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