1
Exhibit 10.62
FORM OF SHORTFALL FUNDING AGREEMENT
THIS SHORTFALL FUNDING AGREEMENT ("AGREEMENT") is made as of the
Documentation Date by and among ALCO __, L.L.C., a North Carolina limited
liability company (the "LESSEE"), the members of Lessee listed on Schedule A
attached hereto (collectively, the "MEMBERS") and Balanced Care Corporation, a
Delaware corporation ("BCC").
W I T N E S S E T H
WHEREAS, Capstone Capital of Virginia, Inc., an Alabama corporation
("LESSOR") entered into that certain Lease dated as of the Documentation Date
(the "LEASE") with Lessee pursuant to which Lessor leased certain property,
together with all improvements now or hereafter located thereon, as more fully
described therein (the "PROPERTY") to Lessee on the terms and conditions
provided therein; and
WHEREAS, the Members constitute the holders of all equity interests in
the Lessee; and
WHEREAS, the Lessee and , a Delaware
corporation (the "MANAGEMENT Firm") have entered into that certain Management
Agreement dated as of the Documentation Date (the "MANAGEMENT AGREEMENT")
whereby Lessee has appointed the Management Firm as the exclusive manager and
operator of the Facility; and
WHEREAS, Lessee has granted to Lessor that certain Line of Credit
Leasehold Deed of Trust dated as of the Documentation Date (the "FIRST LEASEHOLD
MORTGAGE") whereby Lessee has granted to Lessor a first priority security
interest in Lessee's leasehold interest in the Lease as more fully provided in
the First Leasehold Mortgage; and
WHEREAS, pursuant to the terms of that certain Promissory Note dated as
of the Documentation Date by and between Lessee and CAPSTONE CAPITAL
CORPORATION, a Maryland corporation ("LENDER"), (the "PROMISSORY NOTE"), Lender
has agreed to advance to Lessee certain amounts to fund certain operational
losses anticipated in connection with the Facility, as more particularly set
forth in the Promissory Note, and the maximum aggregate amount of such funds to
be advanced under the Promissory Note shall equal the Working Capital Reserve
(as defined in the Promissory Note); and
WHEREAS, upon depletion of the Working Capital Reserve, BCC intends to
make Advances to the Lessee, on the terms and conditions herein stated, to fund
continuing Shortfalls;
WHEREAS, BCC is willing to fund loans to Lessee covering Shortfalls
upon depletion of the Working Capital Reserve only on the terms and conditions
provided in this Agreement;
2
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
FUNDING SHORTFALLS
SECTION 1.01 FUNDING; WORKING CAPITAL RESERVE. (a) Lessee hereby
permits BCC and the Management Firm to request Fundings (as defined in the
Promissory Note) from the Lender in accordance with the terms of the Promissory
Note to fund operating deficits with respect to the Facility.
(b) In the event that Lender defaults in the timely payment of Fundings
into the Working Capital Reserve as provided in Section 1.01(a), Member agrees
that BCC shall have the right at any time thereafter, but not the obligation, to
require that the Member sell all of the Equity Interests to BCC or its designee
in the manner provided for in the Option Agreement; provided, however, the
purchase price for the Equity Interests shall be the amount of Fundings actually
deposited into the Cash Collateral Account. In such event, all terms and
conditions of the sale applicable to the Option shall be equally applicable to
the sale under this Section 1.01(c), and the failure by the Member to close on
such sale within 3 days after written notice from BCC (time being of the
essence) shall constitute an Event of Default.
(c) The Member and the Lessee acknowledge and agree that (i) each
Funding is not in any way evidence of a loan from any Member to Lessee, (ii)
Management Firm may request from Lender Fundings under the Promissory Note at
any time Management Firm believes, in its sole discretion, such Fundings are
required to pay Shortfalls, (iii) any Indebtedness incurred by Lessee under the
Promissory Note shall be fully guaranteed at all times individually by the
Members, and (iv) Lessor and Management Firm may withdraw funds from the Working
Capital Reserve to fund Shortfalls with respect to the Facility as provided in
the Transaction Documents and the Lease Documents.
SECTION 1.02 ADVANCES. Upon complete depletion of the Working Capital
Reserve after all Fundings have been advanced by Lender pursuant to the terms
and conditions of the Promissory Note up to the principal amount of the
Promissory Note, and to the extent thereafter of any Shortfall, BCC hereby
agrees to advance from time to time funds to the Lessee or the Lessor on behalf
of the Lessee, as the case may be, upon no less than three (3) days prior
written notice, upon the terms and conditions provided herein (each advance
being an "ADVANCE" and collectively, the "ADVANCES"). Advances shall be
evidenced by one or more promissory notes issued by the Lessee in the form
attached hereto as Exhibit A (the "NOTES"). The Notes shall be payable upon
demand. Interest shall accrue on the Notes at the rate of 2% over the Prime Rate
as announced from time to time in the Wall Street Journal (or, in the event of
the discontinuance of the publishing of the Prime Rate in the Wall Street
Journal, such other source as the parties may agree), and shall be payable in
arrears on the first day of each calendar quarter. All sums owed under the Notes
and hereunder to BCC, and all other obligations and covenants under the
Transaction Documents applicable to Lessee and the Member (including the
obligations of each Member under the Option Agreement), together with all
interest payable under the
2
3
Transaction Documents and all other costs and expenses payable by Lessee or any
Member to or for the benefit of BCC or any BCC Affiliate (including
indemnification and defense obligations) are referred to herein as the
"OBLIGATIONS".
SECTION 1.03 ASSET PURCHASE OPTION. The Lessee and the Member hereby
grant to BCC an option (the "ASSET PURCHASE OPTION") to purchase all of the
assets of the Lessee (including the option to take an assignment of the Lease)
for the Asset Purchase Price. The Asset Purchase Option may be exercised by BCC
by providing written notice to the Lessee at any time during the term of the
Lease. The closing of the purchase of the assets of the Lessee shall take place
within 30 days after BCC exercises the Asset Purchase Option at such location in
Pennsylvania as BCC may designate. At the closing of the asset purchase, the
Lessee shall transfer, assign and convey to BCC (or its designee) all assets of
Lessee, free and clear of all Liens and restrictions of any kind or nature,
except for Liens or restrictions in favor of the Lessor pursuant to the Lease
Documents or in favor of BCC pursuant to the Transaction Documents (provided,
however, Liens in favor of BCC securing Advances or other Obligations shall be
paid in full by Lessee and the Member at the closing of the asset purchase). The
Lessee (and the Member if requested by BCC) shall execute and deliver at the
closing of the asset purchase an assignment of lease (assigning the Lease to the
purchaser), a xxxx of sale conveying all other assets of the Lessee and such
other documents and instruments as BCC may reasonably request, all in form and
substance reasonably satisfactory to BCC. The "ASSET PURCHASE PRICE" as used
herein shall mean (i) all amounts due under the Promissory Note and the other
Loan Documents including the Working Capital Reserve, plus (ii) an amount which,
when combined with all Option Payments made pursuant to Section 2(b) of the
Option Agreement equals $250,000, plus (iii) the aggregate amount of all
Advances and all other Obligations due and payable by Lessee or the Member to
BCC or a BCC Affiliate through the closing date (exclusive of the Management
Fee). All Advances and all other Obligations due and payable by Lessee or the
Member to BCC or a BCC Affiliate through the closing date of the asset purchase
shall be payable from the Asset Purchase Price to BCC or the BCC Affiliate, as
appropriate. Lessee and Member agree that if the Asset Purchase Option is
exercised, at the time of the closing of the Asset Purchase Option, any amounts
due under the Promissory Note, and all other sums due Lender in connection
therewith, shall be paid to Lender from the Purchase Price.
SECTION 1.04 TRANSACTION DOCUMENTS. In addition to the Notes, and to
better secure the performance of Lessee and Member hereunder and under the other
Transaction Documents, Lessee and the Member (as applicable) have executed and
delivered the following:
(i) the Lease and the other Lease Documents to which either is
a party;
(ii) The Loan Documents;
(iii) Line of Credit Leasehold Deed of Trust and Security
Agreement in the form attached hereto as Exhibit B encumbering the
Property in favor of BCC (the "SECOND LEASEHOLD MORTGAGE");
(iv) the Deposit Pledge Agreement and the Equity Pledge
Agreement; and
3
4
(v) such other documents, certificates, powers, affidavits and
instruments as BCC may reasonably request.
In addition to the foregoing documents, Member has executed and
delivered to BCC the Option Agreement (the "OPTION AGREEMENT")
substantially in the form attached hereto as Exhibit C, whereby Member
has agreed that BCC shall have an option to purchase the Equity
Interests of each Member in Lessee, on the terms and conditions
provided therein.
SECTION 1.05 INTEREST PAYMENTS. In no event shall the amount of
interest due or payable pursuant to any Transaction Document exceed the maximum
rate of interest allowed by Law and, in the event any such payment is
inadvertently paid by the Lessee or the Member or inadvertently received by BCC
or any BCC Affiliate, then such excess sum shall be credited as a payment of
principal due to BCC or any BCC Affiliate. It is the express intention of the
parties hereto that neither the Lessee nor the Member pay to BCC, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the Lessee.
SECTION 1.06 INTENTION. It is the intention of BCC, the Member and
Lessee that (i) the Management Firm operate the Facility pursuant to the
Management Agreement, (ii) Lessee include on its financial statements all
revenues, expenses and losses with respect to the Facility during the term of
this Agreement for accounting purposes, and (iii) Advances made hereunder and
all other obligations of Lessee and the Member under the Transaction Documents
be secured by the assets of Lessee (including without limitation the Second
Leasehold Mortgage), but subject to the rights of Lessor under the Lease,
regardless of any bankruptcy, insolvency, receivership or similar proceedings
instituted by or against Lessee. BCC, each Member and Lessee agree to take no
position inconsistent with the intention of the parties as herein stated.
ARTICLE II
CONDITIONS TO ADVANCES
SECTION 2.01 CONDITIONS PRECEDENT TO ADVANCES. The obligations of BCC
to accept delivery of the Transaction Documents and make Advances are subject to
the condition precedent that BCC receives the following five days prior to the
making of any Advance, in form and substance satisfactory to BCC:
(a) the Note(s);
(b) the Second Leasehold Mortgage;
(c) the Option Agreement;
(d) the Management Agreement;
4
5
(e) a certificate of the Secretary of State of the State of North
Carolina stating that the Lessee is duly organized, validly existing and in good
standing in such state;
(f) a certified copy of the Operating Agreement of the Lessee, together
with certified resolutions or authorizations of the Lessee granting the power to
Lessee to enter into and perform the Transaction Documents;
(g) all other Transaction Documents;
(h) the Lease and all other Lease Documents;
(i) the Loan Documents; and
(j) such other affidavits, documents, certificates, statements and
instruments as BCC may reasonably request.
SECTION 2.02 ADDITIONAL CONDITIONS PRECEDENT TO ADVANCES. The
obligation of BCC to accept delivery of the Transaction Documents and consummate
this transaction, and to make any Advance, shall be further subject to the
condition precedent that:
(a) the following statements shall be true and correct (and the
delivery by the Lessee and the Member of the Transaction Documents shall be
deemed to constitute a representation and warranty by the Lessee and the Member
that such statements are true on such date):
(i) The representations and warranties contained in Article
III of this Agreement and the other Transaction Documents are true and
correct in all material respects on and as of the date of the execution
and delivery of this Agreement, at the time of each Advance, and as of
each date until the Obligations are satisfied in full; and
(ii) No event has occurred and is continuing which constitutes
a Default or an Event of Default under any of the Transaction
Documents; and
(b) BCC shall have received such other opinions or documents as BCC may
request in BCC's reasonable discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE LESSEE. The Lessee
and each Member represent and warrant as follows:
5
6
(a) ORGANIZATION; QUALIFICATION. The Lessee is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of North Carolina, has qualified to do business in the State in which the
Facility is located, and has the power and authority to own its properties and
to carry on its business as now being and hereafter proposed to be conducted.
(b) POWER; AUTHORITY. The execution, delivery and performance by the
Lessee of this Agreement and the other Transaction Documents to which it is a
party are within the Lessee's power and have been duly authorized by all
necessary action, and this Agreement and the other Transaction Documents to
which Lessee is a party have been duly executed and delivered by the duly
authorized Manager of the Lessee.
(c) APPROVAL OR CONSENTS. No approval or consent of any foreign,
domestic, federal, state or local authority is required for the due execution,
delivery and performance by the Lessee of this Agreement or any other
Transaction Document to which it is a party and the execution, delivery and
performance by the Lessee of this Agreement and the other Transaction Documents
to which it is a party do not conflict with, and will not result in the breach
of or default under, any contract, agreement or other document or instrument to
which the Lessee is a party or by which its properties are bound.
(d) BINDING OBLIGATIONS. This Agreement and the other Transaction
Documents to which the Lessee or any Member, as the case may be, is a party are
legal, valid and binding obligations of the Lessee and such Member enforceable
against the Lessee and the Member in accordance with their respective terms,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting generally the enforcement of creditors'
rights.
(e) LITIGATION. There is no pending or, to the best of Lessee's any
Member's knowledge, threatened action, suit or proceeding against or affecting
the Lessee before any court, governmental agency or arbitrator.
(f) APPLICABLE LAW. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which the Lessee and any
Member, as the case may be, is a party, and the borrowings hereunder, do not and
will not, by the passage of time, the giving of notice or otherwise, violate any
Law applicable to the Lessee or such Member.
(g) TITLE AND CONDITION OF ASSETS. Except for Lessee's and Lessor's
leasehold interest in the Lease, the Lessee has good, marketable and legal title
to its properties and assets. The Lessee has a good and valid leasehold interest
in the Lease.
(h) LIENS. None of the properties and assets of the Lessee are subject
to any Lien or other charge other than Liens in favor of BCC as provided herein,
a BCC Affiliate or the Lessor ("PERMITTED LIENS"), and the execution, delivery
and performance by the Lessee of this Agreement and the other Transaction
Documents to which it is a party will neither result in the creation of any Lien
or other charge upon any of the Lessee's properties or assets, nor cause a
default under any agreements to which Lessee is a party.
6
7
(i) SECURITY. Upon the consummation of this transaction, BCC will have
a valid and perfected (a) mortgage lien in the Lease and (b) lien in the Equity
Interests.
(j) TAX RETURNS AND PAYMENTS. All federal, state and other tax returns
of the Lessee required by Law to be filed have been duly filed, and all federal,
state and other taxes, assessments and other governmental charges or levies upon
the Lessee and its properties, income, profits and assets which are due and
payable have been paid.
(k) NO EMPLOYEES. The Lessee has no employees for which it is required
to comply with the Employment Retirement Income Security Act of 1974.
(l) ABSENCE OF DEFAULTS. No event has occurred, which has not been
remedied, cured or waived, which constitutes, or with the passage of time or
giving of notice or both would constitute, a Default or an Event of Default
under any Transaction Document, Lease Document or Loan Document which
constitutes or which with the passage of time or giving of notice or both would
constitute a default or event of default by the Lessee under any agreement or
judgment, decree or order, to which the Lessee is a party or by which the Lessee
or any of its properties may be bound.
(m) ACCURACY AND COMPLETENESS OF INFORMATION. All written information,
reports and other papers and data furnished to BCC were, at the time the same
were so furnished, complete and correct in all material respects, to the extent
necessary to give BCC a true and accurate knowledge of the subject matter, or,
in the case of financial statements, present fairly, in accordance with GAAP
consistently applied throughout the periods involved, the financial position of
the persons involved as at the date thereof and the results of operations for
such periods. No document furnished or written statement made to BCC by Lessee
or any Member in connection with the execution of this Agreement or any of the
other Transaction Documents (or in connection with the organization or
capitalization of Lessee by the Members) contains or will contain any untrue
statement of a material fact or fails to state a material fact necessary in
order to make the statements contained therein not materially misleading.
(n) SUBSIDIARIES. The Lessee does not own, directly or indirectly, of
record or beneficially, any of the voting stock of any class or classes of, or
any other voting interests of, any Entity.
(o) INVESTMENT COMPANY. The Lessee is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(p) PUBLIC UTILITY COMPANY. The Lessee is not a "holding company" or a
"subsidiary company", or an "affiliate" of a "holding company", within the
meaning of the Public Holding Company Act of 1935, as amended.
7
8
(q) SECURITIES REPRESENTATIONS. Neither Lessee nor any agent, broker,
dealer or other person or entity has offered or sold any equity interests in
Lessee in violation of the 1933 Act or any state securities laws.
(r) CAPITAL CONTRIBUTIONS. All Indebtedness incurred by Lessee to fund
the Working Capital Reserve (including Indebtedness used to make Fundings)
constitutes full recourse Indebtedness against Lessee and Members, and such
Indebtedness is not limited in collection to any particular asset of the person
or Entity incurring such Indebtedness. Each Member has fully guaranteed in his
individual capacity all such Indebtedness.
ARTICLE IV
COVENANTS OF THE LESSEE
SECTION 4.01 AFFIRMATIVE COVENANTS. So long as BCC or any BCC Affiliate
shall have any commitment or Obligation hereunder or under the other Transaction
Documents owed to it, the Lessee will and the Member shall cause the Lessee to:
(a) COMPLIANCE WITH LAWS; ETC. Comply, in all material respects with
all applicable Laws, such compliance to include, without limitation, paying
before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property.
(b) MAINTENANCE OF INSURANCE. Maintain or contract to be maintained,
with premiums fully paid, with responsible and reputable insurance companies or
associations, such insurance in such amounts and covering such risks as is
required to be carried under the Lease, and all such policies evidencing such
insurance shall name BCC and Lessor as additional insureds thereunder. Lessee
shall also maintain insurance of sufficient types and amounts to comply with all
other Laws of any government entity exercising jurisdiction over Lessee. All
insurance policies shall provide for notice of nonrenewal and notice of
extension to BCC and Lessor, and shall not be terminated, canceled, amended or
modified without 30 days prior written notice to BCC and Lessor. Lessee shall
provide BCC with evidence of all insurance, including renewals or extensions of
such insurance, promptly after receiving such insurance. Insurance policies and
proceeds thereof shall at all times during the term of the Lease be subject to
the Lessor's rights as provided in the Lease Documents.
(c) NOTICE OF LITIGATION AND OTHER MATTERS. Promptly give notice to BCC
of the following: (i) any actions, suits or proceedings instituted against the
Lessee; (ii) any change in the chief executive office, principal place of
business or location of the books and records of the Lessee and (iii) the
occurrence of a Default or an Event of Default.
(d) MAINTENANCE OF PROPERTY. In addition to, and not in derogation of,
the requirements of any of the other Transaction Documents, (i) protect and
preserve all of its properties, (ii) maintain in good repair, working order and
condition all of its tangible properties, and (iii) from time to time make or
cause to be made all needed and appropriate repairs, renewals, replacements and
additions to such properties so that the business carried on in connection
8
9
therewith may be properly and advantageously conducted at all times, as
reasonably may be determined by BCC.
(e) PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Preserve and
maintain its existence under the Laws of the state of its formation, and
preserve and maintain its rights, franchises, licenses and privileges in such
state as a limited liability company, and qualify and remain qualified and
authorized to do business in such state.
(f) BUSINESS. At all times endeavor to carry on its business in the
most efficient manner possible under the circumstances and engage only in the
Primary Intended Use (as defined in the Lease).
(g) FURTHER ASSURANCES. At BCC's request, from time to time, execute,
acknowledge or take such further action as BCC may reasonably require to
effectuate the purposes of this Agreement and the purposes of the other
Transaction Documents.
Provided, however, notwithstanding anything to the contrary contained in this
Section 4.01, Lessee shall not be in default hereunder to the extent that the
obligations described in this Section 4.01 are required to be performed by the
Management Firm under the Management Agreement.
SECTION 4.02 NEGATIVE COVENANTS. So long as BCC shall have any
commitment or Obligation hereunder or under the other Transaction Documents owed
to it, neither the Lessee nor the Member will cause the Lessee to, without the
prior written consent of BCC:
(a) LIENS CREATED BY LESSEE. Create or suffer to exist any Lien or any
other type of preferential arrangement, upon or with respect to any of its
properties, whether now owned or hereafter acquired, or assign any right to
receive income, other than Permitted Liens.
(b) DISTRIBUTIONS. Make any distribution of cash or other property to
the Member or declare or pay any dividend or distribution on any securities of
Lessee.
(c) OTHER BUSINESS. Engage in any business venture or enter into any
agreement with respect to any business venture, except as expressly provided in
the Transaction Documents with respect to the Facility.
(d) TRANSFER OF ASSETS. Convey, transfer, lease, sublease, assign or
otherwise dispose of (whether in one transaction or in a series of transactions)
any of its assets (whether now owned or hereafter acquired) to, or acquire all
or substantially all of the assets of, any person or Entity. The restrictions of
this Subsection shall include a prohibition on any assignment, pledge,
hypothecation or other transfer of the Lease or sublease or license of the
Facility, except to Lessor, Lender, BCC or a BCC Affiliate in accordance with
the terms and conditions of the Transaction Documents, Loan Documents and Lease
Documents and except to sublessees as expressly permitted under the Lease.
9
10
(e) INDEBTEDNESS FOR BORROWED MONEY. Create, assume, guaranty or
otherwise become or remain obligated in respect of, or permit or suffer to exist
or to be created, assumed or incurred or to be outstanding, any Indebtedness,
except Indebtedness incurred to BCC or a BCC Affiliate under the Transaction
Documents, Indebtedness incurred to Lessor as expressly provided in the Lease
Documents or Indebtedness incurred to Lender under the Loan Documents.
(f) CREATION OF AFFILIATES. Form, organize or participate in the
formation or organization of any Entity, or make any investment in any newly
formed or existing Entity.
(g) LOANS. Extend credit to or make any advance, loan, contribution or
payment of money or goods to any person or Entity.
(h) GOVERNANCE DOCUMENTS. Amend, supplement or otherwise modify the
terms of the Articles of Organization, the Operating Agreement or any other
governance documents of the Lessee in any way.
(i) OTHER TRANSACTIONS WITH LESSOR. Enter into any transaction with
Lessor or any affiliate or related party to or with Lessor, other than pursuant
to the Transaction Documents and Loan Documents.
(j) TRANSFERS OF EQUITY INTERESTS. Permit the Member to transfer all or
any portion of the Member's Equity Interests in Lessee to a party that does not
as of the date hereof hold an equity interest in the Lessee.
(k) AMEND TRANSACTION DOCUMENTS. (i) Amend, terminate, supplement or
otherwise modify any Transaction Document, (ii) waive any default or potential
event of default by Lessor under any Transaction Document, (iii) declare a
default or event of default under any Transaction Document, (iv) exercise any
right to extend the term of the Lease, (v) exercise any right to purchase the
Facility or exercise a right of refusal with respect thereto or (vi) exercise
any right to cancel the Lease as a result of a casualty or condemnation with
respect to the Facility, or otherwise.
(l) MERGERS AND CONSOLIDATIONS. Merge or consolidate with, purchase all
or any substantial part of the assets of, or otherwise acquire any Entity.
(m) ISSUANCE OF SECURITIES. Except for the equity interests of the
Lessee that have been issued to the Member and are outstanding as of the date
hereof, issue any equity interests or options, warrants or other rights to
purchase any equity interests or any securities convertible or exchangeable for
equity interests, or commit to do any of the foregoing.
(n) CAPITAL ADDITIONS. Construct or install any Capital Addition (as
defined in the Lease) regardless of the cost of such Capital Addition or request
or obtain financing for any Capital Addition, whether from Lessor or otherwise,
pursuant to Section 9 of the Lease.
10
11
(o) SUBSTITUTION OF PROPERTY. Offer to substitute a new property or
properties for the Property under Article XIII, Article XIV, or Article XIX of
the Lease.
Provided, however, notwithstanding anything to the contrary contained in this
Section 4.02, Lessee shall not be in default hereunder to the extent that the
events described in this Section 4.02 are caused by the Management Firm.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01 EVENTS OF DEFAULT. Each of the following events shall
constitute an event of default hereunder ("SHORTFALL EVENT OF DEFAULT"),
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
nongovernmental body:
(a) The Lessee shall fail to make any payment of principal or interest,
as stated in the Notes, when due, or the Member shall fail to make payments in
connection with Fundings (as provided in Section 1.01 hereof) when due (each a
"MONETARY DEFAULT"); or
(b) Any representation or warranty made by the Lessee or the Member
under or in connection with any Transaction Document shall prove to have been
incorrect or misleading in any material respect when made; or
(c) The Lessee or the Member shall fail to perform or observe any term,
covenant or agreement contained in this Agreement, or in any other Transaction
Document, on its or their part to be performed or observed beyond the applicable
cure period; or
(d) The Lessee or any Member shall generally not pay any debts of the
Lessee when due; or
(e) The Lessee or any Member shall admit in writing its inability to
pay any debts of the Lessee generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
the Lessee or any Member seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of the Lessee or any Member of any of its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for the Lessee or
any Member or for any substantial part of its property; or the Lessee or any
Member shall take any action to authorize any of the actions set forth above in
this subsection; or
(f) Any nonappealable judgment or order for the payment of money in
excess of $50,000 shall be rendered against the Lessee and the same shall not be
discharged within 30 days after entry; or
11
12
(g) A warrant or writ of attachment or execution or similar process
shall be issued against any property of the Lessee which exceeds $50,000 in
value and such warrant or process shall continue undischarged or unstayed for
ten consecutive days; or
(h) Any material provision of any Transaction Document to which the
Lessee or the Member is a party shall for any reason cease to be valid and
binding on the Lessee or the Member, or the Lessee or the Member shall so state
in writing; or
(i) The Second Leasehold Mortgage shall for any reason cease to create
a valid and perfected security interest in any of the collateral covered
thereby, subject in priority only to the Permitted Liens; or
(j) an Option Agreement Event of Default, a Mortgage Event of Default,
a Lease Event of Default, a Deposit Pledge Event of Default, an Other
Transaction Event of Default or a Management Agreement Event of Default shall
occur and be continuing.
ARTICLE VI
REMEDIES
SECTION 6.01 APPLICABLE PROVISIONS UPON OCCURRENCE OF AN EVENT OF
DEFAULT. Upon the occurrence of a Shortfall Event of Default, the following
provisions shall apply:
(a) ACCELERATOR AND TERMINATION:
(i) Automatic. Upon the occurrence of a Shortfall
Event of Default specified in Section 5.01(e), the principal
of, and the interest on, the Notes at the time outstanding,
and all other amounts owed to BCC under this Agreement and any
of the other Transaction Documents, shall become automatically
due and payable without presentment, demand, protest, or other
notice of any kind all of which are expressly waived, anything
in this Agreement or the other Transaction Documents to the
contrary notwithstanding.
(ii) Optional. If any other Shortfall Event of
Default shall have occurred, and in every such event, BCC may
do the following: declare the principal of, and interest on,
the Notes at the time outstanding, and all other amounts owed
to BCC under this Agreement and the other Transaction
Documents, to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the other
Transaction Documents to the contrary notwithstanding.
12
13
(b) BCC'S RIGHT TO ENTER PROPERTY. BCC may enter upon the Property and
any premises on which collateral may be located and, without resistance or
interference by the Lessee, take physical possession of any or all thereof and
maintain such possession on such premises or move the same or any part thereof
to such other place or places as BCC shall choose, without being liable to the
Lessee on account of any loss, damage or depreciation that may occur as a result
thereof, in accordance with and subject to the terms of the Lease and the other
Lease Documents.
(c) USE OF PREMISES. BCC may, without payment of any rent or any other
charge to Lessee, enter the Property and, without breach of peace, take
possession of the Property or place custodians in exclusive control thereof,
remain on such premises and use the same and any of the Lessee's equipment, for
the purpose of (i) operating the Facility and (ii) collecting any accounts
receivable.
(d) OTHER RIGHTS. BCC may exercise any and all of its rights and
remedies available under the other Transaction Documents, as well as those
available in Law or in equity.
(e) RIGHT TO FORECLOSE. BCC may foreclose upon the Lease, take
immediate possession of the Facility and Property and operate the Property, all
in accordance with the terms and conditions of the Leasehold Mortgage, the Lease
and the other Lease Documents.
SECTION 6.02 APPLICATION OF PROCEEDS. All proceeds from each sale of,
or other realization upon, all or any part of the Collateral following a
Shortfall Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including, without limitation,
the expenses for indemnification as provided herein;
(b) Second: to the payment of the interest due upon the Notes;
(c) Third: to the payment of the principal due upon the Notes or any
other payments owed to BCC under the Transaction Documents; and
(d) Fourth: the balance (if any) of such proceeds shall be paid to the
Lessee subject to any duty imposed by law or otherwise to the holder of any
subordinate lien in the Collateral known to BCC and subject to the direction of
a court of competent jurisdiction.
The Lessee shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Obligations owing by the Lessee to BCC after the
application of proceeds set forth above together with interest thereon at a rate
per annum equal to the highest rate then payable hereunder.
SECTION 6.03 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
13
14
(a) RIGHTS CUMULATIVE. The rights and remedies of BCC under this
Agreement and each of the other Transaction Documents shall be cumulative and
not exclusive of any rights or remedies which it would otherwise have. In
exercising its rights and remedies BCC may be selective and no failure or delay
by BCC in exercising any right shall operate as a waiver of it, nor shall any
single or partial exercise of any power or right preclude its other or further
exercise of any other power or right.
(b) WAIVER OF MARSHALLING. The Lessee hereby waives any right to
require any marshalling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this Article VI or
elsewhere in this Agreement or in any other Transaction Documents shall be
construed as requiring or obligating BCC or any agent or designee thereof to
make any demand, or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or notice or take any
action, with respect to any account or any other Collateral or the moneys due or
to become due under the Notes or any other Transaction Documents or in
connection therewith, or to take any steps necessary to preserve any rights
against prior parties and neither BCC nor any of its agents or designees shall
have any liability to the Lessee for actions taken pursuant to this Article VI,
any other provision of this Agreement or any other Transaction Documents, except
as otherwise provided by Law.
(d) WAIVER OF DEFENSES. Lessee hereby waives any and all defenses,
either by way of set-off as to matters arising prior to the date hereof or any
other defenses, which Lessee presently believes it has or which Lessee may have
in the future relating to monetary defaults under this Agreement or any other
Transaction Document.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 RIGHT TO CURE DEFAULTS UNDER TRANSACTION DOCUMENTS. Lessee
shall give BCC immediate notice of an default or event of default under any
Transaction Document received from Lessor. BCC shall have the right, but not the
obligation, to cure such default or event of default. To the extent that BCC
shall expend sums to cure any such default or event of default, such sums shall
be deemed Advances hereunder, payable upon demand; provided, however, that in
the event that such default or event of default is due to a default or event of
default on the part of the Management Firm, such sums shall not be deemed
Advances.
SECTION 7.02 POOLING OF FACILITIES. BCC covenants and agrees that upon
the exercise by BCC of either the Option to acquire the Equity Interests of the
Members pursuant to the Option Agreement or the Asset Purchase Option to acquire
all of the assets of Lessee hereunder, BCC or a BCC Affiliate shall (so long as
no Other Transaction Event of Default shall have occurred), within eighteen (18)
months after the closing of such acquisition, acquire either the assets or
equity of both (i) ALCO X, L.L.C., a North Carolina limited liability company
("ALCO X") pursuant to that certain Shortfall Funding Agreement dated as of the
Documentation Date by and among ALCO X, the members of ALCO X and BCC or that
certain
14
15
Option Agreement dated as of the Documentation Date by and between the members
of ALCO X and BCC, respectively, and (ii) ALCO XI, L.L.C., a North Carolina
limited liability company ("ALCO XI") pursuant to that certain Shortfall Funding
Agreement dated as of the Documentation Date by and among ALCO XI, the members
of ALCO XI and BCC or that certain Option Agreement dated as of the
Documentation Date by and between the members of ALCO XI and BCC, respectively.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 DEFINITIONS; INTERPRETATION; MISCELLANEOUS. Capitalized
terms used but not otherwise defined in this Agreement have the respective
meanings specified in Appendix 1 hereto; the rules of interpretation and other
provisions set forth in Appendix 1 hereto shall apply to this Agreement.
SECTION 8.02 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person, Federal Express or other recognized overnight courier or sent by
registered or certified U.S. mail, return receipt requested or sent by facsimile
or telecopy transmission and addressed:
(i) If to the Lessee or any Member, at:
ALCO IX, L.L.C.
00 Xxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxx Xxxxxxxx 00000
(ii) If to BCC, at
c/o BCC Development and Management Co.
0000 Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxxxx, XX 00000
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
SECTION 8.03 JURISDICTION. THE LESSEE AND THE MEMBER HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY PENNSYLVANIA COURT OR FEDERAL COURT
SITTING IN PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH THE LESSEE
IS A PARTY, AND THE LESSEE AND THE MEMBER HEREBY IRREVOCABLY AGREE THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN
SUCH PENNSYLVANIA COURT OR IN SUCH FEDERAL COURT. THE LESSEE AND THE MEMBER
HEREBY IRREVOCABLY
15
16
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE LESSEE
AND THE MEMBER IRREVOCABLY CONSENT TO THE SERVICE OF COPIES OF THE SUMMONS AND
COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE LESSEE AT ITS ADDRESS
SPECIFIED IN SECTION 8.02. THE LESSEE AND THE MEMBER AGREE THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF BCC TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF BCC TO BRING
ANY ACTION OR PROCEEDING AGAINST THE LESSEE OR ITS PROPERTY (OR THE MEMBER OR
THE MEMBER'S PROPERTY) IN THE COURTS OF OTHER JURISDICTIONS.
SECTION 8.04 PERFORMANCE OF LESSEE'S DUTIES. The Lessee's obligations,
and the obligation of the Member, under this Agreement and the other Transaction
Documents shall be performed by the Lessee and the Member at their sole cost and
expense. If the Lessee or the Member shall fail to do any act or thing which it
or they have covenanted to do under this Agreement or any of the other
Transaction Documents, BCC may, but shall not be obligated to, do the same or
cause it to be done either in the name of BCC or in the name and on behalf of
the Lessee or the Member, and the Lessee and the Member hereby irrevocably
authorizes BCC so to act.
SECTION 8.05 INDEMNIFICATION. The Lessee agrees to reimburse BCC for
all costs and expenses, including reasonable counsel fees and disbursements,
incurred, and to indemnify and hold BCC harmless from and against all losses
suffered by BCC in connection with:
(a) any breach by Lessee or any Member of any covenant, agreement,
representation or warranty under any Transaction Document,
(b) any and all uncollected items, including all checks or other
negotiable instruments returned to BCC for insufficient funds, and
(c) any claim, debt, demand, loss, damage, action, cause of action,
liability, cost and expense or suit of any kind or nature whatsoever, brought
against or incurred by BCC, in any manner arising out of or, directly or
indirectly, related to or connected with the operation of the Lessee's business
or sale thereto, which claim, debt, demand, loss, damage, action , cause of
action, liability, cost or expense was not caused by the acts or omissions of
BCC or a BCC Affiliate.
The Lessee shall indemnify BCC as provided herein upon demand and in
immediately available funds.
16
17
SECTION 8.06 INJUNCTIVE RELIEF. The Lessee and each Member recognize
that, in the event the Lessee or any Member fails to perform, observe or
discharge any of its or their obligations or liabilities under this Agreement or
any of the other Transaction Documents, any remedy of Law may prove to be
inadequate relief to BCC; therefore, the Lessee and each Member agree that BCC
shall be entitled to temporary and permanent equitable relief in any such case
without the necessity of proving actual damages.
SECTION 8.07 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Lessee, the Member and BCC and their respective
personal representatives, heirs, successors and assigns, except that Lessee
shall have no right to assign its rights hereunder or any interest herein.
SECTION 8.08 WAIVERS.
(a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY
BETWEEN THE LESSEE, THE MEMBER AND BCC WOULD BE BASED ON DIFFICULT AND COMPLEX
ISSUES OF LAW AND FACT. ACCORDINGLY THE LESSEE, EACH MEMBER AND BCC, HEREBY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY
COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE LESSEE
AND/OR THE MEMBER ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE
LESSEE, THE MEMBER AND BCC OF ANY KIND OR NATURE, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE, AND WHETHER NOW EXISTING OR HEREAFTER ARISING, AND LESSEE
AND THE MEMBER HEREBY AGREE AND CONSENT THAT ANY SUCH ACTION OR PROCEEDING SHALL
BE DECIDED BY A COURT TRIAL, IF BCC SO CHOOSES, WITHOUT JURY AND BCC MAY FILE AN
ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF THE LESSEE AND THE MEMBERS TO THE WAIVER OF THE RIGHT TO TRIAL
BY JURY.
(b) FURTHER, THE LESSEE AND THE MEMBER WAIVE THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS.
(c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND
WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF.
17
18
SECTION 8.09 CONFLICT WITH LEASE DOCUMENTS
This Agreement is subject to the covenants and agreements contained in
the Lease and other Lease Documents. In the event of any conflict between the
provisions of this Agreement and the Lease Documents, the provisions of the
Lease Documents shall control, and nothing contained in this Agreement shall
alter or amend or be deemed to alter or amend any provision of the Lease or any
other Lease Document.
18
19
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have caused this Shortfall Funding Agreement to be executed by their respective
officers or authorized agents as of the date first above written.
S-1
Shortfall Funding Agreement
20
OMITTED EXHIBITS/SCHEDULES
SCHEDULE A MEMBERS OF LESSEE
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF LEASEHOLD MORTGAGE
EXHIBIT C FORM OF OPTION AGREEMENT
