Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 1 of 24 Stephen A. McCartin (TX 13374700) Mark C. Moore (TX 24074751) GARDERE WYNNE SEWELL LLP 2021 McKinney Avenue, Suite 1600 Dallas, TX 75201 Telephone: (214) 999-3000 Facsimile: (214) 999-4667 smccartin@gardere.com mmoore@gardere.com PROPOSED COUNSEL TO DEBTORS AND DEBTORS-IN-POSSESSION IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION In re: PREFERRED CARE INC., et. al. Debtors. § § § § § § Chapter 11 Case No.: 17-44642 (Joint Administration Requested) DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS I, Alan Weiner, state and declare as follows: 1. I am over 18 years of age and if called upon I would competently testify to the matters set forth herein from my own personal knowledge or from knowledge gathered from others within my review of relevant documents, or my opinion based upon my experience. 2. I am the proposed financial advisor to Preferred Care Inc. and its above-captioned debtor affiliates, as debtors and debtors in possession (collectively, the “Debtors”)1 in the abovecaptioned case. 3. Based upon my personal knowledge of the Debtors, their business operations, 1 A list of the Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, is attached hereto. Gardere01 - 10154752v.12 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 2 of 24 history, industry, and books and records, and based upon information contained in the Debtors’ books and records, I am qualified to give this declaration (the “First Day Declaration”) on behalf of the Debtors. 4. Some of the information presented below is based upon my review of data regularly compiled by the Debtors in the ordinary course of their business. 5. I submit this Declaration in support of the following motions (collectively, the “First Day Motions”). Attached hereto as Exhibit A is a summary of each First Day Motion and the relief requested therein. (i) Motion for Joint Administration [Docket No. 3]; (ii) Motion for Order Establishing Notice Procedures and Approving Form Notice of Commencement of Cases [Docket No. 4]; (iii) Motion for Entry of an Order (I) Authorizing the Filing of a Consolidated List of Creditors and a Consolidated List of the 30 Largest Unsecured Creditors, (II) Authorizing the Debtors to Redact Certain Personal Identification Information for Individual Creditors, and (III) Approving the Proposed Form of Proof of Claim in These Cases (the “Creditor Consolidation Motion”) [Docket No. 5; (iv) Motion for Order Extending Time to File Schedules of Assets and Liabilities and Statements of Financial Affairs (the “Schedules Extension Motion”) [Docket No. 6]; (v) Motion for Administrative Order Under Bankruptcy Code Sections 105(a) and 331 Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals (the “Interim Compensation Procedures Motion”)[Docket No. 7]; (vi) Motion for Order (i) Deeming Utilities Adequately Assured of Future Performance; and (ii) Establishing Procedures for Determining Requests for Additional Adequate Assurance Pursuant to Bankruptcy Code Section 366 (the “Utilities Motion”) [Docket No. 8]; (vii) Motion for Authority to (i) Pay Prepetition Insurance Obligations, (ii) Continue Administering Insurance Policies, and (iii) Continue to Pay Claims to the Extent They Become Due and Payable (the “Insurance Motion”) [Docket No. 9]; DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 2 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 3 of 24 (viii) Motion for Authority to Pay Prepetition Wages and Other EmployeeBenefit Claims (the “Prepetition Wages Motion”) [Docket No. 10]; (ix) Motion for Order Authorizing the Debtors to Pay Prepetition Taxes and Related Obligations (the “Taxes Motion”) [Docket No. 11]; (x) Motion for Entry of an Order Authorizing the Debtors to Maintain and Administer Resident Refunds and Honor Pre-Petition Obligations Related Thereto (the “Resident Refund Program Motion”) [Docket No. 12]; (xi) Motion (a) To Authorize Certain Procedures to Maintain the Confidentiality of Resident Information, (b) For Authority to File Under Seal Separate Matrix and Schedule F Containing Resident Information, (c) To Modify Notice to Residents, and (d) For Relief From Required Form of Mailing Matrix with Regard to Separate Matrix (the “Resident Confidentiality Motion”) [Docket No. 13]; (xii) Motion for an Interim and Final Order Authorizing Continued Use of Existing (i) Cash Management System; (ii) Accounts and Business Forms; and (iii) Deposit Practices (the “Cash Management Motion”) [Docket No. 15]; (xiii) Motion for Interim and Final Order (I) Authorizing Debtors to Obtain Post-Petition Financing; (II) Granting Liens, Security Interests and Superpriority Status; (III) Affording Adequate Protection; (IV) Scheduling a Final Hearing; and (V) Modifying Automatic Stay Motion for Interim and Final Order (I) Authorizing Debtors to Obtain Post-Petition Financing; (II) Granting Liens, Security Interests and Superpriority Status; (III) Affording Adequate Protection; (IV) Scheduling a Final Hearing; and (V) Modifying Automatic Stay (the “Wells Fargo DIP Motion”) [Docket No. 19]; (xiv) Motion for Interim and Final Orders: (I) Authorizing the HUD Debtors to Use Cash Collateral, (II) Granting Adequate Protection to Prepetition Secured Parties and (III) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(b) (the “HUD Debtors Cash Collateral Motion”) [Docket No. 17]; (xv) Motion for Interim and Final Orders (I) Authorizing the Borrowing Debtors to Use Cash Collateral, (II) Granting Adequate Protection to Prepetition Secured Parties, and (III) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(B) (the “Omega and FC Domino Cash Collateral Motion”) [Docket No. 18]; and, (xvi) Notice of Designation as Complex Chapter 11 Bankruptcy Case [Docket No. 14]. DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 3 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 4 of 24 I. BACKGROUND 6. On November 13, 2017 (the “Petition Date”), the Debtors filed their voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), thereby initiating the above-captioned bankruptcy cases and creating their bankruptcy estates (the “Estates”). 7. The Debtors continue to operate and to manage their businesses as “debtors-in- possession” pursuant to sections 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the above-captioned bankruptcy cases (the “Chapter 11 Cases”) pursuant to section 1104 of the Bankruptcy Code. No official committee of unsecured creditors has been appointed in the Chapter 11 Cases at this time. A. Description of the Debtors 8. The Debtors, other than Preferred Care Inc., operate thirty-three (33) skilled nursing facilities in the states of Kentucky and New Mexico. Their non-debtor affiliates operate an additional seventy-five (75) skilled nursing facilities in ten additional states. Accordingly, the Debtors and their non-debtor affiliates (collectively, the “Preferred Care Group”) operate one hundred and eight (108) skilled nursing, assisted living and independent living facilities (the “Facilities”) in twelve (12) states (approximately 11,500 beds). There are currently approximately 9,300 residents in the Preferred Care Group Facilities. The Preferred Care Group constitutes one of the largest nursing home groups in the United States. The business goal of the Preferred Care Group is to provide local communities with high quality skilled nursing home and rehabilitation care in a patient-friendly, cost effective setting. 9. Each of the Debtors, other than Preferred Care Inc., is a Texas limited partnership. A Texas limited liability company functions as the 1% general partner and Mr. Thomas Scott is DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 4 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 5 of 24 the 99% limited partner. The generic organizational chart for each Debtor limited partnership is represented below: Thomas Scott 100% Texas Limited Liability Company 1% general partnership 99% limited partnership Interest Texas Limited Partnership The Kentucky Facilities 10. Twenty-one (21) of the Debtors operate twenty-one (21) skilled nursing facilities in Kentucky, as reflected in the organizational chart attached hereto as Exhibit B. The New Mexico Facilities 11. Twelve (12) of the Debtors operate twelve (12) skilled nursing facilities in New Mexico as reflected in the organizational chart attached hereto as Exhibit C. Preferred Care Inc. 12. Preferred Care Inc. is a Delaware corporation owned by Mr. Thomas Scott. Preferred Care Inc. is a holding company for numerous wholly owned, non-debtor subsidiaries as reflected in the organizational chart attached hereto as Exhibit D. Preferred Care Inc. indirectly through its subsidiaries owns four (4) mental health facilities located in Mississippi, a DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 5 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 6 of 24 developmental facility in Florida, and a management contract for a skilled nursing home in Texas. 13. Preferred Care Inc. has been named as a defendant in most of the pending litigation described below despite the fact that it does not own any interest in, nor participate in the management of, the limited partnerships which own and operate the facilities. 14. As described below, Preferred Care Inc. is the master-lessee of the real property upon which the twenty-one (21) Kentucky facilities are located. Preferred Care Inc. sub-leases the Kentucky facilities to the Debtor partnerships that operate the Kentucky facilities. In addition, Preferred Care Inc. has guaranteed ten (10) of the twelve (12) leases of the New Mexico facilities. B. Pending Litigation 15. The bankruptcy filings were necessitated by an overwhelming amount of personal injury litigation filed in Kentucky and New Mexico, primarily by one predatory law firm, Wilkes & McHugh of Tampa, Florida (“Wilkes”). There are currently approximately 163 lawsuits pending against Preferred Care Inc. and/or the Preferred Care Group, 97 of which are pending in Kentucky and 27 of which are pending in New Mexico. The chart below constitutes a breakdown of all of the litigation involving the Preferred Care Group by state. DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 6 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 16. Entered 11/13/17 18:55:42 Page 7 of 24 The cost and expense of defending the pending litigation has drained the Debtors of precious resources better used for quality patient care. New Mexico does not have tort reform statutes, and Kentucky has only recently enacted a limited tort reform statute. The Debtors operating the Kentucky facilities have no professional liability insurance to cover tort claims. The Debtors operating the New Mexico facilities have limited professional liability insurance. 17. On October 2, 2017, a Kentucky jury awarded a plaintiff three and a half million dollars ($3.5 million) in actual damages and twenty-five million dollars ($25 million) in punitive damages against one of the Kentucky debtor partnerships, Preferred Care Inc., and other defendants. The judgment defendants filed a motion for judgment notwithstanding the verdict, which is pending as of the Petition Date. C. Real Property Leases 18. Preferred Care Inc. has entered into a Master Lease covering real and personal property utilized in the 21 Kentucky facilities. Preferred Care Inc. in turn subleased each of the Kentucky facilities to the respective limited partnership entity that is licensed to operate each facility. The real and personal property utilized in ten (10) of the New Mexico Facilities are DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 7 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 8 of 24 leased from unaffiliated lessors (guaranteed by Preferred Care Inc.). The real and personal property utilized in two (2) of the New Mexico facilities are leased from affiliates of Mr. Thomas Scott. D. Management 19. Each of the limited partnerships operating facilities in Kentucky and New Mexico have entered into management agreements with an unaffiliated management company to provide management services for their facilities. The management companies have in turn entered into contracts with PCPMG Consulting, LLC (“PCPMG Consulting”) to manage the non-clinical day-to-day operations of each Debtor facility and to provide accounting, human resources, payroll, insurance, collections, and vendor payment services. The Debtors pay the management companies 4% of their gross revenues as a management fee, plus the reimbursement of certain expenses. 20. The Debtors’ employees located at the facilities provide the nursing and rehabilitation care to the residents. The Debtors employ approximately two thousand five hundred forty-five (2,545) total employees across thirty-three (33) facilities in Kentucky and New Mexico, including registered nurses, licensed vocational nurses, certified nursing aides, therapists, social services staff, and administrators. Approximately one thousand, six hundred (1,600) of those employees are employed in Kentucky, with the remaining nine hundred (900) employed in New Mexico. E. Wells Fargo Financing 21. On March 10, 2017, the Preferred Care Group and Facility Support Funding, LLC (“Facility Support Funding”), jointly and severally, (collectively, the “Borrowers”) entered into that certain Credit Agreement with Wells Fargo Bank, National Association (“Wells Fargo”) as Administrative Agent for Wells Fargo and other associated lenders. Pursuant to the DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 8 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 9 of 24 Credit Agreement, Wells Fargo agreed to make a $60 million revolving loan, subject to availability under the agreement, to Facility Support Funding and the Preferred Care Group, secured by a first priority security interest in all of the accounts receivable of the Debtor borrowers (see the section regarding asserted pre-petition liens and priorities below). As of the Petition Date, the Preferred Care Group owed Wells Fargo approximately $40 million under the revolving line of credit, secured by, among other assets, accounts receivable of the Preferred Care Group aggregating approximately $80 million. F. Asserted Pre-Petition Liens and Priorities 22. The Debtors have granted liens and security interests on certain of their assets to various parties. In order to analyze the asserted liens and their priorities for purposes of cash collateral and debtor-in-possession financing motions, the following chart is helpful: DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 9 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Debtor(s) a) Preferred Care Inc. Entered 11/13/17 18:55:42 Operations Page 10 of 24 Asserted Liens & Priorities2 None (a holding company of non-Debtor 1st — HUD entities). 2nd — Wells Fargo 3rd — FC Domino Kentucky b) “HUD Debtors” c) “FC Domino Debtors” Two (2) facilities in Kentucky lased from FC Domino, which financed the facilities through a program with the Department of Housing and Urban Development (“HUD”). 1st — HUD 2nd — FC Domino Nineteen (19) facilities in Kentucky leased 1st — Extendicare3 from FC Domino. 2nd — Wells Fargo 3rd — FC Domino New Mexico d) “Omega Debtors” Eight (8) facilities in New Mexico leased from 1st — Wells Fargo Omega. 2nd — Omega4 e) “Remaining Debtors” Four (4) facilities in New Mexico, two (2) 1st — Wells Fargo leased from Kading affiliates, and two (2) leased from Thomas Scott affiliates. 2 The liens listed above are those for which UCC-1 financing statements were filed as of the Petition Date. The Debtors reserve the right to dispute the validity, enforceability, and/or priority of these liens. 3 Extendicare Homes, Inc. (“Extendicare”) and/or its affiliates filed UCC-1 financing statements against all of the FC Domino Debtors except Owensboro Health Facilities, L.P. on or about November 16, 2012 to secure obligations owed to Extendicare as a result of the transfer of operations to the Preferred Care Group. The Debtors believe that no indebtedness to Extendicare exists as of the Petition Date; thus the asserted liens secure no outstanding indebtedness. 4 Omega and/or its affiliates filed UCC-1 financing statements against the Omega Debtors on or about March 23, 2015, prior to Wells Fargo’s UCC-1 filed in March 2017. The Debtors have entered into an agreement with Omega which provides, in part, for Omega to subordinate its pre-petition security interests to those of Wells Fargo. DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 10 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 G. Entered 11/13/17 18:55:42 Page 11 of 24 New Mexico Acquisition Financing 23. In order to partially finance the purchase of the New Mexico operations and two (2) Texas operations on November 1, 2012, (i) Mr. Thomas Scott loaned the acquiring limited partnerships $13 million, which was evidenced by a Promissory Note dated November 1, 2012, (the “New Mexico Acquisition Note”) executed by the acquiring limited partnerships and made payable to Tom Scott, and (ii) the seller provided $5 million of seller financing, evidenced by a Promissory Note executed by the acquiring limited partnerships and made payable to New Mexico Skilled Care, LLC (the “Seller Financing Note”).5 H. Cash Management System 24. The Preferred Care Group utilizes a centralized cash management system (the “Cash Management System”) similar to those commonly employed by corporate enterprises of comparable size and complexity. All revenues collected by each of the entities in the Preferred Care Group are eventually consolidated into Facility Support Funding, LLC (“FSF”) accounts located at Wells Fargo.6 Eighty-five percent (85%) of collections are from Medicare, Medicaid, and private insurers, which are deposited directly into a FSF concentration account at Wells Fargo (the “Concentration Account”). Fifteen percent (15%) of collections are private-pay receipts deposited into local facility-level accounts (the “Depository Accounts”), which are then transferred periodically into the Concentration Accounts. All amounts in the Concentration Account are then applied to the Wells Fargo line of credit as discussed below. FSF then draws on the Wells Fargo line of credit and uses those funds as needed for payroll and other operating expenses of the Preferred Care Group. A detailed accounting of the collections on behalf of each 5 The Seller Financing Note is guaranteed by Mr. Thomas Scott. 6 The HUD Debtors utilize a similar cash management structure using FSF II, LLC (“FSF II”), including a concentration account located at Wells Fargo. Three (3) non-debtor facilities in Florida utilize stand-alone cash management systems and do not use either FSF or FSF II. The HUD Debtors are not obligated on the Wells Fargo pre-petition debt and have not granted any security interests to Wells Fargo. DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 11 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 12 of 24 entity in the Preferred Care Group into the Concentration Account along with the subsequent application of such funds to the Wells Fargo line of credit and each advance from the Wells Fargo line of credit to Facility Support Funding on behalf of each entity in the Preferred Care Group is maintained by PCPMG Consulting, LLC (“PCPMG Consulting”), the Debtors’ management company.7 Additionally, PCPMG Consulting provides accounting for each entity in the Preferred Care Group for expenses, including payroll, paid on their behalf by FSF and/or FSF II. A schematic showing the Cash Management System is attached hereto as Exhibit E. 25. The Cash Management System permits the Debtors to accurately monitor cash availability at all times and also permits the Debtors to manage and track the collection and transfer of funds, including intercompany transfers, thereby reducing administrative burdens and expenses. The Debtors maintain current and accurate records of all transactions processed through the Cash Management System, including intercompany obligations. All intercompany transactions and intercompany claims incurred after the Petition Date will be documented in the Debtors’ books and records through their ordinary course accounting process. 26. In addition to the Depository Accounts held by each facility in the Preferred Care Group, each Debtor limited partnership generally has two other accounts: a petty cash account (the “Petty Cash Account”) and a trust fund account to hold the resident’s personal funds (the “Resident Account”). The Resident Accounts are generally located at major national banks like Wells Fargo and Citibank, while the Depository and Petty Cash Accounts are located at smaller regional or local banks. At any given time, the amounts located in the Petty Cash and Resident Accounts are relatively small. A complete listing of the Debtors’ bank accounts has been provided to the U.S. Trustee. 7 PCPMG Consulting also provides management services to the HUD Debtors and keeps similar records for FSF II. DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 12 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 27. Entered 11/13/17 18:55:42 Page 13 of 24 Resident Accounts are generally located at major national banks like Wells Fargo and Citibank and are for the convenience of the residence by allowing them to use their personal funds held therein for small purchases of personal items (toiletries, snacks and the like) at the facilities. The Resident Account balances do not rise above approximately two-hundred dollars ($200) per resident or approximately five-hundred and fifty thousand dollars ($550,000) in the aggregate. The Debtors contract with Resident Funding Management Services, an unaffiliated company to manage the resident’s use of their Resident Accounts. 28. With the exception of Wells Fargo, the Debtors’ Depository Banks are not depositories authorized by the Office of the United States Trustee for the Northern District of Texas. As set forth below, the Debtors are seeking authority to continue the use of such accounts post-petition and, in the alternative, an extension of time for the Debtors to discuss with the United States Trustee whether moving such zero-balance bank accounts is a necessary and efficient use of estate assets under the circumstances of these jointly administered cases. II. THE FIRST DAY MOTIONS 29. Contemporaneously herewith, the Debtors have filed the First Day Motions listed above seeking orders granting various forms of relief intended to stabilize the Debtor’s business operations, minimize the adverse effects of the commencement of these Chapter 11 Cases, facilitate the efficient administration of these Chapter 11 Cases, and expedite a swift and smooth reorganization of the Debtors’ balance sheets. In connection with the preparation for these bankruptcy proceedings, I have reviewed each of the First Day Motions. I believe that the entry of orders granting the relief requested in these Motions is critical to the Debtor’s ability to continue in operation, and thus maximize the return to their estates and creditors. DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 13 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 14 of 24 Pursuant to 28 U.S.C. § 1746(2) I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on November 13, 2017. /s/ Alan Weiner Alan Weiner, Financial Advisor DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 14 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 15 of 24 Debtors Debtor Preferred Care Inc. Last Four Digits of Federal Tax I.D. No. 7040 Kentucky LP Debtors Bowling Green Health Facilities, L.P. 5787 Brandenburg Health Facilities, L.P. 6699 Cadiz Health Facilities, L.P. 7640 Campbellsville Health Facilities, L.P. 4207 Elizabethtown Health Facilities, L.P. 6127 Elsmere Health Facilities, L.P. 7843 Fordsville Health Facilities, L.P. 3299 Franklin Health Facilities, L.P. 7307 Hardinsburg Health Facilities, L.P. 3640 Henderson Health Facilities, L.P. 8067 Irvine Health Facilities, L.P. 7418 Morganfield Health Facilities, L.P. 8320 Owensboro Health Facilities, L.P. 8145 Paducah Health Facilities, L.P. 3350 Pembroke Health Facilities, L.P. 8209 Richmond Health Facilities - Kenwood, L.P. 8235 Richmond Health Facilities - Madison, L.P. 8216 Salyersville Health Facilities, L.P. 8263 Somerset Health Facilities, L.P. 8739 Springfield Health Facilities, L.P. 8310 DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 15 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Stanton Health Facilities, L.P. Page 16 of 24 8704 New Mexico LP Debtors Artesia Health Facilities, L.P. 5383 Bloomfield Health Facilities, L.P. 7640 Clayton Health Facilities, L.P. 3609 Desert Springs Health Facilities, L.P. 2707 Espanola Health Facilities, L.P. 2102 Gallup Health Facilities, L.P. 2562 Lordsburg Health Facilities, L.P. 1449 Pinnacle Health Facilities XXXIII, L.P. 1389 Raton Health Facilities, L.P. 6759 SF Health Facilities, L.P. 2323 SF Health Facilities-Casa Real, L.P. 0716 Silver City Health Facilities, L.P. 6972 DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154752v.12 -PAGE 16 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Exhibit A Gardere01 - 10154752v.12 Page 17 of 24 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Exhibit B Gardere01 - 10154752v.12 Page 18 of 24 Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 19 of 24 Kentucky Organizational Chart - II r. . Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 20 of 24 Kentucky Organizational Chart Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 21 of 24 Exhibit New Mexico Organizational Chart Elnomfield Health 5F Health Facilities Clayton Health Hobbs Health laHealth - - .. . -. Espann Eris-LY Thomas D. Start Thu mas D. Start .. Thu mas D. Start Scott ,1 6. Thu mas D. Scott v. Hobbs Health - all-r 5F Health Facilities Bloom?eki Heals?! Bloom?eld Nursing .- 5.3 '3 . - .Casa Real, Santa Fe, Espanula Valley Claymu nursing and Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 22 of 24 New Mexico Organizational Chart Eaton Health Cal-lup- Health. Silver Cm]! Health Health Thomas D. Scott Kellen Health 5F Health Facilities. Silver City Health 141mm rgHealth Rate-n Nu taiand Red Ruth We .Silr Cay-Care Sunshine Haven at Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 23 of 24 Exhibit Preferred Care? Inc. Organizational Chart Ih?-nd Can-Hm laxi? Qua?, Case 17-44642-mxm11 Doc 22 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 24 of 24 Exhibit Cash Management System1 Automatic Standing Wire Wells Capital Finance Line of Credit I I Wire Upon Borrower's Request Facility Support Funding, LLC I ConcentrationAccount Facility Support Funding, LLE [Accou nt Restricted Immediately] Accounts Payable Facility Support Funding, LLE MasteereratingAccount Doe-way I EBA . . . Facility Support Funding, LLE 1? Payroll EBA Facility Level Local Depository Accounts [Account Restricted lmmediateby} 111] Depository?ccounts Facility Support Funding, LLC GoftS. lnsu ran oe Receivables Depository Account 1 Two HUD financed Kentucky facilities are leased by two Debtors fthe Debtors"] that are not included in the Wells Fargo line of credit. The HUD Debtors utilize a similar oash management structure using FSF II. LLC. Three HUD-financed Florida facilities leased to non- debtors are also excluded from the Wells Fargo line of credit. and they utilize a stand alone cash management system (Le. do not use either FSF or FSF Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 1 of 24 Exhibit A1 to Weiner Declaration Summaries of First Day Motions2 I. II. III. IV. Administrative Pleadings .....................................................................................................2 A. Motion for Joint Administration ..............................................................................2 B. The Notice Procedures Motion ................................................................................3 C. The Creditor Consolidation Motion.........................................................................6 D. The Schedules Extension Motion ............................................................................7 E. The Interim Compensation Procedures Motion.......................................................8 Utilities, Wages, Insurance and Tax Pleadings..................................................................10 A. The Utilities Motion...............................................................................................10 B. The Insurance Motion ............................................................................................13 C. The Prepetition Wages Motion ..............................................................................14 D. Taxes Motion .........................................................................................................18 Resident-Related Pleadings ...............................................................................................19 A. Resident Refund Program Motion .........................................................................19 B. Resident Confidentiality Motion............................................................................20 Cash Collateral and Financing Pleadings ..........................................................................21 A. The Cash Management Motion..............................................................................21 B. Wells Fargo DIP Motion........................................................................................22 C. HUD Debtors Cash Collateral Motion...................................................................23 D. Omega and FC Domino Cash Collateral Motion...................................................24 V. Request for Emergency Consideration ..............................................................................24 1 Capitalized terms not otherwise defined in this exhibit shall have the meanings ascribed to them in the declaration, or the underlying motion, as applicable. 2 To the extent any of the information contained herein conflicts with the information in the particular motion at issue, the information in the Motion should control. Gardere01 - 10154755v.6 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 2 of 24 I. Administrative Pleadings A. Motion for Joint Administration 1. Through this Motion, the Debtors seek administration consolidation of their separate bankruptcy proceedings. The applicable authority for this proposition is found in FED. R. BANKR. P. 1015(b). 2. The Debtors qualify for joint administration because they are affiliates within the meaning of 11 U.S.C. § 101(2).3 With the exception of Preferred Care Inc., the Debtors are all owned 99% by the same limited partner, Thomas Scott. A Texas limited liability company functions as the 1% general partner of each limited partnership. Preferred Care Inc. is wholly owned by Mr. Scott. 3. The Debtors believe that the joint administration of these bankruptcy cases is warranted by the fact that (i) the financial affairs and business operations of the Debtors are closely related, and (ii) administrative expenses are shared by the Debtors. Entry of an order directing joint administration of these bankruptcy cases will obviate the need for duplicative notices, applications and orders, and will thereby save considerable time and expense for the Debtors and result in substantial savings to their respective estates. 3 Section 101(2) provides in relevant part: (2) “affiliate” means— (A) entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the Debtors. . . ; (B) corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor, or by an entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the Debtors. . . . EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 2 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 B. Entered 11/13/17 18:55:42 Page 3 of 24 The Notice Procedures Motion 4. The Debtors seek to establish notice procedures in this Bankruptcy Case because mailing of notices of all matters to all creditors in this Bankruptcy Case would be impractical and would impose a significant administrative and economic burden upon the Debtors’ estates. The Debtors estimate that there could be as many as 15,000 to 20,000 notice parties in this case, including residents at the Debtors’ facilities. There are numerous creditors and other interested parties upon whom, in certain instances, notice must be provided, unless the court orders otherwise. The Notice Procedures that the Debtors request be implemented in this Bankruptcy Case, as set forth below, will streamline the distribution of notices, reduce the administrative cost of providing notice, and still provide all critical parties with an interest in this case with notice and an opportunity to be heard. 5. 6. By the Notice Procedures Motion, the Debtors seek to: (a) limit the parties upon whom notice must be served; and (b) designate the manner of service with respect to all matters for which the Bankruptcy Code and the Bankruptcy Rules authorize the Court to designate or limit the parties entitled to notice and the manner of service, including matters subject to Bankruptcy Rules 2002, 4001, 6004, 6006, 6007 or 7004. The Debtors therefore request an order, as permitted by Bankruptcy Rules 2002(i) and (m), providing for the following Notice Procedures: (a) With respect to all matters or proceedings that fall within the scope of Bankruptcy Rules 2002(a)(2), 2002(a)(3), 2002(a)(6), 2002(d)(3), 4001, 6004, 6006 and 6007, the Court orders that notice need be served only upon the following parties in the following manner, unless a different manner of service, consistent with the procedures set forth herein, is specifically requested in a paper filed with the Court and served upon the parties entitled to notice herein at least ten (10) days prior to service: (i) The Office of the United States Trustee, via the CM/ECF system; EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 3 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 4 of 24 (ii) Counsel for any committees appointed under section 1102 of the Bankruptcy Code, via the CM/ECF system; (iii) To a consolidated list of the thirty (30) largest unsecured creditors of the Debtors; (iv) Counsel for Wells Fargo Bank, N.A. via the CM/ECF system; (v) The Debtors via correspondence at the following address: Preferred Care Inc. 5420 West Plano Parkway Plano, TX 75093 (vi) The Debtors’ undersigned reorganization counsel, via the CM/ECF system, and via first-class mail, at the following address: Gardere Wynne Sewell LLP Attn: Stephen A. McCartin 2021 McKinney Avenue, Suite 1600 Dallas, TX 75201 (vii) The Internal Revenue Service, via first-class mail, at the following address: Internal Revenue Service Special Procedures-Insolvency P.O. Box 7346 Philadelphia, PA 19101-7346 (viii) The holders of claims or interests who both file with the Court and serve on counsel for the Debtors, at the above address, a request for special notice, via first-class mail; and (ix) (b) Any party against whom direct relief is sought by motion, application or otherwise, such as the non-Debtor party to an executory contract or unexpired lease being assumed or rejected, and parties asserting interests in property being sold, via first-class mail. The filing of any pleading in this Bankruptcy Case, other than a proof of claim, on behalf of one of the foregoing parties, via the CM/ECF system, shall constitute that party’s consent to receive all future notice through the CM/ECF system; provided, however, that such party may request that notice be sent by first-class mail to a specified address, or by electronic mail to a specified address, by both filing with the Court and serving on the Debtors’ reorganization counsel a request for alternative service and/or change of address. Counsel for any of the parties listed above, if counsel is added or other counsel is substituted in their place, may report this substitution by both filing with the Court and serving on the Debtors’ reorganization counsel a request for special notice. Counsel making such a EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 4 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 5 of 24 request shall receive future service though the CM/ECF system; provided, however, that such counsel may, in its request for special notice, request additional service by first-class mail at any address. 7. (c) To the extent that the foregoing is inapplicable, any party filing or causing the filing of a motion, complaint, response, objection, notice, application, request, or other paper in this bankruptcy case, shall be deemed to have consented to receive effective notice at the address appearing on such paper, and notice sent to that address shall be deemed to have been brought to the attention of such party. (d) Other than as set forth above, and unless otherwise required by order of the Court, all notices in this case, shall be provided by first-class mail. (e) Unless otherwise ordered by the Court, the limitation on notice proposed by this Motion shall not apply to the matters or proceedings referred to in Bankruptcy Rules 2002(a)(1), (4), (5) and (7), and (b), (d) (other than (d)(3)), and (f). These matters or proceedings shall be noticed in accordance with the Bankruptcy Rules. (f) Future service on the Insured Depository Institutions as defined in Bankruptcy Code section 101(35) is to be made by first-class mail. 4 Additionally, through the Debtors’ noticing and claims agent, the Debtors propose to serve the Notice of Commencement, substantially in the form attached hereto as Exhibit A to the Notice Procedures Motion (the “Notice of Commencement”) in order to satisfy Rule 2002(a). The Proposed Notice shall apprise creditors of the filing of these bankruptcy cases, the date, time, and location of the 341(a) meeting of creditors, and the deadline by which claims must be filed in this case. The Debtors propose to serve such Notice of Commencement to all creditors and parties-in-interest in this case and have such service be deemed sufficient to provide notice of the 341(a) meeting of creditors and the deadline for filing proofs of claim. Furthermore, unless a creditor or interested party files and serves a request for special notice, such creditor or interested party shall only be provided with copies of those other Court filings 4 The Debtors’ major Insured Depository is Wells Fargo. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 5 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 6 of 24 required to be served on all creditors under Bankruptcy Rules 2002(a)(1), (4), (5) and (7), and (b), (d)(other than (d)(3)), and (f). C. The Creditor Consolidation Motion 8. Through the Creditor Consolidation Motion, the Debtors seek entry of an order: (a) authorizing the Debtors to file a consolidated creditor matrix and list of the 30 largest general unsecured creditors in lieu of submitting separate mailing matrices and creditor lists for each Debtor; (b) authorizing the Debtors to redact certain personal identification information for individual creditors; and (c) approving a form proof of claim that creditors may choose to use in order to assert their claims. The proposed proof of claim form has been customized to allow residents to request that their personal identifying information be kept confidential (meaning their proof of claim will not otherwise be published to the Debtors’ informational website). 9. Pursuant to Bankruptcy Rule 1007(d), a debtor shall file “a list containing the name, address and claim of the creditors that hold the 20 largest unsecured claims, excluding insiders . . . .” Fed. R. Bankr. P. 1007(d). Because a large number of creditors are shared amongst the Debtors due to synergies and shared vendors between facilities, the Debtors request authority to file a single, consolidated list of their 30 largest general unsecured creditors (the “Top 30 List”). A copy of the Debtors’ consolidated Top 30 List is attached to the Creditor Consolidation Motion as Exhibit B. Filing the Top 30 List will help alleviate administrative burdens, costs, and the possibility of duplicative service. Although they reserve the right to do so in the future, in this Motion, the Debtors are not requesting authority to file consolidated EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 6 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 7 of 24 schedules of assets and liabilities and statements of financial affairs or substantively consolidate the Debtors.5 D. The Schedules Extension Motion 10. Through the Schedules Extension Motion, the Debtors request that the Court enter an order (the “Order”) pursuant to section 521 of the Bankruptcy Code, and Rules 1007 and 9006 of the Federal Rules of Bankruptcy Procedure granting an extension of time to file Schedules and Statements. The Debtors request an additional twenty-two (22) days – for a total of thirty-seven (37) days – to file their Schedules and Statements, thereby establishing a deadline of December 20, 2017, for the filing of the Schedules and Statements. 11. Given the complexity of the Debtors’ financial affairs, the large number of potential creditors and parties in interest, and the intricacy of this Bankruptcy Case, it will take substantial time for the Debtors to analyze and compile the information needed to complete their Schedules and Statements. Consequently, it is almost certain that the Debtors will not be able to prepare and file the Schedules and Statements within fourteen (14) days of the Petition Date. 12. The analysis and compilation of the information for the Schedules and Statements will take more time because: (i) there are other urgent demands upon the Debtors as a result of the filing of this Bankruptcy Case that will consume the time of key personnel; (ii) the Debtors could have as many as 15,000-20,000 creditors and parties in interest; (iii) the Debtors’ operations involve numerous contracts, leases, and other agreements; (iv) the Debtors’ operations are spread over thirty-three (33) skilled nursing facilities in two states, (v) many of the Debtors’ liabilities may constitute contingent, unliquidated claims relating to obligations that are 5 Pursuant to the Debtors’ Motion for Order Extending Time to File Schedules of Assets and Liabilities and Statements of Financial Affairs, filed contemporaneously herewith, the Debtors are requesting an extension of the time within which they must file their respective schedules and statements. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 7 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 8 of 24 difficult to quantify; and (vi) the Debtors and their professionals need time to evaluate the information comprising the Schedules and Statements. The Debtors thus request that the Court establish December 20, 2017as the date on or before which they must file their Schedules and Statements, without prejudice to the Debtors’ right to seek further extensions from this Court, or to seek a waiver of the requirement of filing certain Schedules and Statements. E. The Interim Compensation Procedures Motion 13. The Debtors request that this Court enter an order establishing certain interim compensation and expense reimbursement procedures for the professionals retained in these bankruptcy cases by the Debtors and the Committee (individually, a “Professional” or collectively, the “Professionals”).6 Briefly stated, the requested procedures would require presentation (but not filing) of a detailed statement of services rendered and expenses incurred by each Professional for the prior month (“Monthly Statement”) to the following “Notice Parties”: 14. (a) counsel for the Debtors; (b) counsel for the Committee (if any); (c) the Office of the United States Trustee for the Northern District of Texas; and, (d) counsel for Wells Fargo Bank, N.A. If no objection is timely made to a Monthly Statement, the Professional would be entitled to an interim payment (an “Interim Compensation Payment”), subject to this Court’s subsequent approval under § 331 of the Code, as described below. 15. The Debtors propose that the monthly payment of compensation and reimbursement of expenses of the Professionals be subject to the following procedures: 6 The term “Professional” as used herein shall not refer to any professional(s) employed and/or retained by the Debtors in the ordinary course of business. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 8 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 9 of 24 (a) To the extent that any of the Professionals are holding retainers provided by the Debtors or the estates, such retainers may be drawn down by the Professionals pursuant to further order of the Court including the Financing Orders (as defined below). The payment of fees and expenses contemplated by this Motion shall be subject to the terms, conditions, and limitations of that certain Interim Order (I) Authorizing Debtors to Obtain Post-Petition Financing; (II) Granting Liens, Security Interests and Superpriority Administrative Expense Status; (III) Scheduling a Final Hearing; and (IV) Modifying Automatic Stay [Docket No. 19] (the “Interim Financing Order”), and any subsequent financing orders (and any approved budgets thereunder) (collectively, the “Financing Orders”). (b) On or before the twentieth (20th) day of each month following the month for which compensation and reimbursement of expenses is sought, each Professional shall submit a monthly statement that contains (i) a description of the services rendered, (ii) the time spent, (iii) the hourly rates charged, and (iv) the name of the attorney, accountant, other professional or paraprofessional performing the work (the “Monthly Statement”) to the Notice Parties. The Monthly Statement need not be filed with this Court. (c) Each such recipient shall have until the thirtieth (30th) day of the month to evaluate and object to the Monthly Statement (the “Objection Deadline”). Except as to that portion of a Monthly Statement that is the subject of a Notice of Objection as provided in paragraph (d) below, within three (3) business days following the Objection Deadline, the Debtors shall pay and/or the Professional may draw down on its retainer, if any, an amount equal to 80% of all fees and 100% of all expenses set forth in the Monthly Statement. (d) If any of the Notice Parties determines that the compensation or reimbursement sought in a particular Monthly Statement is inappropriate or unreasonable, or that the numbers and calculations are incorrect, such Notice Party shall, on or before the Objection Deadline, file with this Court and serve on (i) the Professional whose statement is objected to, and (ii) except to the extent duplicative of the foregoing clause, the other Notice Parties, a Notice of Objection to the Monthly Statement (the “Notice of Objection”), with a declaration setting forth the precise nature of the objection and the amount at issue. Thereafter, the objecting party and the Professional whose statement is objected to shall confer and attempt to reach an agreement regarding the correct payment to be made. If an agreement cannot be reached, or if no conference takes place, the Professional whose Monthly Statement is the subject of an objection shall have the option of (i) filing a motion with the Court outlining the basis for the objection and seeking an interim ruling from the Court and requesting authorization for payment, or (ii) foregoing payment with respect to the EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 9 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 10 of 24 disputed amount until the next fee application hearing, at which time, this Court shall consider and dispose of the objection if payment of the disputed amount is requested. Within three (3) business days following entry of an Order resolving an objection to a Monthly Statement, the Debtors shall pay any outstanding portion of the fees and expenses authorized for payment by such Order. 16. (e) The first Monthly Statement shall be submitted by each of the Professionals by January 20, 2017, and shall cover the period from the Petition Date through December 31, 2017. (f) Approximately every four (4) months, each of the Professionals shall file with the Court and serve on the Notice Parties, on or before the last day of the month following the end of the period for which compensation is sought, an application for interim Court approval and allowance, pursuant to Bankruptcy Code § 331, of compensation and reimbursement of expenses incurred during the prior four months (an “Interim Fee Application”). The first such Interim Fee Application shall be filed by each Professional on or before March 20, 2017, and shall cover the period from the Petition Date through February 28, 2017. (g) The existence of an application or a Court order that payment of compensation or reimbursement of expenses was improper as to a particular statement shall not disqualify a Professional from the future payment of compensation or reimbursement of expenses as set forth above. Neither the payment of nor the failure to object, in whole or in part, to the payment of Interim Compensation Payments as provided herein shall bind any party in interest or the Court with respect to the allowance of formal fee applications for compensation and reimbursement of expenses as to any such Professionals. II. Utilities, Wages, Insurance and Tax Pleadings A. The Utilities Motion 17. The Debtors respectfully requests that the Court enter an order: (a) deeming utilities adequately assured of future performance, and (b) establishing a procedure for EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 10 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 11 of 24 determining requests for additional adequate assurance pursuant to section 366 of the Bankruptcy Code.7 In greater detail, the Debtors seek the entry of an order: 18. (a) prohibiting the Debtors’ utility service providers (the “Utilities”8) from altering, refusing, discontinuing service to, or discriminating against, the Debtor; (b) providing that the creation of an escrow account in favor of the Utilities, in an amount equal to the average of the invoiced amounts of each Utility during the Relevant Period (as defined below), provides the Utilities “adequate assurance of payment” within the meaning of Bankruptcy Code section 366; and (c) establishing procedures for determining requests by Utilities for additional assurances and determining adequate assurance payments to be paid until a final adjudication by the Court on this matter. Specifically, the Debtors request entry of an order approving the following procedures with respect to adequate assurance requests from its utility providers (the “Objection Procedures”): (a) a Utility that objects to the Court’s determination that the Debtors have provided adequate assurance must file and serve an objection (the “Objection”) that sets forth the highest monthly amount invoiced to the Debtors in the prior three-month period, the prepetition amount alleged to be due and owing, and the amount of any deposit made by the Debtors prior to the Petition Date, and any argument as to why the funded Escrow Account is insufficient to provide adequate assurance of payment; (b) this Court will set a hearing date within thirty (30) days of the entry of an order approving this Motion, as close to the thirtieth 7 “Bankruptcy Code” shall mean 11 U.S.C. §§ 101, et seq. 8 The term “Utilities” (and each, a “Utility”) shall mean the utilities listed and described on Exhibit A attached to the Utilities Motion (the “Utility Service List”). The Debtors have made an extensive and good-faith effort to identify all Utilities and include them and their relevant information on the Utility Service List. The inclusion of any entity on, or the exclusion of any entity from the Utility Service List is not an admission by the Debtors that such entity is or is not a utility within the meaning of section 366 of the Bankruptcy Code, and the Debtors reserve their rights to contend that any entity listed on Exhibit A is not a utility. In addition, the Debtors request that this Motion apply to all Utilities regardless of whether they are on the Utility Service List. The Debtors have proposed a procedure herein for supplementing the Utility Service List. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 11 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 12 of 24 (30th) day as possible (the “Hearing Date”) at which time any Objection shall be considered, pursuant to Bankruptcy Code section 366(c)(3)(A). Objections must be filed and served on or before the date that is seven (7) days prior to the Hearing Date, with respect to any Utility listed on Exhibit A attached to the Utilities Motion. The Debtors may file and serve a reply to any Objection on or before the date that is two (2) days prior to the Hearing Date. In the event no Objection has been filed by the date set forth above, no hearing will be held. 19. (c) in the event a Utility not listed on Exhibit A to the Utilities Motion seeks assurance, such Utility must file and serve an Objection within fourteen (14) days after the date upon which it has received notice of entry of the order granting the Utilities Motion. The Debtors must serve the Utilities with notice of entry of the order within two (2) business days after discovering the existence of the Utility. The Court will set a hearing date no sooner than seven (7) days after the date upon which such Objection has been filed. The Debtors may file and serve a reply to any such Objection on or before the date that is two (2) days prior to such hearing date; and (d) all Utilities will be deemed to have been provided with adequate assurance of payment in accordance with Bankruptcy Code section 366, without the need of an additional deposit or other security, until an order of the Court to the contrary is entered. Any Utility that does not file and serve a timely and proper Objection shall be deemed to have been provided with adequate assurance of payment in accordance with Bankruptcy Code section 366. Under the circumstances of this Bankruptcy Case, the Utilities would not be prejudiced by the granting of the relief requested in the Motion. The Debtors have generally paid their utility bills on a timely basis, and there are no material prepetition payment defaults or arrearages, other than: (i) accrued prepetition charges which had not yet been billed or which were not yet due or payable as of the Petition Date; or (ii) amounts whose payment may have been delayed or interrupted by the filing of this Bankruptcy Case. 20. The adequate assurance proposed by the Debtors is proposed primarily of deposits into an escrow account in an amount equal to the aggregate sum of the average monthly amount invoiced by each Utility during the prior three-month period. The Debtors have budgeted EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 12 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 13 of 24 approximately $300,000 for such deposits for their facilities in Kentucky and $175,000 for their facilities in New Mexico. B. The Insurance Motion 21. In the ordinary course of its business, the Debtors maintain numerous insurance policies, including general liability, property, and workers’ compensation (collectively, the “Policies,” and each a “Policy”). Certain of the Policies are funded through a premium finance agreement with First Insurance Funding, and the remainder are either pre-paid on a yearly basis or paid by the Debtors on a monthly basis. 22. The Policies are summarized in the table below: Type of Insurance Provider Term Premium Payment Type (if any) General/Professional Liability Ironshore Specialty Insurance Co. 1/29/17 - 1/29/18 $1,034,606 Financed Executive Risk Package (Executive Liability) Federal Insurance Company 3/14/17 – 3/14/18 $81,885 Pre-Paid Executive Risk Package (Fiduciary Claims) Federal Insurance Company 3/14/2017 – 3/14/18 $2,200 Pre-Paid Executive Risk Package (Crime Retention) Federal Insurance Company 3/14/2017 – 3/14/18 $17,400 Pre-Paid Flood (Puducah, KY Facility) Wright National Flood 7/29/17 - 7/29/18 $3,323 Pre-Paid Flood (Salyesville, KY Facility) Wright National Flood 9/28/17 - 9/28/18 $5,483 Pre-Paid Flood (Richmond, KY Facility) Wright National Flood 11/29/17 - 11/29/18 $3,323 Pre-Paid Flood (Hobbs, NM Facility) Wright National Flood 1/03/17 – 1/03/18 $10,840 Pre-Paid Flood (Henderson, KY) Wright National Flood 9/8/17 - 9/8/18 $2,246 Pre-Paid Property Liberty Mutual Fire Insurance 11/1/17 - 11/1/18 $1,096,022 Financed Pollution Legal Liability Ironshore Specialty Insurance Co. 9/27/16 – 9/27/18 $39,802 Pre-Paid General Liability (KY Facilities) Ironshore Specialty Insurance Co. 6/29/17 – 6/29/18 $108,979.84 Financed General/Professional Liability (Henderson and Elsemere Facilities) Lloyd’s of London 6/29/17 – 6/29/18 $165,464.00 Financed General/Professional Liability Fronting Policy Ironshore Specialty Insurance Co. 1/29/17 – 1/29/18 $7,875 Pre-Paid EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 13 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 14 of 24 Information Security & Privacy Insurance Lloyd’s of London 1/29/17 – 1/29/18 $47,407.51 Financed Worker’s Compensation Amerisure Insurance Co. 11/1/17 - 1/1/18 $3,500,000 Billed Monthly Automobile Amerisure Insurance Co. 11/1/17 - 11/1/18 $185,339 Billed Monthly 23. The Debtors seek the authority, in their reasonable business judgment, (i) to continue to make monthly payments required to keep the Policies in effect, (ii) to continue making the payments required to finance the Policies with First Insurance Funding, and (iii) to continue to administer the Policies postpetition. The Debtors further request the authority to pay all such amounts in the ordinary course of their businesses. C. The Prepetition Wages Motion 24. In the course of their normal business operations, the Debtors employ approximately two thousand five hundred forty-five (2,545) total employees across thirty-three (33) facilities in Kentucky and New Mexico, including registered nurses, licensed vocational nurses, certified nursing aides, therapists, social services staff, and administrators. Approximately one thousand, six hundred (1,600) of those employees are employed in Kentucky, with the remaining nine hundred (900) employed in New Mexico.9 Prior to the Petition Date, and in the ordinary course of their businesses, the Debtors paid wages, salaries, and other compensation and benefits to their employees. The Debtors’ employee obligations accrue on an ongoing and continuous basis but are only paid periodically. The intervening bankruptcy filing has resulted in the accrual of unpaid, prepetition wages, salaries, contractual compensation, commissions, incentive compensation, and/or other compensation owed to employees and related third-parties. 9 Preferred Care Inc. has no employees. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 14 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 25. Entered 11/13/17 18:55:42 Page 15 of 24 Like the Debtors’ other expenditures, payroll is funded and processed through a payroll account in the Debtors’ unified cash management system by an affiliate of the Debtors, Facility Support Funding (“FSF”).10 As part of the ordinary course of business, the Debtors’ management company, PCPMG Consulting, LLC (“PCP Consulting”), actually writes and issues payroll checks on the Debtors’ behalf transfers withholding payments to the Internal Revenue Service. 26. By this Motion, the Debtors seek authority to pay certain prepetition obligations owing to its employees including, without limitation, (a) amounts owed to employees for wages, salaries, contractual compensation, and incentives; (b) amounts owed to certain independent contractors of the Debtor for services rendered; (c) amounts owed to employees for reimbursement of business expenses incurred on the Debtors’ behalf; (d) maintenance of employee health and welfare plans; and (e) other miscellaneous employee expenses and benefits (collectively, the “Prepetition Employee Compensation”). The Debtors seek authority to honor Prepetition Employee Compensation as payment of such obligations is critical to employee morale, retaining employees through this Bankruptcy Case, and future business needs. Additionally, the overwhelming majority of such claims would be entitled to priority treatment under section 507 of the Bankruptcy Code. None of the Debtors’ employees have accrued prepetition wages in excess of the priority cap established by Bankruptcy Code section 507(a)(4), and the Debtors are not seeking payment of prepetition amounts in excess of the priority cap. 27. The next payroll for the Debtors’ Kentucky facilities is scheduled for November 22, 2017 for work actually performed in the period ending November 11, 2017. New Mexico 10 The HUD Debtors’ employees are paid through a similar structure at FSF II, LLC (“FSF II”) as described in the Weiner Declaration. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 15 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 16 of 24 payrolls for the same period will be issued in the same week beginning November 20, 2017.11 The timing of these post-petition payrolls means that employees will necessarily be paid for work performed prepetition, including work performed during the work period ending November 11, 2017. The Debtors’ average monthly payroll and associated payroll taxes (including two bimonthly pay periods) total approximately $6 million across all of the Debtors’ thirty-three (33) facilities. Thus, as of the Petition Date, the Debtors estimate that their outstanding payroll obligations are approximately $5 million. None of the Debtors’ employees are owed more than the priority cap pursuant to § 507(a)(4). 28. Additionally, in the ordinary course of their business, the Debtors provide their employees with various forms of insurance coverage through third-party providers. As is customary for most companies, the Debtors are responsible for a portion of the associated premiums, and the Employees pay the rest. The Debtors provide employees with medical, vision and dental insurance coverage from the following carriers and are responsible for the monthly premiums indicated: BENEFIT CARRIER Health Insurance – Value & Basic Plans Health Insurance – Enhanced & Premium Plans Medical Service Dental Insurance Vision Insurance Life, Supplemental Life, ADD, EAP Accident, Hospital, Critical Illness Telephone MD Stop Loss Whole Life Allied Benefit Systems BCBS Grand Rounds Humana Dental Humana Vision Mutual of Omaha Colonial Teledoc Symetra UNUM 11 Kentucky Monthly Premiums New Mexico Monthly Premiums $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,610.12 9,664.56 1,939.30 15,473.77 4,189.43 23,286.98 10,538.90 598.40 18,266.87 4,928.37 1,993.74 3,819.06 676.14 6,389.11 1,497.27 9,923.77 5,955.58 259.60 7,410.32 2,926.20 The Debtors operating New Mexico facilities stagger their payrolls such that some will occur on Monday, November 20, some will occur on Wednesday, November 22, and the remaining payrolls will occur on Friday, November 24 for the period ending November 11, 2017. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 16 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Fees IPS 29. Entered 11/13/17 18:55:42 $ 6,449.73 $ 99,946.43 Page 17 of 24 $ $ 3,685.56 44,536.35 Furthermore, the Debtors provide their employees with accrued vacation time (“Vacation”) generated over the course of the employee’s tenure. Pursuant to the Vacation plan, employees accumulate time for each payroll period. Employees have a rolling balance for Vacation time and can either use that time over the course of the Debtors’ fiscal year or cash it out. When an employee leaves the Debtors for any reason, they are also allowed to cash out their unused, vested Vacation time. In these cases, the Debtors request that they be allowed to continue their Vacation program post-petition and recognize benefits that accrued and vested pre-petition. The Debtors estimate that their employees have accrued approximately $760,183 in Vacation time in their Kentucky facilities and $387,725 in New Mexico, for a total of approximately $1,147,908. Even adding these accrued Vacation amounts to unpaid pre-petition wages, none of the Debtors employees exceed the priority cap under § 507(a)(4). 30. Additionally, the Debtors offer a deferred compensation program for qualified employees that allows each such employee to defer up to 100% of their pre-tax base compensation until they retire or leave the Facilities (the “Deferred Compensation Program”). The Debtors match up to 10% of employee contributions in a given year. Qualified employees participating in the program are immediately vested in their elective contributions and vest gradually in employer contributions over 10 years of employment (10% per year). The Deferred Compensation Program specifies that participants constitute general unsecured creditors of the Debtors to the extent of their participation in the program, and the Debtors do not seek authority at this time to pay any pre-petition amounts due. Instead, the Debtors seek authority to continue the deferred compensation program in the ordinary course of their businesses, including matching contributions made post-petition. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 17 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 31. Entered 11/13/17 18:55:42 Page 18 of 24 Through the Wages Motion, the Debtors request authority to pay certain pre- petition amounts attributable to the Employee Benefits from time to time as and when such amounts become due in the ordinary course of business. D. Taxes Motion 32. In the course of their operations, the Debtors are responsible for collecting and remitting various taxes directly to the applicable taxing authority, including “bed taxes” for nonMedicare patients in their Kentucky facilities and similar taxes on gross revenues in their New Mexico facilities (the “Prepetition Taxes”). Such taxes generally are payable monthly in arrears to the appropriate state agency, i.e. the Kentucky Department of Revenue. Failure to pay the Pre-petition Taxes may result in suspension of the Debtors’ participation in Medicare and/or Medicaid, jeopardizing their ongoing business operations. The Debtors estimate that they currently owe approximately $876,000 in the aggregate in such Prepetition Taxes ($526,000 in Kentucky bed taxes and $350,000 in New Mexico gross revenue taxes). 33. The Debtors requests authority to remit any state or local taxes collected in the course of their operations to the applicable taxing authorities (the “Taxing Authorities”). Also, to the extent that any checks paying such Taxes have not cleared the banks as of the Petition Date, the Debtors seek an order authorizing the Debtors’ banks to honor the checks, and to rely on the Debtors’ representations as to which checks may and may not be cleared, without any liability to any third party. In addition, to the extent the Taxing Authorities have otherwise not received payment for the Taxes due to them, the Debtors seek authorization to issue replacement checks, or to provide for other means of payment to the Taxing Authorities. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 18 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 19 of 24 III. Resident-Related Pleadings A. Resident Refund Program Motion 34. Part 483 of Title 42 of the Code of Federal Regulations, entitled “Requirements for States and Long-Term Care Facilities,” established by the Centers for Medicare & Medicaid Services (part of the Department of Health & Human Services), provides, in part, that (iii) If a resident dies or is hospitalized or is transferred and does not return to the facility, the facility must refund to the resident, resident representative, or estate, as applicable, any deposit or charges already paid, less the facility’s per diem rate, for the days the resident actually resided or reserved or retained a bed in the facility, regardless of any minimum stay or discharge notice requirements. (iv) The facility must refund to the resident or resident representative any and all refunds due the resident within 30 days from the resident's date of discharge from the facility. 42 CFR 483.10(g)(18). Section 483 forms part of the requirements set forth for certification and inclusion in Medicaid and related federal programs for long-term care facilities established by the Secretary of Health and Human Services pursuant to Sections 1819(a), (b), (c), (d), and (f) of the Social Security Act. 35. Through the Resident Refund Motion, the Debtors request authority to make the necessary payments to satisfy their pre-petition resident refund requirements post-petition in order to preserve their continued involvement in Medicaid, Medicare, and related programs. The Debtors derive a significant portion of their revenues—approximately 80% — from such programs and must have the ability to maintain their certifications in order to remain operating. As of the Petition Date, the Debtors estimate that approximately $20,000 in outstanding prepetition refunds are due. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 19 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 B. Entered 11/13/17 18:55:42 Page 20 of 24 Resident Confidentiality Motion 36. The purpose of the Resident Confidentiality Motion is to protect the Debtors from potential negative consequences associated with the disclosure of resident information that is simultaneously required by the Bankruptcy Code and applicable Federal Rules of Bankruptcy Procedure and prohibited by federal and state laws protection such information. The relief sought will allow the Debtors to comply with their noticing and reporting obligations in these bankruptcy cases while also protecting resident information, including resident identities, addresses, and other identifying information. 37. The Debtors estimate that they have provided services to approximately ten thousand (10,000) residents at the Kentucky and New Mexico Facilities (defined in the Weiner Declaration) in the last two (4) years (the “Residents”), including approximately two-thousand, eight hundred (2,800) current residents.12 An unknown number of those residents may have some kind of claim against the Debtors. Given the significant time and expense associated with providing all the Residents technical notice of the Chapter 11 Case, the Debtors request that they be authorized to give the Residents notice of this case by transmitting in writing the Notice of Commencement of these bankruptcy cases. Because the Debtors intend to employ a claims and/or noticing agent in this case, the Debtors also propose to also provide information related to the informational website and toll-free informational number created by such agent. The Debtors request the Court’s approval that no further notices and/or pleadings be required to be given to the Residents in this case unless any such Resident requests further notices and/or pleadings or timely files a proof of claim. 12 For the purposes of this Motion and the relief sought therein, “Patients” also includes resident guardians and/or guarantors, i.e. persons entitled to receive communications from the Debtors related to specific residents or residents at the facilities. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 20 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 38. Entered 11/13/17 18:55:42 Page 21 of 24 The Debtors also request relief from the required form for submitting a mailing matrix to the Court only with regard to the Resident Matrix. Given the Debtors’ request to file the Resident Matrix under seal, together with the significant cost associated with formatting the Resident Matrix as required by the Local Rules, the Debtors respectfully request that the Resident Matrix not be required to be filed in the format required by the Local Rules. Instead, the Debtors request that the Resident Matrix be submitted in a format that can be readily created from the Debtors’ existing records. IV. Cash Collateral and Financing Pleadings 39. The Debtors have filed four (4) motions related to the continued use of their Cash Management System(s), the post-petition use of cash collateral of alleged secured parties, and the procurement of additional post-petition debtor-in-possession financing from Wells Fargo. A. The Cash Management Motion 40. The Weiner Declaration describes the Debtors’ consolidated cash management system. Through the Cash Management Motion, the Debtors seek authority to continue utilizing their existing systems post-petition. The Debtors’ Cash Management System includes the collection-sweep mechanic through FSF and/or FSF II (as applicable), and subsequent draws by FSF (for the non-HUD Debtors) in order to fund the operations of both the Debtors (excluding the HUD Debtors) and their non-Debtor affiliates. A chart summarizing the Cash Management System is attached to the Weiner Declaration. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 21 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 B. Entered 11/13/17 18:55:42 Page 22 of 24 Wells Fargo DIP Motion 41. As set forth in detail in the Weiner Declaration and in the Cash Management Motion,13 the Debtors and the non-debtor Borrowers require regular advances of funds from FSF, which are obtained by FSF from the Wells Fargo line of credit. FSF and each of the Preferred Care Group entities are co-borrowers and jointly and severally liable for the Wells Fargo indebtedness. Therefore, the Preferred Care Group and FSF are continually paying down and drawing upon the Wells Fargo line of credit to fund their operations. The Debtors do not expect the outstanding indebtedness to Wells Fargo to exceed forty-two million dollars ($42,000,000) during the next seven (7) month post-petition period. See the Consolidated Budget for the Preferred Care Group attached to the DIP Financing Motion as Exhibit A. 42. For these reasons, the Debtors are seeking authority to continue the use of their Cash Management System and to incur post-petition debtor-in-possession financing (the “DIP Loan”) through the continued use of the Wells Fargo line of credit in order to continue operating their businesses. Specifically, all collections from the Preferred Care Group will be paid and applied to the line of credit, creating availability for FSF to draw additional funds and to provide such funds to the Preferred Care Group to operate their businesses. The continued use of the cash management system and the Wells Fargo line of credit will result in the collection of prepetition accounts receivable being first applied to the pre-petition indebtedness, and all future draws on the line of credit constituting post-petition debtor in possession financing (since the Debtors are co-obligors on the Wells Fargo line of credit). The specific terms of the DIP Loan are set forth in the Credit Agreement as modified by this Order and the Final Order (the “DIP Credit Agreement”) negotiated with Wells Fargo as both Administrative Agent (the “DIP 13 For more information on the Cash Management System, see the Cash Management Motion and the Weiner Declaration. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 22 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 23 of 24 Agent”) and post-petition lender (together with its successors and assigns and the other lenders party thereto, the “DIP Lender”). 43. The DIP Financing Motion requests entry of an order substantially in the form of the interim order attached hereto as Exhibit C (the “Interim Order”) and, at the appropriate time, a final order (the “Final Order”) authorizing the Borrowing Debtors to obtain interim financing and incur post-petition indebtedness pursuant to the DIP Facility (as defined therein). C. HUD Debtors Cash Collateral Motion 44. All of the Debtors lease their Facilities from other entities, including affiliates of Preferred Care Inc. The Debtors do not own the Facilities. The HUD Debtors, Elsemere Health Facilities, L.P. and Henderson Health Facilities, L.P., lease Facilities financed through agreements between their non-debtor landlords, which are affiliates of FC Domino, and Ziegler (as lender for HUD). Pursuant to sublessee security agreements executed by and between the HUD Debtors and Ziegler (as lender for HUD), the HUD Debtors granted Ziegler (as lender for HUD) security interests in substantially all of their assets, including their accounts receivable. FC Domino’s affiliates also received a security interest in the HUD Debtors’ assets to secure the rent obligations owed to such affiliates. Ziegler Finance Corporation, on behalf of itself and HUD, filed a UCC-1 financing statement against the HUD Debtors in order to perfect its alleged secured interests. FC Domino’s affiliates filed their UCC-1 financing statements in order to perfect its alleged secured interests. 45. Through this HUD Cash Collateral Motion, the HUD Debtors seek authority to use the Cash Collateral of Ziegler (as lender for HUD) and FC Domino and for authority to grant replacement liens to Ziegler (as lender for HUD) and FC Domino on post-petition assets of the HUD Debtors to the same extent and priority as their pre-petition liens (if any). The HUD EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 23 Case 17-44642-mxm11 Doc 22-1 Filed 11/13/17 Entered 11/13/17 18:55:42 Page 24 of 24 Debtors, which are not included in the Wells Fargo line of credit, do not seek any form of additional debtor-in-possession financing at this time. D. Omega and FC Domino Cash Collateral Motion 46. FC Domino leases Facilities in Kentucky to Preferred Care, the Master Lessee pursuant to a master lease, and Preferred Care has entered into sublease agreement with individual partnerships. Omega has entered into individual leases of the Facilities with the Omega Debtors in New Mexico. The FC Domino Debtors and Omega Debtors have granted FC Domino and Omega, as applicable, security interests in substantially all of their assets, including their accounts receivable, to secure the rent obligations owed to such entities. In order to perfect their asserted security interests, the FC Domino landlords filed UCC-1 financing statements against the FC Domino Debtors and the Omega landlords filed UCC-1 financing statements against the Omega Debtors. The Omega and FC Domino landlords’ liens are subordinate to the liens of Wells Fargo in the assets of the Omega and FC Domino Debtors. 47. Through this Omega and FC Domino Cash Collateral Motion, the Omega and FC Domino Debtors seek authority to use the Cash Collateral of Omega and FC Domino and for authority to grant adequate protection replacement liens to Omega and FC Domino on postpetition assets of the Omega and FC Domino Debtors to the same extent and priority as their prepetition liens. V. Request for Emergency Consideration 48. Due to the nature of the relief sought in the First Day Motions listed above, the Debtors filed a request for emergency consideration of same pursuant to the Local Bankruptcy Rules for the Northern District of Texas. EXHIBIT A TO THE DECLARATION OF ALAN WEINER IN SUPPORT OF FIRST-DAY MOTIONS Gardere01 - 10154755v.6 - PAGE 24