THIRD AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT (Pool 2)
Exhibit
10.12
THIRD
AMENDMENT TO
(Pool
2)
THIS
THIRD
AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT (Pool 2)
(the
“Amendment”)
is
entered into as of June 30, 2005 by and among the entities listed under the
title “Landlord” on the signature page of this Amendment (collectively,
“Landlord”),
the
entities listed under the title “Tenant” on the signature page of this Amendment
(collectively, “Tenant”),
and
AMERICAN
RETIREMENT CORPORATION,
a
Tennessee corporation (“Guarantor”).
R
E C I T A L S
A. Landlord
and Tenant have entered into that certain Master Lease and Security Agreement
(Pool 2) dated as of July 9, 2002, as amended by (i) that certain First
Amendment to Master Lease and Security Agreement (Pool 2) dated to be effective
as of July 9, 2002, and (ii) that certain Second Amendment to Master Lease
and
Security Agreement (Pool 2) dated as of July 1, 2003 (the “Original
Lease”).
Initially capitalized terms used but not otherwise defined in this Amendment
shall have the meanings given to them in the Original Lease. The Original Lease,
as amended, modified and revised by this Amendment, may be hereinafter referred
to as the “Master
Lease”
herein.
B. Landlord
or certain Affiliates of Landlord, as landlord (collectively, “Pool
1 Landlord”),
and
Tenant or certain Affiliates of Tenant, as tenant (collectively “Pool
1 Tenant”),
have
entered into that certain Master Lease and Security Agreement (Pool 1) dated
as
of July 9, 2002, as amended by (i) that certain First Amendment to Master Lease
and Security Agreement (Pool 1) dated to be effective as of July 9, 2002, (ii)
that certain Second Amendment to Master Lease and Security Agreement (Pool
1)
dated as of July 1, 2003, (iii) that certain Third Amendment to Master
Lease and Security Agreement (Pool 1) dated as of July 7, 2004, and (iv) that
certain Fourth Amendment to Master Lease and Security Agreement (Pool 1) of
even
date herewith (the “Pool
1 Fourth Amendment”)
(the
“Pool
1 Lease”).
C. Pursuant
to that certain Letter of Credit Agreement dated as of July 9, 2002, executed
by
Landlord, Pool 1 Landlord, Tenant and Pool 1 Tenant (the “LC
Agreement”),
Tenant and Pool 1 Tenant posted with Landlord and Pool 1 Landlord one or more
letters of credit as partial collateral for the performance of Tenant’s and Pool
1 Tenant’s obligations under the Original Lease and the Pool 1
Lease.
D. Pursuant
to that certain Guaranty of Master Lease and Security Agreement and Letter
of
Credit Agreement dated as of July 9, 2002, executed by Guarantor (the
“Guaranty”),
Guarantor guaranteed to Landlord and to Pool 1 Landlord, respectively, Tenant’s
obligations under the Original Lease and Pool 1 Tenant’s obligations under the
Pool 1 Lease.
E. Landlord
and Tenant desire to amend and modify the Original Lease, as more particularly
described herein, to address certain matters related to the Pool 1 Fourth
Amendment.
1
A
G R E E M E N T
NOW,
THEREFORE,
in
consideration of the foregoing Recitals, which by this reference are
incorporated herein, and of other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Amendment
to Original Lease.
The
Original Lease is amended, modified and revised as follows:
(a) Section
4.10
of the
Original Lease is hereby deleted in its entirety and the following substituted
therefor:
“4.10 Reimbursement
of Landlord’s Insurance Costs.
During
any Lease Year or portion thereof in which Tenant is not in compliance with
the
other provisions of this Section 4, Tenant shall reimburse Landlord, within
ten
(10) days of Landlord’s demand therefor, for the costs of the premiums of the
general liability and environmental insurance policies maintained by Landlord,
or contributions to self-insurance in lieu thereof, in connection with the
Premises, which amount shall not exceed in any Lease Year the amount of One
Hundred Thousand Dollars ($100,000) when aggregated with such amounts as may
be
due under the Pool 1 Lease and that certain Lease and Security (Heritage Club)
dated as of July 1, 2003, as amended by that First Amendment to Master Lease
and
Security Agreement dated as of July 1, 2005 (the “Heritage Club Lease”), as
adjusted at the end of each Lease Year for increases in the CPI since July
1,
2005. Tenant shall have no right to receive any proceeds or other benefits
from
any such insurance. The foregoing shall not in any way imply that Landlord
shall, or impose any duty on Landlord to: (a) waive any Event of Default that
may arise as a result of Tenant’s failure to comply with the other provisions of
this Section 4, or (b) obtain or maintain any such general liability or
environmental insurance with respect to the Premises.”
(b) The
following is hereby added to and incorporated into the Original Lease as Section
5.9 thereof:
2
“5.9 Capital
Improvements.
Commencing upon the first release of any Security Deposit and Collateral
pursuant to Section 11.3 (the “CapEx
Reserve Commencement Date”),
Tenant, Pool 1 Tenant and “Tenant” (as defined in Heritage Club Lease) shall
make, in the aggregate, annual expenditures for capital improvements to the
Facilities, the “Facilities” (as defined in the Pool 1 Lease) and the “Facility”
(as defined in the Heritage Club Lease) equal to one and three-fourths
percent (1.75%) of the “Gross Revenues”, as calculated in the aggregate
under this Lease, the Pool 1 Lease and the Heritage Club Lease (the
“Aggregate
Gross Revenues”),
for
the applicable “Lease Year” under this Lease, the Pool 1 Lease and/or the
Heritage Club Lease, as applicable, or the applicable portion thereof in the
case of the first “Lease Year” hereunder or thereunder in which this obligation
commences (the “Required Tenant
Capital Expenditures”).
Concurrently with each quarterly payment of Additional Rent after the CapEx
Reserve Commencement Date, Tenant shall deliver to Landlord in a form mutually
agreed upon by Landlord and Tenant, a certificate, certified by an officer
or
general partner of Tenant, as applicable, setting forth the actual year-to-date
expenditures for capital improvements to the Facilities, the “Facilities” (as
defined in the Pool 1 Lease) and the “Facility” (as defined in the Heritage Club
Lease) made by Tenant, Pool 1 Tenant and “Tenant” (as defined in Heritage Club
Lease) as of the end of the applicable quarter. If such actual year-to-date
expenditures for capital improvements are less than one and three-fourths
percent (1.75%) of year-to-date Aggregate Gross Revenues for such “Lease
Year” under this Lease, the Pool 1 Lease and/or the Heritage Club Lease, as
applicable, or such applicable portion thereof in the case of the first “Lease
Year” hereunder or thereunder in which this obligation commences, Tenant, Pool 1
Tenant and “Tenant” (as defined in the Heritage Club Lease) shall, in the
aggregate, deposit with Landlord, Pool 1 Landlord and the “Landlord” (as defined
in the Heritage Club Lease) an amount equal to such deficiency, and such funds
(the “CapEx
Funds”)
shall
be impounded with Landlord, Pool 1 Landlord and the “Landlord” (as defined in
the Heritage Club Lease), in the aggregate, in accordance with Section 5.10
of this Lease, the Pool 1 Lease and the Heritage Club Lease. Each and every
capital improvement funded by Tenant, Pool 1 Tenant and “Tenant” (as defined in
the Heritage Club Lease) in accordance with this Section 5.9 or with use of
CapEx Funds, as provided under Section 5.10 of this Lease, the Pool 1 Lease
and
the Heritage Club Lease, shall immediately become a part of the Premises, the
“Premises” (as defined in the Pool 1 Lease) or the “Premises” (as defined in the
Heritage Club Lease), as the case may be, and shall belong to Landlord, Pool
1
Landlord or “Landlord” (as defined in the Heritage Club Lease), as the case may
be, subject to the terms and conditions of this Lease, the Pool 1 Lease or
the
Heritage Club Lease, as applicable. Notwithstanding the foregoing, if, at any
time after the CapEx Reserve Commencement Date, the Security Deposit and
Collateral is restored to one hundred percent (100%) of its original requirement
under this Lease, the Pool 1 Lease and the Heritage Club Lease in accordance
with the provisions of Section 11.3 under this Lease, the Pool 1 Lease and
the
Heritage Club Lease, the obligations under Section 5.9 of this Lease, the Pool
1
Lease and the Heritage Club Lease shall be suspended until any Security Deposit
and Collateral is thereafter released under this Lease, the Pool 1 Lease and/or
the Heritage Club Lease in accordance with such Section 11.3.”
(c) The
following is hereby added to and incorporated into the Original Lease as Section
5.10 thereof:
3
“5.10
CapEx Funds. Any
CapEx
Funds shall be held by Landlord, Pool 1 Landlord and “Landlord” (as defined in
the Heritage Club Lease), and shall be applied for the purposes of making
capital improvements to the Facilities, the “Facilities” (as defined in the Pool
1 Lease) and/or the “Facility” (as defined in the Heritage Club Lease) (the
“CapEx
Reserve”).
From
time to time, but not more often than twice in any calendar month and provided
that no Event of Default is then continuing, Landlord, Pool 1 Landlord and/or
“Landlord” (as defined in the Heritage Club Lease), as the case may be, will
disburse to Tenant, Pool 1 Tenant and/or “Tenant” (as defined in the Heritage
Club Lease) amounts from the CapEx Reserve, subject to the following conditions:
(A)
the
costs incurred by Tenant, the Pool 1 Tenant and/or “Tenant” (as defined in the
Heritage Club Lease), as the case may be, shall be for the purposes of making
capital improvements to the Facilities, the “Facilities” (as defined in the Pool
1 Lease) and/or the “Facility” (as defined in the Heritage Club Lease); and
(B)
the
request for disbursement shall be accompanied with such invoices or purchase
orders evidencing the expenditure by Tenant, Pool 1 Tenant and/or “Tenant” (as
defined in the Heritage Club Lease), as the case may be, as Landlord, Pool
1
Landlord or “Landlord” (as defined in the Heritage Club Lease), as applicable,
may reasonably require. Landlord, Pool 1 Landlord and/or “Landlord” (as defined
in the Heritage Club Lease), as the case may be, shall make the reimbursements
to Tenant, Pool 1 Tenant and “Tenant” (as defined in the Heritage Club Lease),
as applicable, required hereunder within fourteen (14) days after satisfaction
of all conditions to such disbursement. Upon reasonable advance request,
Landlord, Pool 1 Landlord and/or “Landlord” (as defined in the Heritage Club
Lease), as the case may be, may require Tenant, Pool 1 Tenant and/or “Tenant”
(as defined in the Heritage Club Lease), as applicable, to procure mechanic’s
lien waivers, in form and substance reasonably satisfactory to Landlord, Pool
1
Landlord and/or “Landlord” (as defined in the Heritage Club Lease), as the case
may be, (if such waivers are then available in the applicable State in which
the
subject “Facility” is located), in connection with any capital improvements in
excess of One Hundred Thousand Dollars ($100,000). Any amount remaining in
the
CapEx Reserve at the expiration of the “Term” (as such term is defined
hereunder, under the Pool 1 Lease and under the Heritage Club Lease) under
all
of this Lease, the Pool 1 Lease and the Heritage Club Lease, and/or the earlier
termination hereof or thereof shall be retained by Landlord, Pool 1 Landlord
or
“Landlord” (as defined in the Heritage Club Lease), as the case may be, as
additional or supplemental “Total Rent” (as such term is defined hereunder,
under the Pool 1 Lease and under the Heritage Club Lease) hereunder or
thereunder.”
(d) The
following is hereby added to and incorporated into the Original Lease as Section
9.7 thereof:
“9.7 Financial
Covenants Calculations.
Within
forty-five (45) days of the end of each of the first three quarters of the
fiscal year of Guarantor and Tenant, and within ninety (90) days of the end
of
the fiscal year of Guarantor and Tenant, Tenant shall deliver to Landlord the
calculations of the “Rent Coverage Ratio”, the “Fixed Charge Coverage Ratio” and
“Book Net Worth” (all as defined in Section 11.3), together with all necessary
support documentation with respect to such calculations as reasonably required
by Landlord, and accompanied by an Officer’s Certificate (collectively, the
“Financial
Covenants Calculations”).”
(e) The
following is hereby added to and incorporated into the Original Lease as
Section 11.3 thereof:
4
“11.3 Security
Deposit and Collateral Release.
Provided the threshold Financial Covenants (as hereinafter defined) set forth
below with respect to a particular Level (i.e., ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇ or
Level 4) have been met, the amount of the original Security Deposit and
Collateral required hereunder shall be released in twenty-five
percent (25%) increments, as set forth below, for any fiscal quarter
in
which the threshold Financial Covenants pertaining to a particular Level have
been satisfied; provided however,
that
if, at any time after the release of any Security Deposit and Collateral at
a
particular Level, the requisite threshold of Financial Covenants pertaining
to
such Level is not maintained, as evidenced by the most recent Financial
Covenants Calculations, then the Security Deposit and Collateral shall be
restored by Tenant, Pool 1 Tenant and “Tenant” (as defined in the Heritage Club
Lease), within thirty (30) days of the delivery of the Financial Covenants
Calculations to Landlord, to the amount that was held by Landlord, Pool 1
Landlord and “Landlord” (as defined in the Heritage Club Lease) prior to any
release of the Security Deposit and Collateral in accordance with such Level
until such future time, if any, that the applicable threshold Financial
Covenants pertaining to such Level are once again satisfied. The “Financial
Covenants”
shall
mean the satisfaction of all of the following with respect to any particular
Level release threshold:
|
Level
|
Threshold
Rent Coverage Ratio
|
Threshold
Fixed
Charge
Coverage
Ratio
|
Threshold
Book
Net
Worth
|
%
of Original
Security
Deposit
and
Collateral
required
hereunder
to
be
released
|
||||
|
1
2
3
4
|
1.25x
1.35x
1.40x
1.45x
|
1.35x
1.35x
1.40x
1.40x
|
$100
Million
$100
Million
$100
Million
$100
Million
|
25%
50%
75%
100%
|
Upon
the
exercise by Tenant of any Renewal Term in accordance with Section 1.2 of this
Lease, Tenant shall increase the amount of the Security Deposit and Collateral
to the amount required by Section 1.2.3 of this Lease and such amount shall
thereafter be deemed to be the “original Security Deposit and Collateral”
required under the Lease; provided,
however,
that
Landlord shall immediately release to Tenant (or excuse Tenant from depositing
with Landlord) that portion of the new amount that would have theretofore been
released if the increased “original Security Deposit and Collateral” amount had
initially been the “original Security Deposit and Collateral” amount required
under such Section 1.2.3.
5
As
used
herein, (i) “Rent
Coverage Ratio”
shall
mean, as of the end of any fiscal quarter of Tenant, Pool 1 Tenant and “Tenant”
(as defined under the Heritage Club Lease), the ratio of (A) “Portfolio
EBITDAR-X”
to (B)
“Portfolio
Rent Expense”
with
use of the following defined terms:
“Portfolio
EBITDAR-X”
shall
be calculated as (a) the trailing six (6)-month Portfolio EBITDARM
minus
(b) an
amount equal to six percent (6%) of the trailing six (6)-month
Portfolio Gross Revenues;
“Portfolio
EBITDARM”
shall
mean, as of the end of any fiscal quarter, the aggregate net income of Tenant,
Pool 1 Tenant and “Tenant” (as defined under the Heritage Club Lease) for such
trailing six (6)-month period to the extent derived from the collective
operation of the Premises as defined herein, the “Premises” as defined under the
Pool 1 Lease (the “Pool
1 Premises”)
and
the “Premises” as defined under the Heritage Club Lease (the “Heritage
Club Premises”),
adjusted to add thereto, to the extent allocable to the Premises, the Pool
1
Premises or the Heritage Club Premises, as applicable, without duplication,
(a)
interest expense, (b) income tax expense, (c) depreciation and
amortization expense, (d) rental expense, and (e) management
fee
expenses, in each case determined in accordance with GAAP;
“Portfolio
Gross Revenues”
shall
mean, as of the end of any fiscal quarter, the aggregate amount of “Gross
Revenues” as defined herein with respect to the Premises, the “Gross Revenues”
as defined in the Pool 1 Lease with respect to the Pool 1 Premises and the
“Gross Revenues”, as such term is defined herein, and calculated with respect to
the Heritage Club Premises, in each case, for the trailing six (6)-month period;
“Portfolio
Rent Expense”
shall
mean, as of the end of any fiscal quarter, the aggregate amount of “Total Rent”
(as defined herein or therein) payable by Tenant under this Lease, by Pool
1
Tenant under the Pool 1 Lease and by “Tenant” (as defined in the Heritage Club
Lease) under the Heritage Club Lease, in each case, during the trailing six
(6)-month period.
(ii)“Fixed
Charge Coverage Ratio”
shall
mean, as of the end of any fiscal quarter of Guarantor, the ratio of (A)
“Portfolio
EBITDAR”
to (B)
“Portfolio
Fixed Charges”
with
use of the following defined terms:
“Portfolio
EBITDAR”
shall
mean, as of the end of any fiscal quarter of Guarantor, the aggregate net income
of Guarantor and its subsidiaries, as determined in accordance with GAAP on
a
consolidated basis, during the trailing six (6)-month period, adjusted to add
thereto, without duplication, (a) interest expense, (b) income tax expense,
(c)
depreciation and amortization expense, and (d) rental expense, as determined
in
accordance with GAAP on a consolidated basis, during such trailing six (6)-month
period, and
as
further adjusted to add thereto or subtract therefrom (I) any gains or losses
arising from the sale of assets or (II) any items of income or expense which
are
deemed to be “extraordinary” in accordance with GAAP, and any other non-cash,
non-recurring charges and expenses. As used herein, “non-recurring charges and
expenses” means expenditures or charges that (i) have not been incurred within
the prior two years, and (ii) are not reasonably likely to recur within the
subsequent two year period.
6
“Portfolio
Fixed Charges”
shall
mean, as of the end of any fiscal quarter of Guarantor, the sum of (a) all
net
lease expenses, (b) all interest expenses (including the interest component
of
rentals under capitalized leases), exclusive of prepayment fees or one-time
loan
fees or similar expenses, (c) all scheduled principal amortization payments
under indebtedness or capitalized leases, exclusive of balloon payments due
on
maturity or expiration, as applicable, (d) all dividends paid on preferred
stock, and (e) all mandatory distributions of earnings to shareholders, for
Guarantor and its subsidiaries, as determined on a consolidated basis in
accordance with GAAP, during the trailing six (6)-month period.
(iii)
“Book Net
Worth”
shall
mean, as of the end of any fiscal quarter of Guarantor, as determined on a
consolidated basis in accordance with GAAP with respect to Guarantor and its
subsidiaries, (a) the total assets of such parties, minus
(b) the
total liabilities of such parties.
2. Reaffirmation
of Obligations.
(a) Notwithstanding
the modifications to the Original Lease contained herein, Tenant and Landlord
each hereby acknowledges and reaffirms its obligations under the Master Lease
and all other documents executed by such party in connection
therewith.
(b) Notwithstanding
the modifications to the Original Lease contained herein, Guarantor hereby
acknowledges and reaffirms its obligations under the Guaranty and all documents
executed by Guarantor in connection therewith, and further agrees that any
reference made in the Guaranty to the Original Lease or any terms or conditions
contained therein, shall mean such Original Lease or such terms or conditions
as
modified by this Amendment.
3. Interpretation;
Governing Law.
This
Amendment shall be construed as a whole and in accordance with its fair meaning.
Headings are for convenience only and shall not be used in construing meaning.
This Amendment shall be governed by and construed in accordance with the
internal laws of the State of California without regard to rules concerning
the
choice of law.
4. Further
Instruments.
Each
party will, whenever and as often as it shall be reasonably requested so to
do
by another party, cause to be executed, acknowledged or delivered, any and
all
such further instruments and documents as may be necessary or proper, in the
reasonable opinion of the requesting party, in order to carry out the intent
and
purpose of this Amendment.
7
5. Incorporation
of Recitals.
The
Recitals to this Amendment are incorporated hereby by reference.
6. Counterparts.
This
Amendment may be executed in counterparts, all of which executed counterparts
shall together constitute a single document. Signature pages may be detached
from the counterparts and attached to a single copy of this document to
physically form one document.
7. Attorneys'
Fees.
In
the
event of any dispute or litigation concerning the enforcement, validity or
interpretation of this Amendment, or any part thereof, the losing party shall
pay all costs, charges, fees and expenses (including reasonable attorneys'
fees)
paid or incurred by the prevailing party, regardless of whether any action
or
proceeding is initiated relative to such dispute and regardless of whether
any
such litigation is prosecuted to judgment.
8. Effect
of Amendment.
Except
as
specifically amended pursuant to the terms of this Amendment, the terms and
conditions of the Original Lease shall remain unmodified and in full force
and
effect. In the event of any inconsistencies between the terms of this Amendment
and any terms of the Original Lease, the terms of this Amendment shall govern
and prevail.
9.Costs;
Expenses.
All
costs and expenses incurred by Tenant or Landlord with respect to the
preparation, negotiation and execution of this Amendment and all other
documentation related to this Amendment shall be paid by Tenant. To the extent
Landlord pays any such costs or expenses, Tenant shall reimburse Landlord for
such costs and expenses immediately upon Landlord’s demand
therefor.
10.Entire
Agreement.
This
Amendment contains the entire agreement between the parties relating to the
subject matters contained herein. Any oral representations or statements
concerning the subject matters herein shall be of no force or
effect.
[signatures
on the following pages]
8
IN
WITNESS WHEREOF,
this
Amendment has been executed as of the date first above written.
|
TENANT:
AMERICAN
RETIREMENT CORPORATION,
a
Tennessee corporation
By:
___________________________
Name:
_________________________
Title:
__________________________
ARC
NAPLES, LLC,
a
Tennessee limited liability company
By:
___________________________
Name:
_________________________
Title:
__________________________
ARC
AURORA, LLC,
a
Tennessee limited liability company
By:
___________________________
Name:
_________________________
Title:
__________________________
ARC
LAKEWOOD, LLC,
a
Tennessee limited liability company
By:
___________________________
Name:
_________________________
Title:
__________________________
ARC
COUNTRYSIDE, LLC,
a
Tennessee limited liability company
By:
___________________________
Name:
_________________________
Title:
__________________________
|
▇-▇
|
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇, LLC,
a
Tennessee limited liability company
By:
___________________________
Name:
_________________________
Title:
__________________________
LANDLORD:
NATIONWIDE
HEALTH PROPERTIES, INC.,
a
Maryland corporation
By:
___________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President and Chief Investment Officer
MLD
DELAWARE TRUST,
a
Delaware business trust
By:
___________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President and Chief Investment Officer
GUARANTOR:
AMERICAN
RETIREMENT
CORPORATION,
a
Tennessee corporation
By:
___________________________
Name:
_________________________
Title:
__________________________
|
S-2