Exhibit 10.1
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE
     This Seventh Amendment to Consolidated Amended and Restated Master Lease
(this “Amendment”) is executed and delivered as of October 24, 2008 by and
between STERLING ACQUISITION CORP., a Kentucky corporation (“Lessor”), the
address of which is 9690 Deereco Road, Suite 100, Timonium, MD 21093, and
DIVERSICARE LEASING CORP., a Tennessee corporation, the address of which is 1621
Galleria Boulevard, Brentwood, TN 37027.
RECITALS:
     A. Lessee has executed and delivered to Lessor a Consolidated Amended and
Restated Master Lease dated as of November 8, 2000, but effective as of
October 1, 2000 (the “Master Lease”), as amended by a First Amendment to
Consolidated Amended and Restated Master Lease dated as of September 30, 2001
(the “First Amendment”), a Second Amendment to Consolidated Amended and Restated
Master Lease dated as of June 15, 2005 (the “Second Amendment”), a Third
Amendment to Consolidated Amended and Restated Master Lease dated as of
October 20, 2006 (the “Third Amendment”), a Fourth Amendment to Consolidated
Amended and Restated Master Lease dated as of April 1, 2007 (the “Fourth
Amendment”), a Fifth Amendment to Consolidated Amended and Restated Master Lease
dated as of August 10, 2007 (the “Fifth Amendment”), and a Sixth Amendment to
Consolidated Amended and Restated Master Lease dated as of March 14, 2008 (the
“Sixth Amendment”) (collectively, the “Existing Master Lease”) pursuant to which
Lessee leases from Lessor certain healthcare facilities.
     B. Lessee and Lessor desire to amend certain terms used and set forth in
the Sixth Amendment and to provide Lessor and Lessee with certain additional
rights and options under the Sixth Amendment with respect to the Paris Facility
described therein.
     NOW THEREFORE, the parties agree as follows:
     1. Definitions.
          (a) Any capitalized term used but not defined in this Amendment will
have the meaning assigned to such term in the Master Lease. From and after the
date of this Amendment, each reference in the Existing Master Lease or the other
Transaction Documents to the “Lease” or “Master Lease” means, as applicable, the
Existing Master Lease as modified by this Amendment.
          (b) The following definitions defined in Section 1(b) of the Sixth
Amendment are hereby amended in their entirety and restated as follows:
     “Maximum Funded Amount” means Seven Million Nine Hundred Thirty-Four
Thousand Five Hundred Fifty-Five and No/100 Dollars ($7,934,555.00).
     “Paris Cash Flow”: For any period, the sum of (a) Net Income of Lessee
arising solely from the operation of the Paris Facility for the applicable
period, and (b) the amounts deducted in computing Lessee’s Net Income for the
period for (i) the provision for self-insured, professional and general
liability, (ii) depreciation, (iii) amortization, (iv)

 

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Paris Base Rent, (v) interest (including payments in the nature of interest
under Capitalized Leases and interest on any Purchase Money Financing for
personal property used in connection with the Paris Facility), (vi) income taxes
(or, if greater, income tax actually paid during the period attributable to the
Paris Facility), and (vii) management fees payable in connection with the Paris
Facility, and less (c) an imputed management fee equal to five percent (5%) of
Gross Revenues for the Paris Facility, and less (d) the Cash Cost of
Self-Insured Professional and General Liability attributable to the Paris
Facility. The Cash Cost of Self-Insured Professional and General Liability shall
mean: For any period, the average total per bed cash expenditure associated with
professional and general liability related settlements, judgments, legal fees or
administration for skilled nursing facilities in the State of Texas as from time
to time estimated and published by Aon Risk Consultants, or its successors, for
the American Health Care Association, multiplied by the average number of
occupied beds in the Paris Facility.
          (c) The following new definitions are hereby added to Section 1(b) of
the Sixth Amendment:
     “Initial Rent Coverage Determination Date” shall mean the date that is the
first day of the first calendar month immediately following the expiration of
the first eighteen (18) months after the In Service Date.
     “Rent Coverage Determination Date” shall mean and include the Initial Rent
Coverage Determination Date and the first day of each successive calendar month
thereafter.
     2. Amendments to Certain Schedules Attached to the Sixth Amendment.
Schedule 1, Construction Budget, attached to the Sixth Amendment is amended in
its entirety and replaced with Schedule 1, Construction Budget, attached to this
Amendment.
     3. Amendments to Certain provisions of Existing Master Lease. Section 2 of
the Sixth Amendment is hereby amended in its entirety and restated as follows:
     “2. Paris Base Rent; Rent Reset; Termination Options; a “Texas Facility”;
Delay.
          (a) Paris Base Rent Commencement Date. Commencing as of the Paris Base
Rent Commencement Date, Lessee shall pay the Paris Base Rent pursuant to the
terms and conditions of Article III of the Master Lease. Notwithstanding the
commencement of payment of the Paris Base Rent by Lessee, in the event that the
construction of the Paris Facility has not been completed and the Maximum Funded
amount has not been advanced by the Paris Rent Commencement Date, Lessor shall
continue to make further advances of the Funded Amount, up to but not exceeding
the Maximum Funded Amount, on or after the Paris Base Rent Commencement Date in
accordance with the terms of this Amendment.
          (b) Paris Base Rent Reset. If Lessee has not elected to terminate the
Master Lease as to the Paris Facility pursuant to sub-section (c) below, and
subject to sub-section (e), below, as soon as reasonably possible after the
fifth anniversary of the Paris Base Rent Commencement Date, Lessor and Lessee
shall calculate the Paris Formula Rent. If the Paris

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Formula Rent is greater than the Paris Scheduled Rent, then the Paris Base Rent
shall be reset to the Paris Formula Rent effective as of the Paris Rent Reset
Date.
          (c) Lessee’s Paris Termination Option. Subject to sub-section (e),
below, pursuant to written notice (“Lessee’s Paris Termination Notice”)
delivered by Lessee to Lessor not more than thirty (30) days prior to, nor later
than, the fifth anniversary of the Paris Base Rent Commencement Date (“Lessee’s
Paris Termination Period”), Lessee may elect to terminate the Master Lease as to
the Paris Facility only. After delivery of the Paris Termination Notice, this
Lease shall be terminated as to the Paris Facility only, effective on the
earlier of (i) a date set by written notice given by Lessor at least thirty
(30) days prior to the effective date, and (ii) the first day of the sixth month
after fifth anniversary of the Paris Base Rent Commencement Date (the “Lessee
Paris Termination Date”). If Lessee’s Paris Termination Notice is delivered,
then Lessee shall have no further obligation to pay Paris Base Rent for periods
from and after the Lessee Paris Termination Date.
          (d) Lessor’s Paris Termination Option. As soon as reasonably possible
after the Initial Rent Coverage Determination Date and, subject to sub-section
(e), below, each subsequent Rent Coverage Determination Date thereafter
occurring up to but not later than the date that is thirty (30) days prior to
the commencement of Lessee’s Paris Termination Period, Lessor and Lessee shall
calculate the Paris Cash Flow for the six (6) month period ending immediately
prior to such Rent Coverage Determination Date. In the event that the average
annual Paris Cash Flow as determined, on a rolling basis, for the six (6) month
period ending immediately prior to any such Rent Coverage Determination Date is
less than the Paris Base Rent multiplied by 1.2 (the “Minimum Rent Coverage”),
then Lessor may elect to terminate the Master Lease as to the Paris Facility
only. Such election shall be made by delivery of written notice (“Lessor’s Paris
Termination Notice”) to Lessee not more than thirty (30) days after the
determination by Lessor and Lessee of the Paris Cash Flow for the Rent Coverage
Determination Date in question (but, as to the final such Rent Coverage
Determination Date, prior to the commencement of Lessee’s Paris Termination
Period). Upon delivery of Lessor’s Paris Termination Notice, the Master Lease
shall be terminated as to the Paris Facility only, effective on the earlier of
(i) a date set by written notice given by Lessor at least thirty (30) days prior
to the effective date and (ii) the first day of the sixth calendar month after
the date of Lessor’s Paris Termination Notice (“Lessor’s Paris Termination
Date”). If Lessor’s Paris Termination Notice is delivered, then Lessee shall
have no further obligation to pay Paris Base Rent for periods from and after
Lessor’s Paris Termination Date.
          (e) Elimination of Termination by Lessee or Lessor and Rent Reset. If
for any Rent Coverage Determination Date occurring up to but not later than
thirty (30) days prior to the commencement of Lessee’s Paris Termination Period,
the average annual Paris Cash Flow as determined, on a rolling basis, for the
six (6) month period ending immediately prior to such Rent Coverage
Determination Date is more than the Paris Base Rent multiplied by 1.3 (the
“Maximum Rent Coverage”) then: (i) the right of the Lessee to terminate the
Master Lease as to the Paris Facility provided for in sub-section (c), above,
shall automatically terminate and be of no further force and effect, (ii) the
right of the Lessor to terminate the Master Lease provided for in sub-section
(d), above, shall automatically terminate and be of no further force and effect,
and (iii) the Paris Base Rent reset provisions set forth in sub-section (b),
above, shall automatically terminate and be of no further force and effect. In
such event, Lessee shall not have the right to

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elect to terminate the Master Lease on the fifth anniversary of the Paris Base
Rent Commencement Date as provided in sub-section (e), above, Lessor shall no
longer have the right to elect to terminate the Master Lease due to the failure
of Lessee to achieve the Minimum Rent Coverage as provided in sub-section (d),
above, and there shall be no resetting of the Paris Base Rent to the Paris
Formula Rent after the fifth anniversary of the Paris Base Rent Commencement
Date as provided in sub-section (b), above. Thereafter, the defined terms “Paris
Formula Rent” and “Paris Rent Reset Date” and the provisions of sub-section
(a)(4) of the defined term “Paris Base Rent” regarding adjustment of the Paris
Base Rent to the Paris Formula Rent shall have no further force and effect and
shall be deleted from Section 1 of the Sixth Amendment.
          (f) Texas Facility. For all purposes under this Lease other than the
calculation of Base Rent, the Paris Facility shall constitute a Texas Facility.
          (g) Delay. In the event that Lessee is unable to obtain completion of
the Paris Facility as described in Section 6(a) below by the Target Completion
Date due to an Event of Force Majeure or Lessor Delay, then the Target
Completion Date and the Paris Base Rent Commencement Date shall each be extended
by one (1) day for each one (1) day of delay in the completion of the Paris
Facility caused by such Event of Force Majeure or Lessor Delay. For purposes of
this Amendment, the term “Lessor Delay” shall mean any delay in achieving
completion of the Paris Facility as described in Section 6(a) below arising
solely and directly as a result of:
               (i) Lessor’s failure to furnish any information or documents in
accordance with this Amendment and the continuation of such failure after the
receipt of written notice from Lessee to Lessor, to the extent such failure
causes a delay in completion;
               (ii) Lessor’s failure or delay in giving approval or consent (or
comments or corrections) where Lessor’s approval or consent (or comments or
corrections), as applicable, is required herein and has been requested in
writing by Lessee, to the extent such failure or delay causes a delay in
completion; and
               (iii) Lessor’s failure to perform or comply with its obligations
under this Amendment and the continuation of such failure after the receipt of
written notice from Lessee to Lessor, to the extent such failure causes a
delay.”
     4. Representations and Warranties of Lessee. Lessee hereby represents and
warrants to Lessor that (i) it has the right and power and is duly authorized to
enter into this Amendment; and (ii) the execution of this Amendment does not and
will not constitute a breach of any provision contained in any agreement or
instrument to which Lessee is or may become a party or by which Lessee is or may
be bound or affected.
     5. Execution and Counterparts. This Amendment may be executed in any number
of counterparts, each of which, when so executed and delivered, shall be deemed
to be an original, but when taken together shall constitute one and the same
Amendment.
     6. Headings. Section headings used in this Amendment are for reference only
and shall not affect the construction of the Amendment.

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     7. Enforceability. Except as expressly and specifically set forth herein,
the Existing Master Lease remains unmodified and in full force and effect. In
the event of any discrepancy between the Existing Master Lease and this
Amendment, the terms and conditions of this Amendment will control and the
Existing Master Lease is deemed amended to conform hereto.
[SIGNATURE PAGES AND ACKNOWLEDGEMENTS FOLLOW]

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Signature Page to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

            LESSOR:

STERLING ACQUISITION CORP.,
a Kentucky corporation
      By:   /s/ Taylor Pickett         Name:   Taylor Pickett        Title:  
Chief Executive Officer     

     
STATE OF MARYLAND
  )
 
   
COUNTY OF BALTIMORE
  )

This instrument was acknowledged before me on the ___ day of October, 2008, by
Taylor Pickett, the CEO of STERLING ACQUISITION CORP., a Kentucky corporation,
on behalf of said company.

                        Notary Public, Baltimore County, MD      My commission
expires:

   

Signature Page 1 of 2

 

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Signature Page to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

            LESSEE:

DIVERSICARE LEASING CORP.,
a Tennessee corporation
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP
and CFO     

     
STATE OF TENNESSEE
  )
 
   
COUNTY OF WILLIAMSON
  )

This instrument was acknowledged before me on the ___ day of October, 2008, by
Glynn Riddle, the EVP & CFO of DIVERSICARE LEASING CORP., a Tennessee
corporation, on behalf of said company

                        Notary Public, Tenn. County, Williamson      My
commission expires:

   

Signature Page 2 of 2

 

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Acknowledgment to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE
     The undersigned hereby consent to the transactions contemplated by this
Seventh Amendment to Consolidated Amended and Restated Master Lease (the
“Seventh Amendment”), ratify and affirm their respective Guaranties, Pledge
Agreements, Security Agreements, Subordination Agreements and other Transaction
Documents, and acknowledge and agree that the performance of the Master Lease
and obligations described therein are secured by their Guaranties, Pledge
Agreements, Security Agreement, Subordination Agreement and other Transaction
Documents on the same terms and conditions in effect prior to this Seventh
Amendment.

            ADVOCAT, INC. a Delaware corporation
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP &
CFO     

     
STATE OF TENNESSEE
  )
 
   
COUNTY OF WILLIAMSON
  )

The foregoing instrument was acknowledged before me this ___ day of October,
2008, by Glynn Riddle, who is EVP & CFO of ADVOCAT, INC. a Delaware corporation,
on behalf of the corporation, who acknowledged the same to be his or her free
act and deed and the free act and deed of the corporation.

                        Notary Public, Tenn. County, Williamson      My
Commission Expires:

   

Acknowledgment Page 1 of 5

 

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Acknowledgment to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

            DIVERSICARE MANAGEMENT SERVICES CO.,
a Tennessee corporation
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP &
CFO     

     
STATE OF TENNESSEE
  )
 
   
COUNTY OF WILLIAMSON
  )

The foregoing instrument was acknowledged before me this ___ day of October,
2008, by Glynn Riddle, who is EVP & CFO of DIVERSICARE MANAGEMENT SERVICES CO.,
a Tennessee corporation, on behalf of the corporation, who acknowledged the same
to be his or her free act and deed and the free act and deed of the corporation.

                        Notary Public, Tenn. County, Williamson      My
Commission Expires:

   

Acknowledgment Page 2 of 5

 

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Acknowledgment to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

            ADVOCAT FINANCE INC.,
a Delaware corporation
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP &
CFO     

     
STATE OF TENNESSEE
  )
 
   
COUNTY OF WILLIAMSON
  )

The foregoing instrument was acknowledged before me this ___ day of October,
2008, by Glynn Riddle, who is EVP & CFO of ADVOCAT FINANCE INC., a Delaware
corporation, on behalf of the corporation, who acknowledged the same to be his
or her free act and deed and the free act and deed of the corporation.

                        Notary Public, Tenn. County, Williamson      My
Commission Expires:

   

Acknowledgment Page 3 of 5

 

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Acknowledgment to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

            STERLING HEALTH CARE
MANAGEMENT, INC., a Kentucky corporation
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP &
CFO     

     
STATE OF TENNESSEE
  )
 
   
COUNTY OF WILLIAMSON
  )

The foregoing instrument was acknowledged before me this ___ day of October,
2008, by Glynn Riddle, who is EVP & CFO of STERLING HEALTH CARE MANAGEMENT,
INC., a Kentucky corporation, on behalf of the corporation, who acknowledged the
same to be his or her free act and deed and the free act and deed of the
corporation.

                        Notary Public, Tenn. County, Williamson      My
Commission Expires:

   

Acknowledgment Page 4 of 5

 

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Acknowledgment to
SEVENTH AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

            DIVERSICARE TEXAS I, LLC
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP &
CFO     

DIVERSICARE BALLINGER, LLC
DIVERSICARE DOCTORS, LLC
DIVERSICARE ESTATES, LLC
DIVERSICARE HUMBLE, LLC
DIVERSICARE KATY, LLC
DIVERSICARE NORMANDY TERRACE, LLC
DIVERSICARE TREEMONT, LLC

            BY: DIVERSICARE TEXAS I, LLC,
        its sole member
      By:   /s/ Glynn Riddle         Name:   Glynn Riddle        Title:   EVP &
CFO     

     
STATE OF TENNESSEE
  )
 
   
COUNTY OF WILLIAMSON
  )

The foregoing instrument was acknowledged before me this ___ day of October,
2008, by Glynn Riddle, who is EVP & CFO of DIVERSICARE TEXAS I, LLC, on behalf
of itself and as the sole member of each of DIVERSICARE BALLINGER, LLC,
DIVERSICARE DOCTORS, LLC, DIVERSICARE ESTATES, LLC, DIVERSICARE HUMBLE, LLC,
DIVERSICARE KATY, LLC, DIVERSICARE NORMANDY TERRACE, LLC, and DIVERSICARE
TREEMONT, LLC, each a Delaware limited liability company, on behalf of the
limited liability companies, who acknowledged the same to be his or her free act
and deed and the free act and deed of the limited liability companies.

                        Notary Public, Tenn. County, Williamson      My
Commission Expires:

   

Acknowledgment Page 5 of 5