THIS LOAN
AGREEMENT (this “Agreement”) is made effective as
of the 7 th
day of August, 2006, by and between
DIVERSICARE AFTON OAKS, LLC , a Delaware limited liability
company (the “Afton Oaks Borrower”), DIVERSICARE
ASSISTED LIVING SERVICES NC I, LLC , a Delaware limited
liability company (the “NC I Borrower”), DIVERSICARE
ASSISTED LIVING SERVICES NC II, LLC , a Delaware limited
liability company, (the “NC II Borrower”),
DIVERSICARE BRIARCLIFF, LLC , a Delaware limited liability
company (the “Briarcliff Borrower”), DIVERSICARE
CHISOLM, LLC , a Delaware limited liability company (the
“Chisolm Borrower”), DIVERSICARE HARTFORD, LLC ,
a Delaware limited liability company (the “Hartford
Borrower”), DIVERSICARE HILLCREST, LLC , a Delaware
limited liability company (the “Hillcrest Borrower”),
DIVERSICARE LAMPASAS, LLC , a Delaware limited liability
company (the “Lampasas Borrower”), DIVERSICARE
PINEDALE, LLC , a Delaware limited liability company (the
“Newport Borrower”), DIVERSICARE WINDSOR HOUSE,
LLC , a Delaware limited liability company (the “Windsor
Borrower”), and DIVERSICARE YORKTOWN, LLC , a Delaware
limited liability company (the “Yorktown Borrower”; the
Afton Oaks Borrower, the NC I Borrower, the NC II Borrower, the
Briarcliff Borrower, the Chisolm Borrower, the Hartford Borrower,
the Hillcrest Borrower, the Lampasas Borrower, the Newport
Borrower, the Windsor Borrower and the Yorktown Borrower, together
with their successors and/or assigns, may be referred to
collectively herein as the “Borrowers” or individually
as a “Borrower”), and CAPMARK FINANCE INC. , a
California corporation, formerly known as GMAC Commercial Mortgage
Corporation (together with its successors and assigns,
“Lender”).
A. Borrowers
have requested that Lender make a loan to Borrower in the principal
sum of $30,625,000.00.
B. Lender has
agreed to make such loan on the terms and conditions hereinafter
set forth.
NOW,
THEREFORE , it is hereby agreed as follows:
ARTICLE I
DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.
1.1 As used in
this Agreement, the following terms shall have the following
meanings unless the context hereof shall otherwise
indicate:
“Accounts” has the meaning given to that term in
the Mortgage.
“Actual Cost of Professional and General
Liability” means the total out of pocket expense
associated with professional and general liability related
settlements, legal fees, or administration for all facilities owned
and/or operated by entities related to Guarantor for the comparable
period divided by the total number of licensed beds for all
facilities owned and/or operated by entities related to Guarantor
then multiplied by the number of licensed beds for the Facilities
(excluding Carolina Beach Facility, Lampasas Facility and Yorktown
Facility). !
“Actual Management Fees” means actual management
fees paid or incurred in connection with operation of the
Facility.
“Affiliate” means, with respect to any Person,
(a) each Person that controls, is controlled by or is under
common control with such Person, (b) each Person that,
directly or indirectly, owns or controls, whether beneficially or
as a trustee, guardian or other fiduciary, any of the Stock of such
Person, and (c) each of such Person’s officers,
directors, members, joint venturers and partners.
“Afton Oaks Facility” means the nursing home
facility known as “Afton Oaks Nursing and Rehabilitation
Center” presently a 169-bed licensed skilled nursing facility
located on the Land located in Houston, Harris County, Texas, as it
may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
“Allocated Loan Amount” means that portion of
the Loan allocated to an individual Borrower for purposes of
mortgage or deed recording tax. The Allocated Loan Amount for each
Borrower is more particularly described in Exhibit
“G” herein.
“A/R Lender” means (i) AmSouth Bank, an
Alabama state banking corporation, its successors and assigns
(“AmSouth”) or (ii) any subsequent lender of an
A/R Loan, its successors and assigns.
“A/R Loan” means (i) that certain
indebtedness and obligations of Guarantor, Borrowers and their
Affiliates, to AmSouth evidenced by and described in that certain
Master Amendment to Loan Documents and Agreement dated as of
November 8, 2000, effective as of October 1, 2000, and
the documents and instruments executed in connection therewith,
together with any amendments thereto, and any modifications,
renewals and extensions thereof, which indebtedness and obligations
are secured, in part, by a first priority lien in the Accounts of
the Facilities or (ii) the indebtedness and obligations of
Guarantor, Borrowers and their Affiliates to any subsequent lender
of a credit facility for a working capital loan which is secured,
in whole or in part, by a first priority lien in the Accounts of
the Facilities, subject to an Intercreditor Agreement acceptable to
Lender and subject to Lender’s review and approval of the
loan documents evidencing the credit facility, as approved by
Lender in its reasonable discretion.
“Assignment of Leases and Rents” means that
certain Assignment of Leases and Rents of even date herewith by and
between Borrowers and Lender.
“Assignment of Licenses” means that certain
Assignment of Licenses, Permits and Contracts of even date herewith
by Borrowers to and for the benefit of Lender.
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“Assumed Management Fees” means assumed
management fees of five percent (5%) of net patient revenues of the
Facilities (after Medicaid and Medicare contractual
adjustments).
“Briarcliff Facility” means the nursing home
facility known as “Briarcliff Health Care Center”
presently an 120-bed licensed skilled nursing facility located on
the Land located in Oak Ridge, Anderson County, Tennessee, as it
may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
“Business Day” means a day, other than Saturday
or Sunday and legal holidays, when Lender is open for
business.
“Capital Improvements Fund Escrow and Security
Agreement” means that certain Capital Improvements Fund
Escrow and Security Agreement of even date herewith by and between
the Newport Borrower and Lender.
“Carolina Beach Facility” means the assisted
living facility known as “Diversicare Assisted Living of
Carolina Beach” (formerly Nielsens Rest Home) presently a
61-bed licensed assisted living facility located on the Land
located in Carolina Beach, New Hanover County, North Carolina, as
it may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit and/or subacute nursing facility), now
or hereafter operated on the Land.
“Chisolm Facility” means the nursing home
facility known as “Chisolm Trail Nursing and Rehabilitation
Center” presently a 100-bed licensed skilled nursing facility
located on the Land located in Lockhart, Caldwell County, Texas, as
it may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
“Closing Date” means the date on which all or
any part of the Loan is disbursed by Lender to or for the benefit
of Borrowers.
“Combined Debt Service Coverage Ratio” means the
Debt Service Coverage Ratio for the Facilities, when
combined.
“Commitment Letter” means the commitment letter
issued by Lender to Borrower dated June 30, 2006.
“Cross-Collateralization Agreement” means, the
Cross-Collateralization, Cross-Default and Mortgage Modification
Agreement of even date herewith by and between Borrowers and
Lender.
“DCMS Note Receivable” means the note executed
by DCMS Holdings, Inc. to the order of Diversicare Leasing Corp.
associated with the sale of the Guarantor’s Canadian
subsidiary, which occurred May, 2004.
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“Debt Service Coverage Ratio” means a ratio in
which the first number is the sum of “net pre-tax
income” of a Borrower from usual operations of its Facility
as set forth in the financial statements provided to Lender
(without deduction for Actual Management Fees or management
expenses paid or incurred in connection with the operation of the
Facility), calculated based upon the preceding twelve
(12) months, plus Loan interest expense to the extent deducted
in determining net income and non-cash expenses or allowances for
depreciation and amortization of the Facility for such period,
less Assumed Management Fees for such period and the second
number is the sum of the principal amounts due (even if not paid)
on the Loan (but which shall not include that portion associated
with any balloon payment of the Loan) for the applicable period
plus the interest due on the Loan for the applicable period.
In calculating “net pre-tax income”, any Extraordinary
Income, Extraordinary Expense, and non-cash Facility-related
impairment charges expensed in accordance with GAAP shall be
excluded. Note: Commencing on (i) the ninth (9
th ) day of the month immediately following the
Closing Date if the Closing Date occurs prior to the fifteenth
(15 th
) day of a calendar month or
(ii) the ninth (9 th )
day of the second month following the Closing Date and continuing
on the ninth (9 th )
day of each successive month thereafter, principal and interest for
the purposes of the denominator above shall be annualized until
such time as twelve (12) months of principal and interest has
been accrued (whether or not paid) under the Loan. Notwithstanding
the foregoing, any expenses associated with the deferred debt cost
related to the Briarcliff Facility and/or the Hartford Facility
shall be treated as an Extraordinary Expense for the purpose of the
Debt Service Coverage Ratio.
“Debt Service Reserve Fund Agreement” means that
certain Debt Service Reserve Fund Escrow and Security Agreement of
even date herewith between Lender and Borrowers.
“Default” means the occurrence or existence of
any event which, but for the giving of notice or expiration of time
or both, would constitute an Event of Default.
“Default Rate” has the meaning given to that
term in the Note.
“Environmental Permit” means any permit,
license, or other authorization issued under any Hazardous
Materials Law with respect to any activities or businesses
conducted on or in relation to the Land and/or the
Improvements.
“Equipment” has the meaning given to that term
in the Mortgage.
“Event of Default” means any “Event of
Default” as defined in Article VII hereof.
“Extraordinary Income and Extraordinary
Expenses” means material items of a character
significantly different from the typical or customary business
activities of Borrowers which would not be expected to recur
frequently and which would not be considered as recurring factors
in any evaluation of the ordinary operating processes of
Borrower’s business, and which would be treated as
extraordinary income or extraordinary expenses under
GAAP.
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“Exhibit” means an Exhibit to this Agreement,
unless the context refers to another document, and each such
Exhibit shall be deemed a part of this Agreement to the same extent
as if it were set forth in its entirety wherever reference is made
thereto.
“Facilities” means, collectively, the Afton Oaks
Facility, the Briarcliff Facility, the Carolina Beach Facility, the
Chisolm Facility, the Hartford Facility, the Hillcrest Facility,
the Lampasas Facility, the Newport Facility, the Windsor Facility
and the Yorktown Facility. Any of the Facilities may be referred to
individually herein as a “Facility”.
“GAAP” means, as in effect from time to time,
generally accepted accounting principles consistently applied as
promulgated by the Financial Accounting Standards Board
(“FASB”) and enforced by the American Institute of
Certified Public Accountants (“AICPA”).
“Governmental Authority” means any nation or
government, any state or other political subdivision thereof, and
any Person exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to such
government.
“Guarantor” means Advocat Inc., a Delaware
corporation, which shall guarantee the Loan.
“Guaranty Agreement” means that certain Guaranty
of even date herewith from Guarantor to and for the benefit of
Lender, whereby Guarantor guarantees the Loan.
“Hartford Facility” means the nursing home
facility known as “Hartford Health Care” presently an
86-bed licensed skilled nursing facility located on the Land
located in Hartford, Geneva County, Alabama, as it may now or
hereafter exist, together with any other general or specialized
care facilities, if any (including any Alzheimer’s care unit,
subacute nursing and/or assisted living facility), now or hereafter
operated on the Land.
“Hazardous Materials” means petroleum and
petroleum products and compounds containing them, including
gasoline, diesel fuel and oil; explosives; flammable materials;
radioactive materials; polychlorinated biphenyls
(“PCBs”) and compounds containing them; lead and
lead-based paint; asbestos or asbestos-containing materials in any
form that is or could become friable; underground storage tanks,
whether empty or containing any substance; any substance the
presence of which on the Land and/or the Improvements is prohibited
by any federal, state or local authority; any substance that
requires special handling; and any other material or substance now
or in the future defined as a “hazardous substance,”
“hazardous material,” “hazardous waste,”
“toxic substance,” “toxic pollutant,”
“contaminant,” or “pollutant” within the
meaning of any Hazardous Materials Law.
“Hazardous Materials Laws” means all federal,
state, and local laws, ordinances and regulations and standards,
rules, policies and other governmental requirements, administrative
rulings and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous
Materials and apply to Borrower or to the Land and/or the
Improvements. Hazardous Materials Laws include, but are not limited
to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601,
et seq., the Clean Water Act, 33 U.S.C.
5
Section 1251, et seq., and the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, and
their state analogs.
“Hillcrest Facility” means the nursing home
facility known as “Hillcrest Manor Nursing and Rehabilitation
Center” presently a 60-bed licensed skilled nursing facility
located on the Land located in Luling, Caldwell County, Texas, as
it may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
“Improvements” means all buildings, structures
and improvements of every nature whatsoever now or hereafter
situated on the Land, including but not limited to, all gas and
electric fixtures, radiators, heaters, engines and machinery,
boilers, ranges, elevators and motors, plumbing and heating
fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes, and cleaning apparatuses which are or
shall be attached to the Land or said buildings, structures or
improvements.
“Indebtedness” means any (a) obligations
for borrowed money, (b) obligations, payment for which is
being deferred by more than ninety (90) days, representing the
deferred purchase price of property other than accounts payable
arising in connection with the purchase of inventory customary in
the trade and in the ordinary course of Borrowers’ business,
(c) obligations, whether or not assumed, secured by Liens or
payable out of the proceeds or production from the Accounts and/or
property now or hereafter owned or acquired, and (d) the
amount of any other obligation (including obligations under
financing leases) which would be shown as a liability on a balance
sheet prepared in accordance with GAAP.
“Intercreditor Agreement” means (i) that
certain Intercreditor Agreement dated August 6, 2006, by and
between AmSouth and Lender or (ii) any Intercreditor Agreement
between Lender and any subsequent A/R Lender.
“Inventory” has the meaning given to that term
in the Mortgage.
“Lampasas Facility” means the nursing home
facility known as “Lampasas Nursing and Rehabilitation
Center” presently a 68-bed licensed skilled nursing facility
located on the Land located in Lampasas, Lampasas County, Texas, as
it may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
“Land” means the land described in Exhibit
“A” attached hereto and made a part
hereof.
“Leases” has the meaning given to that term in
the Mortgage.
“Lien” means any voluntary or involuntary
mortgage, security deed, deed of trust, lien, pledge, assignment,
security interest, title retention agreement, financing lease,
levy, execution, seizure, judgment, attachment, garnishment,
charge, lien or other encumbrance of any kind, including those
contemplated by or permitted in this Agreement and the other Loan
Documents.
6
“Loan” means, collectively, the Note I Loan and
the Note II Loan, in the combined principal sum of $30,625,000.00
made by Lender to Borrowers as of the date hereof.
“Loan Documents” means, collectively, the
Commitment Letter, this Agreement, the Note, the Mortgage, the
Assignment of Leases and Rents, the Assignment of Licenses, the
Guaranty Agreement, the Debt Service Reserve Fund Agreement, the
Subordination Agreement, the Cross-Collateralization Agreement, the
Capital Improvements Fund Escrow and Security Agreement together
with any and all other documents executed by Borrowers or others,
evidencing, securing or otherwise relating to the Loan.
“Loan Obligations” means the aggregate of all
principal and interest owing from time to time under the Note and
all expenses, charges and other amounts from time to time owing
under the Note, this Agreement or the other Loan Documents and all
covenants, agreements and other obligations from time to time owing
to, or for the benefit of, Lender pursuant to the Loan
Documents.
“Managed Care Plans” means any health
maintenance organization, preferred provider organization,
individual practice association, competitive medical plan, or
similar arrangement, entity, organization, or Person.
“Management Agreement” means, collectively,
those certain Management Agreements between Manager and each
Borrower, obligating Manager to operate and manage the
Facilities.
“Manager” means Diversicare Management Services,
Co., a Tennessee corporation, and any successor manager of a
Facility approved by Lender in writing.
“Maturity Date” means, for the portion of the
Loan evidenced by Note I, August 9, 2011, and for the portion
of the Loan evidenced by Note II, August 9, 2010.
“Medicaid” means that certain program of medical
assistance, funded jointly by the federal government and the
States, for impoverished individuals who are aged, blind and/or
disabled, and/or members of families with dependent children, which
program is more fully described in Title XIX of the Social Security
Act (42 U.S.C. §§ 1396 et seq .) and the
regulations promulgated thereunder.
“Medicare” means that certain federal program
providing health insurance for eligible elderly and other
individuals, under which physicians, hospitals, skilled nursing
homes, home health care and other providers are reimbursed for
certain covered services they provide to the beneficiaries of such
program, which program is more fully described in Title XVIII of
the Social Security Act (42 U.S.C. §§ 1395 et seq
.) and the regulations promulgated thereunder.
“Mortgage” means those certain Deed of Trust and
Security Agreements or Mortgage and Security Agreements of even
date herewith from Borrowers in favor of or for the benefit of
Lender, encumbering the real estate which is more particularly
described in Exhibit “A” hereto, and upon which
each Facility is located, as modified by the
Cross-Collateralization Agreement.
7
“Mortgaged Property” has the meaning given to
that term in the Mortgage.
“Newport Facility” means the nursing home
facility known as “Newport Healthcare and Rehabilitation
Center” presently a 130-bed licensed skilled nursing facility
located on the Land located in Newport, Jackson County, Arkansas,
as it may now or hereafter exist, together with any other general
or specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
“Note” means, collectively, Note I (hereinafter
defined) and Note II (hereinafter defined).
“Note I” means the Promissory Note of even date
herewith in the principal amount of $22,500,000.00, payable by
Borrowers to the order of Lender.
“Note I Loan” means the loan in the principal
sum of $22,500,000.00 made by Lender to the Borrowers, as evidenced
by Note I.
“Note I Security” means the collateral, security
and property more specifically described in Section 2.2(a)
herein.
“Note II” means the Promissory Note of even date
herewith in the principal amount of $8,125,000.00, payable by
Borrowers to the order of Lender.
“Note II Loan” means the loan in the principal
amount of $8,125,000.00 made by Lender to Borrowers, as evidenced
by Note II.
“Note II Security” means the collateral,
security and property more particularly described in
Section 2.2(b) herein.
“O&M Program” means a written program of
operations and maintenance established or approved in writing by
Lender relating to any Hazardous Materials in, on or under the Land
and/or the Improvements.
“OFAC List” means the list of specially
designated nationals and blocked Persons subject to financial
sanctions that is maintained by the U.S. Treasury Department,
Office of Foreign Assets Control and any other similar list
maintained by the U.S. Treasury Department, Office of Foreign
Assets Control pursuant to any Requirements of Law, including,
without limitation, trade embargo, economic sanctions, or other
prohibitions imposed by Executive Order of the President of the
United States. The OFAC List currently is accessible through the
internet website www.treas.gov/ofac/t11sdn.pdf .
“Patient Agreements” means collectively any and
all contracts, authorizations, agreements or consents made by or on
behalf of any patient or resident of the Facilities, or any other
person seeking or obtaining services or Goods from a Borrower,
pursuant to which a Borrower provides skilled nursing care,
intermediate care and/or assisted living facility, or any form of
patient or residential care, as well as related services at the
Facilities (as such contracts, authorizations, agreements or
consents may be amended, supplemented, renewed,
replaced,
8
extended or
modified from time to time). The Patient Agreements include
consents to treatment and assignments of payment of
benefits.
“Permits” means all licenses, permits and
certificates used or necessary in connection with the construction,
ownership, operation, use or occupancy of the Mortgaged Property
and/or the Facilities, including, without limitation, business
licenses, state health department licenses, food service licenses,
licenses to conduct business, certificates of need and all such
other permits, licenses and rights, obtained from any governmental,
quasi-governmental or private person or entity whatsoever
concerning ownership, operation, use or occupancy including
certifications and eligibility for participation by any Borrower,
with respect to its operation of the Facilities and any related
businesses or operations, in programs or arrangements with, or
reimbursement from Third Party Payors including Medicare and
Medicaid.
“Permitted Encumbrances” has the meaning given
to that term in Section 5.2 hereof.
“Person” means any individual, partnership,
limited partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other form of
legal entity of whatever nature.
“Proceeds” has the meaning given to that term in
the Mortgage.
“Reimbursement Contracts” means all third-party
reimbursement contracts relating to 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.
“Rents” has the meaning given to that term in
the Mortgage.
“Requirements of Law” means (a) the
organizational documents of an entity, and (b) any law,
regulation, ordinance, code, decree, treaty, ruling or
determination of an arbitrator, court or other Governmental
Authority, or any Executive Order issued by the President of the
United States, in each case applicable to or binding upon such
Person or to which such Person, any of its property or the conduct
of its business is subject including, without limitation, laws,
ordinances and regulations pertaining to the zoning, occupancy and
subdivision of real property.
“Single Purpose Entity” means a Person which
complies with the requirements of Section 5.4.
“Stock” means all shares, options, warrants,
general or limited partnership interests, membership interests,
participations or other equivalents (regardless of how designated)
in a corporation, limited liability company, partnership or any
equivalent entity, whether voting or nonvoting, including, without
limitation, common stock, preferred stock, or any other
“equity security” (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).
9
“Subordination Agreement” means that certain
Subordination of Management Agreement of even date herewith by and
among Borrower, Manager, and Lender.
“Windsor Facility” means the nursing home
facility known as “Windsor House of Huntsville”
presently a 117-bed licensed skilled nursing facility and a 17-bed
licensed assisted living facility located on the Land located in
Huntsville, Madison County, Alabama, as it may now or hereafter
exist, together with any other general or specialized care
facilities, if any (including any Alzheimer’s care unit,
subacute nursing and/or assisted living facility), now or hereafter
operated on the Land.
“Worker’s Comp Retro Premiums” means any
and all current or future premium adjustments and/or refunds and/or
credits associated with Guarantor’s worker’s
compensation policies.
“Yorktown Facility” means the nursing home
facility known as “Yorktown Nursing and Rehabilitation
Center” presently a 92-bed licensed skilled nursing facility
located on the Land in Yorktown, Dewitt County, Texas, as it may
now or hereafter exist, together with any other general or
specialized care facilities, if any (including any
Alzheimer’s care unit, subacute nursing and/or assisted
living facility), now or hereafter operated on the Land.
The
following terms shall have the same respective meanings as are
given to those terms in the Uniform Commercial Code of the State of
Alabama, as amended: “ Chattel Paper ”, “
Contracts ”, “ Contract Rights ”,
“ Documents ”, “ General
Intangibles ”, “ Goods ”, “
Instruments .” Without limiting the foregoing, the
following kinds and types of property to the extent related to the
Facilities shall be included within the definition of “
General Intangibles ”:
(a) Permits,
Patient Agreements, provider agreements and all other agreements
(whether now existing or hereafter made) between any Borrower and
any Third Party Payor relating to any rights of any Borrower or to
payment and/or reimbursement from, or claims of Borrower against,
any Third Party Payor;
(b) All
franchises, sub franchises, rights to distribute, sales agencies,
licenses, permits, leases, rights to indemnification, rights as
insured, including the right to be provided a defense, warranty
rights, concessions and concession rights, customer lists, yellow
page or trade journal listing, telephone numbers, and any and all
other property or rights necessary, convenient, or proper with
respect to the continued operation of the business of Borrower as
now or hereafter conducted by any of the Borrowers with respect to
the operation or use of the Facilities;
(c) All
patents and patent applications, together with the right to sue for
past, present, and future infringements, all rights corresponding
thereto throughout the world and all reissues, divisions,
continuations, renewals, extensions, and continuations-in-part
thereof and all improvements thereon;
(d) All
trademarks, trade names, and trade secrets, together with the right
to sue for past, present, and future violations corresponding
thereto, and all good will associated therewith; and
10
(e) All
copyrights, together with the right to sue for past, present, or
future violations or infringements of rights of the copyrights, and
all renewals, extension and continuations thereof.
1.2 Singular terms
shall include the plural forms and vice versa, as applicable, of
the terms defined.
1.3 Each term
contained in this Agreement and defined in the Uniform Commercial
Code (the “UCC”) in effect from time to time in the
state in which the Land is located shall have the meaning given to
such term in the UCC, unless the context otherwise indicates, and
shall include, without limitation, the meaning set forth in this
Agreement.
1.4 All accounting
terms used in this Agreement shall be construed in accordance with
GAAP, except as otherwise specified.
1.5 All references
to other documents or instruments shall be deemed to refer to such
documents or instruments as they may hereafter be extended,
renewed, modified, or amended and all replacements and
substitutions therefor.
1.6 All references
herein to “Medicaid” and “Medicare” shall
be deemed to include any successor program thereto.
ARTICLE II
TERMS OF THE LOAN
2.1 The
Loan . Borrowers have agreed to borrow the Loan from
Lender, and Lender has agreed to make the Loan to Borrowers,
subject to Borrowers’ compliance with and observance of the
terms, conditions, covenants, and provisions of this Agreement and
the other Loan Documents, and Borrowers have made the covenants,
representations, and warranties herein and therein as a material
inducement to Lender to make the Loan. The Loan shall be disbursed
as follows:
(a) On
the Closing Date, $7,744,199.33 of the Loan shall be disbursed to
Lender and applied to the outstanding debts of the NC I Borrower
and/or the NC II Borrower.
(b) A
portion of the Loan in the amount of $1,295,014.52 shall be used to
pay off a term loan made to the Borrowers and Guarantor by the A/R
Lender. Such payoff shall not affect the A/R Loan;
(c) A
portion of the Loan in the amount of $1,107,620.00 for certain
renovations at the Newport Facility shall be disbursed in
accordance with the Capital Improvements Fund Escrow and Security
Agreement; and
(d) The
remainder of the Loan shall refinance certain existing debt of the
Borrowers to the Lender.
2.2 Security
for the Loan .
11
(a) Note
I Loan: The portion of the Loan evidenced by Note I will be
evidenced, secured and guaranteed by the Loan Documents and will
include, but not be limited to the following (collectively, the
“Note I Security”):
(i) a
first lien deed of trust with respect to the Borrowers’
right, title, interest in and to the Facilities (excluding the
Carolina Beach Facility, the Lampasas Facility and the Yorktown
Facility);
(ii) a
second priority lien security interest in accounts receivable
issuing from the Facilities (excluding the Carolina Beach Facility,
the Lampasas Facility and the Yorktown Facility);
(iii) the
Cross-Collateralization Agreement; and
(iv) any
and all other collateral securing the Note I Loan.
(b) Note
II Loan: The portion of the Loan evidenced by Note II will be
evidenced, secured and guaranteed by the Loan Documents and will
include, but not be limited to the following (collectively, the
“Note II Security”):
(i) an
assignment of the DCMS Note Receivable and the Workers’ Comp
Retro Premiums;
(ii) a
first lien deed of trust with respect to the Borrowers’
right, title, interest in and to the Carolina Beach
Facility;
(iii) a
first lien deed of trust with respect to the Lampasas
Borrower’s right, title, and interest in and to the Lampasas
Facility;
(iv) a
first lien deed of trust with respect to the Yorktown
Borrower’s right, title, and interest in and to the Yorktown
Facility;
(v) a
second priority lien security interest in accounts receivable
issuing from the Carolina Beach Facility, the Lampasas Facility and
the Yorktown Facility;
(vi) a
second lien deed of trust or mortgage with respect to the
Borrowers’ right, title, and interest in and to the
Facilities (excluding the Carolina Beach Facility, the Lampasas
Facility and the Yorktown Facility), including the Land;
and
(vii) any
and all other collateral securing the Note II Loan.
2.3
Limitation on Interest . All agreements between
Borrowers and Lender, whether now existing or hereafter arising and
whether written or oral, are hereby limited so that in no
contingency, whether by reason of acceleration of the maturity of
any indebtedness governed hereby or otherwise, shall the interest
contracted for, charged or received by Lender exceed the maximum
amount permissible under applicable law. If, from any circumstance
whatsoever, interest would otherwise be payable to Lender in excess
of the maximum lawful amount, the interest payable to Lender shall
be reduced to the maximum amount permitted under
applicable
12
law; and, if
from any circumstance the Lender 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 the Loan and not to
the payment of interest, or, if such excessive interest exceeds the
unpaid balance of principal of the Loan, such excess shall be
refunded to Borrowers. All interest paid or agreed to be paid to
Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full
period until payment in full of the principal of the Loan
(including the period of any renewal or extension thereof) so that
interest thereon for such full period shall not exceed the maximum
amount permitted by applicable law. This paragraph shall control
all agreements between the Borrowers and Lender.
ARTICLE III
BORROWERS’ REPRESENTATIONS AND WARRANTIES
To induce Lender
to enter into this Agreement, and to make the Loan to Borrowers,
each Borrower represents and warrants to Lender as
follows:
3.1
Existence, Power and Qualification . Borrower is a
duly organized and validly existing Delaware limited liability
company, 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.
3.2 Power
and Authority . Borrower has full power and authority to
borrow the indebtedness evidenced by the Note and to incur the Loan
Obligations provided for herein, all of which have been authorized
by all proper and necessary limited liability company action on the
part of Borrower. All consents, approvals authorizations, orders or
filings of or with any court or governmental agency or body, if
any, required for the execution, delivery and performance of the
Loan Documents by Borrower have been obtained or made.
3.3 Single
Purpose Entity . Borrower is a Single Purpose
Entity.
(a)
Operations; Financial Condition . Except as shown on
Schedule 3.4, no action or investigation is pending or, to the
best of Borrower’s knowledge, threatened against Borrower
before or by any court or administrative agency which might result
in any material adverse change in the financial condition,
operations or prospects of Borrower or any lower reimbursement rate
under the Reimbursement Contracts. Borrower is not in violation of
any agreement, the violation of which might reasonably be expected
to have a material adverse effect on its business or assets, and
Borrower is not in violation of any order, judgment, or decree of
any court, or any statute or governmental regulation to which
Borrower is subject.
(b)
Land and Improvements . There are no proceedings pending,
or, to the best of Borrower’s knowledge, threatened, to
acquire through the exercise of any power of condemnation, eminent
domain or similar proceeding any part of the Land, the Improvements
or any interest therein, or to enjoin or similarly prevent or
restrict the use of the Land or the
13
operation of
the Facility in any manner. Except for unrepaired flood damage at
the Afton Oaks Facility, none of the Improvements is subject to any
unrepaired casualty or other damage.
3.5
Financial Statements Accurate . All financial
statements heretofore or hereafter provided by Borrower are and
will be true and complete in all material respects as of their
respective dates and fairly present the financial condition of
Borrower, and there are no material liabilities, direct or
indirect, fixed or contingent, as of the respective dates of such
statements which are not reflected therein or in the notes thereto
or in a written certificate delivered with such statements. The
financial statements of Borrower have been prepared in accordance
with GAAP. There has been no material adverse change in the
financial condition, operations, or prospects of Borrower since the
dates of such statements except as fully disclosed in writing with
the delivery of such statements. All financial statements of the
operations of the Facility heretofore or hereafter provided to
Lender are and will be true and complete in all material respects
as of their respective dates.
3.6
Compliance with Facility Laws . Its Facility is duly
licensed as a skilled nursing facility and/or an assisted living
facility with the number of beds shown in the Facility’s
definition in Article I herein under the applicable laws of
the state where the Land is located, and except for the Carolina
Beach Facility, is currently operated as a skilled nursing facility
and/or an assisted living facility. Borrower is the lawful owner of
all Permits for the Facility, including, without limitation, the
Certificate of Need and/or the Nursing Home License issued by the
applicable State Department of Health, Health Care Facilities, if
applicable, which (a) are in full force and effect,
(b) constitute all of the permits, licenses and certificates
required for the use, operation and occupancy thereof,
(c) have not been pledged as collateral for any other loan or
Indebtedness, (d) are held free from any restriction or any
encumbrance which would materially adversely affect the use or
operation of the Facility and (e) are not provisional,
probationary or restricted in any way. Borrower and Manager as well
as the operation of the Facility are in compliance in all material
respects with the applicable provisions of all laws, rules,
regulations and published interpretations to which the Facility is
subject. No waivers of any laws, rules, regulations, or
requirements (including, but not limited to, minimum foot
requirements per bed) are required for the Facility to operate at
the foregoing licensed bed capacity. All Reimbursement Contracts
are in full force and effect with respect to the Facility, and
Borrower and Manager are in good standing with all the respective
agencies governing such applicable Facility licenses, program
certification and Reimbursement Contracts. Borrower and Manager are
current in the payment of all so-called provider specific taxes or
other assessments with respect to such Reimbursement Contracts.
Except for the Carolina Beach Facility, Borrower will maintain the
Certificate of Need, if applicable, and/or any required Permits in
full force and effect. In the event Lender acquires the Facility
through foreclosure or otherwise, neither Lender nor a subsequent
manager, a subsequent lessee or any subsequent purchaser (through
foreclosure or otherwise) must obtain a Certificate of Need prior
to applying for and receiving a license to operate the Facility and
certification to receive Medicare and Medicaid payments (and its
successor programs) for patients having coverage thereunder
provided that no service or bed complement is changed.
Notwithstanding the foregoing, Lender acknowledges that the
Carolina Beach Facility is closed. NC I Borrower retains the
associated license/Certificate of Need for the Carolina Beach
Facility; provided, however, Lender acknowledges that the
license/Certificate of Need for the beds at the Carolina Beach
Facility is subject to a purchase and sale agreement with a third
party purchaser for the relocation of the beds to a facility of
such purchaser (the “Carolina
14
Beach
Transfer”). NCI Borrower will maintain the Certificate of
Need, if applicable, and/or any required Permits so long as
necessary and NC I Borrower is able, until the Certificate of Need
application for the relocation of the beds by such purchaser is
resolved; provided, however, that NC I Borrower shall use its best
efforts to extend the Permits and facilitate said sale. NC I
Borrower agrees that it shall provide Lender with the net sales
proceeds from such sale.
3.7 Maintain
Bed Capacity . Except for the Carolina Beach Transfer,
neither Borrower nor Manager has granted to any third party the
right to reduce the number of licensed beds in the Facility or to
apply for approval to transfer the right to any or all of the
licensed Facility beds to any other location.
3.8 Medicare
and Medicaid Compliance . The Facility is in compliance
with all requirements for participation in Medicare and Medicaid,
including without limitation, the Medicare and Medicaid Patient
Protection Act of 1987. The Facility is in conformance in all
material respects with all insurance, reimbursement and cost
reporting requirements and has a current provider agreement which
is in full force and effect under Medicare and Medicaid.
3.9 Third
Party Payors . There is no threatened or pending
revocation, suspension, termination, probation, restriction,
limitation, or nonrenewal affecting Borrower, Manager or the
Facility or any participation or provider agreement with any
third-party payor, including Medicare, Medicaid, Blue Cross and/or
Blue Shield, and any other private commercial insurance managed
care and employee assistance program (such programs, the
“Third-Party Payors’ Programs”) to which Borrower
or Manager presently is subject. All Medicare (if any), Medicaid
(if any) and private insurance cost reports and financial reports
submitted by Borrower or Manager with respect to the Facility are
and will be materially accurate and complete and have not been and
will not be misleading in any material respects. No cost reports
which have been filed for the Facility remain “open” or
unsettled except as otherwise disclosed.
3.10
Governmental Proceedings and Notices . Neither
Borrower nor Guarantor nor Manager nor the Facility is currently
the subject of any proceeding by any governmental agency, and no
notice of any violation has been received from any federal, state
or local government or quasi-governmental body or agency or any
administrative or investigative body that would, directly or
indirectly, or with the passage of time:
(a) have
a material adverse impact on Borrower’s or Manager’s
ability to accept and/or retain residents at the Facility or result
in the imposition of a fine, a sanction, a lower rate certification
or a lower reimbursement rate for services rendered to eligible
residents against or in respect of the Facility;
(b) modify,
limit or annul or result in the transfer, suspension, revocation or
imposition of probationary use of any of the Permits; or
(c) affect
Borrower’s continued participation in the Medicare or
Medicaid programs or any other Third-Party Payors’ Programs,
or any successor programs thereto, at current rate
certifications.
3.11
Physical Plant Standards . To the best of
Borrower’s knowledge, except for the repairs indicated in the
Property Condition Reports prepared for the benefit of Lender
in
15
connection with
the Loan as set forth on Exhibit A to the Commitment, the
Facility and the use thereof comply in all material respects with
all applicable local, state and federal building codes, fire codes,
health care, nursing/assisted living/senior housing facility (as
applicable) and other similar regulatory requirements (the
“Physical Plant Standards”), and except as set forth on
Schedule 3.11 attached hereto, no waivers of Physical Plant
Standards exist at the Facility.
3.12 Pledge
of Receivables . With the exception of the A/R Loan,
Borrower has not pledged its Accounts as collateral security for
any loan or Indebtedness other than, if applicable, the
Loan.
3.13 Payment
of Taxes and Property Impositions . Borrower has filed all
federal, state, and local tax returns which it is required to file
and has paid, or made adequate provision for the payment of, all
taxes and assessments which are shown pursuant to such returns or
are required to be shown thereon, including, without limitation,
provider taxes which are due and owing as of the date hereof. All
such returns are complete and accurate in all respects. Borrower
has paid or made adequate provision for the payment of all
applicable water and sewer charges, ground rents (if applicable)
and Taxes (as defined in the Mortgage) with respect to the Land
and/or the Improvements which are due and owing as of the date
hereof.
3.14 Title
to Mortgaged Property . Borrower has good and marketable
title to all of the Mortgaged Property, subject to no lien,
mortgage, pledge, encroachment, zoning violation, or encumbrance,
except Permitted Encumbrances which do not materially interfere
with the security intended to be provided by the Mortgage or the
current use or operation of the Land and the Improvements or the
current ability of the Facility to generate net operating income
sufficient to service the Loan. All Improvements situated on the
Land are situated wholly within the boundaries of the
Land.
3.15
Priority of Mortgage . The Mortgage constitutes a
valid first lien against the real and personal property described
therein, prior to all other liens or encumbrances, including those
which may hereafter accrue, excepting only Permitted Encumbrances
which do not and will not materially and adversely affect
(a) the ability of Borrower to pay in full the principal of
and interest on the Note when due, (b) the security (and its
value) intended to be provided by the Mortgage or (c) the
current use of the Land and the Improvements.
3.16
Location of Chief Executive Offices . The location of
Borrower’s chief executive office(s) are set forth on
Exhibit “B” hereto. Borrower has no place(s) of
business other than the locations of the Facility(ies) listed on
Exhibit “B” .
3.17
Disclosure . All information furnished or to be
furnished by Borrower to Lender in connection with the Loan or any
of the Loan Documents is, or will be at the time the same is
furnished, accurate and correct in all material respects and
complete insofar as completeness may be necessary to provide Lender
with true and accurate knowledge of the subject matter.
3.18 Trade
Names . Except as shown on Schedule 3.18, neither
Borrower nor the Facility, which operates under the trade name
stated in the Facility definition in Article I herein, has
changed its name, been known by any other name, or been a party to
a merger, reorganization or similar transaction within the last
three (3) years.
16
3.19
ERISA . As of the date hereof and throughout the term
of this Agreement,
(a) Borrower
is not an “employee benefit plan,” as defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), subject to Title I of
ERISA, and none of the assets of Borrower constitute “plan
assets” (within the meaning of Department of Labor
Regulation Section 2510.3-101) of one or more such plans,
and
(b) Borrower
is not a “governmental plan” within the meaning of
Section 3(32) of ERISA, and transactions by or with Borrower
are not be subject to state statutes regulating investments of, and
fiduciary obligations with respect to, governmental
plans.
The
execution and delivery of the Loan Documents and the borrowing of
indebtedness hereunder do not constitute a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of
the Internal Revenue Code of 1986, as amended (the
“Code”).
3.20
Ownership . The ownership interests of the Persons
comprising Borrower and each of the respective interests in
Borrower are correctly and accurately set forth on Exhibit
“C” hereto.
3.21
Compliance With Applicable Laws . Except for the
repairs described in Section 3.11 above, the Facility and its
operations and the Land and Improvements comply in all material
respects with, or are permitted non-conforming uses under all
covenants and restrictions of record and applicable laws,
ordinances, rules and regulations, including, without limitation,
the Americans with Disabilities Act and the regulations thereunder,
and all laws, ordinances, rules and regulations relating to zoning,
setback requirements and building codes and there are no waivers of
any building codes currently in existence for the
Facility.
3.22
Solvency . Borrower is solvent for purposes of 11
U.S.C. § 548, and the borrowing of the Loan will not render
Borrower insolvent for purposes of 11 U.S.C. § 548.
3.23
Management Agreement . The Management Agreement is in
full force and effect, and there are no defaults (either monetarily
or non-monetarily) by Manager or Borrower thereunder.
3.24 Other
Indebtedness . With the exception of the A/R Loan, which
shall be subject to the terms of the Intercreditor Agreement,
Borrower has no outstanding Indebtedness, secured or unsecured,
direct or contingent (including any guaranties), other than
indebtedness which represents trade payables or accrued expenses
incurred in the ordinary course of business of owning and operating
the Mortgaged Property; no other debt incurred by Borrower after
the date hereof will be secured (senior, subordinate or pari
passu ) by the Mortgaged Property.
3.25 Other
Obligations . Borrower has no material financial obligation
under any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which Borrower is a party or by
which Borrower or the Mortgaged Property is otherwise bound, other
than obligations incurred in the ordinary course of the operation
of the Mortgaged Property and other than obligations under the
Mortgage, the other Loan Documents and the A/R Loan.
17
3.26
Fraudulent Conveyances . Borrower (a) has not
entered into this Agreement or any of the other Loan Documents with
the actual intent to hinder, delay, or defraud any creditor and
(b) has received reasonably equivalent value in exchange for
its obligations under the Loan Documents. Giving effect to the
transactions contemplated by the Loan Documents to the best of
Borrower’s knowledge, the fair saleable value of
Borrower’s assets exceeds and will, immediately following the
execution and delivery of the Loan Documents, be greater than
Borrower’s probable liabilities, including the maximum amount
of its contingent liabilities or its debts as such debts become
absolute and mature. Borrower’s assets do not and,
immediately following the execution and delivery of the Loan
Documents will not, constitute unreasonably small capital to carry
out its business as conducted or as proposed to be conducted.
Borrower does not intend to, and does not believe that it will,
incur debts and liabilities (including, without limitation,
contingent liabilities and other commitments) beyond its ability to
pay such debts as they mature (taking into account the timing and
amounts to be payable on or in respect of obligations of
Borrower).
3.27 No
Change in Facts or Circumstances . All information in any
application for the Loan submitted to Lender (the “Loan
Application”) and in all financial statements, rent rolls,
reports, certificates and other documents submitted in connection
with the Loan Application are complete and accurate in all material
respects. There has been no material adverse change in any fact or
circumstance that would make any such information incomplete or
inaccurate.
3.28 No
Illegal Activity as Source of Funds . No portion of the
Mortgaged Property has been or will be purchased, improved,
equipped or furnished with proceeds of any illegal
activity.
3.29
Compliance with Anti-Terrorism, Embargo, Sanctions and
Anti-Money Laundering Laws . Borrower, and to the best of
Borrower’s knowledge, after having made diligent inquiry,
(a) each Person owning an interest in Borrower, (b) each
Guarantor, (c) Manager, and (d) each tenant at the
Property: (i) is not currently identified on OFAC List, and
(ii) is not a Person with whom a citizen of the United States
is prohibited to engage in transactions by any trade embargo,
economic sanction, or other prohibition of United States law,
regulation, or Executive Order of the President of the United
States. Borrower has implemented procedures, and will consistently
apply those procedures throughout the term of the Loan, to ensure
the foregoing representations and warranties remain true and
correct during the term of the Loan.
(a)
Anti-Kickback Law . After consultation with counsel
concerning the federal anti-kickback law (42 U.S.C.A. SEC.
1320a-7b(b)), neither Borrower nor its agent have offered or given
any remuneration or thing of value to any person to encourage
referral to the facility nor has Borrower or its agent solicited or
received any remuneration or thing of value in exchange for
Borrower’s agreement to make referrals or to purchase goods
or services for the Facility.
18
(b)
Relationships . No physician or other healthcare
practitioner has an ownership interest in, or financial
relationship with (other than for rendering services to patient
residents), the Borrower, Manager or the Facility.
(c)
Required Adjustments . With the exception of those
cost reports shown on Schedule 3.30, all cost report periods for
all Facility payors have been closed and settled, and all required
adjustments have been fully paid and/or implemented.
3.31
Compliance Program . Borrower has adopted and is
adhering to a compliance program meeting the guidelines published
by the Office of the Inspector General on March 16, 2000, at
65 Fed. Reg. 14289. Borrower’s designated compliance officer
is Bob Rice.
ARTICLE IV
AFFIRMATIVE COVENANTS OF BORROWER
Each Borrower
agrees with and covenants unto Lender that until the Loan
Obligations have been paid in full, each Borrower shall:
4.1 Payment
of Loan/Performance of Loan Obligations . Duly and
punctually pay or cause to be paid the principal and interest of
the Note in accordance with its terms and duly and punctually pay
and perform or cause to be paid or performed all Loan Obligations
hereunder and under the other Loan Documents.
4.2
Maintenance of Existence . Maintain its existence as
a Delaware limited liability company in good standing under the
laws of the jurisdiction of its organization or formation, and, in
each jurisdiction in which the character of the property owned by
it or in which the transaction of its business makes qualification
necessary, maintain good standing and qualification to do
business.
4.3
Maintenance of Single Purpose Status . Maintain its
existence as a Single Purpose Entity.
4.4 Accrual
and Payment of Taxes . During each fiscal year, make
accurate provision for the payment in full of all current tax
liabilities of all kinds including, without limitation, federal and
state income taxes, franchise taxes, payroll taxes, provider taxes
(to the extent necessary to participate in and receive maximum
funding pursuant to Reimbursement Contracts), Taxes (as defined in
the Mortgage), all required withholding of income taxes of
employees, all required old age and unemployment contributions, and
all required payments to employee benefit plans, and pay the same
when they become due.
4.5
Insurance . Maintain, at its expense, the following
insurance coverages and policies with respect to the Mortgaged
Property and the Facility, which coverages and policies must be
acceptable to Lender’s insurance consultant in its reasonable
discretion:
(a) Comprehensive
“all risk” insurance, including coverage for windstorms
and hail, in an amount equal to 100% of the full replacement cost
of the Facility, which
19
replacement
cost shall be determined by the “Insurable Value” or
“Cost Approach to Value” reflected in the most recent
Lender approved appraisal for the Facility, without deduction for
depreciation. Such insurance shall also include (i) agreed
insurance amount endorsement waiving all co-insurance provisions,
and (ii) an “Ordinance or Law Coverage”
endorsement if the Facility or the use thereof shall constitute a
legal non-conforming structure or use.
(b) Commercial
general liability insurance against claims for sexual harassment
abuse of residents and/or patients, personal injury, bodily injury,
death or property damage, in or about the Facility to be on a
so-called “occurrence” basis for at least $1,000,000.00
per occurrence and $3,000,000.00 in the aggregate with a
$5,000,000.00 umbrella coverage.
(c) Professional
liability insurance against claims for personal injury, bodily
injury or death, in or about the Facility to be on a so-called
“occurrence” basis for at least $1,000,000.00 per
occurrence and $3,000,000.00 in the aggregate.
(d) Business
interruption income insurance for the Facility in an amount equal
to 100% of the net income plus carrying costs and extraordinary
expenses of the Facility for a period of twelve (12) months as
projected based on Borrower’s reasonable estimate thereof as
approved by Lender, containing a 90-day extended period of
indemnity endorsement, provided that any covered loss thereunder
shall be payable to Lender.
(e) Flood
Hazard insurance if any portion of the Improvements is located in a
“flood zone area,” as identified in the Federal
Register by the Federal Emergency Management Agency as a 100-year
flood zone or “special flood hazard area” and in which
flood insurance is available. In lieu thereof, Lender will accept
proof, satisfactory to it in its sole discretion, that the
Improvements are not within the boundaries of a designated
area.
(f) Workers’
compensation insurance, if applicable and required by state law,
subject to applicable state statutory limits, and employer’s
liability insurance with a limit of $1,000,000.00 per accident and
per disease per employee with respect to the Facility.
(g) Comprehensive
boiler and machinery insurance, including property damage coverage
and time element coverage in an amount equal to 100% of the full
replacement cost, without deduction for depreciation, of the
Facility housing the machinery, if steam boilers, pipes, turbines,
engines or any other pressure vessels are in operation with respect
to the Facility. Such insurance coverage shall include a
“joint loss” clause if such coverage is provided by an
insurance carrier other than that which provides the comprehensive
“all risk” insurance described above.
(h) During
the period of any construction and/or renovation of capital
improvements with respect to the Facility or any new construction
at the Facility, builder’s risk insurance for any
improvements under construction and/or renovation, including,
without limitation, costs of demolition and increased cost of
construction or renovation, in an amount equal the amount of the
general contract plus the value of any existing purchase money
financing for improvements and materials stored on or off the
Property, including “soft cost” coverage.
(i) If
the Facility is located in a seismically active area or an area
prone to geologic instability and mine subsidence, Lender may
require an inspection by a qualified
20
structural or
geological engineer satisfactory to Lender, and at Borrower’s
expense. The Facility must be structurally and geologically sound
and capable of withstanding normal seismic activity or geological
movement. Lender reserves the right to require earthquake insurance
or Maximum Probable Loss insurance on a case by case basis in
amounts determined by Lender.
(j) Such
other insurance coverages as may be deemed necessary at any time
during the term of the Loan and as shall be provided within such
time periods as Lender may determine, in each case, in its
commercially reasonable discretion.
All insurance
policies shall have a term of not less than one year and shall be
in the form and amount and with deductibles as, from time to time,
shall be acceptable to Lender in its reasonable discretion. All
such policies shall provide for loss payable solely to Lender and
shall contain a standard “non-contributory mortgagee”
endorsement or its equivalent relating, among other things, to
recovery by Lender notwithstanding the negligent or willful acts or
omissions of Borrower and notwithstanding (i) occupancy or use
of the Facility for purposes more hazardous than those permitted by
the terms of such policy, (ii) any foreclosure or other action
taken by Lender pursuant to the Mortgage upon the occurrence of an
Event of Default thereunder, or (iii) any change in title or
ownership of the Facility.
All insurance
policies must be written by a licensed insurance carrier in the
State in which the Facility is located and such insurance carrier
must have a long-term senior debt rating of at least
“A” by Standard and Poor’s Rating Service;
provided, that if the initial principal balance of the Loan is in
excess of $25,000,000.00, such insurance carrier must have a
long-term senior debt rating of at least “AA” by
Standard & Poor’s Rating Service.
All liability
insurance policies must name “Capmark Finance Inc., and its
successors and/or assigns as their interests may appear” as
additional insureds, and all property insurance policies must name
“Capmark Finance Inc., and its successors and/or
assigns” as the named mortgage holder entitled to all
insurance proceeds. Lender shall have the right, without
Borrower’s consent, by notice to the insurance company, to
change the additional insured and named mortgagee endorsements in
connection with any sale of the Loan. Notwithstanding anything
contained herein, Borrower shall be entitled to all insurance
proceeds covered by and disbursed under the above-referenced
comprehensive all risk insurance policy provided such proceeds do
not exceed $25,000.00 per occurrence.
All insurance
policies for the above-required insurance must provide for thirty
(30) days prior written notice of cancellation to
Lender.
Policies or
binders, together with evidence of the above required insurance on
ACORD Form 27 or its equivalent, must be submitted to Lender
prior to setting the interest rate on the Loan.
With respect to
insurance policies which require payment of premiums annually, not
less than thirty (30) days prior to the expiration dates of
the insurance policies obtained pursuant to this Agreement,
Borrower shall pay such amount, except to the extent Lender is
escrowing sums therefor pursuant to the Loan Documents. Not less
than thirty (30) days prior to the expiration dates of the
insurance policies obtained pursuant to this Agreement, originals
or certified copies
21
of renewals of
such policies (or certificates evidencing such renewals) bearing
notations evidencing the payment of premiums or accompanied by
other evidence satisfactory to Lender of such payment, which
premiums shall not be paid by Borrower through or by any financing
arrangement, shall be delivered by Borrower to Lender at the
address set forth in Section 8.7 hereof and in Exhibit
“BR
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