Mortgage And Security Agreement

THIS INSTRUMENT WAS PREPARED BY, AND UPON RECORDING SHOULD BE RETURNED TO:


Kay K. Bains, Esq. Walston, Wells, Anderson & Bains, LLP 505 20th Street North, Suite 500 Birmingham, AL 35203 205-251-9600


STATE OF ALABAMA ) COUNTY OF MADISON )


MORTGAGE AND SECURITY AGREEMENT


THIS MORTGAGE AND SECURITY AGREEMENT (this "Instrument"), is made as of the 29th day of March, 2001, by and between DIVERSICARE WINDSOR HOUSE, LLC, a Delaware limited liability company ("Mortgagor"), whose address is 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation (together with its successors and assigns, "Mortgagee"), whose address is 200 Witmer Road, Horsham, Pennsylvania 19044.


RECITALS


A. Mortgagor is indebted to Mortgagee for money loaned in the principal sum of Four Million Seven Hundred Nine Thousand and No/100 Dollars ($4,709,000.00) (the "Loan"), as is evidenced by that certain Promissory Note of even date herewith from Mortgagor, payable to the order of Mortgagee in installments of principal and/or interest thereon, such final installment being due on March 1, 2006.


B. As a condition precedent to making the Loan, Mortgagee has required that Mortgagor execute this Instrument as security for the Loan and the other Indebtedness (as hereinafter defined).


GRANTING CLAUSES


NOW, THEREFORE, for and in consideration of the Indebtedness, and to secure the prompt payment thereof, Mortgagor does hereby irrevocably grant, bargain, sell, convey, assign, transfer, mortgage, pledge and set over unto Mortgagee, its successors and assigns forever, and grants to Mortgagee a security interest in and to, the Mortgaged Property (as hereinafter defined).


2


TO HAVE AND TO HOLD the Mortgaged Property and all parts thereof unto Mortgagee, its successors and assigns forever, subject however to the terms and conditions herein:


PROVIDED, HOWEVER, that if Mortgagor shall pay to Mortgagee the entire Indebtedness, at the times and in the manner stipulated herein, in the Note (as hereinafter defined) and in the other Loan Documents (as hereinafter defined), all without any deduction or credit for taxes or other similar charges paid by Mortgagor, and shall cause all other obligated parties to, keep, perform, and observe all and singular the covenants and promises herein, in the Note and in each of the other Loan Documents to be kept, performed, and observed, all without fraud or delay, then this Instrument, and all the properties, interests, and rights hereby granted, bargained, and sold shall cease, terminate, and be void, but shall otherwise remain in full force and effect.


AGREEMENT


AND Mortgagor and Mortgagee covenant and agree as follows:


1. DEFINITIONS. The following terms, when used in this Instrument (including when used in the above recitals), shall have the following meanings:


(a) "1933 ACT" has the meaning given to that term in Section 13.


(b) "ACCOUNTS" means any rights of Mortgagor arising from the operation of the Facility to payment for goods sold or leased or for services rendered, not evidenced by an Instrument, including, without limitation, (i) all accounts arising from the operation of the Facility, (ii) all moneys and accounts, if any, held by Mortgagee pursuant to this Instrument or any other Loan Document, and (iii) all rights to payment from Medicare or Medicaid programs or similar state or federal programs, boards, bureaus or agencies, and rights to payment from patients, residents, private insurers, and others arising from the operation of the Facility, including rights to payment pursuant to Reimbursement Contracts. Accounts shall include the Proceeds thereof.


(c) "AFFILIATE" means, with respect to any Person, (i) each Person that controls, is controlled by or is under common control with such Person, (ii) each Person that, directly or indirectly, owns or controls, whether beneficially or as a trustee, guardian or other fiduciary, any of the Stock of such Person, and (iii) each of such Person's officers, directors, members, joint venturers and partners.


(d) "APPURTENANT RIGHTS" means all air rights, development rights, zoning rights, easements, rights-of-way, strips and gores of land, vaults, streets, roads, alleys, tenements, passages, sewer rights, waters, water courses, water rights and powers, minerals, flowers, shrubs, crops, trees, timber and other emblements now or hereafter appurtenant to, or used or useful in connection with, or located on, under or above the Land, or any part or parcel thereof, and all ground leases, estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances, reversions, and remainders whatsoever, in any way belonging, relating or appertaining to the Land, or any part thereof, now or hereafter.


2 3


(e) "ASSIGNMENT OF LEASES AND RENTS" means that certain Assignment of Leases and Rents of even date herewith executed by Mortgagor for the benefit of Mortgagee.


(f) "ASSIGNMENT OF LICENSES" means that certain Assignment of Licenses, Permits and Contracts of even date herewith executed by Mortgagor for the benefit of Mortgagee.


(g) "BUSINESS DAY" means a day, other than Saturday, Sunday or legal holidays, when Mortgagee is open for business.


(h) "COLLATERAL AGREEMENTS" means collectively, as applicable, the Debt Service Reserve Escrow and Security Agreement of even date herewith by and between Mortgagor and Mortgagee.


(i) "CONDEMNATION" has the meaning given to that term in Section 12.


(j) "CONTRACTS" means all license agreements, operating contracts, and all management, service, employment, supply and maintenance contracts and agreements, and any other agreements, licenses or contracts of any nature whatsoever now or hereafter obtained or entered into by Mortgagor with respect to the acquisition, construction, renovation, expansion, ownership, occupancy, use, operation, maintenance and administration of the Facility and/or the Mortgaged Property, including, without limitation, (i) any and all contracts, authorizations, agreements and/or consents executed by, or on behalf of any patient or other Person seeking services from Mortgagor pursuant to which Mortgagor provides or furnishes skilled nursing care and related services at the facility, including the consent to treatment and assignment of payment of benefits by third party and (ii) any and all contracts between Mortgagor and any resident of the Facility giving the resident certain rights of occupancy in the Facility and providing for certain services to such resident.


(k) "CROSS COLLATERALIZATION AND CROSS-DEFAULT AGREEMENT" means that certain Cross Collateralization and Cross-Default Agreement of even date herewith executed by Mortgagor, Mortgagee and Diversicare of Pinedale, LLC.


(l) "DEFAULT RATE" has the meaning given to that term in the Note.


(m) "EQUIPMENT" means all beds, linen, televisions, carpeting, telephones, cash registers, computers, lamps, glassware, rehabilitation equipment, restaurant and kitchen equipment, and other fixtures and equipment of Mortgagor located on, attached to or used or useful in connection with any of the Mortgaged Property or the Facility and all renewals and replacements thereof and substitutions therefor; provided, however, that with respect to any items which are leased for the benefit of the Facility and not owned by Mortgagor, the Equipment shall include the leasehold interest only of Mortgagor together with any options to purchase any of said items and any additional or greater rights with respect to such items which Mortgagor may hereafter acquire, but the foregoing shall not be construed to mean that such leasing shall be permitted hereunder and under the other Loan Documents.


(n) "EVENT OF DEFAULT" means the occurrence of any event listed in Section 14.


3 4


(o) "FACILITY" means the facility known as "Windsor House," presently a 134-bed licensed facility (117-bed licensed skilled nursing and 17-bed licensed congregate assisted living)located on the Land, as it may now or hereafter exist, together with any other general or specialized care facilities, if any (including any Alzheimer's care unit, subacute, and any skilled nursing facility), now or hereafter operated on the Land.


(p) "FIXTURES" means all property which is now or hereafter so attached to the Land or the Improvements as to constitute a fixture under applicable law and all renewals and replacements thereof and substitutions therefor, including, without limitation: machinery, equipment, engines, boilers, incinerators, installed building materials; systems and equipment for the purpose of supplying or distributing heating, cooling, electricity, gas, water, air, or light; antennas, cable, wiring and conduits used in connection with radio, television, security, fire prevention, or fire detection or otherwise used to carry electronic signals; telephone systems and equipment; elevators and related machinery and equipment; fire detection, prevention and extinguishing systems and apparatus; security and access control systems and apparatus; plumbing systems; water heaters, ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage disposers, washers, dryers and other appliances; light fixtures, awnings, storm windows and storm doors; pictures, screens, blinds, shades, curtains and curtain rods; mirrors; cabinets, paneling, rugs and floor and wall coverings; fences, trees and plants; and exercise equipment.


(q) "GENERAL INTANGIBLES" means all intangible personal property of Mortgagor arising out of or connected with the Mortgaged Property or the Facility and all renewals and replacements thereof and substitutions therefor (other than Accounts, Rents, Instruments, Inventory, Money, Permits and Reimbursement Contracts), including, without limitation, things in action, contract rights and other rights to payments of Money.


(r) "GOVERNMENTAL AUTHORITY" means any board, commission, department or body of any municipal, county, state or federal governmental unit, or any subdivision of any of them, that has or acquires jurisdiction over the Mortgaged Property and/or the Improvements or the use, operation or improvement of the Mortgaged Property.


(s) "GUARANTOR" means Advocat Inc., a Delaware corporation.


(t) "GUARANTY AGREEMENT" means that certain Guaranty Agreement of even date herewith executed by Guarantor for the benefit of Mortgagee.


(u) "IMPOSITIONS" and "IMPOSITION DEPOSITS" have the meanings given to those terms in Section 4.


(v) "IMPROVEMENTS" means all buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land, including but not limited to, all gas and electric fixtures, radiators, heaters, engines and machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures, carpeting and other floor coverings, water heaters, awnings and storm sashes, and cleaning apparatuses which are or shall be attached to the Land or said buildings, structures or improvements.


4 5


(w) "INDEBTEDNESS" means the aggregate of the principal of and interest on the Note due and owing from time to time and all expenses, charges and other amounts due and owing from time to time under the Note, the Loan Agreement, this Instrument or any other Loan Document, including, without limitation, prepayment premiums, late charges, default interest and advances to protect the security of this Instrument under Section 7, if any.


(x) "INSTRUMENTS" means all instruments, chattel paper, documents or other writings obtained by Mortgagor from or in connection with the operation of the Mortgaged Property or the construction and operation of the Facility (including without limitation, all ledger sheets, computer records and printouts, data bases, programs, books of account, trademarks or trade names, utility contracts, maintenance and service contracts and files of Mortgagor relating thereto).


(y) "INVENTORY" means all inventories of food, beverages and other comestibles owned and held by Mortgagor for sale or use at or from the Mortgaged Property or the Facility, and soap, paper supplies, medical supplies, drugs and all other such goods, wares and merchandise held by Mortgagor for sale to or for consumption by residents, guests or patients of the Land or the Facility and all such other goods returned to or repossessed by Mortgagor.


(z) "LAND" means the land described in Exhibit "A" attached hereto and incorporated herein.


(aa) "LEASES" means all present and future leases, subleases, licenses, concessions or grants or other possessory interests now or hereafter in force, whether oral or written, covering or affecting the Mortgaged Property and/or the Facility, or any portion of the Mortgaged Property and/or the Facility and all modifications, extensions or renewals thereof.


(ab) "LIEN" means any voluntary or involuntary mortgage, security deed, deed of trust, lien, pledge, assignment, security interest, title retention agreement, financing lease, levy, execution, seizure, judgment, attachment, garnishment, charge, lien or other encumbrance of any kind, including those contemplated by or permitted in this Instrument, the Loan Agreement and the other Loan Documents.


(ac) "LOAN" has the meaning given to that term in the recitals.


(ad) "LOAN AGREEMENT" means that certain Loan Agreement of even date herewith by and between Mortgagor and Mortgagee.


(ae) "LOAN DOCUMENTS" means the Note, the Loan Agreement, this Instrument, the Assignment of Leases and Rents, the Assignment of Licenses, the Guaranty Agreement, all Collateral Agreements, O&M Programs, the Subordination Agreement, the Cross-Collateralization and Cross-Default Agreement, and any other documents now or in the future executed by Mortgagor, any guarantor or any other Person in connection with the Loan evidenced by the Note, as such documents may be amended from time to time.


5 6


(af) "MANAGED CARE PLANS" means any health maintenance organization, preferred provider organization, individual practice association, competitive medical plan, or similar arrangement, entity, organization, or Person.


(ag) "MEDICAID" means that certain program of medical assistance, funded jointly by the federal government and the States, for impoverished individuals who are aged, blind and/or disabled, and/or members of families with dependent children, which program is more fully described in Title XIX of the Social Security Act (42 U.S.C. ss.ss. 1396 et seq.) and the regulations promulgated thereunder.


(ah) "MEDICARE" means that certain federal program providing health insurance for eligible elderly and other individuals, under which physicians, hospitals, skilled nursing homes, home health care, and other providers are reimbursed for certain covered services they provide to the beneficiaries of such program, which program is more fully described in Title XVIII of the Social Security Act (42 U.S.C. ss.ss. 1395 et seq.) and the regulations promulgated thereunder.


(ai) "MONEY" means all monies, cash, rights to deposit or savings accounts, or other items of legal tender obtained from or for use in connection with the operation of the Facility.


(aj) "MORTGAGED PROPERTY" means all of Mortgagor's present and future right, title and interest in and to all of the following:


(i) the Land;
(ii) all Appurtenant Rights;
(iii) all Equipment;
(iv) all Improvements;
(v) all Fixtures;
(vi) all Accounts;
(vii) all Contracts;
(viii) all General Intangibles;
(ix) all Permits (to the extent assignment is permitted by
law);
(x) all Money;
(xi) all Instruments;
(xii) all Inventory;
(xiii) all Reimbursement Contracts (to the extent assignment
is permitted by law);
(xiv) all Rents;
(xv) all Personalty;
(xvi) all Leases;
(xvii) all Proceeds;
(xviii) all contracts, options and other agreements for the
sale of the Land, the Improvements, the Fixtures, the
Personalty or any other part of the Mortgaged Property
entered into by Mortgagor now or in the future,
including cash or securities deposited to secure
performance by parties of their obligations;


6 7


(xix) all Imposition Deposits;
(xx) all refunds or rebates of Impositions by any municipal,
state or federal authority or insurance company (other
than refunds applicable to periods before the real
property tax year in which this Instrument is dated);
(xxi) all names under or by which any of the above Mortgaged
Property may be operated or known (other than the right
to the use of the name "Diverscare"), and all
trademarks, trade names, and goodwill relating to any
of the Mortgaged Property; and
(xxii) all renewals, replacements and Proceeds of any of the
foregoing and any substitutions therefor.


(ak) "MORTGAGEE" means the entity identified as "Mortgagee" in the first paragraph of this Instrument, or any subsequent holder of the Note.


(al) "MORTGAGOR" means all persons or entities identified as "Mortgagor" in the first paragraph of this Instrument, together with their successors and assigns.


(am) "NOTE" means the note evidencing the Loan, including all schedules, riders, allonges, endorsements, addenda or amendments together with any renewals, replacements, substitutions, or extensions thereof.


(an) "NOTICE" has the meaning given to that term in Section 24.


(ao) "O&M PROGRAMS" has the meaning given to such term in the Loan Agreement.


(ap) "OPINION OF COUNSEL" means an opinion or opinions in writing signed by independent legal counsel to Mortgagor, designated by Mortgagor, and reasonably satisfactory to Mortgagee.


(aq) "PARENT" means, with respect to a corporation, any other corporation owning or controlling, directly or indirectly, fifty percent (50%) or more of the voting stock of the corporation.


(ar) "PERMITS" means all licenses, permits and certificates used or necessary in connection with the construction, ownership, operation, use or occupancy of the Mortgaged Property and/or the Facility, including, without limitation, business licenses, state health department licenses, food service licenses, licenses to conduct business, certificates of need and all such other permits, licenses and rights, obtained from any governmental, quasi-governmental or private person or entity whatsoever concerning ownership, operation, use or occupancy.


(as) "PERMITTED ENCUMBRANCES" has the meaning given to that term in Section 5.2 of the Loan Agreement.


7 8


(at) "PERSON" means any natural person, firm, trust, corporation, partnership, limited liability company and any other form of legal entity.


(au) "PERSONALTY" means all furniture, furnishings, Equipment, machinery, building materials, appliances, goods, supplies, tools, books, records (whether in written or electronic form), computer equipment (hardware and software) and other tangible personal property (other than Fixtures) which are used now or in the future in connection with the ownership, management or operation of the Land or the Improvements or are located on the Land or in the Improvements, and any operating agreements relating to the Land or the Improvements, and any surveys, plans and specifications and contracts for architectural, engineering and construction services relating to the Land or the Improvements.


(av) "PRIOR LIEN" has the meaning given to that term in Section 26.


(aw) "PROCEEDS" means all awards, payments, earnings, royalties, issues, profits, liquidated claims and proceeds (including proceeds of insurance and condemnation and any conveyance in lieu thereof), whether cash or noncash, moveable or immoveable, tangible or intangible, from the sale, conversion (whether voluntary or involuntary), exchange, transfer, collection, loss, damage, condemnation, disposition, substitution or replacement of any of the Mortgaged Property.


(ax) "PROPERTY JURISDICTION" means the jurisdiction in which the Mortgaged Property is located.


(ay) "REIMBURSEMENT CONTRACTS" means all third-party reimbursement contracts for the Facility which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including Medicare and Medicaid, Managed Care Plans and private insurance agreements, and any successor program or other similar reimbursement program and/or private insurance agreements, now or hereafter existing.


(az) "RENTS" means all rent and other payments of whatever nature from time to time payable pursuant to the Leases (including, without limitation, rights to payment earned under leases for space in the Improvements for the operation of ongoing retail businesses such as newsstands, barbershops, beauty shops, physicians' offices, pharmacies and specialty shops).


(ba) "SINGLE-PURPOSE ENTITY" means a Person which owns no interest or property other than the Mortgaged Property.


(bb) "STOCK" means all shares, options, warrants, general or limited partnership interests, membership interests, participations or other equivalents (regardless of how designated) in a corporation, limited liability company, partnership or any equivalent entity, whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended).


8 9


(bc) "SUBORDINATION AGREEMENT" means that certain Subordination of Management Agreement of even date herewith by and among Borrower, Diversicare Management Services, a Tennessee corporation, and Lender.


(bd) "TAXES" means all taxes, assessments, vault rentals and other charges, if any, general, special or otherwise, including all assessments for schools, public betterments and general or local improvements, which are levied, assessed or imposed by any public authority or quasi-public authority, and which, if not paid, will become a lien, on the Land or the Improvements.


(be) "TRANSFER" shall mean the conveyance, assignment, sale, transfer, mortgaging, collateral assignment, encumbrance, pledging, alienation, hypothecation, granting of a security interest in, granting of options with respect to, or other disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) all or any portion of any legal or beneficial interest (i) in all or any portion of the Mortgaged Property; (ii) in the Stock of any corporation which is Mortgagor, a member of Mortgagor (if Mortgagor is a limited liability company), a partner of Mortgagor or, if applicable, a partner of a general partner of Mortgagor; and (iii) in Mortgagor (or any trust of which Mortgagor is a trustee), or, if Mortgagor is a limited or general partnership, limited liability company, joint venture, trust, nominee trust, tenancy in common or other unincorporated form of business association or form of ownership interest, in any Person having a direct legal or beneficial ownership in Mortgagor, excluding any legal or beneficial interest in any constituent limited partner or member of Mortgagor but including the interest of such limited partner or member itself and further including any legal or beneficial interest in any constituent general partner of Mortgagor, if applicable, in any general partner of any constituent general partner of Mortgagor, or, if Mortgagor is a limited liability company, in any constituent corporate member of Mortgagor. The term "Transfer" shall also include, without limitation, the following: an installment sales agreement wherein Mortgagor agrees to sell the Mortgaged Property or any part thereof or any interest therein for a price to be paid in installments; an agreement by Mortgagor leasing all or a substantial part of the Mortgaged Property to one or more Persons pursuant to a single transaction or related transactions, or a sale, assignment or other transfer of, or the grant of a security interest in, Mortgagor's right, title and interest in and to any Leases or any Rent; any instrument subjecting the Mortgaged Property to a condominium regime or transferring ownership to a cooperative corporation or other form of multiple ownership or governance; the dissolution or termination of Mortgagor, any general partner of Mortgagor, any general partner of any general partner of Mortgagor, if applicable, or, if Mortgagor is a limited liability company, any corporate member of Mortgagor; the issuance of new Stock in any corporation which is Mortgagor, a member of Mortgagor (if Mortgagor is a limited liability company), a partner of Mortgagor or, if applicable, a partner of a general partner of Mortgagor; and the merger or consolidation with any other Person of Mortgagor, any general partner of Mortgagor, any general partner of any general partner of Mortgagor, if applicable, or, if Mortgagor is a limited liability company, any corporate member of Mortgagor.


(bf) "UCC COLLATERAL" has the meaning given to that term in Section 2.


9 10
2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is also a security agreement under the Uniform Commercial Code as adopted in the State of Alabama for any of the Mortgaged Property which, under applicable law, may be subject to a security interest under the Uniform Commercial Code as adopted in the State of Alabama, whether acquired now or in the future, and all products and cash and non-cash Proceeds thereof (collectively, "UCC Collateral"), and Mortgagor hereby grants to Mortgagee a security interest in the UCC Collateral. Mortgagor shall execute and deliver to Mortgagee promptly for the filing of such financing statements and any extensions, renewals and amendments thereof, of any termination statements and, upon Mortgagee's request, financing statements, continuation statements and amendments, in such form as Mortgagee may require to perfect or continue the perfection of this security interest. Mortgagor shall pay all filing costs and all costs and expenses of any record searches for financing statements that Mortgagee may require. Without the prior written consent of Mortgagee, Mortgagor shall not create or permit to exist any other lien or security interest in any of the UCC Collateral. If an Event of Default has occurred and is continuing, Mortgagee shall have the remedies of a secured party under the Uniform Commercial Code as adopted in the State of Alabama, in addition to all remedies provided by this Instrument or existing under applic ...