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EXHIBIT 10.8
Final
SUBORDINATED NOTE
$1,700,000 Franklin, Tennessee
Dated as of November 8, 2000
FOR VALUE RECEIVED, Advocat Inc., a Delaware corporation, with an
address of 000 Xxxxxxx Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxx 00000
("Borrower"), hereby promises to pay to Omega Healthcare Investors, Inc., a
Maryland corporation with an address of 000 Xxxxxxx Xxx, Xxxxx 000, Xxx Xxxxx,
Xxxxxxxx 00000 ("Payee"), or to order, the principal sum of One Million Seven
Hundred Thousand Dollars ($1,700,000), and to pay interest from the date hereof
on the unpaid principal amount hereof at a rate of interest at all times equal
to seven percent (7%) per annum, which interest shall be accrued quarterly.
Accrued interest (including, but not limited to, all interest accruing from the
date of this Note but not paid pursuant to this sentence) shall be payable in
cash quarterly beginning with the quarter following the payment in full of that
certain Reimbursement Note dated the same date as this Note made by the Borrower
to AmSouth Bank (the "Reimbursement Note"). To the extent accrued interest is
not paid quarterly, including interest payments not made pursuant to the
preceding sentence, it shall be compounded quarterly. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The quarterly interest
payments shall be made on March 31, June 30, September 30 and December 31.
Borrower may pre-pay this Note in part or in full at any time without penalty.
All payments of principal and interest shall be in lawful money of the United
States, and shall be made by wire transfer of immediately available funds to
Payee or to such other account as is designated by Payee in writing to Borrower.
All outstanding principal and accrued interest shall be due and payable in full
on September 30, 2007 (the "Maturity Date").
1. (a) On the Maturity Date, the Borrower may, at its
option subject to the limitations contained below in Sections 1(b) and 1(c),
convert all or any portion of the outstanding principal and accrued unpaid
interest on this Note as follows:
(1) If the holder of this Note also holds shares of Borrower"s
Series B Convertible Preferred Stock ("Preferred Stock") on
the Maturity Date, then to shares of Preferred Stock. The
number of shares of Series B Preferred Stock to be issued in
respect of any of the principal and/or accrued unpaid interest
shall be equal to the amount of such principal and/or accrued
unpaid interest divided by the Stated Value (as defined in the
Certificate of Designation of Series B Preferred Stock) of the
Series B Convertible Preferred Stock on the Maturity Date.
(2) If the holder of this Note does not hold shares of Preferred
Stock on the Maturity Date, then to shares of Borrower"s
Common Stock, $0.01 par value ("Common Stock"). The number of
shares of Common Stock to be issued in respect of any of the
principal and/or accrued unpaid interest shall be equal to (A)
(1) the amount of
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such principal and/or accrued unpaid interest divided by (2)
the Stated Value of the Preferred Stock (as defined in the
Certificate of Designation of Series B Preferred Stock) which
would then be in effect as of the Maturity Date multiplied by
(B) the Conversion Rate of the Preferred Stock (as defined in
the Certificate of Designation of Series B Preferred Stock)
which would then be in effect as of the Maturity Date.
(b) Borrower may not convert outstanding principal or accrued
unpaid interest into equity securities of Borrower pursuant to Section 1(a) if
the aggregate amount of outstanding principal and accrued interest to be
converted is less than $250,000. Borrower shall not issue fractions of shares of
equity securities upon conversion of this Note. If any fractional share would,
except for the provisions of this Section 1(b), be issuable upon conversion of
this Note, Borrower shall pay to the person entitled to receive such equity
security an amount in cash equal to (1) in the case of Preferred Stock, the
value of such fractional share calculated using the Stated Value, calculated to
the nearest one-one hundredth (1/100) of a share; or (2) in the case of Common
Stock, the value of such fractional share calculated using the quotient of (x)
the Stated Value of the Preferred Stock which would then be in effect as of the
Maturity Date divided by (y) the Conversion Price of the Preferred Stock which
would then be in effect as of the Maturity Date, calculated to the nearest
one-one hundredth (1/100) of a share.
(c) Notwithstanding anything in this Note, the Settlement and
Restructuring Agreement dated the same date as this Agreement among Borrower,
Payee and certain other parties (the "Restructuring Agreement") or any other
document, instrument or agreement between Borrower and Payee or any affiliate of
Payee, Borrower may not convert any outstanding principal or accrued unpaid
interest into equity securities of Borrower, including Preferred Stock or Common
Stock, and the holders of this Note shall continue to hold this Note, unless, as
of the date of the proposed conversion:
(1) Xxxxx's accountants or legal counsel render a written
opinion (the "Conversion Opinion") to Payee that such
conversion will not result in, cause or create a
material risk of, the Payee losing its status as a
Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended; provided, however,
that Borrower may convert a portion of outstanding
principal or accrued unpaid interest into equity
securities of Borrower if Xxxxx's accountants or
legal counsel render a Conversion Opinion with
respect to such portion and if subparagraphs (2) thru
(5) of this Section 1(c) are satisfied as of the date
of the proposed conversion;
(2) the Common Stock is registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended
(the "34 Act") and Borrower has timely filed all
reports required to be filed by Borrower under the 34
Act within the previous two years;
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(3) no Default (as defined in Section 4 below) has
occurred and is continuing;
(4) the Common Stock is listed for trading on the Nasdaq
National Market, the New York Stock Exchange or upon
a comparable national stock exchange; and
(5) the average weekly trading volume of the Common Stock
over the prior four weeks was at least 500,000 shares
traded (as adjusted for stock splits, stock dividends
or similar transactions).
All costs associated with the Conversion Opinion shall be paid by Xxxxxxxx.
2. (a) Payment of this Note shall be subordinated in right of
payment and distribution of the assets of Borrower (including without
limitation, any distribution of the assets of Borrower to its creditors in any
insolvency, bankruptcy, reorganization or similar proceeding with respect to
Borrower) to all Senior Indebtedness (as defined below); provided, that Borrower
may make regular quarterly payments of interest due on this Note as provided in
the preceding paragraph and payment of principal upon maturity ("Permitted
Payments"), unless (i) a Default (as defined in any such Senior Indebtedness)
has occurred or (ii) an event or condition which with the passage of time or
giving of notice, or both, could become a Default has occurred and is continuing
(collectively, the "Default Restrictions"). For purposes of this Note, "Senior
Indebtedness" shall mean the principal, premium, if any, and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement and indemnification obligations, and all other amounts
payable under or with respect of (i) any indebtedness of the Company (excluding
this Note and indebtedness by its terms expressly ranking subordinate to or pari
passu with this Note, herein, the "Subordinated Indebtedness") for money
borrowed, whether or not evidenced by debentures, notes or similar instruments,
issued, incurred, or assumed by the Company and whether outstanding on the dates
of this Note or hereafter created or incurred; (ii) all indebtedness and other
obligations guaranteed by the Company, or the payment and performance of which
is secured by a lien on property or assets of the Company; (iii) the Borrower's
Credit Facility with AmSouth Bank; (iv) the Borrower's mortgage obligations with
General Motors Acceptance Corporation; and (v) the Reimbursement Note.
(b) Borrower shall notify Payee in writing before or at the time
an interest payment is due if a Default Restriction has occurred. Except with
respect to payments made to Payee pursuant to Section 1(a) in the form of the
Corporation's Series B Preferred Stock or Common Stock, if Payee receives any
cash payment on account of principal or of interest on this Note in violation of
these subordination provisions, Payee shall receive the same as trustee for the
holders of the Senior Indebtedness and will pay or deliver the same to such
holders immediately and Payee hereby assigns to such holders all rights of Payee
to any such payments and Payee shall execute such agreements
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as may be reasonably required to effectuate this assignment. Any amounts so paid
to the holders of the Senior Indebtedness shall be deemed not to have been paid
by Borrower, or received by Payee, under this Note. If any event or condition
which is the subject of a Default Restriction shall be cured or waived in
writing by the holders of the Senior Indebtedness, within the applicable grace
period, if any, provided in the Senior Indebtedness, Borrower shall resume
payments of interest (including any past due interest) on this Note and may pay
the principal of this Note, according to the terms set forth herein, subject to
future application of the Default Restrictions. Payee acknowledges that this is
a continuing agreement of subordination, and the Borrower and its senior lenders
may amend, modify or extend, and such lenders may grant waivers under the
provisions of any such Senior Indebtedness without approval of or notice to
Payee.
(c) Until the Senior Indebtedness is paid in full, Payee shall not
(a) initiate or participate with others in any suit, action or proceeding
against Borrower to enforce payment or collect all or part of the indebtedness
under this Note, (b) accelerate the maturity of or increase the principal of or
amend the subordination provisions of this Note, (c) increase the interest rate
on this Note, or (d) exercise any right of setoff with respect to, or take any
security from Borrower for, this Note. Except to the extent expressly provided
in this Note, nothing contained herein shall impair, between Borrower and Payee,
the obligations of Borrower to make payments of principal of or interest on this
Note to Payee as and when the same shall become due and payable in accordance
with the terms hereof.
(d) The holder of this Note by his acceptance hereof acknowledges
and agrees that the foregoing subordination provisions are, and are intended to
be, an inducement and a consideration to each holder of Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of this Note, and each holder of Senior Indebtedness shall be deemed
conclusively to have relied upon such subordination provisions in acquiring and
continuing to hold such Senior Indebtedness.
3. This Note is secured by all guaranties, security interests,
liens, assignments and encumbrances granted concurrently herewith, and granted
previously or from time to time hereafter by Borrower or any of Borrower"s
affiliates to Payee, or any of Payee"s affiliates, including, but not limited
to, the security interests granted by Diversicare Leasing Corp., a Delaware
corporation, to Sterling Acquisition Corp., a Kentucky corporation, in
connection with the Amended and Restated Master Lease (as defined in the
Restructuring Agreement) (collectively, the "Security Documents"). Reference is
hereby made to the Security Documents for additional terms and conditions
concerning this Note.
4. The occurrence of any of the following shall constitute a
"Default" under this Note: (i) the Borrower fails to pay when due, whether by
acceleration or otherwise, any amount payable under this Note; or (ii) an Event
of Default under the Amended and Restated Master Lease; or (iii) an Event of
Default under any of the Security Documents.
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0. If a Default has occurred and is continuing, Payee may
(subject to the limitations set forth in Section 2 of this Note) without demand
of performance and without other notice declare the unpaid principal of and
interest on this Note to be immediately due and payable, whereupon the same
shall be due and payable without presentation, demand, protest or notice of any
kind, all of which are expressly waived, anything herein to the contrary
notwithstanding. Payee may proceed to protect and enforce Payee"s rights either
by suit in equity and/or by action at law, whether for specific performance, or
proceed to enforce any other legal or equitable right as a holder of this Note.
All remedies of Payee provided herein are cumulative and concurrent and may be
exercised independently, successively or together against Borrower at the sole
discretion of Payee, shall not be exhausted by any exercise thereof, and may be
exercised as often as occasion therefor may occur, and shall not be construed to
be waived or released by Payee"s delay in exercising, or failure to exercise,
them or any of them at any time it may be entitled to do so.
6. All notices, requests and other communications hereunder shall
be made in the manner set forth in the Restructuring Agreement.
7. Borrower waives presentment for payment, demand, notice of
nonpayment, notice of protest and protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default (except as
expressly provided herein) or enforcement of the payment of this Note and agrees
that the liability of Borrower shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee.
8. Acceptance by Payee of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and Xxxxx"s
acceptance of any such partial payment shall not constitute a waiver of Payee"s
right to receive the entire amount due. Upon any Default, neither the failure of
the Payee to promptly exercise its right to declare the outstanding principal
and accrued unpaid interest hereunder to be immediately due and payable, nor the
failure of Payee to demand strict performance of any other obligation of
Borrower or any other person who may be liable hereunder, shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of Borrower or any other person who may be liable
under this Note.
9. Payee shall not by any act of omission or commission be deemed
to have waived any of its rights or remedies hereunder unless such waiver be in
writing and signed by Xxxxx, and then only to the extent specifically set forth
therein; a waiver of one event shall not be construed as continuing or as a bar
or waiver of such right or remedy on a subsequent event.
10. Unless a Default has occurred and not been fully cured, all
payments received by Payee under this Note shall be applied, subject to the
limitations set forth in Section 2 of this Note, first against interest which
has accrued and not been paid, and second to principal, with the balance applied
against principal and any other amounts which may be owing to Payee under this
Note.
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Following the occurrence of a Default, and until such Default is fully
cured, Payee may apply, subject to the limitations set forth in Section 2 of
this Note, any payment which it receives, whether directly from the Borrower or
as a consequence of realizing upon any security which it holds, in its sole and
absolute discretion, to any amount owing to it under this Note or the Security
Documents.
11. The Borrower shall pay to Payee, immediately upon demand, any and
all taxes (including, but not limited to, state franchise taxes) assessed
against Payee by reason of its holding of this Note and the receipt by it of
interest payments hereunder (other than income taxes assessed by the United
States, or by any foreign government or political subdivision thereof having
jurisdiction over the Payee on such interest payments), and any and all other
sums and charges that may at any time become due and payable under the Security
Agreements.
12. The Borrower, and any other person who may be liable hereunder in
any capacity, agree to pay all costs of collection and any litigation, including
attorney fees (including any appeals relating to such enforcement or collection
proceedings), in case the principal of the Note or any payment of interest
thereon is not paid as it becomes due, or in case it becomes necessary to
protect the security for this Note, whether suit is brought or not.
13. All payments by the Borrower shall be paid in full without setoff
or counterclaim and without reduction for and free from any and all taxes,
levies, imposts, duties, fees, charges, deductions or withholdings of any type
or nature imposed by any government or any political subdivision or taxing
authority thereof.
14. IT IS SPECIFICALLY AGREED THAT TIME IS OF THE ESSENCE OF THIS NOTE.
15. All agreements between the Borrower, and any other party liable for
the payment of the indebtedness evidenced by this Note, and Payee, or any
subsequent holder of this Note, whether now existing or hereafter arising and
whether written or oral, are hereby limited so that in no contingency, whether
by reason of demand or acceleration of the maturity of this Note or otherwise,
shall the interest contracted for, charged, received, paid or agreed to be paid
to the holder of this Note exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would otherwise
be payable to the holder of this Note in excess of the maximum lawful amount,
the interest payable to the holder of this Note shall be reduced to the maximum
amount permitted by applicable law; and if from any circumstance the holder of
this Note shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal of this Note and not
to the payment of interest, or if such excessive interest exceeds the unpaid
balance of the principal of this Note, such excess shall be refunded to the
Borrower or to another party, or parties, liable for the payment of the
indebtedness evidenced by this Note, as applicable. All interest paid or agreed
to be paid to the holder of this Note shall, to the extent permitted by
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applicable law, be amortized, prorated, allocated and spread through the full
period of this Note (including the period of any renewal or extension hereof)
until payment in full of the principal so that the interest for such full period
shall not exceed the maximum permitted by applicable law. This Section 15 shall
control all agreements between the Borrower and the holder of this Note.
16. If any provision hereof is found by a court of competent
jurisdiction to be prohibited or unenforceable, it shall be ineffective only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of Payee
in order to effect the provisions of this Note.
17. This Note shall be governed by and construed in accordance
with the internal substantive laws of the State of Delaware, without regard to
any conflict of laws rule or principle that would result in the application of
the domestic substantive law of any other jurisdiction.
Signature on following page.
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IN WITNESS WHEREOF, Xxxxxxxx has caused this Subordinated Note to be
executed and delivered by its proper and duly authorized officer the day and
year written above.
ADVOCAT INC.
By: /s/ Xxxxx X. Xxxxx, Xx.
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Its: Senior Vice President
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AGREED TO AND ACCEPTED BY XXXXX;
OMEGA HEALTHCARE INVESTORS, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Its: Vice President
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