Document:

Ex-10.1

 

Exhibit 10.1

FOURTH AMENDMENT TO CONSOLIDATED

AMENDED AND RESTATED MASTER LEASE

     This Fourth Amendment to Consolidated Amended and Restated Master Lease (this
“Amendment”) is executed and delivered as of April 1, 2007 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, 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 October 20, 2006 (the
“Existing Master Lease”) pursuant to which Lessee leased from Lessor certain healthcare
facilities.

     B. Pursuant to that certain Agreement of Purchase and Sale (the “Purchase Agreement”)
dated as of January 23, 2007 among Lessor, as seller, Lessee, as current operator, and VICTORIA
EUREKA SPRINGS, LLC, an Arkansas limited liability company (“Purchaser”), Lessor has agreed
to sell skilled nursing facility commonly known as Eureka Springs Nursing and Rehab Center (the
“Eureka Springs Facility”), whose address is 235 Huntsville Road, Eureka Springs, Carroll
County, Arkansas.

     C. Lessor and Lessee desire to terminate the Existing Master Lease as to the Eureka Springs
Facility effective as of the date that the Eureka Springs Facility is sold pursuant to the Purchase
Agreement.

     NOW THEREFORE, the parties agree as follows:

     1. Definitions. Any capitalized term used but not defined in this Amendment will have
the meaning assigned to such term in the Existing Master Lease. From and after the date of this
Amendment, each reference in the Existing Master Leases or the other Transaction Documents to the
“Lease” or “Master Lease” means, as applicable, the Existing Master Lease or Existing Master Leases
as modified by this Amendment.

 

 

     2. Termination of the Existing Lease as to the Eureka Springs Facility. Effective as
of, and conditioned upon, the sale of the Eureka Springs Facility pursuant to the Purchase
Agreement, (a) the Master Lease is terminated as to the Eureka Springs Facility, and only as to the
Eureka Springs Facility; and (b) Exhibit A-7 of the Master Lease is amended and restated in its
entirety as follows:

Exhibit A-7

Intentionally Omitted.

     3. No Reduction in Base Rent. Notwithstanding the termination of the Master Lease as
to the Eureka Springs Facility, the Base Rent payable under the Master Lease shall not be reduced
or abated.

     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 Agreement; and
(ii) the execution of this Agreement 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.

     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, ACKNOWLEDGEMENTS, AND JOINDER FOLLOW]

2

 

Signature Page to

FOURTH 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

	 	) 
	 

	 	) ss.
	COUNTY OF BALTIMORE

	 	) 

     This instrument was acknowledged before me on the 26th day of  March, 2007,
by Taylor Pickett, the  CEO of STERLING ACQUISITION CORP., a Kentucky
corporation, on behalf of said company.

	 	 	 	 	 
	 	 	 
	 	     /s/  Judith A Jacobs
 	 
	 	Notary Public, Baltimore County, Maryland 	 
	 	My commission expires:  May 1, 2008 	 
	 

Signature Page 1 of 2

 

 

Signature Page to

FOURTH AMENDMENT TO CONSOLIDATED

AMENDED AND RESTATED MASTER LEASE

LESSEE:

	 	 	 	 	 	 	 
	 	 	DIVERSICARE LEASING CORP., a Tennessee	 	 
	 	 	corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/Glynn Riddle	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Glynn Riddle	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	EVP & CFO	 	 
	 

	 	 	 	 	 	 

	 	 	 
	STATE OF Tennessee

	 	) 
	 

	 	) SS
	COUNTY OF Williamson

	 	) 

     This instrument was acknowledged before me on the 28th day of March, 2007,
by Glynn Riddle, the EVP & CFO of DIVERSICARE LEASING CORP., a
Tennessee corporation, on behalf of said company

	 	 	 	 	 
	 	 	 
	 	     /s/ Brenda Wimsatt
 	 
	 	Notary Public, Williamson County, Tennessee 	 
	 	My commission expires: 7/25/2009 	 
	 

Signature Page 2 of 2

 

 

Acknowledgement to

FOURTH AMENDMENT TO CONSOLIDATED

AMENDED AND RESTATED MASTER LEASE

     The undersigned hereby consent to the transactions contemplated by this Third Amendment to
Consolidated Amended and Restated Master Lease (the “Third 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 Amendment. The undersigned hereby join in the execution of this Third
Amendment for the limited purpose of agreeing to the provisions of Section 6 and for no other
purpose.

	 	 	 	 	 	 	 
	 	 	ADVOCAT, INC. a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/Glynn Riddle	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Glynn Riddle	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	EVP & CFO	 	 
	 

	 	 	 	 	 	 

	 	 	 
	STATE OF Tennessee

	 	) 
	 

	 	) SS
	COUNTY OF Williamson

	 	) 

     This instrument was acknowledged before me on the 28th day of March, 2007,
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.

	 	 	 	 	 
	 	 	 
	 	     /s/ Brenda Wimsatt
 	 
	 	Notary Public, Williamson County, Tennessee 	 
	 	My commission expires: 7/25/2009 	 
	 

Acknowledgement — Page 1 of 4

 

 

Acknowledgement to

FOURTH 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

	 	) 
	 

	 	) SS
	COUNTY OF Williamson

	 	) 

     The
foregoing instrument was acknowledged before me this 28th day of March,
2007, 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.

	 	 	 	 	 
	 	 	 
	 	     /s/ Brenda Wimsatt
 	 
	 	Notary Public, Williamson County, Tennessee 	 
	 	My commission expires: 7/25/2009 	 
	 

Acknowledgement — Page 2 of 4

 

 

Acknowledgement to

FOURTH 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

	 	) 
	 

	 	) SS
	COUNTY OF Williamson

	 	) 

     The
foregoing instrument was acknowledged before me this 28th day
of March, 2007, 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.

	 	 	 	 	 
	 	 	 
	 	     /s/ Brenda Wimsatt
 	 
	 	Notary Public, Williamson County, Tennessee 	 
	 	My commission expires: 7/25/2009 	 
	 

Acknowledgement — Page 3 of 4

 

 

Acknowledgement to

FOURTH 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

	 	) 
	 

	 	) SS
	COUNTY OF Williamson

	 	) 

     This foregoing instrument was acknowledged before me on 28th day of March,
2007, by Glynn Riddle, who is EVP & CFO of STERLING HEALTH CARE
MANAGEMENT, INC., a Kentucky corporation, on behalf of said corporation, who acknowledged the same
to be his or her free act and deed and the free act and deed of the corporation.

	 	 	 	 	 
	 	 	 
	 	     /s/ Brenda Wimsatt
 	 
	 	Notary Public, Williamson County, Tennessee 	 
	 	My commission expires: 7/25/2009 	 
	 

Acknowledgement — Page 4 of 4EX-10.1 DESCRIPTION OF EXECUTIVE COMPENSATION

 

Exhibit 10.1

Compensation Arrangements with Certain Executive Officers

     The following table sets forth the 2007 salary for the Company’s current executive officers
identified by name pursuant to Item 11 and the compensation disclosures in the Company’s Proxy
Statement for its 2007 Annual Meeting of Shareholders that is incorporated by reference into such
Item 11. The table also sets forth each such officer’s 2007 incentive compensation target under
the Company’s Executive Annual Incentive Compensation Plan (the “EICP”), as a percentage of salary,
and his actual incentive compensation award for 2006 (whether under the EICP or based on other
considerations).

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	2007
	 	 	2006	 	2007	 	Incentive
	 	 	Incentive	 	Base	 	Compensation
	 	 	Compensation	 	Salary	 	Target*
	Paul B. Domorksi
	 	$	75,000	 	 	$	415,000	 	 	 	80	%
	President and CEO
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Don T. Scartz
	 	$	110,000	 	 	$	287,000	 	 	 	50	%
	Executive Vice President and Chief Financial Officer
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Neilson A. Mackay
	 	$	140,000	 	 	$	288,000	 	 	 	50	%
	Vice President, Corporate Development
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Timothy C. Reis
	 	$	65,000	 	 	$	200,000	 	 	 	40	%
	Vice President and General Counsel
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	James S. Childress
	 	$	130,000	 	 	$	242,000	 	 	 	50	%
	Vice President and General Manager, LXE
	 	 	 	 	 	 	 	 	 	 	 	 

 

			
	*	 	Actual incentive compensation payment under the EICP is determined based on
Company or divisional performance during 2007, primarily with reference to actual
profit before taxes compared with targets approved by the Compensation Committee in
April 2007. For corporate officers, the determination is weighted 100% based on
corporate performance, subject to application of a factor, ranging from 0% to 115%,
determined by reference to individual performance goals as specified and evaluated
by the CEO. For divisional officers, the determination is weighted 70% based on
divisional performance, 15% based on corporate performance, and 15% based on
performance against individual objectives as specified and evaluated by the CEO. In
general, corporate performance for these purposes will be measured 80% against
target operating income from continuing operations of $19,332,000 and 20% against
target EPS of $1.00, and divisional performance will be measured against operating
income targets that are believed to require excellent execution of divisional
business plans but are reasonably likely to be achieved.

 

 

			
	 	 	In general, no incentive compensation is paid under the EICP if actual performance
is at 80% or less of targeted performance. Performance above target would normally
result in a 2-for-1 percentage increase in incentive compensation, except that the
maximum payment based on divisional performance is 150% of target. The Committee
retains the right to modify, either up or down, the incentive compensation otherwise
payable based on the factoring process, or to make separate discretionary bonus
payments, to take into account individual or Company/division performance on
non-financial or supplemental financial objectives. The Committee and Board also
have the right to make other discretionary awards, outside the EICP, based on
factors they believe to be appropriate in the circumstances.

Each officer participates in the Company’s 401(k) and Retirement Benefit Plans on the same
terms as all other full-time employees, and the Company does not currently provide a
supplemental retirement plan for its executive officers.

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