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EXHIBIT 10.1
FIFTH AMENDMENT TO MASTER CREDIT
AND SECURITY AGREEMENT
This Fifth Amendment to Master Credit and Security Agreement is made and
entered into as of June __, 1999, by and between First American National Bank, a
national banking association, with its principal place of business at First
American Center, Nashville, Tennessee, 37237 (hereinafter referred to as "First
American"), in its capacity as the lender under the Working Capital Line and as
Administrative Agent, GMAC Commercial Mortgage Corporation, with offices for
purposes of this Agreement at 2200 Woodcrest Place, Suite 305, Birmingham,
Alabama, 35209 (hereinafter referred to as "GMAC"), in its capacity as the
lender under the Acquisition Line (First American and GMAC are sometimes
referred to individually herein as "Lender", and collectively herein as the
"Lenders"), Advocat Inc., a Delaware corporation (hereinafter referred to as
"Advocat"), Diversicare Management Services Co. (the "Borrower"), a Tennessee
corporation and wholly-owned subsidiary of Advocat, Advocat Finance, Inc.
("AFI"), a Delaware corporation and wholly-owned subsidiary of the Borrower,
Diversicare Leasing Corp. ("DLC"), a Tennessee corporation and wholly-owned
subsidiary of AFI, Advocat Ancillary Services, Inc. ("AAS"), a Tennessee
corporation and wholly-owned subsidiary of the Borrower, Diversicare Canada
Management Services Co., Inc. ("DCMS"), a corporation organized under the laws
of Canada and wholly-owned subsidiary of DLC, Diversicare General Partner, Inc.
("DGP"), a Texas corporation and wholly-owned subsidiary of DLC, First American
Health Care, Inc. ("FAHC"), an Alabama corporation and wholly-owned subsidiary
of DLC, Diversicare Leasing Corp. of Alabama ("DLCA"), an Alabama corporation
and wholly-owned subsidiary of DLC, and Advocat Distribution Services, Inc.
("ADS"), a Tennessee corporation and wholly-owned subsidiary of the Borrower
(DLC, AAS, DCMS, DGP, FAHC, ADS, DLCA and AFI, together with any other
subsidiaries of Advocat (or any Subsidiary) formed or acquired after the date
hereof, are sometimes hereinafter referred to collectively as the
"Subsidiaries"),
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a Master Credit and Security Agreement
dated as of December 27, 1996 (the "Loan Agreement"), by and between the
Lenders, Advocat, the Borrower and the Subsidiaries, the Lenders agreed to loan
to the Borrower, Advocat and the Subsidiaries sums not to exceed $50,000,000,
including a $10,000,000 Working Capital Line to be funded by First American
(capitalized terms not otherwise defined herein shall have meanings ascribed to
such terms in the Loan Agreement); and,
WHEREAS, at Borrower's request, First American has provided a temporary
increase in the Working Capital Line in the amount of $4,000,000 (the "Overline
Facility"); and,
WHEREAS, Diversicare Assisted Living Services, Inc. is a Tennessee
corporation ("DALS"), and a wholly-owned subsidiary of AFI, and together with
the Borrower formed Diversicare Assisted Living Services NC, LLC ("DALSNC"), a
Tennessee limited liability company, which owns or leases certain assisted
living facilities in North Carolina as described in Exhibit A attached hereto
(the "North Carolina Facilities"); and
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WHEREAS, GMAC has committed to finance the portion of the North Carolina
Facilities owned by DALSNC, provided GMAC has requested that DALSNC convey the
facilities to Diversicare Assisted Living Services NC I, LLC ("DALSNC I") and
Diversicare Assisted Living Services NC II, LLC ("DALSNC II"), which will in
turn pledge such facilities to GMAC as collateral for the GMAC loan; and
WHEREAS, pursuant to the Loan Agreement, DALS, DALSNC, DALSNC I and DALNC
II will join in the Loan Agreement as subsidiaries and will pledge to First
American, as collateral security for the Working Capital Line, certain assets
of such entities; and
WHEREAS, Lenders have agreed to modify certain formal covenants contained
in the Loan Agreement,
NOW, THEREFORE, in consideration of the foregoing premises, and other good
and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Joinder of Entities. DALS, DALSNC, DALSNC I and DALSNC II hereby join
in the Loan Agreement as Subsidiaries and Guarantors of the Working Capital
Line. As part of the Collateral securing the Working Capital Line, DALS, DALSNC,
DALSNC I and DALSNC II hereby join in Section 4.1 of the Loan Agreement as
Pledgors, and hereby, jointly and severally, collaterally assign and grant to
First American, as collateral security for the Working Capital Line, a security
interest in all items of Collateral described in Section 4.1(a), including
without limitation all accounts receivable, equipment, furnishings and
furniture, general intangibles, inventory, and all proceeds thereof, as more
specifically set forth in Section 4.1(a)(i) through (v). In addition, such
entities agree to execute Guaranty Agreements as required by the Lenders, to
evidence such entities' guaranty obligations under the Loan Agreement. Such
entities shall also execute such additional documents and instruments, including
without limitation UCC-1 Financing Statements, in order to perfect the security
interest of the Lenders and the Collateral as described herein.
2. Financial Covenants. Section 5.6 of the Loan Agreement is hereby
deleted and the following is substituted as a new Section 5.6:
5.6 Financial Covenants. The Borrower, Advocat and the other
Guarantors shall comply with the following financial covenants, on a
consolidated basis:
A. Maintain a Current Ratio of not less than 1.25 to 1 at all times. For
purposes of calculating the Current Ratio the following debt will be
excluded from Current Maturities of Long Term Debt:
(a) the principal balance outstanding under the Acquisition
Line;
(b) Principal balance outstanding under the Working Capital
Line or the Overline Facility;
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(c) Principal balance outstanding under the Bridge Loan
Facility made available by First American and AmSouth Bank,
which remains outstanding following the closing of the new
GMAC financing of the North Carolina Facilities.
In addition, Current Liabilities will include assumed amortization of five
percent (5%) of the outstanding principal balance under the Acquisition
Line.
B. Maintain a ratio of Adjusted Funded Debt to EBITDAR of not more than
8.00 to 1 through December 30, 1999, and 7.50 to 1 on December 31,
1999 and thereafter. In addition, for purposes of calculating
EBITDAR, to the extent taken in a quarter included in the calculation
of the ratio, EBITDAR will include (i) non-recurring charges as
quantified in the December 31, 1998 audited statement of operations
and defined in Note 16 of the December 31, 1998 audit report, and (ii)
a non-recurring charge of $433,440 taken in the first quarter of
fiscal year 1999 related to an accounting change (SOP98-5).
C. Maintain a Fixed Charge Coverage Ratio of not less than 1.00 to 1.00
through December 30, 1999, and 1.05 to 1.00 on December 31, 1999, and
thereafter. For purposes of calculating this ratio, the following
debt will be excluded from Current Maturities of Long Term Debt:
(a) The principal balance outstanding under the
Acquisition Line;
(b) Principal balance outstanding under the Working
Capital Line or the Overline Facility;
(c) Principal balance outstanding under the Bridge Loan
Facility made available by First American and AmSouth Bank,
which remains outstanding following the closing of the new
GMAC financing of the North Carolina Facilities.
In addition, Current Maturities of Long Term Debt will include assumed
amortization of five percent (5%) of the outstanding principal balance
under the Acquisition Line.
D. Maintain a Tangible Net Worth of not less than $24,000,000 as of the
date hereof. Such minimum Tangible Net Worth shall increase (but
shall not decrease) thereafter on a quarterly basis by a minimum of
75% of quarterly net income (beginning with fiscal quarter ended June
30, 1999), plus 100% of any addition to Borrowers' Stockholders
Equity.
3. Waiver of Defaults. Borrower acknowledges that Borrower is in Default
due to noncompliance with Sections 5.6(a), (b), and (c) as of March 31, 1999.
Subject to the terms of this Amendment, Lenders hereby waive the existing
Defaults described above. The foregoing waiver by
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the Lenders is limited to the specific Defaults described in this Section, and
shall not be deemed to be a waiver of any other Default under the Loan
Agreement.
4. Fees and Expenses. In consideration for the agreements of First
American and GMAC hereunder, and the consent of AmSouth Bank, N.A. to the new
GMAC loan to be secured by the North Carolina Facilities, Borrower shall pay to
First American, GMAC and AmSouth Bank, N.A. a fee of $3,500.00 each, which
shall be due and payable upon execution of this Agreement. Borrower shall also
pay all reasonable costs and expenses incurred by First American in connection
with the transactions contemplated herein.
5. Guarantors. The Guarantors have joined in this Agreement for purposes
of consenting to this Amendment.
6. Consent of GMAC. To the extent required by the Loan Agreement, GMAC
has executed this Agreement for purposes of consenting to the terms of this
Fifth Amendment.
7. Restatement and Ratification. The Borrower, Advocat and the
subsidiaries hereby restate and ratify all of the representations and
warranties contained in the Loan Agreement, as of the date hereof, and each
hereby acknowledge and confirm that the terms and conditions of the Loan
Agreement, as amended hereby, remain in full force and effect.
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