SUBORDINATED NOTE
Exhibit 10.3
| $2,533,614.53 | Franklin, Tennessee Dated as of October 1, 2006 |
FOR VALUE RECEIVED, Advocat Inc., a Delaware corporation, with an address of 0000 Xxxxxxxx
Xxxxxxxxx, Xxxxxxxxx, XX 00000 (“Borrower”), hereby promises to pay to Omega Healthcare
Investors, Inc., a Maryland corporation with an address of 0000 Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxxx,
XX 00000 (“Payee”), or to order, the principal sum of Two Million Five Hundred Thirty Three
Thousand Six Hundred Fourteen Dollars and Fifty Three Cents ($2,533,614.53), 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 shall
be payable (subject to Section 2) in cash quarterly beginning on December 31, 2006 and continuing
on the last day of each quarter thereafter. To the extent accrued interest is not paid quarterly,
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 (subject to Section 2) in full on September 30, 2007 (the
“Maturity Date”).
1. Intentionally omitted.
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; and (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.
(b) Borrower shall notify Payee in writing before or at the time an interest payment is due if
a Default Restriction has occurred. 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 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
(“Lessee”), to Sterling Acquisition Corp., a Kentucky corporation (“Lessor”), in
connection with the Consolidated Amended and Restated Master Lease between Lessor and Lessee dated
as of November 8, 2000, as amended by a First Amendment to Consolidated Amended and Restated Master
Lease dated as of September 30, 2001, a Second Amendment to Consolidated Amended and Restated
Master Lease dated as of June 15, 2005, and a Third Amendment to Consolidated Amended and Restated
Master Lease dated as of the date of this Note (as amended, the “Master Lease”), and the
Restructuring, Stock Issuance and Subscription Agreement among Borrower, Payee, Lessee and Lessor
dated as of the date of this Note (the “Restructuring Agreement”) (collectively, the
“Security Documents”). Reference is
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xxxxxx 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 Principal
or interest payable under this Note and such failure is not cured within a period of five (5) days
after notice thereof from Omega provided that Borrower shall be entitled to such notice and may
avail itself of such cure period no more than two (2) times in any calendar year; (ii) the Borrower
fails to perform any other obligation under this Note and such failure is not cured within a period
of thirty (30) days after notice thereof from Omega; (iii) an Event of Default under the Master
Lease which is not cured during any applicable cure period; or (iii) an Event of Default under any
of the Security Documents which is not cured during any applicable cure period.
5. 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 (except as
specifically required in Section 4 of this Note), all of which are expressly waived. Payee may
proceed to protect and enforce Xxxxx’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 Xxxxx’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.
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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. 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
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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 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/ Xxxxxxx X. Council, III | |||||
| Name: | ||||||
| Title: | President and CEO | |||||
| AGREED TO AND ACCEPTED BY XXXXX; | ||||
| OMEGA HEALTHCARE INVESTORS, INC. | ||||
By: Name: |
/s/ Xxxxxx Xxxxxx
|
|||
Title:
|
Chief Executive Officer | |||
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