Document:

mgln_Ex10_1

		
			Exhibit 10.1
		

		
			Execution Version
		

		
			 
		

		
			AGREEMENT
		

		
			 
		

		
			This Agreement (this “Agreement”) is made and entered into as of March 28, 2019 by and among Magellan Health, Inc., a Delaware corporation (the “Company”), and the entities and natural persons set forth in the signature pages hereto (collectively, “Starboard”) (each of the Company and Starboard, a “Party” to this Agreement, and collectively, the “Parties”).
		

		
			 
		

		
			RECITALS
		

		
			 
		

		
			WHEREAS, the Company and Starboard have engaged in various discussions and communications concerning the Company’s business, financial performance and strategic plans;
		

		
			 
		

		
			WHEREAS, as of the date hereof, Starboard has a beneficial ownership (as determined under Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) interest in the common stock, $0.01 par value per share, of the Company (the “Common Stock”) totaling, in the aggregate, 2,369,100 shares of the Common Stock, or approximately 9.8% of the shares of Common Stock issued and outstanding on the date of this Agreement (“Starboard’s Ownership”);
		

		
			 
		

		
			WHEREAS, Starboard submitted a letter to the Company on February 22, 2019 (the “Nomination Letter”), nominating a slate of director candidates to be elected to the Company’s board of directors (the “Board”) at the Company’s 2019 annual meeting of shareholders (the “2019 Annual Meeting”); and
		

		
			 
		

		
			WHEREAS, as of the date hereof, the Company and Starboard have determined to come to an agreement with respect to the composition of the Board and certain other matters, as provided in this Agreement.
		

		
			 
		

		
			NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound hereby, agree as follows:
		

		
			 
		

		
			1.Board Appointments and Related Agreements.
		

		
			(a)Board Appointments.
		

		
			(i)     The Company agrees that immediately following the execution of this Agreement, the Board shall take all necessary actions to increase the size of the Board from nine (9) to thirteen (13) directors and appoint Peter A. Feld (“Mr. Feld”, or the “Starboard Appointee”),  Leslie V. Norwalk,  Guy P. Sansone and Steven J. Shulman (each an “Independent Appointee” and, together with the Starboard Appointee, the “Appointed Directors”) as directors of the Company.  Prior to the date of this Agreement, each of the Appointed Directors has submitted to the Company a fully completed copy of the Company’s D&O Questionnaire and other onboarding materials.
		

		
			
		

		
			

		 

		

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			(ii)    The Company agrees that the Board shall nominate each Appointed Director (including any Replacement Director (as defined below)) for election to the Board at the Company’s 2019 Annual Meeting for terms expiring at the Company’s 2020 annual meeting of shareholders (the “2020 Annual Meeting”), subject only to their consent to serve.  Subject to the foregoing and to the remainder of this Section 1(a)(ii), the slate of nominees for election at the 2019 Annual Meeting shall be as determined by the Board, based upon the recommendation of the Nominating/Corporate Governance Committee (the “Nominating Committee”).  The Company shall recommend, support and solicit proxies for the Appointed Directors at the 2019 Annual Meeting in the same manner as it recommends, supports, and solicits proxies for the election of its incumbent directors (the “Continuing Directors”).  The Board shall take all necessary actions to decrease the size of the Board from thirteen (13) to ten (10) directors, effective immediately following the election of directors at the 2019 Annual Meeting, and the slate of nominees for election at the 2019 Annual Meeting, together with the incumbent directors whose terms expire at the 2020 Annual Meeting who will continue to serve following the 2019 Annual Meeting, shall equal ten (10).
		

		
			(iii)   If any Appointed Director (or any Replacement Director) is unable or unwilling to serve as a director for any reason or ceases to be a director, resigns as a director or is removed as a director prior to the expiration of the Standstill Period (as defined below), and at such time Starboard beneficially owns (as determined under Rule 13d-3 promulgated under the Exchange Act) in the aggregate at least the lesser of 3.0% of the Company’s then outstanding shares of Common Stock and 717,760 shares of Common Stock (subject to adjustment for stock splits, reclassifications, combinations and similar adjustments) (such lesser amount, the “Minimum Ownership Threshold”), Starboard shall have the ability to recommend a substitute person for appointment to the Board in accordance with this Section 1(a)(iii) (any such replacement nominee shall be referred to as a “Replacement Director,” and upon becoming a Replacement Director, such person shall be deemed an  Appointed Director for purposes of this Agreement).  Any Replacement Director must (A) be reasonably acceptable to the Board (such acceptance not to be unreasonably withheld), (B) qualify as “independent” pursuant to Nasdaq Stock Market (“Nasdaq”) listing standards, (C) have the relevant financial and business experience to be a director of the Company and (D) in the case of a Replacement Director who is replacing an Independent Appointee (or any replacement thereof), be independent of Starboard (for the avoidance of doubt, the nomination by Starboard of such person to serve on the board of any other company shall not (in and of itself) cause such person to not be deemed independent of Starboard, but any employee, director or affiliate of Starboard (whether past or present) would not be deemed independent of Starboard).  Any Replacement Director who is replacing Mr. Feld as the Starboard Appointee (or any replacement thereof) and who is a partner or senior employee of Starboard that has relevant business and financial experience will be approved and appointed to the Board no later than ten (10) business days following the submission of the Company’s D&O Questionnaire and other
		

		
			
		

		
			

		 

		

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			onboarding materials, so long as such Replacement Director qualifies as “independent” pursuant to the Nasdaq listing standards.  The Nominating Committee shall use its reasonable best efforts to make its determination and recommendation (which it shall undertake reasonably and in good faith) regarding whether any other such nominee to be a Replacement Director (other than any Replacement Director who is a partner or senior employee of Starboard, who is covered by the prior sentence) meets the foregoing criteria within ten (10) business days after (x) such nominee has submitted to the Company the Company’s D&O Questionnaire and other onboarding materials and (y) representatives of the Board have conducted customary interview(s) of such nominee, if such interviews are requested by the Board or the Nominating Committee.  The Company shall use its reasonable best efforts to conduct any interview(s) contemplated by this Section 1(a)(iii) as promptly as practicable, but in any case, assuming reasonable availability of the nominee, within ten (10) business days after Starboard’s submission of such nominee.  In the event the Nominating Committee does not accept a person recommended by Starboard as the Replacement Director, Starboard shall have the right to recommend additional substitute person(s) whose appointment shall be subject to the Nominating Committee recommending such person in accordance with the procedures described in this Section 1(a)(iii). Upon the recommendation of a Replacement Director nominee by the Nominating Committee, the Board shall use reasonable best efforts to vote on the appointment of such Replacement Director to the Board no later than five (5) business days after the Nominating Committee’s recommendation of such Replacement Director; provided,  however, that if the Board does not elect such Replacement Director to the Board pursuant to this Section 1(a)(iii), the Parties shall continue to follow the procedures of this Section 1(a)(iii) until a Replacement Director is elected to the Board. Subject to Nasdaq rules and applicable law, upon a Replacement Director’s appointment to the Board pursuant to this Section 1(a)(iii), the Board and all applicable committees of the Board shall take all necessary actions to appoint such Replacement Director to any applicable committee of the Board of which the replaced director was a member immediately prior to such director’s resignation or removal.  Subject to Nasdaq rules and applicable law, until such time as any Replacement Director is appointed to any applicable committee, one of the other Appointed Directors (as designated by Starboard with respect to any Replacement Director) will serve as an interim member of such applicable committee. Any Replacement Director designated pursuant to this Section 1(a)(iii) to replace any Appointed Director or a Replacement Director prior to the mailing of the Company’s definitive proxy statement for the 2019 Annual Meeting, shall stand for election at the 2019 Annual Meeting together with the Company’s other nominees, in accordance with Section 1(a)(ii) of this Agreement. Starboard shall promptly (and in any event within five (5) business days): (i) inform the Company in writing if Starboard fails to satisfy the Minimum Ownership Threshold at any time; and (ii) upon a request by or on behalf of the Company, confirm the number of shares of Common Stock beneficially owned (as determined under Rule 13d-3 promulgated under the Exchange Act) by Starboard.
		

		
			
		

		
			

		 

		

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			(iv)   During the period commencing upon the conclusion of the 2019 Annual Meeting and continuing through the expiration of the Standstill
		

		
			Period, the Board shall take all necessary actions to set the size of the Board at no more than ten (10) directors, unless Starboard consents in writing to any proposal to increase the size of the Board.
		

		
			(b)Board Committees.
		

		
			(i)     Immediately following the execution of this Agreement, the Board shall take all necessary actions to (i) form a Strategic Committee of the Board (the “Strategic Committee”) to explore strategic alternatives for the Company,  with the goal of creating value for the Company’s shareholders and (ii) appoint Mr. Feld and Mr. Shulman to the Strategic Committee,  plus two (2) Continuing Directors as determined by the Board, with Mr. Feld serving as its Chairman. During the Standstill Period, unless otherwise agreed by Starboard, the Strategic Committee shall be composed of four  (4) directors, including two (2) Appointed Directors (or Replacement Directors).  Subject to Nasdaq rules and applicable law, in the event either of the Appointed Directors shall for any reason cease to serve on the Strategic Committee, until such time as a Replacement Director is appointed to the Strategic Committee, at least one other Appointed Director will serve as an interim member of the Strategic Committee.
		

		
			(ii)    Immediately following the execution of this Agreement, the Board and all applicable committees of the Board shall take all necessary actions to appoint Mr.  Sansone to the Audit Committee.
		

		
			(iii)   Immediately following the execution of this Agreement, the Board and all applicable committees of the Board shall take all necessary actions to appoint Ms. Norwalk to the Management Compensation Committee.
		

		
			(iv)   Immediately following the execution of this Agreement, the Board and all applicable committees of the Board shall take all necessary actions to appoint Mr. Feld to the Management Compensation Committee.
		

		
			(v)    Immediately following the execution of this Agreement, the Board and all applicable committees of the Board shall take all necessary actions to appoint Mr. Shulman to the Nominating Committee.
		

		
			(vi)   During the Standstill Period, each committee and subcommittee of the Board, including any new committee(s) and subcommittee(s) that may be established, shall include at least one (1) Appointed Director, provided that at least one (1) Appointed Director satisfies any Nasdaq listing standards and legal requirements for service on any such committee with respect to financial expertise and independence.
		

		
			 
		

		
			 
		

		
			(vii)  Subject to Nasdaq rules and applicable laws, during the Standstill Period, the Board and all applicable committees of the Board shall give each of 
		

		
			
		

		
			

		 

		

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			the Appointed Directors the same due consideration for membership to each other committee of the Board as any other independent director.
		

		
			(c)Additional Agreements.
		

		
			(i)     Starboard shall cause each of its respective controlled Affiliates and Associates to comply with the terms of this Agreement and Starboard shall be responsible for any breach of this Agreement by any such respective controlled Affiliate or Associate.  As used in this Agreement, the terms “Affiliate” and “Associate” shall have the respective meanings set forth in Rule 12b-2 promulgated by the Securities and Exchange Commission under the Exchange Act, and shall include all persons or entities that at any time during the term of this Agreement become Affiliates or Associates of any person or entity referred to in this Agreement.
		

		
			(ii)    Starboard on behalf of itself and its controlled Affiliates and Associates hereby (A) irrevocably withdraws its Nomination Letter and (B) irrevocably withdraws any related materials or notices submitted to the Company in connection therewith.
		

		
			(iii)   Until the end of the Standstill Period (as defined below), except as otherwise provided herein, Starboard shall not, and shall cause each of its controlled Affiliates and Associates not to, directly or indirectly, (A) nominate or recommend for nomination any person for election at any annual or special meeting of the Company’s shareholders or in connection with any solicitation of shareholder action by written consent  (each, a  “Shareholder Meeting”), (B) submit any proposal for consideration at, or bring any other business before, a Shareholder Meeting, or (C) initiate, encourage or participate in any “vote no,” “withhold” or similar campaign with respect to a  Shareholder Meeting.  Starboard shall not publicly or privately encourage or support any other shareholder, person or entity to take any of the actions described in this Section 1(c)(iii).
		

		
			(iv)   Starboard agrees that it will appear in person or by proxy at the 2019 Annual Meeting and vote all Common Stock beneficially owned by Starboard at the 2019 Annual Meeting (A) in favor of all directors nominated by the Board for election, (B) in favor of the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the 2019 fiscal year, (C) in accordance with the Board’s recommendation with respect to the Company’s “say-on-pay” proposal and (D) in accordance with the Board’s recommendation with respect to any other Company proposal or shareholder proposal presented at the 2019 Annual Meeting; provided, however, that in the event Institutional Shareholder Services Inc. (ISS) or Glass Lewis & Co., LLC (Glass Lewis) recommends otherwise with respect to the Company’s “say-on-pay” proposal or any other Company proposal or shareholder proposal presented at the 2019 Annual Meeting (other than proposals relating to the election of directors), Starboard shall be permitted to vote in accordance with the ISS or Glass Lewis recommendation.
		

		
			
		

		
			

		 

		

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			(v)    Starboard agrees that it will appear in person or by proxy at any other Shareholder Meeting held during the Standstill Period and, to the extent such
		

		
			Shareholder Meeting includes the election of directors, vote all Common Stock beneficially owned by Starboard at such Shareholder Meeting, in favor of the election of the Company’s nominees for election as director and not in favor of any other director nominees.
		

		
			(vi)   Starboard acknowledges that, promptly following the date of this Agreement, each of the Appointed Directors shall comply with any request by the Company to submit certain information and documentation as may be required by applicable law and regulations of the insurance industry (“Insurance Law”). Any Replacement Director shall promptly submit to the Company a fully completed copy of the Company’s D&O Questionnaire, any information or documentation required by Insurance Law, and other reasonable and customary director onboarding materials (including an authorization form to conduct a background check, a representation agreement and certain other agreements) required by the Company in connection with the appointment or election of new Board members. Starboard also agrees that, during the Standstill Period, it will notify the Company in writing and obtain all required approvals under Insurance Law prior to purchasing or causing to be purchased or otherwise acquiring or agreeing to acquire beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act) of any voting securities if in any such case, immediately after the taking of such action, Starboard would, in the aggregate, beneficially own an amount of voting securities that would equal or exceed 10% of the then outstanding shares of Common Stock.
		

		
			(vii)  Starboard acknowledges that all directors are (A) governed by all policies, procedures, codes, rules, standards and guidelines applicable to all members of the Board and (B) required to keep confidential all Company confidential information and not disclose to any third parties (including Starboard) any discussions, matters or materials considered in meetings of the Board or Board committees; provided,  however, that the Starboard Appointee may disclose certain Company confidential information to Starboard in accordance with the terms of an appropriate confidentiality agreement.
		

		
			(viii) The Company agrees that the Board and all applicable committees of the Board shall, to the extent that the Board and such committees have such authority or are entitled to so determine, take all necessary actions, effective no later than immediately following the execution of this Agreement, to determine, in connection with their initial appointment as a director and nomination by the Company at the 2019 Annual Meeting, that each of the Appointed Directors is deemed to be (A) a member of the “Incumbent Board” or “Continuing Director” (as such term may be defined in the definition of “Change in Control,” “Change of Control” (or any similar term) under the Company’s incentive plans, options plans, deferred compensation plans, employment agreements, severance plans, retention plans, loan agreements, indentures or any other related plans or agreements that refer to any such plan or agreement’s definition of “Change in
		

		
			
		

		
			

		 

		

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			Control” or any similar term) and (B) a member of the Board as of the beginning of any applicable measurement period for the purposes of the definition of “Change in Control” or any similar term under such incentive plans, options plans, employment agreements, loan agreements or indentures of the Company, including, without limitation, any retention plan, severance plan, or change-in-control severance plan.
		

		
			2.Standstill Provisions.
		

		
			(a)Starboard agrees that, from the date of this Agreement until the earlier of (x) the date that is fifteen (15) business days prior to the deadline for the submission of shareholder nominations for the 2020 Annual Meeting pursuant to the Company’s Bylaws or (y) the date that is ninety (90) days prior to the first anniversary of the 2019 Annual Meeting (the “Standstill Period”), neither it nor any of its controlled Affiliates or Associates will, and it will cause each of its controlled Affiliates and Associates not to, directly or indirectly, in any manner:
		

		
			(i)     engage in any solicitation of proxies or consents or become a “participant” in a “solicitation” (as such terms are defined in Regulation 14A under the Exchange Act) of proxies or consents (including, without limitation, any solicitation of consents that seeks to call a special meeting of shareholders), in each case, with respect to securities of the Company;
		

		
			(ii)    form, join or in any way participate in any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to the Common Stock; with respect to the shares of Common Stock (other than a “group” that includes only all or some of the entities or persons identified on the signature pages hereto as of the date hereof; provided,  however, that nothing herein shall limit the ability of an Affiliate of Starboard to join the “group” following the execution of this Agreement, so long as any such Affiliate agrees to be bound by the terms and conditions of this Agreement;
		

		
			(iii)   deposit any shares of Common Stock in any voting trust or subject any shares of Common Stock to any arrangement or agreement with respect to the voting of any shares of Common Stock, other than any such voting trust, arrangement or agreement solely among the members of Starboard and otherwise in accordance with this Agreement;
		

		
			(iv)   seek or submit, or encourage any person or entity to seek or submit, nominations in furtherance of a “contested solicitation” for the appointment, election or removal of directors with respect to the Company or seek, encourage or take any other action with respect to the appointment, election or removal of any directors; provided,  however, that nothing in this Agreement shall prevent Starboard or any of its Affiliates or Associates from taking actions in furtherance of identifying director candidates in connection with the 2020 Annual Meeting so long as such actions do not create a public disclosure obligation for Starboard or the Company and are not publicly disclosed by
		

		
			
		

		
			

		 

		

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			Starboard or its representatives or Affiliates and are undertaken on a basis reasonably designed to be confidential and in accordance in all material respects with Starboard’s normal practices in the circumstances;
		

		
			(v)    (A) make any proposal for consideration by shareholders at any annual or special meeting of shareholders of the Company or through any written consent of shareholders, (B) make any offer or proposal (with or without conditions) with respect to any merger, tender (or exchange) offer, acquisition, recapitalization, restructuring, disposition or other business combination involving Starboard (or its Affiliates or Associates) and the Company, (C) affirmatively solicit a third party to make an offer or proposal (with or without conditions) with respect to any merger, tender (or exchange) offer, acquisition, recapitalization, restructuring, disposition or other business combination involving the Company, or publicly encourage, initiate or support any third party in making such an offer or proposal, (D) publicly comment on any third party proposal regarding any merger, tender (or exchange) offer, acquisition, recapitalization, restructuring, disposition, or other business combination with respect to the Company by such third party prior to such proposal becoming public or (E) call or seek to call a special meeting of shareholders or act by written consent;
		

		
			(vi)   seek, alone or in concert with others, representation on the Board, except as specifically permitted in Section 1;
		

		
			(vii)  seek to advise, encourage, support or influence any person or entity with respect to the voting or disposition of any securities of the Company at any annual or special meeting of shareholders or consent solicitation, except in accordance with Section 1; or
		

		
			(viii) make any request or submit any proposal to amend the terms of this Agreement other than through non-public communications with the Company that would not be reasonably determined to trigger public disclosure obligations for any Party.
		

		
			(b)Except as expressly provided in Section 1 or Section 2(a), Starboard shall be entitled to (i) vote the shares of Common Stock that it beneficially owns as it determines in its sole discretion and (ii) disclose, publicly or otherwise, how it intends to vote or act with respect to any securities of the Company on any shareholder proposal or other matter to be voted on by the shareholders of the Company and the reasons therefor.
		

		
			(c)Nothing in Section 2(a) or elsewhere in this Agreement shall be deemed to limit the exercise in good faith by an Appointed Director of such person’s fiduciary duties solely in such person’s capacity as a director of the Company.
		

		
			3.Representations and Warranties of the Company.  The Company represents and warrants to Starboard that (a) the Company has the corporate power and authority to execute this Agreement and to bind it thereto, (b) this Agreement has been duly and validly authorized,
		

		
			
		

		
			

		 

		

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			executed and delivered by the Company, constitutes a valid and binding obligation and agreement of the Company, and is enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws generally affecting the rights of creditors and subject to general equity principles and (c) the execution, delivery and performance of this Agreement by the Company does not and will not (i) violate or conflict with any law, rule, regulation, order, judgment or decree applicable to the Company, or (ii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would constitute such a breach, violation or default) under or pursuant to, or result in the loss of a material benefit under, or give any right of termination, amendment, acceleration or cancellation of, any organizational document or agreement to which the Company is a party or by which it is bound.
		

		
			4.Representations and Warranties of Starboard.  Starboard represents and warrants to the Company that (a) the authorized signatories of Starboard set forth on the signature pages hereto have the power and authority to execute this Agreement and any other documents or agreements to be entered into in connection with this Agreement and to bind Starboard thereto, (b) this Agreement has been duly authorized, executed and delivered by Starboard, and is a valid and binding obligation of Starboard, enforceable against Starboard in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws generally affecting the rights of creditors and subject to general equity principles, (c) the execution of this Agreement, the consummation of any of the transactions contemplated hereby, and the fulfillment of the terms hereof, in each case in accordance with the terms hereof, will not conflict with, or result in a breach or violation of the organizational documents of Starboard as currently in effect, (d) the execution, delivery and performance of this Agreement by Starboard does not and will not (i) violate or conflict with any law, rule, regulation, order, judgment or decree applicable to Starboard, or (ii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would constitute such a breach, violation or default) under or pursuant to, or result in the loss of a material benefit under, or give any right of termination, amendment, acceleration or cancellation of, any organizational document, agreement, contract, commitment, understanding or arrangement to which such member is a party or by which it is bound, (e) as of the date of this Agreement, Starboard’s Ownership is 2,369,100 shares of Common Stock and (f) as of the date hereof, and except as set forth in clause (e) above, Starboard does not currently have, and does not currently have any right to acquire, any interest in any securities of the Company (or any rights, options or other securities convertible into or exercisable or exchangeable (whether or not convertible, exercisable or exchangeable immediately or only after the passage of time or the occurrence of a specified event) for such securities or any obligations measured by the price or value of any securities of the Company or any of its controlled Affiliates, including any swaps or other derivative arrangements designed to produce economic benefits and risks that correspond to the ownership of Common Stock, whether or not any of the foregoing would give rise to beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act), and whether or not to be settled by delivery of Common Stock, payment of cash or by other consideration, and without regard to any short position under any such contract or arrangement).
		

		
			
		

		
			

		 

		

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			5.Press Release.  Promptly following the execution of this Agreement, the Company and Starboard shall jointly issue a mutually agreeable press release (the “Press Release”) announcing certain terms of this Agreement in the form attached hereto as Exhibit A.  Prior to the issuance of the Press Release and subject to the terms of this Agreement, neither the Company (including the Board and any committee thereof) nor Starboard shall issue any press release or make any public announcement regarding this Agreement or the matters contemplated hereby without the prior written consent of the other Party.  During the Standstill Period, neither the Company nor Starboard shall make any public announcement or statement that is inconsistent with or contrary to the terms of this Agreement.
		

		
			6.Specific Performance.  Each of Starboard, on the one hand, and the Company, on the other hand, acknowledges and agrees that irreparable injury to the other Party hereto would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that such injury would not be adequately compensable by the remedies available at law (including the payment of money damages).  It is accordingly agreed that Starboard, on the one hand, and the Company, on the other hand (the “Moving Party”), shall each be entitled to specific enforcement of, and injunctive relief to prevent any violation of the terms hereof, and the other Party hereto will not take action, directly or indirectly, in opposition to the Moving Party seeking such relief on the grounds that any other remedy or relief is available at law or in equity.  This Section 6 is not the exclusive remedy for any violation of this Agreement.
		

		
			7.Expenses.  The Company shall reimburse Starboard for its reasonable, documented out-of-pocket fees and expenses (including legal fees) incurred in connection with Starboard’s involvement at the Company through the date of this Agreement, including, but not limited to its Schedule 13D filings, its preparation and delivery of the Nomination Letter, and the negotiation and execution of this Agreement, provided that such reimbursement shall not exceed $275,000 in the aggregate.
		

		
			8.Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.  It is hereby stipulated and declared to be the intention of the Parties that the Parties would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable.  In addition, the Parties agree to use their best efforts to agree upon and substitute a valid and enforceable term, provision, covenant or restriction for any of such that is held invalid, void or enforceable by a court of competent jurisdiction.
		

		
			9.Notices.  Any notices, consents, determinations, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon confirmation of receipt, when sent by email (provided such confirmation is not automatically generated and such notice is also sent by a nationally recognized overnight delivery service); or (c) one business day after deposit with a nationally recognized overnight delivery service, in
		

		
			
		

		
			

		 

		

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			each case properly addressed to the Party to receive the same.  The addresses and email addresses for such communications shall be:
		

		
			If to the Company:
		

		
			 
		

			
					
						 

				
	
					
						Magellan Health, Inc.

				
	
					
						4800 Scottsdale Road, Suite 4400

				
	
					
						Scottsdale, AZ 85251

				
	
					
						Attention:

					
					
						        Daniel Gregoire

				
	
					
						Email:       

					
					
						        dngregoire@magellanhealth.com

				
	
					
						 

				
	
					
						with a copy (which shall not constitute notice) to:

				
	
					
						 

				
	
					
						Weil, Gotshal & Manges LLP

				
	
					
						767 Fifth Avenue

				
	
					
						New York, NY 10153

				
	
					
						Attention:

					
					
						       Michael J. Aiello

				
	
					
						 

					
					
						       Raymond O. Gietz

				
	
					
						Email:

					
					
						       michael.aiello@weil.com

				
	
					
						 

					
					
						       raymond.gietz@weil.com

				
	
					
						 

				
	
					
						If to Starboard:

				
	
					
						 

				
	
					
						Starboard Value LP

				
	
					
						777 Third Avenue, 18th Floor

				
	
					
						New York, NY 10017

				
	
					
						Attention:

					
					
						        Peter A. Feld

				
	
					
						Email:

					
					
						        pfeld@starboardvalue.com

				

		
			 
		

			
					
						 

				
	
					
						with a copy (which shall not constitute notice) to:

				
	
					
						 

				
	
					
						Olshan Frome Wolosky LLP

				
	
					
						1325 Avenue of the Americas

				
	
					
						New York, New York 10019

				
	
					
						Attention:

					
					
						       Steve Wolosky

				
	
					
						 

					
					
						       Andrew Freedman

				
	
					
						Email:

					
					
						       swolosky@olshanlaw.com

				
	
					
						    

					
					
						       afreedman@olshanlaw.com

				

		
			 
		

		
			10.Applicable Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without reference to the conflict of laws principles thereof that would result in the application of the law of another jurisdiction.  Each of the Parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other Party hereto or its successors or assigns, shall be brought and determined exclusively in the Delaware Court of Chancery and any state appellate court 
		

		
			
		

		
			

		 

		

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			therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any federal court within the State of Delaware).  Each of the Parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement in any court other than the aforesaid courts.  Each of the Parties hereto hereby irrevocably waives, and agrees not to assert in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) to the fullest extent permitted by applicable legal requirements, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
		

		
			11.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party (including by means of electronic delivery or facsimile).
		

		
			12.Mutual Non-Disparagement.  Subject to applicable law, each of the Parties covenants and agrees that, during the Standstill Period, or if earlier, until such time as the other Party or any of its agents, subsidiaries, affiliates, successors, assigns, officers, key employees or directors shall have breached this Section 12, neither it nor any of its respective agents, subsidiaries, affiliates, successors, assigns, officers, key employees or directors, shall in any way publicly criticize, disparage, call into disrepute or otherwise defame or slander the other Party or such other Party’s subsidiaries, affiliates, successors, assigns, officers (including any current officer of a Party or a Party’s subsidiaries who no longer serves in such capacity at any time following the execution of this Agreement), directors (including any current director of a Party or a Party’s subsidiaries who no longer serves in such capacity at any time following the execution of this Agreement), employees, shareholders, agents, attorneys or representatives, or any of their businesses, products or services, in any manner that would reasonably be expected to damage the business or reputation of such other Party, their businesses, products or services or their subsidiaries, affiliates, successors, assigns, officers (or former officers), directors (or former directors), employees, shareholders, agents, attorneys or representatives;  provided,  however, if the Starboard Appointee is a Starboard partner or employee, any statements regarding the Company’s operational or stock price performance or any strategy, plans, or proposals of the Company not supported by the Starboard Appointee that do not disparage, call into disrepute or otherwise defame or slander any of the Company’s officers, directors, employees, stockholders, agents, attorneys or representatives (“Opposition Statements”), shall not be deemed to be a breach of this Section 12 (subject to, for the avoidance of doubt, any obligations of confidentiality as a director that may otherwise apply) except that any Opposition Statement will only speak to a matter that has been made public by the Company; provided,  further, that if any Opposition Statement is made by Starboard, the Company shall be permitted to publicly respond with a statement similar in scope to any such Opposition Statement.
		

		
			
		

		
			

		 

		

			12

		

 

		

		
			 
		

		
			13.Securities Laws.  Starboard acknowledges that it is aware, and will advise each of its representatives who are informed as to the matters that are the subject of this Agreement, that the United States securities laws may prohibit any person who directly or indirectly has received from an issuer material, non-public information from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.
		

		
			14.Entire Agreement; Amendment and Waiver; Successors and Assigns; Third-Party Beneficiaries; Term.  This Agreement contains the entire understanding of the Parties with respect to its subject matter.  There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings between the Parties other than those expressly set forth herein.  No modifications of this Agreement can be made except in writing signed by an authorized representative of each of the Company and Starboard.  No failure on the part of any Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.  The terms and conditions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties hereto and their respective successors, heirs, executors, legal representatives, and permitted assigns.  No Party shall assign this Agreement or any rights or obligations hereunder without, with respect to Starboard, the prior written consent of the Company, and with respect to the Company, the prior written consent of Starboard.  This Agreement is solely for the benefit of the Parties and is not enforceable by any other persons or entities.  This Agreement shall terminate at the end of the Standstill Period, except the provisions of Section 6 through Section 10 and Section 14, which shall survive such termination.
		

		
			 
		

		
			[The remainder of this page intentionally left blank]
		

		
			 
		

		
			 
		

		
			

		 

		

			13

		

 

		

		
			IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized signatories of the Parties as of the date hereof.
		

		
			 
		

		
			MAGELLAN HEALTH, INC.
		

		
			 
		

			
					
						 

					
					
						 

					
					
						 

				
	
					
						By:

					
					
						/s/ Barry Smith

					
					
						 

				
	
					
						Name:  Barry Smith

					
					
						 

				
	
					
						Title:     Chief Executive Officer and 

					
						            Chairman of the Board of Directors

					
					
						 

					
						 

				

		
			 
		

		
			
		

		
			

		 

		

			[Signature Page to Settlement Agreement]

		

 

		

		
			STARBOARD VALUE AND OPPORTUNITY MASTER FUND LTD
		

		
			By: Starboard Value LP, its investment manager
		

		
			 
		

		
			STARBOARD VALUE AND OPPORTUNITY S LLC
		

		
			By: Starboard Value LP, its manager
		

		
			 
		

		
			STARBOARD VALUE AND OPPORTUNITY C LP
		

		
			By: Starboard Value R LP, its general partner
		

		
			 
		

		
			STARBOARD VALUE R LP
		

		
			By: Starboard Value R GP LLC, its general partner
		

		
			 
		

		
			STARBOARD VALUE AND OPPORTUNITY MASTER FUND L LP
		

		
			By: Starboard Value L LP, its general partner
		

		
			 
		

		
			STARBOARD VALUE L LP
		

		
			By: Starboard Value R GP LLC, its general partner
		

		
			 
		

		
			STARBOARD VALUE LP
		

		
			By: Starboard Value GP LLC, its general partner
		

		
			 
		

		
			STARBOARD VALUE GP LLC
		

		
			By: Starboard Principal Co LP, its member
		

		
			 
		

		
			STARBOARD PRINCIPAL CO LP
		

		
			By: Starboard Principal Co GP LLC, its general partner
		

		
			 
		

		
			STARBOARD PRINCIPAL CO GP LLC
		

		
			 
		

		
			STARBOARD VALUE R GP LLC
		

		
			 
		

			
					
						 

					
					
						 

					
					
						 

				
	
					
						By:

					
					
						/s/ Jeffrey C. Smith

					
					
						 

				
	
					
						Name:

					
					
						Jeffrey C. Smith

					
					
						 

				
	
					
						Title:

					
					
						Authorized Signatory

					
					
						 

				

		
			 
		

		
			JEFFREY C. SMITH
		

		
			 
		

		
			PETER A. FELD
		

			
					
						/s/

					
					
						 

					
					
						 

				
	
					
						By:

					
					
						/s/ Jeffrey C. Smith

					
					
						 

				
	
					
						Name:

					
					
						Jeffrey C. Smith

					
					
						 

				
	
					
						Title:

					
					
						Individually and as Attorney-in-Fact for Peter A. 

					
					
						 Feld

				

		
			 
		

		
			 
		

		
			 
		

		
			

		 

		

			[Signature Page to Settlement Agreement]

		

 

		

		
			EXHIBIT A
		

		
			 
		

		
			Press Release
		

		
			 
		

		
			 
		

		 

		

			A-1ex_139294.htm

Exhibit 10.1

 

Execution Copy

 

 

 

 

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

 

By and Among

 

 

AVALON HOLDINGS CORPORATION, 

AVALON RESORTS AND CLUBS, INC., 

AVALON CLUBS, INC., 

AVALON RESORTS, INC., 

AVALON GOLF AND COUNTRY CLUB, INC., 

AVALON LAKES GOLF, INC.,

AVALON COUNTRY CLUB AT SHARON, INC.,

AVALON RESORT AND SPA LLC, 

THE HAVANA CIGAR SHOP, INC., 

AVALON TRAVEL, INC., 

AVALON MAHONING SPORTS CENTER, INC.

AVALON CIGAR SHOP, INC.

and 

TBG, INC.

 

and

 

 

LAUREL CAPITAL CORPORATION

 

 

 

 

 

 

Dated as of March 29, 2019

 

 

 

 

 

TABLE OF CONTENTS

    

	 	 	  Page
	 	 	 
	ARTICLE I DEFINITIONS  	1
	 	 	 
	1.1	Definitions. 	 	1
	 	 	 
	
			ARTICLE II THE 2019 LOAN

				5
	 	 	 
	2.1	
			The 2019 LOAN.

				5
	 	 
	ARTICLE III THE 2019 NOTE	5
	 	 	 
	3.1	The 2019 Note. 	5
	3.2	Interest.	6
	3.3	Payment Terms.  	6
	3.4	Prepayment.	7
	3.5	Late Charge.	7
	3.6	Default Rate.	7
	3.7	Payments.  	7
	 	 	 
	ARTICLE IV SECURITY	8
	 	 	 
	4.1	Security.  	8
	 	 	 
	ARTICLE V REPRESENTATIONS AND WARRANTIES     	8
	 	 	 
	5.1	Existence, Power and Authority.	8
	5.2	Financial Information.     	9
	5.3	No Material Adverse Change.  	9
	5.4	Binding Obligations. 	9
	5.5	No Defaults or Violations.	9
	5.6	Litigation. 	9
	5.7	Title; Access. 	9
	5.8	Utilities.  	10
	5.9	Information. 	10
	5.10	Zoning and Governmental Approvals. 	10
	5.11	Contracts.	10
	5.12	Disclosure.  	10
	5.13	Americans with Disabilities Act.  	10
	5.14	Anti-Terrorism Laws.     	10
	5.15	Survival. 	11
	 	 	 
	ARTICLE VI AFFIRMATIVE COVENANTS OF BORROWER   	11
	 	 	 
	6.1	Use of Proceeds. 	11
	6.2	Taxes and Assessments. 	12
	6.3	Books and Records.	12
	6.4	Reimbursement. 	12
	6.5	Compliance with Covenants, Agreements and Laws. 	12
	6.6	Insurance.  	12
	6.7	Maintenance of Properties.    	13
	6.8	Litigation.   	13
	6.9	Judgments.  	13
	6.10	Financial and Reporting Requirements.	13
	6.11	Fixed Charge Coverage Ratio.  	14

 

 

 

 

	ARTICLE VII NEGATIVE COVENANTS OF BORROWERS     	14
	 	 	 
	7.1	Ownership of Materials and Personal Property. 	14
	7.2	Transfer of Interests.	14
	7.3	Prohibition of Liens.	14
	7.4	Prohibition of Indebtedness. 	15
	7.5	Prohibition of Acquisitions.    	15
	7.6	Prohibition of Loans.   	15
	7.7	Prohibition of Asset Purchases. 	15
	7.8	Transfer of Property; Release of Mortgaged Property.  	15
	7.9	Anti-Terrorism Laws. 	16
	 	 	 
	ARTICLE VIII CONDITIONS OF CLOSING AND DISPOSITION OF NOTE PROCEEDS   	16
	 	 	 
	8.1	Conditions of Closing and Disposition of 2019 Note Proceeds.	16
	8.2	Disposition of Proceeds of 2019 Note.  	18
	 	 	 
	ARTICLE IX DEFAULTS AND REMEDIES	20
	 	 	 
	9.1	Events of Default. 	20
	9.2	Remedies.	22
	9.3	Set-Off. 	22
	 	 	 
	ARTICLE X MISCELLANEOUS  	22
	 	 	 
	10.1	Notices. 	22
	10.2	Preservation of Rights. 	23
	10.3	Illegality.	23
	10.4	Changes in Writing. 	23
	10.5	Entire Agreement. 	23
	10.6	Counterparts.	24
	10.7	Successors and Assigns.   	24
	10.8	Interpretation.  	24
	10.9	Certain Waivers.	24
	10.10	Indemnity.	25
	10.11	Assignments and Participations.  	25
	10.12	Governing Law and Jurisdiction. 	25
	10.13	WAIVER OF JURY TRIAL.	25
	 	 	 
	
			EXHIBIT A – Form of 2019 Note

				 
	EXHIBIT B – Form of Disbursement Request	 

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the 18th day of March, 2019 by and among AVALON HOLDINGS CORPORATION, an Ohio corporation ("Avalon Holdings"), AVALON RESORTS AND CLUBS, INC., an Ohio corporation ("Avalon Resorts and Clubs"), AVALON CLUBS, INC., an Ohio corporation ("Avalon Clubs"), AVALON RESORTS, INC., an Ohio corporation ("Avalon Resorts"), AVALON GOLF AND COUNTRY CLUB, INC., an Ohio corporation ("Avalon Golf and CC"), AVALON LAKES GOLF, INC., an Ohio corporation ("Avalon Lakes Golf"), AVALON COUNTRY CLUB AT SHARON, INC., a Pennsylvania corporation ("Avalon CC at Sharon"), AVALON RESORT AND SPA, LLC, an Ohio limited liability company ("Avalon Resort and Spa"), THE HAVANA CIGAR SHOP, INC., an Ohio corporation ("Havana"), AVALON TRAVEL, INC. an Ohio corporation ("Avalon Travel"), AVALON MAHONING SPORTS CENTER, INC., an Ohio corporation ("Avalon Mahoning"), AVALON CIGAR SHOP, INC., an Ohio corporation ("Avalon Cigar"), and TBG, INC., an Ohio corporation ("TBG" and, together with Avalon Holdings, Avalon Resorts and Clubs, Avalon Clubs, Avalon Golf and CC, Avalon Lakes Golf, Avalon CC at Sharon, Avalon Resort and Spa, Havana, Avalon Travel, Avalon Mahoning and Avalon Cigar, the "Borrowers"), and LAUREL CAPITAL CORPORATION, a Pennsylvania business corporation (the "Lender").

 

RECITALS:

 

A.     The Borrowers have requested that the Lender provide a term loan to the Borrowers in the principal amount of $3,000,000 (the "2019 Loan").

 

B.     The 2019 Loan will be used by the Borrowers to finance the costs of a project (the "2019 Project") consisting of (i) paying the costs of renovating and expanding the Avalon Inn and Resort facility, and (ii) paying the transaction costs relating to the 2019 Loan.

 

C.     The Lender is willing to provide the 2019 Loan upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows:

 

 

ARTICLE I DEFINITIONS

 

1.1     Definitions. 

 

In addition to words and terms defined in the Recitals or elsewhere in this Agreement, the following terms shall have the meanings provided below:

 

"2016 Avalon Resort and Spa Mortgage" means the Mortgage, Security Agreement, Assignment of Leases and Fixture Filing dated December 1, 2016 and effective as of the date hereof, executed by Avalon Resort and Spa in favor of the Lender, which granted the Lender a first priority mortgage lien on the 2019 Mortgaged Property as security for the 2016 Note.

 

"2016 Note" means the Mortgage Note dated December 20, 2016 from the Borrowers to the Lender in the original principal amount of $12,000,000, as the same may be amended, renewed, replaced, or supplemented from time to time.

 

 

 

 

"2019 Mortgage" means the Mortgage, Security Agreement, Assignment of Leases and Fixture Filing dated March 27, 2019 and effective as of the date hereof, executed by Avalon Resort and Spa in favor of the Lender, granting the Lender a second priority mortgage lien on the Avalon Resort and Spa Mortgaged Property as security for the 2019 Note.

 

"2019 Note" means the Mortgage Note evidencing the 2019 Loan, substantially in the form of Exhibit A attached hereto, executed and delivered by the Borrowers to the Lender, as the same may be amended, renewed, replaced, or supplemented from time to time.

 

"Anti-Terrorism Laws" means any Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by the United States Treasury Department's Office of Foreign Asset Control (as any of the foregoing Laws may from time to time be amended, renewed, extended, or replaced).

 

"Applicable Rate" means:

 

(a)      For the period from the Closing Date through the date immediately preceding the Reset Date, 6.25% per annum; and (ii); and

 

(b)      For the period from the Reset Date through the Maturity Date, the greater of (x) 6.25% per annum and (y) the sum of the Index Rate on the date two (2) Business Days prior to the Reset Date and 3.60%, provided that the Applicable Rate shall in no event exceed 8.50% per annum.

 

"2019 Mortgaged Property" means the Land owned by Avalon Resort and Spa and located at 9519 East Market Street, Warren, OH 44484, as more particularly described on Exhibit A to the 2019 Mortgage, and the other property within the definition of "Mortgaged Property" as defined in the 2019 Mortgage.

 

"Benefit Plan" means any defined benefit or defined contribution plan, including both single and multi-employer plans, subject to Title IV of ERISA and established and maintained for employees of the Borrowers or any subsidiary of the Borrowers or any ERISA Affiliate of the Borrowers.

 

"Blocked Person" has the meaning set forth in Section 5.14 hereof.

 

"Borrower Consolidated Group" means, together, the Borrowers and each other person or entity that is consolidated with the Borrowers for financial statement purposes.

 

"Closing Date" means March 29, 2019.

 

"Collateral" means all property of a Borrower or any other Person, real or personal, in or upon which the Lender is granted a security interest, mortgage, lien, pledge or encumbrance pursuant to the Loan Documents, including without limitation the 2019 Mortgaged Property and the Personal Property.

 

"Default Rate" shall have the meaning set forth in Section 3.6 hereof.

 

"ERISA" means the Employee Retirement Income Security Act of 1074, as in effect as of the date of this Agreement and as amended from time to time.

 

2

 

 

"ERISA Affiliate" means a Person that is under common control with a Borrower within the meaning of Section 414(b) of the Code including but not limited to, a subsidiary of a Borrower.

 

"Event of Default" shall have the meaning set forth in Section 9.1.

 

"Excess Interest" shall have the meaning set forth in Section 3.2(d) hereof.

 

"Executive Order" means the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

"Financial Statements" means, for a Borrower, a balance sheet and statement of income and cash flows prepared in accordance with GAAP (subject in the case of interim statements to normal year-end adjustments) (a) in the case of annual statements, examined and reported on by an independent certified public accountant acceptable to the Lender and (b) in the case of quarterly statements, prepared internally by such Borrower.

 

"Fixed Charge Coverage Ratio" means, for any fiscal year of the Borrowers, the ratio of (i) the sum of Operating Cash Flow of the Borrower Consolidated Group for such fiscal year, to (ii) the sum of Total Fixed Charges of the Borrower Consolidated Group for such fiscal year, all as determined from the Financial Statements of the Borrower Consolidated Group for such fiscal year delivered to the Lender.

 

"GAAP" means generally accepted accounting principles in the United States (as such principles may change from time to time), which shall include the official interpretations thereof by the Financial Accounting Standards Board, applied on a consistent basis.

 

"Improvements" means all buildings and other improvements located on any of the 2019 Mortgaged Property.

 

"Index Rate" means the Five (5) Year Interest Rate Swap rate, as published by Intercontinental Exchange (ICE) Benchmark Administration. If the Index Rate is discontinued or is no longer published as of any Reset Date, then the Lender shall select an index or statistic which most closely approximates the discontinued or unpublished index and such index or statistic shall replace such discontinued or unpublished index for all purposes hereunder.

 

"Interest Payment Date" means the twentieth (20th) day of each calendar month commencing April 20, 2019 and the Maturity Date.

 

"Land" means, collectively, the real property comprising the 2019 Mortgaged Property as more particularly described on Exhibit A to the 2019 Mortgage.

 

"Late Charge" shall have the meaning set forth in Section 3.5 hereof.

 

"Law" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body.

 

"Loan Documents" means this Agreement, the 2019 Note, the 2019 Mortgage, and all other indemnification agreements, documents, instruments, certificates and agreements now or hereafter executed in connection with the 2019 Loan, as the same may be amended, replaced, or supplemented from time to time.

 

3

 

 

"Material Adverse Change" means a material adverse change in (i) the business, operations or financial condition of the Borrowers, taken as a whole, (ii) the ability of the Borrowers to perform any of their respective payment or other obligations under this Agreement or any other Loan Document, (iii) the legality, validity or enforceability of the obligations of a Borrower under this Agreement or any other Loan Document, or (iv) the ability of the Lender to exercise its rights and remedies with respect to, or otherwise realize upon, any collateral for the Obligations.

 

"Material Adverse Effect" means a material and adverse effect on (i) the business, operations or financial condition of the Borrowers, taken as a whole, (ii) the ability of the Borrowers to perform any of their respective payment or other obligations under this Agreement or any other Loan Document, (iii) the legality, validity or enforceability of the obligations of a Borrower under this Agreement or any other Loan Document, or (iv) the ability of the Lender to exercise its rights and remedies with respect to, or otherwise realize upon, any security for the Obligations.

 

"Materials" shall mean all materials, supplies, chattels, fixtures, machinery, equipment or other articles of property furnished or to be furnished in connection with the construction of, and to be incorporated into, the renovation and expansion of the Avalon Resort and Inn Facility.

 

"Maturity Date" means December 20, 2026.

 

"Maximum Interest Rate" shall have the meaning set forth in Section 3.2(d) hereof.

 

"Obligations" means all repayment and other obligations of the Borrowers with respect to the 2019 Loan under this Agreement, the 2019 Note and the other Loan Documents.

 

"Official Body" means any government or political subdivision or any agency, authority, bureau, central bank, board, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

 

"Operating Cash Flow" means net income after taxes, exclusive of extraordinary gains and losses and non-cash transactions, plus interest expense, depreciation, and amortization (as those terms are defined in accordance with GAAP).

 

"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Title IV of ERISA.

 

"Person" means any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

 

"Personal Property" means all of the Borrowers' furniture, fixtures and equipment located on the 2019 Mortgaged Property, and all proceeds thereof.

 

"Potential Default" shall mean any condition, event, act or omission which, with the giving of notice or passage of time or both, would constitute an Event of Default.

 

4

 

 

"Project Fund" means the account established pursuant to Section 8.2 hereof.

 

"Prohibited Transaction" means any transaction which is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA.

 

"Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, except any such event as to which the provision for thirty (30) days' notice to the PBGC is waived under applicable regulations.

 

"Required Deductions" shall have the meaning set forth in Section 3.7 hereof.

 

"Reset Date" means the fifth (5th) anniversary of the Closing Date.

 

"Title Company" means Chicago Title Insurance Company.

 

"Total Fixed Charges" means the sum of interest expense, regularly scheduled payments of principal made on long term debt and capitalized lease obligations during the period being measured, and dividends and distributions.

 

"UCC" means the Uniform Commercial Code of the state in which any Collateral is located, as amended.

 

"Unfunded Capital Expenditures" means capital expenditures not funded by long-term debt.

 

"USA Patriot Act" means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

 

ARTICLE II THE 2019 LOAN

 

2.1     The 2019 Loan. 

 

Subject to the terms and conditions hereinafter set forth, the Lender agrees to make the 2019 Loan to the Borrowers. The Lender and the Borrowers acknowledge and agree that the Lender will disburse the proceeds of 2019 Loan only for the payment of or reimbursement for the actual costs, fees and expenses incurred by the Borrowers in connection with the 2019 Project, with all such disbursements to be made in accordance with the terms and conditions set forth in this Agreement. The Borrowers hereby jointly and severally covenant and agree to repay the 2019 Loan in accordance with the terms of the Notes and Article 3 hereof.

 

ARTICLE III THE 2019 NOTE

 

3.1     The 2019 Note.

 

The obligation of the Borrowers to repay the 2019 Loan shall be evidenced by the 2019 Note, dated the Closing Date, in substantially the form attached hereto as Exhibit A, in the principal amount of $3,000,000, maturing on the Maturity Date, and bearing interest and having such other terms as are set forth in this Article 3 and in the 2019 Note.

 

5

 

 

3.2     Interest. 

 

(a)     Interest Rate. Amounts outstanding under the 2019 Note will bear interest at the Applicable Rate in effect from time to time, subject, however, to application of the Default Rate as provided in Section 3.6 hereof.

 

(b)     Calculation of Interest and Fees. Interest on the 2019 Note, unpaid fees and other sums payable thereunder shall be calculated on the basis of a 360 day year consisting of 12 thirty day months. Interest on the 2019 Note and any unpaid fees and other sums payable hereunder shall be calculated on the basis of a 360 day year consisting of 12 thirty day months.

 

(c)     Interest Laws. Notwithstanding any provisions to the contrary contained in this Agreement or any other Loan Document, the Borrowers shall not be required to pay, and the Lender shall not be permitted to collect, any amount of interest in excess ("Excess Interest") of the maximum amount of interest permitted by applicable Law (the "Maximum Interest Rate"). If any Excess Interest is provided for or determined by a court of competent jurisdiction to have been provided for in this Agreement or in any other Loan Document with respect to the 2019 Loan, then in such event: (A) the provisions of this subsection shall govern and control; (B) the Borrowers shall not be obligated to pay any Excess Interest; (C) any Excess Interest that the Lender may have received hereunder shall be, at the Lender's option, (1) applied as a credit against the outstanding principal balance of the 2019 Loan or accrued and unpaid interest (not to exceed the Maximum Rate, (2) refunded to the Borrowers, or (3) any combination of the foregoing; (D) the interest rate(s) provided for herein shall be automatically reduced to the Maximum Rate, and this Agreement and the other Loan Documents shall be deemed to have been and shall be, reformed and modified to reflect such reduction; and (E) the Borrowers shall not have any action against the Lender for any damages arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any Loan is calculated at the Maximum Rate rather than the Applicable Rate, and thereafter such Applicable Rate becomes less than the Maximum Rate, the rate of interest payable on such Loan shall remain at the Maximum Rate until the Lender shall have received the amount of interest which the Lender would have received during such period on the 2019 Loan had the rate of interest not been limited to the Maximum Rate during such period.

 

3.3     Payment Terms. 

 

The Borrowers hereby jointly and severally covenant and agree to repay the 2019 Loan as follows:

 

(a)      Principal and interest on the 2019 Loan shall be due and payable as follows: (i) ninety-two (92) equal monthly payments of principal and interest based on a fifteen (15) year amortization on the twentieth (20th) day of each calendar month commencing April 20, 2019 and ending November 20, 2026; followed by (ii) a final payment on the Maturity Date equal to the remaining outstanding principal of the 2019 Loan plus accrued unpaid interest and fees thereon.

 

(b)      If any payment under the 2019 Note shall become due on a Saturday, Sunday or public holiday under the laws of the Commonwealth of Pennsylvania, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing interest in connection with such payment. Payments received will be applied to charges, fees and expenses (including attorneys' fees), accrued interest and principal in any order the Lender may choose, in its sole discretion.

 

6

 

 

3.4     Prepayment. 

 

(a)     Provided that no Event of Default has occurred or is continuing, the 2019 Note shall be subject to prepayment at the option of the Borrowers, upon at least fifteen (15) days prior written notice to the Lender, in whole or in part on any date upon payment of the principal amount of the 2019 Note to be prepaid plus accrued unpaid interest thereon to the prepayment date (and, in the case of a prepayment in whole of the 2019 Note, any other sums then due and payable under the 2019 Note), plus a prepayment penalty ("Prepayment Penalty") equal to a percentage of the principal amount of the 2019 Note being prepaid, with the percentage determined based on the date of prepayment as set forth in the following table:

 

	
			Date of Prepayment

				
			Prepayment Penalty

			
	 	 
	
			Between Closing Date and fifth anniversary of Closing Date

				
			5.00%

			
	
			Fifth anniversary of Closing Date and thereafter

				
			2.00%

			

 

(b)     Any prepayments with respect to the 2019 Note shall be applied against scheduled installment payments due on the 2019 Note in inverse order beginning with the final scheduled installment payment.

 

3.5     Late Charge. 

 

If the Borrowers fail to make any installment of interest or principal on a Note within ten calendar (10) days after such installment becomes due, in addition to making a payment of the installment due, the Borrowers shall pay to the Lender a late charge in an amount equal to the greater of twenty-five and 00/100 dollars ($25.00) and five percent (5.0%) of any such overdue installment (the "Late Charge"). Any Late Charge will be immediately due and payable. Such ten (10) day period shall not be construed in any way to extend the due date of such payment.

 

3.6     Default Rate. 

 

At the Lender's option, upon the occurrence of an Event of Default and during the continuance thereof, subject to all applicable cure and grace periods, under any of the Loan Documents and during the continuance thereof, the 2019 Note shall bear interest at the Applicable Rate plus five percent (5.0%), or the Maximum Interest Rate, whichever is lower (the rate applicable during the continuance of an Event of Default is referred to hereinafter as the "Default Rate"). The Default Rate may continue to apply whether or not judgment shall be entered on the applicable Note.

 

3.7     Payments. 

 

All payments to be made with respect to principal, interest, fees or other amounts due from the Borrowers under this Agreement or under the Notes are payable at 12:00 noon (Pittsburgh, Pennsylvania time) on the day when due, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action for the payments will accrue immediately. All such payments must be made to the Lender at its office in U.S. Dollars and in funds immediately available at such office, without setoff, counterclaim or other deduction of any nature. All such payments shall be applied at the option of the Lender to accrued and unpaid interest, outstanding principal and other sums due under this Agreement in such order as the Lender, in its sole discretion, shall elect. All such payments shall be made absolutely net of, without deduction or offset, and altogether free and clear of any and all present and future taxes, levies, deductions, charges and withholdings and all liabilities with respect thereto, excluding income and franchise taxes imposed on the Lender under the Laws of the United States or any state or political subdivision thereof. If the Lender is compelled by Law to deduct any such taxes or levies (other than such excluded taxes) or to make any such other deductions, charges or withholdings (collectively, the "Required Deductions"), the Borrowers will pay to the Lender an additional amount equal to the sum of (i) the aggregate amount of all Required Deductions, and (ii) the aggregate amount of United States, federal or state income taxes required to be paid by the Lender in respect of the Required Deductions.

 

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ARTICLE IV SECURITY

 

4.1     Security. 

 

(a)     The Obligations shall be secured by, and each Borrower hereby grants to the Lender, a security interest in, (i) the Personal Property of Avalon Resort and Spa (which security interest shall be subordinate to the security interest therein securing the 2016 Note) and (ii) the Project Fund. Each Borrower hereby represents, warrants, covenants and agrees that this Agreement constitutes a security agreement with respect to its Personal Property and the Project Fund, and the Lender shall have all of the rights and remedies of a secured party under the UCC, as well as all other rights and remedies available hereunder or at law or in equity or by judicial decision. Each Borrower hereby agrees, at such Borrower's cost and expense, to execute and deliver and, if appropriate, to file with the appropriate filing officer or office, such security agreements, financing statements, continuation statements or other instruments as the Lender may request or require in order to impose, perfect or continue the perfection of, or protect, the liens and security interests created by this Agreement. Each Borrower also authorizes the Lender, at any time and from time to time, to prepare and file any such financing statements, continuation statements or other instruments without the signature of such Borrower.

 

(b)     As further security for the Obligations, the Borrowers shall execute and deliver, or cause to be executed and delivered to Lender, the 2019 Mortgage, which shall grant to the Lender a second priority mortgage lien junior to the lien of the 2016 Avalon Resort and Spa Mortgage, which secures the 2016 Note.

 

 

ARTICLE V REPRESENTATIONS AND WARRANTIES

 

The Borrowers hereby jointly and severally represent and warrant to the Lender as follows:

 

5.1     Existence, Power and Authority. 

 

Each Borrower is a corporation (or, in the case of Avalon Resort and Spa, a limited liability company), duly organized, validly existing and in good standing under the laws of the State of Ohio (or, in the case of Avalon CC at Sharon, the Commonwealth of Pennsylvania), and has the power and authority to own and operate its assets and to conduct its business as now or proposed to be carried on, and is duly qualified, licensed and in good standing to do business in all jurisdictions where its ownership of property or the nature of its business requires such qualification or licensing. Each Borrower is duly authorized to execute and deliver the Loan Documents to which it is a party, all necessary action to authorize the execution and delivery of the Loan Documents by each Borrower has been properly taken, and each Borrower is duly authorized to borrow under this Agreement and to perform all of the other terms and provisions of the Loan Documents.

 

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5.2     Financial Information. 

 

The Borrowers have delivered or caused to be delivered to the Lender certain financial information and Financial Statements regarding the Borrowers and the 2019 Mortgaged Property. Such financial information and Financial Statements are true, complete and accurate in all material respects and fairly present the information they purport to present. Such Financial Statements have been prepared in accordance with GAAP subject in the case of interim statements to normal year-end adjustments and to any comments and notes acceptable to the Lender in its sole discretion.

 

5.3     No Material Adverse Change. 

 

Since the date of the financial information and the Financial Statements referred to in Section 5.2 above, no Borrower has suffered any damage, destruction or loss, and no event or condition has occurred or exists, which has resulted or could result in a Material Adverse Change as to any Borrower or the 2019 Mortgaged Property, or the ability of the Borrowers to perform any of their payment or other obligations under this Agreement or any other Loan Document.

 

5.4     Binding Obligations. 

 

Each Borrower has full power and authority to enter into the transactions provided for in this Agreement and has been duly authorized to do so as may be required by law, such Borrower's articles of incorporation, bylaws, certificate of organization, operating agreement and other organizational documents, and any agreements to which such Borrower is a party; and the Loan Documents, when executed and delivered by such Borrower, will constitute the legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms.

 

5.5     No Defaults or Violations. 

 

There does not exist any Event of Default or any default or violation by the Borrowers of or under any of the terms, conditions or obligations of: (a) any applicable articles or certificate of incorporation or organization, regulations, bylaws or operating agreement; (b) any material indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which a Borrower is a party or by which it is bound; or (c) any law, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon a Borrower by any law, the action by any court or any governmental authority or agency; and the consummation of this Agreement and the transactions set forth herein will not result in any such default or violation.

 

5.6     Litigation. 

 

There are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of the Borrowers, threatened against any Borrower, which could result in a Material Adverse Change as to such Borrower or its Mortgaged Property, or the ability of such Borrower to perform any of its payment or other obligations under this Agreement or any other Loan Document, and there is no basis known to the Borrowers for any action, suit, proceeding or investigation which could result in such a Material Adverse Change.

 

5.7     Title; Access. 

 

Avalon Resort and Spa has clear and marketable fee simple title to the 2019 Mortgaged Property, free, clear and unencumbered, of record and in fact, except for and subject only to the 2016 Avalon Resort and Spa Mortgage and those matters permitted by the terms of the 2019 Mortgage. Avalon Resort and Spa has been granted all easements necessary or appropriate for use of the 2019 Mortgaged Property. The Land is a separately subdivided parcel or parcels under applicable laws regulating subdivision and land development. All streets necessary for the full utilization of the Land have been completed.

 

9

 

 

5.8     Utilities. 

 

All utility services necessary for the use and operation of the Improvements for their intended purposes, including water, storm and sanitary sewer facilities, electric, gas, and telephone, are available at the boundaries of the Land and are installed and operating.

 

5.9     Information. 

 

All surveys, plat plans and similar documents furnished by the Borrowers to the Lender are accurate and complete in all material respects as of their respective dates.

 

5.10     Zoning and Governmental Approvals. 

 

The development, construction, use and occupancy of the Improvements conform to all applicable laws, all existing governmental approvals and all covenants, conditions and restrictions contained in a deed, lease or other instrument or agreement covering or affecting all or any portion of the 2019 Mortgaged Property. All governmental approvals have been obtained and are valid and in full force and effect.

 

5.11     Contracts. 

 

There are no contracts affecting or relating to the management or operation of the Improvements.

 

5.12     Disclosure. 

 

None of the Loan Documents contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary in order to make the statements contained in this Agreement or the Loan Documents not misleading. There is no fact known to the Borrowers which materially adversely affects or, so far as the Borrowers can now reasonably foresee, might materially adversely affect the business, assets, operations, financial condition or results of operation of the Borrowers, taken as a whole, and which has not otherwise been fully set forth in this Agreement or in the Loan Documents.

 

5.13     Americans with Disabilities Act. 

 

To the best of the Borrowers' knowledge, information and belief, the Improvements and the 2019 Mortgaged Property are in compliance with the requirements of the Americans with Disabilities Act, and there are no pending or threatened claims or proceedings by the U.S. Department of Justice or any third parties against the Borrowers or any subsidiary of a Borrower arising from the Americans with Disabilities Act.

 

5.14     Anti-Terrorism Laws. 

 

(a)     Neither the Borrowers, nor any affiliate of a Borrower, is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

 

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(b)     Neither the Borrowers nor any Guarantor, nor any Affiliate of a Borrower or any Guarantor, or respective agents acting or benefiting in any capacity in connection with the Loan or other transactions hereunder, is any of the following (each a "Blocked Person"):

 

(i)     A Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

 

(ii)     A Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

 

(iii)     A Person with which the Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

 

(iv)     A Person that commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order;

 

(v)     A Person that is named as a "specially designated national" on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list; or

 

(vi)     A Person who is affiliated or associated with a person or entity listed above.

 

(c)     Neither the Borrowers nor, to the knowledge of the Borrowers, any of their respective agents acting in any capacity in connection with the 2019 Loan or other transactions contemplated hereunder, (i) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order.

 

5.15     Survival. 

 

The representations and warranties made herein and each and every other provision of this Agreement and the other Loan Documents shall survive the delivery thereof and shall be deemed to be made continuously until the 2019 Loan shall have been paid in full.

 

ARTICLE VI AFFIRMATIVE COVENANTS OF BORROWER

 

The Borrowers jointly and severally covenant and agree that until the Obligations are paid in full, the Borrowers shall comply with the following affirmative covenants:

 

6.1     Use of Proceeds. 

 

The Borrowers shall use the proceeds of the 2019 Loan only to pay costs of the 2019 Project.

 

11

 

 

6.2     Taxes and Assessments. 

 

The Borrowers shall provide the Lender with satisfactory evidence of payment of all real estate taxes, assessments and other impositions with respect to the 2019 Mortgaged Property as set forth in the 2019 Mortgage.

 

6.3     Books and Records. 

 

Each Borrower shall make available for inspection by a duly authorized representative of the Lender any of such Borrower's books and records insofar as they relate to such Borrower or the 2019 Mortgaged Property, at such reasonable times as may be reasonably requested by the Lender upon reasonable prior written notice; and furnish to the Lender, upon reasonable notice to such Borrower by the Lender, such information regarding its business affairs and financial condition as the Lender may reasonably request.

 

6.4     Reimbursement. 

 

The Borrowers shall reimburse the Lender promptly for all costs and expenses paid or incurred by the Lender in connection with the 2019 Loan, including the cost of title insurance premiums, charges and update fees, expenses and reasonable fees of the Lender's attorneys, survey costs, appraisal costs, flood search costs, environmental consultant fees, lending fees, recording fees and taxes, and all other expenses paid in connection with the preparation, closing and administration of the proceeds of the 2019 Loan, all of which the Lender is authorized to advance from the proceeds of the 2019 Loan or deduct from the proceeds of any disbursement of all or any portion of the 2019 Loan.

 

6.5     Compliance with Covenants, Agreements and Laws. 

 

The Borrowers shall comply in all material respects with all applicable laws, covenants and restrictions now of record affecting all or any part of the 2019 Mortgaged Property, except for violations which are being contested by a Borrower in good faith by appropriate proceedings. Each Borrower shall comply in all material respects with all obligations under other contracts, instruments and agreements to which it is a party or to which any of its properties or assets may be subject, except for breaches which are being contested by a Borrower in good faith by appropriate proceedings. Each Borrower shall maintain all necessary licenses and permits needed to conduct its businesses, and shall notify the Lender in writing of any adverse findings of any licensing authority which cannot be corrected within thirty (30) days of such knowledge.

 

6.6     Insurance. 

 

Each Borrower shall at its own cost and expense obtain or cause to be obtained insurance policies naming the Lender or its designee as additional insured, mortgagee and lender loss payee, as applicable, insuring against such risks, and in such amounts, as are customarily insured against by entities constructing, owning and operating facilities of like size and type, paying as the same become due and payable, all premiums in respect thereof, including but not necessarily limited to:

 

(a)     Fire insurance with Uniform Standard Extended Coverage Endorsements, and vandalism and malicious mischief insurance, at all times in an amount equal to at least 100% of the replacement cost of the 2019 Mortgaged Property;

 

(b)     Comprehensive general liability insurance, including builders' risk insurance during any construction period, with minimum limits of $1,000,000 per person and $1,000,000 per occurrence, and property damage coverage with a minimum limit of $1,000,000, with an aggregate limit of $3,000,000, together with umbrella liability coverage in the amount of $1,000,000 per person and $1,000,000 per occurrence;

 

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(c)     Workers' compensation coverage and any other type of insurance required by the laws of the Commonwealth of Pennsylvania or the State of Ohio, as applicable;

 

(d)     Flood insurance, if any part of the 2019 Mortgaged Property is located in an "area of special flood hazard," as defined in the Flood Insurance Act of 1968, in an amount equal to the full and total replacement cost of the Improvements to the 2019 Mortgaged Property located within such area ;

 

(e)     Business interruption insurance; and

 

(f)     Such other insurance as the Lender may reasonably require from time to time.

 

Each policy shall provide for written notice to the Lender, or its designee, at least thirty (30) days prior to any cancellation, nonrenewal or amendment of such insurance. Each Borrower shall provide the Lender with certificates from the insurers at such times as may be necessary (but in no event less than once each year) to show that insurance is being maintained as required by this Section 6.6.

 

6.7     Maintenance of Properties. 

 

Each Borrower will maintain and preserve all of its properties in good order and condition, ordinary wear and tear excepted, including but not limited to the 2019 Mortgaged Property and the Improvements, and shall not permit, commit or suffer any waste of any such properties, or use or permit to be used any properties for any unlawful purpose.

 

6.8     Litigation. 

 

Each Borrower shall promptly notify the Lender in writing as soon as such Borrower has any knowledge of any threatened or pending litigation or governmental or regulatory proceeding against, or investigation of, such Borrower, the outcome of which may have a Material Adverse Effect on such Borrower or the 2019 Mortgaged Property.

 

6.9     Judgments. 

 

Each Borrower shall promptly notify the Lender in writing as soon as such Borrower has any knowledge of any judgments entered against it in excess of $50,000 and for which such Borrower is uninsured and has not obtained a stay of execution within sixty (60) days after the date of such judgment.

 

6.10     Financial and Reporting Requirements. 

 

Each Borrower shall deliver or cause to be delivered to the Lender:

 

(a)      Copies of each annual report on SEC Form 10-K filed by the Borrowers with the Securities and Exchange Commission (the "SEC") for a fiscal year, within five business days after the date of filing;

 

(b)      Copies of each quarterly report on SEC Form 10-Q filed by the Borrowers with the SEC for a fiscal quarter, within five business days after the date of filing;

 

13

 

 

(c)      Within 120 days after the end of each fiscal year of the Borrowers, evidence of the payment of all real estate taxes and assessments due and payable with respect to the 2019 Mortgaged Property owned by each Borrower and payment of all insurance premiums with respect to the insurance policies required by this Agreement; and

 

(d)      Such other information as may be reasonably requested by the Lender from time to time in order to enable the Lender to evaluate the financial condition and cash flow of the Borrowers and the 2019 Mortgaged Property.

 

6.11     Fixed Charge Coverage Ratio. 

 

The Borrower Consolidated Group shall maintain a combined Fixed Charge Coverage Ratio of at least 1.20, tested on an annual basis on December 31 of each year commencing with the fiscal year of the Borrower Consolidated Group ending December 31, 2019.

 

 

ARTICLE VII NEGATIVE COVENANTS OF BORROWERS

 

The Borrowers jointly and severally covenant and agree that until the Obligations are paid in full, the Borrowers shall comply with the following negative covenants:

 

7.1     Ownership of Materials and Personal Property. 

 

Without the Lender's prior written consent, the Borrowers shall not cause any materials, equipment, personal property or fixtures of any kind to be purchased or acquired for installation or use in or about the Improvements under any conditional sales contract or security agreement or lease agreement.

 

7.2     Transfer of Interests. 

 

None of the Borrowers shall liquidate, merge or consolidate with any person, firm, corporation or other entity, or sell, lease, transfer or otherwise dispose of all or any substantial part of its property or assets, whether now owned or hereafter acquired, without the Lender's prior written consent, provided that the Lender's consent shall not be required in the event of a merger or consolidation of the Borrowers with each other so long as such merger or consolidation does not involve any entity other than the Borrowers. Avalon Holdings shall not transfer its equity ownership of any other Borrower to any third party.

 

7.3     Prohibition of Liens. 

 

None of the Borrowers shall create, assume, incur or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property, now owned or hereafter acquired, or acquire or agree to acquire any kind of property under conditional sales or other title retention agreements (other than those reflected in the Financial Statements); provided, however, that the foregoing restrictions shall not prevent a Borrower from:

 

(a)      Incurring liens for taxes, assessments or governmental charges or levies which shall not at the time be due and payable or can thereafter be paid without penalty or are being contested in good faith by appropriate proceedings diligently conducted and with respect to which it has created adequate reserves;

 

14

 

 

(b)      Making pledges or deposits to secure obligations under workers' compensation laws or similar legislation; or

 

(c)      Granting liens or security interests in favor of the Lender; or

 

(d)      Granting liens or security interests in the Line of Credit Collateral in favor of the Line of Credit Lender.

 

7.4     Prohibition of Indebtedness. 

 

Without the prior written consent of the Lender, none of the Borrowers shall create, incur, guarantee, endorse (except endorsements in the course of collection), assume or suffer to exist any indebtedness, except (i) indebtedness to the Lender, (ii) open account trade debt incurred in the ordinary course of business and not past due, (iii) indebtedness of a Borrower existing on the Closing Date that has been disclosed by such Borrower to the Lender and is secured by assets or properties of such Borrower other than the Collateral, or (iv) indebtedness of a Borrower incurred after the Closing Date that is disclosed by such Borrower to the Lender at least ten (10) Business Days prior to the date of incurrence of such indebtedness and is secured by assets or properties other than the Collateral.

 

7.5     Prohibition of Acquisitions. 

 

None of the Borrowers shall make acquisitions of all or substantially all of the equity, property or assets of any person, firm, corporation or other entity, or merge, consolidate or sell substantially all of its assets, without the prior written consent of the Lender, which shall not be unreasonably withheld, conditioned or delayed.

 

7.6     Prohibition of Loans. 

 

None of the Borrowers shall make or have outstanding any loans or advances to or otherwise extend credit to any Person (including, without limitation, loans or advances to officers, owners or affiliates), except in the ordinary course of business. None of the Borrowers shall guaranty the indebtedness of any Person.

 

7.7     Prohibition of Asset Purchases. 

 

Without the prior written consent of the Lender, which shall not be unreasonably withheld, conditioned or delayed, none of the Borrowers shall acquire, sell, lease, transfer or dispose of fixed assets during any calendar year, except in the ordinary course of business.

 

7.8     Transfer of Property; Release of Mortgaged Property. 

 

Without the prior written consent of the Lender, none of the Borrowers shall sell, lease, assign, transfer or otherwise dispose of, in whole or in part, the Collateral or any interest therein, including but not limited to any equity interest therein, as the case may be, provided that nothing in this Section shall prohibit a Borrower from selling any tangible Personal Property for its current market value, transferring title to and/or possession of any tangible Personal Property in exchange for a credit against the purchase of replacement property, or disposing of any tangible Personal Property which in such Borrower's reasonable judgment is obsolete, has reached the end of its useful life or has irrevocably ceased to function.

 

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7.9     Anti-Terrorism Laws. 

 

None of the Borrowers nor any of their respective affiliates and agents shall (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order, the USA Patriot Act or any other Anti-Terrorism Law. The Borrowers shall deliver to the Lender any certification or other evidence requested from time to time by the Lender in its sole discretion, confirming the Borrowers' compliance with this Section.

 

ARTICLE VIII CONDITIONS OF CLOSING AND DISPOSITION OF NOTE PROCEEDS

 

8.1     Conditions of Closing and Disposition of 2019 Note Proceeds. 

 

The Lender shall not be obligated to make the 2019 Loan until the Borrowers, at their expense, shall have fulfilled, to the Lender's satisfaction, the following conditions:

 

(i)     Representations and Warranties. The representations and warranties of the Borrowers contained in Article 5 hereof shall be true and correct in all material respects.

 

(ii)     Authorizing Documents. Each Borrower shall have delivered to the Lender a certificate executed by an officer of such Borrower, dated the Closing Date, setting forth the company action taken by board of directors or members, as applicable, in connection with the 2019 Loan and the authorization of the execution, delivery and performance of the Loan Documents by such Borrower, certifying to copies of such Borrower's organizational documents as in effect on the Closing Date, and containing such other certifications as the Lender or its counsel shall deem appropriate.

 

(iii)     Good Standing Certificates. Each Borrower shall have delivered to the Lender a good standing certificate as to such Borrower issued as of a date not more than fifteen (15) days prior to the Closing Date by the applicable office of the state of its organization.

 

(iv)     Execution and Delivery of Loan Documents. The Loan Documents shall have been duly executed by the Borrowers and delivered to the Lender.

 

(v)     No Liens or Encumbrances. The 2019 Mortgaged Property shall be free and clear of all liens and encumbrances, other than those acceptable to the Lender or otherwise permitted by this Agreement.

 

(vi)     Environmental Reports. The Borrowers shall have provided to the Lender copies of all existing Phase I environmental reviews of the 2019 Mortgaged Property ("Environmental Reports"), which Environmental Reports shall be acceptable to the Lender and shall show the 2019 Mortgaged Property to be free from material environmental violations and liabilities, and completion satisfactory to the Lender of all actions, further reports and further investigations as may be recommended in any Environmental Report or otherwise reasonably required by the Lender based on such Environmental Report or other disclosures made by the Borrowers to the Lender relating to environmental matters.

 

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(vii)     Transaction Costs and Expenses. On or before the Closing Date, all reimbursable costs and expenses of the Lender pursuant to the Loan Documents shall have been paid by the Borrowers to the Lender.

 

(viii)     No Damage or Taking. No portion of the Improvements shall have been damaged by fire or other casualty, and no condemnation or taking of the 2019 Mortgaged Property or the Improvements or any portion thereof shall be pending or threatened which materially impairs the Borrowers' ability to use the Improvements and the 2019 Mortgaged Property.

 

(ix)     No Default. No Event of Default and no Potential Event of Default shall have occurred and be continuing hereunder or under any of the other Loan Documents.

 

(x)     Legal Opinion. The Borrowers shall have furnished a favorable written opinion of counsel for the Borrowers, dated the Closing Date, satisfactory to the Lender and its counsel.

 

(xi)     Legal Matters. All legal matters incident or related to the 2019 Loan shall be in form and substance reasonably satisfactory to counsel for the Lender.

 

(xii)     Insurance Certificates. Each Borrower shall have delivered to the Lender a certified copy of all insurance policies, listing the Lender or its designee as additional insured, mortgagee and lender loss payee, as applicable, complying with the requirements of Section 6(f) hereof.

 

(xiii)     Title Insurance. Each Borrower shall have obtained an ALTA lender's title insurance policy for the 2019 Mortgaged Property owned by such Borrower from the Title Company, which policy shall provide for coverage in an aggregate amount of $3,000,000 and shall name the Lender or its designee as insured, and which shall insure the Lender's mortgage lien on fee simple title to the 2019 Mortgaged Property, without exception for filed or unfiled mechanics' liens or claims or for matters which an accurate survey would disclose, subject only to such exceptions as the Lender shall approve, with such endorsements thereto (including 100, 300, 710 and 1030).

 

(xiv)     Appraisals. Borrowers shall have delivered to the Lender an appraisal (USPAP/FIRREA) of the 2019 Mortgaged Property based upon the fair market value of the 2019 Mortgaged Property , performed by an appraiser selected by or acceptable to the Lender, with such appraisal in form and substance acceptable to the Lender.

 

(xv)     UCC Searches. Avalon Resort and Spa shall have delivered to the Lender such UCC searches of the State of Ohio as may be required by the Lender, evidencing the Lender's lien priority in the Personal Property.

 

(xvi)     Leases. Avalon Resort and Spa shall deliver to the Lender copies of all leases on the 2019 Mortgaged Property, including any lease extensions, in form and substance satisfactory to the Lender.

 

(xvii)     Licenses and Permits. Each Borrower shall have delivered to the Lender copies of all governmental licenses, permits and other regulatory approvals (including without limitation zoning, subdivision and related approvals and occupancy permits) necessary for conduct by such Borrower of its operations, and such Borrower shall not have received any notices of violation or revocation with respect thereto. In addition, Avalon Resort and Spa shall have delivered to the Lender evidence satisfactory to the Lender that each property comprising the 2019 Mortgaged Property has access to all required utilities.

 

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(xviii)     Other Conditions. The Borrowers shall have complied with such other conditions as shall be reasonably required by the Lender or its counsel.

 

8.2     Disposition of Proceeds of 2019 Note. 

 

The proceeds of the 2019 Note shall be disbursed on the Closing Date and transferred by the Lender to the Title Company and applied as follows: (1) $24,053 shall be applied to payment of the transaction costs relating to the 2019 Loan; and (2) $2,975,947 shall be transferred to the bank or financial institution holding the Project Fund for deposit into the Project Fund. Amounts deposited in the Project Fund shall be disbursed by the Lender to the Borrowers and paid to the Borrowers or to appropriate designated payees solely for reimbursement for the payment of costs of the 2019 Project in accordance with this Section 8.2.

 

Each request for disbursement of proceeds of the 2019 Note hereunder is referred to hereinafter as a "Request", and shall be made by Avalon Resorts and Clubs, on behalf of all of the Borrowers, pursuant to the form of Request for Disbursement attached as Exhibit B to this Agreement, which form shall be accompanied by all other items required by this Section 8.2.

 

(a)     Not less than ten (10) days prior to the date on which the Borrowers wish the Lender to disburse proceeds of the 2019 Note, Avalon Resorts and Clubs shall submit to the Lender a Request setting forth the total amount for which such disbursement is required, broken down by categories, together with receipted bills, bills, paid invoices, or other evidence reasonably satisfactory to the Lender supporting each item of cost covered by such Request (including a statement as to the retention amount, if any, applicable to such item of cost). The Lender shall not be required to make disbursements of proceeds of the 2019 Note more frequently than once each month.

 

(b)     The Lender shall disburse the amount requested by Avalon Resorts and Clubs in its Request by the later of (i) the date ten (10) days after receipt of the Request or (ii) the date five (5) days after the date upon which all conditions precedent to funding of such Request have been fulfilled. Each Request requested thereby shall constitute a certification by Avalon Resorts and Clubs that the representations and warranties contained herein are true and correct on the date of such Request and Avalon Resorts and Clubs hereby expressly acknowledges that the Lender will be specifically relying upon such certification in making any disbursement of proceeds of the 2019 Note pursuant to such Request.

 

(c)     Disbursements shall be credited to an account of the Borrowers designated in writing to the Lender, or, following the occurrence and during the continuance of an Event of Default, be paid by the Lender directly to the party or parties who have actually supplied labor, Materials or services in connection with the renovation and expansion of the Avalon Resort and Inn Facility or to the party or parties to whom payment of any other Project Costs or specified in the Request, either by separate check made payable to Person or by joint check made payable to Avalon Resorts and Clubs and such Person, as the Lender shall elect, in its sole discretion. No further direction or authorization for such direct payment shall be required, it being understood that any such payment shall be applied toward the satisfaction of the obligations of the Lender to fund disbursements hereunder and shall be deemed an advance evidenced by the 2019 Note and secured by the Loan Documents as fully as if made to Avalon Resorts and Clubs, regardless of the actual disposition thereof by the party or parties to whom such payment is made. The making of any disbursement by the Lender shall not be deemed an acceptance or approval by the Lender (for the benefit of Avalon Resorts and Clubs or any third party) of any work performed or improvements constructed or Materials furnished or installed in connection with the renovation and expansion of the Avalon Resort and Inn Facility and shall not create any privity of contract between the Lender and any third party.

 

18

 

 

(d)     Notwithstanding any contrary provision of this Agreement, the Lender may make disbursements of proceeds of the 2019 Note at any time or from time to time, but shall be under no obligation to do so, (i) to satisfy any condition hereof or to cure any Event of Default or Potential Default, (ii) to pay interest on the 2019 Note (subject to the immediate preceding sentence), or (iii) to pay the reasonable fees and expenses of the Lender and counsel for the Lender. Any disbursements of proceeds of the 2019 Note made pursuant to this subsection shall be evidenced by the 2019 Note and secured by the Loan Documents as fully as if such disbursement had been made directly to or upon request of the Borrowers.

 

(e)     Each advance of proceeds of the 2019 Note shall be subject to the satisfaction by Avalon Resorts and Clubs of the conditions set forth in Section 8.1 hereof and to the satisfaction of the following terms and conditions:

 

(i)     The representations and warranties contained in Article V hereof or contained in any other Loan Documents shall be true and correct on and as of the date of such disbursement. By making a Request in accordance with this Section 8.2, the Borrowers shall be deemed to have certified to the Lender that all of the representations and warranties contained in Section 5 hereof and in each of the other Loan Documents are true and accurate on and as of the date of the disbursement with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and the Borrowers shall have performed and complied with all covenants and conditions hereof and thereof.

 

(ii)     On the date of such disbursement, no Event of Default and no Potential Default shall have occurred and be continuing or shall exist or shall occur and exist after giving effect to the disbursement to be made on such date.

 

(iii)     On the date of such disbursement, the Avalon Resort and Inn Facility shall not have been materially injured or damaged by fire or other casualty and remain unrestored, unless the proceeds of insurance are to be applied to restoration pursuant to the 2019 Mortgage.

 

(f)     The Lender shall make the final advance with respect to the 2019 Note only upon Request from the Borrowers, compliance with the applicable requirements of Section 8.2(a) through (e) above, and the Lender's receipt of the following: (i) copies of final lien releases from the general contractor and all subcontractors with respect to the work performed in connection with the renovation and expansion of the Avalon Resort and Inn Facility; (ii) satisfactory evidence from Avalon Resorts and Clubs that all occupancy permits and governmental approvals required with respect to the renovation and expansion of the Avalon Resort and Inn Facility have been received; (iii) a certificate of Avalon Resorts and Clubs certifying that completion of the renovation and expansion of the Avalon Resort and Inn Facility has occurred; and (iv) an endorsement to the Title Policy in form approved by the Lender insuring that no encroachments exist over any building line, right of way or property boundary lines.

 

19

 

 

ARTICLE IX DEFAULTS AND REMEDIES

 

9.1     Events of Default. 

 

The occurrence of any one or more of the following events (each, an "Event of Default") shall constitute a default hereunder:

 

(a)      The Borrowers shall fail to comply with any covenant contained in this Agreement or any of the other Loan Documents which calls for the payment of money within ten (10) calendar days of when such payment is due; or

 

(b)      If the Borrowers fail to keep, observe or perform any of the other undertakings, conditions, stipulations, agreements, covenants or obligations of the Borrowers as set forth in this Agreement, which do not have a specified grace or cure period, and continuance of such failure for thirty (30) days after the earlier of written notice from the Lender to the Borrowers or the date on which the Borrowers have knowledge that such failure has occurred, or such longer period to which the Lender may agree in the case of a default not curable by the exercise of due diligence within such thirty (30) day period, provided that the Borrowers shall have commenced to cure such default within such thirty (30) day period and shall complete such cure as quickly as reasonably possible with the exercise of due diligence; or

 

(c)      If any of the representations or warranties made by the Borrowers under this Agreement or under any of the other Loan Documents shall be untrue in any material respect; or

 

(d)      The Lender's security interest in any of the Collateral shall be or become unperfected, unless as a result of an error or omission on the part of the Lender, and such default is not cured within thirty (30) days; or

 

(e)      A Borrower shall (i) default (as principal or guarantor or other surety) in any payment of principal of or interest on any obligation (or set of related obligations) for borrowed money, beyond any period of grace or cure with respect to the payment or, if any obligation (or set of related obligations) is payable or repayable on demand, fails to pay or repay such obligation or obligations when demanded, in each case where such payment default has a Material Adverse Effect upon the Borrower or (ii) default in the observance of any other covenant, term or condition contained in any agreement or instrument by which an obligation (or set of related obligations) is or are created, secured or evidenced, if the effect of such default is to cause, or commit the holder or holders of such obligation or obligations (or a trustee or agent on behalf of such holder or holders) to cause, all or part of such obligation or obligations to become due before its or their otherwise stated maturity, and the same shall continue for the later of thirty (30) calendar days or until all cure periods have expired, in each case, where such default will have a Material Adverse Effect upon the Borrower; or

 

(f)      One or more judgments for the payment of money in the aggregate amount of $50,000 shall have been entered against a Borrower and such Borrower has failed to discharge or stay the same; or

 

(g)      The occurrence of any default or Event of Default under any of the Loan Documents or under any other instruments relating thereto delivered by the Borrowers to the Lender under this Agreement, subject to any applicable grace and cure periods; or

 

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(h)      A writ or warrant of attachment, garnishment, execution, distraint or similar process shall have been issued against a Borrower or any of its properties, and such Borrower has failed to discharge or stay the same within sixty (60) calendar days after such issuance; or

 

(i)      The occurrence or existence of any of the following events or conditions:

 

(i)     An event causing an involuntary termination with respect to a Benefit Plan shall occur;

 

(ii)     Any Person shall engage in any Prohibited Transaction or Reportable Event involving any Benefit Plan,

 

(iii)     An accumulated funding deficiency, whether or not waived, shall exist with respect to any Benefit Plan,

 

(iv)     A Borrower or any ERISA Affiliate shall be in "Default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments due to a multi-employer Plan resulting from a Borrower's or any ERISA Affiliate's, complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such Benefit Plan, or

 

(v)     Any other event or condition shall occur or exist with respect to a single employer Benefit Plan;

 

provided, however, that no such event or condition shall constitute an Event of Default if it, together with all other events or conditions at the time existing, would not subject a Borrower to any tax, penalty, debt or liability which, alone or in the aggregate, would have a Material Adverse Effect as to such Borrower or the 2019 Mortgaged Property owned by such Borrower, or the ability of such Borrower to perform any of its payment or other obligations under this Agreement or any other Loan Document; or

 

(j)      A proceeding shall be instituted in respect of a Borrower:

 

(i)     seeking to have an order for relief entered in respect of such Borrower, or seeking a declaration or entailing a finding that such Borrower is insolvent or a similar declaration or finding, or seeking dissolution, winding-up, charter revocation or forfeiture, liquidation, reorganization, arrangement, adjustment, composition or other similar relief with respect to such Borrower, its assets or debts under any Law relating to bankruptcy, insolvency, relief of debtors or protection of creditors, termination of legal entities or any other similar Law now or hereinafter in effect which shall not have been dismissed or stayed within sixty (60) calendar days after such proceedings were instituted; or

 

(ii)     seeking appointment of a receiver, trustee, custodian, liquidator, assignee, sequestrator or other similar official for such Borrower or for all or any substantial part of its property which shall not have been dismissed or stayed within sixty (60) calendar days after such proceedings were instituted; or

 

(k)      A Borrower shall become insolvent, shall become generally unable to pay its debts as they become due, shall voluntarily suspend transaction of its business, shall make a general assignment for the benefit of creditors, shall institute a proceeding described in Section 9.1(j)(i) hereof or shall consent to any order for relief, declaration, finding or relief described in Section 9.1(j) hereof, shall institute a proceeding described in Section 9.1(j)(ii) hereof or shall consent to the appointment or to the taking of possession by any such official of all or any substantial part of its property whether or not any proceeding is instituted, dissolve, wind-up or liquidate itself or any substantial part of its property, or shall take any action in furtherance of any of the foregoing.

 

21

 

 

9.2     Remedies. 

 

Upon the occurrence of any one or more of the Events of Default, and the continuance thereof, at the Lender's option, all obligations on the Lender's part to make the 2019 Loan, or to make any further disbursements thereunder shall cease and terminate, and the 2019 Loan and all sums then or thereafter due under any and all of the Loan Documents shall thereupon become immediately due and payable. Upon the occurrence of an Event of Default and continuance thereof, the Lender may enforce any or all of its rights hereunder or under any other Loan Documents, or at law or in equity.

 

9.3     Set-Off. 

 

If the unpaid principal amount of the 2019 Note, interest accrued on the unpaid principal amount or other amount owing by the Borrowers under this Agreement, the 2019 Note or the other Loan Documents shall have become due and payable (at maturity, by acceleration or otherwise), the Lender, any assignee of the Lender and the holder of any participation in the 2019 Loan, will each have the right, in addition to all other rights and remedies available to it, without notice to the Borrowers, to set-off against and to appropriate and apply to such due and payable amounts any debt owing to, and any other funds held in any manner for the account of, the Borrowers by the Lender or by such holder including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or in the future maintained by the Borrowers with the Lender or such holder. The Borrowers consent to and confirm the foregoing arrangements and confirm the Lender's rights, such assignee's rights and such holder's rights of banker's lien and set-off. Nothing in this Agreement will be deemed a waiver or prohibition of or restriction on the Lender's rights, such assignee's rights or any such holder's rights of banker's lien or set-off.

 

ARTICLE X MISCELLANEOUS

 

10.1     Notices. 

 

All notices, demands, requests, consents, approvals and other communications required or permitted hereunder must be in writing and will be effective upon receipt. Such notices and other communications may be hand-delivered, sent by facsimile transmission with confirmation of delivery and a copy sent by first-class mail, or sent by nationally recognized overnight courier service, to a party's address set forth below or to such other address as any party may give to the other in writing for such purpose:

 

	 	To the Lender:	Laurel Capital Corporation	 
	 	 	
			6600 Brooktree Court, Suite 3000

			Wexford, PA 15090-0839

			Attn.: William C. Zopf, Jr.

				 

 

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	 	 	With a copy to:	 
	 	 	 	 
	 	 	
			Eckert Seamans Cherin & Mellott, LLC

			600 Grant Street, 44th Floor

			Pittsburgh, PA 15219

			Attn: Christopher J. Rayl, Esquire

				 
	 	 	 	 
	 	To the Borrowers:  	Avalon Holdings Corporation	 
	 	 	
			One American Way

			Warren, OH 44484

			Attn: Bryan P. Saksa

			Fax No.: 330-856-8480

			Phone No.: 330-856-8853

				 
	 	 	 	 
	 	 	
			With a copy to:

			 

			Brouse McDowell

			6550 Seville Drive, Suite B

			Canfield Ohio 44406

			Attn: Jay M. Skolnick

			Fax No.: 330-533-6198.

			Phone No.: 330-533-6195

				 

 

 

10.2     Preservation of Rights. 

 

No delay or omission on the Lender's part to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Lender's action or inaction impair any such right or power. The Lender's rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Lender may have under other agreements, at law or in equity.

 

10.3     Illegality. 

 

In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

 

10.4     Changes in Writing. 

 

No modification, amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrowers therefrom will be effective unless made in a writing signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrowers in any case will entitle the Borrowers to any other or further notice or demand in the same, similar or other circumstance.

 

10.5     Entire Agreement. 

 

This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.

 

23

 

 

10.6     Counterparts. 

 

This Agreement may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Agreement by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.

 

10.7     Successors and Assigns. 

 

This Agreement will be binding upon and inure to the benefit of the Borrowers and the Lender and their respective successors and assigns; provided, however, that the Borrowers may not assign this Agreement in whole or in part without the Lender's prior written consent and the Lender at any time may assign this Agreement in whole or in part.

 

10.8     Interpretation. 

 

In this Agreement, unless the Lender and the Borrowers otherwise agree in writing, the singular includes the plural and the plural the singular; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the word "or" shall be deemed to include "and/or", the words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections) or exhibits are to those of this Agreement unless otherwise indicated; and references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Unless otherwise specified in this Agreement, all accounting terms shall be interpreted and all accounting determinations shall be made in accordance with GAAP. If this Agreement is executed by more than one party as Borrower, the obligations of such persons or entities will be joint and several.

 

10.9     Certain Waivers. 

 

The Borrowers hereby relieve and discharge the Lender from any and all liability and responsibility whatsoever, except for Lender's gross negligence, arising out of the disbursement of proceeds of the 2019 Loan hereunder and agree and acknowledge that the Lender does not assume any responsibility whatsoever for the method of disbursement, the application or use of proceeds of the 2019 Loan disbursed hereunder or as to any liens or claims whatsoever which might attach to or be filed against the 2019 Mortgaged Property.

 

24

 

 

10.10     Indemnity. 

 

The Borrowers jointly and severally agree to indemnify each of the Lender, its directors, officers and employees and each legal entity, if any, which controls the Lender (collectively, the "Indemnified Parties") and to hold each Indemnified Party harmless from and against any and all claims, damages, losses, liabilities and expenses (including all fees and charges of internal or external counsel with whom any Indemnified Party may consult and all expenses of litigation or preparation therefor, at trial and on appeal) which any Indemnified Party may incur or which may be asserted against any Indemnified Party in connection with or arising out of the matters referred to in this Agreement or in the other Loan Documents, (including, but not limited to, actions taken by Lender to amend or cancel any funds transfer instructions or any decision by Lender to effect or not to effect a transfer as provided in this Agreement, or any other action taken by Lender in good faith pursuant to its responsibilities under this Agreement) by any person, entity or governmental authority (including any person or entity claiming derivatively on behalf of the Borrowers), whether (a) arising from or incurred in connection with any breach of a representation, warranty or covenant by the Borrowers, or (b) arising out of or resulting from any suit, action, claim, proceeding or governmental investigation, pending or threatened, whether based on statute, regulation or order, or tort, or contract or otherwise, before any court or governmental authority, which arises out of or relates to this Agreement, any other Loan Document, or the use of the proceeds of the 2019 Loan; provided, however, that the foregoing indemnity agreement shall not apply to claims, damages, losses, liabilities and expenses solely attributable to an Indemnified Party's gross negligence or willful misconduct. In no event shall Lender be responsible for any loss, claim, liability, damage, or other amount arising in any way, directly or indirectly, from any error, failure, or delay in the performance of any of the Lender's obligations under this Agreement caused by natural disaster, fire, war, strike, civil unrest, error in or inoperability of communication equipment or lines, or any other circumstances beyond the reasonable control of the Lender. The indemnity agreement contained in this section shall survive the termination of this Agreement, payment of any Loan and assignment of any rights hereunder. The Borrowers may participate at their expense in the defense of any such action or claim.

 

10.11     Assignments and Participations. 

 

At any time, without any notice to the Borrowers, the Lender may sell, assign, transfer, negotiate, grant participations in, or otherwise dispose of all or any part of the Lender's interest in the 2019 Loan. The Borrowers hereby authorize the Lender to provide, without any notice to the Borrowers, any information concerning the Borrowers, including information pertaining to any of the Borrowers' or financial condition, business operations or general creditworthiness, to any institutional provider of funds which may succeed to or participate in all or any part of the Lender's interest in the 2019 Loan.

 

10.12     Governing Law and Jurisdiction. 

 

This Agreement has been delivered to and accepted by the Lender and will be deemed to be made in Pennsylvania. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. The Borrowers hereby irrevocably consent to the exclusive jurisdiction of any state or federal court in Allegheny County, Pennsylvania, provided that nothing contained in this Agreement will prevent the Lender from bringing any action, enforcing any award or judgment or exercising any rights against the Borrowers individually, against any security or against any property of the Borrowers within any other county, state or other foreign or domestic jurisdiction. The Lender and the Borrowers agree that the venue provided above is the most convenient forum for both the Lender and the Borrowers. The Borrowers waive any objection to venue and any objection based on a more convenient forum in any action instituted under this Agreement.

 

10.13     WAIVER OF JURY TRIAL. 

 

EACH OF THE BORROWERS AND THE LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT IT OR THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. EACH OF THE BORROWERS AND THE LENDER ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

 

25

 

 

10.14     No Third Party Beneficiaries. 

 

This Agreement shall not confer any rights or remedies upon any Person other than the parties hereto and their respective heirs, executors, legal personal representatives, successors and permitted assigns.

 

Each of the Borrowers acknowledge that it has read and understands all the provisions of this Agreement, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate.

 

[The remainder of this page intentionally left blank.]

 

26

 

 

[Signature Page to Loan and Security Agreement]

 

WITNESS the due execution of this Loan and Security Agreement as a document under seal, as of the date first written above.

 

	
			BORROWERS:

			 

			AVALON HOLDINGS CORPORATION

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Chief Financial Officer, Treasurer and

			           Secretary

				
			 

			 

			AVALON CLUBS, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			
	 	 
	
			AVALON RESORTS, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

				
			AVALON GOLF AND COUNTRY CLUB, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			
	 	 
	
			AVALON LAKES GOLF, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			 

				
			AVALON COUNTRY CLUB AT SHARON, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			
	 	 
	
			AVALON RESORT AND SPA, LLC

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

				
			THE HAVANA CIGAR SHOP, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			
	 	 
	
			AVALON TRAVEL, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Vice President, Treasurer and Secretary

				
			TBG, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			
	 	 
	
			AVALON MAHONING SPORTS CENTER, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			 

				
			AVALON CIGAR SHOP, INC.

			 

			By: /s/ Bryan P. Saksa

			Name: Bryan P. Saksa

			Title: Treasurer and Secretary

			
	
			lender:

			 

			LAUREL CAPITAL CORPORATION

			 

			By: /s/ William C. Zopf, Jr.

			Name: William C. Zopf, Jr.

			Title: Chief Executive Officer

				 

 

 

 

 

EXHIBIT A

 

Form of 2019 Note

 

2019 MORTGAGE NOTE 

 

 

	$3,000,000.00	March 29, 2019

     

 

FOR VALUE RECEIVED, AVALON HOLDINGS CORPORATION, an Ohio corporation ("Avalon Holdings"), AVALON RESORTS AND CLUBS, INC., an Ohio corporation ("Avalon Resorts and Clubs"), AVALON CLUBS, INC., an Ohio corporation ("Avalon Clubs"), AVALON RESORTS, INC., an Ohio corporation ("Avalon Resorts"), AVALON GOLF AND COUNTRY CLUB, INC., an Ohio corporation ("Avalon Golf and CC"), AVALON LAKES GOLF, INC., an Ohio corporation ("Avalon Lakes Golf"), AVALON COUNTRY CLUB AT SHARON, INC., a Pennsylvania corporation ("Avalon CC at Sharon"), AVALON RESORT AND SPA, LLC, an Ohio limited liability company ("Avalon Resort and Spa"), THE HAVANA CIGAR SHOP, INC., an Ohio corporation ("Havana"), AVALON TRAVEL, INC. an Ohio corporation ("Avalon Travel"), AVALON MAHONING SPORTS CENTER, INC., an Ohio corporation ("Avalon Mahoning"), AVALON CIGAR SHOP, INC., an Ohio corporation ("Avalon Cigar"), and TBG, INC., an Ohio corporation ("TBG" and, together with Avalon Holdings, Avalon Resorts and Clubs, Avalon Clubs, Avalon Golf and CC, Avalon Lakes Golf, Avalon CC at Sharon, Avalon Resort and Spa, Havana, Avalon Travel, Avalon Cigar and Avalon Mahoning, the "Borrowers"), jointly and severally promise to pay to the order of LAUREL CAPITAL CORPORATION (the "Lender"), in lawful money of the United States of America in immediately available funds at its offices located at 6600 Brooktree Court, Suite 3000, Wexford, PA 15090-0839, or at such other location as the Lender may designate from time to time, the principal sum of Three Million and no/100 Dollars ($3,000,000.00), together with interest accruing on the outstanding principal balance from the date hereof (the "Closing Date"), as provided herein. Capitalized terms used, but not defined, herein shall have the meanings assigned to such terms in this Loan and Security Agreement of even date herewith among the Borrowers and the Lender (the "Loan Agreement").

 

1.      Interest Rate. Amounts outstanding under this Note will bear interest at the Applicable Rate (as defined below) in effect from time to time. Interest on this Note and any unpaid fees and other sums payable hereunder shall be calculated on the basis of a 360 day year consisting of 12 thirty day months. As used herein, the following capitalized terms shall have the following meanings:

 

"Applicable Rate" means:

 

(c)      For the period from the Closing Date through the date immediately preceding the Reset Date, 6.25% per annum; and (ii); and

 

(d)      For the period from the Reset Date through the Maturity Date, the greater of (x) 6.25% per annum and (y) the sum of the Index Rate on the date two (2) Business Days prior to the Reset Date and 3.60%, provided that the Applicable Rate shall in no event exceed 8.50% per annum.

 

"Index Rate" means the 5 Year Interest Rate Swap rate, as published by Intercontinental Exchange (ICE) Benchmark Administration. If the Index Rate is discontinued or is no longer published as of any Reset Date, then the Lender shall select an index or statistic which most closely approximates the discontinued or unpublished index and such index or statistic shall replace such discontinued or unpublished index for all purposes hereunder.

 

 

 

 

"Interest Payment Date" means the twentieth (20th) day of each calendar month commencing April 20, 2019 and the Maturity Date.

 

"Maturity Date" means December 20, 2026.

 

"Reset Date" means the fifth (5th) anniversary of the Closing Date.

 

2.      Payment Terms. The Borrowers hereby jointly and severally covenant and agree to repay this Note as follows:

 

(a)     Principal and interest on this Note shall be due and payable as follows: (i) ninety-two (92) equal monthly payments of principal and interest based on a fifteen (15) year amortization on the twentieth (20th) day of each calendar month commencing April 20, 2019 and ending November 20, 2026; followed by (iii) a final payment on the Maturity Date equal to the remaining outstanding principal of this Note plus accrued unpaid interest and fees thereon.

 

(b)     If any payment under this Note shall become due on a Saturday, Sunday or public holiday under the laws of the Commonwealth of Pennsylvania, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing interest in connection with such payment. 'Payments received will be applied to charges, fees and expenses (including attorneys' fees), accrued interest and principal in any order the Lender may choose, in its sole discretion.

 

3.      Late Payments; Default Rate. If the Borrowers fail to make any payment of principal, interest or other amount coming due pursuant to the provisions of this Note within ten (10) calendar days of the date due and payable, the Borrowers also shall pay to the Lender a late charge equal to five percent (5.00%) of any overdue installment (the "Late Charge"). The minimum Late Charge amount is Twenty-Five and 00/100 Dollars ($25.00). Any Late Charge will be immediately due and payable. Such ten-day period shall not be construed in any way to extend the due date of any such payment. Upon maturity, whether by acceleration, demand or otherwise, and at the Lender's option upon the occurrence of any Event of Default (as hereinafter defined) and during the continuance thereof, subject to all applicable cure and grace periods, this Note shall bear interest at a rate per annum which shall be five percentage points (5.00%) in excess of the interest rate in effect from time to time under this Note but not more than the maximum rate allowed by law (the "Default Rate"). The Default Rate shall continue to apply whether or not judgment shall be entered on this Note.

 

4.      Prepayment.

 

(a)     Provided that no Event of Default has occurred or is continuing, this Note shall be subject to prepayment at the option of the Borrowers, upon at least fifteen (15) days prior written notice to the Lender, in whole or in part on any date upon payment of the principal amount of this Note to be prepaid plus accrued unpaid interest thereon to the prepayment date (and, in the case of a prepayment in whole of this Note, any other sums then due and payable under this Note), plus a prepayment penalty ("Prepayment Penalty") equal to a percentage of the principal amount being prepaid, with the percentage determined based on the date of prepayment as set forth in the following table:

 

	
			Date of Prepayment

				
			Prepayment Penalty

			
	 	 
	
			Between Closing Date and fifth anniversary of Closing Date

				
			5.00%

			
	
			Fifth anniversary of Closing Date and thereafter

				
			2.00%

			

 

4

 

 

(b)     Any prepayments shall be applied against scheduled installment payments due on this Note in inverse order beginning with the final scheduled installment payment.

 

5.      Other Loan Documents. This Note is issued in connection with, among other things, the Loan Agreement, the 2019 Mortgage (as defined in the Loan Agreement), and the other agreements and documents executed in connection therewith or referred to therein (collectively, the "Loan Documents"), the terms of which are incorporated herein by reference.

 

6.      Events of Default. In case any Event of Default (as defined in the Loan Agreement) occurs and is continuing, the principal amount of this Note together with accrued interest may become or be declared immediately due and payable in the manner and with the effect provided in the Loan Agreement.

 

7.      Power to Confess Judgment. AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT HEREUNDER AND DURING THE CONTINUANCE THEREOF, EACH BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE PROTHONOTARY OF CLERK OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE, TO APPEAR AT ANY TIME FOR SUCH BORROWER AND, WITH OR WITHOUT COMPLAINT FILED, AS OF ANY TERM, CONFESS OR ENTER JUDGMENT AGAINST such Borrower FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE AND ALL ACCRUED INTEREST, TOGETHER WITH COSTS OF SUIT, AND A REASONABLE ATTORNEY'S FEES FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED DOLLARS ($500); AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS NOTE TO CONFESS JUDGMENT AGAINST A BORROWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE.

 

8.      Right of Setoff. In addition to all liens upon and rights of setoff against the Borrowers' money, securities or other property given to the Lender by law, the Lender shall have, with respect to the Borrowers' obligations to the Lender under this Note and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and each Borrower hereby assigns, conveys, delivers, pledges and transfers to the Lender all of the Borrowers' right, title and interest in and to, all of the Borrowers' deposits, moneys, securities and other property now or hereafter in the possession of or on deposit with, or in transit to, the Lender or any other direct or indirect subsidiary of the Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Borrowers. Every such right of setoff shall be deemed to have been exercised immediately upon the occurrence of an Event of Default hereunder without any action of the Lender, although the Lender may enter such setoff on its books and records at a later time.

 

5

 

 

9.      Miscellaneous. All notices, demands, requests, consents, approvals and other communications required or permitted hereunder shall be given in accordance with the notice provisions set forth in the Loan Agreement. No delay or omission on the Lender's part to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Lender's action or inaction impair any such right or power. No modification, amendment or waiver of any provision of this Note nor consent to any departure by the Borrowers therefrom will be effective unless made in a writing signed by the Lender. The Borrowers jointly and severally agree to pay on demand, to the extent permitted by law, all costs and expenses incurred by the Lender in the enforcement of its rights in this Note and in any security therefor, including, without limitation, reasonable fees and expenses of the Lender's counsel. If any provision of this Note is found to be invalid by a court, all the other provisions of this Note will remain in full force and effect. The Borrowers and all other makers and endorsers of this Note hereby forever waive presentment, protest, notice of dishonor and notice of non-payment. The Borrowers also waive all defenses based on suretyship or impairment of collateral. If this Note is executed by more than one Borrower, the obligations of such persons or entities hereunder will be joint and several. This Note shall bind the Borrowers and their respective successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns; provided, however, that the Borrowers may not assign this Note in whole or in part without the Lender's written consent and the Lender at any time may assign this Note in whole or in part at any time.

 

This Note has been delivered to and accepted by the Lender and will be deemed to be made in the Commonwealth of Pennsylvania. THIS NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE LENDER AND THE BORROWERS DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. The Borrowers hereby irrevocably consent to the jurisdiction of any state or federal court in the county or judicial district where the Lender's office indicated above is located; provided that nothing contained in this Note will prevent the Lender from bringing any action, enforcing any award or judgment or exercising any rights against the Borrowers, against any security or against any property of the Borrowers within the other county, state or other foreign or domestic jurisdiction. The Borrowers acknowledge and agree that the venue provided above is the most convenient forum for both the Lender and the Borrowers. The Borrowers waive any objection to venue and any objection based on a more convenient forum in any action instituted under this Note.

 

10.      WAIVER OF JURY TRIAL. The BorrowerS irrevocably waive any and all rights the BorrowerS may have to a trial by jury in any action, proceeding or claim of any nature relating to this Note, any documents executed in connection with this Note or any transaction contemplated in any of such documents. The BorrowerS acknowledge that the foregoing waiver is knowing and voluntary.

 

The Borrowers acknowledge that they have read and understand all the provisions of this Note, including the waiver of jury trial, and have been advised by counsel as necessary or appropriate.

 

 

[The remainder of this page is intentionally left blank.]

 

6

 

 

[Signature Page to 2019 Mortgage Note]

 

WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby.

 

 

	
			AVALON HOLDINGS CORPORATION

			 

			 

			By:______________________________

			Name:

			Title:

				
			AVALON CLUBS, INC.

			 

			 

			By:______________________________

			Name:

			Title:

			
	 	 
	
			AVALON RESORTS, INC.

			 

			 

			By:______________________________

			Name:

			Title:

				
			AVALON GOLF AND COUNTRY CLUB, INC.

			 

			 

			By:______________________________

			Name:

			Title:

			
	 	 
	
			AVALON LAKES GOLF, INC.

			 

			 

			By:______________________________

			Name:

			Title:

				
			AVALON COUNTRY CLUB AT SHARON, INC.

			 

			 

			By:______________________________

			Name:

			Title:

			
	 	 
	
			AVALON RESORT AND SPA, LLC

			 

			 

			By:______________________________

			Name:

			Title:

				
			THE HAVANA CIGAR SHOP, INC.

			 

			 

			By:______________________________

			Name:

			Title:

			
	 	 
	
			AVALON TRAVEL, INC.

			 

			 

			By:______________________________

			Name:

			Title:

				
			TBG, INC.

			 

			 

			By:______________________________

			Name:

			Title:

			
	 	 
	
			AVALON MAHONING SPORTS CENTER, INC.

			 

			 

			By:______________________________

			Name:

			Title:

				
			AVALON CIGAR SHOP, INC.

			 

			 

			By:______________________________

			Name:

			Title:

			

 

 

 

 

EXHIBIT B

 

Request for Disbursement

 

 

	 	
			Request No.

				 
	 	
			Date:

				 
	 	
			Amount Requested

				 

 

	TO:	
			Laurel Capital Corporation

			6600 Brooktree Court 

			Suite 3000, Box 839

			Wexford, PA 15090

			

 

	
			RE:

				
			Loan and Security Agreement (the "Agreement"), dated as of March 29, 2019 among Laurel Capital Corporation ("Lender"), Avalon Holdings Corporation ("Avalon Holdings"), Avalon Lakes Golf, Inc., Avalon Resorts and Clubs, Inc., Avalon Clubs, Inc., Avalon Resorts, Inc., Avalon Golf and Country Club, Inc., Avalon Country Club at Sharon, Inc., The Avalon Resort and Spa LLC, The Havana Cigar Shop, Inc., Avalon Travel, Inc., Avalon Mahoning Sports Center, Inc., Avalon Cigar Shop, Inc. and TBG, Inc. (together, the "Borrowers")

			

 

Project known as: Avalon 2019 Project

 

Ladies and Gentlemen:

 

In accordance with the terms of the above-referenced Agreement, you are hereby authorized and requested to make disbursement of proceeds of the Loan from the Project Fund in the amount shown on Schedule 1 hereto for costs incurred in connection with the renovation and expansion of the Avalon Resort and Inn Facility ("Facility") from which funds are requested to pay each cost item listed on Schedule 1. Attached hereto are invoices, lien releases and waivers supporting the disbursement requested. All capitalized terms herein have the meaning ascribed to them in the Agreement.

 

The undersigned hereby certifies, on behalf of all of the Borrowers, that:

 

	 	
			(i)

				
			The labor, services, and/or Materials covered hereby have been performed upon or furnished in connection with the renovation and expansion of the Facility;

			

 

	 	
			(ii)

				
			The Loan proceeds hereby requested for construction costs will pay all sums payable to-date for any labor, Materials, and services furnished in connection with construction of the construction of the Facility;

			

 

	 	
			(iii)

				
			All amounts previously disbursed by you for direct construction costs for labor, services, and/or Materials pursuant to previous Requests for Disbursement have been paid to the parties entitled thereto, with the property designation of contract and account for which payment was made;

			

 

	 	
			(iv)

				
			All conditions of the Agreement for the disbursement of the Loan proceeds hereby requested have been fulfilled, and no Event of Default and Potential Event of Default under the Agreement has occurred or exists as of the date hereof;

			

 

 

 

 

	 	
			(v)

				
			The undersigned confirms that he/she/they are authorized to make this request on behalf of the Borrowers; and

			

 

	 	
			(vi)

				
			The undersigned hereby requests that loan proceeds advanced under this request be disbursed as follows:

			

 

	AMOUNT:  	$                         
	 	 	
			                         Credit to DDA:                                                           

			                         In the Name of:                                                           

			
	 	 	 
	OR	 	 
	 	 	 
	AMOUNT:	 	$                        
	 	 	
			                         Wired to Bank:                                                           

			                         ABA Routing:                                                                          

			                         Further Credit to DDA:                                              

			                         Account Name:                                                           

			                         Reference:                                                                                

			

 

 

 

 

[Remainder of page intentionally left blank]

 

 

 

[Signature page to Request for Disbursement No ____ dated ______________]

 

 

 

	
			WITNESS:

			 

			 

			 

			 

			 

			 

			 

			 

			___________________________________

			 

				
			AVALON RESORTS AND CLUBS, INC., as Borrower Representative

			 

			By:______________________________

			Name: 

			Title:

			
	 	 
	
			Approved this ___ day of _______________, 20__:

			 

			 

			LAUREL CAPITAL CORPORATION

			 

			 

			 

			By: _______________________________

			Authorized Officer

				 

 

 

 

 

Schedule 1 to Request for Disbursement No. ____

 

 

	
			Payee

				
			Description

				
			Amount

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