by law, all accounts, Health Care Insurance Receivables (as defined in Revised Article 9, hereinafter deferred), accounts receivable, deposits, prepaid items, documents, chattel paper, instruments, contract rights (including rights under any management agreement or franchise agreement with respect to the Facilities), general intangibles, choses in action, including any right to any refund of any taxes paid to any governmental authority prior to or after the date of this Agreement, and all ledgers, printouts, papers, data, file materials and information relating to any account debtors in respect thereof, and/or to the operation of the Debtor's business relating to the Facilities, and all rights of access to such books, records, ledgers, printouts, data, file materials and information, and all property in which such books, records, ledgers, printouts, data, file materials and information are stored (the "Accounts"); and
(b) Certificates of Need. To the extent permitted by law, all Certificates of Need now or hereafter issued in connection with the Facilities (the "Certificates"); and
(c) Equipment. All equipment, furniture, fixtures and other personal property used in connection with the operation of the Facilities, whether now owned or hereafter acquired by Debtor, together with all accessions, additions, parts, attachments, accessories, or appurtenances thereto including but not limited to linens, motor vehicles, furniture, fixtures and movable equipment, leasehold improvements, and all books and records now owned or hereafter acquired pertaining to any of the above described property other than Debtor's Personal Property, but specifically excluding any computer readable memory and any computer hardware or (except as set forth herein) software necessary to process such memory (the "Equipment") and
(d) Insurance Rights. All rights under contracts of insurance now owned or hereafter acquired covering any of the Collateral ("Insurance Rights"); and
(e) Inventory. All inventory and goods, now owned or hereafter acquired, including but not limited to, raw materials, work in process, finished goods, food, medicines, tangible property, stock in trade, wares and merchandise used in or sold in the ordinary course of business at the Facilities (the "Inventory"); and
(f) Medicaid. To the extent permitted by law, all rights to reimbursement under 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.ss.ss. 1396 et seq.) and the regulations promulgated thereunder; and
(g) Medicare. To the extent permitted by law, all rights to reimbursements under 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.ss.ss. 1395 et seq.) and the regulations promulgated thereunder; and
(h) Other Property. All other tangible and intangible property of Debtor now or hereinafter acquired by Debtor and located at the Facilities or used exclusively in connection with the operation of the Facilities, including without limitation, but specifically excluding Debtor's continuous quality improvement program, manuals and materials; management information systems; policy, procedure and educational manuals and materials; and similar proprietary property including any right to the use of the name "Diversicare"' and
(i) Patient Agreements. To the extent permitted by law, any and all contracts, authorizations, agreements or consents made by or on behalf of any patient or resident of any of the Facilities, or any other person seeking or obtaining services or goods from Debtor, pursuant to which Debtor provides skilled nursing care, intermediate care, personal care and/or assisted living facilities, or any form of patient or residential care, as well as related services at any of the Facilities (as such contracts, authorizations, agreements or consents may be amended, supplemented, renewed, replaced, extended or modified from time to time); including consents to treatment and assignments of payment of benefits (collectively, the "Patient Agreements");and
(j) Permits. To the extent permitted by law, (i) the operating licenses for each of the Facilities, any certificate of need, 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 any of the Facilities or any portion or component of any of the Facilities, the providing of any professional or other services by the Debtor, the purchase, sale, dispensing, storage, prescription or use of drugs, medications or the like by Debtor, or any other operations or businesses of Debtor; and (ii) certifications and eligibility for participation by Debtor, in respect of its operation of any of the Facilities, in programs or arrangements of or reimbursement from any third-party payors, including Medicare and Medicaid; and (iii) all other licenses permits and certificates used or useful in connection with the ownership, operation, use or occupancy of any of the Facilities (collectively, the "Permits"); and
(k) Investment Property. All Investment Property (as defined in the Uniform Commercial Code), other than a security, whether certificated or uncertificated, in a subsidiary or affiliate of Debtor; and,
(l) Proceeds. Proceeds arising out of the operation of the Facilities, including, without limitation, proceeds of hazard or other insurance policies and eminent domain or condemnation awards, of all of the foregoing described Inventory or Equipment, together with any and all deposits or other sums at any time credited by or due from Secured Party to Debtor and any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts receivable, choses in action, chattel paper, cash, property and the proceeds thereof (whether or not the same are Collateral or Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest, which are now or at any time hereafter in possession or under the control of Secured Party or in transit by mail or carrier to or from Secured Party or in the possession of any third party acting on behalf of Secured Party, without regard to whether Secured Party received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise, or whether Secured Party has conditionally released the same (the "Proceeds"); and
(m) Reimbursement Contracts. To the extent permitted by law, all rights to third-party reimbursement contracts for the Facilities which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including Medicare and Medicaid, managed care plans and private insurance agreements, and any successor program or other similar reimbursement program and/or private insurance agreements, now or hereafter existing; and
(n) Rights. All rights, remedies, powers and/or privileges of Debtor with respect to any of the foregoing.
Except as stated above, the term Collateral does not include Debtor's Personal Property (as defined in the Security Agreement of even date herewith between Secured Party and Debtor related to that certain Lease of even date herewith between Secured Party, as lessor, and Debtor, as lessee).
EXHIBIT 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made and entered into as of November 8, 2000 by and between STERLING HEALTH CARE MANAGEMENT INC., a Kentucky corporation (the "Debtor"), and STERLING ACQUISITION CORP., a Kentucky corporation ("Secured Party").
RECITALS:
A. Capitalized terms used and not otherwise defined herein shall have the meanings given them in Article I below.
B. Concurrently herewith, Diversicare Leasing Corp., a Tennessee corporation ("DLC"), as lessee, and Secured Party, as lessor, have entered into the Lease, pursuant to which Secured Party has leased to DLC certain healthcare facilities described therein.
C. Subject to Secured Party's consent, DLC, as sublessor, and Debtor, as sublessee, have entered into the Sublease, pursuant to which DLC has subleased the Facilities to Debtor.
D. As a condition to Secured Party's agreement to consent to the Sublease, Secured Party has required Debtor to enter into this Security Agreement and to grant the security interests to Secured Party as herein provided.
NOW, THEREFORE, in order to induce Secured Party to consent to the Sublease, and for other good and valuable consideration the receipt and sufficiency of which hereby are acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
This Security Agreement is executed and delivered in connection with the Lease. Terms defined in the Commercial Code (as hereinafter defined) and not otherwise defined in this Security Agreement or in the Lease shall have the meanings ascribed to those terms in the Commercial Code. In addition to the other definitions contained herein, when used in this Agreement the following terms shall have the following meanings:
"Collateral" means the collateral described in Article II, Section 2 below.
"Commercial Code" means the Uniform Commercial Code, as enacted and in force from time to time in the state in which the Facilities are located.
"Facilities" means the healthcare facilities identified on attached
SCHEDULE 1.
"Lease" means the Consolidated Amended and Restated Master Lease executed concurrently herewith by Secured Party, as lessor, and Debtor, as lessee of certain healthcare facilities, including but not limited to the Facilities.
"Settlement and Restructuring Agreement" means that certain settlement and restructuring agreement by and among Advocat, Inc., a Delaware corporation ("Advocat"), Debtor, DLC, Diversicare Management Services Co., a Tennessee corporation, Omega Healthcare Investors, Inc., a Maryland corporation, and Secured Party of even date herewith.
"Sublease" means the Master Sublease dated November ___, 2000 by DLC, as sublessor, and Debtor, as lessee of the Facilities.
"Subordinated Note" means that certain subordinated note from Advocat to Omega Healthcare Investors, Inc., a Maryland corporation in the original principal amount of Three Million Dollars ($3,000,000.00) Dollars of even date herewith.
ARTICLE II - AGREEMENT
1. GRANT OF SECURITY INTEREST. Debtor hereby grants to Secured Party a continuing security interest in the Collateral to secure the payment of all amounts now or hereafter due and owing to Secured Party from DLC under the Lease, or any extension or renewal thereof, and any and all other obligations incurred in connection therewith, together with all other obligations or indebtedness of Debtor, DLC, or Advocat to Secured Party under the Lease, Settlement and Restructuring Agreement, and Subordinated Note however created, evidenced or arising, whether direct or indirect, absolute or contingent, now or hereafter existing, due or to become due, plus all interest, costs, out-of-pocket expenses and reasonable attorneys' fees which may be made or incurred by Secured Party in the administration, and collection thereof (the "Liabilities"), and in the protection, maintenance, and liquidation of the Collateral. This Security Agreement shall be and become effective when, and continue in effect as long as, any Liabilities of Debtor DLC, and/or Advocat to Secured Party are outstanding and unpaid, and except as otherwise
permitted pursuant to the terms of this Agreement, the Settlement and Restructuring Agreement, or the Lease, Debtor will not sell, assign, transfer, pledge or otherwise dispose of or encumber any Collateral to any third party while this Security Agreement is in effect without the prior and express written consent of Secured Party. Notwithstanding the foregoing, the obligation of DLC to pay Secured Party Five Million Dollars ($5,000,000) plus interest thereon as set forth in Section 15 of the Settlement and Restructuring Agreement shall be secured only by the Equipment (as hereinafter defined).
2. COLLATERAL. The "Collateral" covered by this Agreement is all of the personal property described below that Debtor now owns or shall hereafter acquire or create, immediately upon the acquisition or creation thereof, consisting of the following:
(a) Accounts. To the extent permitted by law, all accounts, Health Care Insurance Receivables (as defined in Revised Article 9, hereinafter deferred), accounts receivable, deposits, prepaid items, documents, chattel paper, instruments, contract rights (including rights under any management agreement or franchise agreement with respect to the Facility), general intangibles, choses in action, including any right to any refund of any taxes paid to any governmental authority prior to or after the date of this Agreement, and all ledgers, printouts, papers, data, file materials and information relating to any account debtors in respect thereof, and/or to the operation of the Debtor's business, and all rights of access to such books, records, ledgers, printouts, data, file materials and information, and all property in which such books, records, ledgers, printouts, data, file materials and information are stored (the "Accounts"); and
(b) Certificates of Need. To the extent permitted by law, all Certificates of Need now or hereafter issued in connection with the Facilities (the "Certificates"); and
(c) Equipment. All equipment, furniture, fixtures and other personal property, whether now owned or hereafter acquired by Debtor, together with all accessions, additions, parts, attachments, accessories, or appurtenances thereto including but not limited to linens, motor vehicles, furniture, fixtures and movable equipment, leasehold improvements, and all books and records now owned or hereafter acquired pertaining to any of the above described property, but specifically excluding any computer readable memory and any computer hardware or (except as set forth herein) software necessary to process such memory (the "Equipment") and
(d) Insurance Rights. All rights under contracts of insurance now owned or hereafter acquired covering any of the Collateral ("Insurance Rights"); and
(e) Inventory. All inventory and goods, now owned or hereafter acquired, including but not limited to, raw materials, work in process, finished goods, food, medicines, tangible property, stock in trade, wares and merchandise (the "Inventory"); and
(f) Medicaid. To the extent permitted by law, all rights to reimbursement under 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.ss.ss.1396 et seq.) and the regulations promulgated thereunder; and
(g) Medicare. To the extent permitted by law, all rights to reimbursements under 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.ss.ss. 1395 et seq.) and the regulations promulgated thereunder; and
(h) Other Property. All other tangible and intangible property of Debtor now or hereinafter acquired by Debtor, but specifically excluding Debtor's continuous quality improvement program, manuals and materials; management information systems; policy, procedure and educational manuals and materials; and similar proprietary property including any right to the use of the name "Diversicare"' and
(i) Patient Agreements. To the extent permitted by law, any and all contracts, authorizations, agreements or consents made by or on behalf of any patient or resident of any of the Facilities, or any other person seeking or obtaining services or goods from Debtor, pursuant to which Debtor provides skilled nursing care, intermediate care, personal care and/or assisted living facilities, or any form of patient or residential care, as well as related services at any of the Facilities (as such contracts, authorizations, agreements or consents may be amended, supplemented, renewed, replaced, extended or modified from time to time); including consents to treatment and assignments of payment of benefits (collectively, the "Patient Agreements");and
(j) Permits. To the extent permitted by law, (i) the operating licenses for each of the Facilities, any certificate of need, 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 any of the Facilities
or any portion or component of any of the Facilities, the providing of any professional or other services by the Debtor, the purchase, sale, dispensing, storage, prescription or use of drugs, medications or the like by Debtor, or any other operations or businesses of Debtor; and (ii) certifications and eligibility for participation by Debtor, in respect of its operation of any of the Facilities, in programs or arrangements of or reimbursement from any third-party payors, including Medicare and Medicaid; and (iii) all other licenses permits and certificates used or useful in connection with the ownership, operation, use or occupancy of any of the Facilities (collectively, the "Permits"); and
(k) Investment Property. All Investment Property (as defined in the Commercial Code); and,
(l) Proceeds. Proceeds arising out of the operation of the Facilities or other operations or businesses of Debtor, including, without limitation, proceeds of hazard or other insurance policies and eminent domain or condemnation awards, of all of the foregoing described Inventory or Equipment, together with any and all deposits or other sums at any time credited by or due from Secured Party to Debtor and any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts receivable, choses in action, chattel paper, cash, property and the proceeds thereof (whether or not the same are Collateral or Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest, which are now or at any time hereafter in possession or under the control of Secured Party or in transit by mail or carrier to or from Secured Party or in the possession of any third party acting on behalf of Secured Party, without regard to whether Secured Party received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise, or whether Secured Party has conditionally released the same (the "Proceeds"); and
(m) Reimbursement Contracts. To the extent permitted by law, all rights to third-party reimbursement contracts which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including Medicare and Medicaid, managed care plans and private insurance agreements, and any successor program or other similar reimbursement program and/or private insurance agreements, now or hereafter existing; and
(n) Rights. All rights, remedies, powers and/or privileges of Debtor with respect to any of the foregoing.
The form of a description of the Collateral to be attached to financing statements executed by Debtor in connection herewith is attached hereto as EXHIBIT A.
3. PERFECTION OF SECURITY INTEREST.
(a) Debtor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral pledged by Debtor hereunder, without the signature of Grantor where permitted by law. A copy of each such statement and amendment will be timely provided to Debtor. Debtor shall execute and deliver to Secured Party, concurrently with Debtor's execution of this Security Agreement, and at any time or times hereafter at the request of Secured Party, all financing statements and continuation financing statements (where not covered by the foregoing sentence), assignments, affidavits, reports, notices, letters of authority, vehicle title notations and all other documents that Secured Party may reasonably request, in a form reasonably satisfactory to Secured Party, to perfect and maintain perfected Secured Party's security interests in the Collateral. In order to fully consummate all of the transactions contemplated hereunder, Debtor shall make appropriate entries on its books and records disclosing the security interests created hereby in the Collateral.
4. WARRANTIES AND COVENANTS. Debtor warrants, represents and agrees that:
(a) To the extent permitted by law, Debtor has rights in or the power to transfer the Collateral, and is and will be the lawful owner or lessee of all of the Collateral, with the right, to the extent permitted by law, to subject the owned or leased property to the security interests of Secured Party hereunder;
(b) Except for the security interests in the Collateral herein granted to Secured Party and as described in the Settlement and Restructuring Agreement, there are no other adverse claims, liens, restrictions on transfer or pledge, or security interests in the Collateral that are known to Debtor, and there are no financing statements covering any of the Collateral filed in any public office created by or known to Debtor prior to the date hereof, except as previously disclosed by Debtor to Secured Party. Debtor shall defend Secured Party against any claims and demands of any and all other persons to the Collateral inconsistent with this Agreement;
(c) All of the Collateral is or will be (upon delivery) located at the Facilities or at the chief executive offices of Debtor;
(d) Except as permitted under the Lease or hereunder, Debtor shall not remove the Collateral from the Facilities or its chief executive offices without Secured Party's prior written consent and shall not use or permit the Collateral to be used for any unlawful purpose whatsoever. Except as permitted under the Lease or hereunder, Debtor
shall not remove any Collateral from the state in which the Facilities or its chief executive offices are located, without the prior written consent of Secured Party;
(e) Except as permitted under the Lease, Debtor shall not conduct business under any name at the Facilities other than that given above or set forth on attached SCHEDULE 1, nor will Debtor change or reorganize the type of business entity under which it presently does business, except upon prior and express written approval of Secured Party, and, if such approval is granted, Debtor agrees that all documents, instruments and agreements reasonably requested by Secured Party and relating to such change shall be prepared, filed and recorded at Debtor's expense before the change occurs;
(f) Debtor shall not remove any records concerning the Collateral located at the Facilities or its chief executive offices nor keep any of its records concerning the same at any other location unless written notice thereof is given to Secured Party at least ten (10) days prior to the removal of such records to any new addresses; and
(g) Debtor has the right and power and is duly authorized to enter into this Security Agreement. The execution of this Security Agreement does not and will not constitute a breach of any provision contained in any agreement or instrument to which Debtor is or may become a party or by which Debtor is or may be bound or affected.
(h) Debtor shall not change the state of its incorporation, and shall not change its corporate name without providing Secured Party thirty (30) days prior written notice.
(i) Debtor's (i) chief executive office is located in the state of Tennessee, (ii) state of incorporation is the state first set forth in the first paragraph of this Security Agreement (the "Debtor State"), and (iii) exact legal name is as set forth in the first paragraph of this Security Agreement.
(j) Debtor shall at all times maintain the Collateral in good order and repair and with reasonable promptness make all necessary and appropriate repairs thereto of every kind and nature whether ordinary or extraordinary, foreseen or unforeseen, or arising by reason of a condition whether or not existing prior to the date of this Security Agreement. It is the intention of this provision that the level of maintenance of the Collateral shall be not less than that of a first class nursing home operator making use of the Collateral for its intended use.
(k) All agreements and papers required to be filed, registered or recorded in order to create in favor of the Secured Party a perfected lien in the Collateral have been, or will be, filed, registered or recorded in the appropriate filing offices, and to the best of Debtor's knowledge, no further or subsequent filing, refiling, registration, re-registration, recorded or re-recording is necessary in any jurisdiction, except as provided under applicable law with respect to the filing of continuation statements.
5. COLLECTION OF ACCOUNTS.
(a) Secured Party hereby authorizes and permits Debtor to collect the Accounts from its debtors. This privilege may be terminated by Secured Party at any time after notice from Secured Party upon the occurrence and during the continuance of a Triggering Event under the Settlement and Restructuring Agreement (a "Notice of Default"), and Debtor shall execute, upon demand therefor, such assignments so as to vest in Secured Party full title to the Accounts (to the extent permitted under applicable law), and Secured Party thereupon shall be entitled to and have all of the ownership, title, rights, securities and guarantees of Debtor with respect thereto, and with respect to the property evidenced thereby, including the right of stoppage in transit, and Secured Party may notify any debtor or debtors of the assignments of the Accounts and collect the same; thereafter, Debtor will receive all payments on the Accounts as agent of and for Secured Party and will transmit to Secured Party, on the day of receipt thereof, all original checks, drafts, acceptances, notes and other evidence of payment received in payment of or on account of the Accounts, including all cash moneys similarly received by Debtor. Until such delivery, Debtor shall keep all such remittances separate and apart from Debtor's own funds, capable of identification as the property of Secured Party, and shall hold the same in trust for Secured Party. After Notice of Default from the Secured Party, all items or amounts that are delivered by Debtor to Secured Party on account of partial or full payment or otherwise as Proceeds of any of the Collateral shall be deposited in accordance with the terms of the Settlement and Restructuring Agreement. To the extent permitted by law, Secured Party or its representatives is hereby authorized to endorse, in the name of Debtor, any item, howsoever received by Secured Party, representing any payment on or other proceeds of any of the Collateral, and may endorse or sign the name of Debtor to any accounts, invoices, assignments, financing statements, notices to debtors, bills of lading, storage receipts, or other instruments or documents in respect to Accounts or the property covered thereby requested by Secured Party. Debtor shall promptly give Secured Party, upon demand, copies of all Accounts, to be accompanied by such information and by such documents or copies thereof as Secured Party may reasonably require. After Notice of Default from Secured Party, Debtor shall maintain such records with respect to the Accounts and the conduct and operation of its business as Secured Party may reasonably request, and will furnish to Secured Party all information with respect to the
Accounts and the conduct and operation of its business, including balance sheets, operating statements and other financial information, as Secured Party may reasonably request from time to time.
(b) Until such time as Secured Party shall notify Debtor of the revocation of such power and authority by reason of an a Triggering Event (and effective only during the continuance thereof), Debtor (i) may, only in the ordinary course of business, at its own expense, sell, lease or furnish under contracts of service any of the Inventory normally held by Debtor for such purpose; (ii) may use and consume any raw materials, work in process or materials, the use and consumption of which is necessary in order to carry on Debtor's business at the Facilities; (iii) replace Equipment in accordance with the provisions of the Lease; and (iv) shall, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as Secured Party may reasonably request or, in the absence of such request, as Debtor may deem advisable. A sale in the ordinary course of business shall not include a transfer in partial or total satisfaction of a debt.
6. INSPECTIONS/INFORMATION. Debtor shall permit Secured Party or its agents upon reasonable written request and during business hours to have access to and to inspect any of the Collateral. Secured Party may from time to time inspect, check, make copies of, or extracts from the books, records and files of Debtor relating to the Collateral, and Debtor shall make the same available to Secured Party upon reasonable written notice and during business hours. Secured Party's right of access and inspection shall be subject to any prohibitions or limitations on disclosure under applicable law, including any so-called "Patient's Bill of Rights" or similar legislation, including such limitations as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient relationship.
7. DEFAULT/REMEDIES
(a) The occurrence of any "Event of Default" under the Lease or a default under the Settlement and Restructuring Agreement shall constitute a Security Agreement Event of Default without any additional notice or grace period. In addition, the following shall also constitute a Security Agreement Event of Default:
(i) If any of the representations or warranties made by Debtor hereunder prove to be untrue when made in any material respect, the Secured Party or Collateral is materially and adversely affected thereby, and same is not cured within
fifteen (15) days after written notice from Secured Party thereof; or
(ii) If Debtor fails to perform any term, covenant, or condition of this Security Agreement and such failure is not cured within fifteen (15) days after written notice from Secured Party thereof; unless such default by its nature cannot be cured within said fifteen (15) days in which event Debtor shall have such additional time, not to exceed sixty (60) days from the date of such notice, as may be reasonably required under the circumstances to cure such default, provided Debtor commences such cure within said fifteen (15) day period and diligently prosecutes such cure thereafter.
(b) Whenever a Security Agreement Event of Default shall have occurred and so long as its continues, Secured Party may exercise from time to time any rights and remedies, including the right to immediate possession of the Collateral, available to it under the Lease, this Security Agreement or applicable law. Secured Party shall have the right to hold any property then in or upon the Facilities (but excluding any property belonging to patients at the Facilities) at the time of repossession not covered by this Security Agreement until return is demanded in writing by Debtor. Debtor agrees, in case of the occurrence of a Security Agreement Event of Default and upon the request of Secured Party, to assemble, at its expense, all of the Collateral at a convenient place acceptable to Secured Party and to pay all costs of Secured Party of collection of all the Liabilities, and enforcement of rights hereunder, including reasonable attorneys' fees and legal expenses, including participation in bankruptcy proceedings, and the expenses of locating the Collateral and the expenses of any repairs to any realty or other property to which any of the Collateral may be affixed or be a part. If the Collateral is disposed of at a public sale, the parties agree that a public sale with at least ten (10) calendar days prior notice to, Debtor and notice to the public by one publication in a local newspaper is commercially reasonable. If any notification of intended disposition of any of the Collateral is required by law, such notification, if mailed, shall be deemed reasonably and properly given if sent at least ten (10) days before such disposition, by first class mail, postage prepaid, addressed to the Debtor either at the address set forth in the notice section hereof, or at any other address of the Debtor appearing on the records of Secured Party.
(c) TO THE EXTENT PERMITTED BY LAW, DEBTOR AGREES THAT SECURED PARTY SHALL, UPON THE OCCURRENCE OF ANY SECURITY AGREEMENT EVENT OF DEFAULT, HAVE THE RIGHT TO PEACEFULLY RETAKE
ANY OF THE COLLATERAL. DEBTOR WAIVES ANY RIGHT IT MAY HAVE, IN SUCH INSTANCE, TO A JUDICIAL HEARING PRIOR TO SUCH RETAKING.
8. INDEMNITY. Debtor shall protect (except to the extent same is caused by the gross negligence or wilful misconduct of Secured Party), indemnify and hold harmless Secured Party and its officers, employees, directors and agents from and against all liabilities, obligations, claims, damages, penalties, causes of action, and out-of-pocket costs and expenses whatsoever (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against Secured Party or its officers, employees, directors or agents, by reason of the ownership, use, construction and operation of the Collateral by Debtor, its officers, directors, servants, agents and employees or by reason of enforcement of Secured Party's rights hereunder or under the Lease. As used in this Security Agreement, the term "attorneys' fees" includes fees incurred in any appeal and/or enforcement proceedings. In case any action, suit or proceeding is brought against Secured Party by reason of any such occurrence, Debtor, upon request of Secured Party, shall at Debtor's expense cause such action, suit or proceeding to be resisted and defended by counsel approved by Secured Party with respect to proceedings and matters involving Secured Party. Any amounts payable to Secured Party under this Section 8 which are not paid within thirty (30) days after written demand therefor shall bear interest at the Overdue Rate as specified in the Lease from the date of such demand, and such amounts, together with such interest, shall be indebtedness secured by this Security Agreement. The obligations of Secured Party under this Section 8 shall survive the expiration or earlier termination of the Term of the Lease for a period of three (3) years; provided, however, if Secured Party has delivered notice to Debtor of a claim or potential claim under this Section 8, then the obligations of Debtor shall be extended with respect to such claim or potential claim until the final resolution of such claim or potential claim by the parties thereto.
9. CONCERNING REVISED ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE. The parties acknowledge and agree to the following provisions of this Security Agreement in anticipation of the possible application, in one or more jurisdictions to the transactions contemplated hereby, of the revised Article 9 of the Uniform Commercial Code in the form or substantially in the form approved in 1998 by the American Law Institute and the National Conference of Commissioners on Uniform State Law ("Revised Article 9").
(a) Attachment. In applying the law of any jurisdiction in which Revised Article 9 is in effect, the Collateral is all assets of the Debtor, whether or not within the scope of Revised Article 9. The Collateral shall include, without limitation and without limitation to the Collateral as defined herein, the following categories of assets as defined in Revised Article 9: goods (including inventory, equipment and any accessions thereto),
instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, general intangibles (including payment intangibles and software), supporting obligations and any and all proceeds of any thereof, wherever located, whether now owned and hereafter acquired. If the Debtor, or any of them, shall at any time, whether or not Revised Article 9 is in effect in any particular jurisdiction, acquire a commercial tort claim, as defined in Revised Article 9, Debtor shall immediately notify the Secured Party, in a writing signed by Debtor, of the details thereof and grant to Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Security Agreement, with such writing to be in form and substance satisfactory to Secured Party.
(b) Perfection by Filing. Secured Party may at any time and from time to time, pursuant to the provisions of this Agreement, file financing statements, continuation statements and amendments thereto that describe the Collateral as all assets of Debtor or words of similar effect and which contain any other information required by Part 5 of Revised Article 9 for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether that Debtor is an organization, the type of organization and any organization identification number(s) issued to the Debtor. Debtor agrees to furnish any such information to Secured Party promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Secured Party on behalf of Debtor, as provided in this Agreement, and may be filed at any time in any jurisdiction whether or not Revised Article 9 is then in effect in that jurisdiction.
(c) Other Perfection, etc. Debtor shall at any time and from time to time, whether or not Revised Article 9 is in effect in any particular jurisdiction, take such steps as Secured Party may reasonably request for Secured Party (a) to obtain an acknowledgment, in form and substance satisfactory to Secured Party, of any bailee having possession of any of the Collateral that the bailee holds such Collateral for Secured Party, (b) to obtain "control" of any investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such terms are defined in Revised Article 9 with corresponding provisions in Rev. ss.ss.9-104, 9-105, 9-106 and 9-107 relating to what constitutes "control" for such items of Collateral), with any agreements establishing control to be in form and substance satisfactory to Secured Party, and (c) otherwise to insure the continued perfection and priority of Secured Party's security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation and following the effectiveness of Revised Article 9 in any jurisdiction.
(d) Savings Clause. Nothing contained in this Section 9 shall be construed to narrow the scope of Secured Party's security interest in any of the Collateral or the perfection or priority thereof or to impair or otherwise limit any of the rights, powers, privileges or remedies of Secured Party except (and then only to the extent) mandated by Revised Article 9 to the extent then applicable.
10. GENERAL
(a) Time shall be deemed of the essence with respect to this Security Agreement.
(b) Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if it takes such action for that purpose as Debtor requests in writing, but failure of Secured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care. Failure of Secured Party to preserve or protect any rights with respect to such Collateral against any prior parties shall not be deemed a failure to exercise reasonable care in the custody and preservation of such Collateral.
(c) Any delay on the part of Secured Party in exercising any power, privilege or right under the Lease, this Security Agreement or under any other instrument or document executed by Debtor in connection herewith shall not operate as a waiver thereof. No single or partial exercise thereof, or the exercise of any other power, privilege or right shall preclude other or further exercise thereof, or the exercise of any other power, privilege or right. The waiver by Secured Party of any default by Debtor shall not constitute a waiver of any subsequent defaults but shall be restricted to the default so waived.
(d) All rights, remedies and powers of Secured Party hereunder are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all rights, remedies and power is given by the Lease or the Commercial Code, or any other applicable laws now existing or hereafter enacted.
(e) Whenever the singular is used hereunder, it shall be deemed to include the plural (and vice-versa), and reference to one gender shall be construed to include all other genders, including neuter, whenever the context of this Security Agreement so requires. Section captions or headings used in this Security Agreement are for convenience and reference only and shall not affect the construction thereof.
(f) Whenever possible each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this Security Agreement.
(g) This Security Agreement may be executed in multiple counterparts, each of which shall be considered an original but all of which, when taken together, shall constitute one agreement.
(h) The rights and privileges of Secured Party hereunder shall inure to the benefit of its successors and assigns, and this Security Agreement shall be binding on all assigns and successors of Debtor as may be permitted under the Lease.
(i) In the event of any action to enforce this Security Agreement or to protect the security interest of Secured Party in the Collateral, or to protect, preserve, maintain, process, assemble, develop, insure, market or sell any Collateral, Debtor agrees to pay the costs owed and expenses thereof, together with reasonable and documented attorneys' fees (including fees incurred in appeals and post judgment enforcement proceedings).
(J) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND OBLIGATIONS OF THE DEBTOR AND SECURED PARTY SHALL BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, EXCEPT THAT THE LAWS OF THE STATE WHERE THE COLLATERAL IS LOCATED SHALL GOVERN THIS SECURITY AGREEMENT (A) TO THE EXTENT NECESSARY TO PERFECT AND/OR ENFORCE THE LIENS CREATED BY THIS SECURITY AGREEMENT AND TO THE EXTENT NECESSARY TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE COLLATERAL, AND (B) FOR PROCEDURAL REQUIREMENTS THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED.
(K) DEBTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED AND MICHIGAN AND AGREES THAT ALL DISPUTES CONCERNING THIS SECURITY AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE IN WHICH THE COLLATERAL IS LOCATED OR IN MICHIGAN. DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED OR MICHIGAN, AND DEBTOR IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED AND MICHIGAN.
(l) No amendment to this Security Agreement shall be effective unless the same shall be in writing and signed by the parties.
(m) Nothing contained herein shall be construed as in any way modifying or limiting the effect of terms or conditions set forth in the Lease, but each and every term and condition hereof shall be in addition thereto.
(n) All notices required or permitted to be given hereunder shall be given and deemed effective as provided in the Lease. The parties hereby agree that a notice sent as specified in this paragraph at least ten (10) days before the date of any intended public sale or the date after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to be reasonable notice of such sale or other disposition.
(o) Upon the full payment, satisfaction and discharge of the Liabilities herein secured, the security interests provided for herein shall terminate and Secured Party shall file, register or record UCC-3 termination statements or other appropriate evidence of such termination with the appropriate filing offices in all jurisdictions necessary to evidence such termination of the security interests herein provided.
IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the date first written above.
SECURED PARTY:
STERLING ACQUISITION CORP.
By: /s/ Susan A. Kovach
--------------------------------
Susan A. Kovach
Its: Vice President
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DEBTOR:
STERLING HEALTH CARE MANAGEMENT, INC.
By: /s/ James F. Mills, Jr.
--------------------------------
James F. Mills, Jr.
Its: Senior Vice President
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SCHEDULE 1
DEBTOR: STERLING HEALTH CARE MANAGEMENT, INC. SECURED PARTY: STERLING ACQUISITION CORP. FACILITIES: WEST VIRGINIA |
BOONE HEALTHCARE
P.O. Box 605 (Route 119, Lick Creek Road)
Danville, West Virginia 25053
Boone County
LAUREL NURSING AND REHABILITATION CENTER
HC 75, Box 153 (Clinic Road)
Ivydale, West Virginia 25113
Clay County
EXHIBIT A
FORM OF EXHIBIT TO FINANCING STATEMENT
Debtor: STERLING HEALTH CARE MANAGEMENT, INC.
Secured Party: STERLING ACQUISITION CORP.
Description of Collateral
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All personal property of Debtor described below, which it now owns or shall hereafter acquire or create, immediately upon the acquisition or creation thereof and wherever situated, including, without limitation, the following:
(a) Accounts. To the extent permitted by law, all accounts, Health Care Insurance Receivables (as defined in Revised Article 9, hereinafter deferred), accounts receivable, deposits, prepaid items, documents, chattel paper, instruments, contract rights (including rights under any management agreement or franchise agreement with respect to the Facility), general intangibles, choses in action, including any right to any refund of any taxes paid to any governmental authority prior to or after the date of this Agreement, and all ledgers, printouts, papers, data, file materials and information relating to any account debtors in respect thereof, and/or to the operation of the Debtor's business relating to the Facility, and all rights of access to such books, records, ledgers, printouts, data, file materials and information, and all property in which such books, records, ledgers, printouts, data, file materials and information are stored (the "Accounts"); and
(b) Certificates of Need. To the extent permitted by law, all Certificates of Need now or hereafter issued in connection with the Facility (the "Certificates"); and
(c) Equipment. All equipment, furniture, fixtures and other personal property, whether now owned or hereafter acquired by Debtor, together with all accessions, additions, parts, attachments, accessories, or appurtenances thereto including but not limited to linens, motor vehicles, furniture, fixtures and movable equipment, leasehold improvements, and all books and records now owned or hereafter acquired pertaining to any of the above described property, but specifically excluding any computer readable memory and any computer hardware or (except as set forth herein) software necessary to process such memory (the "Equipment") and
(d) Insurance Rights. All rights under contracts of insurance now owned or hereafter acquired covering any of the Collateral ("Insurance Rights"); and
(e) Inventory. All inventory and goods, now owned or hereafter acquired, including but not limited to, raw materials, work in process, finished goods, food, medicines, tangible property, stock in trade, wares and merchandise (the "Inventory"); and
(f) Medicaid. To the extent permitted by law, all rights to reimbursement under 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.ss.ss.1396 et seq.) and the regulations promulgated thereunder; and
(g) Medicare. To the extent permitted by law, all rights to reimbursements under 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.ss.ss. 1395 et seq.) and the regulations promulgated thereunder; and
(h) Other Property. All other tangible and intangible property of Debtor now or hereinafter acquired by Debtor, but specifically excluding Debtor's continuous quality improvement program, manuals and materials; management information systems; policy, procedure and educational manuals and materials; and similar proprietary property including any right to the use of the name "Diversicare"' and
(i) Patient Agreements. To the extent permitted by law, any and all contracts, authorizations, agreements or consents made by or on behalf of any patient or resident of any of the Facilities, or any other person seeking or obtaining services or goods from Debtor, pursuant to which Debtor provides skilled nursing care, intermediate care, personal care and/or assisted living facilities, or any form of patient or residential care, as well as related services at any of the Facilities (as such contracts, authorizations, agreements or consents may be amended, supplemented, renewed, replaced, extended or modified from time to time); including consents to treatment and assignments of payment of benefits (collectively, the "Patient Agreements");and
(j) Permits. To the extent permitted by law, (i) the operating licenses for each of the Facilities, any certificate of need, 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
any of the Facilities or any portion or component of any of the Facilities, the
providing of any professional or other services by the Debtor, the purchase,
sale, dispensing, storage, prescription or use of drugs, medications or the like
by Debtor, or any other operations or businesses of Debtor; and (ii)
certifications and eligibility for participation by Debtor, in respect of its
operation of any of the Facilities, in programs or arrangements of or
reimbursement from any third-party payors, including Medicare and Medicaid; and
(iii) all other licenses permits and certificates used or useful in connection
with the ownership, operation, use or occupancy of any of the Facilities
(collectively, the "Permits"); and
(k) Investment Property. All Investment Property (as defined in the Commercial Code); and,
(l) Proceeds. Proceeds arising out of the operation of the Facilities or otherwise, including, without limitation, proceeds of hazard or other insurance policies and eminent domain or condemnation awards, of all of the foregoing described Inventory or Equipment, together with any and all deposits or other sums at any time credited by or due from Secured Party to Debtor and any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts receivable, choses in action, chattel paper, cash, property and the proceeds thereof (whether or not the same are Collateral or Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest, which are now or at any time hereafter in possession or under the control of Secured Party or in transit by mail or carrier to or from Secured Party or in the possession of any third party acting on behalf of Secured Party, without regard to whether Secured Party received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise, or whether Secured Party has conditionally released the same (the "Proceeds"); and
(m) Reimbursement Contracts. To the extent permitted by law, all rights to third-party reimbursement contracts which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including Medicare and Medicaid, managed care plans and private insurance agreements, and any successor program or other similar reimbursement program and/or private insurance agreements, now or hereafter existing; and
(n) Rights. All rights, remedies, powers and/or privileges of Debtor with respect to any of the foregoing.
EXHIBIT 10.6
GUARANTY
This GUARANTY ("Guaranty") is given as of November 8, 2000 ("Effective Date"), by ADVOCAT, INC., a Delaware corporation, whose address is 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 ("Advocat"), ADVOCAT FINANCE, INC., a Delaware corporation ("Finance") whose address is 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 and DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation ("Management") whose address is 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 (jointly and severally the "Guarantors" and individually referred to herein as a "Guarantor"), in favor of STERLING ACQUISITION CORP., a Kentucky corporation ("Lessor") whose address is 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108, with reference to the following facts:
RECITALS
A. Diversicare Leasing Corp., a Delaware corporation (the "Lessee"), has executed and delivered to Lessor a Consolidated Amended and Restated Master Lease dated of even date herewith (the "Master Lease") pursuant to which the Lessee is leasing from Lessor certain healthcare facilities identified therein (the "Facilities").
B. By a guaranty dated May ___, 1994 and by an amended and restated guaranty dated February 1, 1997, Advocat guaranteed certain obligations of the Lessee and certain predecessors in interest as set forth therein.
C. By a guaranty dated February 1, 1997, Finance guaranteed certain obligations of the Lessee and certain predecessors in interest as set forth therein.
D. By a guaranty dated February 1, 1997, Management guaranteed certain obligations of the Lessee and certain predecessors in interest as set forth therein.
E. Pursuant to Section 19(B) of that certain Settlement and Restructuring Agreement by and among Lessor, Omega Healthcare Investors, Inc., a Maryland corporation, Advocat, Management, and Sterling Health Care Management Corporation, a Kentucky corporation of even date herewith, and only to the extent set forth therein, Lessor released Advocat, Finance and Management from liability under those guarantees described above.
F. Each Guarantor continues to maintain a direct financial interest in the Lessee and it is to the advantage of each Guarantor that Lessor enter into the Master Lease.
G. As a material inducement to Lessor to lease the Facilities pursuant to the Master Lease, each Guarantor has agreed to jointly and severally guarantee the payment of all amounts due from, and the performance of all obligations undertaken by the Lessee under the Master Lease and any security agreements, promissory notes, letter of credit agreements, guarantees or other documents which evidence, secure or otherwise relate to the Master Lease (the Master Lease and all such documents, and any and all amendments, modifications, extensions and renewals thereof, are hereinafter referred to collectively as the "Sterling Transaction Documents"), all as hereinafter set forth.
WHEREFORE, the parties hereby agree as follows:
1. Defined Terms. All capitalized terms used herein and not defined herein shall have the meaning for such terms set forth in the Master Lease.
2. Guaranty. Guarantors hereby unconditionally and irrevocably, jointly and severally, guarantee to Lessor (i) the payment when due of all Rent and all other sums payable by the Lessee under the Master Lease, and (ii) the faithful and prompt performance when due of each and every one of the terms, conditions and covenants to be kept and performed by the Lessee under the Sterling Transaction Documents, any and all amendments, modifications, extensions and renewals of the Sterling Transaction Documents, including without limitation all indemnification obligations, insurance obligations, and all obligations to operate, rebuild, restore or replace any facilities or improvements now or hereafter located on the real estate covered by the Master Lease. In the event of the failure of Lessee to pay any such amounts owed, or to render any other performance required of Lessee under the Sterling Transaction Documents, when due, Guarantors shall forthwith perform or cause to be performed all provisions of the Sterling Transaction Documents to be performed by Lessee thereunder, and pay all damages that may result from the non-performance thereof to the full extent provided under the Sterling Transaction Documents (collectively, the "Obligations"). As to the Obligations, each Guarantor's liability under this Guaranty is without limit.
3. Survival of Obligations. The obligations of Guarantors under this Guaranty with respect to the Sterling Transaction Documents shall survive and continue in full force and effect (until and unless all Obligations, the payment and performance of which are hereby guaranteed, have been fully paid and performed) notwithstanding:
(a) any amendment, modification, or extension of any Sterling Transaction Document;
(b) any compromise, release, consent, extension, indulgence or other action or inaction in respect of any terms of any Sterling Transaction Document or any other guarantor;
(c) any substitution or release, in whole or in part, of any security for this Guaranty which Lessor may hold at any time;
(d) any exercise or non-exercise by Lessor of any right, power or remedy under or in respect of any Sterling Transaction Document or any security held by Lessor with respect thereto, or any waiver of any such right, power or remedy;
(e) any bankruptcy, insolvency, reorganization, arrangement, adjustment, composition, liquidation, or the like of Lessee or any other guarantor;
(f) any limitation of the Lessee's liability under any Sterling Transaction Document or any limitation of the Lessee's liability thereunder which may now or hereafter be imposed by any statute, regulation or rule of law, or any illegality, irregularity, invalidity or unenforceability, in whole or in part, of any Sterling Transaction Document or any term thereof;
(g) any sale, lease, or transfer of all or any part of any interest in any Facility to any other person, firm or entity other than to Lessor;
(h) any act or omission by Lessor with respect to any of the security instruments given or made as a part of the Sterling Transaction Documents or any failure to file, record or otherwise perfect any of the same;
(i) any extensions of time for performance under the Sterling Transaction Documents, whether prior to or after maturity;
(j) the release of any collateral from any lien in favor of Lessor, or the release of Lessee from performance or observation of any of the agreements, covenants, terms or conditions contained in any Sterling Transaction Document by operation of law or otherwise;
(k) the fact that Lessee may or may not be personally liable, in whole or in part, under the terms of any Sterling Transaction Document to pay any money judgment;
(l) the failure to give Guarantors any notice of acceptance, default or otherwise;
(m) any other guaranty now or hereafter executed by Guarantors or anyone else in connection with any Sterling Transaction Document;
(n) any rights, powers or privileges Lessor may now or hereafter have against any other person, entity or collateral; or
(o) any other circumstances, whether or not Guarantors had notice or knowledge thereof, other than the payment or performance of all of the Obligations.
4. Primary Liability. The liability of Guarantor with respect to the Sterling Transaction Documents shall be joint and several, primary, direct and immediate, and Lessor may proceed against any Guarantor: (i) prior to or in lieu of proceeding against Lessee, its assets, any security deposit, or any other guarantor; and (ii) prior to or in lieu of pursuing any other rights or remedies available to Lessor. All rights and remedies afforded to Lessor by reason of this Guaranty or by law are separate, independent and cumulative, and the exercise of any rights or remedies shall not in any way limit, restrict or prejudice the exercise of any other rights or remedies.
In the event of any default under any Sterling Transaction Document, a separate action or actions may be brought and prosecuted against the Guarantors, or any one of them, whether or not Lessee is joined therein or a separate action or actions are brought against Lessee. Lessor may maintain successive actions for other defaults. Lessor's rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions until and unless all indebtedness and obligations the payment and performance of which are hereby guaranteed have been paid and fully performed.
5. Obligations Not Affected. In such manner, upon such terms and at such times as Lessor in its sole discretion deems necessary or expedient, and without notice to Guarantors, Lessor may: (a) amend, alter, compromise, accelerate, extend or change the time or manner for the payment or the performance of any obligation hereby guaranteed; (b) extend, amend or terminate any of the Sterling Transaction Documents; or (c) release Lessee by consent to any assignment (or otherwise) as to all or any portion of the obligations hereby guaranteed. Any exercise or non-exercise by Lessor of any right hereby given Lessor, dealing by Lessor with Guarantors or any other guarantor, Lessee or any other person, or change, impairment, release or suspension of any right or remedy of Lessor against any person including Lessee and any other guarantor will not affect any of the obligations of Guarantors hereunder or give Guarantors any recourse or offset against Lessor.
6. Waiver. With respect to the Sterling Transaction Documents, each Guarantor hereby waives and relinquishes all rights and remedies accorded by applicable law to sureties and/or guarantors or any other accommodation parties, under any statutory
provisions, common law or any other provision of law, custom or practice, and agrees not to assert or take advantage of any such rights or remedies including, but not limited to:
(a) any right to require Lessor to proceed against Lessee or any other person or to proceed against or exhaust any security held by Lessor at any time or to pursue any other remedy in Lessor's power before proceeding against any Guarantor or to require that Lessor cause a marshaling of Lessee's assets or the assets, if any, given as collateral for this Guaranty or to proceed against Lessee and/or any collateral, including collateral, if any, given to secure Guarantors' obligation under this Guaranty, held by Lessor at any time or in any particular order;
(b) any defense that may arise by reason of the incapacity or lack of authority of any other person or persons;
(c) notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Lessee, Lessor, any creditor of Lessee or any Guarantor or on the part of any other person whomsoever under this or any other instrument in connection with any obligation or evidence of indebtedness held by Lessor or in connection with any obligation hereby guaranteed;
(d) any defense based upon an election of remedies by Lessor which destroys or otherwise impairs the subrogation rights of Guarantors or the right of Guarantors to proceed against Lessee for reimbursement, or both;
(e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(f) any duty on the part of Lessor to disclose to Guarantors any facts Lessor may now or hereafter know about the Lessee, regardless of whether Lessor has reason to believe that any such facts materially increase the risk beyond that which each Guarantor intends to assume or has reason to believe that such facts are unknown to Guarantors or has a reasonable opportunity to communicate such facts to Guarantors, it being understood and agreed that each Guarantor is fully responsible for being and keeping informed of the financial condition of the Lessee and of all circumstances bearing on the risk of non-payment or non-performance of any obligations or indebtedness hereby guaranteed;
(g) any defense arising because of Lessor's election, in any proceeding instituted under the federal Bankruptcy Code, of the application of Section 1111 (b)(2) of the federal Bankruptcy Code; and
(h) any defense based on any borrowing or grant of a security interest under Section 364 of the federal Bankruptcy Code.
(i) any extension of time conferred by any law now or hereafter in effect and any requirement or notice of acceptance of this Guaranty or any other notice to which the undersigned may now or hereafter be entitled to the extent such waiver of notice is permitted by applicable law.
7. Warranties. With respect to the Sterling Transaction Documents, each Guarantor warrants that: (a) this Guaranty is executed at Lessee's request; and (b) Guarantor has established adequate means of obtaining from Lessee on a continuing basis financial and other information pertaining to the Lessee's financial condition. Guarantors agree to keep adequately informed from such means of any facts, events or circumstances which might in any way affect any Guarantor's risks hereunder, and Guarantors further agree that Lessor shall have no obligation to disclose to Guarantors information or material acquired in the course of Lessor's relationship with Lessee.
8. No-Subrogation. Guarantors shall have no right of subrogation and waive any right to enforce any remedy which Lessor now has or may hereafter have against Lessee and any benefit of, and any right to participate in, any security now or hereafter held by Lessor with respect to the Master Lease.
9. Subordination. Upon the occurrence of an Event of Default under any Sterling Transaction Document, which is not cured by Guarantor, the indebtedness or obligations of Lessee to any Guarantor shall not be paid in whole or in part nor will Guarantors accept any payment of or on account of any amounts owing, without the prior written consent of Lessor and at Lessor's request, Guarantors shall cause the Lessee to pay to Lessor all or any part of the subordinated indebtedness until the obligations under the Sterling Transaction Documents have been paid in full. Any payment by Lessee in violation of this Guaranty shall be received by Guarantors in trust for Lessor, and Guarantors shall cause the same to be paid to Lessor immediately on account of the amounts owing from the Lessee to Lessor. No such payment will reduce or affect in any manner the liability of Guarantors under this Guaranty.
10. No Delay. Any payments required to be made by Guarantors hereunder shall become due on demand in accordance with the terms hereof immediately upon the happening of an Event of Default under any Sterling Transaction Document.
11. Application of Payments. With respect to the Sterling Transaction Documents, and with or without notice to Guarantors, Lessor, in Lessor's sole discretion and at any time and from time to time and in such manner and upon such terms as Lessor deems appropriate, may (a) apply any or all payments or recoveries from Lessee or from any other guarantor under any other instrument or realized from any security, in such manner and order of priority as Lessor may determine, to any indebtedness or other obligation of Lessee with respect to the Sterling Transaction Documents and whether or not such indebtedness or other obligation is guaranteed hereby or is otherwise secured or is due at the time of such application, and (b) refund to Lessee any payment received by Lessor under the Sterling Transaction Documents.
12. Guaranty Default.
(a) As used herein, the term Guaranty Default shall mean one or more of the following events (subject to applicable cure periods):
(i) the failure of any Guarantor to pay the amounts required to be paid hereunder at the times specified herein;
(ii) the failure of any Guarantor to observe and perform any covenants, conditions or agreement on its part to be observed or performed, other than as referred to in Subsection (i) above, for a period of thirty (30) days after written notice of such failure has been given to Guarantors by Lessor, unless Lessor agrees in writing to an extension of such time prior to its expiration;
(iii) the occurrence of a default under any other guaranty between Lessor and any Guarantor.
(b) Upon the occurrence of a Guaranty Default, Lessor shall have the right to bring such actions at law or in equity, including appropriate injunctive relief, as it deems appropriate to compel compliance, payment or deposit, and among other remedies to recover its attorneys' fees in any proceeding, including any appeal therefrom and any post- judgement proceedings.
13. Financial Statements. Each Guarantor shall deliver those Consolidated Financial Statements and other certificates as required by Article XXIII of the Master Lease in the form and at the times set forth therein.
14. Miscellaneous.
(a) No term, condition or provision of this Guaranty may be waived except by an express written instrument to that effect signed by Lessor. No waiver of any term, condition or provision of this Guaranty will be deemed a waiver of any other term, condition or provision, irrespective of similarity, or constitute a continuing waiver of the same term, condition or provision, unless otherwise expressly provided.
(b) If any one or more of the terms, conditions or provisions contained in this Guaranty is found in a final award or judgment rendered by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining terms, conditions and provisions of this Guaranty shall not in any way be affected or impaired thereby, and this Guaranty shall be interpreted and construed as if the invalid, illegal, or unenforceable term, condition or provision had never been contained in this Guaranty.
(c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MICHIGAN, EXCEPT THAT THE LAWS OF THE STATE IN
WHICH A FACILITY IS LOCATED SHALL GOVERN THIS AGREEMENT TO THE EXTENT NECESSARY
(i) TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH
RESPECT TO SUCH FACILITY, AND (ii) FOR PROCEDURAL REQUIREMENTS WHICH MUST BE
GOVERNED BY THE LAWS OF THE STATE IN WHICH SUCH FACILITY IS LOCATED. EACH
GUARANTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL
COURTS OF MICHIGAN AND AGREES THAT ALL DISPUTES CONCERNING THIS GUARANTY BE
HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OR STATES IN WHICH
THE FACILITY OR FACILITIES ARE LOCATED OR IN MICHIGAN. EACH GUARANTOR AGREES
THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE
UNDER THE LAWS OF THE STATE OR STATES IN WHICH THE FACILITY OR FACILITIES ARE
LOCATED OR MICHIGAN AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE
AND FEDERAL COURTS OF THE STATE OR STATES IN WHICH THE FACILITY OR FACILITIES
ARE LOCATED AND OF MICHIGAN.
(d) EACH GUARANTOR AND LESSOR HEREBY WAIVE TRIAL BY JURY AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION, BREACH OR ENFORCEMENT THEREOF.
(e) In the event of any suit, action, arbitration or other proceeding to interpret this Guaranty, or to determine or enforce any right or obligation created hereby, the prevailing party in the action shall recover such party's actual costs and expenses reasonably incurred in connection therewith, including, but not limited to, attorneys' fees and costs of appeal, post judgment enforcement proceedings (if any) and bankruptcy proceedings (if
any). Any court, arbitrator or panel of arbitrators shall, in entering any judgment or making any award in any such suit, action, arbitration or other proceeding, in addition to any and all other relief awarded to such prevailing party, include in such-judgment or award such party's costs and expenses as provided in this paragraph.
(f) Each Guarantor (i) represents that it has been represented and advised by counsel in connection with the execution of this Guaranty; (ii) acknowledges receipt of a copy of the Sterling Transaction Documents; and (iii) further represents that Guarantor has been advised by counsel with respect thereto. This Guaranty shall be construed and interpreted in accordance with the plain meaning of its language, and not for or against Guarantors or Lessor, and as a whole, giving effect to all of the terms, conditions and provisions hereof.
(g) Except as provided in any other written agreement now or at any time hereafter in force between Lessor and Guarantors, this Guaranty shall constitute the entire agreement of Guarantors with Lessor with respect to the subject matter hereof, and no representation, understanding, promise or condition concerning the subject matter hereof will be binding upon Lessor or Guarantors unless expressed herein.
(h) All stipulations, obligations, liabilities and undertakings under this Guaranty shall be binding upon Guarantors and their respective successors and assigns and shall inure to the benefit of Lessor and to the benefit of Lessor's successors and assigns.
(i) The term "Guarantor" as used in this Guaranty shall mean the "Guarantor and each of them, jointly and severally.
(j) Whenever the singular shall be used hereunder, it shall be deemed to include the plural (and vice-versa) and reference to one gender shall be construed to include all other genders, including neuter, whenever the context of this Guaranty so requires. Section captions or headings used in the Guaranty are for convenience and reference only, and shall not affect the construction thereof.
[signatures on next page]
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date first written above.
GUARANTORS:
ADVOCAT, INC.
By: /s/ James F. Mills, Jr.
------------------------------
James F. Mills, Jr.
Its: Senior Vice President
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ADVOCAT FINANCE, INC.
By: /s/ James F. Mills, Jr.
------------------------------
James F. Mills, Jr.
Its: Senior Vice President
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DIVERSICARE MANAGEMENT SERVICES CO.
By /s/ James F. Mills, Jr.
------------------------------
James F. Mills, Jr.
Its: Senior Vice President
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STATE OF TENNESSEE)
---------
) ss.
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The foregoing instrument was acknowledged before me this 8th day of November, 2000, by James F. Mills, Jr., the Senior Vice President of Advocat, Inc. known to me to be the person who executed this Guaranty.
/s/ Andrea Neiderland
---------------------------------
[SEAL] Notary Public, Davidson County, TN
My Commission Expires:
March 23, 2002
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The foregoing instrument was acknowledged before me this 8th day of November, 2000, by James F. Mills, Jr., the Senior Vice President of Advocat, Inc. known to me to be the person who executed this Guaranty.
/s/ Andrea Neiderland
---------------------------------
[SEAL] Notary Public, Davidson County, TN
My Commission Expires:
March 23, 2002
--------------------------
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The foregoing instrument was acknowledged before me this 8th day of November, 2000, by James F. Mills, Jr., the Senior Vice President of Advocat, Inc. known to me to be the person who executed this Guaranty.
/s/ Andrea Neiderland
---------------------------------
[SEAL] Notary Public, Davidson County, TN
My Commission Expires:
March 23, 2002
--------------------------
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EXHIBIT 10.7
REAFFIRMATION OF OBLIGATIONS
(FLORIDA MANAGED FACILITIES)
THIS REAFFIRMATION OF OBLIGATIONS is made this day 8th of November, 2000, by ADVOCAT, INC., a Delaware corporation ("Advocat"), and DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation ("DMSC"), to and for the benefit of OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation ("Omega").
RECITALS:
A. Omega is the holder of two (2) Mortgage Notes (each a "Mortgage Note", and collectively, the "Mortgage Notes"), being respectively a purchase money note in the original principal amount of $12,891,500.00 and a working capital note in the original principal amount of $2,000,000.00 [a related third Mortgage Note, representing a liquidity deposit loan in the amount of $908,500.00 having been previously paid in full] in the aggregate original principal amount of $14,891,500.00 (such indebtedness being referred to herein as the "Loans"), evidenced by four (4) Loan Agreements (the "Loan Agreements"), and secured by four (4) Mortgages, Security Agreements and Fixture Filings (collectively, the "Mortgages"), covering the following four (4) skilled nursing facilities located in the State of Florida (each a "Facility", and collectively, the "Facilities"):
Facility Owner/Mortgagor -------- --------------- Emerald-Cedar Hills Emerald-Cedar Hills, Inc. Emerald-Southern Pines Emerald-Southern Pines, Inc. Emerald-Golfcrest Emerald-Golfcrest, Inc. Emerald-Golfview Emerald-Golfview, Inc. |
B. The foregoing Owners/Mortgagors (the "Emerald Entities") are affiliates of Emerald Healthcare, Inc., a Florida corporation ("Emerald"), by virtue of common ownership thereof by R. Brent Maggio ("Maggio").
C. DMSC is the manager of each of the Facilities, pursuant to and by virtue of four (4) separate management agreements, one with each of the Emerald Entities
(the "Management Agreements"), and Advocat guaranteed the performance by and
obligations of DMSC under the Management Agreements, including the obligation to
make certain working capital advances to the Emerald Entities, by virtue of four
(4) separate Guaranties (the "Guaranties"), one given to each Emerald Entity.
D. DMSC subordinated its rights under the Management Agreements, including without limitation its fees payable thereunder, to Omega and its rights under the Mortgage Notes and Mortgages, by virtue of a certain Subordination of Management Agreement and Management Fees dated as of February 20, 1996 (the "Subordination Agreement").
E. Omega, Emerald, the Emerald Entities and Maggio are parties to a certain Cash Collateral Agreement dated as of August 1, 1998, not yet executed by DMSC, pursuant to which, among other things, DMSC was to have agreed, and Emerald, the Emerald Entities and Maggio have consented, that DMSC would retain and pay over to Omega all "Net Cash Receipts" (as defined in the Cash Collateral Agreement) from the Facilities, subject to and in accordance with its terms and conditions.
F. Omega and its subsidiary Sterling Acquisition Corp., a Kentucky corporation ("Acquisition"), and Advocat, DMSC, and their affiliates/subsidiaries Sterling Healthcare Management, Inc., a Kentucky corporation ("SHCM") and Diversicare Leasing Corp., a Delaware corporation ("DLC"), are parties to a certain Settlement and Restructuring Agreement dated as of October 1, 2000 (the "Settlement Agreement"), pursuant to which they have resolved certain defaults of Advocat, SHCM and DLC under obligations to Omega and Acquisition with respect to other skilled nursing home facilities leased to and operated by SHCM and/or DLC, and have restructured their relationships with respect thereto.
G. As a condition of, and an inducement to Omega and Acquisition to enter into, the Settlement Agreement, Advocat and DMSC have agreed that their obligations to Omega with respect to the Facilities will remain in full force and effect.
NOW, THEREFORE, in consideration of the foregoing and for other valuable consideration, the receipt and adequacy of which are acknowledged hereby:
1. Advocat and DMSC acknowledge, ratify and reaffirm, as if fully restated herein in their entirety, the Management Agreements, Guaranties and Subordination Agreement (collectively, the "Florida Emerald Agreements"), and all of their individual and collective responsibilities and obligations thereunder, and further covenant and agree that such instruments shall continue to remain in full force and effect, unabated and without being limited in any respect by virtue of the Settlement Agreement and the
documents and instruments executed and or delivered by the parties thereto in the consummation of the transactions contemplated therein.
2. As indicated above, DMSC has not heretofore executed and joined in the Cash Collateral Agreement. Advocat and Omega shall negotiate, prior to January 31, 2001, an amendment to that instrument which will (i) resolve, in a manner consistent with the intent of the Cash Collateral Agreement, DMSC's reasonable objections to the flow of funds established thereby, and (ii) acknowledge and reaffirm the consent by Advocat and DMSC to the sale or transfer of the Florida Managed Facilities as provided in Paragraph 4, below.
3. Advocat and DMSC, jointly and severally, warrant and represent
to Omega that (i) the Florida Emerald Agreements are in full force and effect as
of the date hereof, (ii) to their knowledge, Advocat and DMSC have fully
performed all their respective obligations under the Florida Emerald Agreements,
(iii) neither has received any notice or allegation of default from Emerald or
any of the Emerald Entities with respect to the obligations of Advocat or DMSC
under the Florida Emerald Agreements, and (iv) neither the execution of the
Settlement Agreement by Advocat and DMSC, nor the consummation of the
transactions contemplated thereby is inconsistent with, nor would constitute a
default under, the Management Agreements or the Guaranties. The foregoing
representations and warranties shall survive the consummation of the
transactions contemplated by the Settlement Agreement.
4. Advocat and DMSC each consents to any conveyance(s) and assignment(s) by one or more of the Emerald Entities and/or Emerald Healthcare, Inc. and/or Maggio, of their respective ownership and/or equity interests one or more of the Facilities and/or the related Emerald Entity(ies), to Omega or its designee, and Advocat and DMSC covenant and agree to recognize and attorn to the assignment of the relevant Management Agreement(s) relating to such Facility(ies).
5. Advocat and DMSC acknowledge and agree that this Reaffirmation, and the matters set forth herein, constitute a material inducement to Omega's agreement to enter into the Settlement Agreement, and that Omega would not consummate the transactions contemplated in the Settlement Agreement in the absence of the reaffirmations, representations and warranties set forth herein.
6. This Reaffirmation is given to, and for the express benefit of, and may be relied upon by Omega and its successors and assigns.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, Advocat and DMSC have executed this Reaffirmation as of the date first above written.
WITNESSES: ADVOCAT, INC., a Delaware
corporation
/s/ K.L. ? By: /s/ James F. Mills, Jr.
------------------------ -----------------------------
James F. Mills, Jr.
Its: Senior Vice President
----------------------------
DIVERSICARE MANAGEMENT
SERVICES CO., a Tennessee
corporation
/s/ K.L. ? By: /s/ James F. Mills, Jr.
------------------------ -----------------------------
James F. Mills, Jr.
Its: Senior Vice President
----------------------------
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STATE OF TENNESSEE )
:SS
COUNTY OF DAVIDSON )
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The foregoing instrument was acknowledged before me this 8th day of November, 2000, by James F. Mills, Jr., the Senior Vice President of Advocat, Inc., a Delaware corporation, on behalf of the corporation.
/s/ Andrea Neiderland
[SEAL] ------------------------------
Notary Public
Davidson County, Tennessee
My commission expires:
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STATE OF TENNESSEE )
:SS
COUNTY OF DAVIDSON )
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The foregoing instrument was acknowledged before me this 8th day of November, 2000, by James F. Mills, Jr., the Senior Vice President of Advocat, Inc., a Delaware corporation, on behalf of the corporation.
/s/ Andrea Neiderland
[SEAL] ------------------------------
Notary Public
Davidson County, Tennessee
My commission expires:
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EXHIBIT 10.8
Final
SUBORDINATED NOTE
$1,700,000 Franklin, Tennessee Dated as of November 8, 2000
FOR VALUE RECEIVED, Advocat Inc., a Delaware corporation, with an address of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 ("Borrower"), hereby promises to pay to Omega Healthcare Investors, Inc., a Maryland corporation with an address of 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108 ("Payee"), or to order, the principal sum of One Million Seven Hundred Thousand Dollars ($1,700,000), and to pay interest from the date hereof on the unpaid principal amount hereof at a rate of interest at all times equal to seven percent (7%) per annum, which interest shall be accrued quarterly. Accrued interest (including, but not limited to, all interest accruing from the date of this Note but not paid pursuant to this sentence) shall be payable in cash quarterly beginning with the quarter following the payment in full of that certain Reimbursement Note dated the same date as this Note made by the Borrower to AmSouth Bank (the "Reimbursement Note"). To the extent accrued interest is not paid quarterly, including interest payments not made pursuant to the preceding sentence, it shall be compounded quarterly. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The quarterly interest payments shall be made on March 31, June 30, September 30 and December 31. Borrower may pre-pay this Note in part or in full at any time without penalty. All payments of principal and interest shall be in lawful money of the United States, and shall be made by wire transfer of immediately available funds to Payee or to such other account as is designated by Payee in writing to Borrower. All outstanding principal and accrued interest shall be due and payable in full on September 30, 2007 (the "Maturity Date").
1. (a) On the Maturity Date, the Borrower may, at its option subject to the limitations contained below in Sections 1(b) and 1(c), convert all or any portion of the outstanding principal and accrued unpaid interest on this Note as follows:
(1) If the holder of this Note also holds shares of Borrower"s Series B Convertible Preferred Stock ("Preferred Stock") on the Maturity Date, then to shares of Preferred Stock. The number of shares of Series B Preferred Stock to be issued in respect of any of the principal and/or accrued unpaid interest shall be equal to the amount of such principal and/or accrued unpaid interest divided by the Stated Value (as defined in the Certificate of Designation of Series B Preferred Stock) of the Series B Convertible Preferred Stock on the Maturity Date.
(2) If the holder of this Note does not hold shares of Preferred
Stock on the Maturity Date, then to shares of Borrower"s
Common Stock, $0.01 par value ("Common Stock"). The number of
shares of Common Stock to be issued in respect of any of the
principal and/or accrued unpaid interest shall be equal to (A)
(1) the amount of
Final
such principal and/or accrued unpaid interest divided by (2) the Stated Value of the Preferred Stock (as defined in the Certificate of Designation of Series B Preferred Stock) which would then be in effect as of the Maturity Date multiplied by (B) the Conversion Rate of the Preferred Stock (as defined in the Certificate of Designation of Series B Preferred Stock) which would then be in effect as of the Maturity Date.
(b) Borrower may not convert outstanding principal or accrued unpaid interest into equity securities of Borrower pursuant to Section 1(a) if the aggregate amount of outstanding principal and accrued interest to be converted is less than $250,000. Borrower shall not issue fractions of shares of equity securities upon conversion of this Note. If any fractional share would, except for the provisions of this Section 1(b), be issuable upon conversion of this Note, Borrower shall pay to the person entitled to receive such equity security an amount in cash equal to (1) in the case of Preferred Stock, the value of such fractional share calculated using the Stated Value, calculated to the nearest one-one hundredth (1/100) of a share; or (2) in the case of Common Stock, the value of such fractional share calculated using the quotient of (x) the Stated Value of the Preferred Stock which would then be in effect as of the Maturity Date divided by (y) the Conversion Price of the Preferred Stock which would then be in effect as of the Maturity Date, calculated to the nearest one-one hundredth (1/100) of a share.
(c) Notwithstanding anything in this Note, the Settlement and Restructuring Agreement dated the same date as this Agreement among Borrower, Payee and certain other parties (the "Restructuring Agreement") or any other document, instrument or agreement between Borrower and Payee or any affiliate of Payee, Borrower may not convert any outstanding principal or accrued unpaid interest into equity securities of Borrower, including Preferred Stock or Common Stock, and the holders of this Note shall continue to hold this Note, unless, as of the date of the proposed conversion:
(1) Payee's accountants or legal counsel render a written
opinion (the "Conversion Opinion") to Payee that such
conversion will not result in, cause or create a
material risk of, the Payee losing its status as a
Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended; provided, however,
that Borrower may convert a portion of outstanding
principal or accrued unpaid interest into equity
securities of Borrower if Payee's accountants or
legal counsel render a Conversion Opinion with
respect to such portion and if subparagraphs (2) thru
(5) of this Section 1(c) are satisfied as of the date
of the proposed conversion;
(2) the Common Stock is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "34 Act") and Borrower has timely filed all reports required to be filed by Borrower under the 34 Act within the previous two years;
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(3) no Default (as defined in Section 4 below) has occurred and is continuing;
(4) the Common Stock is listed for trading on the Nasdaq National Market, the New York Stock Exchange or upon a comparable national stock exchange; and
(5) the average weekly trading volume of the Common Stock over the prior four weeks was at least 500,000 shares traded (as adjusted for stock splits, stock dividends or similar transactions).
All costs associated with the Conversion Opinion shall be paid by Borrower.
2. (a) Payment of this Note shall be subordinated in right of payment and distribution of the assets of Borrower (including without limitation, any distribution of the assets of Borrower to its creditors in any insolvency, bankruptcy, reorganization or similar proceeding with respect to Borrower) to all Senior Indebtedness (as defined below); provided, that Borrower may make regular quarterly payments of interest due on this Note as provided in the preceding paragraph and payment of principal upon maturity ("Permitted Payments"), unless (i) a Default (as defined in any such Senior Indebtedness) has occurred or (ii) an event or condition which with the passage of time or giving of notice, or both, could become a Default has occurred and is continuing (collectively, the "Default Restrictions"). For purposes of this Note, "Senior Indebtedness" shall mean the principal, premium, if any, and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), fees, charges, expenses, reimbursement and indemnification obligations, and all other amounts payable under or with respect of (i) any indebtedness of the Company (excluding this Note and indebtedness by its terms expressly ranking subordinate to or pari passu with this Note, herein, the "Subordinated Indebtedness") for money borrowed, whether or not evidenced by debentures, notes or similar instruments, issued, incurred, or assumed by the Company and whether outstanding on the dates of this Note or hereafter created or incurred; (ii) all indebtedness and other obligations guaranteed by the Company, or the payment and performance of which is secured by a lien on property or assets of the Company; (iii) the Borrower's Credit Facility with AmSouth Bank; (iv) the Borrower's mortgage obligations with General Motors Acceptance Corporation; and (v) the Reimbursement Note.
(b) Borrower shall notify Payee in writing before or at the time an interest payment is due if a Default Restriction has occurred. Except with respect to payments made to Payee pursuant to Section 1(a) in the form of the Corporation's Series B Preferred Stock or Common Stock, if Payee receives any cash payment on account of principal or of interest on this Note in violation of these subordination provisions, Payee shall receive the same as trustee for the holders of the Senior Indebtedness and will pay or deliver the same to such holders immediately and Payee hereby assigns to such holders all rights of Payee to any such payments and Payee shall execute such agreements
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as may be reasonably required to effectuate this assignment. Any amounts so paid to the holders of the Senior Indebtedness shall be deemed not to have been paid by Borrower, or received by Payee, under this Note. If any event or condition which is the subject of a Default Restriction shall be cured or waived in writing by the holders of the Senior Indebtedness, within the applicable grace period, if any, provided in the Senior Indebtedness, Borrower shall resume payments of interest (including any past due interest) on this Note and may pay the principal of this Note, according to the terms set forth herein, subject to future application of the Default Restrictions. Payee acknowledges that this is a continuing agreement of subordination, and the Borrower and its senior lenders may amend, modify or extend, and such lenders may grant waivers under the provisions of any such Senior Indebtedness without approval of or notice to Payee.
(c) Until the Senior Indebtedness is paid in full, Payee shall not
(a) initiate or participate with others in any suit, action or proceeding
against Borrower to enforce payment or collect all or part of the indebtedness
under this Note, (b) accelerate the maturity of or increase the principal of or
amend the subordination provisions of this Note, (c) increase the interest rate
on this Note, or (d) exercise any right of setoff with respect to, or take any
security from Borrower for, this Note. Except to the extent expressly provided
in this Note, nothing contained herein shall impair, between Borrower and Payee,
the obligations of Borrower to make payments of principal of or interest on this
Note to Payee as and when the same shall become due and payable in accordance
with the terms hereof.
(d) The holder of this Note by his acceptance hereof acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of this Note, and each holder of Senior Indebtedness shall be deemed conclusively to have relied upon such subordination provisions in acquiring and continuing to hold such Senior Indebtedness.
3. This Note is secured by all guaranties, security interests, liens, assignments and encumbrances granted concurrently herewith, and granted previously or from time to time hereafter by Borrower or any of Borrower"s affiliates to Payee, or any of Payee"s affiliates, including, but not limited to, the security interests granted by Diversicare Leasing Corp., a Delaware corporation, to Sterling Acquisition Corp., a Kentucky corporation, in connection with the Amended and Restated Master Lease (as defined in the Restructuring Agreement) (collectively, the "Security Documents"). Reference is hereby made to the Security Documents for additional terms and conditions concerning this Note.
4. The occurrence of any of the following shall constitute a "Default" under this Note: (i) the Borrower fails to pay when due, whether by acceleration or otherwise, any amount payable under this Note; or (ii) an Event of Default under the Amended and Restated Master Lease; or (iii) an Event of Default under any of the Security Documents.
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5. If a Default has occurred and is continuing, Payee may (subject to the limitations set forth in Section 2 of this Note) without demand of performance and without other notice declare the unpaid principal of and interest on this Note to be immediately due and payable, whereupon the same shall be due and payable without presentation, demand, protest or notice of any kind, all of which are expressly waived, anything herein to the contrary notwithstanding. Payee may proceed to protect and enforce Payee"s rights either by suit in equity and/or by action at law, whether for specific performance, or proceed to enforce any other legal or equitable right as a holder of this Note. All remedies of Payee provided herein are cumulative and concurrent and may be exercised independently, successively or together against Borrower at the sole discretion of Payee, shall not be exhausted by any exercise thereof, and may be exercised as often as occasion therefor may occur, and shall not be construed to be waived or released by Payee"s delay in exercising, or failure to exercise, them or any of them at any time it may be entitled to do so.
6. All notices, requests and other communications hereunder shall be made in the manner set forth in the Restructuring Agreement.
7. Borrower waives presentment for payment, demand, notice of nonpayment, notice of protest and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default (except as expressly provided herein) or enforcement of the payment of this Note and agrees that the liability of Borrower shall not be in any manner affected by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee.
8. Acceptance by Payee of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and Payee"s acceptance of any such partial payment shall not constitute a waiver of Payee"s right to receive the entire amount due. Upon any Default, neither the failure of the Payee to promptly exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Payee to demand strict performance of any other obligation of Borrower or any other person who may be liable hereunder, shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of Borrower or any other person who may be liable under this Note.
9. Payee shall not by any act of omission or commission be deemed to have waived any of its rights or remedies hereunder unless such waiver be in writing and signed by Payee, and then only to the extent specifically set forth therein; a waiver of one event shall not be construed as continuing or as a bar or waiver of such right or remedy on a subsequent event.
10. Unless a Default has occurred and not been fully cured, all payments received by Payee under this Note shall be applied, subject to the limitations set forth in Section 2 of this Note, first against interest which has accrued and not been paid, and second to principal, with the balance applied against principal and any other amounts which may be owing to Payee under this Note.
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Following the occurrence of a Default, and until such Default is fully cured, Payee may apply, subject to the limitations set forth in Section 2 of this Note, any payment which it receives, whether directly from the Borrower or as a consequence of realizing upon any security which it holds, in its sole and absolute discretion, to any amount owing to it under this Note or the Security Documents.
11. The Borrower shall pay to Payee, immediately upon demand, any and all taxes (including, but not limited to, state franchise taxes) assessed against Payee by reason of its holding of this Note and the receipt by it of interest payments hereunder (other than income taxes assessed by the United States, or by any foreign government or political subdivision thereof having jurisdiction over the Payee on such interest payments), and any and all other sums and charges that may at any time become due and payable under the Security Agreements.
12. The Borrower, and any other person who may be liable hereunder in any capacity, agree to pay all costs of collection and any litigation, including attorney fees (including any appeals relating to such enforcement or collection proceedings), in case the principal of the Note or any payment of interest thereon is not paid as it becomes due, or in case it becomes necessary to protect the security for this Note, whether suit is brought or not.
13. All payments by the Borrower shall be paid in full without setoff or counterclaim and without reduction for and free from any and all taxes, levies, imposts, duties, fees, charges, deductions or withholdings of any type or nature imposed by any government or any political subdivision or taxing authority thereof.
14. IT IS SPECIFICALLY AGREED THAT TIME IS OF THE ESSENCE OF THIS NOTE.
15. All agreements between the Borrower, and any other party liable for the payment of the indebtedness evidenced by this Note, and Payee, or any subsequent holder of this Note, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the maturity of this Note or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to the holder of this Note exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to the holder of this Note in excess of the maximum lawful amount, the interest payable to the holder of this Note shall be reduced to the maximum amount permitted by applicable law; and if from any circumstance the holder of this Note shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal of this Note and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of the principal of this Note, such excess shall be refunded to the Borrower or to another party, or parties, liable for the payment of the indebtedness evidenced by this Note, as applicable. All interest paid or agreed to be paid to the holder of this Note shall, to the extent permitted by
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applicable law, be amortized, prorated, allocated and spread through the full period of this Note (including the period of any renewal or extension hereof) until payment in full of the principal so that the interest for such full period shall not exceed the maximum permitted by applicable law. This Section 15 shall control all agreements between the Borrower and the holder of this Note.
16. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of Payee in order to effect the provisions of this Note.
17. This Note shall be governed by and construed in accordance with the internal substantive laws of the State of Delaware, without regard to any conflict of laws rule or principle that would result in the application of the domestic substantive law of any other jurisdiction.
Signature on following page.
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IN WITNESS WHEREOF, Borrower has caused this Subordinated Note to be executed and delivered by its proper and duly authorized officer the day and year written above.
ADVOCAT INC.
By: /s/ James F. Mills, Jr.
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Its: Senior Vice President
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AGREED TO AND ACCEPTED BY PAYEE;
OMEGA HEALTHCARE INVESTORS, INC.
By: /s/ Susan A. Kourach
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Its: Vice President
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EXHIBIT 10.9
MASTER AMENDMENT TO LOAN DOCUMENTS
AND AGREEMENT
THIS AGREEMENT is made and entered into by and between AMSOUTH BANK, successor in interest by merger to First American National Bank (hereinafter referred to as "AmSouth" or as "First American"), ADVOCAT INC., a Delaware corporation (herein referred to as "Advocat"), DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation and wholly-owned subsidiary of Advocat ("DMS"), ADVOCAT FINANCE, INC., a Delaware corporation and wholly-owned subsidiary of DMS ("AFI"), DIVERSICARE LEASING CORP., a Tennessee corporation and wholly-owned subsidiary of AFI ("DLC"), ADVOCAT ANCILLARY SERVICES, INC., a Tennessee corporation and wholly-owned subsidiary of DMS ("AAS"), DIVERSICARE CANADA MANAGEMENT SERVICES CO., INC., a corporation organized under the laws of Canada and wholly-owned subsidiary of DLC ("DCMS"), DIVERSICARE GENERAL PARTNER, INC., a Texas corporation and wholly-owned subsidiary of DLC ("DGP"), FIRST AMERICAN HEALTH CARE, INC., an Alabama corporation and wholly-owned subsidiary of DLC ("FAHC"), DIVERSICARE LEASING CORP. OF ALABAMA, an Alabama corporation and wholly-owned subsidiary of DLC ("DLCA"), ADVOCAT DISTRIBUTION SERVICES, INC., a Tennessee corporation and wholly-owned subsidiary of DMS ("ADS"), DIVERSICARE ASSISTED LIVING SERVICES, INC., a Tennessee corporation and a wholly-owned subsidiary of AFI ("DALS"), DIVERSICARE ASSISTED LIVING SERVICES, NC, LLC, a Tennessee limited liability company formed by DMS and DALS ("DALS-NC"), DIVERSICARE ASSISTED LIVING SERVICES, NC I, LLC, a Delaware limited liability company ("DALS-NC I"), DIVERSICARE ASSISTED LIVING SERVICES, NC II, LLC, a Delaware limited liability company ("DALS-NC II") both of DALS-NC I and DALS-NC II being subsidiary entities of DALS-NC, STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporation and wholly-owned subsidiary of DLC ("SHCM"), DIVERSICARE AFTON OAKS, LLC, a Delaware limited liability company ("DAO"), DIVERSICARE GOOD SAMARITAN, LLC, a Delaware limited liability company ("DGS"), DIVERSICARE PINEDALE, LLC, a Delaware limited liability company ("DP"), and DIVERSICARE WINDSOR HOUSE, LLC, a Delaware limited liability company ("DWH"), each of DAO, DGS, DP and DWH being subsidiary entities of DLC, (Advocat and all of its direct and indirect subsidiaries, as identified hereinabove, being sometimes referred to herein collectively as the "Debtors," whether in their capacity as a Borrower, Guarantor, Pledgor, Subsidiary or otherwise, as defined in the Loan Documents referred to below), and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation being one and the same as GMAC-CM Commercial Mortgage Corporation ("GMAC").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of Master Credit and Security Agreement dated as of December 27, 1996 (the Master Credit and Security Agreement, as amended as herein set forth, being herein called the "Master Credit and Security Agreement"), First American and GMAC agreed to provide to DMS the Credit Facility (as defined therein), to consist of a $10,000,000.00 line of credit for working capital to be funded by First American (the "Working Capital Line"), and a $40,000,000.00 non-revolving line of credit for acquisitions and refinancings of Projects to
be funded by GMAC, and Advocat and each then-existing direct and indirect subsidiary of Advocat agreed to and did execute a full and unconditional Guaranty and Suretyship Agreement of all indebtedness incurred by DMS thereunder (each party so executing a Guaranty and Suretyship Agreement, together with the parties thereafter executing a Guaranty and Suretyship Agreement, as hereinafter set forth, are herein sometimes called a "Guarantor" or collectively "Guarantors", and the Guaranty and Suretyship Agreements are herein sometimes called a "Guaranty and Suretyship Agreement" or collectively the "Guaranty and Suretyship Agreements"); and
WHEREAS, on or about December 31, 1996, the transaction contemplated by the Master Credit and Security Agreement was closed, and incident thereto, among other things:
(a) DMS executed and delivered to First American the Revolving Promissory Note dated December 27, 1996, in the original principal amount of $10,000,000.00, and maturing December 1, 1999 (the "Original Working Capital Line Note");
(b) First American disbursed to or for the account of DMS the sum of $2,436,187.34, and issued the following letters of credit (sometimes referred to herein collectively as the "Letters of Credit") for the account of DMS or Advocat, or a direct or an indirect subsidiary of one of them:
(i) No. 1812887 in favor of Texas Diversicare Limited Partnership in the face amount of $500,000.00, by subsequent amendment dated April 14, 1999, the face amount having been reduced to $387,000.00;
(ii) No. 1812888 in favor of Omega Healthcare Investors, Inc. in the face amount of $3,800,000.00;
(iii) No. 1812989 in favor of Omega Healthcare Investors, Inc. in the face amount of $1,150,000.00; and
(iv) No. 1813094 in favor of Continental Health Properties of Thomasville, L.L.C. in the face amount of $200,000.00;
(c) Each of the then Guarantors executed and delivered its Guaranty and Suretyship Agreement in favor of First American;
(d) DMS, Advocat, DLC and AFI, each executed and delivered its Stock Pledge Agreement (a "Stock Pledge and Security Agreement" and collectively the "Stock Pledge and Security Agreements") in favor of First American;
(e) Advocat, DMS, DLC, AAS, AFI and ADS executed and delivered certain UCC-1 Financing Statements to evidence and perfect the security interests granted in the Master Credit and Security Agreement, which were filed with the Secretary of State of Tennessee and in other filing offices (collectively the "Financing Statements"), as collateral security;
(f) The parties to the Master Credit and Security Agreement executed and delivered an Intercreditor Agreement, as amended by First Amendment to Intercreditor Agreement dated June 4, 1999 (the "Intercreditor Agreement"); and
(g) The Master Credit and Security Agreement provides (i) at
Section 4.2 concerning Guaranty and Suretyship Agreements:
To the extent new Subsidiaries are formed or acquired after the date hereof, the Borrower shall cause such Subsidiaries to execute and deliver to Lenders Guaranty Agreements, in form and substance acceptable to the Lenders guaranteeing all then outstanding and future obligations of Borrower and the Subsidiaries in connection with the Credit Facility;
and (ii) at Section 4.4 concerning Stock Pledge Agreements:
The Borrower and the Subsidiaries shall execute Stock Pledge Agreements, in form and substance acceptable to the Lenders, pledging to the Lenders, as security for the Credit Facility, all of the outstanding stock of the Subsidiaries of the Borrower and the Subsidiaries, if any (including any subsidiaries formed or acquired after the date hereof);
(the Master Credit and Security Agreement, the Original Working Capital Line Note, the Letters of Credit, the Guaranty and Suretyship Agreements initially executed, the Stock Pledge and Security Agreements, the Intercreditor Agreement, the Financing Statements, deeds of trust, mortgages and all other letters, agreements, statements, resolutions, affidavits, consents, financing statements, mortgages, deeds of trust or other documents executed or delivered in connection with the closing of the transaction being sometimes referred to herein collectively as the "Initial Working Capital Loan Documents"); and
WHEREAS, under date of February 8, 1998, the parties to the Master Credit and Security Agreement executed and delivered the First Amendment to Master Credit and Security Agreement, pursuant to which First American agreed to provide DMS a temporary increase in the Working Capital Line in the amount of $1,250,000.00 (the "Overline Facility"), which was further evidenced by Line of Credit Note (Overline Facility) (the "Original Overline Note") of even date therewith, which was to be administered in accordance with the applicable terms for advances under the Working Capital Line, and which is secured by the collateral securing the Working Capital Line, having a maturity date of June 26, 1998, and which is guaranteed by the Guarantors pursuant to the Guaranty and Suretyship Agreements; and
WHEREAS, as evidenced by subsequent agreements and notes, including Second Amendment to Master Credit and Security Agreement, Third Amendment to Master Credit and Security Agreement and Fourth Amendment to Master Credit and Security Agreement, the Overline Facility was increased to $4,000,000.00, then reduced on two occasions to its present principal balance of $3,500,000.00, and the maturity date was extended, successively, to August 31, 1998, January 15, 1999, March 16, 1999, April 14, 1999, July 1, 1999, October 1, 1999, December 1, 1999 and February 28, 2000; and
WHEREAS, by Fifth Amendment to Master Credit and Security Agreement dated as of November 30, 1999, DALS, DALS-NC, DALS-NC I and DALS-NC II, became parties to the Master Credit and Security Agreement as Subsidiaries and as Guarantors of the Working Capital Line, and granted to First American a security interest in all of their property as described in Section 4.1, subsection (a) of the Master Credit and Security Agreement; and
WHEREAS, by Sixth Amendment to Master Credit and Security Agreement dated as of December 1, 1999, among other things, First American agreed to extend the maturity date of the Overline Facility and of the Working Capital Line to February 28, 2000, and incident thereto DMS executed and delivered to First American:
(a) Revolving Promissory Note dated December 1, 1999, in the principal amount of $10,000,000.00, which is a renewal of the indebtedness evidenced by the Original Working Capital Line Note and subsequent notes executed to evidence such indebtedness; and
(b) Line of Credit Note (Overline Facility) dated December 1, 1999, in the principal amount of $3,500,000.00, which is a renewal of the indebtedness evidenced by the Original Overline Note and subsequent notes executed to evidence such indebtedness; and
WHEREAS, all amendments to the Master Credit and Security Agreement, the Original Overline Note and all subsequent notes evidencing the Overline Facility, and all other notes, letters, agreements, statements, resolutions, affidavits, consents, financing statements, mortgages, deeds of trust or other documents executed or delivered in connection therewith, are sometimes referred to herein collectively as the "Subsequent Working Capital Loan Documents," and the Initial Working Capital Loan Documents and the Subsequent Working Capital Loan Documents are sometimes referred to herein collectively as the "Working Capital Loan Documents"; and
WHEREAS, pursuant to the terms of the Loan and Negative Pledge Agreement dated as of October 1, 1997 (the "Loan and Negative Pledge Agreement"), First American and AmSouth agreed to lend DALS-NC, on a non-revolving basis, up to $34,100,000.00, to finance the acquisition of fifteen assisted care living facilities located in North Carolina and more particularly described therein (the "NC Bridge Loan"); and
WHEREAS, the NC Bridge Loan was evidenced by two promissory notes, each in the principal amount of $17,050,000.00, and having a maturity date of December 30, 1997 (one payable to First American and the other payable to AmSouth), was secured by pledges of one hundred percent (100%) of the membership interests in DALS-NC pursuant to Collateral Assignment of Membership Interests dated as of October 1, 1997, was guaranteed by Advocat, DMS, DLC, AAS, DCMS, DGP, FAHC, ADS, AFI, DLCA, and DALS, and was cross-defaulted with the Working Capital Loan Documents; and
WHEREAS, by agreements executed under date of December 30, 1997, March 31, 1998, April 1, 1999, October 1, 1999, and December 1, 1999, among other things, the maturity date of NC Bridge Loan was extended, respectively, to January 1, 1999, April 1, 1999, July 1, 1999, December 1, 1999, and February 28, 2000; and
WHEREAS, on the occasion of each amendment of the Loan and Negative Pledge Agreement, two renewal and modification promissory notes (non-revolving) were executed and delivered, each in a principal amount equal to one-half of the then principal balance of the NC Bridge Loan, the most recent notes being the following:
(a) Renewal and Modification Promissory Note (Non-Revolving), dated December 1, 1999 in the principal amount of $4,706,191.93, payable to First American, and
(b) Renewal and Modification Promissory Note (Non-Revolving), dated December 1, 1999, in the principal amount of $4,706,191.94, payable to AmSouth; and
WHEREAS, the Loan and Negative Pledge Agreement, all amendments thereof, and all notes, pledge agreements, other agreements, guaranties, letters, statements, resolutions, affidavits, consents, financing statements, mortgages, deeds of trust or other documents executed or delivered in connection therewith, are sometimes referred to herein collectively as the "NC Bridge Loan Documents," and the Working Capital Loan Documents and the NC Bridge Loan Documents are sometimes referred to herein collectively as the "Loan Documents"; and
WHEREAS, the indebtedness owing to AmSouth under the Working Capital Line is a revolving indebtedness varying daily based upon daily draws and payments thereon; and
WHEREAS, as of October 1, 2000, the indebtedness owing to AmSouth under the Overline Facility is in the principal amount of $3,500,000.00, plus interest accrued from and after October 1, 2000, plus costs and attorneys' fees; and
WHEREAS, the Letters of Credit, as described hereinabove, remain issued and outstanding; and
WHEREAS, as of October 1, 2000, the indebtedness owing to AmSouth under the NC Bridge Loan is in the principal amount of $9,412,383.87, plus interest accrued from and after October 1, 2000, plus costs and attorney's fees; and
WHEREAS, the indebtedness and obligations evidenced by the Letters of Credit, the Working Capital Line, the Overline Facility and the NC Bridge Loan, together with the indebtedness evidenced by the Reimbursement Note as defined hereinafter, are herein sometimes referred to collectively as the "Indebtedness"; and
WHEREAS, the Indebtedness and Loan Documents are fully enforceable and are not subject to any defense or counterclaim, or any claim of setoff or recoupment; and
WHEREAS, DMS and DALS-NC each represented to AmSouth that because of their financial conditions, they were unable to pay the full amount of their liability for the Indebtedness, and the parties entered into a Forbearance Agreement dated as of May 15, 2000, as amended by First Amendment to Forbearance Agreement dated June 29, 2000, and further amended by Second Amendment to Forbearance Agreement dated September 12, 2000 extending the forbearance period to October 1, 2000, in order to induce AmSouth to forbear from exercising its remedies following default; and
WHEREAS, pursuant to the Forbearance Agreement, DALS, DALS-NC, DALS-NC I, and DALS-NC II entered into Guaranty and Suretyship Agreement as set forth therein; and
WHEREAS, Advocat and Omega Healthcare Investors, Inc. ("Omega") entered into a letter of intent dated August 11, 2000 (the "Omega Letter of Intent") concerning proposed restructuring of certain agreements between Advocat, certain of its subsidiaries and Omega; and
WHEREAS, the parties hereto entered into a Letter of Intent dated September 7, 2000 pursuant to which the parties have entered into this Agreement; and
WHEREAS, each of the parties acknowledges that it has been represented by counsel in connection with the negotiation and execution of this Agreement, that the same represents an arms-length transaction, and that each of the other parties has acted in good faith in the making of this Agreement; and
WHEREAS, all terms capitalized herein, but not specially defined herein, are intended to have the meanings ascribed to them in the Loan Documents, unless the context clearly indicates otherwise; and
WHEREAS, the parties stipulate and agree that the facts recited hereinabove are true and correct; and
WHEREAS, the parties have agreed to modify the Indebtedness, and Loan Documents, and have otherwise agreed all as more particularly set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing recitals (all of which are incorporated herein as agreements, representations, warranties or covenants of the Debtor), of the mutual covenants and promises contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereby covenant, amend and agree as follows:
1. In order to accommodate the agreement between Advocat and Omega pursuant to the Omega Letter of Intent, and evidence the further agreement of the parties, the parties agree as follows:
(a) Immediately upon the execution hereof, Advocat shall cause Omega to present to AmSouth drafts and other necessary documentation to draw the sum of $3,000,000.00 on Letters of Credit No. 1812888 and 1812989. AmSouth shall fund such amount pursuant to these Letters of Credit. Upon such funding these Letters of Credit shall be cancelled and terminated and AmSouth shall have no further obligation thereunder. Advocat shall cause Omega to enter into an agreement with AmSouth providing that no further drawings shall be made under such Letters of Credit, and that the rights of Omega thereunder are terminated in full.
(b) In order to evidence the reimbursement obligation to AmSouth by virtue of such disbursement under the above Letters of Credit, Advocat shall execute and deliver to AmSouth a Reimbursement Promissory Note dated October 1, 2000 payable to AmSouth in the
original principal amount of $3,000,000.00, and in form and substance required by AmSouth (the "Reimbursement Note"), which shall have the following terms:
(i) A final maturity date of January 15, 2002, with no interest accruing thereon prior to the earlier of maturity or default. After maturity or default, interest shall accrue at a default rate equal to the lesser of fifteen percent (15%) per annum or the maximum rate allowed by applicable law.
(ii) Prepayment may be made at any time without premium, and the following shall be mandatory prepayments:
(1) Upon sale of the Carteret Care nursing facility of DALS-NC, or an affiliate entity thereof, located in North Carolina, all net proceeds after payment of normal, customary and good faith expenses of sale, shall be paid upon the indebtedness evidenced by the Reimbursement Note, pursuant to the existing Deed of Trust and Security Agreement executed by DALS-NC dated November 15, 1999, it being anticipated that such sale shall close no later than December 31, 2000;
(2) All payments received under the Wraparound Note, as hereinafter defined, or collateral related thereto, which shall be given as collateral security hereunder shall be applied first to payment of the Reimbursement Note, but only net of amounts required to retire the balance of the underlying wrapped indebtedness held by Bank of America; and
(3) Until payment in full of the Reimbursement Note, all Surplus Cash Flow available to Advocat or any of the other Debtors, as defined herein, shall be paid upon the indebtedness evidenced by the Reimbursement Note. Surplus Cash Flow shall be defined as all cash remaining after paying or reserving for (a) indebtedness owing to AmSouth evidenced by the Working Capital Line, the Overline Facility, and the NC Bridge Loan, (b) indebtedness owing to Omega or Sterling Acquisition Corp. pursuant to the Amended and Restated Master Lease entered into or to be entered into between either or both of such parties and some or all of Debtors, (c) indebtedness owing to GMAC pursuant to the GMAC-CM Claim as defined in the Intercreditor Agreement, and the GMAC Facility, as defined in the Loan and Negative Pledge Agreement, and (d) and all reasonable and necessary costs and expenses incurred in the usual and ordinary course and conduct of Debtors' business or operation of Debtors' properties.
(c) As additional collateral security for the Indebtedness, as well as any and all other indebtedness now or hereafter owing by any or all of Debtors to AmSouth, whether now existing or hereafter arising, including but not limited to the indebtedness evidenced by the Reimbursement Note, the Letters of Credit remaining outstanding, the Working Capital Line, the Overline Facility and the NC Bridge Loan, DLC, DMS, DALS, DALS-NC and all other parties holding an interest in the following collateral, shall assign as collateral to AmSouth all their right, title and interest in, to and under:
(i) Wraparound Promissory Note made by Texas Diversicare Limited Partnership, a Texas limited partnership ("TDLP") dated August 30, 1991 in the original
principal amount of $7,500,000.00 having a final maturity date of August 30, 2001 (the "Wraparound Note");
(ii) Wraparound Deed of Trust dated August 30, 1991 encumbering six (6) nursing facilities located in the state of Texas and owned by TDLP, securing the Wraparound Note (the "Wraparound Deed of Trust");
(iii) Vendor's Liens (the "Vendor's Liens")
retained and set forth in the special warranty deeds conveying the six (6)
nursing homes to TDLP, all of the forgoing having been conveyed to DLC by six
(6) separate Assignment(s) of Note, Deed of Trust and Vendor's Lien dated May
10, 1994 by Counsel Nursing Properties, Inc., a Delaware corporation. The
assignment of the Wraparound Note, Wraparound Deed of Trust and Vendor's Liens
shall be subject only to the prior assignment made in favor of Bank of America;
(iv) All right title and interest of DLC in and to the Participation Agreement dated August 30, 1991 entered into between TDLP and DGP, on the first part, and Diversicare Corporation of America, on the second part;
(v) The interest of DMS in and to the Management Agreement dated August 31, 1991 between TDLP and DGP, on the first part, and Diversicare Corporation of America, on the second part; and
(vi) All of the outstanding capital stock in DALS and SHCM and all of the ownership interests in DALS-NC I, DALS-NC II, DAO, DGS, DP and DWH.
Debtors shall cause Collateral Assignments and Security Agreements in form and substance required by AmSouth (the "Collateral Assignments"), as well as all additional instruments and documents which AmSouth may deem necessary or proper to evidence or perfect such collateral security, to be executed by all necessary or appropriate parties, delivered, and recorded if necessary, all at the cost and expense of Debtors. Without limitation the Collateral Assignments shall provide that DLC may not further assign its interest in the Wraparound Note, the Wraparound Deed of Trust or the Vendor's Liens, or extend the maturity of the Wraparound Note, without the prior written consent of AmSouth. Debtors shall obtain from Bank of America, holder of the underlying indebtedness of the Wraparound Note and Wraparound Deed of Trust, written consent to and acknowledgement of the assignments and grants of security interest contained herein.
(d) Effective October 1, 2000, the security interest granted to AmSouth in the Omega Receivables, as defined in the Master Credit and Security Agreement, shall be subject to the first priority security interest held by Omega, such that AmSouth shall thereafter have a second priority security interest in the Omega Receivables. The priority of AmSouth in all other accounts receivable shall continue as set forth in the Master Credit and Security Agreement. Simultaneous with the execution hereof, AmSouth shall enter into an agreement with Omega modifying the provisions of the prior letter agreement dated December 30, 1996 between Omega and AmSouth with respect to priority of accounts receivable to reflect the agreement set forth herein (the "Omega Priority Agreement").
(e) The Omega Letter of Intent provides in Section 5 that Advocat shall issue to Omega (i) certain Preferred Stock, as defined therein (the "Preferred Stock") and (ii) a Subordinated Note, which is defined in the Omega Letter of Intent as the "Note" (the "Subordinated Note"). For as long as any indebtedness evidenced by the Reimbursement Note shall remain outstanding and unpaid, no cash or funds of the Debtors, or any of them, shall be used (i) to pay dividends on the Preferred Stock or to pay interest, principal or other amounts on the Subordinated Note, or (ii) to pay to redeem any of the Preferred Stock.
(f) Letters of Credit No. 1812887 in favor of TDLP in the amended amount of $387,000.00 and 1813094 in favor of Continental Health Properties of Thomasville, LLC in the amount of $200,000.00 shall continue in accordance with their terms, unless earlier terminated pursuant to an agreement between the account party and beneficiary thereunder. The outstanding amounts of these Letters of Credit shall continue to be charged against and to reduce the maximum principal amount which may be advanced under the Working Capital Line, as set forth herein. Any sums drawn under these Letters of Credit shall be deemed an advance under the Working Capital Line, subject to the limitation of amounts which may be disbursed thereunder as set forth herein.
2. Concerning the Working Capital Line:
(a) The maximum amount which may be outstanding at any time under the Working Capital Line shall be reduced to $4,500,000.00, subject to the following additional restrictions:
(i) The maximum amount which may be outstanding at any time under the Working Capital Line shall be further reduced by the outstanding amounts of Letters of Credit No. 1812887 and 1813094, which shall continue as outstanding Letters of Credit after the execution hereof as set forth herein above.
(ii) The total amount of the Working Capital Line
outstanding at any time, including the amounts of the Letters of Credit which
shall remain outstanding as set forth above, shall never exceed $3,500,000.00
for more than thirty (30) consecutive days (any day or period of consecutive
days during which the $3,500,000.00 limit is exceeded being herein referred to
as a "Spike Period"), nor may any Spike Period be allowed unless at the
beginning of the Spike Period, during the immediately preceding period of thirty
(30) consecutive days, the $3,500,000.00 limit has not been exceeded.
(iii) Certain definitions set forth in the Master Credit and Security Agreement are amended as follows:
(1) The definition of Qualified Accounts Receivable at Section 1.1, subsection (b)(m) shall hereafter exclude all Omega Receivables, but shall include all other accounts receivable as set forth therein; and
(2) The definition of Working Capital Borrowing Base in Section 1.1, subsection (b)(w) shall hereafter mean eighty percent (80%) of Qualified Accounts Receivable.
The total amount outstanding under the Working Capital Line, including the
Letters of Credit which shall remain outstanding as set forth above, shall not
exceed at any time the Working Capital Borrowing Base, the definition of which
is modified as set forth herein. Without limiting any other sections of the
Master Credit and Security Agreement which may be amended as set forth herein,
Section 2.1, subsection (a), "Working Capital Line," is amended to reflect the
foregoing.
(b) The Working Capital Line shall bear interest from and after October 1, 2000 at the Prime Rate of interest, designated by AmSouth from time to time as such, plus one half of one percent (0.5%) (fifty basis points) per annum, provided that the interest rate shall in no event exceed nine and one half percent (9.5%) per annum until after default or maturity, at which time the default rate of interest set forth in the instruments and documents evidencing the Working Capital Line shall be applicable. Interest shall be payable monthly. All principal and unpaid interest shall be payable at maturity on January 15, 2004. The Working Capital Line shall be evidenced by Renewal Revolving Promissory Note dated October 1, 2000 in the maximum amount of $4,500,000.00 executed by DMS to AmSouth (the "Current Working Capital Line Note"), which shall be a renewal and replacement of the existing promissory note or notes evidencing the Working Capital Line.
(c) Subsections (a), (b), (c) and (d) of Section 5.6 of the Master Credit and Security Agreement, which set forth certain of the financial covenants, are amended to read as follows:
a. The Current Ratio must be maintained at the following levels for the periods indicated:
(i) At December 31, 2000 (and quarterly through September 30, 2001), not less than .70 to 1.
(ii) At December 31, 2001 (and quarterly through September 30, 2002), not less than .83 to 1.
(iii) At December 31, 2002 (and quarterly through September 30, 2003), not less than .90 to 1.
(iv) At December 31, 2003 (and quarterly through September 30, 2004), not less than .94 to 1.
b. EBITDAR must be maintained at the following levels for the periods indicated:
(i) For the twelve (12) month periods ending December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001, not less than $30,295,000.00.
(ii) For the twelve (12) month periods ending December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, not less than $33,139,000.00.
(iii) For the twelve (12) month periods ending December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003, not less than $33,500,000.00.
(iv) For the twelve (12) month periods ending December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004, not less than $34,571,000.00.
c. Net Income after Taxes must be maintained at the following levels for the periods indicated:
(i) For the twelve (12) month periods ending December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001, the loss shall not exceed $291,500.00.
(ii) For the twelve (12) month periods ending December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, not less than $4,301,000.00.
(iii) For the twelve (12) month periods ending December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003, not less than $4,840,000.00.
(iv) For the twelve (12) month periods ending December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004, not less than $5,239,000.00.
"Net Income after Taxes" shall mean the sum of earnings before taxes (excluding the TDLP homes) calculated for the immediately preceding twelve (12) month period.
d. Tangible Net Worth must be maintained at the following levels for the periods indicated:
(i) At December 31, 2000 (and quarterly through September 30, 2001), not less than ($8,600,000.00) (deficit).
(ii) At December 31, 2001 (and quarterly through September 30, 2002), not less than $163,000.00.
(iii) At December 31, 2002 (and quarterly through September 30, 2003), not less than $4,751,000.00.
(iv) At December 31, 2003 (and quarterly through September 30, 2004), not less than $9,738,000.00.
(d) Debtors shall procure the written consent to this Agreement and the transactions contemplated hereby, of GMAC. Debtors shall also procure the written consent of Omega to this Agreement and the transactions contemplated herein.
3. With respect to the Overline Facility, such indebtedness shall be evidenced by a Renewal Promissory Note (Overline Facility) executed by DMS to AmSouth dated October 1, 2000 in the principal amount of $3,500,000.00 (the "Current Overline Note"). The Current Overline Note shall bear interest from and after October 1, 2000 at the rate of nine and one half percent (9.5%) per annum and shall require equal monthly installments of principal and interest in the amount of $32,624.59 each, commencing November 1, 2000, which payments are based upon an amortization period of twenty five (25) years, and shall have a final maturity date of January 15, 2004, at which time all remaining principal and interest shall be due and payable in a balloon payment. The Current Overline Note shall be a renewal and replacement of the prior promissory note or notes evidencing the Overline Facility.
4. Concerning the NC Bridge Loan, such indebtedness shall be evidenced by a Renewal Promissory Note executed by DALS-NC to AmSouth dated October 1, 2000 in the original principal amount of $9,412,383.87 (the "Current NC Bridge Loan Note"). The Current NC Bridge Loan Note shall bear interest from and after October 1, 2000 at the rate of nine and one half (9.5%) per annum and shall require equal monthly installments of principal and interest in the amount of $87,735.76 each, which payments are based upon an amortization period of twenty five (25) years, commencing November 1, 2000, and shall have a final maturity of September 30, 2004, at which time all remaining principal and interest shall be due and payable in a balloon payment. The Current NC Bridge Loan Note shall be a renewal and replacement of the promissory note or notes previously evidencing the NC Bridge Loan.
5. All indebtedness and obligations now or hereafter owing to AmSouth by Advocat, DMS, DALS-NC, or any other of the Debtors, or any combination thereof, including but not limited to the Indebtedness, whether evidenced by the Reimbursement Note, the Letters of Credit remaining outstanding, the Working Capital Line, the Overline Facility or the NC Bridge Loan, shall be guaranteed by all of Debtors. Each of Debtors shall execute and deliver to AmSouth an additional Continuing Guaranty and Suretyship Agreement to further evidence such guaranty (the "Additional Continuing Guaranty and Suretyship Agreements"). The Additional Continuing Guaranty and Suretyship Agreements shall be supplemental and in addition to the existing Guaranty and Suretyship Agreements, which shall continue in full force and effect.
6. All property, rights and interest of any, some or all of Debtors which now or hereafter serve as collateral security for any of the Indebtedness, shall hereafter secure all indebtedness and obligations now or hereafter owing by Advocat, DMS, DALS-NC, or any other of the Debtors to AmSouth, whether now existing or hereafter arising, including but not limited to the indebtedness evidenced by the Reimbursement Note, Letters of Credit remaining outstanding, Working Capital Line, Overline Facility, NC Bridge Loan, and all renewals, extensions, replacements and modifications thereof. The collateral affected by this cross-
collateralization includes, but is not limited to, the collateral in which a security interest is granted in Section 4 of the Master Loan and Security Agreement.
7. A default in any of the Loan Documents, this instrument, any additional instruments and documents executed pursuant hereto, or in any indebtedness or obligation now or hereafter owing by any, some or all of Debtors to AmSouth, shall, at the option of AmSouth, constitute a default in any or all of the Loan Documents or indebtedness now or hereafter owing by any, some or all of the Debtors to AmSouth, provided that as between AmSouth and GMAC the further provisions of the Intercreditor Agreement shall be applicable.
8. Immediately upon the execution hereof, Advocat shall pay to AmSouth the sum of $51,030.96, as a commitment fee for the commitment and obligations of AmSouth as expressed herein.
9. The indebtedness evidenced by the Reimbursement Note, Working Capital Line, Overline Facility and NC Bridge Loan, may be prepaid at any time without premium.
10. The parties acknowledge and agree (a) that all current and future subsidiary corporations, limited liability companies and other entities of any of Debtors shall execute and deliver Continuing Guaranty and Suretyship Agreements guaranteeing all indebtedness and obligations, whether now existing or hereafter arising, of any, some, or all of Debtors, to AmSouth, immediately upon formation or acquisition of any future subsidiary, and (b) that the capital stock or other ownership interest in all future subsidiaries of any of Debtors shall be pledged and a security interest therein shall be granted, to AmSouth as security for all indebtedness, whether now existing or hereafter arising, of any, some or all of Debtors, to AmSouth, immediately upon formation or acquisition of any such subsidiary. Notwithstanding the foregoing, the parties acknowledge and agree that AmSouth shall hold the pledge and security interest in the capital stock and ownership interest in all future subsidiaries as agent for both AmSouth and GMAC as set forth in the Master Credit and Security Agreement and Intercreditor Agreement, said stock and ownership interest being "Proportionate Collateral" as defined in the Intercreditor Agreement. Without limiting the foregoing or any other provision of the Master Credit and Security Agreement, the provisions of Sections 4.2 and Sections 4.4 of the Master Credit and Security Agreement shall continue in full force and effect. Debtors shall give ten (10) days advance written notice to AmSouth of the creation of any future subsidiary, provided that in an emergency situation where advance notice cannot practicably be given, notice shall not be required provided AmSouth is given an immediate pledge and security interest in the ownership interest in the new entity and an immediate Continuing Guaranty and Suretyship Agreement by the entity as set forth herein.
11. The Master Credit and Security Agreement, Loan and Negative Pledge Agreement, and any other Loan Documents affected hereby, are amended to the extent necessary to conform such instruments and documents to the provisions set forth herein.
12. Debtors shall execute such further and additional instruments and documents, and take such further actions, as may be required by AmSouth or its counsel from time to time to further evidence, perfect or carry out the terms and provisions hereof. Debtor shall pay all costs and expenses of AmSouth incurred in connection with the documentation, perfection or
implementation of the provisions hereof, including but not limited to attorney fees, filing fees, UCC search and examination fees and out of pocket expenses. All such known expenses shall be paid immediately upon the execution hereof. Additional expenses shall be paid upon presentation of statements therefor by AmSouth. The representations, covenants, warranties and other provisions set forth in the Loan Documents made by any, some or all of Debtors, as amended hereby, shall continue in full force and effect and shall be fully enforceable in accordance with all of their terms. Together with the execution hereof, an opinion of counsel to Debtors shall be delivered for the benefit of AmSouth with respect to the transactions contemplated herein in the form required by AmSouth and its counsel. Debtors shall deliver to AmSouth current financial statements for Debtors in form and substance acceptable to AmSouth, resolutions, incumbency certificates, charters, articles of organization, by-laws, operating agreements, certificates of existence, certificates of authorization, UCC searches, real estate record searches, and such other instruments, documents and information as AmSouth or its counsel may require to evidence the authority of any of Debtors to enter into or be bound to the transaction contemplated hereby or to evidence or perfect the collateral given as security hereunder. Debtors shall further cause to be delivered to AmSouth evidence satisfactory to AmSouth that Debtors are in compliance with all licensing and governmental regulations applicable to Debtors' business operations and that Debtors have received all consents and other approvals from landlords, GMAC, Omega, and any other parties which may be deemed necessary by AmSouth to carry out the provisions hereof. Debtors shall further deliver to AmSouth the Certificate and Affidavit attached hereto as Exhibit A as an inducement to AmSouth to enter into the transactions contemplated hereby. There is no litigation pending or threatened against any of Debtors affecting the collateral security for the Indebtedness or which materially affects the ability of any Debtor to perform its obligations to AmSouth.
13. Debtors hereby acknowledge and stipulate that none of them has any claims or causes of action against AmSouth of any kind whatsoever. Debtors hereby release AmSouth from any and all claims, causes of action, demands and liabilities of any kind whatsoever, whether direct or indirect, fixed or contingent, liquidated or non-liquidated, disputed or undisputed, known or unknown, which Debtors, or any of them, has or which arises out of any acts or omissions occurring prior to the execution of this Agreement relating in any way to any event, circumstances, action or failure to act from the beginning of time to the execution of this Agreement.
14. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and may not be amended or modified except by an agreement in writing executed between the parties hereto. This Agreement shall be governed by the law of the State of Tennessee, except as such may be preempted by law or regulation of the United States of America governing the charging or receiving of interest. This agreement is severable such that the invalidity or unenforceability of any provision hereof shall not impair the validity or enforceability of the remaining provisions. Time is of the essence of this agreement, and all its provisions. This Agreement shall be binding upon the parties hereto, their successors and assigns. This Agreement may be executed in multiple counterparts, which when taken as a whole shall constitute a complete instrument. Facsimile signatures shall be effective as originals.
IN WITNESS WHEREOF, the parties hereto have executed this instrument this 8th day of November, 2000, to be effective October 1, 2000.
AMSOUTH BANK, successor in interest by merger to First American National Bank
By: /s/ Robert Hart
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Robert Hart, Senior Vice President
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DIVERSICARE MANAGEMENT SERVICES CO.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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ADVOCAT INC., a Delaware corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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DIVERSICARE LEASING CORP.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
ADVOCAT ANCILLARY SERVICES, INC.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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DIVERSICARE CANADA MANAGEMENT SERVICES CO.,
INC., an Ontario, Canada corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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DIVERSICARE GENERAL PARTNER, INC.,
a Texas corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
FIRST AMERICAN HEALTH CARE, INC.,
an Alabama corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
ADVOCAT DISTRIBUTION SERVICES,
INC., a Tennessee corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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ADVOCAT FINANCE, INC.,
a Delaware corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE LEASING CORP. OF ALABAMA, INC.,
an Alabama corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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DIVERSICARE ASSISTED LIVING SERVICES, INC.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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DIVERSICARE ASSISTED LIVING SERVICES, NC, LLC,
a Tennessee limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE ASSISTED LIVING
SERVICES NC I, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE ASSISTED LIVING
SERVICES NC II, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
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STERLING HEALTH CARE MANAGEMENT, INC.,
a Kentucky corporation
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE AFTON OAKS, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE GOOD SAMARITAN, LLC, a Delaware
limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE PINEDALE, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
DIVERSICARE WINDSOR HOUSE, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
----------------------------------------------
Name: James F. Mills, Jr.
-------------------------------------
Title: Sr. Vice President
------------------------------------
|
GMAC COMMERCIAL MORTGAGE CORPORATION, a California
corporation
CERTIFICATE & AFFIDAVIT
STATE OF TENNESSEE
COUNTY OF _____________
The undersigned, being duly sworn, according to law, certifies and deposes and states as follows:
1. I have personal knowledge of the facts stated herein;
2. I am over the age of eighteen (18) years and am competent to execute this Affidavit.
4. This Certificate and Affidavit is being provided to, and may be relied upon by AmSouth Bank (the "Bank"), its counsel, employees, officers, directors, agents, successors and assigns, in connection with the closing of a loan transaction (the "Closing") between the Bank and Advocat Inc., a Delaware corporation (herein referred to as "Advocat"), Diversicare Management Services Co., a Tennessee corporation ad wholly-owned subsidiary of Advocat ("DMS"), Advocat Finance, Inc., a Delaware corporation and wholly-owned subsidiary of the DMS ("AFI"), Diversicare Leasing Corp., a Tennessee corporation and wholly-owned subsidiary of AFI ("DLC"), Advocat Ancillary Services, Inc., a Tennessee corporation and wholly-owned subsidiary of DMS ("AAS"), Diversicare Canada Management Services Co., Inc., a corporation organized under the laws of Canada and wholly-owned subsidiary of DLC ("DCMS"), Diversicare General Partner, Inc., a Texas corporation and wholly-owned subsidiary of DLC ("DGP"), First American Health Care, Inc., an Alabama corporation and wholly-owned subsidiary of DLC ("FAHC"), Diversicare Leasing Corp. of Alabama, an Alabama corporation and wholly-owned subsidiary of DLC ("DLCA"), Advocat Distribution Services, Inc., a Tennessee corporation and wholly-owned subsidiary of DMS ("ADS"), Diversicare Assisted Living Services, Inc., a Tennessee corporation and a wholly-owned subsidiary of AFI ("DALS"), Diversicare Assisted Living Services, NC, LLC, a Tennessee limited liability company formed by DMS and DALS ("DALS-NC"), Diversicare Assisted Living Services, NC I, LLC, a Tennessee limited liability company ("DALS-NC I"), and Diversicare Assisted Living Services, NC II, LLC, a Tennessee limited liability company ("DALS-NC II"), subsidiary entities of DALS-NC (Advocat and all of its direct and indirect subsidiaries, as identified hereinabove, being sometimes referred to herein collectively as the "Debtors," whether in their capacity as a Borrower, Guarantor, Pledgor, Subsidiary or otherwise, as defined in the Loan Documents as set forth in the Master Amendment to Loan Documents and Agreement entered into between the Bank and Debtors of even date herewith (the documents executed in connection with the indebtedness are hereinafter referred to as the "Loan Documents"). All capitalized terms used herein, if not otherwise defined herein, shall have the meanings ascribed to such terms in the Loan Documents.
5. No articles of dissolution or termination have been filed with respect to DCMS, and there has been no other action taken to dissolve or terminate the existence of DCMS, whether voluntarily or involuntarily.
6. All factual representations and covenants made by the DCMS, in the Loan Documents are true, complete and accurate on the date hereof, as if made on the date hereof. The terms and conditions of the Loan as reflected in the Loan Documents have not been amended, modified or supplemented, directly or indirectly, by any other agreement or understanding of the parties or waiver of any material provisions of the Loan Documents and there is no usage of trade or course of prior dealing between DCMS and Bank or Debtors and Banks that would, in either case, define, supplement, or qualify the terms of the Loan Documents.
7. The Charter of DCMS that is being provided to Bank in connection with the Closing, is true, correct and complete copy of such documents, together with any amendments thereto, as such documents are in effect as of the date hereof.
8. The bylaws of DCMS that are being provided to the Bank in connection with the Closing, are true, correct and complete copies of such bylaws, together with any amendments thereto, as such bylaws are in effect as of the date hereof.
9. The copies of the resolutions of the Board of Directors of DCMS, authorizing the transactions described in the Loan Documents provided to the Bank in connection with the Closing, are true, correct and complete copies of such resolutions, and such resolutions remain in place and effect, without amendment, as of the date hereof.
10. There are no actions, suits or proceedings, including administrative proceedings, pending, or to the best knowledge of DCMS threatened, against DCMS before any court, arbitrator or administrative or governmental body or threatened (i) to acquire through the exercise of any power of condemnation, eminent domain, or similar proceeding any part of a Project, any Improvements or any interest herein, or to enjoin or similarly prevent or restrict the use or operation of a Project in any manner, or (ii) before or by any court or administrative agency which might result in any material adverse change in the financial condition, operations or prospects of DCMS or any lower reimbursement rate under any Reimbursement Contract or (iii) that is not covered by insurance and seeks damages in excess of $100,000.00 (or seeks unspecified damages) or (iv) that would result in decertification of any of DCMS's businesses by applicable governmental or licensing authorities. DCMS is not subject to any outstanding court or administrative order which would materially impact the ability of DCMS to perform its obligations under the Loan Documents.
11. There has been no material, adverse change in the financial conditions of DCMS since the date of the most recent financial statements that were delivered to Bank in connection with indebtedness evidenced by the Loan Documents.
12. That DCMS is in compliance with all licensing requirements and all governmental laws, regulations, ordinances and requirements applicable to DCMS's businesses.
13. That DCMS has obtained all requisite consents and approvals from landlords, owners of nursing home facilities, and other entities consenting to the assignments and grants of security interests referred to in the Loan Documents.
14. The chief executive office of Diversicare Canada Management Services Co., Inc., all of its corporate books, records and all chief decision making activities occur in or are located at 2121 Argentia Rd, Ste 301, in Mississauga, Ontario, Canada.
15. No authorization, consent, approval, or other action by, or filing with, any Tennessee or federal court or governmental authority or Canadian authority is required in connection with the execution and delivery by DCNS, of the Loan Documents.
16. The execution and delivery of the Loan Documents will not (i) cause DCMS, the Debtors, or any of them, to be in material violation of, or constitute a material default under the provisions of any material agreement to which any Debtor is a party or by which any Debtor is bound, (ii) conflict with, or result in the breach of, any court judgment, decree or order of any governmental body to any Debtor is subject, and (iii) result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the property or assets of any Debtor, except as specifically contemplated by the Loan Documents.
The undersigned person is executing this Certificate and Affidavit on behalf of the entities set forth above and verifies and states that the foregoing matters are true to the best of the knowledge and belief of the undersigned individually, and binds the entities set forth above to certify as to the truth and accuracy of the matters set forth herein.
/s/ James F. Mills, Jr. ------------------------------------------ James F. Mills, Jr., Senior Vice President |
STATE OF TENNESSEE )
COUNTY OF WILLIAMSON )
Personally appeared before me, the undersigned, a Notary Public in and for said County and State, James F. Mills, Jr., with whom I am personally acquainted, and who upon oath acknowledged that he/she executed the within instrument for the purposes therein contained.
WITNESS my hand, at office, this 22nd day of November, 2000.
/s/ Brenda Wimsatt
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Notary Public
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My Commission Expires: 11/24/01
EXHIBIT 10.10
REIMBURSEMENT PROMISSORY NOTE
$3,000,000.00 October 1, 2000 Nashville, Tennessee
FOR VALUE RECEIVED, the undersigned, ADVOCAT INC., a Delaware corporation, having its principal place of business in the State of Tennessee (the "Borrower"), promises to pay to the order of AMSOUTH BANK (the "Bank), in lawful currency of the United States of America, at AmSouth Center, 315 Deaderick Street, Nashville, Tennessee 37237, or at such other place as the holder from time to time may designate in writing, the principal sum of THREE MILLION AND NO/100 ($3,000,000.00) DOLLARS, with no interest computed thereon, prior to maturity or default, on the 15th day of January, 2002 (the "Maturity Date").
Prepayment may be made at any time without premium, and the following shall be mandatory prepayments:
(a) Upon the sale of the Carteret Care nursing facility of Diversicare Assisted Living Services, NC, LLC, or an affiliate entity thereof, located in North Carolina (the "Cartaret Property") all net proceeds after payment of normal, customary and good faith expenses of sale, shall be paid upon the indebtedness evidenced by this Reimbursement Promissory Note, pursuant to the existing Deed of Trust and Security Agreement executed by Diversicare Assisted Living Services, NC, LLC, dated November 15, 1999, it being anticipated that such sale shall close no later than December 31, 2000;
(b) All payments received under the Wraparound Promissory Note given as collateral security to Bank made by Texas Diversicare Limited Partnership, a Texas limited partnership ("TDLP"), dated August 30, 1991, in the original principal sum of Seven Million Five Hundred Thousand and no/100 ($7,500,000.00) Dollars and having a final maturity date of August 31, 2001 (net of amounts required to retire the balance of the underlying "wrapped" indebtedness to Bank of America), or collateral related thereto, shall be applied first to payment of this Reimbursement Promissory Note; and
(c) All cash flow available to Advocat Inc. or any of the other "Debtors" as defined in the Master Amendment to Loan Documents and Agreement dated effective October 1, 2000, executed between Bank, Borrower and other subsidiaries or affiliates of Borrower, and all of which including Borrower, are defined as "Debtors" therein (the "Master Amendment") after making the required payments on the Amendment to Renewal Revolving Promissory Note of even date herewith in the principal amount of $4,500,000.00, the Renewal Promissory Note in the principal amount of $9,412,383.87 of even date herewith, and the Renewal Promissory Note (Overline Facility) in the principal amount of $3,500,000.00 of even date herewith shall be paid upon the indebtedness evidenced by this Reimbursement Promissory Note until it shall have been paid in full. "Cash Flow" for purposes of this Section shall be defined as set forth in the Master Amendment.
This Reimbursement Promissory Note is executed by the parties hereto to evidence the reimbursement obligation maturing upon Bank's honor of Omega Healthcare Investors, Inc.'s
("Omega") drawing under letters of credit number 1812888 or 1812989 in accordance with the Master Amendment. This instrument is executed pursuant to the Master Amendment. This Reimbursement Promissory Note (and any and all extensions, modifications, renewals and amendments thereof) is (1) secured by the Collateral described or referred to the Loan Documents, as defined in the Master Amendment and (2) the breach or occurrence of a default or event of default under any of the Loan Documents, at the option of Bank, will constitute a default hereunder.
For so long as any indebtedness evidenced by this Reimbursement Promissory Note shall remain outstanding and unpaid, no cash or funds of the Debtors, or any of them, shall be used to pay dividends on the Preferred Stock, as defined in the Master Amendment or to pay interest on the Subordinated Note, as defined in the Master Amendment.
Both principal and interest due on this Reimbursement Promissory Note are payable in Nashville, Tennessee, at par in lawful money of the United States of America.
Time is of the essence of this Reimbursement Note. It is expressly agreed that, at the option of Bank in the event of default hereunder or under any of the Loan Documents, the entire unpaid principal sum evidenced by this Reimbursement Note, together with interest accruing after the Maturity Date on the unpaid sum at the lesser of fifteen percent (15%) per annum, or the maximum rate then allowed by applicable law shall at the option of any holder, without further notice, become due and payable forthwith. All such interest shall be paid at the time of and as a condition precedent to the curing of any default. Failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of said right of acceleration or stop the holder from exercising said right. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred and sixty (360) days.
If default is made in the payment of any payment due hereunder, including but not limited to mandatory prepayments as set forth herein, when the same shall become due or mature, or if default is made in the payment of the indebtedness hereunder at maturity, or in the event of default in or breach of any of the terms, provisions or conditions of any of the Loan Documents or any instrument(s) given to evidence or secure this Reimbursement Promissory Note, then at the election of the legal holder hereof, at any time thereafter made and without demand or notice, the owner and holder of this Reimbursement Promissory Note shall have the right to declare all sums unpaid hereon at once due and payable. In the event of such default, and the same is placed in the hands of an attorney for collection, or a suit is filed hereon, or if the proceedings are held in bankruptcy, receivership, or the reorganization of Borrower, or any person or entity constituting Borrower if Borrower is, or is composed of, more than one person or entity, or any guarantor or surety of this Reimbursement Promissory Note, or other legal or judicial proceedings for the collection hereof, the undersigned shall pay in addition to the owner and holder of this Reimbursement Promissory Note, all court costs and costs of collection, enforcement or protection of the rights or collateral of Bank hereunder, including reasonable attorney's fees.
Borrower and all endorsers and signers hereof, and each of them, expressly waive demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and all other notices or demands whatsoever with respect to this Reimbursement Promissory Note
or the enforcement hereof and consent that the time of said payments or any part thereof may be extended by the holder hereof and as sent to any substitution, exchange, or release of collateral permitted by the holder hereof, all without and anywise modifying, altering, releasing, affecting or limiting their respective liability. This Reimbursement Promissory Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
The term obligor, as used in this Reimbursement Promissory Note, shall mean all parties, and each of them, directly or indirectly obligated for the indebtedness that this Reimbursement Promissory Note evidences, whether as principal, maker, endorser, surety, guaranty, or otherwise.
In no event (including but not limited to prepayment, default, demand for payment, or acceleration of maturity) shall the interest taken, reserved, contracted for, charged or received in connection herewith, under the Loan Documents or otherwise, exceed the maximum amount permitted by applicable law (the "Maximum Amount"). If, from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, then ipso facto, such document shall be reformed and the interest payable reduced to the Maximum Amount, without necessity of execution of any amendment or new document. If Bank ever receives interest in an amount which apart from this provision would exceed the maximum amount, the excess shall, without penalty, be applied to the unpaid principal balance of the loan obligations in inverse order of maturity of installments and not to the payment of interest, or be refunded to the Borrower, at the election of the Bank in its full discretion or as required by applicable law.
This instrument shall be governed by the laws of the State of Tennessee, except as such may be preempted by applicable laws of the United States of America governing the charging or receiving of interest.
The provisions hereof shall be binding upon the parties, their successors and assigns. The provisions hereof are severable such that the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions.
IN WITNESS WHEREOF, this instrument has been executed on the day and year first above written.
BORROWER:
ADVOCAT INC., a Delaware corporation
By: /s/ James F. Mills, Jr.
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Name: James F. Mills, Jr.
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Title: Senior Vice President
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EXHIBIT 10.11
SECOND AMENDMENT TO INTERCREDITOR AGREEMENT
THIS AGREEMENT is made and entered into between and among AMSOUTH BANK, successor in interest by merger to First American National Bank (hereinafter referred to as "AmSouth" or as "First American"), GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation, being one and the same as GMAC-CM Commercial Mortgage Corporation ("GMAC"), ADVOCAT INC., a Delaware corporation (herein referred to as "Advocat"), DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation and wholly-owned subsidiary of Advocat ("DMS"), ADVOCAT FINANCE, INC., a Delaware corporation and wholly-owned subsidiary of DMS ("AFI"), DIVERSICARE LEASING CORP., a Tennessee corporation and wholly-owned subsidiary of AFI ("DLC"), ADVOCAT ANCILLARY SERVICES, INC., a Tennessee corporation and wholly-owned subsidiary of DMS ("AAS"), DIVERSICARE CANADA MANAGEMENT SERVICES CO., INC., a corporation organized under the laws of Canada and wholly-owned subsidiary of DLC ("DCMS"), DIVERSICARE GENERAL PARTNER, INC., a Texas corporation and wholly-owned subsidiary of DLC ("DGP"), FIRST AMERICAN HEALTH CARE, INC., an Alabama corporation and wholly-owned subsidiary of DLC ("FAHC"), DIVERSICARE LEASING CORP. OF ALABAMA, an Alabama corporation and wholly-owned subsidiary of DLC ("DLCA"), ADVOCAT DISTRIBUTION SERVICES, INC., a Tennessee corporation and wholly-owned subsidiary of DMS ("ADS"), DIVERSICARE ASSISTED LIVING SERVICES, INC., a Tennessee corporation and a wholly-owned subsidiary of AFI ("DALS"), DIVERSICARE ASSISTED LIVING SERVICES, NC, LLC, a Tennessee limited liability company formed by DMS and DALS ("DALS-NC"), DIVERSICARE ASSISTED LIVING SERVICES, NC I, LLC, a Delaware limited liability company ("DALS-NC I"), DIVERSICARE ASSISTED LIVING SERVICES, NC II, LLC, a Delaware limited liability company ("DALS-NC II") both of DALS-NC I and DALS-NC II being subsidiary entities of DALS-NC, STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporation and wholly-owned subsidiary of DLC ("SHCM"), DIVERSICARE AFTON OAKS, LLC, a Delaware limited liability company ("DAO"), DIVERSICARE GOOD SAMARITAN, LLC, a Delaware limited liability company ("DGS"), DIVERSICARE PINEDALE, LLC, a Delaware limited liability company ("DP"), and DIVERSICARE WINDSOR HOUSE, LLC, a Delaware limited liability company ("DWH"), each of DAO, DGS, DP and DWH being subsidiary entities of DLC (Advocat and all of its direct and indirect subsidiaries, as identified hereinabove, being sometimes referred to herein collectively as the "Debtors," whether in their capacity as a Borrower, Guarantor, Pledgor, Subsidiary or otherwise, as set forth in the instruments and documents evidencing indebtedness owing by some or all of such entities to AmSouth and/or GMAC-CM). Wherever "GMAC" appears herein, it shall mean and refer to "GMAC-CM" as set forth in the Intercreditor Agreement, as defined herein.
WITNESSETH:
WHEREAS, First American and GMAC, as Lenders, and Advocat and certain of its subsidiaries entered into an Intercreditor Agreement dated December 27, 1996 as amended by First Amendment to Intercreditor Agreement dated as of June 4, 1999 (the "Intercreditor Agreement"), setting forth the relative rights and priorities between First American and GMAC as to collateral for indebtedness owing to such parties, as more particularly set forth therein; and
WHEREAS, in connection with restructuring of indebtedness owing by the Debtors to AmSouth, which is successor in interest to First American, and GMAC, the parties have agreed to amend the Intercreditor Agreement, as set forth herein.
NOW, THEREFORE, for and in consideration of the premises, the mutual benefit to the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby covenant, amend and agree as follows:
1. GMAC consents to the entering into between AmSouth and Debtors of the Master Amendment to Loan Documents and Agreement of even date herewith (the "Master Amendment"), and to the undertakings, covenants and agreements contained therein. GMAC shall join as a party to the Master Amendment.
2. AmSouth and Debtors have agreed in the Master Amendment that all collateral held by AmSouth as security for indebtedness shall secure all indebtedness and obligations now or hereafter owing by any, some or all of Debtors to AmSouth, whether now existing or hereafter arising. In order to conform the Intercreditor Agreement to this understanding, and to restate and clarify the relative priorities of AmSouth and GMAC in the collateral which is the subject of the Intercreditor Agreement, the Intercreditor Agreement is amended as follows:
(a) The definition of "Debtors," set forth in Section 1, "Definitions," is expanded to include, in addition to the parties originally contained within such definition, all additional parties defined as one of the Debtors as set forth in this instrument.
(b) The definition of "First American Claim," set forth in Section 1, "Definitions," is expanded to include, in addition to the indebtedness and obligations originally included within such definition, the following:
and any and all indebtedness and obligations now or hereafter owing to AmSouth by any, some or all of Debtors.
(c) Schedule A-1 to the Intercreditor Agreement is the "Description of First American Collateral." Schedule A-1 lists all "First American Collateral" in seven numbered items. Schedule A-1 further identifies the first five of these seven numbered items as "First American Priority Collateral" by placement of an asterisk ("*") before such five items. Item 2, which is equipment, furnishings and furniture of Debtors, item 3, which is general intangibles and other personal property of Debtors, and item 4, which is inventory of Debtors, each contain the following exclusion from the Description of First American Collateral:
but excluding the GMAC Priority Collateral.
It was the intention of the parties in the Credit Agreement, as defined in the Intercreditor Agreement, that AmSouth would have a first priority security interest in equipment, furnishings and furniture, general intangibles and other personal property, and inventory of Debtors, except that AmSouth would have a second priority security interest in such items located at Projects financed under the Acquisition Line of GMAC, subject to the first priority security interest in favor of GMAC. This understanding is expressed in Section 4.1, subsection (a), of the Credit Agreement. Accordingly, items 2, 3 and 4 of the Description of First American Collateral contained in Schedule A-1 are modified to delete the following language from the end of each of such items:
but excluding the GMAC Priority Collateral
and to replace such deleted language with the following:
provided, however, those of such items which are located at the Projects financed under the Acquisition Line of GMAC, whether now existing or hereafter acquired or arising, shall not be First American Priority Collateral and shall be subject to the prior security interest of GMAC.
(d) Schedule A-2, of the Intercreditor Agreement is the "Description of GMAC Collateral." Schedule A-2 lists the GMAC Collateral in seven items and specifies that items 2 through 6 are GMAC Priority Collateral by placement of an asterisk ("*") at the beginning of these items.
It was the intention of the parties in the Credit Agreement that First American shall have a first priority security interest in all accounts receivable of the Debtors. Section 4.1, subsection (a), of the Credit Agreement sets forth the agreement of the parties with respect to the priority of security interests in accounts receivable. This agreement of the parties as to accounts receivable is reflected in the fact that item 1, which relates to accounts receivable generated by Projects financed under the Acquisition Line of GMAC, is not GMAC Priority Collateral. However, item 5 includes as GMAC Priority Collateral "Accounts..., Medicaid contracts, [and] Medicare contracts" arising from Projects financed by the Acquisition Line of GMAC. In order to clarify that these items are not a part of the GMAC Priority Collateral, the following is added at the end of item 5:
provided that Accounts, and receivables under Medicaid contracts and Medicare contracts shall not be a part of the GMAC Priority Collateral (it being the intent of the parties that the actual Medicaid and Medicare contracts shall remain GMAC Priority Collateral).
(e) Notices to AmSouth and GMAC as set forth in Section 9, subsection (b), "Miscellaneous," shall be to the following addresses, in lieu of those originally set forth:
as to AmSouth: AmSouth Bank
Attention: Robert Hart
AmSouth Center
315 Deaderick Street
Nashville, TN 37237
with a copy to: G. Rhea Bucy, Esq.
Gullett, Sanford, Robinson & Martin, PLLC
Third Floor
230 Fourth Avenue North
P.O. Box 198888
Nashville, TN 37219-8888
and as to GMAC:
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with a copy to: Kay K. Bains, Esq.
Walston, Wells, Anderson & Bains, LLP
505 20th Street, North, Suite 500
Birmingham, AL 35203-2605
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3. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and may not be amended or modified except by a subsequent agreement in writing executed between the parties hereto, provided that any agreement modifying the relative priority or rights to exercise of remedies as to any collateral held by AmSouth or GMAC may be modified solely by an instrument executed between AmSouth and GMAC without joinder of any of Debtors. This Agreement shall be governed by the laws of the State of Tennessee. This agreement is severable such that the invalidity or unenforceability of any provision hereof shall not impair the validity or enforceability of the remaining provisions. This Agreement shall be binding upon the parties hereto, their successors and lawful assigns. This Agreement is solely for the benefit of AmSouth and GMAC and may not be relied upon by Debtors or by any third parties, none of whom shall have any rights hereunder. Debtors have executed this Agreement solely to facilitate the terms hereof and to further acknowledge the security interests which are the subject hereof. This Agreement may be executed in multiple counterparts, which when taken as a whole shall constitute a complete instrument. Facsimile signatures shall be effective as originals.
IN WITNESS WHEREOF, the parties hereto have executed this instrument this ____ day of November, 2000.
AMSOUTH BANK, successor in interest by merger to First American National Bank
By: /s/ Robert Hart
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Robert Hart, Senior Vice President
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GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation
DIVERSICARE MANAGEMENT
SERVICES CO., a Tennessee corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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ADVOCAT INC., a Delaware corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE LEASING CORP.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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ADVOCAT ANCILLARY SERVICES,
INC., a Tennessee corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE CANADA
MANAGEMENT SERVICES CO.,
INC., an Ontario, Canada corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE GENERAL PARTNER,
INC., a Texas corporation
By: /s/ James F. Mills, Jr.
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Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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FIRST AMERICAN HEALTH CARE,
INC., an Alabama corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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ADVOCAT DISTRIBUTION SERVICES,
INC., a Tennessee corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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ADVOCAT FINANCE, INC.,
a Delaware corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE LEASING CORP. OF
ALABAMA, INC., an Alabama corporation
By: /s/ James F. Mills, Jr.
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Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE ASSISTED LIVING
SERVICES, INC., a Tennessee corporation
By: /s/ James F. Mills, Jr.
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Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE ASSISTED LIVING
SERVICES, NC, LLC,
a Tennessee limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE ASSISTED LIVING
SERVICES NC I, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE ASSISTED LIVING
SERVICES NC II, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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STERLING HEALTH CARE
MANAGEMENT, INC., a Kentucky corporation
By: /s/ James F. Mills, Jr.
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Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE AFTON OAKS, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE GOOD SAMARITAN,
LLC, a Delaware limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE PINEDALE, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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DIVERSICARE WINDSOR HOUSE, LLC,
a Delaware limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
---------------------------------
Title: SR VP & CFO
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SCHEDULE A-2
DESCRIPTION OF GMAC-CM COLLATERAL
The following described property and interests in property, together with all proceeds and products thereof and all accessions thereto, as applicable:
1. All of the right, title and interest of the Pledgors in and to the accounts receivable of the Pledgor generated by the Projects financed under the Acquisition Line, whether now existing or hereafter arising.
2.* All of the right, title and interest of the Pledgor in and to all equipment, furnishings, and furniture of the Pledgor located at the Projects financed under the Acquisition Line, whether now owned or hereafter acquired (excluding equipment leased by the Pledgors).
3.* All of the general intangibles and other personal property of the Pledgor related to or located at the Projects financed under the Acquisition Line, whether now existing or hereafter acquired or arising.
4.* All of the right, title and interest of the Debtors in and to all inventory located at the Projects financed under the Acquisition Line, whether now owned or hereafter acquired.
5.* A deed of trust/mortgage or other appropriate security instruments granting to GMAC-CM a lien on the applicable Project real property and assets, including furniture, fixtures, Equipment, Inventory, General Intangibles, Accounts, licenses, Medicaid contracts, Medicare contracts and other personal property of the Project, whether now owned or hereafter acquired by the Borrower.
6.* A collateral assignment in favor of GMAC-CM of all right, title and interest in and to management contracts related to the management of the Project financed by the Project Loan.
7. A pledge of all of the outstanding stock of DLC, DMS, Borrower and the Subsidiaries, and of any subsidiaries of any Subsidiary (including any subsidiaries formed or acquired after the date hereof).
EXHIBIT 10.12
RENEWAL PROMISSORY NOTE
(OVERLINE FACILITY)
$3,500,000.00 October 1, 2000 Nashville, Tennessee
FOR VALUE RECEIVED, the undersigned, DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation (the "Borrower") promises to pay to the order of AMSOUTH BANK (the "Bank"), in lawful currency of the United States of America, at AmSouth Center, 315 Deaderick Street, Nashville, Tennessee 37237, or at such other place as the holder from time to time may designate in writing the principal sum of THREE MILLION FIVE HUNDRED THOUSAND AND N0/100 ($3,500,000.00) DOLLARS, together with interest computed thereon from and after October 1, 2000 at the rate of nine and one half percent (9.5%) per annum with principal and interest payable as follows: monthly payments of principal and interest in the amount of $32,624.59 beginning on November 1, 2000 and continuing on the like day of each month thereafter with a final balloon payment of principal and interest due and payable on the 15th day of January, 2004 (the "Maturity Date").
This Renewal Promissory Note is executed in accordance with the Master
Amendment to Loan Documents and Agreement dated effective October 1, 2000
executed by Borrower and other subsidiaries or affiliates of Borrower, all of
which including Borrower are defined as "Debtors" therein (the "Master
Amendment"), and is executed to renew and replace that "Original Overline Note",
as defined in the Master Amendment, and all subsequent amendments, renewals,
extensions, and replacements of the Original Overline Note. This Renewal
Promissory Note (Overline Facility) is (1) secured by the collateral described
or referred to in the Loan Documents, as defined in the Master Amendment, and
(2) the breach or occurrence of a default or an event of default under any of
the Loan Documents, at the option of Bank, will constitute a default hereunder.
Both principal and interest due on this Note are payable in Nashville, Tennessee, in lawful money of the United States of America. Interest shall continue to accrue when payments are submitted by instruments representing funds not immediately available and until such funds are, in fact, collected.
Prepayment may be made at any time without premium.
Time is of the essence of this Renewal Revolving Promissory Note. Upon the occurrence of any default herewith under the Loan Documents, at the option of holder and without further notice to obligor, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at an annual rate equal to the maximum rate then allowed by applicable law, regardless of whether or not there has been an acceleration of the payment of principal as set forth herein. All such interest shall be paid at the time of and as a condition precedent to the curing of any such default. Failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of said right of acceleration or stop the holder from exercising said
right. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred and sixty (360) days.
If default is made in the payment of any payment due hereunder when the same shall become due or mature, or if default is made in the payment of the indebtedness hereunder at maturity, or in the event of default in or breach of any of the terms, provisions or conditions of the Loan Documents or any instrument(s) given to evidence or secure this Renewal Promissory Note, then at the election of the legal holder hereof, at any time thereafter made and without demand or notice, the owner and holder of this Renewal Promissory Note shall have the right to declare all sums unpaid hereon at once due and payable. In the event of such default, and the same is placed in the hands of an attorney for collection, or a suit is filed hereon, or if the proceedings are held in bankruptcy, receivership, or the reorganization of Borrower, or any person or entity constituting Borrower if Borrower is, or is composed of, more than one person or entity, or any guarantor or surety of the Renewal Promissory Note, or other legal or judicial proceedings for the collection hereof, the undersigned shall pay in addition to the owner and holder of this Renewal Promissory Note, all court costs and costs of collection, enforcement or protection of the rights or collateral of Bank hereunder, including reasonable attorney's fees.
Borrower and all endorsers and signers hereof, and each of them expressly waive demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and all other notices or demands whatsoever with respect to this Renewal Promissory Note or the enforcement hereof and consent that the time of said payments or any part thereof may be extended by the holder hereof and as sent to any substitution, exchange, or release of collateral permitted by the holder hereof, all without and anywise modifying, altering, releasing, effecting or limiting their respective liability. This Renewal Promissory Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
The term obligor, as used in this Renewal Promissory Note, shall mean all parties, and each of them, directly or indirectly obligated for the indebtedness that this Renewal Promissory Note evidences, whether as principal, maker, endorser, surety, guarantor or otherwise.
In no event (including but not limited to prepayment, default, demand for payment, or acceleration of maturity) shall the interest taken, reserved, contracted for, charged or received in connection with the credit facility under the Loan Documents or otherwise, exceed the maximum amount permitted by applicable law (the "Maximum Amount"). If, from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, then ipso facto, such document shall be reformed and the interest payable reduced to the Maximum Amount, without necessity of execution of any amendment or new document. If Bank ever receives interest in an amount which apart from this provision would exceed the maximum amount, the excess shall, without penalty, be applied to the unpaid principal balance of the loan obligations in inverse order of maturity of installments and not to the payment of interest, or be refunded to the Borrower, at the election of the Bank in its full discretion or as required by applicable law.
This instrument shall be governed by the laws of the State of Tennessee, except as such may be preempted by applicable laws of the United States of America governing the charging or receiving of interest.
The provisions hereof shall be binding upon the parties, their successors and assigns. The provisions hereof are severable such that the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions.
IN WITNESS WHEREOF, this Note has been duly executed by the undersigned the day and year first above written.
DIVERSIFIED MANAGEMENT SERVICES CO.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
-------------------------------------
Name: James F. Mills, Jr.
--------------------------------
Title: Sr. Vice President
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EXHIBIT 10.13
RENEWAL PROMISSORY NOTE
$9,412,383.87 October 1, 2000 Nashville, Tennessee
FOR VALUE RECEIVED, the undersigned, DIVERSICARE ASSISTED LIVING
SERVICES, NC, LLC, a Tennessee limited liability company, (the "Borrower"),
promises to pay to the order of AMSOUTH BANK (the "Bank"), in lawful currency of
the United States of America, at AmSouth Center, 315 Deaderick Street,
Nashville, Tennessee 37237, or at such other place as the holder from time to
time may designate in writing, the principal sum of NINE MILLION FOUR HUNDRED
TWELVE THOUSAND THREE HUNDRED EIGHTY THREE AND 87/100 ($9,412,383.87) DOLLARS,
together with interest at the rate of nine and one half percent (9.5%) per annum
with principal and interest payable as follows: equal monthly payments of
principal and interest in the amount of Eighty Seven Thousand Seven Hundred
Thirty Five and 76/100 ($87,735.76) Dollars, which payments are based on an
amortization of twenty five (25) years, beginning on November 1, 2000,
continuing on the like day of each month thereafter, with a final balloon
payment of all remaining principal and interest due and payable on the thirtieth
(30th) day of September, 2004 (the "Maturity Date").
This Renewal Promissory Note is executed by the parties in accordance with the Master Amendment to Loan Document and Agreement dated effective October 1, 2000 executed between Bank, Borrower, and other subsidiaries, affiliates of Borrower, all of which, including Borrower, are defined as "Debtors" therein ("the Master Amendment"), as a renewal of the indebtedness as defined as the NC Bridge Loan in the Master Amendment. This Renewal Promissory Note (and any and all extensions, modifications, renewals or amendments thereof) is (1) secured by the collateral described or referred to in the Loan Documents, as defined in the Master Amendment, and (2) the breach or occurrence of a default or event of default under any of the Loan Documents, at the option of the Bank, will constitute a default hereunder.
Both principal and interest due on this Renewal Note are payable in Nashville, Tennessee, at par in lawful money of the United States of America. Interest shall continue to accrue when payments are submitted by instruments representing funds not immediately available and until such funds are, in fact, collected.
Prepayment may be made at any time without premium.
Time is of the essence of this Renewal Promissory Note. Upon the occurrence of any default, at the option of holder and without further notice to obligor, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at an annual rate equal to the maximum rate then allowed by applicable law, regardless of whether or not there has been an acceleration of the payment of principal as set forth herein. All such interest shall be paid at the time of and as a condition precedent to the curing of any such default. Failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of said right of acceleration or stop the holder from exercising said right. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred and sixty (360) days.
If default is made in the payment of any payment due hereunder when the same shall become due or mature, or if default is made in the payment of the indebtedness hereunder at maturity, or in the event of default in or breach of any of the terms, provisions or conditions of any of the Loan Documents or any instrument(s) given to evidence or secure this Renewal Promissory Note, then at the election of the legal holder hereof, at any time thereafter made and without demand or notice, the owner and holder of this Renewal Promissory Note shall have the right to declare all sums unpaid hereon at once due and payable. In the event of such default, and the same is placed in the hands of an attorney for collection, or a suit is filed hereon, or if the proceedings are held in bankruptcy, receivership, or the reorganization of Borrower, or any person or entity constituting Borrower if Borrower is, or is composed of, more than one person or entity, or any guarantor or surety of this Renewal Promissory Note, or other legal or judicial proceedings for the collection hereof, the undersigned shall pay in addition to the owner and holder of this Renewal Promissory Note, all court costs and costs of collection, enforcement or protection of the rights or collateral of Bank hereunder, including reasonable attorney's fees.
Borrower and all endorsers and signers hereof, and each of them, expressly waive demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and all other notices or demands whatsoever with respect to this Renewal Promissory Note or the enforcement hereof and consent that the time of said payments or any part thereof may be extended by the holder hereof and as sent to any substitution, exchange, or release of collateral permitted by the holder hereof, all without and anywise modifying, altering, releasing, affecting or limiting their respective liability. This Renewal Promissory Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
The term obligor, as used in this Renewal Promissory Note, shall mean all parties, and each of them, directly or indirectly obligated for the indebtedness that this Renewal Promissory Note evidences, whether as principal, maker, endorser, surety, guaranty, or otherwise.
In no event (including, but not limited to, prepayment, default, demand for payment, or acceleration of maturity) shall the interest taken, reserved, contracted for, charged or received in connection herewith under the Loan Documents or otherwise, exceed the maximum amount permitted by applicable law (the "Maximum Amount"). If, from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, then ipso facto, such document shall be reformed and the interest payable reduced to the Maximum Amount, without necessity of execution of any amendment or new document. If Bank ever receives interest in an amount which apart from this provision would exceed the Maximum Amount, the excess shall, without penalty, be applied to the unpaid principal balance of the Loan Obligations in inverse order of maturity of installments and not to the payment of interest, or be refunded to the Borrower, at the election of the Bank in its sole discretion or as required by applicable law.
This instrument shall be governed by the laws of the State of Tennessee, except as such may be preempted by applicable laws of the United States of America governing the charging or receiving of interest.
The provisions hereof shall be binding upon the parties, their successors and assigns. The provisions hereof are severable such that the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions.
IN WITNESS WHEREOF, this instrument has been executed on the day and year first above written.
BORROWER:
DIVERSICARE ASSISTED LIVING
SERVICES, NC, LLC,
a Tennessee limited liability company
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
--------------------------------
Title: Sr. Vice Pres.
--------------------------------
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EXHIBIT 10.14
RENEWAL REVOLVING PROMISSORY NOTE
$4,500,000.00 October 1, 2000 Nashville, Tennessee
FOR VALUE RECEIVED, the undersigned, DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation (the "Borrower"), promises to pay to the order of AMSOUTH BANK (the "Bank"), in lawful currency of the United States of America, at AmSouth Center, 315 Deaderick Street, Nashville, Tennessee 37237, or at such other place as the holder from time to time may designate in writing, the principal sum of FOUR MILLION FIVE HUNDRED THOUSAND AND N0/100 ($4,500,000.00) DOLLARS, or so much thereof as may be advanced hereunder in accordance with the terms of a Master Amendment to Loan Documents and Agreement dated effective October 1, 2000 executed between Bank, Borrower, and other subsidiaries, or affiliates of Borrower, all of which, including Borrower, are defined as "Debtors" therein (the "Master Amendment"). Interest shall accrue on the principal balance outstanding from and after October 1, 2000 at the Bank's Prime Rate plus one half of one percent (0.5%) (fifty basis points) per annum, provided that the interest rate shall in no event exceed nine and one-half percent (9.5%) per annum until after default or maturity, after which time interest shall accrue at the Default Rate defined in the Master Credit Agreement dated December 27, 1996, between First American National Bank, predecessor to Bank, Borrower and affiliates of Borrower (the "Default Rate"). Interest shall be due and payable monthly commencing on the first (1st) day of each month commencing on November 1, 2000. All principal and unpaid interest shall be payable at maturity on the 15th day of January 2004 (the "Maturity Date").
Notwithstanding that the maximum principal face amount hereunder is
$4,500,000.00, the maximum amount which may be outstanding at any time hereunder
shall be reduced and further limited by the provisions of Section 2, subsection
(a) of the Master Amendment, which are specifically incorporated herein by
reference and made a part hereof. The further covenants, agreements,
restrictions and limitations set forth in the Master Amendment are incorporated
by reference herein and made a part hereof.
This Renewal Revolving Promissory Note is a renewal, replacement and
reduction of the Revolving Promissory Note dated December 27, 1996, in the
original amount of $10,000,000.00, as amended, and is executed in accordance
with the terms of the Master Amendment. This Renewal Revolving Promissory Note
(and any and all extensions, modifications, renewals or amendments thereof) is
(1) secured by the collateral described or referred to in the Loan Documents, as
defined in the Master Amendment, and (2) the breach or occurrence of a default
under the Loan Documents, at the option of the Bank, will constitute a default
hereunder.
Both principal and interest due on this Renewal Revolving Promissory Note are payable in Nashville, Tennessee, at par in lawful money of the United States of America.
Prepayment may be made at any time without premium.
Time is of the essence of this Renewal Revolving Promissory Note. Upon the occurrence of any default, at the option of holder and without further notice to obligor, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at an annual rate equal to the Default Rate, regardless of whether or not there has been an acceleration of the payment of principal as set forth herein. All such interest shall be paid at the time of and as a condition precedent to the curing of any such default. Failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of said right of acceleration or stop the holder from exercising said right. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred and sixty (360) days.
If default is made in the payment of any payment due hereunder when the same shall become due or mature, or if default is made in the payment of the indebtedness hereunder at maturity, or in the event of default in or breach of any of the terms, provisions or conditions of the Loan Documents or any instrument(s) given to evidence or secure this Renewal Revolving Promissory Note, then at the election of the legal holder hereof, at any time thereafter made and without demand or notice, the owner and holder of this Renewal Revolving Promissory Note shall have the right to declare all sums unpaid hereon at once due and payable. In the event of such default, and the same is placed in the hands of an attorney for collection, or a suit is filed hereon, or if the proceedings are held in bankruptcy, receivership, or the reorganization of Borrower, or any person or entity constituting Borrower if Borrower is, or is composed of, more than one person or entity, or any guarantor or surety of this Renewal Resolving Promissory Note, or other legal or judicial proceedings for the collection hereof, the undersigned shall pay in addition to the owner and holder of this Renewal Resolving Promissory Note, all court costs and costs of collection, enforcement or protection of the rights or collateral of Bank hereunder including reasonable attorney's fees.
Borrower and all endorsers and signers hereof, and each of them, expressly waive demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and all other notices or demands whatsoever with respect to this Renewal Revolving Promissory Note or the enforcement hereof and consent that the time of said payments or any part thereof may be extended by the holder hereof and as sent to any substitution, exchange, or release of collateral permitted by the holder hereof, all without and anywise modifying, altering, releasing, affecting or limiting their respective liability. This Renewal Revolving Promissory Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
The term obligor, as used in this Renewal Revolving Promissory Note, shall mean all parties, and each of them, directly or indirectly obligated for the indebtedness that this Renewal Revolving Promissory Note evidences, whether as principal, maker, endorser, surety, guarantor or otherwise.
In no event (including but not limited to prepayment, default, demand for payment, or acceleration of maturity) shall the interest taken, reserved, contracted for, charged or received in connection herewith under the Loan Documents or otherwise, exceed the maximum amount
permitted by applicable law (the "Maximum Amount"). Interest would otherwise be payable in excess of the Maximum Amount, then ipso facto, such document shall be reformed and the interest payable reduced to the Maximum Amount, without necessity of execution of any amendment or new document. If Bank ever receives interest in an amount which apart from this provision would exceed the maximum amount, the excess shall, without penalty, be applied to the unpaid principal balance of the loan obligations in inverse order of maturity of installments and not to the payment of interest, or be refunded to the Borrower, at the election of the Bank in its full discretion or as required by applicable law.
This instrument shall be governed by the laws of the State of Tennessee, except as such may be preempted by applicable laws of the United States of America governing the charging or receiving of interest.
The provisions hereof shall be binding upon the parties, their successors and assigns. The provisions hereof are severable such that the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions.
IN WITNESS WHEREOF, this Renewal Revolving Promissory Note has been duly executed by the undersigned the day and year first above written.
DIVERSICARE MANAGEMENT SERVICES CO.,
a Tennessee corporation
By: /s/ James F. Mills, Jr.
---------------------------------------
Name: James F. Mills, Jr.
--------------------------------
Title: Sr. Vice Pres.
--------------------------------
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