-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VLTLn6QmnVeksH1CidjcvYcZyFYNWIlOwXUXLMO6/ejz67lzXu3spCmtfU+E3YJe h9tVHHVSdjoD772+d5FClg== 0000950144-96-002341.txt : 19960625 0000950144-96-002341.hdr.sgml : 19960625 ACCESSION NUMBER: 0000950144-96-002341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVOCAT INC CENTRAL INDEX KEY: 0000919956 STANDARD INDUSTRIAL CLASSIFICATION: 8051 IRS NUMBER: 621559667 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12996 FILM NUMBER: 96564017 BUSINESS ADDRESS: STREET 1: 277 MALLORY STATION RD STREET 2: STE 130 CITY: FRANKLIN STATE: TN ZIP: 37067 BUSINESS PHONE: 6157717575 MAIL ADDRESS: STREET 1: 227 MALLORY STATION ROAD STREET 2: SUITE 130 CITY: FRANKLIN STATE: TN ZIP: 37064 10-Q 1 ADVOCAT, INC. 10-Q 03-31-96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q CHECK ONE: [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM _________ TO _________. COMMISSION FILE NO.: 1-12996 ------- ADVOCAT INC. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 62-1559667 - - ------------------------------- --------------------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 277 MALLORY STATION ROAD, SUITE 130, FRANKLIN, TN 37067 -------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (615) 771-7575 -------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE ---------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.) INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ---- ----- 5,293,750 -------------------------------------------------------------------- (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 10, 1996) 2 PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ADVOCAT INC. INTERIM CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, UNAUDITED)
March 31, December 31, 1996 1995 --------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 1,805 $ 1,076 Accounts receivable, less allowance for contractual adjustments and doubtful accounts of $2,032 and $2,082, respectively 20,440 19,699 Income taxes receivable 414 304 Inventories 538 508 Prepaid expenses and other 1,452 1,516 Deferred income taxes 1,064 974 ------- ------- Total current assets 25,713 24,077 ------- ------- PROPERTY AND EQUIPMENT, at cost 31,079 29,677 Less accumulated depreciation and amortization (8,120) (7,659) ------- ------- Net property and equipment 22,959 22,018 ------- ------- OTHER ASSETS: Deferred tax benefit 7,860 8,224 Deferred financing and other costs, net 1,003 855 Other 1,998 1,922 ------- ------- Total other assets 10,861 11,001 ------- ------- $59,533 $57,096 ======= =======
(Continued) 2 3 ADVOCAT INC. INTERIM CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, UNAUDITED) (CONTINUED)
March 31, December 31, 1996 1995 --------- ------------ CURRENT LIABILITIES: Current portion of long-term debt $ 4,179 $ 3,926 Trade accounts payable 7,818 6,881 Accrued expenses: Payroll and related benefits 3,765 3,754 Worker's compensation 1,276 1,225 Other 1,441 1,565 ------- ------- Total current liabilities 18,479 17,351 ------- ------- NONCURRENT LIABILITIES: Long-term debt less current portion 11,997 11,063 Deferred gains with respect to leases, net 4,410 4,502 Advances from TDLP 336 859 Other 905 884 ------- ------- Total noncurrent liabilities 17,648 17,308 ------- ------- COMMITMENTS, CONTINGENCIES, AND GUARANTEE SHAREHOLDERS' EQUITY: Preferred stock, authorized 1,000,000 shares, $.10 par value, none issued and outstanding -0- -0- Common stock, authorized 20,000,000 shares, $.01 par value 5,294,000, and 5,288,000 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively 53 53 Paid-in capital 14,932 14,875 Retained earnings 8,421 7,509 ------ ------- Total shareholders' equity 23,406 22,437 ------- ------- $59,533 $57,096 ======= =======
The accompanying notes to interim combined financial statements are an integral part of these interim consolidated balance sheets. 3 4 ADVOCAT INC. INTERIM CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 -------------- -------------- REVENUES: Patient revenues $38,324 $31,537 Management fees 1,173 892 Interest 36 61 ------- ------- Net revenues 39,533 32,490 ------- ------- EXPENSES: Operating 31,608 25,027 Lease 3,563 3,379 General and administrative 2,122 1,920 Depreciation and amortization 509 368 Interest 325 171 ------- ------- Total expenses 38,127 30,865 ------- ------- INCOME BEFORE INCOME TAXES 1,406 1,625 PROVISION FOR INCOME TAXES 506 585 ------- ------- NET INCOME $ 900 $ 1,040 ======= ======= AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 5,322 5,310 ======= ======= EARNINGS PER SHARE $ .17 $ .20 ======= =======
The accompanying notes to interim financial statements are an integral part of these interim consolidated financial statements. 4 5 ADVOCAT INC. INTERIM STATEMENTS OF CASH FLOWS (IN THOUSANDS AND UNAUDITED)
Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 900 $ 1,040 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 509 372 Provision for doubtful accounts 337 304 Equity earnings in joint ventures (8) (3) Amortization of deferred credits (191) (271) Deferred income taxes 273 (66) Change in assets and liabilities: Receivables, net (1,077) (1,284) Inventories (30) 13 Prepaid expenses and other 63 (368) Trade accounts payable and accrued expenses 879 424 Current taxes (111) 5 Other (41) (142) ------ -------- Net cash provided from operating activities 1,503 24 ------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (562) (765) Acquisitions, net (700) -0- Pre-opening and other costs (205) -0- Proceeds from TDLP transaction 23 21 Investment in joint venture -0- (264) Distributions from joint ventures 1 -0- -------- ------ Net cash used in investing activities (1,443) (1,008) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt obligations 700 -0- Repayment of debt obligations (126) (119) Advances to TDLP (567) (228) Financing costs (5) -0- Net proceeds from bank line of credit 610 -0- Proceeds from sale of common stock 57 -0- Advances from lessor -0- 612 ------- ------- Net cash provided from (used in) financing activities $ 669 $ 265 ------- -------
(continued) 5 6 ADVOCAT INC. INTERIM STATEMENTS OF CASH FLOWS (IN THOUSANDS AND UNAUDITED) (CONTINUED)
Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 -------------- -------------- INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS $ 729 $ (719) CASH AND CASH EQUIVALENTS, beginning of period 1,076 3,136 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 1,805 $ 2,417 ======= ======= SUPPLEMENTAL INFORMATION: Cash payments of interest $ 320 $ 181 ======= ======= Cash payments of income taxes $ 340 $ 648 ======= =======
Advocat received benefit plan deposits and recorded benefit plan liabilities of $63,000 and $60,000 in the three month periods ended March 31, 1996 and March 31, 1995, respectively. The accompanying notes to interim financial statements are an integral part of these interim consolidated financial statements. 6 7 ADVOCAT INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 1. ORGANIZATION AND BACKGROUND: Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") commenced operations with an initial public offering of its common stock on May 10, 1994. The Company is a provider of long-term care services operating nursing homes and retirement centers in the United States and Canada. Advocat's operational history can be traced to February 1980 through common senior management involved in different organizational structures. As of March 31, 1996, the Company operates 85 facilities comprised of 63 nursing homes containing 7,237 licensed beds and 22 retirement centers containing 2,462 units. The Company owns four nursing homes, acts as lessee with respect to 38 of the nursing homes it operates, and acts as manager with respect to the remaining 21 nursing homes. The Company owns one retirement center, acts as lessee with respect to seven of the retirement centers that it operates and as manager of the remaining 14 retirement centers. Geographically, 51 of the Company's nursing homes are located in the United States and 12 are located in Canada, while 20 of the Company's 22 retirement centers are located in Canada. The Company's facilities provide a range of health care services to their residents. In addition to the nursing and social services usually provided in the long-term care facilities, the Company offers a variety of rehabilitative, nutritional, respiratory, and other specialized ancillary services. The Company operates facilities in Alabama, Arkansas, Florida, Kentucky, Ohio, Tennessee, Texas, West Virginia, and the Canadian provinces of Ontario and British Columbia. 2. BASIS OF FINANCIAL STATEMENTS The interim financial statements for the three month periods ended March 31, 1996 and 1995, included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management of the Company, the accompanying interim combined financial statements reflect all adjustments (consisting of only normally recurring accruals) necessary to present fairly the financial position at March 31, 1996 and December 31, 1995 and the results of operations and the cash flows for the three month periods ended March 31, 1996 and 1995. Certain items have been reclassified in the 1995 financial statements to conform to the 1996 presentation. 7 8 The results of operations for the three month periods ended March 31, 1996 and 1995 are not necessarily indicative of the operating results for the entire respective years. These interim financial statements should be read in connection with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 3. EARNINGS PER SHARE Earnings per share is based on the weighted average number of the Company's common and common equivalent shares outstanding that pertain to the respective operations included in each period and is calculated as follows:
THREE MONTHS ENDED MARCH 31, 1996 1995 ========= ========= Weighted average shares: Average shares outstanding 5,291,000 5,250,000 Common stock equivalents -- Employee stock purchase plan 14,000 16,000 Options, conversion assumed under the treasury stock method 17,000 44,000 --------- --------- Common and common equivalent shares outstanding 5,322,000 5,310,000 ========= ========= Net income $ 900,000 $1,040,000 ========= ========== Earnings per share $ .17 $ .20 ========= ==========
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") commenced operations with an initial public offering of its common stock on May 10, 1994. The Company is a provider of long-term care services operating nursing homes and retirement centers in the United States and Canada. Advocat's operational history can be traced to February 1980 through common senior management involved in different organizational structures. As of March 31, 1996, the Company operates 85 facilities comprised of 63 nursing homes containing 7,237 licensed beds and 22 retirement centers containing 2,462 units. The Company owns four nursing homes, acts as lessee with respect to 38 of the nursing homes it operates, and acts as manager with respect to the remaining 21 nursing homes. The Company owns one retirement center, acts as lessee with respect to seven of the retirement centers that it operates and as manager of the remaining 14 retirement centers. Geographically, 51 of the Company's nursing homes are located in the United States and 12 are located in Canada, while 20 of the Company's 22 retirement centers are located in Canada. The Company's facilities provide a range of health care services to their residents. In addition to the nursing and social services usually provided in the long-term care facilities, the Company offers a variety of rehabilitative, nutritional, respiratory, and other specialized ancillary services. The Company operates facilities in Alabama, Arkansas, Florida, Kentucky, Ohio, Tennessee, Texas, West Virginia, and the Canadian provinces of Ontario and British Columbia. Basis of Financial Statements. The Company's patient revenues consist of the fees charged to the residents of the Company's leased and owned nursing homes and retirement centers. Management fee revenues consists of the fees charged to the owners of the facilities managed by the Company. The management fee revenues are based on the respective contractual terms, which generally range from 3.5% to 6.0% of the net revenues of the managed facilities. As a result, the level of management fees is affected positively or negatively by the increase or decrease in the level of occupancy or rates per patient day of the managed facilities. Management fees also include consulting and development fee income. The Company's operating expenses include the costs incurred in the nursing homes and retirement centers leased and owned by the Company. The Company's general and administrative expenses consist of the costs of the corporate office and regional support functions, including the costs incurred in providing management services to the nursing homes and retirement centers managed by the Company. The Company's financial statements reflect the depreciation, amortization and interest expenses of the facilities owned by the Company, and the depreciation expense associated with equipment owned by the Company and used in its leased facilities. 9 10 RESULTS OF OPERATIONS The following tables present the unaudited interim statements of income data for the three months ended March 31, 1996 and 1995, and set forth this data as a percentage of revenues for the same periods.
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1996 1995 ======= ======= REVENUES: Patient revenues $38,324 $31,537 Management fees 1,173 892 Interest 36 61 ------- ------- Net revenues 39,533 32,490 ------- ------- EXPENSES: Operating 31,608 25,027 Lease 3,563 3,379 General and administrative 2,122 1,920 Depreciation and amortization 509 368 Interest 325 171 ------- ------- Total expenses 38,127 30,865 ------- ------- INCOME BEFORE INCOME TAXES 1,406 1,625 PROVISION FOR INCOME TAXES 506 585 ------- ------- NET INCOME $ 900 $ 1,040 ======= =======
Percentage of Net Revenues
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1996 1995 ===== ===== REVENUES: Patient revenues 96.9% 97.1% Management fees 3.0 2.7 Interest 0.1 0.2 ----- ----- Net revenues 100.0% 100.0% ----- ----- EXPENSES: Operating 79.9 77.0 Lease 9.0 10.4 General and administrative 5.4 5.9 Depreciation and amortization 1.3 1.2 Interest 0.8 0.5 ----- ----- Total expenses 96.4 95.0 ----- ----- INCOME BEFORE INCOME TAXES 3.6 5.0 PROVISION FOR INCOME TAXES 1.3 1.8 ----- ----- NET INCOME 2.3% 3.2% ===== =====
10 11 THREE MONTHS 1996 COMPARED WITH THREE MONTHS 1995 As of March 31, 1996, the Company operates 85 facilities comprised of 63 nursing homes containing 7,237 licensed beds and 22 retirement centers containing 2,462 units. In comparison, as of March 31, 1995, the Company operated 66 nursing homes containing 7,441 licensed beds and 20 retirement centers containing 2,317 units. Since January 1, 1995, the Company began operating for its own account six homes, two of which it previously managed, totaling 496 nursing home beds and 109 retirement center units. The operations of these facilities have a significant impact on the comparability of the 1996 and 1995 periods. In the following discussion, these homes are collectively referred to as the "New Homes." All but 169 of the New Home beds/units were counted in the portfolio at March 31, 1995. Revenues. Net revenues increased to $39.5 million in 1996 from $32.5 million in 1995, an increase of $7.0 million, or 22%. Patient revenues increased to $38.3 million in 1996 from $31.5 million in 1995, an increase of $6.8 million, or 22%. Of this increase, $2.7 million is attributable to the New Homes. Ancillary service revenues, prior to contractual allowances, increased to $14.7 million in 1996 from $7.5 million in 1995, an increase of $7.2 million or 95%. The increase in patient revenues is also impacted by normal inflationary increases and a decrease in patient days of 1.8% among the homes operating for at least one year. Management fee revenues increased by $280,000, or 31%. The increase is primarily due to $300,000 in consulting fees earned with respect to the development of two of the New Homes. The Company anticipates an additional $200,000 in such revenues in the second quarter after which time no further such revenues are anticipated. The increase in ancillary revenues and the completion in 1995 of the certification of all of the Company's beds for participation under the Medicare program have resulted in continued improvement in the quality mix of the Company's revenues. As a percent of net patient revenues, Medicare improved to 26.0% in 1996 from 17.6% in 1995 while Medicaid decreased to 55.3% in 1996 from 61.6% in 1995. While Medicare utilization has increased, the Company has experienced rate increases below historical norms in the Medicaid programs in the states of Alabama and Florida. The Company anticipates that it is likely states will continue to seek ways to depress the rate of growth in Medicaid program rates. Operating Expense. Operating expense increased to $31.6 million in 1996 from $25.0 million in 1995, an increase of $6.6 million, or 26%. As a percent of net revenues, operating expense increased to 79.9% in 1996 from 77.0% in 1995. Of this increase, $2.3 million is attributable to the New Homes. The remaining increase is primarily attributable to an increase in the provision of ancillary services to Medicare patients. As ancillary services have increased, the supply costs related to the provision of such services have increased correspondingly. In addition, the Company's operating margin has declined due to reduced average census, cost containment measures in Medicaid programs, difficulty in achieving expense reductions in certain homes, and growth in the Company's medical supply distribution business, which generates a lower operating margin. Wages increased to $14.0 million in 1996 from $11.9 million in 1995, an increase of $2.1 million, or 18%. 11 12 Of this increase, $1.0 million is attributable to the New Homes. A portion of the remaining increase in wages is offset by reduced costs associated with less utilization of temporary nursing services and reduced contracted housekeeping and laundry services. The Company's wage increases are generally in line with inflation. Among homes in operation for at least one year, the Company has experienced increased general and employee health insurance costs of $239,000. This is partially offset by a decrease in worker's compensation expense of $133,000. Lease Expense. Lease expense increased to $3.6 million in 1996 from $3.4 million in 1995, an increase of approximately $200,000, or 6%. Of this increase, $147,000 is attributable to the New Homes, and the remainder is primarily attributable to inflationary increases included in the terms of a majority of the Company's operating leases. General and Administrative Expense. General and administrative expense increased to $2.1 million in 1996 from $1.9 million in 1995, an increase of approximately $200,000, or 10%. The increase is primarily attributable to the expense of new positions added to service the Company's expanded operations. As a percent of total net revenues, general and administrative expenses declined from 5.9% in 1995 to 5.3% in 1996, reflective of spreading the Company's overhead costs over a wider base of operations. Depreciation and Amortization. Depreciation and amortization expenses increased to $509,000 in 1996 from $368,000 in 1995, an increase of $141,000, or 38%. Approximately $103,000 of the increase is associated with the New Homes. Interest Expense. Interest expense increased to $325,000 in 1996 from $171,000 in 1995, an increase of $154,000, or 91%. Approximately $125,000 of the increase is attributable to indebtedness related to the New Homes with the remainder of the increase primarily attributable to increased borrowings under the Company's working capital line of credit. Income Before Income Taxes; Net Income; Earnings Per Share. As a result of the above, income before income taxes was $1.4 million in 1996 as compared with $1.6 million in 1995, a decrease of approximately $200,000, or 14%. The effective combined federal, state and provincial income tax rate was 36% in both 1996 and 1995. Net income was to $900,000 in 1996 as compared with $1,040,000 in 1995, a decrease of $140,000, and earnings per share was $.17 as compared with $.20. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1996, the Company's working capital was $7.2 million as compared with $6.7 million at December 31, 1995. The current ratio was 1.4 at both dates. Net cash provided from operating activities totaled $1.5 million and $26,000 in 1996 and 1995, respectively. These amounts primarily represent the cash flows from income plus depreciation and amortization along with the changes in working capital components. 12 13 Net cash used in investing activities totaled $1.4 million and $1.0 million in 1996 and 1995, respectively. These amounts primarily represent capital expenditures for equipment for and improvements to the Company's existing facilities, an acquisition in 1996, and, in 1995, an investment in a Canadian joint venture managed by the Company. The Company and its predecessor business have used between $1.7 million and $3.0 million for capital expenditures for facility improvements and equipment in each of the last three calendar years. Such expenditures were financed through working capital. The Company anticipates that such expenditures for its existing facility operations will be approximately $3.2 million for the year ended December 31, 1996. Net cash provided from financing activities totaled $669,000 and $265,000 in 1996 and 1995, respectively. The net cash used in financing activities primarily represents proceeds from and repayment of long-term debt, advances to TDLP, net proceeds under the Company's bank line of credit in 1996, and advances from a lessor in 1995. At March 31, 1996, the Company had total debt outstanding of $16.2 million of which $7.5 million was principally mortgage debt bearing fixed interest at rates ranging from 8.0% to 11.0%. The Company's remaining debt was drawn under its $17.5 million credit line. The credit line had an initial term through May 1, 1996 and has been extended through July 1, 1996. The credit line includes $10.0 million designated for use in making acquisitions of long-term care facilities and $7.5 million for working capital purposes. Through March 31, 1996, the Company had drawn $6.1 million under its acquisition credit line. Amounts drawn under the acquisition credit line may be converted to a three-year term loan effective with the end of the initial term. The credit line also includes $7.5 million designated for working capital purposes. At March 31, 1996, the Company had drawn $2.2 million and had $5.3 million in letters of credit outstanding under this working capital credit line. Amounts drawn under the credit line bear interest, at the Company's option, at either the lead bank's prime rate or 2% above the London Interbank Market rate. Amounts drawn under the credit line are secured generally by certain accounts receivable and substantially all other assets of the Company as well as by any assets acquired with funds drawn under the acquisition credit line. The Company has agreed to comply with certain covenants, including financial covenants with respect to maintaining current ratio, net working capital, coverage of fixed charges, tangible net worth, and earnings levels as defined in the line of credit agreement. Additionally, the Company may not declare dividends during the term of the agreement. In December 1995, the Company received a temporary increase (the "Overline") in the maximum amount available to be drawn under the line of credit facility. The Company has the ability to draw additional working capital up to $2.6 million through July 1, 1996. As of March 31, 1996, the Company had drawn $0.4 million under the Overline; through May 10, 1996, the amount drawn had increased to $1.0 million. The Company has utilized its working capital line and the Overline to fund working capital for its New Homes, advances to TDLP, and capital expenditures. The Company plans to replace the temporary availability under the Overline with increased mortgage indebtedness on its security interest in the six Texas Diversicare Limited Partnership homes. In addition, the Company is negotiating an extension and an expansion of the amounts available under its bank line of credit. Management believes that the Company will obtain a new working capital line of credit with terms at least comparable to the Company's existing line of credit facility. The Company expects to utilize the Overline until the new line of credit is in place. In May 1996, the Company received a commitment for permanent financing with respect to a Canadian facility purchased in December 1995. The Company expects to replace the $1.1 million short-term promissory note with the proceeds under the anticipated mortgage during the latter part of the second quarter. The outstanding balance has been classified as long-term as of March 31, 1995. 13 14 Based upon the operations of the Company, management believes that available cash and funds generated from operations, as well as amounts available through its banking relationships, will be sufficient for the Company to satisfy its capital expenditures, working capital, and debt requirements for the next 12 months. The Company intends to satisfy the capital requirements for its acquisition activities from among various means, including borrowings from commercial lenders, seller-financed debt, issuance of additional debt, financing obtained from sale and leaseback transaction with real estate investment trusts and, to the extent available, internally generated cash from operations. On a longer-term basis, management believes the Company will be able to satisfy the principal repayment requirements on its indebtedness with a combination of funds generated from operations and from refinancings with the existing or new commercial lenders. Receivables The Company's operations could be adversely affected if it experiences significant delays in reimbursement of its labor and other costs from Medicare and other third-party revenue sources. The Company's future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash, accounts receivable and inventories) and current liabilities (principally accounts payable and accrued expense). In that regard, accounts receivable can have a significant impact on the Company's liquidity. Continued efforts by governmental and third-party payors to contain or reduce the acceleration of costs by monitoring reimbursement rates, increasing medical review of bills for services or negotiating reduced contract rates, as well as any significant increase in the Company's proportion of Medicare and Medicaid patients, could adversely affect the Company's liquidity and results of operations. Net accounts receivable attributable to the provision of patient and resident services at March 31, 1996 and December 31, 1995, totaled $21.2 million and $20.2 million, respectively, representing approximately 50 and 51 days, respectively, in accounts receivable. Accounts receivable from the provision of management services at March 31, 1996 and December 31, 1995, totaled $0.7 million at each date representing approximately 57 and 69 days, respectively, in accounts receivable. The Company continually evaluates the adequacy of its bad debt reserves based on patient mix trends, agings of older balances, payment terms and delays with regard to third-party payors, collateral and deposit resources, as well as other factors. The Company has implemented additional procedures to strengthen its collection efforts and reduce the incidence of uncollectible accounts. Foreign Currency Translation The Company has obtained its financing primarily in U.S. dollars; however, it will incur revenues and expenses in Canadian dollars with respect to Canadian management activities and operations of the Company's Canadian facilities. Therefore, if the currency exchange rate fluctuates, the Company may experience currency translation gains and losses with respect to the operations of these activities and the capital resources dedicated to their support. While such currency exchange 14 15 rate fluctuations have not been material to the Company in the past, there can be no assurance that the Company will not be adversely affected by shifts in the currency exchange rates in the future. Inflation Management does not believe that the operations of the Company have been materially affected by inflation. The Company expects salary and wage increases for its skilled staff to continue to be higher than average salary and wage increases, as is common in the health care industry. To date, these increases as well as normal inflationary increases in other operating expenses have been adequately covered by revenue increases. However, it is likely that states will continue to seek ways to control the growth in Medicaid program rates. Recent Accounting Pronouncements In 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company adopted SFAS No. 121 in the first quarter of 1996 and the adoption did not have a material effect on the Company's financial position. Two facilities noted as receiving special attention in the Company's Annual Report on Form 10-K showed improvement in operations in the three months ended March 31, 1996 as compared to the three months ended December 31, 1995. The FASB also issued SFAS No. 123, "Accounting for Stock-Based Compensation" in 1995. This statement requires new disclosures in the notes to the financial statements about stock-based compensation plans based on the fair value of equity instruments granted. Companies may also base the recognition of compensation cost for instruments issued under stock-based compensation plans on these fair values. The Company will adopt the disclosure requirements of SFAS No. 123 in 1996. Risk Factors In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company hereby makes reference to items set forth under the heading "Risk Factors" in the Company's Registration Statement on Form S-1, as amended (Registration No. 33-76150). Such cautionary statements identify important facts that could cause the Company's actual results to differ materially from those projected in forward looking statements made by or on behalf of the Company. 15 16 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) The exhibits filed as part of the report on Form 10-Q are listed in the Exhibit Index immediately following the signature page. (b) The Company filed a report on Form 8-K/A dated February 12, 1996, reporting the acquisition of certain assets effective November 30, 1995. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADVOCAT INC. May 10, 1996 By: /s/ Mary Margaret Hamlett ------------------------------------------------------------ Mary Margaret Hamlett Principal Financial Officer and Chief Accounting Officer and An Officer Duly Authorized to Sign on Behalf of the Registrant 17 18 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 2.1 -- Asset Purchase Agreement dated November 30, 1995, among Williams Nursing Homes Inc., d/b/a Afton Oaks Nursing Center, Lynn Mayers, Thomas E. Mayers, and Diversicare Leasing Corp. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated November 30, 1995). 2.2 -- Purchase Agreement between Diversicare Leasing Corporation and Americare Corporation dated February 20, 1996 (incorporated by reference to Exhibit 2.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3.1 -- Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No. 33-76150 on Form S-1). 3.2 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement No. 33-76150 on Form S- 1). 3.2 -- Amendment to Articles of Incorporate dated March 23, 1995 (incorporated by reference to Exhibit A of Exhibit 1 to Form 8-A filed March 30, 1995). 4.1 -- Form of Common Stock Certificate (incorporated by reference to Exhibit 4 to the Company's Registration Statement No. 33-76150 on Form S-1). 4.2 -- Rights Agreement dated March 13, 1995, between the Company and Third National Bank in Nashville (incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated March 13, 1995). 4.3 -- Summary of Shareholder Rights Plan adopted March 13, 1995 (incorporated by reference to Exhibit B of Exhibit 1 to Form 8-A filed March 30, 1995). 4.4 -- Rights Agreement of Advocat Inc. dated March 23, 1995 (incorporated by reference to Exhibit 1 to Form 8-A filed March 30, 1995).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.1 -- Asset Contribution Agreement among Counsel Corporation and Certain ofits Direct and Indirect Subsidiaries dated May 10, 1994 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.2 -- Asset Contribution Agreement among Diversicare Inc. and Certain of its Direct and Indirect Subsidiaries dated May 10, 1994 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.3 -- 1994 Incentive and Non-Qualified Stock Plan for Key Personnel (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.4 -- 1994 Non-Qualified Stock Option Plan for Directors (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.5 -- Master Agreement and Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.6 -- 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.7 -- Form of Employment Agreements dated May 10, 1994, between the Registrant and Dr. Birkett, Mr. Richardson and Ms. Hamlett (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.8 -- Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.9 -- Master Lease Agreement dated August 14, 1992, between Diversicare Corporation of America and Omega Healthcare Investors, Inc. (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement No. 33-76150 on Form S-1).
20
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.10 -- Consent, Assignment and Amendment Agreement between Diversicare Corporation of America, Counsel Nursing Properties, Inc., Advocat Inc., Diversicare Leasing Corporation and Omega Healthcare Investors, Inc. dated May 10, 1994 (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.11 -- Advocat Inc. Guaranty in favor of Omega Healthcare Investors, Inc. dated May 10, 1994 (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.12 -- Consolidation, Modification and Renewal Note dated August 30, 1991, by Diversicare Nursing Centers, Inc. to the order of Sovran Bank/Tennessee (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.13 -- Wraparound Promissory Note dated August 30, 1991, by Texas Diversicare Limited Partnership and Diversicare Nursing Centers, Inc. (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.14 -- Management Agreement dated August 30, 1991, between Texas Diversicare Limited Partnership and Diversicare Corporation of America, as assigned effective October 1, 1991, to Diversicare Management, with consent of Texas Diversicare Limited Partnership, as amended (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.15 -- Amended and Restated Limited Partnership Agreement dated August 30, 1991, among Diversicare General Partner, Inc., J. Scott Jackson and each Limited Partner (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement No. 33- 76150 on Form S-1). 10.16 -- Participation Agreement dated August 30, 1991, between Texas Diversicare Limited Partnership and Diversicare Corporation of America (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement No. 33-76150 on Form S-1).
21
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.17 -- Agreement of Purchase and Sale entered into August 30, 1991, among Diversicare Corporation of America, Texas Diversicare Limited Partnership' and Diversicare Corporation of America (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.18 -- Partnership Services Agreement entered into August 30, 1991, among Texas Diversicare Limited Partnership, Diversicare Incorporated and Counsel Property Corporation (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.19 -- Guaranteed Return Loan Security Agreement entered into August 30, 1991, between Texas Diversicare Limited Partnership and Diversicare Incorporated (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.20 -- Credit and Security Agreement dated October 12, 1994, between NationsBank of Tennessee, N.A., the Company and the Company's subsidiaries (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.21 -- Promissory Note by Advocat Inc. to the order of Diversicare Inc. dated May 10, 1994 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.22 -- Promissory Note by Advocat Inc. to the order of Counsel Nursing Properties, Inc. dated May 10, 1994 (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.23 -- Demand Master Promissory Note by Advocat Inc. to the order of Diversicare Corporation of America dated May 10, 1994 (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.24 -- Lease Agreement between Counsel Healthcare Assets Inc. and Counsel Nursing Properties, Inc. dated May 10, 1994 (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
22
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.25 -- Lease Agreement between Counsel Healthcare Assets Inc. and Counsel Nursing Properties, Inc. dated May 10, 1994 (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.26 -- Management and Guaranteed Return Loan Agreement dated as of November 30, 1985, between Diversicare VI Limited Partnership and Diversicare Incorporated, an Ontario corporation, as amended, as assigned effective October 1, 1991, to Diversicare Management Services Co., with consent of Diversicare VI Limited Partnership (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.27 -- Management Agreement dated August 24, 1981, between Americare Corporation and Diversicare Corporation of America, as assigned to Diversicare Management Services Co., with consent of Americare Corporation (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.28 -- Management Agreement between Counsel Healthcare Assets, Inc., an Ontario corporation and Counsel Nursing Properties, Inc. dated April 30, 1994, as assigned effective May 10, 1994, to Diversicare Canada Management Services Co., Inc (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.29 -- Lease Agreement between Spring Hill Medical, Inc. and First American HealthCare, Inc. dated February 1, 1994 (incorporated by reference to Exhibit 10.38 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.30 -- Lease Agreement, as amended, between Bryson Hill Associates of Alabama, Inc. and Estates Nursing Homes, Inc. dated June 15, 1984, as assigned effective May 10, 1994, to Diversicare Leasing Corp. (incorporated by reference to Exhibit 10.39 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.31 -- Lease Agreement between HealthCare Ventures and Wessex Care Corporation dated October 23, 1989, as assigned effective May 10, 1994, to Diversicare Leasing Corp. (incorporated by reference to Exhibit 10.40 to the Company's Registration Statement No. 33- 76150 on Form S-1).
23
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.32 -- Lease Agreement between Osborne & Wilson Development Corp., Inc. and Diversicare Corporation of America dated July 7, 1989, as assigned effective May 10, 1994, to Diversicare Leasing Corp. (incorporated by reference to Exhibit 10.41 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.33 -- Florida Lease Agreement between Counsel Nursing Properties, Inc. and Diversicare Leasing Corp. dated May 10, 1994 (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.34 -- Lease Agreement between Counsel Nursing Properties, Inc. and Diversicare Leasing Corp. dated May 10, 1994 (incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.35 -- Underwriting Agreement dated May 10, 1994, by and among NatWest Securities Limited, J.C. Bradford & Co., Raymond James & Associates, Inc., Advocat Inc., Counsel Nursing Properties, Inc., Diversicare Inc. and Counsel Healthcare Assets Inc. regarding 4,750,000 shares of Common Stock of Advocat Inc. (incorporated by reference to Exhibit 1 to the Company's Registration Statement No. 33-76150 on Form S-1). 10.36 -- Letter Agreement dated November 23, 1994, among Advocat Inc., Omega Healthcare Investors, Inc., Sterling Health Care Centers, Inc. and E.B. Lowman, II (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.37 -- Assignment and Assumption Agreement of Master Lease dated September 1, 1995, between Sterling Health Care Management, Inc., Diversicare Leasing Corp. and Sterling Acquisition Corp (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995). 10.38 -- Master Lease dated December 1, 1994, between Sterling Health Care Management, Inc. and Sterling Acquisition Corp (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995).
24
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.39 -- Assignment and Assumption Agreement of Master Sublease dated September 1, 1995, between Sterling Health Care Management, Inc., Diversicare Leasing Corp. and O S Leasing Company (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995). 10.40 -- Master Sublease dated December 1, 1994, between Sterling Health Care Management, Inc. and O S Leasing Company (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995). 10.41 -- Letter of Credit Agreement dated September 1, 1995, between Omega Health Care Investors, Inc., Sterling Acquisition Corp., Sterling Acquisition Corp II, O S Leasing Company and Diversicare Leasing Corp (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995). 10.42 -- Advocat Inc. Guaranty dated September 1, 1995, in favor of Omega Health Care Investors, Inc., Sterling Acquisition Corp., Sterling Acquisition Corp. II and O S Leasing Company (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995). 10.43 -- Management Agreement between Diversicare Management Services Co. and Emerald-Cedar Hill, Inc. dated February 20, 1996 (incorporated by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.44 -- Management Agreement between Diversicare Management Services Co. and Emerald-Golfcrest, Inc. dated February 20, 1996 (incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.45 -- Management Agreement between Diversicare Management Services Co. and Emerald-Golfview, Inc. dated February 20, 1996 (incorporated by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
25
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.46 -- Management Agreement between Diversicare Management Services Co. and Emerald-Southern Pines, Inc. dated February 20, 1996 (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.47 -- Loan Agreement between Omega Healthcare Investors, Inc. and Diversicare Leasing Corp., d/b/a Good Samaritan Nursing Home, dated February 20, 1996 (incorporated by reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.48 -- Short Term Note by Diversicare Leasing Corp. to Omega Healthcare Investors, Inc. dated February 20, 1996 (incorporated by reference to Exhibit 10.48 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.49 -- Advocat Inc. Guaranty in favor of Omega Healthcare Investors, Inc. dated February 20, 1996 (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.50 -- First Amendment to Credit and Security Agreement dated November 28, 1995, between NationsBank of Tennessee, N.A., Advocat Inc. and the Subsidiaries (as defined) (incorporated by reference to Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.51 -- Second Amendment to Credit and Security Agreement dated December 1, 1995, between NationsBank of Tennessee, N.A., Advocat Inc. and the Subsidiaries (as defined) (incorporated by reference to Exhibit 10.51 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.52 -- Third Amendment to Credit and Security Agreement dated December 1, 1995, between NationsBank of Tennessee, N.A., Advocat Inc. and the Subsidiaries (as defined) (incorporated by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.53 -- Fourth Amendment to Credit and Security Agreement dated April 1, 1996, between NationsBank of Tennessee, N.A., Advocat Inc. and the Subsidiaries (as defined).
26
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 10.54 -- Fifth Amendment to Credit and Security Agreement dated May 1, 1996, between NationsBank of Tennessee, N.A., Advocat Inc. and the Subsidiaries (as defined). 21 -- Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 27 -- Financial Data Schedule (for SEC use only).
EX-10.53 2 FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT 1 EXHIBIT 10.53 FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Fourth Amendment to Credit and Security Agreement, made and entered into as of the 1st day of April, 1996, by and between NationsBank of Tennessee, N.A., a national banking association (the "Bank"), Advocat Inc., a Delaware corporation ("Borrower"), and the Subsidiaries, as defined in the Credit and Security Agreement by and between the Bank, the Borrower and the Subsidiaries, dated as of October 12, 1994, as amended from time to time (the "Loan Agreement"). Capitalized terms not otherwise described herein shall have the meanings ascribed to such terms in the Loan Agreement. W I T N E S S E T H: WHEREAS, pursuant to the terms of the Loan Agreement, the Bank committed to loan to the Borrower and the Subsidiaries amounts not to exceed $17,500,000; and, WHEREAS, Borrower has certain short-term working capital needs which may exceed the Borrower's availability as defined by the Borrowing Base under the Credit Facility; and, WHEREAS, by Third Amendment to Credit and Security Agreement dated as of December 1, 1995 (the "Third Amendment"), Bank agreed to permit Borrower to request and receive funds under the Credit Facility in excess of the amount available under the Credit Facility, calculated in accordance with the Borrowing Base, pending the closing of the refinancing of the TDLP First Mortgage Indebtedness; and, WHEREAS, Bank agreed to permit such overadvances under the Credit Facility, through April 1, 1995, subject to the terms and conditions contained in the Third Amendment; and, WHEREAS, the Borrower has requested that the Termination Date, as defined in Section 2 of the Third Amendment be extended through May 1, 1996; and, WHEREAS, the parties desire to execute this Fourth Amendment to extend the Termination Date through May 1, 1996, and to set forth certain other agreements between the parties, as more particularly described herein, NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the Bank, the Borrower and the Subsidiaries hereby agree as follows: 1. Extension of Termination Date. Section 2 of the Third Amendment is hereby modified to delete the reference to April 1, 1996, and substitute in its place, May 1, 1996, it being the intent of the parties that the Termination Date shall be the earlier of (i) the date on which the refinancing of the TDLP First Mortgage Indebtedness is completed, or (ii) May 1, 1996. -1- 2 2. Waiver of Covenant Default. Borrower acknowledges that Borrower failed to meet the requirements for the Fixed Charge Coverage Ration set forth in Section 5.2(r)(iii) for the period ending December 31, 1995, resulting in Borrower being in default under the terms of the Loan Agreement. Bank hereby waives the default created by the failure of Borrower to comply with Section 5.2(r)(iii) as of December 31, 1995. Such waiver by Bank is limited to the period ending December 31, 1995, and shall not be deemed to be a waiver of any other default by Borrower under the terms of the Loan Agreement. 3. Joinder of Guarantors. The Guarantors, by executing this Amendment, hereby confirm that the terms and conditions of the Guaranty Agreements executed by each of the Guarantors dated as of October 12, 1994, continue in full force and effect, and the Obligations (as defined in the Guaranty Agreements) shall include any amounts advanced as an Overadvance, pursuant to the terms of the Loan Agreement. This Amendment shall be deemed to be an amendment to the Guaranty Agreements, to the extent required, to confirm that the Guarantors' obligations under the Guaranty Agreements include, without limitation, any Overadvance funded pursuant to the terms of the Loan Agreement. 4. No Default. The Borrower and the Subsidiaries hereby confirm that no Event of Default currently exists, and, to the best of the Borrower's and the Subsidiaries' knowledge, no condition presently exists or is anticipated which, with the passage of time, the giving of notice, or both, would constitute an Event of Default. 5. Ratification. The Borrower and the Subsidiaries hereby restate and ratify the terms and conditions of the Loan Agreement as of the date hereof, and each acknowledge that the terms and conditions of the Loan Agreement, as amended hereby, remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as of the day and date first above written. NATIONSBANK OF TENNESSEE ADVOCAT INC., a Delaware N.A. Corporation BY: BY: ----------------------- -------------------------- Roy Haisley Vice President TITLE: ----------------------- "BANK" "BORROWER" -2- 3 DIVERSICARE LEASING CORP., a Tennessee Corporation BY: -------------------------- TITLE: ----------------------- DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee Corporation BY: -------------------------- TITLE: ----------------------- ADVOCAT ANCILLARY SERVICES, INC., a Tennessee Corporation BY: -------------------------- TITLE: ----------------------- DIVERSICARE CANADA MANAGEMENT SERVICES CO., a Canada Corporation BY: -------------------------- TITLE: ----------------------- DIVERSICARE GENERAL PARTNER, INC., a Texas Corporation BY: -------------------------- TITLE: ----------------------- -3- 4 FIRST AMERICAN HEALTH CARE, INC., an Alabama Corporation BY: -------------------------- TITLE: ----------------------- DAUPHIN HEALTH CARE FACILITY, INC., an Alabama Corporation BY: -------------------------- TITLE: ----------------------- -4- EX-10.54 3 FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT 1 EXHIBIT 10.54 FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Fifth Amendment to Credit and Security Agreement, made and entered into as of the 1st day of May, 1996, by and between NationsBank of Tennessee, N.A., a national banking association (the "Bank"), Advocat Inc., a Delaware corporation ("Borrower"), and the Subsidiaries, as defined in the Credit and Security Agreement by and between the Bank, the Borrower and the Subsidiaries, dated as of October 12, 1994, as amended from time to time (the "Loan Agreement"). Capitalized terms not otherwise described herein shall have the meanings ascribed to such terms in the Loan Agreement. W I T N E S S E T H: WHEREAS, pursuant to the terms of the Loan Agreement, the Bank committed to loan to the Borrower and the Subsidiaries amounts not to exceed $17,500,000, including the $7,500,000 Line, which matures on May 1, 1996, and the $10,000,000 Line which converts to a term facility on May 1, 1996; and, WHEREAS, by Fourth Amendment to Credit and Security Agreement dated as of April 1, 1996 (the "Fourth Amendment"), Bank agreed to permit Borrower to continue to request and receive funds under the Credit Facility in excess of the amount available under the Credit Facility, calculated in accordance with the Borrowing Base, pending the closing of the refinancing of the TDLP First Mortgage Indebtedness; and, WHEREAS, Bank agreed to permit such overadvances under the Credit Facility through May 1, 1996, subject to the terms and conditions contained in the Third Amendment to Credit and Security Agreement dated as of December 1, 1995; and, WHEREAS, the Borrower has requested (i) that the maturity date of the $7,500,000 Line be extended from May 1, 1996, to July 1, 1996, (ii) that the date on which the right of Borrower to request funds under the $10,000,000 Line be extended from May 1, 1996, to July 1, 1996, and (iii) that the Termination Date, as defined in Section 2 of the Third Amendment be extended through July 1, 1996; and, WHEREAS, the parties desire to execute this Fifth Amendment to extend the maturity date of the $7,500,000 Line and the Termination Date through July 1, 1996, and to set forth certain other agreements between the parties, as more particularly described herein, NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the Bank, the Borrower and the Subsidiaries hereby agree as follows: 2 1. Extension of Maturity Date - $7,500,000 Line. The maturity date of the $7,500,000 Line is hereby extended from May 1, 1996, to July 1, 1996. Borrower agrees to execute a renewal note and such other documents as Bank may reasonably request to evidence such extension of the maturity date. 2. Extension of Revolving Period - $10,000,000 Line. The date through which the Borrower may request funds under the $10,000,000 Line, as set forth in Section 2.1(b) of the Loan Agreement, is hereby extended from May 1, 1996, to July 1, 1996. In addition, the date on which the monthly amortization payments due under the $10,000,000 Line commence is hereby extended from June 1, 1996, to August 1, 1996. 3. Extension of Termination Date. Section 2 of the Third Amendment (as amended by the Fourth Amendment) is hereby modified to delete the reference to May 1, 1996, and substitute in its place, July 1, 1996, it being the intent of the parties that the Termination Date shall be the earlier of (i) the date on which the refinancing of the TDLP First Mortgage Indebtedness is completed, or (ii) July 1, 1996. Overadvances, if any, shall continue to be available under the $10,000,000 Line, subject to the provisions of Section 2 of the Third Amendment. 4. Letters of Credit. Bank and Borrower acknowledge that the parties are negotiating possible changes in the pricing for the Credit Facility, including the fees for letters of credit issued by Bank. Borrower acknowledges that, to the extent pricing changes are instituted, the fees for any letters of credit issued or outstanding after May 1, 1996, shall be adjusted to reflect the new pricing schedule, effective as of the date the pricing change is instituted through the expiration date of such Letters of Credit. 5. Joinder of Guarantors. The Guarantors, by executing this Amendment, hereby confirm that the terms and conditions of the Guaranty Agreements executed by each of the Guarantors dated as of October 12, 1994, continue in full force and effect, and the Obligations (as defined in the Guaranty Agreements) shall include any amounts advanced as an Overadvance, pursuant to the terms of the Loan Agreement. This Amendment shall be deemed to be an amendment to the Guaranty Agreements, to the extent required, to confirm that the Guarantors' obligations under the Guaranty Agreements include, without limitation, any Overadvance funded pursuant to the terms of the Loan Agreement. 6. No Default. The Borrower and the Subsidiaries hereby confirm that no Event of Default currently exists, and, to the best of the Borrower's and the Subsidiaries' knowledge, no condition presently exists or is anticipated which, with the passage of time, the giving of notice, or both, would constitute an Event of Default. -2- 3 7. Ratification. The Borrower and the Subsidiaries hereby restate and ratify the terms and conditions of the Loan Agreement as of the date hereof, and each acknowledge that the terms and conditions of the Loan Agreement, as amended hereby, remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as of the day and date first above written. NATIONSBANK OF TENNESSEE, ADVOCAT INC., a Delaware corporation N.A. By: ______________________ By:______________________________ Roy Haisley, Vice President Title:___________________________ "BANK"" BORROWER" DIVERSICARE LEASING CORP., a Tennessee corporation By:______________________________ Title:___________________________ DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation By:___________________________ Title:___________________________ ADVOCAT ANCILLARY SERVICES, INC., a Tennessee corporation By:______________________________ Title:___________________________ -3- 4 DIVERSICARE CANADA MANAGEMENT SERVICES CO., a Canada corporation By:______________________________ Title:___________________________ DIVERSICARE GENERAL PARTNER, INC., a Texas corporation By:______________________________ Title:___________________________ FIRST AMERICAN HEALTH CARE, INC., an Alabama corporation By:______________________________ Title:___________________________ DAUPHIN HEALTH CARE FACILITY, INC., an Alabama corporation By:______________________________ Title:___________________________ -4- EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ADVOCAT, INC FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,805 0 22,472 2,032 538 25,713 31,079 8,120 59,533 18,479 0 0 0 53 23,353 59,533 0 39,533 0 37,802 0 0 325 1406 506 900 0 0 0 900 .17 0
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