EXHIBIT 10.7 PAYMENT AND PERFORMANCE GUARANTY AGREEMENT

 

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                                                                    EXHIBIT 10.7

 

                   PAYMENT AND PERFORMANCE GUARANTY AGREEMENT

 

      THIS PAYMENT AND PERFORMANCE GUARANTY AGREEMENT (this "Guaranty") is made

as of the 28th day of April, 2005, by ADVOCAT INC., a Delaware corporation (the

"Guarantor"), for the benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, a

California corporation (including its successors, transferees and assigns,

"Lender").

 

                                    RECITALS:

 

      A. Diversicare Hartford, LLC, a Delaware limited liability company

("Borrower"), has borrowed the sum of THREE MILLION SEVEN HUNDRED THOUSAND AND

NO/100 DOLLARS ($3,700,000.00) (the "Loan") from Lender, evidenced by Borrower's

Promissory Note of even date herewith (the "Note") and that certain Loan

Agreement by and between Lender and Borrower of even date herewith (the "Loan

Agreement"), and secured by, among other things, a Mortgage and Security

Agreement, of even date herewith (the "Mortgage") granting a first lien on a

nursing home facility known as Hartford Health Care, which is located in the

City of Hartford, County of Geneva, State of Alabama (the "Facility").

 

      B. The Note, the Loan Agreement, the Mortgage and the other documents,

certificates, instruments and agreements executed by Borrower in connection with

the Loan or to otherwise evidence or secure the Loan, and all renewals,

supplements, or amendments thereto or a part thereof, are collectively referred

to as the "Loan Documents".

 

      C. As a condition of making the Loan, Guarantor has agreed to guaranty,

absolutely and unconditionally, payment of the Guaranty Obligations (as defined

below), subject to the terms and conditions set forth in this Guaranty.

 

                                     AGREEMENT

 

      NOW, THEREFORE, in consideration of the above and as an inducement to

Lender to make the Loan evidenced by the Note and the Loan Agreement, and as

security for the payment of the Loan and all interest from time to time accrued

and unpaid thereon, and all expenses, fees, charges and other amounts from time

to time due and owing to Lender under the Note, and the other Loan Documents,

and for the performance of all covenants, agreements and other obligations from

time to time owing to, or for the benefit of, Lender pursuant to the Loan

Documents, including, without limitation, the payment and performance of all of

Borrower's obligations pursuant to Article IV of the Loan Agreement

(collectively referred to herein as the "Guaranty Obligations"), Guarantor,

intending to be legally bound, hereby covenants, agrees, represents and warrants

as follows:

 

      1. Guaranty. Guarantor hereby absolutely and unconditionally guarantees to

the Lender the full, regular and punctual payment and performance of the

Guaranty Obligations within ten (10) days of the Lender's demand therefor.

Without limiting the generality of the foregoing, "Guaranty Obligations" is used

herein in its most comprehensive sense to include all debts, obligations and

indebtedness described in the Loan Documents, whether now or hereafter

 

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made, incurred, or created, voluntary or involuntary, due or not due, absolute

or contingent, liquidated or unliquidated, determined or undetermined, and

regardless of whether there is any recourse with respect to any portion of such

Guaranty Obligations as against Borrower or any partner of Borrower. In

addition, Guarantor guarantees the full payment of, and agrees to reimburse

Lender for, all costs of collection incurred by Lender in enforcing the Guaranty

Obligations and pursuing any remedies set forth in the Loan Documents and/or the

Guaranty, including, without limitation, court costs and actual attorneys' fees

(including, but not limited to, fees in any bankruptcy or appellate proceeding).

 

      2. Payments. All payments to be made by Guarantor to Lender hereunder

shall be made in lawful money of the United States of America, in immediately

available funds, at 200 Witmer Road, Horsham, Pennsylvania 19044, or such other

location designated by Lender in writing, and shall be accompanied by a notice

from Guarantor stating that such payments are made under this Guaranty. All

payments available to Lender for application in payment or reduction of the

Guaranty Obligations may be applied by Lender in such manner and in such amount,

and at such time or times and in such order and priority as Lender may see fit

and to the payment or reduction of such portion of the Guaranty Obligations as

Lender may elect.

 

      3. Subsequent Acts by Lender. Lender may, in its sole discretion and

without notice to Guarantor, take any action which might otherwise be deemed a

legal or equitable release or discharge of Guarantor's obligations hereunder

without either impairing or affecting the liability of Guarantor for payment of

the Guaranty Obligations (but in no event shall Lender collect more than the

aggregate amount of the Guaranty Obligations), which actions might include, by

way of illustration and not limitation:

 

            (a) at any time or from time to time, the time for Borrower's

performance of or compliance with any provision of the Loan Documents may be

extended or such performance or compliance may be waived by Lender;

 

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

 

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

performed;

 

            (d) the Loan Documents may from time to time be amended and/or

renewed by Borrower and Lender for the purpose of adding any provisions thereto

or changing in any manner the rights of Lender or of Borrower thereunder;

 

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

or in part;

 

            (f) the maturity of the Note may be accelerated in accordance with

the terms of the Loan Documents or any future agreement between Borrower and

Lender or the holder of such Note;

 

            (g) any collateral security for all or any part of the Guaranty

Obligations may be exchanged, released, compromised, consolidated, surrendered

or otherwise dealt with, and Lender's interest therein may be released and may

or may not be perfected;

 

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            (h) the settlement, release, compounding, compromise, cancellation,

rearrangement or consolidation of any of the Guaranty Obligations;

 

            (i) the collection of or other liquidation of any claims Lender may

have in respect to the Guaranty Obligations;

 

            (j) the granting of indulgences, forbearance, compromises,

extensions or adjustments in respect to any covenant or agreement under the Loan

Documents; and/or

 

            (k) the release from liability of any Guarantor and/or any

additional parties who may guarantee payment of the Guaranty Obligations or any

portion thereof.

 

       4. Certain Rights, Subordination, Etc.

 

            (a) Lender may pursue its rights and remedies under this Guaranty

and shall be entitled to payment hereunder notwithstanding any other guaranty of

all or any part of the Guaranty Obligations, and notwithstanding any action

taken by Lender to enforce any of its rights or remedies under such other

guaranty, or any payment received thereunder (but in no event shall Lender

collect more than the aggregate amount of the Guaranty Obligations).

 

            (b) Any obligation or debt of Borrower now or hereafter held by

Guarantor is hereby subordinated to the Guaranty Obligations and, except for the

obligations due under the Management Agreement (as defined in the Loan

Agreement), which obligations are governed by the Subordination Agreement (as

defined in the Loan Agreement), Guarantor shall not enforce or collect any such

indebtedness from Borrower. Nevertheless, upon request by Lender, Guarantor

shall collect, enforce and receive such indebtedness of Borrower to Guarantor.

Any sums collected at Lender's request or collected in contravention of the

prohibition set forth herein shall be held by Guarantor as trustee for Lender

and shall be paid over to Lender on account of the Guaranty Obligations;

provided, however, that such payments shall not impair, reduce or affect in any

manner the liability of Guarantor under the other provisions of this Guaranty

(but in no event shall Lender collect more than the aggregate amount of the

Guaranty Obligations).

 

            (c) Guarantor agrees that if any event of default exists under the

Loan Documents ("Event of Default") and is continuing, (i) such Guarantor shall

not accept payment from any other guarantor of any Guaranty Obligations by way

of contribution or similar rights on account of any payment made hereunder by

Guarantor to Lender, all of which rights are hereby subordinated to Guarantor's

obligations hereunder to Lender, (ii) Guarantor will not take any action to

exercise or enforce any rights to such contribution, and (iii) if Guarantor

should receive payment, satisfaction or security for any indebtedness of

Borrower to Lender, the same shall be delivered to Lender in the form received,

endorsed or signed as may be appropriate for application on account of or as

security for the indebtedness of Borrower to Lender and, until so delivered,

shall be held in trust for Lender as security for the indebtedness of Borrower

to Lender.

 

            (d) In the event of any default by Borrower with respect to the

Guaranty Obligations, Guarantor agrees to pay or perform on demand the Guaranty

Obligations in the

 

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time and manner as provided in Paragraph 1 hereof. Lender shall not be under a

duty to protect, secure or insure or be required to liquidate any security or

lien provided by the Mortgage or other such collateral held by Lender prior to

making such demand.

 

            (e) Notwithstanding any payment or payments made by Guarantor under

this Guaranty, Guarantor expressly, irrevocably and unconditionally waives and

releases any and all "claims" (as that term is defined in the Bankruptcy Reform

Act of 1978, as amended, 11 U.S.C. Sections 101 et seq., and the regulations

adopted and promulgated pursuant thereto (collectively, the "Bankruptcy Code"))

it may now or hereafter have against Borrower, and shall not be entitled to, and

hereby expressly waives, any and all rights of subrogation, reimbursement,

indemnity, exoneration and contribution against Borrower, which Guarantor may

now or hereafter have against Borrower without regard to whether any such right

or claim arises expressly; provided, that such waiver and release shall not be

effective as to any such claim or entitlement or such subrogation and other

rights that accrue after the indefeasible payment, performance or other

satisfaction in full of the Guaranty Obligations.

 

      5. Representations and Warranties. Each Guarantor represents and warrants

to Lender that:

 

            (a) Existence, Power and Qualification. Guarantor is a duly

organized and validly existing corporation, has the power to own its properties

and to carry on its business as is now being conducted, and is duly qualified to

do business and is in good standing in every jurisdiction in which the character

of the properties owned by it or in which the transaction of its business makes

its qualification necessary.

 

            (b) Power and Authority. Guarantor has full power and authority to

incur the Guaranty Obligations provided for herein, all of which have been

authorized by all proper and necessary action.

 

            (c) Financial Position. The financial statements of the Guarantor

heretofore furnished to Lender are complete and correct and fairly present the

financial position of the Guarantor as of the date thereof. Since the date of

said financial statements there has been no material adverse change in the

financial position or operations, or the business taken as a whole, of Guarantor

from that set forth therein.

 

            (d) Litigation. Except as shown on Exhibit A attached hereto, there

are no legal or arbitral proceedings or any proceedings by or before any

governmental or regulatory authority or agency now pending against Guarantor, in

which an adverse decision could materially and adversely affect the financial

position of Guarantor.

 

            (e) No Breach. The execution and delivery of this Guaranty, the

consummation of the transactions herein contemplated and compliance with the

terms and provisions hereof will not (i) conflict with or result in a breach of,

or require any consent (not heretofore obtained at the time this representation

is made) under, any applicable law, administrative proceeding or regulation, or

any order, writ, injunction or decree of any court or governmental authority or

agency, or any agreement or instrument to which Guarantor is a party or by which

Guarantor is

 

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bound or to which Guarantor is subject, (ii) constitute a default under any such

agreement or instrument or under Guarantor's articles of incorporation,

partnership agreement, operating agreement or any other agreement or instrument

binding upon Guarantor, or (iii) result in the creation or imposition of any

lien upon any of the revenues or assets of Guarantor pursuant to the terms of

any such agreement or instrument.

 

            (f) Approvals. To the best of Guarantor's knowledge, no

authorizations, approvals, or consents of (other than those heretofore obtained

and in full force and effect), and no filings or registrations with (other than

those heretofore obtained and in full force and effect), any governmental or

regulatory authority or agency are necessary for the execution, delivery or

performance by Guarantor of this Guaranty or for the validity or enforceability

thereof.

 

            (g) Taxes, etc. Guarantor has filed all United States federal and

state tax returns and all other tax returns that are required to be filed by

Guarantor and has paid all taxes due pursuant to such returns or pursuant to any

assessment received by Guarantor, except such taxes, the payment of which is not

yet due, or which if due, is not yet delinquent or is being contested in good

faith or which has not been finally determined.

 

            (h) Benefit. The making of the Loan by Lender to Borrower will

directly benefit Guarantor.

 

      6. Financial Covenants and Other Information. Guarantor shall provide

Lender the following financial statements and information on a continuing basis

during the term of the Loan:

 

            (a) Within one hundred twenty (120) days after the end of each

fiscal year of Guarantor, audited financial statements of Guarantor prepared by

a nationally recognized accounting firm or independent certified public

accountant acceptable to Lender, which statements shall be prepared in

accordance with GAAP and certified by the chief financial officer of Guarantor

as true and correct in all material respects and shall include a balance sheet

and a statement of income and expenses for the year then ended. In lieu of its

obligations hereunder, Guarantor may submit to lender, upon its filing thereof,

a copy of form 10K as filed with the United States Securities and Exchange

Commission.

 

            (b) Within forty-five