Item 1.01 Entry into a Material Definitive Agreement.
Exit of Three Leased Residential Care Communities
The Company continues to take certain actions related to shifting its business
strategy from focusing on operating residential care facilities to providing
technology and innovative care solutions that address the global aging crises.
In connection with the previously announced proposed merger with Viveon Health
Acquisition Corp. ("Viveon"), Clearday entered into agreements to terminate the
leases ("Leases") for three of our four residential care facilities, which
account for all of Clearday's leased residential care facilities. Our intention
to terminate the Leases at these facilities (the "Facilities") located in
Westover, Texas, New Braunfels, Texas and Little Rock, Arkansas, was previously
disclosed in a report filed on Form 8-K on March 23, 2023. The agreements
provide for the third party negotiated exit by the Company of our legacy memory
care businesses that had large operating expenses, including lease payments, and
incurred significant cash flow losses during 2022 that required us to incur
indebtedness. Our continued implementation of our business strategy was one of
the factors that enabled Clearday to execute the merger agreement on April 5,
2023 with Viveon led by principals experienced in healthcare and med-tech
innovation, for a business combination that values the Company at approximately
$300 million. A press release regarding the merger agreement was previously
furnished on a Report on Form 8-K filed on April 6, 2023. There can be no
assurance that the proposed merger transaction will be consummated on the terms
or timeframe currently contemplated, or at all. After the consummation of the
lease termination, we will continue to own and operate our residential memory
care facility located at Naples, Florida and our Adult Daycare center located at
San Antonio, Texas.
Terminating the Leases will remove approximately $27,520,000 of liabilities
related to the lease liabilities, as of December 31, 2022, and approximately
$22,991,000 of operating lease right-of use assets, resulting in a one-time
increase of other income of approximately $4,520,00, prior to the elimination of
our net leasehold improvements and personal property in these facilities that is
expected to be less than $230,000, as of December 31, 2022. Additionally, the
termination of the Leases and our legacy memory care businesses at these
Facilities should significantly reduce the operating cash flow losses that we
have incurred at these Facilities enabling us to focus on our innovative care
products and service businesses including our digital care platform that
includes our proprietary Clearday at Home and other digital offerings; our
proprietary BEST test that is used to develop personalized care pathways;
artificial intelligence (AI) enabled companion robotic services that include
proprietary applications that enhance the user experience through proprietary
digital engagement programs as well as movement analytics.
These agreements to terminate the Leases and our termination of our operations
at these facilities are described below.
Clearday entered into agreements with the lessor or landlord of the Facilities
("Lessor") to terminate the Leases for the Facilities on the date (the
"Termination Date") that a new operator that was selected and approved by the
Lessor ("New Operator") obtains all required government licenses,
authorizations, and approvals to operate the memory care residential facilities
in Texas and Arkansas.
The Lease Transition Agreement with the Lessor dated March 31, 2023 provides,
among other matters, that the aggregate liability of the Clearday subsidiaries
that are tenants under the Leases are reduced to amount (the "Repayment Amount")
that is equal to the sum of: (1) past due rent payments under the Leases of
$1,284,770 ("Past Due Lease Amounts"), (2) a fixed amount arising from the
termination of the Leases of $1,710,777 ("Rent Differential Amount"), (3) the
amount of additional advances ("Critical Expenses Advances") by Landlord to pay
critical expenses plus the premium for tail insurance policy in favor of the
Landlord (the obligation for such premiums are limited $275,000) (4) plus an
additional amount that is equal to the greater of $25,000 or 5% of such Critical
Expenses Advances. The Repayment Amount is due and payable over a period
maturing on July 31, 2025, as follows:
(1) on closing date of the previously announced proposed merger with Viveon
Health Acquisition Corp., a payment equal to 10% of the new money that is raised
in connection with such merger (subject to a minimum payment of $300,000 and a
maximum payment of $500,000); provided that if such merger does not close by
July 31, 2023, then a payment of $300,000 will be paid on July 31, 2023 or such
other date agreed by Landlord and Clearday;
(2) $400,000 payable quarterly commencing on December 31, 2023, and
(3) beginning with the calendar quarter ending December 31, 2023 10% of the
Excess Cash Flow, generally based on earnings before interest, taxes,
depreciation, and amortization of Clearday.
The current guarantors of the Leases (a subsidiary of Clearday, Inc. and two
individuals) continued to guaranty the obligations, as modified by the Lease
Transition Agreement, and provided a security interests on the collateral
specified therein.
In connection with the Lease Termination Agreement, the tenants under the Leases
and the Clearday, Inc. subsidiaries that operated the Facilities signed a
promissory note for the Repayment Amount and the Past Due Lease Amounts and
Clearday, Inc. agreed to be an additional guarantor of the obligations of the
Leases, as modified and limited by the Lease Transition Agreement, which is less
than approximately $4,000,000 under the terms of a Guaranty (the "Guaranty").
Clearday also agreed to cooperate with Landlord to facility the termination of
the Leases the sale of the furniture and fixtures at the Facilities to the New
Operator so that New Operator may enter into a lease or purchase of the
Facilities and operate the memory care businesses in the Facilities or other
businesses at the Facilities that they choose to conduct.
The Lease Termination Agreement, the Guaranty and the Promissory Note also
include customary representations, warranties, conditions and covenants
including indemnification and remedies upon an event of default. The foregoing
descriptions of the Lease Transition Agreement, the Promissory Note and the
Guaranty are not complete and are qualified in their entirety by reference to
the full text of each such document, which is filed as Exhibits 10.1, 10.2, and
10.3 to this Report and are incorporated herein by reference.
In connection with the proposed termination of the Leases, the subsidiaries that
operate the Facilities (the "Current Operators") and subsidiaries of the New
Operator ("New Facilities Operators") entered into the Operations Transfer
Agreement dated as of April 1, 2023 (the "OTA"). The OTA provides that the New
Facilities Operators will purchase the personal property and other assets of the
Current Operators used at the Facilities to enable the New Facilities Operators
to conduct their business at the Facilities under new leases or other
arrangements with the Landlord. Such purchase and sale will close on the date
that the New Facilities Operators receive the licenses, authorizations and
approvals from the applicable Texas and Arkansas governmental agencies to
conduct a licensed residential memory care business at the Facilities and they
enter into new leases with the Landlord (the "Commencement Date"). The New
Facilities Operators will enter into new agreements with the residents at the
Facilities, effective the Commencement Date, which agreements, according to
statements by the New Facilities Operators, will be at the same price as the
rates charged by Current Operators. The Current Operators have provided a notice
to each of the residents at the Facilities that their current agreement will
terminate, effective the Commencement Date.
In connection with the OTA, the Current Operators and the New Facilities
Operators entered into Interim Management and Security Agreements or an Interim
Consulting and Security Agreement, as applicable, dated as of April 1, 2023 (the
"Interim Agreements"). The Interim Agreements provide that the New Facilities
Operators will assist with operating the Facilities as an independent
contractor, pending their receipt of government authorizations and approvals
necessary to operate memory care residential care businesses at the Facilities.
The New Facilities Operators are not affiliated with the Company or its officers
or directors.
The OTA and Interim Agreements provide for the asset purchase and sale of the
memory care businesses at the Facilities, and the transfer of certain agreements
and the assumption of certain specified liabilities. The Current Operators, each
of which is a subsidiary of Clearday, Inc., remain obligated for liabilities
that are not assumed by the New Operators. Under the Interim Agreements, the New
Facilities Operators is an independent contractor that has employed, or offered
employment to, all of the employees of the Current Operators at the Facilities
and will fund and be responsible for any operating cash losses for the
Facilities.
The OTA and the Interim Agreements also include customary representations,
warranties, conditions and covenants including indemnification and remedies upon
an event of default. The foregoing descriptions of the OTA and the Interim
Agreements are not complete and are qualified in their entirety by reference to
the full text of each such document, which is filed as Exhibits 10.4, 10.5, 10.6
and 10.7 to this Report and are incorporated herein by reference.
Forward Looking Statements
This communication contains forward-looking statements (including within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended) concerning the Company.
These statements may discuss goals, intentions and expectations as to future
plans, trends, events, results of operations or financial condition, or
otherwise, based on current beliefs of the management of the Company, as well as
assumptions made by, and information currently available to, management.
Forward-looking statements generally include statements that are predictive in
nature and depend upon or refer to future events or conditions, and include
words such as "may," "will," "should," "would," "expect," "anticipate," "plan,"
"likely," "believe," "estimate," "project," "intend," and other similar
expressions. Statements that are not historical facts are forward-looking
statements. Forward-looking statements are based on current beliefs and
assumptions that are subject to risks and uncertainties and are not guarantees
of future performance. Actual results could differ materially from those
contained in any forward-looking statement as a result of various factors,
including, without limitation: the risks regarding the Company and its business,
generally; risks related to the Company's ability to correctly estimate and
manage its operating expenses and develop its innovate non-acute care businesses
and the acceptance of its proposed products and services, including with respect
to future financial and operating results; the ability of the Company to protect
its intellectual property rights; competitive responses to the Company's
businesses including its innovative non-acute care business; unexpected costs,
charges or expenses; regulatory requirements or developments; changes in capital
resource requirements; and legislative, regulatory, political and economic
developments. The foregoing review of important factors that could cause actual
events to differ from expectations should not be construed as exhaustive and
should be read in conjunction with statements that are included herein and
elsewhere, including the risk factors included in the Company's most recent
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K filed with the SEC and the registration statement regarding the
Company's previously announced merger, that was filed and declared effective.
The Company can give no assurance that the actual results will not be materially
different than those based on the forward looking statements. Except as required
by applicable law, the Company undertakes no obligation to revise or update any
forward-looking statement, or to make any other forward-looking statements,
whether as a result of new information, future events or otherwise.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
No. Description
10.1 Lease Termination Agreement dated as of March 31, 2023 by and among
certain subsidiaries of Clearday, Inc. party thereto and the other parties
thereto
10.2 Promissory Note dated March 31, 2023 in the aggregate principal amount of
$2,995,547.44 executed by certain subsidiaries of Clearday, Inc. named
therein
10.3 Guaranty dated March 31, 2023 by Clearday, Inc.
10.4 Operations Transfer Agreement dated as of April 1, 2023 by and among
certain subsidiaries of Clearday, Inc. and the new operators named therein
of the specified residential care facilities
10.5 Interim Management and Security Agreement dated as of April 1, 2023 by
and between MCA Westover Hills Operating Company, LLC operated under the
Memory Care America name, and the new operator party thereto regarding the
facility located at San Antonio, Texas
10.6 Interim Management and Security Agreement dated as of April 1, 2023 by
and between MCA New Braunfels Operating Company, LLC operated under the
Memory Care America name, and the new operator party thereto regarding the
facility located at New Braunfels, Texas
10.7 Consulting and Security Agreement dated as of April 1, 2023, by and
between Memory Care at Good Shepard, LLC, operated under the Memory Care
America name and the new operator party thereto regarding the facility
located at Little Rock, LLC
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
* Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished
to the SEC upon request.
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