Exhibit 10.1
FIRST AMENDMENT TO MASTER
LEASE
AND LETTER OF CREDIT
AGREEMENT
AND CONSENT OF
GUARANTOR
THIS FIRST AMENDMENT TO MASTER
LEASE AND LETTER OF CREDIT AGREEMENT AND CONSENT OF GUARANTOR
(the “ Agreement ”) is entered into on June 29,
2006, to be retroactively effective as of June 1, 2006 (the
“ Effective Date ”), by and among the entities
listed on the signature pages hereto as “Landlord”
(individually and collectively, “ Landlord ”),
the entities listed on the signature pages hereto as
“Tenant” (individually and collectively, “
Tenant ”), and HEARTHSTONE SENIOR SERVICES,
L.P. , a Delaware limited partnership (“ Guarantor
”).
R E C I T A L S
A. Landlord, as lessor, and Tenant, as lessee, are
parties to that certain Master Lease dated as of May 31, 2006
(the “ Master Lease ”), pursuant to which, among
other things, Landlord leases to Tenant the “Premises”
described therein. Initially capitalized terms used but not
otherwise defined in this Agreement shall have the meanings given
to them in the Master Lease.
B. In connection with the Master Lease, Landlord
and Tenant are also parties to that certain Letter of Credit
Agreement of even date with the Master Lease (the “ LC
Agreement ”), pursuant to which, among other things,
Tenant has posted with Landlord the Letter of Credit described
therein as partial collateral for the performance of its
obligations under the Master Lease.
C. Pursuant to the Guaranty of even date with the
Master Lease (the “ Guaranty ”), Guarantor has,
among other things, guarantied to Landlord the performance by
Tenant of its obligations under the Master Lease and LC
Agreement.
D. Landlord, Tenant and Guarantor now desire to
amend the Master Lease, LC Agreement and Guaranty to, among other
things, make certain clarifications to the Master Lease, all as
more particularly set forth herein.
A G R E E M E N T
NOW, THEREFORE,
taking into account the foregoing
Recitals, and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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1. Amendments to Master
Lease . The Master
Lease is hereby specifically amended as set forth in this
Section 2 .
(a) Initial Term Rent.
Section 2.1(a) of the Master
Lease is amended and restated in its entirety as
follows:
“During the Initial Term,
subject to the redetermination thereof pursuant to
Section 2.2 , “ Minimum Rent ” is
Thirty-One Million Five Hundred Eighty-Two Thousand One Hundred
Eighty-One Dollars ($31,582,181) per Lease Year, payable in
advance in twelve (12) equal monthly installments. Commencing
with the second (2 nd ) Lease Year and continuing
thereafter during the Term (excluding the eighth (8
th
) Lease Year of
the Initial Term and the first (1 st ) Lease Year of any Renewal
Term as further provided in Section 2.2 ), Tenant
agrees to pay “ Additional Rent ” to Landlord
monthly in advance together with the payment of Minimum Rent. Such
Additional Rent (which shall be expressed as an annual amount but
shall be payable in equal monthly installments) shall be equal to
the sum of (a) the Additional Rent for the immediately
preceding Lease Year and (b) the sum of
(I) the product of (i) the Minimum Rent
and Additional Rent due for the immediately preceding Lease Year
and (ii) one percent (1%), and (II) the
product of (i) the Minimum Rent and Additional Rent
due for the immediately preceding Lease Year and (ii)
the lesser of (x) two percent (2.0%) or
(y) a percentage equal to five (5) times the CPI
Increase. During the Initial Term (but not during any Renewal
Term), Tenant shall also pay “ Supplemental Rent
,” which shall be calculated on a quarterly basis in an
amount equal to the Applicable Percentage of Revenue, multiplied
by Revenue for the applicable fiscal quarter. Supplemental Rent
shall be due and payable as follows: (A) during each
of the first two (2) Lease Years (each an “ Accrual
Year ”), Supplemental Rent shall accrue but shall not be
payable; (B) in the third (3 rd ) Lease Year, in addition to
amounts payable pursuant to the following clause (C) ,
Tenant shall pay the aggregate amount of Supplement Rent for the
first two (2) Lease Years accrued in accordance with the
preceding clause (A) in twelve (12) equal monthly
installments, which shall be payable with each payment of Minimum
Rent during such Lease Year, and (C) in each Lease
Year during the Initial Term commencing with the third (3
rd
) Lease Year,
Tenant shall pay Supplemental Rent for each fiscal quarter within
thirty (30) days after the end of such quarter,
provided that Landlord may, in its sole and absolute discretion,
allow Tenant to defer payment of all or a portion of the
Supplemental Rent payable in the third (3 rd ) Lease Year until the fourth
(4 th ) Lease Year, in which case
the aggregate amount deferred shall be payable in twelve
(12) equal monthly installments in the fourth (4
th
) Lease Year, each
payable with each payment of Minimum Rent during such Lease Year.
Notwithstanding the foregoing, in the event that, in accordance
with Section 16 , Landlord in its sole and absolute
discretion consents to any change of control in Guarantor, or to
any other transaction constituting an assignment of this Lease
pursuant to the terms of Section 16 , all accrued but
unpaid Supplemental Rent shall be immediately due and
payable.”
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(b) Restrictions on
Distributions. Section 4.3(b) of the Master Lease is
amended and restated in its entirety as follows:
“As used herein, (1)
“ Restricted Dividend ” means any
Dividend, other than a Tax Dividend, that is made at any time that
the Dividend Conditions are not then satisfied; (2)
“ Dividend ” means any dividend, payment
or other distribution of cash or property by Guarantor to its
shareholders or any other Person on account of or with respect to
the capital stock of Guarantor; (3) “
Dividend Conditions ” means that (i) the
Rent Coverage Ratio for the Preceding Fiscal Quarter is greater
than or equal to 1.20 to 1.00 and (ii) that Guarantor
shall have had Minimum Net Working Capital Balances for the
Preceding Fiscal Quarter; and (4) “ Preceding
Fiscal Quarter ” means the fiscal quarter immediately
preceding the fiscal quarter in which the Dividend in question is
made or to be made; (5) “ Minimum Net Working
Capital Balances ” means that Guarantor shall have Net
Working Capital as of the end of any applicable fiscal quarter
equal to or greater than the lesser of (i) an amount
equal to forty-one percent (41%) of Revenue for such
quarter, or (ii) Fifteen Million Four Hundred
Fifty Thousand Dollars ($15,450,000) ; (6) “
Net Working Capital ” means the sum of the amounts of
the line items on Guarantor’s consolidated balance sheet for
“Cash,” “Restricted Funds, short term,”
“Accounts Receivable,” “Other Current Assets
(Inventory and Prepaid Expenses)” and “Restricted
Funds, long term” minus the sum of the amounts of the
line items on Guarantor’s consolidated balance sheet for
“Accounts Payable” and “Accrued Expenses,”
as each of the same line items may be re-named or amended from time
to time, and including as appropriate such similar line items
created by Guarantor after the date hereof, each as determined as
of the relevant date and calculated in a manner consistent with
Guarantor’s and HAL’s respective past practices and the
Contribution Agreement; (7) “ Tax
Dividend ” means a Dividend in an amount which does not
exceed the Tax Expense for all the members of the Guarantor for the
Tax Period most recently ended; (8) “ Tax
Expense ” shall mean for any member of Guarantor, an
amount equal to the product of (i) the amount of
federal and state taxable income of Guarantor for the applicable
Tax Period, (ii) the Presumed Tax Rate, giving effect
to the character of such taxable income as ordinary income or
capital gain income, and (iii) such member’s
percentage interest in Guarantor; (9) “ Tax
Period ” means the calendar year or quarter to which any
applicable Tax Expense is attributable, and (10)
“ Presumed Tax Rate ” means (i)
with respect to income taxable as ordinary income or short
term capital gains, the highest combined federal and state income
tax rate applicable during the applicable Tax Period, and
(ii) with respect to income taxable as long-term
capital gains, the highest rate then applicable to the gains on
capital held for at least twelve (12) months , in both
cases as determined without regard to the adjustment provided in
Sections 67 and 68 of the Internal Revenue Code.”
2. Amendments to Letter of
Credit Agreement . The LC Agreement is hereby specifically amended
as set forth in this Section 2 . As set forth and used
in the LC Agreement, the term “ Lease ” shall
mean “the Master Lease dated as of even date with this
Agreement, as amended, modified or revised from time to
time.”
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3. Affirmation of Obligations
under Lease Documents and Guaranty .
(a) Notwithstanding the modifications to the Master
Lease and LC Agreement contained herein, Tenant and Landlord each
hereby acknowledges and affirms its respective obligations under
the Master Lease and LC Agreement (each as modified hereby) and all
other documents executed by such party in connection
therewith.
(b) Guarantor hereby consents to the terms of this
Agreement in all respects. Notwithstanding the modifications to the
Master Lease and L
