UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2015
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number 001-33135
AdCare Health Systems, Inc.
(Exact name of registrant as specified in its charter)
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Georgia
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31-1332119
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(State or other jurisdiction
of incorporation)
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(I.R.S. Employer Identification Number)
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1145 Hembree Road, Roswell, GA 30076
(Address of principal executive offices)
(678) 869-5116
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
ý
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
ý
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of
October 31, 2015
:
19,902,283
shares of common stock with no par value were outstanding.
AdCare Health Systems, Inc.
Form 10-Q
Table of Contents
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Page
Number
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FINANCIAL INFORMATION
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Financial Statements (unaudited)
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Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014
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Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited)
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Consolidated Statement of Stockholders' Equity/(Deficit) for the nine months ended September 30, 2015 (unaudited)
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited)
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Notes to Consolidated Financial Statements (unaudited)
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Quantitative and Qualitative Disclosures About Market Risk
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Controls and Procedures
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OTHER INFORMATION
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Legal Proceedings
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Risk Factors
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Unregistered Sales of Equity Securities and Use of Proceeds
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Defaults upon Senior Securities
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Mine Safety Disclosures
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Other Information
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Exhibits
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Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") and certain information incorporated herein by reference contain forward-looking statements and information within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Exchange Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Act"). This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management’s plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company’s future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seeks,” “plan,” “project,” “continue,” “predict,” “will,” “should,” and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company’s current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.
All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company’s actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company’s critical accounting policies and risks and uncertainties related to, but not limited to, overall industry environment, regulatory delays, negative clinical results, and the Company’s financial condition. These and other risks and uncertainties are described in more detail in the Company’s most recent Annual Report on Form 10-K, as well as other reports that the Company files with the SEC.
Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company’s views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company’s business.
Part I. Financial Information
Item 1. Financial Statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000’s)
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September 30,
2015
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December 31,
2014
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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4,275
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$
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10,735
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Restricted cash
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8,265
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3,321
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Accounts receivable, net of allowance of $13,048 and $6,708
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10,991
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24,294
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Prepaid expenses and other
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5,318
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1,766
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Deferred tax asset
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569
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569
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Assets of disposal group held for use
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—
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4,592
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Assets of disposal group held for sale
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4,989
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5,813
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Assets of variable interest entity held for sale
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5,918
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5,924
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Total current assets
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40,325
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57,014
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Restricted cash
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3,953
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5,456
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Property and equipment, net
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127,758
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130,993
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Intangible assets - bed licenses
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2,471
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2,471
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Intangible assets - lease rights, net
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3,587
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4,087
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Goodwill
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4,183
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4,224
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Lease deposits
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1,812
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1,683
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Deferred loan costs, net
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3,389
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3,464
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Other assets
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2,690
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569
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Total assets
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$
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190,168
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$
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209,961
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LIABILITIES AND EQUITY / (DEFICIT)
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Current liabilities:
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Current portion of notes payable and other debt
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$
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39,150
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$
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2,436
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Current portion of convertible debt, net of discounts
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—
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14,000
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Revolving credit facilities and lines of credit
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842
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5,576
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Accounts payable
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11,247
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16,434
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Accrued expenses
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7,768
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15,653
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Liabilities of disposal group held for use
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—
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4,035
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Liabilities of disposal group held for sale
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4,008
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5,197
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Liabilities of variable interest entity held for sale
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5,871
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5,956
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Total current liabilities
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68,886
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69,287
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Notes payable and other debt, net of current portion:
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Senior debt, net of discounts
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68,491
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106,089
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Bonds, net of discounts
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6,899
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7,011
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Convertible debt
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9,200
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—
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Revolving credit facilities
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—
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1,059
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Other liabilities
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2,996
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2,129
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Deferred tax liability
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605
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605
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Total liabilities
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157,077
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186,180
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Commitments and contingencies (Note 14)
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Preferred stock, no par value; 5,000 shares authorized; 2,203 and 950 shares issued and outstanding, redemption amount $55,084 and $23,750 at September 30, 2015 and December 31, 2014, respectively
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50,119
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20,392
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Stockholders’ equity:
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Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 19,838 and 19,151 issued and outstanding at September 30, 2015 and December 31, 2014, respectively
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60,768
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61,896
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Accumulated deficit
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(74,572
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)
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(56,067
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)
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Total stockholders’ equity / (deficit)
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(13,804
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)
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5,829
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Noncontrolling interest in subsidiary
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(3,224
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)
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(2,440
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)
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Total equity / (deficit)
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(17,028
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)
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3,389
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Total liabilities and equity / (deficit)
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$
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190,168
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$
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209,961
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See accompanying notes to unaudited consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000’s, except per share data)
(Unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2015
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2014
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2015
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2014
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Revenues:
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Rental revenues
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$
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5,826
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$
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388
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$
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11,322
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$
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980
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Patient care revenues
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4,290
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4,359
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12,532
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12,621
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Management revenues
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218
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354
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692
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1,140
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Other revenues
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86
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—
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135
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—
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Total revenues
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10,420
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5,101
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24,681
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14,741
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Expenses:
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Cost of services (exclusive of facility rent, depreciation and amortization)
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4,354
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4,168
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12,887
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10,964
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General and administrative expense
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2,101
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3,575
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7,782
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12,313
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Facility rent expense
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1,802
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385
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3,618
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1,044
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Depreciation and amortization
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1,912
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1,861
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5,385
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5,570
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Salary retirement and continuation costs
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21
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1,488
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(27
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)
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2,770
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Total expenses
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10,190
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11,477
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29,645
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32,661
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Income (loss) from operations
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230
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(6,376
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)
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(4,964
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)
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(17,920
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)
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Other income (expense):
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Interest expense, net
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(1,830
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)
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(2,594
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)
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(6,600
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)
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(7,770
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)
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Acquisition costs
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—
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(8
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)
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—
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(8
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)
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Loss on extinguishment of debt
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—
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(1,220
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)
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(680
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)
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(1,803
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)
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Other expense
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(269
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)
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(444
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)
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(749
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)
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(635
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)
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Total other expense, net
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(2,099
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)
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(4,266
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)
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(8,029
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)
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(10,216
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)
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Loss from continuing operations before income taxes
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(1,869
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)
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(10,642
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)
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(12,993
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)
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(28,136
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)
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Income tax benefit (expense)
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—
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244
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(20
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)
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236
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Loss from continuing operations
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(1,869
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)
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(10,398
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)
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(13,013
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)
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(27,900
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)
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Income (loss) from discontinued operations, net of tax
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(3,228
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)
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6,850
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(2,694
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)
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19,034
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Net loss
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(5,097
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)
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(3,548
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)
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(15,707
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)
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(8,866
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)
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Net loss attributable to noncontrolling interests
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285
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218
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784
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548
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Net loss attributable to AdCare Health Systems, Inc.
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(4,812
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)
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(3,330
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)
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(14,923
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)
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(8,318
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)
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Preferred stock dividends
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(1,498
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)
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(646
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)
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(3,582
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)
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(1,938
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)
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Net loss attributable to AdCare Health Systems, Inc. Common Stockholders
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$
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(6,310
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)
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$
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(3,976
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)
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$
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(18,505
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)
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$
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(10,256
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)
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Net income (loss) per share of common stock attributable to AdCare Health Systems, Inc.
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Basic:
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|
|
|
|
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|
|
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Continuing operations
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$
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(0.17
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)
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$
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(0.61
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)
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$
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(0.84
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)
|
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$
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(1.70
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)
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Discontinued operations
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(0.15
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)
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0.39
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|
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(0.10
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)
|
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1.12
|
|
|
|
$
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(0.32
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)
|
|
$
|
(0.22
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)
|
|
$
|
(0.94
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)
|
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$
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(0.58
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)
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|
|
|
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|
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Diluted:
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Continuing operations
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$
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(0.17
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)
|
|
$
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(0.61
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)
|
|
$
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(0.84
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)
|
|
$
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(1.70
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)
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Discontinued operations
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(0.15
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)
|
|
0.39
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|
|
(0.10
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)
|
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1.12
|
|
|
|
$
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(0.32
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)
|
|
$
|
(0.22
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)
|
|
$
|
(0.94
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)
|
|
$
|
(0.58
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)
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding:
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|
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|
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|
|
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Basic
|
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19,838
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|
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18,134
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|
|
19,617
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|
|
17,539
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|
Diluted
|
|
19,838
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|
|
18,134
|
|
|
19,617
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|
|
17,539
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|
See accompanying notes to unaudited consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY / (DEFICIT)
(Amounts in 000’s)
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Shares of Common Stock
|
|
Common Stock and Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Noncontrolling
Interest in Subsidiary
|
|
Total
|
Balances, December 31, 2014
|
|
19,151
|
|
|
$
|
61,896
|
|
|
$
|
(56,067
|
)
|
|
$
|
(2,440
|
)
|
|
$
|
3,389
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
—
|
|
|
677
|
|
|
—
|
|
|
—
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
Option and warrant activity, net of shares withheld
|
|
527
|
|
|
1,471
|
|
|
—
|
|
|
—
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock, net
|
|
160
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends
|
|
—
|
|
|
(3,276
|
)
|
|
—
|
|
|
—
|
|
|
(3,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
(3,582
|
)
|
|
—
|
|
|
(3,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
(14,923
|
)
|
|
(784
|
)
|
|
(15,707
|
)
|
Balances, September 30, 2015
|
|
19,838
|
|
|
$
|
60,768
|
|
|
$
|
(74,572
|
)
|
|
$
|
(3,224
|
)
|
|
(17,028
|
)
|
See accompanying notes to unaudited consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in 000's)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2015
|
|
2014
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,707
|
)
|
|
$
|
(8,866
|
)
|
(Income) loss from discontinued operations, net of tax
|
|
2,694
|
|
|
(19,034
|
)
|
Loss from continuing operations
|
|
(13,013
|
)
|
|
(27,900
|
)
|
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
5,385
|
|
|
5,570
|
|
Warrants issued for services
|
|
—
|
|
|
88
|
|
Stock-based compensation expense
|
|
677
|
|
|
983
|
|
Rent expense in excess (deficit) of cash paid
|
|
(39
|
)
|
|
166
|
|
Rent revenue in excess of cash received
|
|
(989
|
)
|
|
(7
|
)
|
Amortization of deferred financing costs
|
|
949
|
|
|
1,452
|
|
Amortization of debt discounts and premiums
|
|
(11
|
)
|
|
(13
|
)
|
Loss on debt extinguishment
|
|
680
|
|
|
1,803
|
|
Acquisition costs
|
|
—
|
|
|
8
|
|
Deferred tax benefit
|
|
—
|
|
|
(191
|
)
|
Bad debt expense
|
|
987
|
|
|
461
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
|
(1,723
|
)
|
|
(743
|
)
|
Prepaid expenses and other
|
|
(2,105
|
)
|
|
(501
|
)
|
Other assets
|
|
(2,254
|
)
|
|
(51
|
)
|
Accounts payable and accrued expenses
|
|
(2,831
|
)
|
|
1,554
|
|
Other liabilities
|
|
906
|
|
|
161
|
|
Net cash used in operating activities - continuing operations
|
|
(13,381
|
)
|
|
(17,160
|
)
|
Net cash provided by (used in) operating activities - discontinued operations
|
|
(750
|
)
|
|
11,186
|
|
Net cash used in operating activities
|
|
(14,131
|
)
|
|
(5,974
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Change in restricted cash
|
|
(3,440
|
)
|
|
5,827
|
|
Purchase of property and equipment
|
|
(1,328
|
)
|
|
(3,421
|
)
|
Net cash provided by (used in) investing activities - continuing operations
|
|
(4,768
|
)
|
|
2,406
|
|
Net cash provided by (used in) investing activities - discontinued operations
|
|
5,678
|
|
|
(928
|
)
|
Net cash provided by investing activities
|
|
910
|
|
|
1,478
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from debt
|
|
22,757
|
|
|
17,750
|
|
Proceeds from convertible debt
|
|
2,049
|
|
|
6,500
|
|
Repayment of notes payable
|
|
(24,410
|
)
|
|
(18,436
|
)
|
Repayment on bonds payable
|
|
(35
|
)
|
|
(2,994
|
)
|
Repayment on convertible debt
|
|
(6,849
|
)
|
|
(4,539
|
)
|
Proceeds from lines of credit
|
|
27,468
|
|
|
57,615
|
|
Repayment of lines of credit
|
|
(33,261
|
)
|
|
(57,949
|
)
|
Debt issuance costs
|
|
(874
|
)
|
|
(858
|
)
|
Exercise of warrants and options
|
|
1,471
|
|
|
3,105
|
|
Proceeds from preferred stock issuances, net
|
|
29,727
|
|
|
—
|
|
Other
|
|
—
|
|
|
(50
|
)
|
Dividends paid on common stock
|
|
(2,083
|
)
|
|
—
|
|
Dividends paid on preferred stock
|
|
(3,581
|
)
|
|
(1,938
|
)
|
Net cash provided by (used in) financing activities - continuing operations
|
|
12,379
|
|
|
(1,794
|
)
|
Net cash used in financing activities - discontinued operations
|
|
(5,618
|
)
|
|
(217
|
)
|
Net cash provided by (used in) financing activities
|
|
6,761
|
|
|
(2,011
|
)
|
Net change in cash and cash equivalents
|
|
(6,460
|
)
|
|
(6,507
|
)
|
Cash and cash equivalents, beginning
|
|
10,735
|
|
|
19,374
|
|
Cash and cash equivalents, ending
|
|
$
|
4,275
|
|
|
$
|
12,867
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
Interest
|
|
$
|
6,402
|
|
|
$
|
7,300
|
|
Income taxes
|
|
$
|
20
|
|
|
$
|
36
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
Conversions of debt and other liabilities to equity
|
|
$
|
—
|
|
|
$
|
6,930
|
|
Setoff for 2015 Notes received from 2014 Noteholders
|
|
$
|
5,651
|
|
|
$
|
—
|
|
2011 Notes surrendered and cancelled in payment for 2014 Notes
|
|
$
|
—
|
|
|
$
|
445
|
|
Dividend on common stock
|
|
$
|
1,193
|
|
|
$
|
—
|
|
Warrants issued in conjunction with convertible debt offering
|
|
$
|
—
|
|
|
$
|
88
|
|
Discounts on insurance financings
|
|
$
|
250
|
|
|
$
|
14
|
|
See accompanying notes to unaudited consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the
Three and Nine
Months Ended
September 30, 2015
and
2014
NOTE 1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
See Note 1 to our Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2014
, filed with the Securities and Exchange Commission (the "SEC") on March 31, 2015 (the "Annual Report"), for a description of all significant accounting policies.
Description of Business
AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively with AdCare, the “Company”) own, lease, operate or manage for third-parties skilled nursing and assisted living facilities in the states of Alabama, Arkansas, Georgia, North Carolina, Ohio, Oklahoma and South Carolina.
In July 2014, the Company announced that the Board of Directors had approved a strategic plan to transition the Company to a healthcare property holding and leasing company. Through a series of leasing and subleasing transactions, the Company is in the process of transitioning to third-parties the operations of the Company’s currently owned and operated healthcare facilities. In furtherance of this strategic plan, the Company is now focused on the ownership, acquisition and leasing of healthcare related properties.
As of
September 30, 2015
, the Company leased
nineteen
owned and subleased
eleven
leased skilled nursing facilities and leased
two
owned assisted living facilities to local third-party operators (see
Note 7 - Leases
for a full description of the Company's leases).
As of
September 30, 2015
, the Company operated or managed
six
facilities comprised of
five
skilled nursing facilities and
one
independent living/senior housing facility, excluding one skilled nursing facility held for sale. The Company’s facilities provide a range of health care services to patients and residents including skilled nursing and independent living services, social services, various therapy services, and other rehabilitative and healthcare services. As of
September 30, 2015
, of the
six
facilities, the Company owned and operated
three
facilities and managed
three
facilities for a third party.
During the
nine
months ended
September 30, 2015
, the Company entered into leasing and operations transfer agreements for certain of its facilities (see
Note 7 - Leases
). Subsequent to
September 30, 2015
, the Company completed the sale and transferred the operations of Companions, a
102
-bed skilled nursing facility located in Tulsa, Oklahoma ("Companions"), as well as transferred the operations of
one
additional facility located in Arkansas to new operators (see
Note 10 - Discontinued Operations
and
Note 16 - Subsequent Events
).
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included. Operating results for the
three and nine
months ended
September 30, 2015
and
2014
, are not necessarily indicative of the results that may be expected for the fiscal year. The balance sheet at
December 31, 2014
, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
You should read the accompanying unaudited consolidated financial statements together with the historical consolidated financial statements of the Company for the year ended
December 31, 2014
, included in the Annual Report.
The Company operates in
one
business segment. These statements include the accounts of AdCare Health Systems, Inc. and its controlled subsidiaries. Controlled subsidiaries include AdCare’s wholly-owned subsidiaries and one consolidated variable interest entity (a "VIE") in which AdCare has control as primary beneficiary. All inter-company accounts and transactions were eliminated in the consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported results of operations during the reporting period. Examples of significant estimates include allowance for doubtful accounts; contractual allowances for Medicaid, Medicare, and managed care reimbursements; deferred tax valuation allowance; fair value of employee and nonemployee stock based awards; and valuation of goodwill and other long-lived assets. Actual results could differ materially from those estimates.
Reclassifications
Certain items previously reported in the consolidated financial statement captions have been reclassified to conform to the current financial statement presentation with no effect on the Company’s consolidated financial position or results of operations. These reclassifications did not affect total assets, total liabilities, or stockholders’ equity. In addition, reclassifications were made to the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the
three and nine
months ended
September 30, 2014
, to reflect the same facilities in discontinued operations for both periods presented.
Patient Care Revenue Recognition and Receivables
The Company recognizes patient care revenues when the following four conditions have been met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or service has been rendered; (iii) the price is fixed or determinable; and (iv) collection is reasonably assured. The Company's patient care revenues are derived primarily from providing healthcare services to patients or residents and are recognized on the date services are provided at amounts billable to the individual. For reimbursement arrangements with third-party payors including Medicaid, Medicare and private insurers, patient care revenues are recorded based on contractually agreed-upon amounts on a per patient day basis.
The Company records patient care revenues from Medicaid and Medicare and managed care programs as services are performed at their expected net realizable amounts under these programs. The Company’s patient care revenues from Medicaid and Medicare and managed care programs are subject to audit and retroactive adjustment by governmental and third-party agencies. Consistent with healthcare industry accounting practices, any changes to these governmental revenue estimates are recorded in the period the change or adjustment becomes known. The Company recorded retroactive losses to patient care revenues of
$4,351
and
$596,847
reported in discontinued operations for the
three and nine
months ended
September 30, 2015
, respectively, and
$38,747
and
$49,826
reported in discontinued operations for the
three and nine
months ended
September 30, 2014
, respectively. The Company recorded a retroactive gain to patient care revenues of
$21,161
reported in continuing operations for the
nine months ended
September 30, 2014
.
Potentially uncollectible patient accounts are provided for on the allowance method based upon management's evaluation of outstanding accounts receivable at period-end and historical experience. Uncollected accounts that are written off are charged against allowance. As of
September 30, 2015
and
December 31, 2014
, the Company has an allowance for uncollectible accounts of
$13.0 million
and
$6.7 million
, respectively.
Rental Revenue Recognition and Receivables
The Company, as lessor or sublessor, makes a determination with respect to each of its leases and subleases whether they should be accounted for as operating leases. The Company recognizes rental revenues on a straight-line basis over the term of the lease when collectibility is reasonably assured. Differences between rental income earned and amounts due under the lease are charged or credited, as applicable, to straight-line rent receivable. Payments received under operating leases are accounted for in the statements of operations as rental revenue for actual rent collected plus or minus a straight-line adjustment for estimated minimum lease escalators. As of
December 31, 2014
, the Company evaluated collectibility of rental revenue and determined that no allowance was required. As of
September 30, 2015
, the Company recorded an allowance of one month's rent totaling
$0.1 million
for
three
facilities located in Georgia operated by one of the Company's tenants.
Management Fee Revenue Recognition and Receivables
Management fee revenues and receivables are recorded in the month that services are provided. As of
September 30, 2015
and
December 31, 2014
, the Company evaluated collectibility of management fees and determined that no allowance was required.
Fair Value Measurements and Financial Instruments
Accounting guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1— Quoted market prices in active markets for identical assets or liabilities
Level 2— Other observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3— Significant unobservable inputs
The respective carrying value of certain financial instruments of the Company approximates their fair value. These instruments include cash and cash equivalents, restricted cash, accounts receivable, notes receivable, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short-term in nature and their carrying amounts approximate fair values, they are receivable or payable on demand, or the interest rates earned and/or paid approximate current market rates.
Recent Accounting Pronouncements
Except for rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws, the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. The Company has reviewed the FASB accounting pronouncements and Accounting Standards Update ("ASU") interpretations that have effectiveness dates during the periods reported and in future periods.
In April 2014, the FASB issued
ASU 2014-08
, which amends the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU should be applied prospectively and is effective for the Company for the 2015 annual and interim reporting periods. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The Company adopted this ASU January 1, 2015.
In May 2014, the FASB issued
ASU 2014-09
guidance which requires revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for those goods and services. The new standard requires the disclosure of sufficient quantitative and qualitative information for financial statement users to understand the nature, amount, timing and uncertainty of revenue and associated cash flows arising from contracts with customers. The new guidance does not affect the recognition of revenue from leases. In August 2015, the FASB delayed the effective date of the new revenue standard by one year. As a result, this new revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted beginning after December 15, 2016, including interim periods within those reporting periods. The Company has not yet determined the impact, if any, that the adoption of this new standard will have on its consolidated financial position or results of operations.
In August 2014, the FASB issued
ASU 2014-15
, which provides guidance regarding an entity’s ability to continue as a going concern, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new standard, there was minimal guidance in GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The Company has not yet determined the impact, if any, that the adoption of this new standard will have on its consolidated financial statements.
In April 2015, the FASB issued
ASU 2015-03
, which requires debt issuance costs to be presented as a direct reduction from the carrying amount of the debt liability, consistent with the presentation of debt discounts. The amortization of debt issuance costs will be reported as interest expense. The new standard is to be applied on a retrospective basis and reported as a change in an accounting principle. In August 2015, the FASB released clarifying guidance for debt issuance costs related to line-of-credit arrangements, which permits debt issuance costs to be presented as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Debt issuance costs associated with a line of credit can be amortized ratably over the term of the line-of-credit arrangement. This standard is effective for annual reporting periods beginning after December 15,
2015, including interim periods within that reporting period. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating changes in its accounting required by this new standard and the impact to the Company's financial position and related disclosures.
In September 2015, the FASB issued
ASU 2015-16
, which
requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Under this guidance the acquirer recognizes, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. New disclosures are required to present separately on the face of the income statement or disclose in the notes the portion of the amount recognized in current-period earnings by line item that would have been recognized in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. At adoption, the new guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company is currently evaluating changes in its accounting required by this new standard and the impact to the Company's financial position and related disclosures.
NOTE 2.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income or loss attributed to AdCare Health Systems, Inc. common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted for potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method. Potentially dilutive securities from convertible notes are calculated based on the assumed conversion at the beginning of the period, as well as any adjustment to income that would result from the assumed conversion. For the
three and nine months ended
September 30, 2015
and
2014
, potentially dilutive securities of
5.0 million
and
7.8 million
, respectively, were excluded from the diluted income (loss) per share calculation because including them would have been anti-dilutive for those periods.
The following tables provide a reconciliation of net income (loss) for continuing and discontinued operations and the number of shares of common stock used in the computation of both basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2015
|
|
2014
|
(Amounts in 000’s, except per share data)
|
|
Income
(loss)
|
|
Shares
|
|
Per
Share
|
|
Income
(loss)
|
|
Shares
|
|
Per
Share
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(1,869
|
)
|
|
|
|
|
|
$
|
(10,398
|
)
|
|
|
|
|
|
|
Preferred stock dividends
|
|
(1,498
|
)
|
|
|
|
|
|
(646
|
)
|
|
|
|
|
Basic loss from continuing operations
|
|
$
|
(3,367
|
)
|
|
19,838
|
|
|
$
|
(0.17
|
)
|
|
$
|
(11,044
|
)
|
|
18,134
|
|
|
$
|
(0.61
|
)
|
Diluted loss from continuing operations
(a)
|
|
$
|
(3,367
|
)
|
|
19,838
|
|
|
$
|
(0.17
|
)
|
|
$
|
(11,044
|
)
|
|
18,134
|
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$
|
(3,228
|
)
|
|
|
|
|
|
$
|
6,850
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
285
|
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
Basic (loss) income from discontinued operations attributable to the Company
|
|
$
|
(2,943
|
)
|
|
19,838
|
|
|
$
|
(0.15
|
)
|
|
$
|
7,068
|
|
|
18,134
|
|
|
$
|
0.39
|
|
Diluted (loss) income from discontinued operations attributable to the Company
(a)
|
|
$
|
(2,943
|
)
|
|
19,838
|
|
|
$
|
(0.15
|
)
|
|
$
|
7,068
|
|
|
18,134
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to AdCare:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss
|
|
$
|
(6,310
|
)
|
|
19,838
|
|
|
$
|
(0.32
|
)
|
|
$
|
(3,976
|
)
|
|
18,134
|
|
|
$
|
(0.22
|
)
|
Diluted loss
(a)
|
|
$
|
(6,310
|
)
|
|
19,838
|
|
|
$
|
(0.32
|
)
|
|
$
|
(3,976
|
)
|
|
18,134
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2015
|
|
2014
|
(Amounts in 000’s, except per share data)
|
|
Income
(loss)
|
|
Shares
|
|
Per
Share
|
|
Income
(loss)
|
|
Shares
|
|
Per
Share
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(13,013
|
)
|
|
|
|
|
|
$
|
(27,900
|
)
|
|
|
|
|
|
|
Preferred stock dividends
|
|
(3,582
|
)
|
|
|
|
|
|
(1,938
|
)
|
|
|
|
|
Basic loss from continuing operations
|
|
$
|
(16,595
|
)
|
|
19,617
|
|
|
$
|
(0.84
|
)
|
|
$
|
(29,838
|
)
|
|
17,539
|
|
|
$
|
(1.70
|
)
|
Diluted loss from continuing operations
(a)
|
|
$
|
(16,595
|
)
|
|
19,617
|
|
|
$
|
(0.84
|
)
|
|
$
|
(29,838
|
)
|
|
17,539
|
|
|
$
|
(1.70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$
|
(2,694
|
)
|
|
|
|
|
|
$
|
19,034
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
784
|
|
|
|
|
|
|
548
|
|
|
|
|
|
Basic (loss) income from discontinued operations attributable to the Company
|
|
$
|
(1,910
|
)
|
|
19,617
|
|
|
$
|
(0.10
|
)
|
|
$
|
19,582
|
|
|
17,539
|
|
|
$
|
1.12
|
|
Diluted (loss) income from discontinued operations attributable to the Company
(a)
|
|
$
|
(1,910
|
)
|
|
19,617
|
|
|
$
|
(0.10
|
)
|
|
$
|
19,582
|
|
|
17,539
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to AdCare:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss
|
|
$
|
(18,505
|
)
|
|
19,617
|
|
|
$
|
(0.94
|
)
|
|
$
|
(10,256
|
)
|
|
17,539
|
|
|
$
|
(0.58
|
)
|
Diluted loss
(a)
|
|
$
|
(18,505
|
)
|
|
19,617
|
|
|
$
|
(0.94
|
)
|
|
$
|
(10,256
|
)
|
|
17,539
|
|
|
$
|
(0.58
|
)
|
(a)
Securities outstanding that were excluded from the computation, prior to the use of the treasury stock method, because they would have been anti-dilutive are as follows:
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
(Share amounts in 000’s)
|
|
2015
|
|
2014
|
Outstanding stock options
|
|
744
|
|
|
1,758
|
|
Outstanding warrants - employee
|
|
1,887
|
|
|
1,846
|
|
Outstanding warrants - nonemployee
|
|
239
|
|
|
816
|
|
Subordinated convertible notes
|
|
2,165
|
|
|
3,334
|
|
Total anti-dilutive securities
|
|
5,035
|
|
|
7,754
|
|
NOTE 3.
LIQUIDITY AND PROFITABILITY
Sources of Liquidity
The Company has and continues to undertake measures to streamline its operations and cost infrastructure in connection with its new business model, including: (i) continuing to reduce and ultimately eliminating patient care revenues and related costs while increasing future minimum lease revenue; (ii) refinancing or repaying current maturities to reduce interest costs and reducing mandatory principal repayments through refinancing transactions with the United States Department of Housing and Urban Development ("HUD") or other lending sources; and (iii) reducing general and administrative expenses.
At
September 30, 2015
, the Company had
$4.3 million
in cash and cash equivalents as well as restricted cash of
$12.2 million
. Over the next twelve months, the Company anticipates both access to and receipt of several sources of liquidity.
At
September 30, 2015
, the Company had
one
skilled nursing facility,
three
office buildings and
one
VIE held for sale. The Company completed the sale of its
one
skilled nursing facility on October 30, 2015 and expects to sell its VIE in the fourth quarter of 2015. The Company expects to sell the remaining office buildings in 2016. The Company anticipates that the sale of the VIE will approximate the VIE's related obligations and the sale of the skilled nursing facility will generate positive cash flows of
$0.4 million
. The Company anticipates that the cash proceeds from the sale of the office buildings will exceed related obligations by approximately
$0.5 million
.
The Company routinely has discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, has refinanced short-term acquisition-related debt, including seller notes, with traditional long term mortgage notes, some of which have been executed under government guaranteed lending programs. During the remainder of 2015 and into the first quarter of 2016, the Company anticipates net proceeds of approximately
$1.6 million
received in the form of repayments on intercompany notes refinanced along with other existing debt to such government guaranteed lending programs.
The Company maintains two revolving lines of credit for which the Company has limited remaining capacity (see
Note 9 - Notes Payable and Other Debt
). All balances on these lines of credit are expected to be repaid in 2015. Given the Company's ongoing transition out of healthcare operations, the Company does not anticipate any additional draws or sources of cash on these credit lines.
On
July 21, 2015
, the Company entered into separate At Market Issuance Sales Agreements (together, the “Sales Agreements”) with each of MLV & Co. LLC and JMP Securities LLC (each, an “Agent” and together, the “Agents”), pursuant to which the Company may offer and sell, from time to time, up to
800,000
shares of the Company’s
10.875%
Series A Cumulative Redeemable Preferred Stock, no par value per share and liquidation preference of
$25.00
per share (the "Series A Preferred Stock"), through an “at-the-market” offering program ("ATM"). As of
September 30, 2015
, the Company sold
90,136
shares of Series A Preferred Stock under the ATM, generating net proceeds to the Company of approximately
$2.2 million
. Management believes that the ATM will continue to be a potential source of liquidity for the Company in the future (see
Note 11 - Dividends and Preferred Stock
).
On
July 30, 2015
, the Company amended the terms of that certain
8%
subordinated convertible note, issued by the Company to Cantone Asset Management, LLC ("CAM") and due July 31, 2015, with a principal payment amount as of such date of
$4.8 million
to: (i) extend the maturity date with respect to
$1.5 million
of the principal amount of the Note to October 31, 2017; (ii) increase the interest rate from
8.0%
to
10.0%
per annum; and (iii) increase the conversion price from
$3.97
to
$4.25
per share (see
Note 9
- Notes Payable and Other Debt
).
Cash Requirements
At
September 30, 2015
, the Company had
$134.5 million
in indebtedness of which the current portion is
$49.9 million
. This current portion is comprised of the following components: (i) debt of held for sale entities of approximately
$9.9 million
, primarily senior debt - bond and mortgage indebtedness; and (ii) remaining debt of approximately
$40.0 million
which includes revolver debt, senior debt - bonds, and senior debt - mortgage indebtedness (for a complete debt listing and credit facility detail, see
Note 9 - Notes Payable and Other Debt
). As indicated previously, the Company routinely has ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, has refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs.
The Company anticipates net principal disbursements of approximately
$12.0 million
which reflect the offset of anticipated proceeds on refinancing of approximately
$13.1 million
. The Company anticipates operating cash requirements in 2015 as being substantially less than in 2014 due to the transition to a healthcare property holding and leasing company. Based on the described sources of liquidity, the Company expects sufficient funds for its operations and scheduled debt service, at least through the next twelve months. On a longer term basis, at September 30, 2015, the Company has approximately
$60.3 million
of debt maturities due over the next two year period ending September 30, 2017. These debt maturities include
$7.7 million
of convertible promissory notes, which are convertible into shares of the common stock, and exclude outstanding debt related to the Company's consolidated VIE and disposal groups held for sale as of
September 30, 2015
(see
Note 10 - Discontinued Operations
and
Note 13 - Variable Interest Entities
). The Company has been successful in recent years in raising new equity capital and believes, based on recent discussions, that these markets will continue to be available to it for raising capital in the future. The Company believes its long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.
The Company continues to absorb negative cash flows from operations but anticipates a reversal to a positive cash flow from operations subsequent to all AdCare operated facilities having completed transition to third parties. The transition to positive cash flows from operating activities is expected to occur in 2016. In order to satisfy the Company's capital needs, the Company seeks to: (i) improve operating results through a series of leasing and subleasing transactions with favorable terms and consistent and predictable cash flow; (ii) expand borrowing arrangements with certain lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities. The Company anticipates that these actions, if successful, will provide the opportunity to maintain liquidity on a short and long term basis, thereby permitting the Company to meet our operating and financing obligations for the next twelve months. However, there is no guarantee that such actions will be successful or that anticipated operating results or the transition of the Company to primarily a property holding and leasing company will be achieved. If the Company is unable to expand existing borrowing agreements, refinance current debt,
or raise capital through the issuance of securities, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives or sell assets.
NOTE 4.
RESTRICTED CASH
The following table sets forth the Company’s various restricted cash, escrow deposits and related financial instruments:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
September 30, 2015
|
|
December 31, 2014
|
Cash collateral and certificates of deposit, current
|
|
$
|
6,933
|
|
|
$
|
2,302
|
|
HUD replacement reserves, current portion
|
|
787
|
|
|
637
|
|
HUD escrow deposits
|
|
536
|
|
|
289
|
|
Other restricted cash, current portion
|
|
9
|
|
|
93
|
|
Total current portion
|
|
8,265
|
|
|
3,321
|
|
|
|
|
|
|
Cash collateral and certificates of deposit for long-term debt obligations
|
|
2,708
|
|
|
3,446
|
|
HUD replacement reserves
|
|
1,121
|
|
|
1,074
|
|
Reserves for capital improvements
|
|
124
|
|
|
936
|
|
Total noncurrent portion
|
|
3,953
|
|
|
5,456
|
|
Total restricted cash
|
|
$
|
12,218
|
|
|
$
|
8,777
|
|
NOTE 5.
PROPERTY AND EQUIPMENT
The following table sets forth the Company’s property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
Estimated Useful
Lives (Years)
|
|
September 30, 2015
|
|
December 31, 2014
|
Buildings and improvements
|
|
5-40
|
|
$
|
128,543
|
|
|
$
|
128,136
|
|
Equipment
|
|
2-10
|
|
13,357
|
|
|
13,294
|
|
Land
|
|
—
|
|
7,122
|
|
|
7,127
|
|
Computer related
|
|
2-10
|
|
2,918
|
|
|
2,908
|
|
Construction in process
|
|
—
|
|
488
|
|
|
52
|
|
|
|
|
|
152,428
|
|
|
151,517
|
|
Less: accumulated depreciation and amortization
|
|
|
|
(24,670
|
)
|
|
(20,524
|
)
|
Property and equipment, net
|
|
|
|
$
|
127,758
|
|
|
$
|
130,993
|
|
Buildings and improvements includes the capitalization of costs incurred for the respective certificates of need (the "CON"). For additional information on the CON amortization, see
Note 6 - Intangible Assets and Goodwill
.
Depreciation and amortization expense was approximately
$1.9 million
and
$5.4 million
for the
three and nine
months ended
September 30, 2015
, and
$1.9 million
and
$5.6 million
for the
three and nine
months ended
September 30, 2014
, respectively. Total depreciation and amortization expense excludes
$0.1 million
for the
nine months ended
September 30, 2015
, and
$0.1 million
and
$0.4 million
for the
three and nine
months ended
September 30, 2014
, respectively, that is recognized in loss from discontinued operations, net of tax. Total depreciation and amortization expense includes the amortization of the CON (see
Note 6 - Intangible Assets and Goodwill
). There was no depreciation and amortization expense recognized in loss from discontinued operations, net of tax, for the three months ended
September 30, 2015
.
During the
three and nine months ended
September 30, 2015
, the Company recognized an impairment charge of approximately
$0.2 million
and
$0.3 million
, respectively, to write down the carrying value of its
two
office buildings located in Roswell, Georgia. The assets and liabilities of the office buildings are included in Assets and Liabilities Held for Sale as of
September 30, 2015
(see
Note 10 - Discontinued Operations
).
NOTE 6.
INTANGIBLE ASSETS AND GOODWILL
The Company incurred an impairment charge to intangible assets and goodwill of
$0.04 million
during the
three and nine
months ended
September 30, 2015
, related to the sale of its Bentonville, Arkansas skilled nursing facility (see below).
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
CON (included in property and equipment)
|
|
Bed Licenses - Separable
|
|
Lease Rights
|
|
Total
|
Balances, December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
35,690
|
|
|
$
|
2,471
|
|
|
$
|
7,406
|
|
|
$
|
45,567
|
|
Accumulated amortization
|
|
(3,587
|
)
|
|
—
|
|
|
(3,319
|
)
|
|
(6,906
|
)
|
Net carrying amount
|
|
$
|
32,103
|
|
|
$
|
2,471
|
|
|
$
|
4,087
|
|
|
$
|
38,661
|
|
|
|
|
|
|
|
|
|
|
Disposition
|
|
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
—
|
|
|
(525
|
)
|
|
(525
|
)
|
Accumulated amortization
|
|
—
|
|
|
—
|
|
|
525
|
|
|
525
|
|
Amortization expense
|
|
(880
|
)
|
|
—
|
|
|
(500
|
)
|
|
(1,380
|
)
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2015
|
|
|
|
|
|
|
|
|
Gross
|
|
35,690
|
|
|
2,471
|
|
|
6,881
|
|
|
45,042
|
|
Accumulated amortization
|
|
(4,467
|
)
|
|
—
|
|
|
(3,294
|
)
|
|
(7,761
|
)
|
Net carrying amount
|
|
$
|
31,223
|
|
|
$
|
2,471
|
|
|
$
|
3,587
|
|
|
$
|
37,281
|
|
Amortization expense for the CON included in property and equipment was approximately
$0.3 million
and
$0.9 million
for the
three and nine
months ended
September 30, 2015
, and
$0.3 million
and
$0.9 million
for the
three and nine
months ended
September 30, 2014
.
Amortization expense for lease rights was approximately
$0.2 million
and
$0.5 million
for the
three and nine
months ended
September 30, 2015
and
$0.2 million
and
$0.6 million
for the
three and nine
months ended
September 30, 2014
.
Expected amortization expense for all definite lived intangibles for each of the years ended
December 31
, is as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
Bed Licenses
|
|
Lease Rights
|
2015
(a)
|
|
$
|
293
|
|
|
$
|
167
|
|
2016
|
|
1,173
|
|
|
667
|
|
2017
|
|
1,173
|
|
|
667
|
|
2018
|
|
1,173
|
|
|
667
|
|
2019
|
|
1,173
|
|
|
667
|
|
Thereafter
|
|
26,238
|
|
|
752
|
|
Total expected amortization expense
|
|
$
|
31,223
|
|
|
$
|
3,587
|
|
(a)
Estimated amortization expense for the year ending
December 31, 2015
, includes only amortization to be recorded after
September 30, 2015
.
On
July 1, 2015
, the Company completed the sale of its Bentonville, Arkansas skilled nursing facility consisting of
83
licensed beds ("Bentonville") for approximately
$3.4 million
net of closing costs. At the time of sale, the Company recorded a goodwill impairment charge of
$0.04 million
.
The following table summarizes the carrying amount of goodwill:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
September 30, 2015
|
|
December 31, 2014
|
Goodwill
|
|
$
|
5,023
|
|
|
$
|
5,023
|
|
Accumulated impairment losses
|
|
(840
|
)
|
|
(799
|
)
|
Total
|
|
$
|
4,183
|
|
|
$
|
4,224
|
|
The Company does not amortize indefinite lived intangibles, which consist of separable bed licenses, or goodwill.
NOTE 7. LEASES
Operating Leases
The Company leases a total of
eleven
skilled nursing facilities under non-cancelable operating leases, most of which have initial lease terms of
fifteen
to
seventeen
years with rent escalation clauses and provisions for payments by the Company of real estate taxes, insurance and maintenance costs; each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party operators. The Company also leases certain office space located in Atlanta, Georgia.
Foster Prime Lease
Eight
of the Company's skilled nursing facilities (collectively, the "Georgia Facilities") are operated under a single master indivisible lease arrangement, dated
August 1, 2010
, by and between ADK Georgia, LLC, a Georgia limited liability company and subsidiary of the Company (“ADK”), and William M. Foster ("Lessor"), as landlord (the "Prime Lease"). The lease has a term of
ten
years into 2020. Under the Prime Lease, a breach at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. Failure to comply with regulations or governmental authorities, such as Medicaid and Medicare provider requirements, is a default under the Prime Lease. In addition, other potential defaults related to an individual facility may cause a default of the entire Prime Lease. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
On August 14, 2015, ADK and Lessor entered into a second amendment to the Prime Lease (the “Second Amendment”) whereby the parties amended the Prime Lease to extend its initial term by
seven
years, resulting in a new lease termination date of August 31, 2027. In consideration for the extension, among other things, the Company agreed to: (i) pay to Lessor a fee of
$575,000
; (ii) release to Lessor upon the earlier of January 1, 2016 or the termination of the Prime Lease
one
month of pre-paid rent in the amount of
$398,000
; (iii) release to Lessor upon the earlier of January 1, 2017 or the termination of the Prime Lease the security deposit paid under the Prime Lease in the amount of
$500,000
; and (iv) pay to Lessor within
ten
days of the end of each quarter a payment of
$26,000
.
The Second Amendment also amends the Prime Lease to provide that the Company (and not Lessor) is responsible for the cost of maintaining the Georgia Facilities consistent with the standards for other commercial care facilities in the areas where the Georgia Facilities are located, including the cost to repair or replace all structural or capital items due to ordinary wear and tear.
Pursuant to the Second Amendment: (i) Lessor consented to ADK’s sublease of the Georgia Facilities to third-party operators and ADK agreed to obtain Lessor’s consent prior to any future sublease of any of the Georgia Facilities; and (ii) the Company executed a Lease Guaranty for the benefit of Lessor whereby the Company guaranteed the performance of all of ADK’s obligations under the Prime Lease. In connection with such guaranty, the Company also consented to being primarily responsible for all of ADK’s obligations under the Prime Lease, thereby allowing Lessor to proceed directly against the Company, without having taken any prior action against ADK, should ADK be in default under the Prime Lease. As of
September 30, 2015
, the Company is in compliance with all financial and administrative covenants of this lease agreement.
Bonterra/Parkview Master Lease
Two
of the Company's facilities are operated under a single indivisible lease, dated October 29, 2010 (the "Bonterra/Parkview Master Lease"); therefore, a breach at a single facility could subject the second facility to the same default risk. The lease has an initial term of
twelve
years into 2022 and
two
optional
ten
-year renewal terms, and includes covenants and restrictions. The
Company is required to make minimum capital expenditures of
$375
per licensed bed per lease year at each facility which amounts to
$0.1 million
per year for both facilities.
On September 1, 2015, ADK Bonterra/Parkview. LLC, a wholly-owned subsidiary of the Company ("Bonterra"), and Georgia Lessor - Bonterra/Parkview, LLC entered into a second amendment to the Bonterra/Parkview Master Lease whereby the parties amended such lease to: (i) extend its initial term by
three
years, resulting in a new lease termination date of August 31, 2025; (ii) provide consent to the sublease of the
two
facilities to a third-party operator; and (iii) extend the optional renewal terms to
two
separate
twelve
-year renewal periods. In consideration for the amended terms, among other things, the Company agreed to a monthly increase in base rent equal to
37.5%
of the difference between the base rent owed by the Company under the Bonterra/Parkview Master Lease and the base rent owed to the Company by the new operator. As of
September 30, 2015
, the Company is in compliance with all financial and administrative covenants of this lease agreement.
Covington Prime Lease
One of the Company's facilities is operated under a lease agreement dated August 26, 2002, as subsequently amended (the "Covington Prime Lease"), by and between the Company and Covington Realty, LLC ("Covington Lessor"). The annual base rent beginning on May 1, 2014 was approximately
$0.6 million
. The lease agreement was set to expire on April 30, 2019.
On August 1, 2015, Covington Lessee entered into an Agreement Regarding Lease and Sublease (the "Covington Prime Lease Amendment") with the Company, which amended the Covington Prime Lease. The Covington Prime Lease Amendment, among other things: (i) provided lessor consent for Covington Lessee to sublease the facility to an affiliate of Beacon Health Management, LLC; (ii) extended the term of the lease to expire on April 30, 2025; and (iii) set the annual base rent, effective May 1, 2015 and continuing throughout the lease term, equal to
102%
of the immediately preceding lease year's base rent. As of
September 30, 2015
, the Company is in compliance with all financial and administrative covenants of this lease agreement.
Future Minimum Lease Payments
Future minimum lease payments for each of the next five years ending December 31, are as follows:
|
|
|
|
|
|
|
|
(Amounts in
000's)
|
2015
(a)
|
|
$
|
2,034
|
|
2016
|
|
8,091
|
|
2017
|
|
8,189
|
|
2018
|
|
8,349
|
|
2019
|
|
8,526
|
|
Thereafter
|
|
64,017
|
|
Total
|
|
$
|
99,206
|
|
(a)
Estimated minimum lease payments for the year ending
December 31, 2015
, include only payments to be recorded after
September 30, 2015
.
The Company has also entered into lease agreements for various equipment used in the facilities. These leases are included in future minimum lease payments above.
Leased and Subleased Facilities to Third-Party Operators
In connection with
the Company's
strategic plan to transition to a healthcare property holding and leasing company,
thirty-two
facilities (
twenty-one
owned by us and
eleven
leased to us) are leased or subleased on a triple net basis, meaning that the lessee (
i.e
., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all liabilities of the property in respect to insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable.
Future minimum lease receivables from the Company’s facilities leased and subleased to third party operators for each of the next five years ending December 31, are as follows:
|
|
|
|
|
|
|
|
(Amounts in
000's)
|
2015
(a)
|
|
$
|
5,947
|
|
2016
|
|
24,096
|
|
2017
|
|
24,643
|
|
2018
|
|
25,193
|
|
2019
|
|
25,766
|
|
Thereafter
|
|
215,971
|
|
Total
|
|
$
|
321,616
|
|
(a)
Estimated minimum lease receivables for the year ending
December 31, 2015
, include only payments to be received after
September 30, 2015
.
For further details regarding the Company's leased and subleased facilities to third-party operators, see below and also
Note 16 - Subsequent Events
in this Quarterly Report and
Note 7 - Leases
included in the Annual Report.
Arkansas Leases
The Company subleases through its subsidiaries (each, an “Aria Sublessor”)
eight
skilled nursing facilities located in Arkansas to affiliates of Aria Health Group, LLC (each, an “Aria Sublessee”) pursuant to separate sublease agreements, dated January 16, 2015, as subsequently amended (each such sublease, an “Aria Sublease”). The Aria Subleases commenced on May 1, 2015. Each Aria Sublease is structured as triple net lease wherein the Aria Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The Aria Subleases are cross-defaulted. In connection with each Aria Sublease, each Aria Sublessor and Aria Sublessee also entered into an operations transfer agreement with respect to the applicable facility, each containing customary terms and conditions relating to the transfer of operations of the skilled nursing facilities.
In connection with certain amendments to each Aria Sublease, the Company entered into a Lease Inducement Fee Agreement, dated April 30, 2015 (the "Aria Lease Inducement"), with Aria Health Consulting, LLC. The Aria Lease Inducement provided for a one-time payment from the Company to Aria Health Consulting, LLC equal to
$2.0 million
minus the security deposits and first month's base and special rent for all Aria Sublessees. On April 30, 2015, in connection with the Aria Lease Inducement, the Aria Subleases were amended to, among other things, provide that the Aria Sublessees shall, collectively, pay to the Aria Sublessors special rent in the amount of
$29,500
per month payable in advance on or before the first day of each month (except for the first special rent payment, which was subtracted from the lease inducement fee paid by the Company under the Aria Lease Inducement).
As a condition to the Aria Sublessees’ agreement to a commencement date of May 1, 2015, the Company and the Aria Sublessees agreed to assess, in good faith and within thirty days following the commencement date, making a one-time equitable adjustment to base rent equal to the difference between the facilities' 2014 professional liability and general liability insurance costs and projected costs for the first lease year of comparable or mutually acceptable insurance as further adjusted by anticipated Medicaid reimbursement rate increases solely from such added costs.
On July 17, 2015, the Company, on behalf of each Aria Sublessor, and Highlands Arkansas Holdings, LLC, an affiliate of Aria Health Group, LLC and acting on behalf of each Aria Sublessee, entered into a letter agreement whereby the parties agreed to amend the Aria Subleases to reflect a one-time equitable adjustment to annual base rent, for the collective benefit of each Aria Sublessee, in the aggregate amount of
$360,000
.
On October 6, 2015, the Aria Subleases were amended to, among other things: (i) reduce the base rent payable pursuant to such subleases, resulting in the aggregate annual base rent under all eight Aria Subleases being reduced from approximately
$5.0 million
to approximately
$4.3 million
; (ii) extend the term of such subleases from
ten
to
fifteen
years; and (iii) increase the annual rent escalator with respect to such rent (with the rent escalator equal to
2.0%
of the preceding year’s base rent in lease years two and three,
3.0%
of the preceding year’s base rent in lease years four through six and
3.5%
of the preceding year’s base rent in lease years seven through fifteen).
On July 17, 2015, a wholly owned subsidiary of the Company (the “Highlands Sublessor”) entered into a sublease agreement (the "River Valley Sublease") pursuant to which the Highlands Sublessor leases one skilled nursing facility located in Arkansas to an affiliate of Aria Health Group, LLC (the “Highlands Sublessee”). Affiliates of both the Company and Aria Health Group, LLC had entered into a sublease agreement, dated January 16, 2015, for the same facility but it was mutually terminated on April 30, 2015. The River Valley Sublease is structured as triple net lease wherein the Highlands Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. In connection with the River Valley
Sublease, the current licensed operator of the facility, a wholly-owned subsidiary of the Highlands Sublessor, and the Highlands Sublessee also entered into an operations transfer agreement with respect to the facility, containing customary terms and conditions relating to the transfer of operations thereof.
On October 6, 2015, the River Valley Sublease was amended to, among other things: (i) extend the commencement date of the sublease to November 1, 2015; (ii) reduce the initial base rent payable pursuant to such sublease from
$50,000
to
$40,000
per month in year one; (iii) extend the term of the sublease to approximately
fifteen
years (subject to a one time renewal, upon the exercise of the Highlands Sublessee’s option and assuming the satisfaction of certain conditions, for an additional
five
year period); and (iv) increase the annual rent escalator with respect to such rent (with the base rent in lease year two equal to
$50,000
per month and the rent escalator equal to
2.0%
of the preceding year’s base rent in lease year three,
3.0%
of the preceding year’s base rent in lease years four through six and
3.5%
of the preceding year’s base rent in lease years seven through fifteen). Giving effect to such amendments, the annual rent under the River Valley Lease in the first year was reduced from approximately
$0.6 million
to approximately
$0.5 million
. On November 1, 2015, the River Valley Sublease became effective and operations transferred to the Highlands Sublessee.
Georgia Leases
Powder Springs and Tara
On January 31, 2015, a wholly owned subsidiary (“Wellington Sublessor”) of the Company entered into separate sublease agreements pursuant to which Wellington Sublessor leases
two
skilled nursing facilities located in Georgia, to affiliates of Wellington Health Services, L.L.C (each a "Wellington Sublessee"). Each sublease agreement was subject to, among other things, each Wellington Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The subleases commenced on April 1, 2015. The facilities are currently leased by Wellington Sublessor, as tenant, pursuant to the Prime Lease. Each sublease agreement is structured as triple net lease wherein the Wellington Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of each sublease agreement will expire on July 31, 2020 coterminous with the Prime Lease. If Wellington Sublessor and landlord agree to extend the term of the Prime Lease, Wellington Sublessee has the right to extend the term of the sublease agreements through the end of the renewal term of the Prime Lease. The annual rent under the
two
sublease agreements in the first year will be
$3.9 million
in the aggregate, and the annual rent under each sublease will escalate at
1%
each year through the initial term and
2%
per year through the renewal term, if any. The sublease agreements are cross-defaulted. In connection with the sublease agreements, the current licensed operators (wholly-owned subsidiaries of Wellington Sublessor) and the Wellington Sublessees also entered into operations transfer agreements with respect to the applicable facility, containing customary terms and conditions relating to the transfer of operations of skilled nursing facilities.
On September 23, 2015, Wellington Sublessor entered into two separate First Amendment to Sublease Agreement (collectively, the "Wellington First Amendments") with Wellington Sublessee. The Wellington First Amendments extend the initial term under the sublease agreements to expire on August 31, 2027, to coincide with the expiration of the initial term under the Prime Lease.
College Park
On February 18, 2015, a wholly owned subsidiary (“College Park Sublessor”) of the Company entered into separate sublease agreements pursuant to which College Park Sublessor leases
one
skilled nursing facility located in Georgia, to affiliates of C.R. of College Park, LLC (the "College Park Sublessee"). The sublease agreement was subject to, among other things, the College Park Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease agreement is structured as triple net lease wherein the College Park Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2020 and has a
five
year renewal option. The annual rent under the sublease agreement in the first year will approximate
$0.6 million
annually, and the annual rent will escalate at
$12,000
annually through the lease term. The sublease commenced on April 1, 2015. In connection with the sublease agreements, the current licensed operator (wholly-owned subsidiary of College Park Sublessor) and the College Park Sublessee also entered into an operations transfer agreement with respect to the applicable facility, containing customary terms and conditions relating to the transfer of operations of skilled nursing facilities. The sublease agreement became effective on April 1, 2015 and the operations of the facility were transferred to the College Park Sublessee.
Autumn Breeze
On February 18, 2015, a wholly owned subsidiary (“Autumn Breeze Sublessor”) of the Company entered into a sublease agreement pursuant to which Autumn Breeze Sublessor will lease
one
skilled nursing facility located in Georgia, to affiliates of C.R. of Autumn Breeze, LLC (the "Autumn Breeze Sublessee"). The sublease agreement is subject to, among other things, the Autumn Breeze Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease agreement is structured as triple net lease wherein the Autumn Breeze Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2020 and has a
five
year renewal option. The annual rent under the sublease agreement in the first year will approximate
$0.8 million
annually, and the annual rent will escalate at
$12,000
annually through the initial lease term. In connection with the sublease agreements, the current licensed operator (wholly-owned subsidiary of Autumn Breeze Sublessor) and the Autumn Breeze Sublessee also entered into an operations transfer agreement with respect to the applicable facility, containing customary terms and conditions relating to the transfer of operations of skilled nursing facilities. The sublease agreement became effective on September 30, 2015 and the operations of the facility were transferred to the Autumn Breeze Sublessee.
LaGrange
On March 17, 2015, a wholly owned subsidiary (“LaGrange Sublessor”) of the Company entered into a sublease agreement pursuant to which LaGrange Sublessor leases
one
skilled nursing facility located in Georgia, to affiliates of C.R. of LaGrange, LLC (the "LaGrange Sublessee"). The sublease agreement was subject to, among other things, the LaGrange Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease commenced on April 1, 2015. The facilities are currently leased by LaGrange Sublessor, as tenant, pursuant to the Prime Lease. The sublease agreement is structured as triple net lease wherein the LaGrange Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on July 31, 2020 coterminous with the Prime Lease. If LaGrange Sublessor and landlord agree to extend the term of the Prime Lease, LaGrange Sublessee has the right to extend the term of the sublease agreements through the end of the renewal term of the Prime Lease. The annual rent under the sublease agreement in the first
two
years will approximate
$1.0 million
annually, and the annual rent will escalate at
3.0%
annually through the lease term. In connection with the sublease agreements, the current licensed operators (wholly-owned subsidiaries of LaGrange Sublessor) and the LaGrange Sublessee also entered into an operations transfer agreement with respect to the applicable facility, containing customary terms and conditions relating to the transfer of operations of skilled nursing facilities.
On September 14, 2015, LaGrange Sublessor entered into a First Amendment to Sublease Agreement (the "LaGrange First Amendment") with LaGrange Sublessee. The LaGrange First Amendment extends the initial term under the sublease agreement to expire on August 31, 2027, to coincide with the expiration of initial term under the Prime Lease.
Glenvue
On July 1, 2015, a wholly-owned subsidiary (“Glenvue Sublessor”) of the Company entered into a sublease agreement ("Glenvue Agreement") pursuant to which Glenvue Sublessor leased the Facility to C.R. of Glenvue, LLC (the "Glenvue Sublessee") commencing on July 1, 2015. The Glenvue Agreement is structured as triple net lease wherein the Glenvue Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the Glenvue Agreement will expire on June 30, 2020 and has a
five
year renewal option. The annual cash rent under the sublease agreement in the first year is
$1.2 million
, and the annual rent will escalate at
$12,000
annually through the lease term. The Glenvue Agreement replaces an existing sublease agreement that was originally executed in November 2014.
On August 14, 2015, Glenvue Sublessor entered into a First Amendment to Sublease Agreement (the "Glenvue First Amendment") with Glenvue Sublessee. The Glenvue First Amendment, among other things: (i) extends the initial term of the sublease to expire on June 30, 2025; and (ii) commencing on August 1, 2015, the annual base rent under the sublease agreement shall be equal to: (a)
$1.1 million
in the first year; and (b)
103%
of the immediately preceding lease year for years
two
through
ten
.
Bonterra and Parkview
On July 20, 2015, a wholly-owned subsidiary of the Company (the "Georgia Sublessor") entered into a sublease agreement pursuant to which the Georgia Sublessor will lease
two
skilled nursing facilities located in Georgia (the “Georgia Properties”) to affiliates of Wellington Health Services, L.L.C (collectively, the “Georgia Sublessees”). The sublease agreement is
one
indivisible lease for the lease of both Georgia Properties, and the terms of the sublease agreement apply to both Georgia Properties collectively as though they are treated as one economic unit. The Wellington Sublessor currently leases the Georgia Properties from a third-party
landlord (“Landlord”) under a master lease agreement (the “Master Lease”), and the sublease agreement is subject and subordinate to the Master Lease.
The sublease agreement, and the transfer of operations of the Georgia Properties as contemplated thereby, are subject to, among other things, the Landlord’s consent to the sublease agreement and each Wellington Sublessee’s receipt of all licenses and other approvals from the State of Georgia to operate the applicable Georgia Property. The initial term of the sublease agreement commences as of the date the Wellington Sublessees have obtained all necessary licenses and approvals, subject to certain adjustments. The sublease agreement is structured as a triple net lease wherein the Wellington Sublessees are responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on the tenth anniversary of the commencement date. If the Wellington Sublessor and the Landlord agree to extend the term of the Master Lease, then the Wellington Sublessees have the right to extend the term of the sublease agreement through the end of the applicable renewal term of the Master Lease. The annual rent under the sublease agreement in the first year will be approximately
$2.0 million
, and shall increase by
$5,000
per month in the second year and again by
$5,000
per month in the third year. Thereafter, base rent will escalate by
3%
per year through the lease term and any renewal term. In connection with the sublease agreement, the Wellington Sublessor and the Wellington Sublessees also entered into operations transfer agreements with respect to the applicable Georgia Properties, containing customary terms and conditions relating to the transfer of operations thereof.
On September 1, 2015, Georgia Sublessor entered into a First Amendment to Sublease Agreement (the "Bonterra/Parkview First Amendment") with Georgia Sublessees. The Bonterra/Parkview First Amendment, among other things: (i) amends the initial term of the sublease to expire on April 30, 2025; and (ii) provides for the security deposit to be paid in
12
equal monthly payments of
$14,167
beginning on the first day of the second lease year.
Lumber City
On September 10, 2015, a wholly-owned subsidiary of the Company (the "Lumber City Sublessor") entered into a First Amendment to Sublease Agreement (the "Lumber City First Amendment") with an affiliate of Beacon Health Management, LLC (the "Lumber City Sublessee"). The Lumber City First Amendment, among other things: (i) extends the initial term under the sublease agreement to expire on August 31, 2027, to coincide with the expiration of initial term under the Prime Lease; and (ii) the annual base rent under the sublease agreement shall be equal to: (a) approximately
$0.8 million
in the first year; (b)
102%
of the immediately preceding lease year for years
two
through
five
; and (c)
102.5%
of the immediately preceding lease year beginning in year
six
and continuing until the expiration of the sublease agreement.
Thomasville
On September 9, 2015, a wholly-owned subsidiary of the Company (the "Thomasville Sublessor") entered into a Third Amendment to Sublease Agreement (the "Thomasville Third Amendment") with C.R. of Thomasville, LLC (the "Thomasville Sublessee"). The Thomasville Third Amendment, among other things: (i) extends the initial term under the sublease agreement to expire on August 31, 2027, to coincide with the expiration of initial term under the Prime Lease; and (ii) commencing on July 1, 2015, the annual base rent under the sublease agreement shall be equal to: (a)
$0.3 million
in the first year; (b)
102%
of the immediately preceding lease year for years
two
through
five
; and (c)
102.5%
of the immediately preceding lease year beginning in year
six
and continuing until the expiration of the sublease agreement.
North Carolina and South Carolina Leases
On February 27, 2015,
three
wholly owned subsidiaries (each, a “Symmetry Healthcare Sublessor”) of the Company entered into separate sublease agreements (each, as subsequently amended, a "Symmetry Healthcare Sublease") pursuant to which each Symmetry Healthcare Sublessor leases
one
skilled nursing facility located in North Carolina and
two
skilled nursing facilities located in South Carolina, respectively, to a wholly-owned subsidiary of Symmetry Healthcare Management (each, a "Symmetry Healthcare Sublessee"). In connection with entering into the Symmetry Healthcare Subleases, each Symmetry Healthcare Sublessor and Symmetry Healthcare Sublessee also entered into an operations transfer agreement with respect to the applicable North Carolina and South Carolina facilities, each containing customary terms and conditions. The subleases for the
two
South Carolina and
one
North Carolina skilled nursing facilities commenced on April 1, 2015 and June 1, 2015, respectively. Each Symmetry Healthcare Sublease is structured as triple net lease wherein the Symmetry Healthcare Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. Pursuant to each Symmetry Healthcare Sublease, the initial lease term is
fifteen
years with a
five
-year renewal option. The annual rent under all of the Symmetry Healthcare Subleases in the first year will be
$1.7 million
in the aggregate, and the annual rent under each sublease will escalate at
3%
each year through the initial term and upon renewal. The sublease agreements are cross-defaulted.
On May 31, 2015, the Symmetry Healthcare Sublessor for the Mountain Trace Rehabilitation and Nursing Center entered into a Second Amendment to the applicable Symmetry Healthcare Sublease, which amended the sublease agreement to, among other things: (i) reduce the first year base rent from
$59,000
to
$54,000
; and (ii) specify a specific rent of
$59,000
for the second year of the lease rather than the prior provision that the second year lease rate shall equal
103%
of the base rent payable for the immediately preceding lease year.
Ohio Leases
Certain wholly owned subsidiaries of the Company (each, a “Beacon Sublessor”) entered into
five
sublease agreements, in or around October 2014, pursuant to which those subsidiaries would lease
four
skilled nursing facilities and
one
assisted living facility located in Ohio (collectively, the “Beacon Facilities”) to certain affiliates of Beacon Health Management, LLC (each, a “Beacon Sublessee”). On August 1, 2015, the Beacon Sublessors and the Beacon Sublessees entered into new sublease agreements that replaced the existing sublease agreements entered into in or around October 2014. Each of these new sublease agreements became effective on August 1, 2015 and the operations of the Beacon Facilities were transferred to the Beacon Sublessees.
The terms of the sublease agreements for four of the Beacon Facilities known as Eaglewood Village, Hearth and Care of Greenfield, the Pavilion Care Center, and Woodland Manor (collectively, the “EHPW Facilities”) are materially identical and vary slightly from the terms of the sublease agreement for the fifth Beacon Facility, Covington Care Center. Each of the five sublease agreements is structured as triple net lease wherein each Beacon Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial lease term for each of the EHPW Facilities is ten years with a five-year renewal option, and the initial lease term for the Covington Care Center is approximately four years with no renewal option. The aggregate annual base rent under the sublease agreements for the EHPW Facilities in the first year is
$2.2 million
and it will escalate at
2.5%
each year through the initial term. The annual base rent for the Covington Care Center in the first lease year is approximately
$0.8 million
and it will escalate at an annual rate of
$12,000
through the initial term. To establish a fair market base rent under each of the sublease agreements for the EHPW Facilities during any renewal term, the base rent shall be reset and expressed as an annual amount equal to the greater of (i) the fair market rental value of the leased facility as established pursuant to a prescribed formula; or (ii)
102.5%
of the base rent due for the immediately preceding lease year. In addition to base rent, the sublease agreements for the EHPW Facilities provides that the sublessees thereunder shall collectively pay to the applicable Beacon Sublessors special rent during the initial term in the amount of
$109,632
per year, payable in advance in twelve equal monthly installments on or before the first day of each month (except for the first special rent payment, which shall be subtracted from the lease inducement fee described below). All five of the sublease agreements for the Beacon Facilities are cross-defaulted. Furthermore, the security deposit for any of the Beacon Facilities may be applied to the payment of any default under any one of the sublease agreements (or any other agreement cross-defaulted with the Beacon Facilities’ sublease agreements). In connection with entering into the sublease agreements for the Beacon Facilities, each Beacon Sublessor and Beacon Sublessee also entered into an operations transfer agreement with respect to the applicable facility, each containing customary terms and conditions relating to the transfer of operations thereof.
On August 1, 2015, the Company entered into a Lease Inducement Fee Agreement with certain affiliates of Beacon Health Management, LLC, pursuant to which the Company paid to certain affiliates of Beacon Health Management, LLC a fee of
$0.6 million
as a lease inducement for the Beacon Sublessees to enter into the sublease agreements described above and to commence such subleases and transfer operations thereunder. The inducement fee was paid net of certain other fees and costs owed by the affiliates of Beacon Health Management, LLC to the Beacon Sublessors, including the first month of base rent for all of the Beacon Facilities and the first month of special rent pertaining to the EHPW Facilities (see
Note 13 - Variable Interest Entities
).
Oklahoma Leases
On May 1, 2015,
two
wholly owned subsidiaries (each, an “Oklahoma Sublessor”) of the Company entered into separate sublease agreements with Southwest LTC-Quail Creek, LLC and Southwest LTC-NW OKC, LLC (each, an "Oklahoma Sublessee") pursuant to which each Sublessor will lease
one
of two skilled nursing facilities. The
two
facilities are as follows: (i) Quail Creek Nursing Home, a
109
-bed skilled nursing facility located in Oklahoma City, OK; and (ii) Northwest Nursing Center, an
88
-bed skilled nursing facility located in Oklahoma City OK.
The leases, transfer of operations and commencement dates are subject to, among other things: (i) such Oklahoma Sublessee’s receipt of all licenses and other approvals from the State of Oklahoma to operate such facility; and (ii) approval of the mortgage lender with respect to such facility. Each sublease agreement is structured as triple net lease wherein the Oklahoma Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. Pursuant to each sublease agreement, the initial lease term is
ten
years with
two
separate renewal terms of
five
years each. The annual cash rent under all of the sublease agreements in the first year will be
$1.0 million
and will escalate thereafter on an annual basis through the initial term and any renewal terms. The sublease agreements are cross-defaulted. In connection with entering into the sublease
agreements, each Oklahoma Sublessor and Oklahoma Sublessee also entered into an operations transfer agreement with respect to the applicable facilities, each containing customary terms and conditions.
As of
September 30, 2015
, the leases and operations transfer agreements between Oklahoma Sublessors and Oklahoma Sublessees have not commenced.
NOTE 8.
ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
September 30, 2015
|
|
December 31, 2014
|
Accrued payroll related
|
|
$
|
1,862
|
|
|
$
|
6,915
|
|
Accrued employee benefits
|
|
947
|
|
|
3,405
|
|
Real estate and other taxes
|
|
792
|
|
|
1,335
|
|
Other accrued expenses
|
|
4,167
|
|
|
3,998
|
|
Total accrued expenses
(a)
|
|
$
|
7,768
|
|
|
$
|
15,653
|
|
(a)
At
September 30, 2015
and
December 31, 2014
, certain accrued expenses include liabilities of the Company's one consolidating VIE (see
Note 10 - Discontinued Operations
and
Note 13 - Variable Interest Entities
).
NOTE 9.
NOTES PAYABLE AND OTHER DEBT
Notes payable and other debt consist of the following:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
September 30, 2015
|
|
December 31, 2014
|
Revolving credit facilities and lines of credit
|
|
$
|
842
|
|
|
$
|
6,832
|
|
Senior debt - guaranteed by HUD
|
|
25,612
|
|
|
26,022
|
|
Senior debt - guaranteed by USDA
|
|
26,625
|
|
|
27,128
|
|
Senior debt - guaranteed by SBA
|
|
3,587
|
|
|
3,703
|
|
Senior debt - bonds, net of discount
(a)
|
|
12,857
|
|
|
12,967
|
|
Senior debt - other mortgage indebtedness
(b) (c)
|
|
54,430
|
|
|
60,277
|
|
Other debt
|
|
1,308
|
|
|
430
|
|
Convertible debt issued in 2012
|
|
1,500
|
|
|
7,500
|
|
Convertible debt issued in 2014
|
|
—
|
|
|
6,500
|
|
Convertible debt issued in 2015
|
|
7,700
|
|
|
—
|
|
Total
|
|
$
|
134,461
|
|
|
$
|
151,359
|
|
Less: current portion
|
|
39,992
|
|
|
22,012
|
|
Less: portion included in liabilities of variable interest entity held for sale
(a)
|
|
5,871
|
|
|
5,956
|
|
Less: portion included in liabilities of disposal group held for sale
(b)
|
|
4,008
|
|
|
5,197
|
|
Less: portion included in liabilities of disposal group held for use
(c)
|
|
—
|
|
|
4,035
|
|
Notes payable and other debt, net
|
|
$
|
84,590
|
|
|
$
|
114,159
|
|
(a)
The senior debt - bonds, net of discount includes
$5.9 million
at
September 30, 2015
and
$6.0 million
at
December 31, 2014
related to the Company's consolidated VIE, Riverchase Village ADK, LLC ("Riverchase"), revenue bonds issued by the Medical Clinical Board of the City of Hoover in the State of Alabama, which the Company has guaranteed the obligation under such bonds.
(b)
At
December 31, 2014
, the senior debt - other mortgage indebtedness includes
$5.0 million
related to the outstanding loan entered into in conjunction with the acquisition of Companions, a skilled nursing facility located in Tulsa, Oklahoma, as well as a related
$0.2 million
outstanding line of credit balance. At
September 30, 2015
, the senior debt - other mortgage indebtedness includes
$3.0 million
related to the outstanding loan entered into in conjunction with the acquisition of the Companions facility, as well as
$1.0 million
related to the outstanding loan on
one
of the
two
office buildings located in Roswell, Georgia.
(c)
At
December 31, 2014
, the senior debt - other mortgage indebtedness includes
$4.0 million
related to the outstanding loans entered into in conjunction with the acquisition of a skilled nursing facility located in Bentonville, Arkansas and
one
of the
two
office buildings located in Roswell, Georgia. During the nine months ended
September 30, 2015
, the Bentonville, Arkansas facility was sold and the outstanding loan on the office building in Roswell, Georgia was reclassified to liabilities held for sale.
Scheduled Maturities
The 2016 maturities, as described below, include the outstanding loans of an aggregate
$4.0 million
related to the Companions facility and
one
of the
two
office buildings located in Roswell, Georgia, which are classified as liabilities of a disposal group held for sale at
September 30, 2015
, and
$5.9 million
related to the Riverchase bonds classified as liabilities of a VIE held for sale at
September 30, 2015
.
The schedule below summarizes the scheduled maturities for the twelve months ended
September 30
of the respective year:
|
|
|
|
|
|
(Amounts in 000’s)
|
2016
|
$
|
50,040
|
|
2017
|
20,672
|
|
2018
|
4,383
|
|
2019
|
1,834
|
|
2020
|
1,926
|
|
Thereafter
|
55,983
|
|
Subtotal
|
134,838
|
|
Less: unamortized discounts ($169 classified as current)
|
(377
|
)
|
Total
|
$
|
134,461
|
|
Debt Covenant Compliance
As of
September 30, 2015
, the Company (including its consolidated VIE) has approximately
41
credit related instruments (credit facilities, mortgage notes, bonds and other credit obligations) outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDA or EBITDAR, current ratios and tangible net worth requirements. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are further defined in the table below as follows: (i) financial covenants measured against subsidiaries of the Company ("Subsidiary"); and (ii) financial covenants measured against third-party operator performance ("Operator"). Some covenants are based on annual financial metric measurements whereas others are based on quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of
September 30, 2015
, the Company has not been in compliance with certain financial covenants. For each instance of such non-compliance, the Company has obtained waivers or amendments to such requirements including, as necessary, modifications to future covenant requirements or the elimination of certain requirements in future periods.
The table below indicates which of the Company's credit-related instruments are not in compliance as of
September 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
Balance at
September 30, 2015
(000's)
|
|
Subsidiary or Operator Level Covenant Requirement
|
|
Financial Covenant
|
|
Min/Max
Financial
Covenant
Required
|
|
Financial
Covenant
Metric
Achieved
|
|
|
|
Future
Financial
Covenant
Metric
Required
|
PrivateBank - Line of Credit - HUD
|
|
$
|
842
|
|
|
Subsidiary
|
|
Minimum Coverage of Rent and Debt Service
|
|
1.50
|
|
|
0.85
|
|
|
(a)
|
|
n/a
|
|
PrivateBank - Mortgage Note - Valley River Nursing, LLC; Park Heritage Nursing, LLC; Benton Nursing, LLC
|
|
$
|
7,401
|
|
|
Subsidiary
|
|
Minimum Operator EBITDAR (000s)
|
|
$
|
265
|
|
|
$
|
78
|
|
|
(a)
|
|
$
|
265
|
|
PrivateBank - Mortgage Note - APH&R Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC
|
|
$
|
11,871
|
|
|
Subsidiary
|
|
Minimum Operator EBITDAR (000s)
|
|
$
|
450
|
|
|
$
|
327
|
|
|
(a)
|
|
$
|
450
|
|
PrivateBank - Mortgage Note - Little Rock HC&R Nursing, LLC
|
|
$
|
11,456
|
|
|
Subsidiary
|
|
Minimum Operator EBITDAR (000s)
|
|
$
|
358
|
|
|
$
|
(45
|
)
|
|
(a)
|
|
$
|
358
|
|
(a)
Waiver for violation of covenant obtained.
The measurement period for each covenant requirement in the table above is on a quarterly basis.
Revolving Credit Facilities and Lines of Credit
Gemino-Northwest Credit Facility
On May 30, 2013, NW 61
st
Nursing, LLC (“Northwest”), a wholly owned subsidiary of the Company, entered into a Credit Agreement (the “Northwest Credit Facility”) with Gemino Healthcare Finance, LLC ("Gemino"). The Northwest Credit Facility provided for a
$1.0 million
principal amount senior-secured revolving credit facility.
The Northwest Credit Facility matured on January 31, 2015. Interest accrued on the principal balance thereof at an annual rate of
4.75%
plus the current LIBOR rate. Northwest also paid to Gemino: (i) a collateral monitoring fee equal to
1.0%
per annum of the daily outstanding balance of the Northwest Credit Facility; and (ii) a fee equal to
0.5%
per annum of the unused portion of the Northwest Credit Facility. The Northwest Credit Facility was secured by a security interest in the accounts receivable and the collections and proceeds thereof relating to the Company’s skilled nursing facility located in Oklahoma City, Oklahoma known as the Northwest Nursing Center. AdCare had unconditionally guaranteed all amounts owing under the Northwest Credit Facility.
On January 30, 2015 and March 25, 2015, Northwest and Gemino amended the Northwest Credit Facility to extend its term to March 31, 2015 and to April 30, 2015, respectively.
On April 30, 2015, the outstanding principal amount of
$1.0 million
under the Northwest Credit Facility was repaid in full.
Gemino-Bonterra Credit Facility
On September 20, 2012, Bonterra entered into a Second Amendment to the Credit Agreement with Gemino, which amended the original Credit Agreement dated April 27, 2011 between Bonterra and Gemino ("Gemino-Bonterra Credit Facility"). The Gemino-Bonterra Credit Facility was a secured credit facility for borrowings up to
$2.0 million
. The amendment extended the term of the Gemino-Bonterra Credit Facility from October 29, 2013 to January 31, 2014 and amended certain financial covenants regarding Bonterra's fixed charge coverage ratio, maximum loan turn days and applicable margin. Interest accrued on the principal balance outstanding at an annual rate equal to the LIBOR rate plus the applicable margin of
4.75%
to
5.00%
, which fluctuated depending upon the principal amount outstanding.
On May 30, 2013, Bonterra, entered into a Fourth Amendment to Credit Agreement with Gemino, which among other things: (i) extended the term of the Gemino-Bonterra Credit Facility from January 31, 2014 to January 31, 2015; (ii) amended certain financial covenants regarding Bonterra’s fixed charge coverage ratio and maximum loan turn days; and (iii) amended the Gemino-Bonterra Credit Facility to include the Northwest Credit Facility as an affiliated credit agreement in determining whether certain financial covenants are being met.
On January 30, 2015, March 31, 2015, and May 1, 2015, Bonterra and Gemino amended the Gemino-Bonterra Credit Facility to extend its term to March 31, 2015, April 30, 2015, and June 30, 2015, respectively.
On July 1, 2015, the outstanding principal amount of
$0.4 million
under the Gemino-Bonterra Credit Facility was repaid in full.
PrivateBank Credit Facility
On April 1, 2015, certain wholly owned subsidiaries (the “PrivateBank Borrowers”) the Company entered into a Eighth Modification Agreement (the “Eighth Modification”) with The PrivateBank and Trust Company (“PrivateBank”), which modified that certain Loan Agreement, dated September 20, 2012, between the PrivateBank Borrowers, PrivateBank and the Company, as guarantor (as amended, the “PrivateBank Credit Facility”). Under the Eighth Modification:(i) PrivateBank consented to the transfer of operations to new operators and the amendment of the related leases; (ii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from
$8.8 million
to
$6.0 million
, effective April 1, 2015; and (iii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from
$6.0 million
to
$5.8 million
, effective August 1, 2015.
On May 1, 2015, the PrivateBank Borrowers entered into a Ninth Modification Agreement (the “Ninth Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Ninth Modification: (i) PrivateBank consented to the transfer of operations to new operators and the amendment of the related leases; and (ii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from
$5.8 million
to
$3.8 million
.
On July 30, 2015, the PrivateBank Borrowers entered into a Tenth Modification Agreement (the “Tenth Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Tenth Modification: (i) the outstanding amount owing under the PrivateBank Credit Facility was reduced to
$3.8 million
, effective July 30, 2015; and (ii) the PrivateBank Borrowers shall not have the right to receive any additional cash borrowings under the PrivateBank Credit Facility.
On September 2, 2015, the PrivateBank Borrowers entered into a Eleventh Modification Agreement (the “Eleventh Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Eleventh Modification: (i) the outstanding amount owing under the PrivateBank Credit Facility was reduced to
$1.8 million
, effective September 2, 2015; and (ii) the face value of one of the two letters of credit outstanding under the PrivateBank Credit Facility was reduced by
$2.0 million
.
As of
September 30, 2015
, there were
no
cash borrowings outstanding under the PrivateBank Credit Facility. As of
September 30, 2015
, the Company had
$1.8 million
of outstanding letters of credit related to this credit facility. At
September 30, 2015
, the Company was in compliance with all covenants contained in the PrivateBank Credit Facility.
PrivateBank-Woodland Nursing and Glenvue Nursing Credit Facility
On September 24, 2014, certain wholly-owned subsidiaries of the Company entered into a Loan and Security Agreement (the “Woodland Nursing and Glenvue Nursing Credit Facility”) with PrivateBank. The Woodland Nursing and Glenvue Nursing Credit Facility provides for a
$1.5 million
principal amount senior secured revolving credit facility.
The Woodland Nursing and Glenvue Nursing Credit Facility matures on September 24, 2017. Interest on the Woodland Nursing and Glenvue Nursing Credit Facility accrues on the principal balance thereof at a rate of interest equal to the greater of: (i) a floating per annum rate of interest equal to the prime rate plus
1.0%
; or (ii)
5.0%
per annum. These certain wholly-owned subsidiaries of the Company paid to PrivateBank: (i) a one time non-refundable loan fee in the amount of
$11,250
and (ii) a fee equal to
0.5%
per annum of the unused portion of the Woodland Nursing and Glenvue Nursing Credit Facility. The Woodland Nursing and Glenvue Nursing Credit Facility is secured by a security interest in, without limitation, the accounts receivable and the collections and proceeds thereof relating to the Company’s
two
skilled nursing facilities located in Springfield, Ohio, known as the Eaglewood Care Center, and Glennville, Georgia, known as the Glenview Health and Rehabilitation Center. AdCare has unconditionally guaranteed all amounts owing under the Woodland Nursing and Glenvue Nursing Credit Facility.
The Woodland Nursing and Glenvue Nursing Credit Facility contains customary events of default, including material breach of representations and warranties, failure to make required payments, failure to comply with certain agreements or covenants and certain events of bankruptcy and insolvency. Upon the occurrence of an event of default, PrivateBank may terminate the Woodland Nursing and Glenvue Nursing Credit Facility.
As of
September 30, 2015
,
$0.8 million
was outstanding at an interest rate of
5.0%
per annum under the Woodland Nursing and Glenvue Nursing Credit Facility, subject to borrowing base limitations. The
$0.8 million
principal outstanding under the loan is included in the current portion of debt disclosed in the table above. At
September 30, 2015
, the Company was not in compliance with all covenants contained in the Woodland Nursing and Glenvue Nursing Credit Facility and has obtained a waiver from PrivateBank.
Contemporary Healthcare Loan
On August 17, 2012, in conjunction with the acquisition of Companions, a wholly owned subsidiary of the Company entered into a Loan Agreement with Contemporary Healthcare Capital LLC ("Contemporary") and issued a promissory note in favor of Contemporary with a principal amount of
$0.6 million
("Contemporary
$0.6 million
Loan"). The Contemporary
$0.6 million
Loan was to mature on August 20, 2015 and interest accrued on the principal balance at an annual rate of
9.0%
. Payments for the interest and a portion of the principal in excess of the borrowing base were payable monthly, commencing on September 20, 2012.
On May 14, 2015, the outstanding principal amount of
$0.2 million
under the Contemporary
$0.6 million
Loan was repaid in full.
Senior Debt—Other Mortgage Indebtedness
Companions Specialized Care
In August 2012, a wholly owned subsidiary of the Company financed the acquisition of Companions by entering into a loan agreement for
$5.0 million
("Contemporary Loan") with Contemporary. The loan had an original maturity date of August 20, 2015 with a required final payment of
$5.0 million
. The loan accrued interest at a fixed rate of
8.5%
per annum. Deferred financing costs incurred on the loan amounted to
$0.2 million
and were amortized to interest expense over the life of the loan. The loan was secured by the Companions facility and guaranteed by AdCare.
On August 12, 2015, a wholly owned subsidiary of the Company entered into a First Amendment with Contemporary, which modified the Contemporary Loan. Under the First Amendment: (i) the outstanding amount owing under the Contemporary Loan was reduced from
$5.0 million
to
$3.0 million
; (ii) restricted assets related to the loan of
$2.0 million
were used to reduce the outstanding amount owing under the Contemporary Loan, thus eliminating all restricted assets related to the loan; and (iii) the maturity date of the Contemporary Loan was extended from August 20, 2015 to November 20, 2015.
As of
September 30, 2015
,
$3.0 million
was outstanding under the Companions loan. On October 30, 2015, the Company completed the sale of Companions and repaid in full the
$3.0 million
outstanding under the Contemporary Loan.
Northridge, Woodland Hills and Abington Credit Facility
On February 25, 2015,
three
wholly owned subsidiaries of the Company entered into a Loan Agreement (the "Northridge, Woodland Hills and Abington Credit Facility") with PrivateBank, which provides for a
$12.0 million
principal amount secured credit facility. The credit facility is secured by real property.
The Northridge, Woodland Hills and Abington Credit Facility matures on September 1, 2016. Interest accrues on the principal balance thereof at the LIBOR rate plus
4.25%
. Principal and interest payments on the loan are due and payable monthly, beginning on March 1, 2015. The facility is also secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Northridge, Woodland Hills and Abington Credit Facility.
AdCare has unconditionally guaranteed all amounts owing under the Northridge, Woodland Hills and Abington Credit Facility. Proceeds from the Northridge, Woodland Hills and Abington Credit Facility were used to pay off all amounts outstanding under a separate
$12.0 million
credit facility with KeyBank National Association ("KeyBank") under which certain subsidiaries of the Company were borrowers.
As of
September 30, 2015
,
$11.9 million
was outstanding, at an interest rate of approximately
4.4%
per annum, of the maximum borrowing amount of
$12.0 million
under the Northridge, Woodland Hills and Abington Credit Facility.The
$11.9 million
principal outstanding under the loan is included in the current portion of debt disclosed in the table above. As of
September 30, 2015
, the Company had
$2.0 million
of outstanding restricted assets related to this credit facility. At
September 30, 2015
, the Company was not in compliance with a covenant contained in the Northridge, Woodland Hills and Abington Credit Facility and has obtained a waiver from PrivateBank.
On October 30, 2015,
three
wholly owned subsidiaries of the Company entered into a Modification Agreement with PrivateBank, which modified the Northridge, Woodland Hills and Abington Credit Facility (see
Note 16 - Subsequent Events
).
Little Rock Credit Facility
On March 30, 2012, Little Rock HC&R Property Holdings, LLC ("Little Rock") and
two
other wholly owned subsidiaries of the Company, in connection with the Company's April 2012 acquisition of
three
skilled nursing facilities located in Arkansas, entered into a loan agreement for
$21.8 million
with PrivateBank (the "Little Rock Credit Facility"). The Little Rock Credit Facility, as amended on December 28, 2012, matures in December 2016 with a required final payment of
$13.7 million
. The Little Rock Credit Facility accrues interest at the LIBOR rate plus
4%
with a minimum rate of
6%
per annum and requires monthly principal payments plus interest for total current monthly payments of
$0.2 million
. Deferred financing costs incurred on the loan amounted to
$0.4 million
and are being amortized to interest expense over the life of the loan. The Little Rock Credit Facility is secured by the
three
facilities and guaranteed by Little Rock HC&R Nursing, LLC and AdCare. The facility is also secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Little Rock Credit Facility. A portion of the Little Rock Credit Facility with respect to the Northridge facility and Woodland Hills facility was paid off and refinanced with a portion of the proceeds from a new credit facility with KeyBank.
On May 1, 2015, Little Rock entered into a Fifth Modification Agreement with PrivateBank, which modified the Little Rock Credit Facility. The Fifth Modification, among other things: (i) provided for PrivateBank's consent to the sublease of the Company’s Little Rock Health & Rehabilitation Center to an affiliate of Aria Health Group, LLC; and (ii) amended the minimum EBITDAR covenant discussed in the Little Rock Credit Facility to reflect a new facility operator, Highlands of Little Rock West Markham, LLC.
The Company has
$2.1 million
of restricted assets related to this loan. As of
September 30, 2015
,
$11.5 million
was outstanding at an interest rate of
6.0%
per annum under loan agreement. At
September 30, 2015
, the Company was not in compliance with a covenant contained in the loan agreement and has obtained a waiver from PrivateBank.
On October 30, 2015, Little Rock and
two
other wholly owned subsidiaries of the Company entered into a Sixth Modification Agreement with PrivateBank, which modified the Little Rock Credit Facility (see
Note 16 - Subsequent Events
).
Bentonville, Heritage Park and River Valley
On May 1, 2015, Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC, and Valley River Property Holdings, LLC, each a wholly owned subsidiary of the Company (collectively, the “Benton Borrower Group”), entered into a Loan Modification Agreement with PrivateBank, which modified that certain Loan Agreement, dated September 1, 2011, as amended, between the Benton Borrower Group and PrivateBank (the "Bentonville, Heritage Park and River Valley Credit Facility"). The Loan Modification, among other things: (i) provided for PrivateBank's consent to the sublease of the Company’s Heritage Park
Nursing Center to an affiliate of Aria Health Group, LLC; and (ii) amended the minimum EBITDA covenant described in the Bentonville, Heritage Park and River Valley Credit Facility to (a) reflect a new facility operator, Highlands of Rogers Dixieland, LLC, and (b) change the minimum EBITDA covenant to a “Minimum EBITDAR/Management Fee” covenant, which modifies minimum EBITDAR to take into account management fees equal to the greater of the operator’s actual management fees for such period or imputed management fees equal to
5%
of such operator’s gross income for such period, as determined in accordance with generally accepted accounting principles.
On July 1, 2015, the Company completed the sale of its Bentonville, Arkansas skilled nursing facility consisting of
83
licensed beds for
$3.4 million
net of customary closing and certain real property apportionments. Net proceeds were used to repay certain mortgage indebtedness under the Bentonville, Heritage Park and River Valley Credit Facility.
As of
September 30, 2015
,
$9.9 million
was outstanding at an interest rate of
6.0%
per annum under the Bentonville, Heritage Park and River Valley Credit Facility. The
$9.9 million
principal outstanding under the loan is included in the current portion of debt disclosed in the table above. At
September 30, 2015
, the Company was not in compliance with a covenant contained in the loan agreement and has obtained a waiver from PrivateBank.
On October 30, 2015, Benton Borrower Group entered into a Second Modification Agreement with PrivateBank, which modified the Bentonville, Heritage Park and River Valley Credit Facility (see
Note 16 - Subsequent Events
).
Other Debt
Insurance Funding
In March 2015, the Company obtained financing from IPFS Corporation and entered into a Commercial Insurance Premium Finance Security Agreement for several insurance programs, including property, casualty, and crime, effective March 1, 2015 and maturing on December 31, 2015. The total amount financed was approximately
$0.4 million
requiring monthly payments with interest of
3.29%
starting April 2015.
In May 2015, the Company obtained additional financing from IPFS Corporation, effective May 1, 2015 and maturing on April 30, 2016. The additional amount financed was approximately
$1.0 million
requiring monthly payments with interest of
3.29%
starting June 2015. At
September 30, 2015
, the combined outstanding principal and interest was approximately
$0.6 million
under the Commercial Insurance Premium Finance Security Agreement.
KeyBank Promissory Notes
On February 25, 2015, the Company entered into
four
separate unsecured Promissory Note Agreements (the "KeyBank Promissory Notes") with KeyBank for an aggregate principal amount of
$0.7 million
. The indebtedness represents the portion of certain deferred exit fees owed by the Company to KeyBank in connection with the February 2015 repayment of a credit facility with KeyBank. The KeyBank Promissory Notes mature on August 25, 2016, at which time the entire principal balance of the non-interest-bearing notes then unpaid shall be due. If, prior to the maturity date, certain refinancing agreements are entered into with KeyBank as lender, affiliate of lender, or by an agency financing originated by KeyBank or any affiliate of KeyBank, then and in such an event the entire remaining principal amount of the KeyBank Promissory Notes shall be forgiven.
On April 3, 2015, the Company entered into
five
separate unsecured Amended and Restated Promissory Note Agreements with KeyBank, which amend the KeyBank Promissory Notes to include a fifth note with the aggregate principal total of
$0.7 million
remaining unaltered. The amendments restate the principal balances on the original notes in order to include a fifth note.
Convertible Debt
Convertible Subordinated Notes Issued in 2012 (the "2012 Notes")
On June 30, 2015, the Company entered into prepayment agreements with Anthony Cantone and CAM in connection with the Company's
8%
Subordinated Convertible Notes due July 31, 2015 issued to them with an aggregate original principal amount of approximately
$6.4 million
(the "Cantone Notes"). In connection therewith, the Company made principal prepayments in aggregate of approximately
$1.5 million
with respect to the Cantone Notes. On August 21, 2014, Mr. Cantone and certain of his affiliates filed a Schedule 13G/A with the SEC reporting ownership in excess of
5%
of the common stock. On October 5, 2015, Mr. Cantone and certain of his affiliates filed a Schedule 13G/A with the SEC reporting ownership of less than 5% of the common stock (see
Note 15 - Related Party Transactions
).
On
July 30, 2015
, the Company and CAM amended the terms of that certain
8%
subordinated convertible note, issued by the Company to CAM and due July 31, 2015, with a principal payment amount as of such date of
$4.8 million
, which was repaid, to: (i) extend the maturity date with respect to
$1.5 million
of the principal amount of the Note to October 31, 2017; (ii) increase the interest rate from
8.0%
to
10.0%
per annum; and (iii) increase the conversion price from
$3.97
to
$4.25
per share.
Additionally, the amendment modifies the Company’s right to prepay the note so that the Company may prepay at any time, without penalty, upon
60
days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to the note; provided, however, that: (i) the shares of the common stock issuable upon conversion of the note have been registered for resale under the Securities Act; (ii) at any time after the issue date of the note, the volume-weighted average price of the common stock for
10
consecutive trading days has equaled or exceeded
150%
of the then-current conversion price; and (iii) such prepayment may not be effected prior to July 31, 2016. The amendment also affords each of CAM and the Company the right to cause the redemption of all or any portion of the principal amount of the note upon a change of control (as defined in the note) at a redemption price equal to
115%
of the sum of (i) outstanding principal amount to be redeemed, plus (ii) the amount of accrued and unpaid interest thereon.
Pursuant to the amendment, the Company paid to Cantone Research, Inc. (“CRI”), an affiliate of CAM, a fee equal to
$37,500
. The amendment also amends that certain Consulting Agreement, dated July 2, 2012, between the Company and CRI to: (i) reduce the annual consulting fee payable thereunder to
$15,000
and further reduce such fee proportionately upon each repayment, redemption or conversion of the principal amount of the note; and (ii) terminate the Consulting Agreement upon the earlier of October 31, 2017, or the conversion, redemption or prepayment of the entire principal amount of the note.
Convertible Subordinated Notes Issued in 2014
(the "2014 Notes")
On April 30, 2015, the Company repaid the outstanding principal amount of
$6.5 million
under the 2014 Notes plus all interest accrued and unpaid thereunder. Of the
$6.5 million
outstanding principal amount,
$0.8 million
was repaid in cash and
$5.7 million
was repaid through the setoff of amounts owed to the Company by the noteholders.
Convertible Subordinated Notes Issued in 2015 (the "2015 Notes")
On March 31, 2015, the Company entered into Subscription Agreements for
$8.5 million
of the 2015 Notes with certain accredited investors, including certain holders of the 2014 Notes. In connection therewith, the Company issued approximately
$1.7 million
in principal amount of 2015 Notes on March 31, 2015 and approximately
$6.0 million
in principal amount of 2015 Notes on April 30, 2015. Accepted subscriptions for
$0.8 million
in principal amount of 2015 Notes were not funded by the April 30, 2015 payment deadline, and 2015 Notes were not issued in respect thereof.
The 2015 Notes are convertible at the option of the holder into shares of common stock at an initial conversion price equal to
$4.25
per share. If, prior to September 30, 2015, the Company issued or sold any shares of common stock or common stock equivalents (excluding certain excluded securities, as defined in the 2015 Notes) for a consideration per share (the “New Issuance Price”) less than the conversion price then in effect immediately prior to such issuance or sale, then immediately after such issuance or sale the conversion price then in effect shall be reduced to an amount equal to the New Issuance Price (an “Adjustment for Dilutive Issuances”). Notwithstanding the foregoing, no Adjustment for Dilutive Issuances would be effected to the extent it would cause the number of shares of common stock issued, plus the number of shares of common stock issuable, in respect of all 2015 Notes in the aggregate to exceed
3,850,405
shares of common stock. As of
September 30, 2015
, no Adjustment for Dilutive Issuances was made. In addition, the conversion price will be subject to adjustment for any subdivision (by stock dividend, stock split or similar corporation action) or combination (by reverse stock split or similar corporate action) of the common stock.
The Company may prepay at any time, without penalty, upon
60
days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to any 2015 Note; provided, however, that: (i) the shares of common stock issuable upon conversion of any 2015 Note which is to be so prepaid must be: (a) registered for resale under the Securities Act; or (b) otherwise sellable under Rule 144 of the Securities Act without volume limitations thereunder; (ii) at any time after the issue date of such 2015 Note, the volume-weighted average price of the common stock for
ten
consecutive trading days has equaled or exceeded
125%
of the then-current conversion price; and (iii) such prepayment may not be effected prior to March 31, 2016.
The holders holding a majority of the outstanding principal amount with respect to all the 2015 Notes may require the Company to redeem all or any portion of the 2015 Notes upon a change of control (as defined in the 2015 Notes) for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon. In addition, upon a change of control, the Company may redeem all or any portion of the 2015 Notes for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon.
During the existence and continuance of an event of default under a 2015 Note, the outstanding principal amount of such 2015 Note shall incur interest at a rate of
14%
per annum, and the holder of such 2015 Note may require the Company to redeem all or
any portion of such 2015 Note at a redemption price in cash equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon. An “event of default,” with respect to a 2015 Note includes: (i) the Company’s failure to pay to the holder of such 2015 Note any amount of principal or interest by the seventh business day following the date when due under such 2015 Note; and (ii) specific events of bankruptcy, insolvency, reorganization or liquidation.
In the offering, the Company accepted Subscription Agreements from certain related parties (see
Note 15 - Related Party Transactions
).
NOTE 10.
DISCONTINUED OPERATIONS
On April 1, 2015, the subleases commenced and operations transferred for
four
skilled nursing facilities located in Georgia and
two
skilled nursing facilities located in South Carolina (see
Note 7 - Leases
).
On April 29, 2015, a wholly-owned subsidiary of the Company (the “Companions Seller”) entered into an asset purchase agreement (the “Companions Sale Agreement”) with Gracewood Manor, LLC, an Oklahoma limited liability company (the “Companions Purchaser”), to sell Companions, a
102
-bed skilled nursing facility located in Tulsa, Oklahoma, for a sale price of
$3.5 million
. In connection with entering into the Companions Sale Agreement, the Companions Seller and Companions Purchaser entered into an operations transfer agreement to transfer the operations of Companions concurrent with the closing of the asset purchase agreement. On October 30, 2015, the Company completed the sale of Companions and transferred the operations to the Companions Purchaser (see
Note 16 - Subsequent Events
).
On May 1, 2015, the subleases commenced and operations transferred for
seven
skilled nursing facilities and
one
assisted living facility located in Arkansas (see
Note 7 - Leases
).
On May 15, 2015, a wholly-owned subsidiary of the Company (the “Bentonville Seller”) entered into an asset purchase agreement (the “Bentonville Sale Agreement”) with Bozeman Development, LLC, a Texas limited liability company (the “Bentonville Purchaser”), to sell Bentonville. The transaction closed on July 1, 2015 and the net sales proceeds of
$3.4 million
were remitted to the Bentonville Seller. In connection with entering into the Bentonville Sale Agreement, the Bentonville Seller and Bentonville Purchaser entered into an operations transfer agreement to transfer the operations of Bentonville Manor concurrent with the closing of the asset purchase agreement.
On June 1, 2015, the sublease commenced and operations transferred for
one
skilled nursing facility located in North Carolina (see
Note 7 - Leases
).
On June 11, 2015, Riverchase entered into an asset purchase agreement (the "Riverchase Sale Agreement") with Omega Communities, LLC ("Omega") to sell the Riverchase Village facility, a
105
-bed assisted living facility located in Hoover, Alabama. The purchase price for the Riverchase Village facility was
$6.8 million
and was originally scheduled to close on or before July 31, 2015, subject to the purchaser's right to extend the closing date to August 31, 2015. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions.
On August 6, 2015, Riverchase entered into a First Amendment to Asset Purchase Agreement ("First Amendment") with Omega, which amended the Riverchase Sale Agreement. Under the First Amendment: (i) the closing date of the Riverchase Sale Agreement was extended to August 31, 2015, subject to the purchaser's right to extend the closing date to September 30, 2015, upon completion of conditions set forth in the agreement; (ii) Omega transferred
$0.1 million
in additional earnest money to Riverchase, to extend the Riverchase Sale Agreement to August 31, 2015; and (iii) the total purchase price, inclusive of the additional earnest money, increased by
$0.1 million
to
$6.9 million
.
On September 30, 2015, Riverchase entered into a Second Amendment to Asset Purchase Agreement ("Second Amendment") with Omega, which amended the Riverchase Sale Agreement. Under the Second Amendment: (i) the closing date of the Riverchase Sale Agreement was extended to November 30, 2015; and (ii) Omega transferred
$0.2 million
in additional earnest money to Riverchase, to extend the Riverchase Sale Agreement to November 30, 2015.
On July 1, 2015, the sublease commenced and operations transferred for
one
skilled nursing facility located in Georgia (see
Note 7 - Leases
).
On August 1, 2015, the subleases commenced and operations transferred for
four
skilled nursing facilities and
one
assisted living facility located in Ohio (see
Note 7 - Leases
).
On September 1, 2015, the subleases commenced and operations transferred for
two
skilled nursing facilities located in Georgia (see
Note 7 - Leases
).
On September 30, 2015, the sublease commenced and operations transferred for
one
skilled nursing facility located in Georgia (see
Note 7 - Leases
).
On November 1, 2015, the sublease commenced and operations transferred for
one
skilled nursing facility located in Arkansas (see
Note 7 - Leases
and
Note 16 - Subsequent Events
).
For the discontinued operations, the patient care revenue, related cost of services, and facility rental expense prior to the commencement of subleasing are classified in the activities below. For a historical description of the Company's discontinued entities, see Item 8, Notes to Consolidated Financial Statements
- Note 11 - Discontinued Operations
, of the Annual Report.
The following table summarizes the activity of discontinued operations for the
three and nine
months ended
September 30, 2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Total revenues from discontinued operations
|
|
$
|
8,158
|
|
|
$
|
53,677
|
|
|
$
|
71,826
|
|
|
$
|
158,364
|
|
Net income (loss) from discontinued operations
|
|
$
|
(3,228
|
)
|
|
$
|
6,850
|
|
|
$
|
(2,694
|
)
|
|
$
|
19,034
|
|
Interest expense, net from discontinued operations
|
|
$
|
265
|
|
|
$
|
313
|
|
|
$
|
881
|
|
|
$
|
933
|
|
On January 21, 2015, the Company listed for sale its
two
office buildings located in Roswell, Georgia as part of its transition to a healthcare property holding and leasing company. During the
three and nine months ended
September 30, 2015
, the Company recognized an impairment charge of approximately
$0.2 million
and
$0.3 million
, respectively, to write down the carrying value of its two office buildings. The assets and liabilities of the
two
office buildings have been reclassified to assets and liabilities of disposal groups held for sale as of
September 30, 2015
.
Assets and liabilities of the disposal groups held for sale at
September 30, 2015
and
December 31, 2014
, are as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
September 30, 2015
|
|
December 31, 2014
|
Property and equipment, net
(a)
|
|
$
|
4,868
|
|
|
$
|
3,777
|
|
Other assets
|
|
121
|
|
|
2,036
|
|
Assets of disposal groups held for sale
|
|
$
|
4,989
|
|
|
$
|
5,813
|
|
|
|
|
|
|
Notes payable
|
|
$
|
4,008
|
|
|
$
|
5,000
|
|
Line of credit
|
|
—
|
|
|
197
|
|
Liabilities of disposal group held for sale
|
|
$
|
4,008
|
|
|
$
|
5,197
|
|
(a)
Property and equipment, net includes the CON related to Companions.
Assets and liabilities of the VIE held for sale at
September 30, 2015
and
December 31, 2014
, are as follows:
|
|
|
|
|
|
|
|
|
|
Amounts in (000's)
|
|
September 30, 2015
|
|
December 31, 2014
|
Property and equipment, net
|
|
$
|
5,918
|
|
|
$
|
5,893
|
|
Other assets
|
|
—
|
|
|
31
|
|
Assets of variable interest entity held for sale
|
|
$
|
5,918
|
|
|
$
|
5,924
|
|
|
|
|
|
|
Bonds payable
|
|
$
|
5,871
|
|
|
$
|
5,956
|
|
Liabilities of variable interest entity held for sale
|
|
$
|
5,871
|
|
|
$
|
5,956
|
|
NOTE 11.
DIVIDENDS AND PREFERRED STOCK
Common Stock
On
March 31, 2015
, the Board of Directors declared a cash dividend of
$0.05
per share to shareholders of common stock of record as of
April 15, 2015
. The cash dividend was paid on
April 30, 2015
.
On
June 30, 2015
, the Board of Directors declared a cash dividend of
$0.055
per share to shareholders of common stock of record as of
July 15, 2015
. The cash dividend was paid on
July 31, 2015
.
On
September 29, 2015
, the Board of Directors declared a cash dividend of
$0.06
per share to shareholders of common stock of record as of
October 15, 2015
. The
$1.2 million
dividend payable is recorded as part of accrued expenses at
September 30, 2015
. The cash dividend was paid on
October 31, 2015
.
Preferred Stock
On
March 31, 2015
, the Company paid a quarterly dividend of
$0.68
per share on approximately
1.0 million
shares of its Series A Preferred Stock to shareholders of record as of
March 20, 2015
.
On
April 13, 2015
, the Company issued and sold
575,000
shares of Series A Preferred Stock in a “best efforts” registered public offering for a public offering price of
$25.75
per share. In connection therewith, the Company received net proceeds of
$13.8 million
, after the payment of underwriting commissions and discounts and other offering expense payable by the Company.
On
June 2, 2015
, the Company issued and sold
588,235
shares of Series A Preferred Stock in a “best efforts” registered public offering for a public offering price of
$25.50
per share. In connection therewith, the Company received net proceeds of
$14.2 million
, after the payment of underwriting commissions and discounts and other offering expense payable by the Company.
On
June 30, 2015
, the Company paid a quarterly dividend of
$0.68
per share on approximately
2.1 million
shares of its Series A Preferred Stock to shareholders of record as of
June 19, 2015
.
On
July 21, 2015
, the Company entered into separate Sales Agreements with each of its Agents, pursuant to which the Company may offer and sell, from time to time, up to
800,000
shares of Series A Preferred Stock under its ATM through the Agents.
Sales of the shares pursuant to the Sales Agreements, if any, may be made in negotiated transactions or any method permitted by Rule 415 under the Securities Act, including sales made directly on the NYSE MKT or sales made to or through a market maker other than on an exchange. The Agents are not required to sell any specific number of shares, but each Agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices and in accordance with the terms set forth in the Sales Agreements. The Company will instruct each Agent as to the number of shares to be sold by it. Additionally, the Company may instruct the Agents not to sell the shares if the sales cannot be effected at or above the price designated by the Company in its instructions to the Agents. On any given day, only one Agent may sell the shares pursuant to the Sales Agreements. Under the Sales Agreements, the applicable Agent will be entitled to compensation of up to
2.0%
of the gross sales price of all shares sold through it as Agent.
The Sales Agreements contains customary representations and warranties of the parties and indemnification and contribution under which the Company, on the one hand, and the Agents, on the other hand, have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
For the
three months ended
September 30, 2015
, the Company sold
90,136
shares of Series A Preferred Stock under its ATM at an average sale price of
$24.91
per share. In connection therewith, the Company received net proceeds of approximately
$2.2 million
, after payment of underwriting commissions and discounts and other offering expenses incurred by the Company.
On
September 30, 2015
, the Company paid a quarterly dividend of
$0.68
per share on approximately
2.2 million
shares of its Series A Preferred Stock to shareholders of record as of
September 18, 2015
.
NOTE 12.
STOCK BASED COMPENSATION
For the
three and nine
months ended
September 30, 2015
and
2014
, the Company recognized stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Employee compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
11
|
|
|
$
|
88
|
|
|
$
|
56
|
|
|
$
|
276
|
|
Warrants
|
|
55
|
|
|
43
|
|
|
139
|
|
|
133
|
|
Restricted stock
|
|
109
|
|
|
10
|
|
|
301
|
|
|
112
|
|
Total employee stock-based compensation expense
|
|
$
|
175
|
|
|
$
|
141
|
|
|
$
|
496
|
|
|
$
|
521
|
|
Non-employee compensation:
|
|
|
|
|
|
|
|
|
Board restricted stock
|
|
$
|
57
|
|
|
$
|
42
|
|
|
$
|
144
|
|
|
$
|
268
|
|
Board stock options
|
|
13
|
|
|
61
|
|
|
37
|
|
|
182
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Total non-employee stock-based compensation expense
|
|
$
|
70
|
|
|
$
|
103
|
|
|
$
|
181
|
|
|
$
|
462
|
|
Total stock-based compensation expense
|
$
|
245
|
|
|
$
|
244
|
|
|
$
|
677
|
|
|
$
|
983
|
|
Stock Incentive Plans
The Company has
two
employee stock option plans:
|
|
•
|
The 2005 Stock Incentive Plan, which expired September 30, 2015 and provided for a maximum of
578,812
shares of common stock to be issued.
|
|
|
•
|
The 2011 Stock Incentive Plan, which expires March 28, 2021 and provides for a maximum of
2,152,500
shares of common stock to be issued.
|
Both plans permit the granting of incentive or nonqualified stock options. The 2011 Stock Incentive Plan also permits the granting of restricted stock. The plans are administered by the Board of Directors which has the authority to determine the employees to whom awards will be made, the amounts of the awards, and the other terms and conditions of the awards. The Company uses only the 2011 Stock Incentive Plan to make future grants. The number of securities remaining available for future issuance is
483,923
.
In addition to the Company's stock option plans, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board of Directors and, when appropriate, the Compensation Committee of the Board of Directors. The Board of Directors administers the granting of warrants, determines the persons to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards.
The assumptions used in calculating the fair value of employee common stock options and warrants granted during the
nine months ended
September 30, 2015
and
September 30, 2014
, using the Black-Scholes-Merton option-pricing model, are set forth in the following table:
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2015
|
|
2014
|
Dividend yield
|
4.76
|
%
|
|
n/a
|
|
Expected volatility
|
38.6
|
%
|
|
51
|
%
|
Risk-free interest rate
|
1.09
|
%
|
|
1.73
|
%
|
Expected term
|
3.9 years
|
|
|
5.2 years
|
|
The weighted-average grant date fair value for the options and warrants granted during the
nine months ended
September 30, 2015
was approximately
$0.85
per share.
Common Stock Options
No common stock options were awarded during the
nine months ended
September 30, 2015
. At
September 30, 2015
, there were
744,172
outstanding options to purchase shares of common stock with a weighted average exercise price of
$5.15
per share.
Common Stock Warrants
On
April 1, 2015
, the Company granted a warrant to purchase
275,000
shares of common stock to its President and Chief Financial Officer at an exercise price equal to the closing stock price at March 25, 2015 of
$4.25
per share. The warrant shall vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date. At
September 30, 2015
, there were
2,126,475
outstanding warrants to purchase shares of common stock with a weighted average exercise price of
$3.47
per share.
Restricted Stock
On
January 1, 2015
, pursuant to the 2011 Stock Incentive Plan, the Company granted
50,000
shares of common stock with a three-year restriction to its Chairman and Chief Executive Officer. The restricted stock shall vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date and has all the rights of a shareholder from the date of grant including, without limitation, the right to receive dividends and the right to vote. The Company determined the fair value of the restricted stock at date of grant to be equal to the closing stock price at December 31, 2014 of
$4.01
per share.
On
April 1, 2015
, pursuant to the 2011 Stock Incentive Plan, the Company granted
125,000
shares of common stock with a three-year restriction to its President and Chief Financial Officer. The restricted stock shall vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date and has all the rights of a shareholder from the date of grant including, without limitation, the right to receive dividends and the right to vote. The Company determined the fair value of the restricted stock at date of grant to be equal to the closing stock price at March 25, 2015 of
$4.25
per share.
On
May 12, 2015
, pursuant to the 2011 Stock Incentive Plan, the Company granted
6,157
shares of common stock with a three-year restriction to its Chairman and Chief Executive Officer. The restricted stock vested immediately and has all the rights of a shareholder from the date of grant including, without limitation, the right to receive dividends and the right to vote. The Company determined the fair value of the restricted stock at date of grant to be equal to the grant date closing stock price of
$4.06
per share.
At
September 30, 2015
, there were
382,693
unvested shares of restricted stock with a weighted average grant-date fair value of
$4.24
per share.
NOTE 13.
.
VARIABLE INTEREST ENTITIES
Consolidated Variable Interest Entity
As further described in Note 15 to our Consolidated Financial Statements in the Annual Report, the Company has one consolidated VIE, Riverchase, that is required to be consolidated because AdCare has control as primary beneficiary. A “primary beneficiary” is the party that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
In May 2015, the Company paid 2014 property taxes on behalf of Riverchase totaling approximately
$84,342
. At the time of payment, the Company and Riverchase recorded an increase to the outstanding principal owed under the promissory note issued by Riverchase to the Company (the "Riverchase Promissory Note") by
$84,342
. On October 1, 2015, the Riverchase Promissory Note was amended and restated to increase the principal amount from
$177,323
to
$261,665
and to provide for certain additional events of default (see
Note 16 - Subsequent Events
).
The following summarizes the assets and liabilities of the consolidated VIE included in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
September 30, 2015
|
|
December 31, 2014
|
Assets of variable interest entity held for sale
|
|
5,918
|
|
|
5,924
|
|
Other assets
|
|
322
|
|
|
343
|
|
Total assets
|
|
$
|
6,240
|
|
|
$
|
6,267
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
349
|
|
|
$
|
1,923
|
|
Accrued expenses
|
|
1,470
|
|
|
651
|
|
Current portion of notes payable
|
|
262
|
|
|
177
|
|
Liabilities of variable interest entity held for sale
|
|
5,871
|
|
|
5,956
|
|
Non-controlling interest
|
|
(1,712
|
)
|
|
(2,440
|
)
|
Total liabilities and non-controlling interest
|
|
$
|
6,240
|
|
|
$
|
6,267
|
|
Non-consolidated Variable Interest Entities
Aria
On April 30, 2015, the Company entered into the Aria Lease Inducement with Aria Health Consulting, LLC. The Aria Lease Inducement provided for a one-time payment from the Company to Aria Health Consulting, LLC equal to
$2.0 million
minus the security deposits and first month's base and special rent for all Aria Sublessees. On April 30, 2015, in connection with the Aria Lease Inducement, the
eight
sublease agreements with Aria Sublessees were amended to, among other things, provide that the Aria Sublessees shall, collectively, pay to the Aria Sublessors special rent in the amount of
$29,500
per month payable in advance on or before the first day of each month (except for the first special rent payment, which shall be subtracted from the lease inducement fee paid by the Company under the Aria Lease Inducement).
On July 17, 2015, the Company made a short-term loan to Highlands Arkansas Holdings, LLC, an affiliate of Aria (“HAH”) and, in connection therewith, HAH executed a promissory note in the amount
$1.2 million
(the "Aria Note") in favor of the Company. Interest accrues on the unpaid principal balance of the note at a rate of
12.5%
per annum. The principal and interest thereon was originally payable on August 13, 2015. Until all amounts due and owing under the note have been paid, neither the Aria Sublessees nor the Highland Sublessee will pledge, as security, any of the accounts receivable relating to the respective facilities that such entity subleases from the Aria Sublessors or the Highland Sublessor, as applicable. Until all principal and interest under the note is paid, the Company and its affiliates may retain as collateral all funds received by them from Medicare for the benefit of HAH or its affiliates with respect to the properties leased to the affiliates of Aria Health Group, LLC. If the note is not paid in full by the maturity date, then the Company may apply such funds to principal and interest due under the note.
The Aria Note was subsequently amended to extend the maturity date of the note to October 31, 2015, and to modify the outstanding principal owing thereunder. As of
September 30, 2015
, the principal amount outstanding on the Aria Note was
$1.6 million
.
On November 1, 2015, the Aria Note was further amended to: (i) increase the principal amount owing under the Aria Note to
$1.8 million
; (ii) extend the maturity date to November 30, 2015; and (iii) increase the annual interest rate to
13.5%
.
The Aria Lease Inducement and Aria Note entered into by the Company create a variable interest that may absorb some or all of a VIE’s expected losses. The Company does not consolidate the operating activities of the Aria Sublessees as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance (see
Note 7 - Leases
and
Note 16 - Subsequent Events
).
Beacon
On August 1, 2015, the Company entered into a Lease Inducement Fee Agreement with certain affiliates of Beacon Health Management, LLC, pursuant to which the Company paid to certain affiliates of Beacon Health Management, LLC a fee of
$0.6 million
as a lease inducement for the Beacon Sublessees to enter into the sublease agreements and to commence such subleases and transfer operations thereunder (see
Note 7 - Leases
). The inducement fee was paid net of certain other fees and costs owed by the affiliates of Beacon Health Management, LLC to the Beacon Sublessors, including the first month of base rent for all of the Beacon Facilities and the first month of special rent pertaining to the EHPW Facilities.
On August 1, 2015, the Company made a short-term loan to affiliates of Beacon Health Management, LLC (collectively, the "Beacon Affiliates") and, in connection therewith, Beacon Affiliates executed a promissory note in the amount
$0.6 million
(the "Beacon Note") in favor of the Company. Interest accrues on the unpaid principal balance of the note at a rate of
12.5%
per annum. The principal and interest thereon was originally payable on October 1, 2015, and the maturity date could be extended for two separate periods of 30 days each upon by written request and the approval of the Company. Until all amounts due and owing under the note have been paid, the Beacon Sublessees will not pledge, as security, any of the accounts receivable relating to the respective facilities that such entity subleases from the Beacon Sublessors, as applicable. Until all principal and interest under the note is paid, the Company and its affiliates may retain as collateral all funds received by them from Medicare for the benefit of the Beacon Sublessees or its affiliates with respect to the properties leased to the affiliates of Beacon Health Management, LLC. If the note is not paid in full by the maturity date, then the Company may apply such funds to principal and interest due under the note.
The Beacon Note maturity date was extended, upon written request by the Beacon Affiliates, to November 30, 2015. As of
September 30, 2015
, the principal amount outstanding on the Beacon Note was
$0.6 million
.
The Beacon Lease Inducement and Beacon Note entered into by the Company create a variable interest that may absorb some or all of a VIE’s expected losses. The Company does not consolidate the operating activities of the Beacon Sublessees as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance (see
Note 7 - Leases
and
Note 16 - Subsequent Events
).
NOTE 14.
COMMITMENTS AND CONTINGENCIES
Regulatory Matters
Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. The Company believes that it is in compliance in all material respects with all applicable laws and regulations.
Legal Matters
The skilled nursing business involves a significant risk of liability due to the age and health of the Company’s patients and residents and the services the Company provides. The Company and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, which may allege that services have resulted in personal injury, elder abuse, wrongful death or other related claims. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.
In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payer. A violation may provide the basis for exclusion from federally funded healthcare programs. As of
September 30, 2015
, the Company does not have any material loss contingencies recorded or requiring disclosure based upon the evaluation of the probability of loss from known claims, except as disclosed below.
Amy Cleveland et. al. v APH&R Nursing, LLC et. al.
The Company is a defendant in a lawsuit captioned,
Angela Burnett as Special Administratrix of the Estate of Amy Cleveland, and on behalf of the wrongful death beneficiaries of Amy Cleveland; Myrtle Briley as Special Administratrix of the Estate of Sam Briley, deceased; Lavern Coleman as Special Administratrix of the Estate of Freddie Fowlkes Thomas, deceased; Barbara Giffen as Special Administratrix of the Estate of Willie Thomas, deceased; Vivian Swopes as Special Administratrix of the Estate of Ellen Shepherd, deceased; Marilyn Cabaniss as Special Administratrix of the Estate of Mary May Blood, deceased vs. APH&R Nursing, LLC d/b/a Cumberland Health and Rehabilitation Center and/or Abington Place Health and Rehab Center; Benton Nursing, LLC d/b/a Bentonville Manor Nursing Home; Homestead Nursing, LLC d/b/a Homestead Manor Nursing Home; Little Rock HC&R Nursing, LLC d/b/a West Markham Sub Acute and Rehabilitation Center; Mountain View Nursing, LLC d/b/a Stone County Nursing and Rehabilitation Center; Northridge HC&R Nursing, LLC d/b/a Northridge Healthcare and Rehabilitation; Park Heritage Nursing, LLC d/b/a Heritage Park Nursing Center; Valley River Nursing, LLC d/b/a River Valley Health and Rehabilitation Center; Woodland Hills HC Nursing, LLC d/b/a Woodland Hills Healthcare and Rehabilitation; APH&R Property Holdings, LLC; Benton Property Holdings, LLC; Homestead Property Holdings, LLC; Little Rock HC&R Property Holdings, LLC; Mt. V Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Park Heritage Property Holdings, LLC; Valley River Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC; AdCare Administrative Services, LLC; AdCare Consulting, LLC; AdCare Operations, LLC; AdCare Health Systems, Inc.; Boyd P. Gentry; Christopher Brogdon; David A. Tenwick; Melinda Calaway; John Beaudrie; Cyndie L. Lyon; Debbie K. George-Fort; Kitty Gantner; Gaylon Gammill; Bennett; Brenda Barrientos; Deanna Shackleford; Rose Gean; Sherry Duncan; Tracey Tidwell; Zahid Abbasi; Jill Madden; Becky Jo Miller; Deborah Tyler; Matthew Manning; Rickey Griffin; Mincie Thomas; Deborah Hicks; Mary D. Huntsman-Hartfield; Dana Thompson Baker;
Christine Wilson; Glenn Clark; Kimberly Franklin-Bruce; Deborah Thornton; Denene Hurst; Christopher Johnson; Pamela Murphy; Matthew Stevens; Tammy Romero; Brenda Huntsinger; Tammy Watkins; Gale Woodell; Nadine Huddleston; Michael Harrison; Chris Titsworth; Peggy McLelland
; and
Patricia Lamb
, Case No. 60CV-14-3741, filed on March 4, 2015 with the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit (the “Complaint”). The Complaint asserts claims against a purported class which consists of the residents at: (i) Stone County Nursing and Rehabilitation Center; (ii) Bentonville Manor Nursing Home; (iii) Heritage Park Nursing Center; (iv) Homestead Manor Nursing Home; (v) River Valley Health and Rehabilitation Center; (vi) Northridge Healthcare and Rehabilitation; (vii) Woodland Hills Healthcare and Rehabilitation; (viii) West Markham Sub Acute and Rehabilitation Center; and (ix) Cumberland Health and Rehabilitation Center, all of which were managed by subsidiaries or affiliates of the Company. The lawsuit alleges that the nine facilities were understaffed during the class period which resulted in breaches or violation of the nursing home admission agreements, the Arkansas Deceptive Trade Practices Act, and the Long Term Care Facilities Residents' Act. The Complaint also includes individual negligence claims on behalf of former deceased resident Amy Cleveland. The commencement date of the class period begins at different times during 2011 and 2012 for each facility and continues through a date to be determined by the court. The Complaint seeks certification of a class of residents consisting of all residents of the facilities during the class period, judgment against all defendants for actual, compensatory and punitive damages and attorney fees. With respect to the allegations concerning Amy Cleveland, the Complaint seeks damages for injuries, general and special damages, prejudgment and post-judgment interest, attorney fees and punitive damages. The Company intends to vigorously defend itself against the claims.
Ohio Facilities
On March 7, 2014, the Company responded to a letter received from the Ohio Attorney General ("OAG") dated February 25, 2014 demanding repayment of approximately
$1.0 million
as settlement for alleged improper Medicaid payments related to seven Ohio facilities affiliated with the Company. The OAG alleged that the Company had submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws. The Company intends to defend itself against the claims. The Company has not recorded a liability for this matter because the liability, if any, and outcome cannot be determined at this time.
Oklahoma Facilities
On June 24, 2013, South Star Services, Inc. (“SSSI”), Troy Clanton and Rose Rabon (collectively, the “Plaintiffs”) filed a complaint in the District Court of Oklahoma County, State of Oklahoma against: (i) AdCare, certain of its wholly owned subsidiaries and AdCare’s former Chief Executive Officer (collectively, the “AdCare Defendants”); (ii) Christopher Brogdon (a director of the Company, owner of greater than
5%
of the outstanding shares of AdCare Health Systems, Inc. common stock and former Chief Acquisition Officer of the Company) and his wife; and (iii)
five
entities controlled by Mr. and Mrs. Brogdon, which entities own
five
skilled-nursing facilities located in Oklahoma that were previously managed by an AdCare subsidiary (the "Oklahoma Facilities").
On February 10, 2015, Plaintiffs and the defendants participated in a voluntary mediation in an attempt to resolve the case. Although the case did not settle at the mediation, Plaintiffs and defendants continued to negotiate over the following weeks and executed a settlement agreement on March 30, 2015 (the "Clanton Settlement Agreement") to settle all claims for a lump sum payment of
$2.0 million
. In April 2015, under the Clanton Settlement Agreement, the Company paid
$0.6 million
to the Plaintiffs with the balance thereof to be paid by
two
of the Company's insurance carriers. The Company and the other defendants in the matter deny all of the Plaintiff's claims and any wrongdoing but agreed to settle the matter to avoid the continued expense and unpredictability of litigation.
NOTE 15.
RELATED PARTY TRANSACTIONS
Settlement and Indemnification Agreement
On March 26, 2015, the Company and certain entities controlled by Christopher Brogdon, a director of the Company and a beneficial owner of
5%
of the outstanding common stock, entered into a Settlement and Indemnification Agreement with respect to the Oklahoma facilities litigation described in
Note 14 - Commitments and Contingencies
. Pursuant to the Settlement and Indemnification Agreement, the Company agreed to contribute up to
$0.6 million
towards the settlement of the litigation, and Mr. Brogdon and the Brogdon entities agree to release the Company from any and all claims arising in connection with the management agreements and to indemnify the Company with respect to the AdCare Indemnified Claims.
Riverchase
Riverchase is a consolidated VIE that is controlled by Mr. Brogdon and currently under contract to be sold (see
Note 10 - Discontinued Operations, Note 13 - Variable Interest Entities
and
Note 16 - Subsequent Events
).
Personal Guarantor on Loan Agreements
Mr. Brogdon serves as personal guarantor on certain loan agreements, entered into by the Company prior to 2015, related to the following properties: (i)
one
of the
two
office buildings located in Roswell, Georgia; (ii) College Park, a
95
-bed skilled nursing facility located in College Park, Georgia; (iii) Attalla, a
182
-bed skilled nursing facility located in Attalla, Alabama; and (iv) Coosa Valley,
122
-bed skilled nursing facility located in Glencoe, Alabama. At
September 30, 2015
, the total outstanding principal owed under the loans was approximately
$17.6 million
.
Park City Capital
On March 27, 2014, the Company accepted a Subscription Agreement from Park City Capital Offshore Master, Ltd. (“Park City Offshore”), an affiliate of Michael J. Fox, the Lead Director of the Board of Directors, pursuant to which the Company issued to Park City Offshore in March 2014
$1.0 million
in principal amount of the 2014 Notes. Mr. Fox is a director of Park City Offshore and a director of the Company and a beneficial owner of
5%
of the outstanding common stock. The promissory note was offered to and sold to Park City Offshore on the same terms and conditions as all other buyers in the offering.
On March 31, 2015, the Company accepted a Subscription Agreement from Park City Capital Offshore, for 2015 Notes with an aggregate principal amount of
$1.0 million
. The 2015 Note was offered to Park City Offshore on the same terms and conditions as all other investors in the offering except the 2015 Note to be issued to Park City Capital Offshore is not subject to any Adjustment for Dilutive Issuances.
Doucet Asset Management, LLC
On May 5, 2015, Doucet Capital, LLC, Doucet Asset Management, LLC, Christopher L. Doucet and Suzette A. Doucet jointly filed with the SEC a Schedule 13D reporting beneficial ownership of greater than
5%
of the common stock.
On March 31, 2015, the Company accepted Subscription Agreements from Christopher L. Doucet and Suzette A. Doucet for 2015 Notes with an aggregate principal amount of
$0.3 million
. The 2015 Notes were offered to them on the same terms and conditions as all other investors in the offering. With respect to the offering of 2015 Notes, Doucet Asset Management, LLC served as the selected dealer.
Cantone
On June 30, 2015, the Company entered into prepayment agreements with Anthony Cantone and CAM, an affiliate of Mr. Cantone in connection with the Cantone Notes. In connection therewith, the Company made principal prepayments in aggregate of approximately
$1.5 million
with respect to the Cantone Notes. On October 5, 2015, Mr. Cantone, CRI and CAM, and certain other reporting persons filed with the SEC a Schedule 13G/A, which reported beneficial ownership of less than
5%
of the common stock. For a description of certain transactions with Mr. Cantone and his affiliates, see Item 13, Certain Relationships and Related Party Transactions, and Director Independence –Related Party Transactions – Cantone, of the Annual Report.
NOTE 16.
SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC. The following is a summary of the material subsequent events.
Arkansas Lease
On November 1, 2015, the River Valley Sublease become effective and operations transferred to the Highlands Sublessee.
Aria Note
On November 1, 2015, the Aria Note was amended to: (i) increase the principal amount owing under the Aria Note to
$1.8 million
; (ii) extend the maturity date to November 30, 2015; and (iii) increase the annual interest rate to
13.5%
.
Common Stock Dividends
On
September 29, 2015
, the Board of Directors declared a cash dividend of
$0.06
per share to shareholders of common stock of record as of
October 15, 2015
. The cash dividend was paid on
October 31, 2015
.
Companions Specialized Care
On October 30, 2015, the Company completed the sale of Companions for
$3.5 million
less customary closing and certain real property apportionments. The Company received
$0.4 million
net cash from the sale and proceeds were used for working capital purposes. Concurrent with the closing of the sale, the operations of Companions were transferred to the Companions Purchaser and the Contemporary Loan was repaid.
New Beginnings
As previously disclosed, on December 1, 2012, ADK subleased
one
skilled nursing facility located in Jeffersonville, Georgia to Jeff Co. Nursing, LLC (“Jeff Co”). On June 30, 2013, ADK subleased
two
skilled nursing facilities located in Tybee Island, Georgia to Tybee NH, LLC (“Tybee NH”). The
three
facilities are currently leased by ADK, as tenant, pursuant to the Prime Lease (see
Note 7 - Leases
). The
three
sublease agreements between ADK as sublessor and Jeff Co and Tybee NH as sublessees (collectively, the "Sublease Agreements") were set to expire on the same day and adhered to all of the terms, covenants, and conditions as the Prime Lease. Jeff Co and Tybee NH had further subleased these facilities to affiliates of New Beginnings Care, LLC (the “Operators”) under separate sublease agreements (the “Sub-sublease Agreements”).
On October 15, 2015, ADK terminated the Sublease Agreements pursuant to their terms because Jeff Co and Tybee NH failed to pay rent and other amounts due to the Company thereunder. On November 3, 2015, ADK entered into a single master sublease agreement with the Operators (the “Master Sublease Agreement”), whereby the facilities are subleased directly to the Operators commencing on November 1, 2015. The annual rent under the Master Sublease Agreement in the first year will be approximately
$1.3 million
in the aggregate and will escalate
2.5%
each year commencing thereafter through the end of term on July 31, 2020.
In connection with entering into the Master Sublease Agreement, on November 1, 2015, the Operators executed a replacement promissory note in favor of the Company with a principal amount of
$0.5 million
, which accrues interest at an annual rate of
13.5%
and matures on October 31, 2016. This replacement promissory note replaces the promissory note originally issued by the Operators in favor of the Company on August 1, 2015, with a principal amount of
$0.1 million
, which accrued interest at an annual rate of
6.0%
and originally matured on August 31, 2016. The notes were issued by the Operators to the Company in respect of lease payments, security deposits and other monies owed pursuant to operations transfer agreements.
PrivateBank
On October 30, 2015,
three
wholly owned subsidiaries of the Company entered into a Modification Agreement with PrivateBank, which modified the Northridge, Woodland Hills and Abington Credit Facility to, among other things: (i) provide lender consent for the sublease of
three
skilled nursing facilities to new operators; (ii) establish a single cash collateral account to combine and collectively share the restricted cash reserves related to the following loans: (a) the Northridge, Woodland Hills and Abington Credit Facility; (b) the Little Rock Credit Facility; and (c) Bentonville, Heritage Park and River Valley Credit Facility; and (iii) establish an excess rent account to capture monthly cash rent proceeds from operators in excess of the monthly debt payments payable under the Northridge, Woodland Hills and Abington Credit Facility and the Little Rock Credit Facility.
On October 30, 2015, Little Rock and
two
other wholly owned subsidiaries of the Company entered into a Sixth Modification Agreement with PrivateBank, which modified the Little Rock Credit Facility to, among other things: (i) provide lender consent for the sublease of
three
skilled nursing facilities to new operators; (ii) establish a single cash collateral account to combine and collectively share the restricted cash reserves related to the following loans: (a) the Northridge, Woodland Hills and Abington Credit Facility; (b) the Little Rock Credit Facility; and (c) Bentonville, Heritage Park and River Valley Credit Facility; and (iii) establish an excess rent account to capture monthly cash rent proceeds from operators in excess of the monthly debt payments payable under the Northridge, Woodland Hills and Abington Credit Facility and the Little Rock Credit Facility.
On October 30, 2015, Benton Borrower Group entered into a Second Modification Agreement with PrivateBank, which modified the Bentonville, Heritage Park and River Valley Credit Facility to, among other things: (i) provide lender consent for the sublease of
three
skilled nursing facilities to new operators; and (ii) establish a single cash collateral account to combine and collectively share the restricted cash reserves related to the following loans: (a) the Northridge, Woodland Hills and Abington Credit Facility; (b) the Little Rock Credit Facility; and (c) Bentonville, Heritage Park and River Valley Credit Facility.
Riverchase
As previously disclosed, Riverchase financed its acquisition of the Riverchase Village facility using the proceeds of revenue bonds issued by the Medical Clinic Board of the City of Hoover (approximately
$5.8 million
of First Mortgage Healthcare Facility Revenue Bonds (Series 2010 A) and approximately
$0.5 million
of First Mortgage Revenue Bonds (Series B) (collectively, the “Riverchase Bonds”)). It has come to the Company’s attention that, on September 3, 2015, the trustee with respect to the Riverchase Bonds (as to which the Company is a guarantor) issued to bondholders an informational notice indicating that certain defaults had occurred with respect to the Riverchase Bonds, including a debt service reserve deficiency of approximately
$300,000
, failure to pay ad valorem taxes and failure to provide certain financial and other information to the trustee. It is the Company’s understanding that Riverchase is working with the trustee to cure the defaults.
On October 30, 2015, the trustee notified the Company that there were insufficient funds in the interest account with respect to the Riverchase Bonds to pay the bond payment due November 1, 2015, and demanded that the Company pay the shortfall in the amount of
$39,739
pursuant to the Company’s guaranty. The Company paid such amount as demanded by the trustee and, in connection therewith, the Riverchase Promissory Note was amended and restated on November 2, 2015, to increase the principal amount from
$261,665
to
$301,404
. As previously disclosed, Riverchase is the Company’s consolidated VIE and is owned and controlled by Christopher Brogdon, a director of the Company and greater than
5%
holder of the common stock. For a description of certain arrangements between the Company and Mr. Brogdon, see “Certain Relationships and Related Party Transactions” included in the Company’s Definitive Proxy Statement for its 2015 Annual Meeting of Shareholders, filed with the SEC on October 26, 2015.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively with AdCare, the “Company” or “we”) own, lease, operate or manage for third-parties skilled nursing and assisted living facilities in the states of Alabama, Arkansas, Georgia, North Carolina, Ohio, Oklahoma and South Carolina.
In July 2014, we announced that the Board of Directors had approved a strategic plan to transition the Company to a healthcare property holding and leasing company. Through a series of leasing and subleasing transactions, we are in the process of transitioning to third-parties the operations of the Company’s currently owned and operated healthcare facilities. In furtherance of this strategic plan, the Company is now focused on the ownership, acquisition and leasing of healthcare related properties.
During the
nine
months ended
September 30, 2015
, we entered into certain leasing and operations transfer agreements for facilities located in Arkansas, Georgia, North Carolina, Ohio and South Carolina, which are described below. Subsequent to
September 30, 2015
, the Company completed the sale of Companions, a
102
-bed skilled nursing facility located in Tulsa, Oklahoma ("Companions"), and transferred the operations of Companions and
one
additional facility to new operators (see
Note 7 - Leases
and
Note 16 - Subsequent Events
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Leasing and Subleasing Activities
As of
September 30, 2015
, we leased
nineteen
owned and subleased
eleven
leased skilled nursing facilities and leased
two
owned assisted living facilities to local third-party operators in the states of Alabama, Arkansas, Georgia, North Carolina and South Carolina.
The following table provides summary information regarding the number of operational beds at our facilities leased and subleased to third parties as of
September 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Facilities Leased and Subleased to Third-Parties
|
State
|
|
Number of
Operational
Beds/Units
|
|
Owned
|
|
Leased
|
|
Total
|
Alabama
|
|
304
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Arkansas
|
|
829
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Georgia
|
|
1,631
|
|
|
4
|
|
|
10
|
|
|
14
|
|
North Carolina
|
|
106
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Ohio
|
|
373
|
|
|
4
|
|
|
1
|
|
|
5
|
|
South Carolina
|
|
180
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total
|
|
3,423
|
|
|
21
|
|
|
11
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Type
|
|
Number of
Operational
Beds/Units
|
|
Owned
|
|
Leased
|
|
Total
|
Skilled Nursing
|
|
3,311
|
|
|
19
|
|
|
11
|
|
|
30
|
|
Assisted Living
|
|
112
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total
|
|
3,423
|
|
|
21
|
|
|
11
|
|
|
32
|
|
Operating Activities
As of
September 30, 2015
, we operated or managed
six
facilities comprised of
five
skilled nursing facilities and
one
independent living/senior housing facility, excluding one skilled nursing facility held for sale. Our facilities provide a range of health care services to patients and residents including skilled nursing and independent living services, social services, various therapy services, and other rehabilitative and healthcare services. As of
September 30, 2015
, of the
six
facilities, we owned and operated
three
facilities and managed
three
facilities for a third party.
Liquidity Overview
The Company has and continues to undertake measures to streamline operations and cost infrastructure in connection with its new business model transition, which include: (i) continuing to reduce and ultimately eliminate patient care revenues and related costs while increasing rental revenues; (ii) refinance or repay current maturities to reduce interest costs and reduce mandatory principal repayments through refinancing transactions with the United States Department of Housing and Urban Development or other lending sources; (iii) reducing general and administrative expenses.
At
September 30, 2015
, we had
$4.3 million
in cash and cash equivalents as well as restricted cash of
$12.2 million
. Over the next twelve months, we anticipate both access to and receipt of several sources of liquidity. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, have refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs. During the remainder of 2015 and into the first quarter of 2016, we anticipate net proceeds of approximately
$1.6 million
on the refinancing of existing debt with such government guaranteed lending programs. At
September 30, 2015
, we had
$134.5 million
in indebtedness of which the current portion is
$49.9 million
. We anticipate our operating cash requirements in 2016 as being less than in 2015 due to the Company's transition to a healthcare property holding and leasing company. We expect sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next twelve months. We have been successful in recent years in raising new equity capital and believe, based on recent discussions, that these markets will continue to be available to us for raising capital in 2015 and beyond. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness (for a more detailed discussion, see
Note 3 - Liquidity and Profitability
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Divestitures
For information regarding the Company's divestitures, please refer to
Note 10 - Discontinued Operations
, located in
Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Critical Accounting Policies
We prepare financial statements in accordance with Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. We base estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change.
During the
nine
months ended
September 30, 2015
, we adopted Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") 2014-08
, which amends the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU is applied prospectively and is effective for the Company for the 2015 annual and interim periods.
For a discussion on recent accounting pronouncements not yet adopted by the Company, see
Note 1 - Organization and Significant Accounting Policies
, located in
Part I, Item 1., Notes to Consolidated Financial Statements.
Results of Operations
Comparison for the
three months ended
September 30, 2015
and
2014
The table below summarizes the operating results of continuing operations for the
three months ended
September 30, 2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
|
Change
|
|
Percent Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
5,826
|
|
|
$
|
388
|
|
|
$
|
5,438
|
|
|
1,401.5
|
%
|
Patient care revenues
|
|
4,290
|
|
|
4,359
|
|
|
(69
|
)
|
|
(1.6
|
)%
|
Management revenues
|
|
218
|
|
|
354
|
|
|
(136
|
)
|
|
(38.4
|
)%
|
Other revenues
|
|
86
|
|
|
—
|
|
|
86
|
|
|
100.0
|
%
|
Total revenues
|
|
10,420
|
|
|
5,101
|
|
|
5,319
|
|
|
104.3
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of facility rent, depreciation and amortization)
|
|
4,354
|
|
|
4,168
|
|
|
186
|
|
|
4.5
|
%
|
General and administrative expense
|
|
2,101
|
|
|
3,575
|
|
|
(1,474
|
)
|
|
(41.2
|
)%
|
Facility rent expense
|
|
1,802
|
|
|
385
|
|
|
1,417
|
|
|
368.1
|
%
|
Depreciation and amortization
|
|
1,912
|
|
|
1,861
|
|
|
51
|
|
|
2.7
|
%
|
Salary retirement and continuation costs
|
|
21
|
|
|
1,488
|
|
|
(1,467
|
)
|
|
(98.6
|
)%
|
Total expenses
|
|
10,190
|
|
|
11,477
|
|
|
(1,287
|
)
|
|
(11.2
|
)%
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
230
|
|
|
(6,376
|
)
|
|
6,606
|
|
|
103.6
|
%
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(1,830
|
)
|
|
(2,594
|
)
|
|
(764
|
)
|
|
(29.5
|
)%
|
Acquisition costs
|
|
—
|
|
|
(8
|
)
|
|
(8
|
)
|
|
(100.0
|
)%
|
Loss on extinguishment of debt
|
|
—
|
|
|
(1,220
|
)
|
|
(1,220
|
)
|
|
(100.0
|
)%
|
Other expense
|
|
(269
|
)
|
|
(444
|
)
|
|
(175
|
)
|
|
(39.4
|
)%
|
Total other expense, net
|
|
(2,099
|
)
|
|
(4,266
|
)
|
|
(2,167
|
)
|
|
(50.8
|
)%
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
(1,869
|
)
|
|
(10,642
|
)
|
|
(8,773
|
)
|
|
(82.4
|
)%
|
Income tax benefit
|
|
—
|
|
|
244
|
|
|
244
|
|
|
(100.0
|
)%
|
Loss from continuing operations
|
|
$
|
(1,869
|
)
|
|
$
|
(10,398
|
)
|
|
$
|
(8,529
|
)
|
|
(82.0
|
)%
|
Rental Revenues
—
Rental revenues increased by
$5.4 million
, or
1,401.5%
, for the
three months ended
September 30, 2015
, as compared with the same period in 2014. The increase reflects the Company's continuing transition to a healthcare property holding and leasing company in 2015. For the quarter ended
September 30, 2015
, rental revenues accounted for
55.9%
of the total revenues earned during the period.
Patient Care Revenues
—Total patient care revenues decreased by
$0.1 million
, or
1.6%
, for the
three months ended
September 30, 2015
, as compared with the same period in 2014. A
4.4%
increase in overall occupancy was offset by an
11.3%
decrease in Medicare A and certain Managed Care covered patient days (the "skilled patient days") for the
three months ended
September 30, 2015
, as compared with the same period in 2014.
Management Revenues
—
Management revenues decreased by
$0.14 million
, or
38.4%
, for the
three months ended
September 30, 2015
, as compared with the same period in 2014. The decrease is primarily due to the discontinuance of a management agreement effective as of December 31, 2014.
Other Revenues
—
Other revenues increased by
$0.1 million
, or
100.0%
, for the
three months ended
September 30, 2015
, as compared with the same period in 2014. The increase reflects interest on lease inducements and short-term notes and other miscellaneous revenues earned during the period (see
Note 13 - Variable Interest Entities
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Cost of Services
—
Cost of services increased by
$0.2 million
, or
4.5%
, during the
three months ended
September 30, 2015
, as compared with the same period in 2014. The increase is primarily due to the following: (i) an increase of
$0.1 million
in nursing expense; and (ii) an increase of
$0.1 million
in bad debt on rental revenues receivable (see
Note 1 - Organization and Significant Accounting Policies
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
General and Administrative
—
General and administrative costs decreased by
$1.5 million
, or
41.2%
, during the three months ended
September 30, 2015
, as compared with the same period in 2014. The net decrease is primarily due to the following: (i) a decrease in salaries, wages and employee benefits expense of approximately
$1.1 million
; (ii) a decrease of
$0.2 million
in legal expenses; (iii) a decrease of approximately
$0.1 million
in IT-related expenses; and (iv) a decrease of approximately
$0.1 million
in director fees and other related expenses.
Facility Rent Expense
—
Facility rent expense increased by
$1.4 million
, or
368.1%
, during the
three months ended
September 30, 2015
, as compared with the same period in 2014. The increase is primarily due to lease extensions and amendments entered into during the quarter (see
Note 7 - Leases
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Depreciation and Amortization
—
Depreciation and amortization increased by
$0.1 million
, or
2.7%
, during the
three months ended
September 30, 2015
, as compared with the same period in 2014. The increase is primarily due to an impairment charge of approximately
$0.2 million
on certain office space held for sale, partially offset by a decrease in capital expenditures for the
three months ended
September 30, 2015
, as compared with the same period in
2014
(see
Note 10 - Discontinued Operations
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Interest Expense, net
—
Interest expense, net decreased by
$0.8 million
, or
29.5%
, during the
three months ended
September 30, 2015
, as compared with the same period in
2014
. The decrease is primarily due to the extinguishment of certain debt (see
Note 9 - Notes Payable and Other Debt
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Comparison for the
nine months ended
September 30, 2015
and
2014
The table below summarizes the operating results of continuing operations for the
nine months ended
September 30, 2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Increase (Decrease)
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
|
Amount
|
|
Percent
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
11,322
|
|
|
$
|
980
|
|
|
$
|
10,342
|
|
|
1,055.3
|
%
|
Patient care revenues
|
|
12,532
|
|
|
12,621
|
|
|
(89
|
)
|
|
(0.7
|
)%
|
Management revenues
|
|
692
|
|
|
1,140
|
|
|
(448
|
)
|
|
(39.3
|
)%
|
Other revenues
|
|
135
|
|
|
—
|
|
|
135
|
|
|
100.0
|
%
|
Total revenues
|
|
24,681
|
|
|
14,741
|
|
|
9,940
|
|
|
67.4
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of facility rent, depreciation and amortization)
|
|
12,887
|
|
|
10,964
|
|
|
1,923
|
|
|
17.5
|
%
|
General and administrative expenses
|
|
7,782
|
|
|
12,313
|
|
|
(4,531
|
)
|
|
(36.8
|
)%
|
Facility rent expense
|
|
3,618
|
|
|
1,044
|
|
|
2,574
|
|
|
246.6
|
%
|
Depreciation and amortization
|
|
5,385
|
|
|
5,570
|
|
|
(185
|
)
|
|
(3.3
|
)%
|
Salary retirement and continuation costs
|
|
(27
|
)
|
|
2,770
|
|
|
(2,797
|
)
|
|
(101.0
|
)%
|
Total expense
|
|
29,645
|
|
|
32,661
|
|
|
(3,016
|
)
|
|
(9.2
|
)%
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(4,964
|
)
|
|
(17,920
|
)
|
|
12,956
|
|
|
(72.3
|
)%
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(6,600
|
)
|
|
(7,770
|
)
|
|
(1,170
|
)
|
|
(15.1
|
)%
|
Acquisition costs, net of gains
|
|
—
|
|
|
(8
|
)
|
|
(8
|
)
|
|
(100.0
|
)%
|
Loss on extinguishment of debt
|
|
(680
|
)
|
|
(1,803
|
)
|
|
(1,123
|
)
|
|
(62.3
|
)%
|
Other expense
|
|
(749
|
)
|
|
(635
|
)
|
|
114
|
|
|
18.0
|
%
|
Total other expense, net
|
|
(8,029
|
)
|
|
(10,216
|
)
|
|
(2,187
|
)
|
|
(21.4
|
)%
|
Loss from continuing operations before income taxes
|
|
(12,993
|
)
|
|
(28,136
|
)
|
|
(15,143
|
)
|
|
(53.8
|
)%
|
Income tax (expense) benefit
|
|
(20
|
)
|
|
236
|
|
|
256
|
|
|
108.5
|
%
|
Loss from continuing operations
|
|
$
|
(13,013
|
)
|
|
$
|
(27,900
|
)
|
|
$
|
(14,887
|
)
|
|
(53.4
|
)%
|
Rental Revenues
—
Rental revenues increased by
$10.3 million
, or
1,055.3%
, for the
nine
months ended
September 30, 2015
, as compared with the same period in 2014. The increase reflects the Company's continuing transition to a healthcare property holding and leasing company in 2015. For the
nine
months ended
September 30, 2015
, rental revenues accounted for
45.9%
of the total revenues earned during the period.
Patient Care Revenues
—Total patient care revenues decreased by $
0.1 million
, or
0.7%
, for the
nine
months ended
September 30, 2015
as compared with the same period in
2014
. A
4.4%
increase in overall occupancy was offset by a
5.3%
decrease in skilled patient days for the
nine
months ended
September 30, 2015
as compared with the same period in
2014
.
Management Revenues
—
Management revenues decreased approximately
$0.4 million
, or
39.3%
, for the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
. The decrease is primarily due to the discontinuance of managements agreement effective as of March 1, 2014 and December 31, 2014.
Other Revenues
—
Other revenues increased by
$0.1 million
, or
100.0%
, for the
nine
months ended
September 30, 2015
, as compared with the same period in 2014. The increase reflects interest on lease inducements and short-term notes and other miscellaneous revenues earned during the period (see
Note 13 - Variable Interest Entities
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Cost of Services
—
Cost of services increased approximately
$1.9 million
, or
17.5%
, for the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
. The increase is primarily due to the following: (i) an increase of
$0.7 million
in bad debt expense; (ii) an increase of
$0.6 million
in nursing and pharmaceutical expenses; (iii) an increase of $0.4 million in facility operations and administrative expenses; and (iv) an increase of
$0.2 million
in insurance expense.
General and Administrative
—
General and administrative costs decreased by approximately
$4.5 million
, or
36.8%
, for the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
. The net decrease is primarily due to the following: (i) a decrease in salaries, wages and employee benefits expense of approximately
$3.6 million
, partially offset by an increase in contract services expense of approximately
$0.7 million
; (ii) a decrease of
$0.5 million
in legal expenses; (iii) a decrease of approximately
$0.3 million
in stock-based compensation; (iv) a decrease of approximately
$0.3 million
in travel and other reimbursable expenses; (v) a decrease of approximately
$0.3 million
in IT-related expenses; and (vi) a decrease of approximately
$0.2 million
in director fees and other related expenses.
Facility Rent Expense
—Facility rent expense increased by approximately
$2.6 million
, or
246.6%
, for the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
. The increase is primarily due to lease extensions and amendments entered into during the quarter (see
Note 7 - Leases
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Depreciation and Amortization
—
Depreciation and amortization decreased by
$0.2 million
, or
3.3%
, during the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
. The decrease is primarily due to certain assets becoming fully depreciated in
2014
, partially offset by an impairment charge of approximately
$0.3 million
on certain office space held for sale, for the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
.
Interest Expense, net
—
Interest expense, net decreased by
$1.2 million
, or
15.1%
, during the
nine
months ended
September 30, 2015
, as compared with the same period in
2014
. The decrease is primarily due to the extinguishment of certain debt and refinancing of certain loan agreements to more favorable terms (for further information, see
Note 9 - Notes Payable and Other Debt
, located in Part I, Item 1., Notes to Consolidated Financial Statements and Item 8, Notes to Consolidated Financial Statements -
Note 9 - Notes Payable and Other Debt
, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014).
Loss on Extinguishment of Debt
—
The Company recognized a loss on extinguishment of debt of approximately
$0.7 million
for the
nine
months ended
September 30, 2015
, compared with approximately
$1.8 million
for the same period in
2014
. The
$0.7 million
loss is due to the February 2015 issuance of promissory notes related to the refinancing of certain loan agreements with one of our lenders (for further information, see
Note 9 - Notes Payable and Other Debt
, located in
Part I, Item 1., Notes to Consolidated Financial Statements).
Liquidity and Capital Resources
For information regarding the Company's liquidity, please refer to
Note 3 - Liquidity and Profitability
, located in
Part I, Item 1., Notes to Consolidated Financial Statements and
Liquidity Overview
, located in Part I, Item 2., Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q.
Cash Flows
The following table presents selected data from our consolidated statement of cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
Net cash used in operating activities - continuing operations
|
|
$
|
(13,381
|
)
|
|
$
|
(17,160
|
)
|
Net cash provided by (used in) operating activities - discontinued operations
|
|
(750
|
)
|
|
11,186
|
|
Net cash provided by (used in) investing activities - continuing operations
|
|
(4,768
|
)
|
|
2,406
|
|
Net cash provided by (used in) investing activities - discontinued operations
|
|
5,678
|
|
|
(928
|
)
|
Net cash provided by (used in) financing activities - continuing operations
|
|
12,379
|
|
|
(1,794
|
)
|
Net cash used in financing activities - discontinued operations
|
|
(5,618
|
)
|
|
(217
|
)
|
Net change in cash and cash equivalents
|
|
(6,460
|
)
|
|
(6,507
|
)
|
Cash and cash equivalents at beginning of period
|
|
10,735
|
|
|
19,374
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,275
|
|
|
$
|
12,867
|
|
Nine Months Ended September 30, 2015
Net cash used in operating activities
—continuing operations for the
nine
months ended
September 30, 2015
, was approximately $
13.4 million
, consisting primarily of our loss from operations less changes in working capital, and noncash charges (primarily depreciation and amortization, share-based compensation, rent revenue and expense in excess of cash paid, and amortization of debt discounts and related deferred financing costs) all primarily the result of routine operating activity. Net cash used in operating activities—discontinued operations was approximately
$0.8 million
.
Net cash used in investing activities
—continuing operations for the
nine
months ended
September 30, 2015
, was approximately $
4.8 million
. This is primarily the result of a net increase in restricted cash deposits of approximately
$3.4 million
and capital expenditures of approximately
$1.3 million
. Net cash provided by investing activities—discontinued operations was approximately
$5.7 million
. This is primarily the result of the
$3.4 million
sale of the Company's Bentonville, Arkansas skilled nursing facility and a release of approximately
$2.0 million
of restricted cash related to the Companions loan.
Net cash provided by financing activities
—continuing operations was approximately $
12.4 million
for the
nine
months ended
September 30, 2015
. This is primarily the result of cash proceeds received from preferred stock issuances and additional debt borrowings. These proceeds were offset primarily by repayments of existing debt obligations and payments of dividends. Net cash used in financing activities—discontinued operations was
$5.6 million
. This is primarily the result of a loan repayment of approximately
$3.0 million
related to the Company's Bentonville, Arkansas skilled nursing facility and a reduction of approximately
$2.0 million
in the outstanding loan principal on Companions.
Nine Months Ended September 30, 2014
Net cash used in operating activities
—continuing operations for the
nine
months ended
September 30, 2014
, was $
17.2 million
, consisting primarily of our loss from operations less changes in working capital, and noncash charges (primarily depreciation and amortization, share-based compensation, rent revenue and expense in excess of cash paid, and amortization of debt discounts and related deferred financing costs) all primarily the result of routine operating activity. Net cash provided by operating activities—discontinued operations was approximately
$11.2 million
. This is primarily the result of the discontinuation of profitable operating entities which are now subleased to our third-party operators.
Net cash provided by investing activities
—continuing operations for the
nine
months ended
September 30, 2014
, was approximately $
2.4 million
. This is primarily the result of a net decrease in restricted cash deposits of approximately
$5.8 million
, partially offset by capital expenditures of approximately
$3.4 million
. Net cash used in investing activities—discontinued operations was approximately
$0.9 million
. This is primarily the result of an increase of
$0.7 million
in collateralized restricted cash related to the Companions loan.
Net cash used in financing activities
—continuing operations was approximately $
1.8 million
for the
nine
months ended
September 30, 2014
. This is primarily the result of repayments of existing debt obligations and payments of preferred stock
dividends, partially offset by cash proceeds received from additional debt borrowings and exercises of stock-based compensation awards. Net cash used in financing activities—discontinued operations was
$0.2 million
.
Notes Payable and Other Debt
For information regarding the Company's debt financings, please refer to
Note 9 - Notes Payable and Other Debt
, located in
Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Receivables
The Company’s operations could be adversely affected if we experience significant delays in: (i) collection of rent from third-party operators; or (ii) reimbursement from Medicare, Medicaid or other third-party revenue sources. As the Company continues its transition to a healthcare property holding and leasing company, our operations will become less dependent upon patient care reimbursements and increasingly dependent upon the collection of rent. The Company’s future liquidity will continue to be dependent upon the relative amounts of current assets and current liabilities. In that regard, accounts receivable can have a significant impact on our liquidity.
Accounts receivable totaled
$11.0 million
at
September 30, 2015
, compared to
$24.3 million
at
December 31, 2014
.
The allowance for doubtful accounts was
$13.0 million
and
$6.7 million
at
September 30, 2015
and
December 31, 2014
, respectively. As facility operations transfer, older receivables become increasingly difficult to collect. We continually evaluate the adequacy of our bad debt reserves based on patient mix trends, aging of older balances, payment terms and delays with regard to third-party payors, as well as other factors. We continue to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts.
Inflation
Certain of our facilities are financed under various debt obligations subject to variable interest rates, which may increase in the future. For information regarding the Company's debt financings, please refer to
Note 9 - Notes Payable and Other Debt
, located in
Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q and Item 8, Notes to Consolidated Financial Statements -
Note 9 - Notes Payable and Other Debt
, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Upon the completion of our transition to a healthcare property holding and leasing company, rental revenues from our leased and subleased facilities will provide our primary source of revenues. Each of our leased and subleased facilities are subject to certain annual or periodic rent escalators, which will provide increased future cash flows. However, there is no guarantee these rent escalators will provide protection from future increases in inflation.
We have historically derived a substantial portion of our revenues from the Medicare program, state Medicaid and similar reimbursement programs. Payments under these programs generally provide for reimbursement levels that are adjusted for inflation annually based upon the state’s fiscal year for the Medicaid programs and in each October for the Medicare program. These adjustments may not continue in the future, and even if received, such adjustments may not reflect the actual increase in our costs for providing healthcare services.
Labor and supply expenses make up a substantial portion of our cost of services. Those expenses can be subject to increase in periods of rising inflation and when labor shortages occur in the marketplace. To date, we have generally been able to implement cost control measures or obtain increases in reimbursement sufficient to offset increases in these expenses. We may not be successful in offsetting future cost increases.
Off-Balance Sheet Arrangements
There were
$1.8 million
of outstanding letters of credit at
September 30, 2015
and
$3.8 million
of outstanding letters of credit at
December 31, 2014
. For the period ended
September 30, 2015
, the outstanding letter of credit were fully collateralized with restricted cash deposits. For the period ended
December 31, 2014
, the outstanding letters of credit were fully collateralized with accounts receivable.
Operating Leases
For information regarding the Company's operating leases, please refer to
Note 7 - Leases
, located in
Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Adjusted EBITDA from continuing operations
Due to the material amount of non-cash related items included in the Company’s results of operations, we have developed an Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA from continuing operations”) metric which provides management with a clearer view of operational uses of cash (see the table below).
“Adjusted EBITDA from continuing operations” is a measure of operating performance that are not calculated in accordance with GAAP. We define “Adjusted EBITDA from continuing operations” as net income (loss) from continuing operations before interest expense, income tax expense, depreciation and amortization (including amortization of non-cash stock-based compensation), loss on extinguishment of debt, and other non-routine adjustments. We have provided below supplemental financial disclosure for these measures, including the most directly comparable GAAP measure (Net Loss) and an associated reconciliation.
The following table provides reconciliation of reported Net Loss on a GAAP basis to Adjusted EBITDA from continuing operations for the
three and nine
months ended
September 30, 2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Condensed Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,097
|
)
|
|
$
|
(3,548
|
)
|
|
$
|
(15,707
|
)
|
|
$
|
(8,866
|
)
|
Discontinued operations
|
|
3,228
|
|
|
(6,850
|
)
|
|
2,694
|
|
|
(19,034
|
)
|
Net loss from continuing operations (Per GAAP)
|
|
(1,869
|
)
|
|
(10,398
|
)
|
|
(13,013
|
)
|
|
(27,900
|
)
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
1,830
|
|
|
2,594
|
|
|
6,600
|
|
|
7,770
|
|
Income tax (benefit) expense
|
|
—
|
|
|
(244
|
)
|
|
20
|
|
|
(236
|
)
|
Amortization of stock based compensation
|
|
245
|
|
|
244
|
|
|
677
|
|
|
983
|
|
Depreciation and amortization
|
|
1,912
|
|
|
1,861
|
|
|
5,385
|
|
|
5,570
|
|
Loss on extinguishment of debt
|
|
—
|
|
|
1,220
|
|
|
680
|
|
|
1,803
|
|
Other adjustments
|
|
71
|
|
|
201
|
|
|
296
|
|
|
393
|
|
New business model expenses
|
|
198
|
|
|
251
|
|
|
453
|
|
|
251
|
|
Salary retirement and continuation costs
|
|
21
|
|
|
1,488
|
|
|
(27
|
)
|
|
2,770
|
|
Adjusted EBITDA from continuing operations
|
|
$
|
2,408
|
|
|
$
|
(2,783
|
)
|
|
$
|
1,071
|
|
|
$
|
(8,596
|
)
|
Adjusted EBITDA from continuing operations should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by, or used in, operations as determined in accordance with GAAP.
We believe Adjusted EBITDA from continuing operations is useful to investors in evaluating the Company’s performance, results of operations and financial position for the following reasons:
|
|
•
|
It is helpful in identifying trends in the Company’s day-to-day performance because the items excluded have little or no significance to the Company’s day-to-day operations;
|
|
|
•
|
It provides an assessment of controllable expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and
|
|
|
•
|
It provides data that assists management determine whether or not adjustments to current spending decisions are needed.
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Disclosure in response to Item 3. of Form 10-Q is not required to be provided by smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the "Evaluation Date"). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.
Amy Cleveland et. al. v APH&R Nursing, LLC et. al.
The Company is a defendant in a lawsuit captioned,
Angela Burnett as Special Administratrix of the Estate of Amy Cleveland, and on behalf of the wrongful death beneficiaries of Amy Cleveland; Myrtle Briley as Special Administratrix of the Estate of Sam Briley, deceased; Lavern Coleman as Special Administratrix of the Estate of Freddie Fowlkes Thomas, deceased; Barbara Giffen as Special Administratrix of the Estate of Willie Thomas, deceased; Vivian Swopes as Special Administratrix of the Estate of Ellen Shepherd, deceased; Marilyn Cabaniss as Special Administratrix of the Estate of Mary May Blood, deceased vs. APH&R Nursing, LLC d/b/a Cumberland Health and Rehabilitation Center and/or Abington Place Health and Rehab Center; Benton Nursing, LLC d/b/a Bentonville Manor Nursing Home; Homestead Nursing, LLC d/b/a Homestead Manor Nursing Home; Little Rock HC&R Nursing, LLC d/b/a West Markham Sub Acute and Rehabilitation Center; Mountain View Nursing, LLC d/b/a Stone County Nursing and Rehabilitation Center; Northridge HC&R Nursing, LLC d/b/a Northridge Healthcare and Rehabilitation; Park Heritage Nursing, LLC d/b/a Heritage Park Nursing Center; Valley River Nursing, LLC d/b/a River Valley Health and Rehabilitation Center; Woodland Hills HC Nursing, LLC d/b/a Woodland Hills Healthcare and Rehabilitation; APH&R Property Holdings, LLC; Benton Property Holdings, LLC; Homestead Property Holdings, LLC; Little Rock HC&R Property Holdings, LLC; Mt. V Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Park Heritage Property Holdings, LLC; Valley River Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC; AdCare Administrative Services, LLC; AdCare Consulting, LLC; AdCare Operations, LLC; AdCare Health Systems, Inc.; Boyd P. Gentry; Christopher Brogdon; David A. Tenwick; Melinda Calaway; John Beaudrie; Cyndie L. Lyon; Debbie K. George-Fort; Kitty Gantner; Gaylon Gammill; Bennett; Brenda Barrientos; Deanna Shackleford; Rose Gean; Sherry Duncan; Tracey Tidwell; Zahid Abbasi; Jill Madden; Becky Jo Miller; Deborah Tyler; Matthew Manning; Rickey Griffin; Mincie Thomas; Deborah Hicks; Mary D. Huntsman-Hartfield; Dana Thompson Baker; Christine Wilson; Glenn Clark; Kimberly Franklin-Bruce; Deborah Thornton; Denene Hurst; Christopher Johnson; Pamela Murphy; Matthew Stevens; Tammy Romero; Brenda Huntsinger; Tammy Watkins; Gale Woodell; Nadine Huddleston; Michael Harrison; Chris Titsworth; Peggy McLelland
; and
Patricia Lamb
, Case No. 60CV-14-3741, filed on March 4, 2015 with the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit (the “Complaint”). The Complaint asserts claims against a purported class which consists of the residents at: (i) Stone County Nursing and Rehabilitation Center; (ii) Bentonville Manor Nursing Home; (iii) Heritage Park Nursing Center; (iv) Homestead Manor Nursing Home; (v) River Valley Health and Rehabilitation Center; (vi) Northridge Healthcare and Rehabilitation; (vii) Woodland Hills Healthcare and Rehabilitation; (viii) West Markham Sub Acute and Rehabilitation Center; and (ix) Cumberland Health and Rehabilitation Center, all of which were managed by subsidiaries or affiliates of the Company. The lawsuit alleges that the nine facilities were understaffed during the class period which resulted in breaches or violation of the nursing home admission agreements, the Arkansas Deceptive Trade Practices Act, and the Long Term Care Facilities Residents' Act. The Complaint also includes individual negligence claims on behalf of former deceased resident Amy Cleveland. The commencement date of the class period begins at different times during 2011 and 2012 for each facility and continues through a date to be determined by the court. The Complaint seeks certification of a class of residents consisting of all residents of the facilities during the class period, judgment against all defendants for actual, compensatory and punitive damages and attorney fees. With respect to the allegations concerning Amy Cleveland, the Complaint seeks damages for injuries, general and special damages, prejudgment and post-judgment interest, attorney fees and punitive damages. The Company intends to vigorously defend itself against the claims.
Item 1A. Risk Factors.
Disclosure in response to Item 1A of Form 10-Q is not required to be provided by smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 12, 2015, the Company issued to one current director 5,151 and 5,151 shares of common stock upon exercise of warrants with exercise prices of $1.04 and $1.93, respectively. On July 7, 2015, the Company issued to one former director 58,884 shares of common stock upon exercise of warrants with an exercise price of $1.04. The warrants were originally issued to the recipients in November 2007, and subsequently amended in November 2009, as partial compensation for service to the Company. The shares of common stock were issued without registration under the Securities Act in reliance upon the exemption from the registration requirements of Section 4(a)(2) of the Securities Act. The Company based such reliance upon, among other things, the isolated and private nature of the transaction and upon the recipients’ status and relationship to the Company and representations made by them regarding investment intent, sophistication, and access to information.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Common Stock Repurchase Program
On November 12, 2015, the Company announced that the Board of Directors has authorized the repurchase of up to 500,000 shares of the outstanding common stock over the next twelve months. The share repurchases may be made from time to time through open market transactions, block trades or privately negotiated transactions and are subject to market conditions, as well as corporate, regulatory, and other considerations. The share repurchase program may be suspended or discontinued at any time by the Board of Directors, without prior notice, and the Company has no obligation to repurchase any amount of common stock under the program. The Company intends to make all repurchases in compliance with applicable regulatory guidelines and to administer the plan in accordance with applicable laws, including Rule 10b-18 of the Exchange Act. Any repurchases are expected to be funded from cash on hand and cash flows from operating activities.
Riverchase
As previously disclosed, Riverchase financed its acquisition of the Riverchase Village facility using the proceeds of revenue bonds issued by the Medical Clinic Board of the City of Hoover (approximately $5.8 million of First Mortgage Healthcare Facility Revenue Bonds (Series 2010 A) and approximately $0.5 million of First Mortgage Revenue Bonds (Series B) (collectively, the “Riverchase Bonds”)). It has come to the Company’s attention that, on September 3, 2015, the trustee with respect to the Riverchase Bonds (as to which the Company is a guarantor) issued to bondholders an informational notice indicating that certain defaults had occurred with respect to the Riverchase Bonds, including a debt service reserve deficiency of approximately $300,000, failure to pay ad valorem taxes and failure to provide certain financial and other information to the trustee. It is the Company’s understanding that Riverchase is working with the trustee to cure the defaults.
On October 30, 2015, the trustee notified the Company that there were insufficient funds in the interest account with respect to the Riverchase Bonds to pay the bond payment due November 1, 2015, and demanded that the Company pay the shortfall in the amount of $39,739 pursuant to the Company’s guaranty. The Company paid such amount as demanded by the trustee and, in connection therewith, the Riverchase Promissory Note was amended and restated on November 2, 2015, to increase the principal amount from $261,665 to $301,404. As previously disclosed, Riverchase is the Company’s consolidated VIE and is owned and controlled by Christopher Brogdon, a director of the Company and greater than 5% holder of the common stock. For a description of certain arrangements between the Company and Mr. Brogdon, see “Certain Relationships and Related Party Transactions” included in the Company’s Definitive Proxy Statement for its 2015 Annual Meeting of Shareholders, filed with the SEC on October 26, 2015.
Item 6. Exhibits.
The agreements included as exhibits to this Quarterly Report are included to provide information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company, its business or the other parties to these agreements. These agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
|
|
•
|
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
|
|
|
•
|
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
|
|
|
•
|
may apply standards of materiality in a way that is different from what may be viewed as material to investors; and
|
|
|
•
|
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
|
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.
EXHIBIT INDEX
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
2.1
|
|
Asset Purchase Agreement, dated March 17, 2015, by and between CSCC Property Holdings, LLC, and Gracewood Manor, LLC
|
|
Incorporated by reference to Exhibit 10.401 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
2.2
|
|
First Amendment to Asset Purchase Agreement, dated May 19, 2015, by and between CSCC Property Holdings, LLC, and Gracewood Manor, LLC
|
|
Incorporated by reference to Exhibit 2.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
2.3
|
|
Purchase and Sale Agreement, dated May 15, 2015, by and between Benton Property Holdings, LLC and Bozeman Development, LLC.
|
|
Incorporated by reference to Exhibit 2.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
3.1
|
|
Declaration of Conversion of AdCare Health Systems, Inc., an Ohio corporation, to AdCare Health Systems, Inc., a Georgia corporation
|
|
Incorporated by reference to Appendix A of the Registrant’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on October 29, 2013
|
3.2
|
|
Certificate of Conversion of AdCare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 3.2 of the Registrant’s Current report on Form 8-K filed on December 18, 2013
|
3.3
|
|
Certificate for Conversion for Entities Converting Within or Off the Records of the Ohio Secretary of State.
|
|
Incorporated by reference to Exhibit 3.1 of the Registrant’s Current report on Form 8-K filed on December 18, 2013
|
3.4
|
|
Articles of Incorporation of AdCare Health Systems, Inc., filed with the Secretary of State of the State of Georgia on December 12, 2013
|
|
Incorporated by reference to Exhibit 3.3 of the Registrant’s Current report on Form 8-K filed on December 27, 2013
|
3.5
|
|
Articles of Correction to Articles of Incorporation of AdCare Health Systems, Inc., filed with the Secretary of State of the State of Georgia on December 12, 2013.
|
|
Incorporated by reference to Exhibit 3.1 of the Registrant’s Current report on Form 8-K filed on December 27, 2013
|
3.6
|
|
Bylaws of AdCare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 3.4 of the Registrant’s Current report on Form 8-K filed on December 27, 2013
|
3.7
|
|
Amendment No. 1 to the Bylaws of AdCare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 3.7 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
3.8
|
|
Articles of Amendment to the Articles of Incorporation of AdCare Health Systems, Inc., as amended, filed with the Secretary of State of the State of Georgia on April 7, 2015.
|
|
Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on April 13, 2015
|
3.9
|
|
Articles of Amendment to the Articles of Incorporation of AdCare Health Systems, Inc., as amended, filed with the Secretary of State of the State of Georgia on May 28, 2015
|
|
Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on June 2, 2015
|
4.1
|
|
Registration Rights Agreement, dated March 31, 2015, by and among AdCare Health Systems, Inc. and the Purchasers of the Company’s 10% Convertible Subordinated Notes Due April 30, 2017
|
|
Incorporated by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
4.2
|
|
Form of 10% Convertible Subordinated Notes Due April 30, 2017
|
|
Incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
4.3
|
|
Form of 10% Convertible Subordinated Notes Due April 30, 2017 (Affiliate Form)
|
|
Incorporated by reference to Exhibit 4.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.1
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC
|
|
Incorporated by reference to Exhibit 99.12 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.2
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC
|
|
Incorporated by reference to Exhibit 99.13 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
|
|
|
|
|
|
10.3
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC
|
|
Incorporated by reference to Exhibit 99.14 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.4
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC
|
|
Incorporated by reference to Exhibit 99.15 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.5
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC
|
|
Incorporated by reference to Exhibit 99.16 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.6
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC
|
|
Incorporated by reference to Exhibit 99.17 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.7
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC
|
|
Incorporated by reference to Exhibit 99.18 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.8
|
|
First Amendment to Sublease Agreement, dated February 27, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC
|
|
Incorporated by reference to Exhibit 99.19 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.9
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC
|
|
Incorporated by reference to Exhibit 99.20 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.10
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC
|
|
Incorporated by reference to Exhibit 99.21 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.11
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC
|
|
Incorporated by reference to Exhibit 99.22 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.12
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC
|
|
Incorporated by reference to Exhibit 99.23 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.13
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC
|
|
Incorporated by reference to Exhibit 99.24 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.14
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC
|
|
Incorporated by reference to Exhibit 99.25 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.15
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC
|
|
Incorporated by reference to Exhibit 99.26 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.16
|
|
Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC
|
|
Incorporated by reference to Exhibit 99.27 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.17
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC
|
|
Incorporated by reference to Exhibit 99.28 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.18
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC
|
|
Incorporated by reference to Exhibit 99.29 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.19
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC
|
|
Incorporated by reference to Exhibit 99.30 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.20
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC
|
|
Incorporated by reference to Exhibit 99.31 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
|
|
|
|
|
|
10.21
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC
|
|
Incorporated by reference to Exhibit 99.32 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.22
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC
|
|
Incorporated by reference to Exhibit 99.33 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.23
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC
|
|
Incorporated by reference to Exhibit 99.34 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.24
|
|
Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC
|
|
Incorporated by reference to Exhibit 99.35 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.25
|
|
Amended and Restated Promissory Note for exit fees (Cumberland), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association
|
|
Incorporated by reference to Exhibit 10.25 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.26
|
|
Amended and Restated Promissory Note for exit fees (Northridge), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association
|
|
Incorporated by reference to Exhibit 10.26 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.27
|
|
Amended and Restated Promissory Note for exit fees (River Valley), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association
|
|
Incorporated by reference to Exhibit 10.27 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.28
|
|
Amended and Restated Promissory Note for exit fees (Sumter Valley), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association
|
|
Incorporated by reference to Exhibit 10.28 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.29
|
|
Promissory Note for exit fees (Stone County), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association
|
|
Incorporated by reference to Exhibit 10.29 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.30
|
|
Eighth Amendment to Credit Agreement, dated March 25, 2015, by and among ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC
|
|
Incorporated by reference to Exhibit 10.30 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.31
|
|
Fifth Amendment to Credit Agreement, dated March 25, 2015, by and among
NW 61ST Nursing, LLC, Georgetown HC&R Nursing,
LLC,
Sumter N&R, LLC
and Gemino Healthcare Finance, LLC
|
|
Incorporated by reference to Exhibit 10.31 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.32
|
|
Ninth Modification Agreement to Loan and Security Agreement, dated May 1, 2015, by and among ADK Lumber City Operator, LLC, ADK LaGrange Operator, LLC , ADK Powder Springs Operator, LLC, ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC , Mountain Trace Nursing ADK, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Coosa Nursing ADK, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.
|
|
Incorporated by reference to Exhibit 10.32 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.33
|
|
Eighth Modification Agreement to Loan and Security Agreement, dated as of April 1, 2015 by and among ADK Lumber City Operator, LLC, ADK Lagrange Operator, LLC , ADK Powder Springs Operator, LLC , ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC , Mountain Trace Nursing ADK, LLC, Mt. Kenn Nursing, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Glenvue H&R Nursing, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on April 7, 2015
|
10.34
|
|
Sublease Agreement, dated April 1, 2015, by and between ADK Georgia, LLC and C.R. of Lagrange, LLC
|
|
Incorporated by reference to Exhibit 99.10 of the Registrant's Current Report on Form 8-K filed on April 7, 2015
|
|
|
|
|
|
|
10.35
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC
|
|
Incorporated by reference to Exhibit 10.363 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.36
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC
|
|
Incorporated by reference to Exhibit 10.364 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.37
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC
|
|
Incorporated by reference to Exhibit 10.365 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.38
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Valley River Property Holdings, LLC, Valley River Nursing, LLC and Highlands of Fort Smith, LLC
|
|
Incorporated by reference to Exhibit 10.366 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.39
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC
|
|
Incorporated by reference to Exhibit 10.367 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.40
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC
|
|
Incorporated by reference to Exhibit 10.368 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.41
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Benton Property Holdings, LLC, Benton Nursing, LLC and Highlands of Bentonville, LLC
|
|
Incorporated by reference to Exhibit 10.369 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.42
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC
|
|
Incorporated by reference to Exhibit 10.370 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.43
|
|
Sublease Agreement, dated as of January 16, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC
|
|
Incorporated by reference to Exhibit 10.371 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.44
|
|
Sublease Agreement, dated as of January 16, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC
|
|
Incorporated by reference to Exhibit 10.372 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.45
|
|
Loan Agreement, dated January 30, 2015, by and among Georgetown HC&R Property Holdings, LLC, Sumter Valley Property Holdings, LLC and The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.373 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.46
|
|
Promissory Note, dated January 30, 2015, issued by Georgetown HC&R Property Holdings, LLC, and Sumter Valley Property Holdings, LLC to The PrivateBank and Trust Company in the amount of $9,300,000
|
|
Incorporated by reference to Exhibit 10.374 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.47
|
|
Guaranty of Payment and Performance, dated January 30, 2015, issued by AdCare Health Systems, Inc. to and for the benefit of The PrivateBank and Trust Company in the amount of $9,300,000
|
|
Incorporated by reference to Exhibit 10.375 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.48
|
|
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated January 30, 2015, by Georgetown HC&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.376 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.49
|
|
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated January 30, 2015, by Sumter Valley Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.377 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.50
|
|
Seventh Amendment to Credit Agreement, dated January 30, 2015, by and between ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC
|
|
Incorporated by reference to Exhibit 10.378 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.51
|
|
Fourth Amendment to Credit Agreement, dated January 30, 2015, by and among NW 61st Nursing, LLC, Georgetown HC&R Nursing, LLC, Sumter N&R, LLC and Gemino Healthcare Finance, LLC
|
|
Incorporated by reference to Exhibit 10.379 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.52
|
|
Sublease Agreement, dated as of January 31, 2015, by and between ADK Georgia, LLC. and 3460 Powder Springs Road Associates, L.P.
|
|
Incorporated by reference to Exhibit 10.380 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.53
|
|
Sublease Agreement, dated as of January 31, 2015, by and between ADK Georgia, LLC. and 3223 Falligant Avenue Associates, L.P.
|
|
Incorporated by reference to Exhibit 10.381 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
|
|
|
|
|
|
10.54
|
|
Promissory Note for exit fees (Northridge), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000
|
|
Incorporated by reference to Exhibit 10.382 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.55
|
|
Promissory Note for exit fees (Cumberland), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000
|
|
Incorporated by reference to Exhibit 10.383 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.56
|
|
Promissory Note for exit fees (River Valley), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000
|
|
Incorporated by reference to Exhibit 10.384 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.57
|
|
Promissory Note for exit fees (Sumter Valley), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000
|
|
Incorporated by reference to Exhibit 10.385 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.58
|
|
Loan Agreement, dated February 25, 2015, by and among APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, Woodland Hills HC Property Holdings, LLC, and The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.386 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.59
|
|
Promissory Note, dated February 25, 2015, issued by APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC to The PrivateBank and Trust Company in the amount of $12,000,000
|
|
Incorporated by reference to Exhibit 10.387 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.60
|
|
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated February 25, 2015, by Woodland Hills HC Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.388 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.61
|
|
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated February 25, 2015, by APH&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.389 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.62
|
|
Guaranty of Payment and Performance, dated February 25, 2015, issued by AdCare Health Systems, Inc. to and for the benefit of The PrivateBank and Trust Company in the amount of $12,000,000
|
|
Incorporated by reference to Exhibit 10.390 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.63
|
|
Absolute Assignment of Rents and Leases, dated February 25, 2015, by Woodland Hills HC Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.391 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.64
|
|
Absolute Assignment of Rents and Leases, dated February 25, 2015, by APH&R Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.392 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.65
|
|
Amendment to Promissory Note, dated March 25, 2015, by and between Riverchase Village ADK, LLC and Adcare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 10.393 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.66
|
|
Amendment to Second Amended and Restated Note, dated March 25, 2015, by and between Christopher F. Brogdon and Adcare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 10.394 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.67
|
|
Third Amendment, dated March 25, 2015, by and among BAN NH, LLC, Senior NH, LLC, Oak Lake, LLC, Kenmetal, LLC, Living Center, LLC, Meeker Nursing, LLC, MCL Nursing, LLC, Harrah Whites Meadows Nursing, LLC, Meeker Property Holdings, LLC, McLoud Property Holdings, LLC, Harrah Property Holdings, LLC, GL Nursing, LLC, Christopher F. Brogdon, AdCare Oklahoma Management, LLC, AdCare Administrative Services, LLC, AdCare Health Systems, Inc., and Hearth & Home of Ohio, Inc.
|
|
Incorporated by reference to Exhibit 10.395 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.68
|
|
First Amendment to Executive Employment Agreement, dated March 25, 2015, by and among AdCare Health Systems, Inc. and William McBride, III
|
|
Incorporated by reference to Exhibit 10.396 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.69
|
|
Employment Agreement between AdCare Health Systems, Inc. and Allan J. Rimland, dated March 25, 2015
|
|
Incorporated by reference to Exhibit 10.397 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
|
|
|
|
|
|
10.70
|
|
Settlement Agreement and Release dated March 30, 2015, by and among Troy Clanton, Rose Rabon and South Star Services, Inc., and Chris Brogdon , Connie Brogdon, Kenmetal, LLC, Senior NH, LLC, BAN NH, LLC, Living Center, LLC, and Oak Lake, LLC, and Adcare Oklahoma Management, LLC, Adcare Health Systems, Inc., Adcare Property Holdings, LLC, and Boyd Gentry
|
|
Incorporated by reference to Exhibit 10.398 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.71
|
|
Settlement Agreement and Release dated March 30, 2015, by and among Starr Indemnity & Liability Company, Columbia Casualty Company, Chris Brogdon, Connie Brogdon, Kenmetal, LLC, Senior NH, LLC, BAN NH, LLC, Living Center, LLC, and Oak Lake, LLC, and AdCare Oklahoma Management, LLC, AdCare Health Systems, Inc., AdCare Property Holdings, LLC, and Boyd Gentry
|
|
Incorporated by reference to Exhibit 10.399 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.72
|
|
Settlement and Indemnification Agreement dated March 26, 2015, by and between Adcare Health Systems, Inc and its wholly owned subsidiaries and affiliates and Chris Brogdon and any affiliates or entities in which Chris Brogdon has an ownership interest
|
|
Incorporated by reference to Exhibit 10.400 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.73
|
|
Lease Agreement, dated February 27, 2015, by and between Georgetown HC&R Property Holdings, LLC and Blue Ridge in Georgetown LLC
|
|
Incorporated by reference to Exhibit 10.408 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.74
|
|
First Amendment to Lease Agreement, dated March 20, 2015, by and between Georgetown HC&R Property Holdings, LLC and Blue Ridge in Georgetown, LLC
|
|
Incorporated by reference to Exhibit 10.409 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.75
|
|
Lease Agreement, dated February 27, 2015 by and between Sumter Valley Property Holdings, LLC and Blue Ridge of Sumter LLC
|
|
Incorporated by reference to Exhibit 10.410 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.76
|
|
First Lease Amendment to Lease Agreement, dated March 20, 2015, by and between Sumter Valley Property Holdings, LLC and Blue Ridge of Sumter, LLC
|
|
Incorporated by reference to Exhibit 10.411 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.77
|
|
Lease Agreement dated February 27, 2015 by and between Mountain Trace Nursing ADK, LLC and Blue Ridge on the Mountain LLC
|
|
Incorporated by reference to Exhibit 10.412 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.78
|
|
First Amendment to Lease Agreement, dated March 20, 2015 by and between Mountain Trace Nursing ADK,LLC and Blue Ridge on the Mountain, LLC
|
|
Incorporated by reference to Exhibit 10.413 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.79
|
|
Sublease Agreement, dated February 18, 2015 by and between CP Nursing, LLC and C.R. of College Park, LLC
|
|
Incorporated by reference to Exhibit 10.417 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
|
10.80
|
|
Sublease Termination Agreement, dated April 30, 2015, by and among Benton Property Holdings, LLC, Benton Nursing, LLC, and Highlands of Bentonville, LLC
|
|
Incorporated by reference to Exhibit 99.36 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.81
|
|
Sublease Termination Agreement, dated April 30, 2015, by and among Valley River Property Holdings, LLC, Valley River Nursing, LLC, and Highlands of Fort Smith, LLC
|
|
Incorporated by reference to Exhibit 99.37 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.82
|
|
Lease Inducement Fee Agreement, dated April 30, 2015, by and between AdCare Health Systems, Inc. and Aria Health Consulting, LLC
|
|
Incorporated by reference to Exhibit 99.38 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
|
10.83
|
|
Sublease Agreement, dated May 1, 2015 by and between NW 61
st
Nursing, LLC and Southwest LTC-NW OKC, LLC
|
|
Incorporated by reference to Exhibit 10.83 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.84
|
|
Sublease Agreement, dated May 1, 2015 by and between QC Nursing, LLC and Southwest LTC-Quail Creek, LLC
|
|
Incorporated by reference to Exhibit 10.84 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.85
|
|
Fifth Modification Agreement, dated May 1, 2015, by and among Little Rock HC&R Property Holdings, LLC, AdCare Health Systems, Inc., Little Rock HC&R Nursing, LLC, and The PrivateBank and Trust Company
|
|
Incorporated by reference to Exhibit 10.85 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
|
|
|
|
|
|
10.86
|
|
Loan Modification Agreement, dated May 1, 2015, by and among Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, as borrowers; AdCare Health Systems, Inc., Benton Nursing, LLC, Park Heritage Nursing, LLC, and Valley River Nursing, LLC, as Guarantors; and The PrivateBank and Trust Company, as lender
|
|
Incorporated by reference to Exhibit 10.86 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
|
10.87
|
|
Underwriting Agreement, dated April 8, 2015, by and between AdCare Health Systems, Inc. and MLV & Co. LLC, as the representative of the several underwriters named therein.
|
|
Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on April 13, 2015
|
10.88
|
|
Fourth Amendment to Credit Agreement, dated May 30, 2013, by and between ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC
|
|
Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013
|
10.89
|
|
Second Amendment to Lease Agreement, dated May 31, 2015 by and between Mountain Trace Nursing ADK,LLC and Blue Ridge on the Mountain, LLC
|
|
Incorporated by reference to Exhibit 10.7 of the Registrant's Current Report on Form 8-K filed on June 5, 2015
|
10.90
|
|
Sublease Agreement, dated July 1, 2015 by and between 2014 HUD Master Tenant, LLC and C.R. of Glenvue, LLC
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on July 7, 2015
|
10.91
|
|
Underwriting Agreement, dated May 28, 2015, by and between AdCare Health Systems, Inc and MLV & Co. LLC, as the representative of the several underwriters named therein.
|
|
Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on June 2, 2015
|
10.92
|
|
At Market Issuance Sales Agreement, dated July 21, 2015, between AdCare Health Systems, Inc. and MLV & Co. LLC.
|
|
Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on July 22, 2015
|
10.93
|
|
At Market Issuance Sales Agreement, dated July 21, 2015, between AdCare Health Systems, Inc. and JMP Securities LLC.
|
|
Incorporated by reference to Exhibit 1.2 of the Registrant's Current Report on Form 8-K filed on July 22, 2015
|
10.94
|
|
Sublease Agreement, dated August 1, 2015, by and between AdCare Health Systems, Inc. and CC SNF, LLC.
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
|
10.95
|
|
Sublease Agreement, dated August 1, 2015, by and between Eaglewood Village, LLC and EW ALF, LLC.
|
|
Incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
|
10.96
|
|
Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and HC SNF, LLC.
|
|
Incorporated by reference to Exhibit 99.4 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
|
10.97
|
|
Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and PV SNF, LLC.
|
|
Incorporated by reference to Exhibit 99.5 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
|
10.98
|
|
Sublease Agreement, dated August 1, 2015, by and between 2014 HUD Master Tenant, LLC and EW SNF, LLC.
|
|
Incorporated by reference to Exhibit 99.6 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
|
10.99
|
|
Lease Inducement Fee Agreement, dated August 1, 2015, by and between the AdCare Health Systems, Inc. and PWW Healthcare, LLC, PV SNF, LLC, HC SNF, LLC, EW SNF, LLC, and EW ALF, LLC.
|
|
Incorporated by reference to Exhibit 99.7 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
|
10.100
|
|
Tenth Modification Agreement to Loan and Security Agreement, dated July 30, 2015, by and among ADK Lumber City Operator, LLC, ADK LaGrange Operator, LLC , ADK Powder Springs Operator, LLC, ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC , Mountain Trace Nursing ADK, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Coosa Nursing ADK, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.
|
|
Incorporated by reference to Exhibit 10.100 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.101
|
|
Promissory Note, dated July 17, 2015, by and between Highlands Arkansas Holdings, LLC and AdCare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 10.101 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
|
|
|
|
|
|
10.102
|
|
Letter Agreement to the Equitable Adjustments, dated July 17, 2015, by and between AdCare Health Systems, Inc. and Highlands Arkansas Holdings, LLC.
|
|
Incorporated by reference to Exhibit 10.102 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.103
|
|
Promissory Note, dated August 1, 2015, by and between PWW Healthcare, LLC, PV SNF, LLC, HC SNF, LLC, CC SNF, LLC EW SNF, LLC, and EW ALF, LLC, and AdCare Health Systems, Inc.
|
|
Incorporated by reference to Exhibit 10.103 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.104
|
|
Sublease Agreement, dated July 20, 2015, by and between ADK Bonterra/Parkview, LLC and 2801 Felton Avenue, L.P., and 460 Auburn Avenue, L.P.
|
|
Incorporated by reference to Exhibit 10.104 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.105
|
|
Amendment to Subordinated Convertible Note, dated July 30, 2015, by and between AdCare Health Systems, Inc. and Cantone Asset Management LLC and Cantone Research, Inc.
|
|
Incorporated by reference to Exhibit 10.105 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.106
|
|
First Amendment to Promissory Note, dated August 12, 2015, by and among CSCC Property Holdings, LLC and CSCC Nursing, LLC, AdCare Health Systems, Inc. and AdCare Oklahoma Management, LLC, and Contemporary Healthcare Senior Lien I, L.P.
|
|
Incorporated by reference to Exhibit 10.106 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.107
|
|
Asset Purchase Agreement, dated June 11, 2015, by and between Riverchase Village ADK, LLC and Omega Communities, LLC.
|
|
Incorporated by reference to Exhibit 10.107 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.108
|
|
First Amendment to Asset Purchase Agreement, dated August 6, 2015, by and between Riverchase Village ADK, LLC and Omega Communities, LLC.
|
|
Incorporated by reference to Exhibit 10.108 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.109
|
|
Sublease Agreement, dated July 17, 2015, by and among Valley River Property Holdings, LLC,Valley River Nursing, LLC and Highlands of Fort Smith, LLC
|
|
Incorporated by reference to Exhibit 10.109 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
|
10.110
|
|
Second Amendment to Lease, dated as of August 14, 2015, between William M. Foster and ADK Georgia, LLC
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K filed on August 18, 2015
|
10.111
|
|
Lease Guaranty made by AdCare Health Systems, Inc. for the benefit of William M. Foster, effective August 14, 2015
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on August 18, 2015
|
10.112
|
|
Sublease Agreement, dated October 1, 2015, by and between KB HUD Master Tenant 2014, LLC, and C.R. of Autumn Breeze, LLC
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on October 6, 2015
|
10.113
|
|
First Amendment to Sublease Agreement, dated October 6, 2015, by and among Valley River Property Holdings, LLC, Valley River Nursing, LLC and Highlands of Fort Smith, LLC
|
|
Incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 8-K filed on November 3, 2015
|
10.114
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC
|
|
Filed herewith
|
10.115
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC
|
|
Filed herewith
|
10.116
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC
|
|
Filed herewith
|
10.117
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC
|
|
Filed herewith
|
10.118
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC
|
|
Filed herewith
|
|
|
|
|
|
|
10.119
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC
|
|
Filed herewith
|
10.120
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC
|
|
Filed herewith
|
10.121
|
|
Fourth Amendment to Sublease Agreement, dated October 6, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC
|
|
Filed herewith
|
10.122
|
|
Second Amendment to Asset Purchase Agreement, dated September 30, 2015, by and between CSCC Property Holdings, LLC, and Gracewood Manor, LLC
|
|
Incorporated by reference to Exhibit 99.6 of the Registrant's Current Report on Form 8-K filed on November 3, 2015
|
10.123
|
|
Second Amendment to Asset Purchase Agreement, dated September 30, 2015, by and between Riverchase Village ADK, LLC and Omega Communities, LLC
|
|
Filed herewith
|
10.124
|
|
Second Amendment to Lease Agreement, dated September 14, 2015, by and between Coosa Nursing ADK, LLC and C.R. of Coosa Valley, LLC
|
|
Filed herewith
|
10.125
|
|
Second Amendment to Lease Agreement, dated September 14, 2015, by and between Attalla Nursing ADK, LLC and C.R. of Attalla, LLC
|
|
Filed herewith
|
10.126
|
|
First Amendment to Lease Agreement, dated August 14, 2015, by and between 2014 HUD Master Tenant, LLC and C.R. of Glenvue, LLC
|
|
Filed herewith
|
10.127
|
|
Second Amendment to Lease Agreement, dated September 24, 2015, by and between Georgetown HC&R Property Holdings, LLC and Blue Ridge in Georgetown, LLC
|
|
Filed herewith
|
10.128
|
|
First Amendment to Sublease Agreement, dated September 10, 2015, by and between ADK Georgia, LLC and LC SNF, LLC
|
|
Filed herewith
|
10.129
|
|
First Amendment to Sublease Agreement, dated September 14, 2015, by and between ADK Georgia, LLC and C.R. of LaGrange, LLC
|
|
Filed herewith
|
10.130
|
|
First Amendment to Sublease Agreement, dated September 23, 2015, by and between ADK Georgia, LLC and 3460 Powder Springs Road Associates, L.P.
|
|
Filed herewith
|
10.131
|
|
First Amendment to Sublease Agreement, dated September 23, 2015, by and between ADK Georgia, LLC and 3223 Falligant Avenue Associates, L.P.
|
|
Filed herewith
|
10.132
|
|
Third Amendment to Sublease Agreement, dated September 9, 2015, by and between ADK Georgia, LLC and C.R. of Thomasville, LLC
|
|
Filed herewith
|
10.133
|
|
First Amendment to Sublease Agreement, dated September 1, 2015, by and between ADK Bonterra/Parkview, LLC and 2801 Felton Avenue, L.P., and 460 Auburn Avenue, L.P.
|
|
Filed herewith
|
10.134
|
|
Second Amended and Restated Note, dated November 2, 2015, by and between Riverchase Village ADK, LLC and AdCare Health Systems, Inc.
|
|
Filed herewith
|
10.135
|
|
Modification Agreement, dated October 30, 2015, by and among APH&R Property Holdings, LLC, HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC, AdCare Health Systems, Inc., and The PrivateBank and Trust Company.
|
|
Filed herewith
|
10.136
|
|
Second Modification Agreement, dated October 30, 2015, by and among Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC, and Valley River Property Holdings, LLC, AdCare Health Systems, Inc., Benton Nursing, LLC, Park Heritage Nursing, LLC, and Valley River Nursing, LLC, and The PrivateBank and Trust Company.
|
|
Filed herewith
|
10.137
|
|
Sixth Modification Agreement, dated October 30, 2015, by and among Little Rock HC&R Property Holdings, LLC, AdCare Health Systems, Inc., Little Rock HC&R Nursing, LLC, and The PrivateBank and Trust Company
|
|
Filed herewith
|
|
|
|
|
|
|
10.138
|
|
Eleventh Modification Agreement to Loan and Security Agreement, dated July 30, 2015, by and among ADK Lumber City Operator, LLC, ADK LaGrange Operator, LLC , ADK Powder Springs Operator, LLC, ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC, Mountain Trace Nursing ADK, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Coosa Nursing ADK, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.
|
|
Filed herewith
|
10.139
|
|
Second Amendment to Third Amended and Restated Multiple Facilities Lease, dated September 1, 2015, by and between Georgia Lessor - Bonterra/Parkview, LLC and ADK Bonterra/Parkview, LLC.
|
|
Filed herewith
|
10.140
|
|
Amendment Regarding Lease and Sublease, dated August 1, 2015, by and among Covington Realty, LLC, and Adcare Health Systems, Inc. and CC SNF, LLC
|
|
Filed herewith
|
10.141
|
|
Master Sublease Agreement, dated November 3, 2015, by and among ADK Georgia, LLC, and Jeffersonville Healthcare & Rehab, LLC, Oceanside Healthcare & Rehab, LLC, and Savannah Beach Healthcare & Rehab, LLC.
|
|
Filed herewith
|
10.142
|
|
Replacement Promissory Note, dated November 1, 2015, by and between New Beginnings Care, LLC, Jeffersonville Healthcare & Rehab, LLC, Oceanside Healthcare & Rehab, LLC, and Savannah Beach Healthcare & Rehab, LLC, and AdCare Health Systems, Inc.
|
|
Filed herewith
|
10.143
|
|
Amended and Restated Note, dated October 1, 2015, by and between Riverchase Village ADK, LLC and AdCare Health Systems, Inc.
|
|
Filed herewith
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
Filed herewith
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
Filed herewith
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
Filed herewith
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
Filed herewith
|
101
|
|
The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014, (ii) Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, (iv) Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2015 and (v) the Notes to Consolidated Financial Statements.
|
|
Filed herewith
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
ADCARE HEALTH SYSTEMS, INC.
|
|
|
|
(Registrant)
|
|
|
|
|
Date:
|
November 16, 2015
|
|
/s/ William McBride III
|
|
|
|
William McBride III
|
|
|
|
Chairman and Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
Date:
|
November 16, 2015
|
|
/s/ Allan J. Rimland
|
|
|
|
Allan J. Rimland
|
|
|
|
President and Chief Financial Officer
|
|
|
|
(Principal Financial and Accounting Officer)
|
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), LITTLE ROCK HC&R NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF LITTLE ROCK WEST MARKHAM, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 27, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes
1
HNZW//3583-1
(West Markham)
hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to One Hundred Thirty-three Thousand Five Hundred and 00/100 Dollars ($133,500.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the
2
HNZW//3583-1
(West Markham)
full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
3
HNZW//3583-1
(West Markham)
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(West Markham)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
LITTLE ROCK HC&R PROPERTY
HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
LITTLE ROCK HC&R NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF LITTLE ROCK WEST MARKHAM, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(West Markham)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(West Markham)
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among NORTHRIDGE HC&R PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), NORTHRIDGE HC&R NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF NORTH LITTLE ROCK JOHN ASHLEY, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 25, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes
1
HNZW//3583-1
(Northridge)
hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Thirty-five Thousand and 00/100 Dollars ($35,000.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Sixty Thousand and 00/100 Dollars ($60,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
2
HNZW//3583-1
(Northridge)
|
|
g.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
|
|
h.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
i.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
j.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition
3
HNZW//3583-1
(Northridge)
of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
k.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Northridge)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
NORTHRIDGE HC&R PROPERTY
HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
NORTHRIDGE HC&R NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF NORTH LITTLE ROCK JOHN ASHLEY, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(Northridge)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(Northridge)
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among WOODLAND HILLS HC PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), WOODLAND HILLS HC NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF LITTLE ROCK RILEY, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 25, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
1
HNZW//3583-1
(Woodland Hills)
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Forty Thousand and 00/100 Dollars ($40,000.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Sixty Thousand and 00/100 Dollars ($60,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
2
HNZW//3583-1
(Woodland Hills)
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
3
HNZW//3583-1
(Woodland Hills)
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Woodland Hills)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
WOODLAND HILLS HC PROPERTY
HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
WOODLAND HILLS HC NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF LITTLE ROCK RILEY, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(Woodland Hills)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(Woodland Hills)
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among HOMESTEAD PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), HOMESTEAD NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF STAMPS, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 27, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
1
HNZW//3583-1
(Homestead)
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Ten Thousand and 00/100 Dollars ($10,000.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Forty Thousand and 00/100 Dollars ($40,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
2
HNZW//3583-1
(Homestead)
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
3
HNZW//3583-1
(Homestead)
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Homestead)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
HOMESTEAD PROPERTY HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
HOMESTEAD NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF STAMPS, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among MT. V PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), MOUNTAIN VIEW NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF MOUNTAIN VIEW SNF, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 27, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes
1
HNZW//3583-1
(Stone Co. Nursing & Rehab)
hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Sixty-nine Thousand Eight Hundred Thirty-four and 00/100 Dollars ($69,834.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Thirty-five Thousand and 00/100 Dollars ($35,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the
2
HNZW//3583-1
(Stone Co. Nursing & Rehab)
full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
3
HNZW//3583-1
(Stone Co. Nursing & Rehab)
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Stone Co. Nursing & Rehab)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
MT. V PROPERTY HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
MOUNTAIN VIEW NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF MOUNTAIN VIEW SNF, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(Stone Co. Nursing & Rehab)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(Stone Co. Nursing & Rehab)
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among PARK HERITAGE PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), PARK HERITAGE NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF ROGERS DIXIELAND, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 27, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
1
HNZW//3583-1
(Heritage Park)
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Twenty Thousand and 00/100 Dollars ($20,000.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Fifty Thousand and 00/100 Dollars ($50,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
2
HNZW//3583-1
(Heritage Park)
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
3
HNZW//3583-1
(Heritage Park)
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Heritage Park)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
PARK HERITAGE PROPERTY HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
PARK HERITAGE NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF ROGERS DIXIELAND, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(Heritage Park)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(Heritage Park)
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among APH&R PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), APH&R NURSING, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF LITTLE ROCK SOUTH CUMBERLAND, LLC, a Delaware limited liability company (“
Tenant
”)
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 25, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
1
HNZW//3583-1
(Cumberland)
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Forty-five Thousand and 00/100 Dollars ($45,000.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Forty-five Thousand and 00/100 Dollars ($45,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
2
HNZW//3583-1
(Cumberland)
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
3
HNZW//3583-1
(Cumberland)
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Cumberland)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
APH&R PROPERTY HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
APH&R NURSING, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF LITTLE ROCK SOUTH CUMBERLAND, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(Cumberland)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(Cumberland)
FOURTH AMENDMENT TO SUBLEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AGREEMENT
(this
“
Fourth Amendment
”) is made as of the 6
th
day of October, 2015 by and among MOUNTAIN TOP PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“
Prime Landlord
”), MOUNTAIN TOP ALF, LLC, a Georgia limited liability company (“
Landlord
”) and HIGHLANDS OF MOUNTAIN VIEW RCF, LLC, a Delaware limited liability company (“
Tenant
”).
RECITALS
A. Prime Landlord, Landlord and Tenant entered into that Sublease Agreement dated as of January 16, 2015 as amended by that certain First Amendment to Sublease Agreement dated February 27, 2015, by that certain Second Amendment to Sublease Agreement dated as of March 31, 2015 and that certain Third Amendment to Sublease Agreement dated as of April 30, 2015 (as amended, the “
Lease
”). Landlord leases the Premises from Prime Landlord pursuant to the Prime Lease.
B. Prime Landlord, Landlord and Tenant have agreed to further amend the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements set forth herein, the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Prime Landlord, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1.
Recitals Incorporated: Certain Defined Terms
.
The recitals set forth above are incorporated into this Fourth Amendment and shall be deemed to be terms and provisions hereof, the same as if fully set forth in this
Section 1
. Capitalized terms that are not otherwise defined in this Fourth Amendment shall have the same meanings ascribed to such terms in the Lease.
2.
Approval
.
This Amendment is subject to the approval of the lender holding a first priority mortgage on the Facility.
3.
Amendments
.
|
|
a.
|
Section 1
of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
|
1.
Term
. The “
Term
” of this Lease commenced on May 1, 2015 (the “
Commencement Date
”) and shall continue until April 30, 2030. A “
Lease Year
” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
1
HNZW//3583-1
(Stone Co. Residential Care)
|
|
b.
|
Section 3.
1 is hereby deleted in its entirety and the following is substituted in lieu thereof:
|
|
|
(a)
|
Lease Year One
. Commencing with Base Rent due on July 1, 2015 and continuing until April 30, 2016, Base Rent shall be equal to Five Thousand and 00/100 Dollars ($5,000.00) per month.
|
|
|
(b)
|
Lease Years 2 and 3
. During Lease Years 2 and 3, Base Rent shall be equal to one-hundred two percent (102%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(c)
|
Lease Years 4 through 6
. During Lease Years 4, 5 and 6, Base Rent shall be equal to one-hundred three percent (103%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
(d)
|
Lease Years 7 through 15
. During Lease Years 7 through 15, Base Rent shall be equal to one-hundred three and one-half percent (103.5%) of the Base Rent paid for the immediately preceding Lease Year.
|
|
|
c.
|
Section 3.2
of the Lease is hereby deleted in its entirety.
|
|
|
d.
|
Section 3.7
of the Lease is hereby deleted in its entirety.
|
|
|
e.
|
Section 4
of the Lease is amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
|
Tenant shall deposit with the Landlord and maintain during the Term the sum of Five Thousand and 00/100 Dollars ($5,000.00) as a security deposit (the “
Security Deposit
”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and any Related Lease subject to the terms and conditions of this Lease.
|
|
f.
|
Section 4
of the Lease is hereby further amended by adding the following paragraph at the end thereof:
|
Notwithstanding any provision of this Section 4 to the contrary, Tenant acknowledges that and agrees that Landlord may apply the Security Deposit to the Base Rent due hereunder on September 1, 2015. Tenant further agrees to deposit with Landlord on the earlier of (i) the closing of Tenant’s line of credit to be secured by accounts receivable of the Facility or (ii) December 31, 2015, additional money sufficient to restore the Security Deposit to the full amount required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice.
2
HNZW//3583-1
(Stone Co. Residential Care)
|
|
g.
|
Section 7
of the Lease is hereby amended by deleting the last paragraph thereof in its entirety.
|
|
|
h.
|
Section 13
of the Lease is hereby amended by adding the following Section (i) at the end thereof:
|
(i) The failure of Highlands Arkansas Holdings, LLC to make any payment of principal or interest when due under that certain Second Replacement Promissory Note dated as of August 21, 2015 given in favor of AdCare Health Systems, Inc.
|
|
i.
|
Section 31
of the Lease is hereby amended by deleting the last sentence thereof and by adding the following in lieu thereof:
|
Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in
Section 7.13
of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“
Sedgwick
”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health Systems, Inc. (“
ADK
”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.
j.
Schedule 1
to the Lease is hereby deleted in its entirety and
Schedule 1
attached to the Fourth Amendment is substituted in lieu thereof.
3.
No Other Changes
.
Except as amended by the terms of this Fourth Amendment, the Lease shall remain in full force and effect and the parties hereto hereby affirm the same.
4.
No Waiver
. Neither the entering into of this Fourth Amendment nor any provision set forth herein shall be construed to be a waiver of any condition to performance under or breach of the terms of the Lease.
3
HNZW//3583-1
(Stone Co. Residential Care)
5.
Counterparts
.
This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. To facilitate execution and delivery of this Agreement, the parties may exchange counterparts of the executed signature pages by facsimile or other electronic transmission.
6.
Entire Agreement
.
This Fourth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.
7.
Authority
.
The parties signing below on behalf of Prime Landlord, Landlord and Tenant represent and warrant that they have the authority and power to bind their respective party.
[signatures appear on following page]
4
HNZW//3583-1
(Stone Co. Residential Care)
IN WITNESS WHEREOF, the parties have duly caused this Fourth Amendment to Sublease Agreement to be executed as of the day and year first written above.
PRIME LANDLORD
:
MOUNTAIN TOP PROPERTY HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LANDLORD
:
MOUNTAIN TOP ALF, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
HIGHLANDS OF MOUNTAIN VIEW RCF, LLC,
a Delaware limited liability company
By:
/s/ R. Denny Barnett
Name: R. Denny Barnett
Title: Chief Manager
HNZW//3583-1
(Stone Co. Residential Care)
SCHEDULE 1
RELATED FACILITIES
|
|
|
|
|
|
|
Facility Name
|
Prime Landlord Affiliates
|
Landlord Affiliates
|
Tenant Affiliates
|
Address
|
Bed Number Facility Type
|
Homestead Manor Nursing Home
|
Homestead Property Holdings, LLC
|
Homestead Nursing, LLC
|
Highlands of Stamps, LLC
|
826 North Street
Stamps, AR 71860-4522
|
104 bed SNF
|
Heritage Park Nursing Center
|
Park Heritage Property Holdings, LLC
|
Park Heritage Nursing, LLC
|
Highlands of Rogers Dixieland, LLC
|
1513 S. Dixieland Road
Rogers 72758-4935
|
110 bed SNF
|
Stone County Nursing and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Mountain View Nursing, LLC
|
Highlands of Mountain View SNF, LLC
|
706 Oak Grove Street
Mountain View, AR 72560-8601
|
97 bed SNF
|
Stone County Residential Care Facility
|
Mountain Top Property Holdings, LLC
|
Mountain Top ALF, LLC
|
Highlands of Mountain View RCF, LLC
|
414 Massey Avenue
Mountain View, AR 72560-6132
|
32 bed ALF
|
West Markham Sub Acute and Rehabilitation Center
|
Little Rock HC&R Property Holdings, LLC
|
Little Rock HC&R Nursing, LLC
|
Highlands of Little Rock West Markham, LLC
|
5720 West Markham Street
Little Rock, AR 72205-3328
|
154 bed SNF
|
Woodland Hills Healthcare and Rehabilitation
|
Woodland Hills HC Property Holdings, LLC
|
Woodland Hills HC Nursing, LLC
|
Highlands of Little Rock Riley, LLC
|
8701 Riley Dr.
Little Rock, AR 72205-6509
|
140 bed SNF
|
Northridge Healthcare and Rehabilitation
|
Northridge HC&R Property Holdings, LLC
|
Northridge HC&R Nursing, LLC
|
Highlands of Little Rock John Ashley, LLC
|
2501 John Ashley Dr.
North Little Rock, AR
72114-1815
|
140 bed SNF
|
Cumberland Health and Rehabilitation Center
|
APH&R Property Holdings, LLC
|
APH&R Nursing, LLC
|
Highlands of Little Rock South Cumberland, LLC
|
1516 South Cumberland Street
Little Rock, AR 72202-5065
|
120 bed SNF
|
River Valley Health and Rehabilitation Center
|
Mt. V Property Holdings, LLC
|
Valley River Nursing, LLC
|
Highlands of Fort Smith, LLC
|
5301 Wheeler Avenue, Fort Smith, AR 72901-8339
|
129 bed
SNF
|
HNZW//3583-1
(Stone Co. Residential Care)
SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT
(this “Second Amendment”) is made effective as of the 30
th
day of September, 2015 (the “Effective Date”), notwithstanding the actual date of execution, by and between
RIVERCHASE VILLAGE ADK, LLC
, a Georgia limited liability company (“Seller”) and
OMEGA COMMUNITIES, LLC
, a Florida limited liability company (“Purchaser”).
RECITALS
WHEREAS
, Seller and Purchaser previously entered into that certain Asset Purchase Agreement dated June 11, 2015, as amended by that certain First Amendment thereto dated August 6, 2015 (the “First Amendment”), for the sale and purchase of the real property described therein (as amended by the First Amendment, the “Agreement”); and
WHEREAS
, Seller and Purchaser acknowledge that it is in their mutual interest to enter into this Amendment to make certain changes to the Agreement as set forth below.
AGREEMENT
NOW, THEREFORE
, in consideration of the foregoing recitals, the mutual covenants and conditions hereinafter contained, and other good and valuable consideration, the receipt of sufficiency of which are hereby acknowledged, the undersigned Seller and Purchaser do hereby covenant, declare, acknowledge and agree as follows:
1.
All defined terms and words set forth in this Second Amendment shall have the same meaning and definitions as set forth in the Agreement unless specifically provided otherwise in this Second Amendment.
2.
(a) Purchaser previously deposited the Initial Deposit (as such term is defined in the Agreement) with the Title Company in the amount of $100,000.00, which such Initial Deposit was released to Seller upon execution of the First Amendment. Seller hereby acknowledges receipt of the Initial Deposit. As of the date hereof, Buyer has not deposited any additional earnest money. The Initial Deposit shall be held and disbursed in accordance with the First Amendment.
(b) Upon execution of this Second Amendment, Purchaser shall deliver to the Title Company additional earnest money in the amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00) (the “Additional Earnest Money Deposit”) pursuant to wire transfer instructions to be provided by the Title Company. The Initial Deposit and the Additional Earnest Money Deposit shall collectively constitute the “Earnest Money Deposit” described in the Agreement. Simultaneous with the execution of this Second Amendment, Purchaser, Seller, the Title Company and Sage Management, LLC (“Sage”) shall enter into that certain Escrow Agreement (the “Escrow Agreement”) with respect to certain management fees that Sage asserts are owed to it by Seller. In the event that the purchase of the Transferred Assets closes in accordance with the terms of the Agreement, the Title Company shall hold and disburse the Additional Deposit as
“Escrow Funds” in accordance with the terms and conditions of the Escrow Agreement. In the event that the purchase of the Transferred Assets does not close on or before the Closing Date, the Title Company shall hold and disburse the Additional Earnest Money Deposit as “Earnest Money Deposit” in accordance with the terms and conditions of the Agreement. The parties agree that if the purchase of the Transferred Assets closes and the Additional Earnest Money Deposit is disbursed in accordance with the Escrow Agreement, Purchaser shall receive a credit at Closing in the amount of the Additional Earnest Money Deposit.
3.
Section 12.1(a) is hereby deleted in its entirety and replaced with the following:
“12.1(a) The Closing hereunder shall take place through an escrow closing by release of documents and funds held in escrow by the Title Company on a mutually agreeable date that is on or before November 30, 2015.”
4.
In the event of a conflict between the terms and provisions of this Second Amendment and terms and provisions of the Agreement, the terms and provisions of this Second Amendment shall prevail. Except as set forth herein, the terms and provisions of the Agreement shall remain in full force and effect.
5.
This Second Amendment may be executed in counterparts and by facsimile by the parties hereto and each shall be considered an original insofar as the parties hereto are concerned, and together said counterparts shall comprise one single document.
[Signatures on Following Page]
IN WITNESS WHEREOF
, the undersigned parties have executed this Second Amendment on the dates set forth immediately beneath their respective signatures, but effective as of the date first above written.
SELLER:
RIVERCHASE VILLAGE ADK, LLC,
a Georgia limited liability company
By:
/s/ Christopher F. Brogdon
Name: Christopher F. Brogdon
Title: Manager
PURCHASER:
OMEGA COMMUNITIES, LLC,
a Florida limited liability company
By:
/s/ Patrick L. Trammell
Name: Patrick L. Trammell
Title: CEO
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 14th day of September, 2015, by and between
COOSA NURSING ADK, LLC,
a Georgia limited liability company (“
Landlord
”) and
C.R. OF COOSA VALLEY, LLC,
a Georgia limited liability company (“
Tenant
”).
W I T N E S S E T H:
WHEREAS
, Landlord and Tenant have entered into that certain Lease Agreement dated as of September 22, 2014 as amended by that certain First Amendment to Lease Agreement dated as of November 21, 2014 for that certain skilled nursing facility located at 513 Pine View Avenue, Glencoe, Alabama 35905 (as amended, the “
Lease
”); and
WHEREAS
, Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Landlord and Tenant, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Lease.
2.
Term
. Section 1 of the Lease is hereby deleted in its entirety and the following substituted in lieu thereof:
1.
Term
. The “
Term”
of this Lease is fifteen (15) years beginning on September 1, 2015 and ending on August 31, 2030. A
“Lease Year
” is the twelve (12) month period beginning on September 1, 2015 and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
3.
Rent
. Sections 2.1 and 2.2 of the Lease are hereby deleted in their entirety and the following substituted in lieu thereof:
2.
Rent
.
During the Term, Tenant shall pay in advance to Landlord on or before the first day of each month the following amounts as Rent:
2.1
First Lease Year
.
Commencing with the Rent due on September 1, 2015, Rent shall be equal to Seventy-six Thousand and 00/100 Dollars ($76,000.00) per month through the end of the first Lease Year.
2.2
Subsequent Lease Years
.
During the Lease Years two (2) through five (5), Rent shall increase each Lease Year by two percent (2%) over Rent paid during the immediately preceding Lease Year. Commencing with the sixth (6
th
) Lease Year and during each subsequent Lease Year through the end of the Term, Rent shall increase each Lease Year by two and one-half percent (2.5%) over Rent paid during the immediately preceding Lease Year.
4.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Lease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[Signatures on Following Page]
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
LANDLORD
:
COOSA NURSING ADK, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
C.R. OF COOSA VALLEY, LLC,
a Georgia limited liability company
By:
/s/ Michael E. Winget, Sr.
Name: Michael E. Winget, Sr.
Title: Manager
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 14th day of September, 2015, by and between
ATTALLA NURSING ADK, LLC,
a Georgia limited liability company (“
Landlord
”) and
C.R. OF ATTALLA, LLC,
a Georgia limited liability company (“
Tenant
”).
W I T N E S S E T H:
WHEREAS
, Landlord and Tenant have entered into that certain Lease Agreement dated as of September 22, 2014 as amended by that certain First Amendment to Lease Agreement dated as of November 21, 2014 for that certain skilled nursing facility located at 915 Stewart Avenue, Attalla, Alabama 35954 (as amended, the “
Lease
”); and
WHEREAS
, Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Landlord and Tenant, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Lease.
2.
Term
. Section 1 of the Lease is hereby deleted in its entirety and the following substituted in lieu thereof:
1.
Term
. The “
Term”
of this Lease is fifteen (15) years beginning on September 1, 2015 and ending on August 31, 2030. A
“Lease Year
” is the twelve (12) month period beginning on September 1, 2015 and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Lease may be terminated as provided herein.
3.
Rent
. Sections 2.1 and 2.2 of the Lease are hereby deleted in their entirety and the following substituted in lieu thereof:
2.
Rent
.
During the Term, Tenant shall pay in advance to Landlord on or before the first day of each month the following amounts as Rent:
2.1
First Lease Year
.
Commencing with the Rent due on September 1, 2015, Rent shall be equal to Ninety-one Thousand and 00/100 Dollars ($91,000.00) per month through the end of the first Lease Year.
2.2
Subsequent Lease Years
.
During the Lease Years two (2) through five (5), Rent shall increase each Lease Year by two percent (2%) over Rent paid during the immediately preceding Lease Year. Commencing with the sixth (6
th
) Lease Year and during each subsequent Lease Year through the end of the Term, Rent shall increase each Lease Year by two and one-half percent (2.5%) over Rent paid during the immediately preceding Lease Year.
4.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Lease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[Signatures on Following Page]
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
LANDLORD
:
ATTALLA NURSING ADK, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
TENANT
:
C.R. OF ATTALLA, LLC,
a Georgia limited liability company
By:
/s/ Michael E. Winget, Sr.
Name: Michael E. Winget, Sr.
Title: Manager
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 14
th
day of August, 2015, by and between
2014 HUD MASTER TENANT, LLC,
a Georgia limited liability company (“
Sublessor
”) and
C.R. OF GLENVUE, LLC,
a Georgia limited liability company (“
Sublessee
”).
W I T N E S S E T H:
WHEREAS
, Sublessor and Sublessee have entered into that certain Sublease Agreement dated July 1, 2015 for that certain skilled nursing facility located at 721 North Veterans Boulevard, Glennville, Georgia 30427 (the “Sublease”); and
WHEREAS
, Sublessor and Sublessee desire to amend the Sublease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessee, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Sublease.
2.
Term
. Section 2 of the Sublease is hereby deleted in its entirety and the following substituted in lieu thereof:
2.
Term
. A “
Sublease Year
” is the twelve (12) month period commencing on July 1, 2015 and each anniversary thereof during each year of the Term. The “
Initial Term
” commenced on July 1, 2015 (the “
Commencement Date
”) and ends on June 30, 2025 and may be extended for one (1) separate renewal term of five (5) years (the
“Renewal Term”
) if: (a) at least one hundred eighty (180) days prior to the end of the Initial Term, Sublessee delivers to Sublessor the “
Renewal Notice
” indicating that Sublessee desires to exercise its right to extend this Sublease for the Renewal Term and (b) there is no then uncured Event of Default (i) as of the date Sublessor receives the Renewal Notice (the “
Exercise Date
”), or (ii) on the last day of the Initial Term and (c) Tenant and any Affiliate of Tenant that leases any additional facility from Landlord or Landlord’s Affiliates concurrently deliver appropriate Renewal Notice(s) exercising all renewal options for all such facilities. For purposes hereof, “
Termination Date
” shall mean the last day of the Initial Term or the Renewal Term (if any) or the earlier date on which this Sublease may be terminated as provided herein and “
Term
” shall mean the Initial Term plus the Renewal Term (if any).
3.
Rent
. Section 3 of the Sublease is hereby deleted in its entirety and the following substituted in lieu thereof:
3.1
Initial Term Rent
.
Commencing with the Rent due on August 1 of the Initial Term, “Rent” shall be equal to Ninety-five Thousand and 00/100 Dollars ($95,000.00) per month through the end of the first Sublease Year. During each subsequent Sublease Year of the Initial Term, “Rent” shall be equal to one-hundred three percent (103%) of the Rent due for the immediately preceding Sublease Year.
3.2
Renewal Term Rent
.
To establish a fair market Rent for the Premises during the Renewal Term, the Rent for the Renewal Term shall be reset and expressed as an annual amount equal to the greater of (a) the Fair Market Rental of the Premises as established pursuant to
Exhibit C-1
or (b) one hundred three percent (103%) of the Rent due for the immediately preceding Sublease Year. Commencing with the second (2
nd
) Sublease Year of the Renewal Term, the Rent due each Sublease Year shall equal the amount of the Rent payable for the immediately preceding Sublease Year as increased by three percent (3%).
4.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[Signatures on Following Page]
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
SUBLESSOR
:
2014 HUD MASTER TENANT, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
C.R. OF GLENVUE, LLC,
a Georgia limited liability company
By:
/s/ Michael E. Winget, Sr.
Name: Michael E. Winget, Sr.
Title: Manager
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 24th day of September, 2015, by and between
GEORGETOWN HC&R PROPERTY HOLDINGS, LLC,
a Georgia limited liability company (“
Lessor
”) and
BLUE RIDGE IN GEORGETOWN, LLC,
a South Carolina limited liability company (“
Tenant
”).
W I T N E S S E T H:
WHEREAS
, Lessor and Tenant are parties to that certain lease dated February 27, 2015, as amended pursuant to that certain First Amendment to Lease Agreement dated March 20, 2015 (as amended, the “
Lease
”), whereby Tenant leased certain improved property located at 2175 South Island Road, Georgetown, South Carolina 29440; and
WHEREAS
, Lessor and Tenant desire to further amend the Lease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Lessor and Tenant, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Lease.
2.
Base Rent
. Section 2.1(a) of the Lease is hereby deleted in its entirety and the following is inserted in lieu thereof:
2.1
Base Rent
.
(a)
Lease Year One
.
Commencing on October 1, 2015, Base Rent shall be Twenty-Six Thousand and 00/100 Dollars ($26,000.00) per month.
3.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Lease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
LESSOR
:
GEORGETOWN HC&R PROPERTY
HOLDINGS, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
LESSEE
:
BLUE RIDGE IN GEORGETOWN, LLC,
a South Carolina limited liability company
By:
/s/ Levi Rudd
Name: Levi Rudd
Title: CEO
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 10th day of September, 2015, (the “
Execution Date
”) but effective upon the Effective Date (as hereinafter defined), by and between
ADK GEORGIA, LLC,
a Georgia limited liability company (“
Sublessor
”) and
LC SNF, LLC,
a Florida limited liability company (“
Sublessee
”).
W I T N E S S E T H:
WHEREAS
, pursuant to that certain lease dated August 1, 2010, as amended (the “
Master Lease
”), Sublessor leased from William F. Foster (“
Landlord
”) the premises described in the master Lease;
WHEREAS
, Sublessor and Sublessee have entered into that certain Sublease Agreement dated October 31, 2014 for that certain skilled nursing facility located at 245 Highway 19, Lumber City, Georgia 31549 (the “Sublease”); and
WHEREAS
, Sublessor and Sublessee desire to amend the Sublease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessee, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Sublease.
2.
Effective Date
. This Amendment shall become effective upon Landlord’s written approval (such date is referred to herein as the “
Effective Date
”).
3.
Term
. Section 2 of the Sublease is hereby deleted in its entirety and the following substituted in lieu thereof:
2.
Term
.
A “Lease Year” is the twelve (12) month period commencing on November 1 and each anniversary thereof during the Term. The “Term” commenced on November 1, 2014 and ends on August 31, 2027, unless sooner terminated as provided herein. This Sublease is subject to the Master Lease and all of the terms, covenants and conditions in the Master Lease are applicable to this Sublease with the same force and effect as if Sublessor were the lessor under the Master Lease and Sublessee were the lessee thereunder.
4.
Rent
. Section 3 of the Sublease is hereby deleted in its entirety and the following is inserted in lieu thereof:
3.
Rent
.
During the Term, Tenant shall pay in advance to Landlord on or before the first day of each month the following amounts as Rent:
3.1
First Lease Year
.
Commencing with the Rent due on November 1, 2014, Rent shall be equal to Seventy Thousand Hundred and 00/100 Dollars ($70,000.00) per month through October 31, 2015 (the first “Lease Year”).
3.2
Subsequent Lease Years
.
Commencing on November 1, 2015 and continuing during the Lease Years two (2) through five (5), Rent shall increase each Lease Year by two percent (2%) over Rent paid during the immediately preceding Lease Year. Commencing with the sixth (6
th
) Lease Year and during each subsequent Lease Year through the end of the Term, Rent shall increase each Lease Year by two and one-half percent (2.5%) over Rent paid during the immediately preceding Lease Year.
5.
Security Deposit
. Section 7 of the Sublease is hereby deleted in its entirety and the following is inserted in lieu thereof:
7.
Security Deposit
.
Sublessee has deposited with Sublessor and shall maintain during the Term the sum of Seventy Thousand and 00/100 Dollars ($70,000.00) as a security deposit (the “Security Deposit”) against the faithful performance by (i) Sublessee of its obligations under this Sublease and (ii) any affiliate of Sublessee under any lease or sublease with Sublessor or any affiliate of Sublessor.
6.
Default
. Section 14 of the Sublease is hereby deleted in its entirety and the following is subtracted in lieu thereof:
(a) The following shall be deemed to be events of default by Sublessee: (i) Sublessee shall fail to pay when due any installment of Base Rent or any other charge or assessment against Sublessee pursuant to the terms of this Sublease and such failure shall continue for a period of five (10) days after Sublessor’s notice to Sublessee thereof; (ii) Sublessee shall fail to comply in every respect with any term, provision, covenant, or warranty made under this Sublease by Sublessee and shall not cure such failure within thirty (30) days after notice thereof to Sublessee; provided that if any such failure is not curable by its nature within such thirty-day period, then Sublessee shall have such additional time as necessary to cure the same; (iii) Sublessee shall fail to comply in any respect with any term, provision, covenant or warranty under the Master Lease; (iv) Sublessee shall do, or permit to be done anything which creates a lien upon the Premises which lien is not removed by payment or bond within twenty (20) days after Sublessee receives notice thereof or (v) a material default by Sublessee or any affiliate of Sublessee under any other lease, sublease, agreement or obligation between it and Sublessor or any of Sublessor’s affiliates which is not cured within any applicable cured period specified therein.
(b) Upon the occurrence of an aforesaid events of default, Sublessor shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (i) terminate this Sublease, in which event Sublessee shall immediately surrender the Premises to Sublessor, and if Sublessee fails to do so, Sublessor may without prejudice to any other remedy which it may have for possession or arrearage in Base Rent, enter upon and take possession of the Premises and expel or remove Sublessee and any other person who may be occupying the Premises or any part thereof, by force, if necessary, as permitted by Georgia law without being liable for prosecution or any claim of damages therefor; Sublessee hereby agreeing to pay to Sublessor on demand the amount of all Base Rent and other charges accrued through the date of termination; (ii) enter upon and take possession of the Premises and expel or remove Sublessee and any other person who may be occupying the Premises or any part thereof, by force, if necessary, as permitted by Georgia law, without being liable for prosecution or any claim of damages thereof and, if Sublessor so elects, relet the Premises on such terms as Sublessor may deem advisable, in its sole discretion, without advertisement, and by private negotiations provided that if Sublessor succeeds in re-letting the Premises and receives the rent therefor, Sublessee hereby agrees to pay to Sublessor the deficiency, if any, between all Rent reserved hereunder and the total rental applicable to the Term hereof obtained by Sublessor through such re-letting, and Sublessee shall be liable for Sublessor's expenses in restoring the Premises and all costs incident to such re-letting; (iii) enter upon the Premises by force if necessary as permitted by Georgia law, without being liable for prosecution or any claim of damages therefor, and do whatever Sublessee is obligated to do under the terms of this Sublease; and Sublessee agrees to reimburse Sublessor on demand for any expenses including, without limitation, reasonable attorney's fees which Sublessor may incur in thus effecting compliance with Sublessee's obligations under this Sublease and Sublessee further agrees that Sublessor shall not be liable for any damages resulting to Sublessee from such action.
(c) Notwithstanding any provision hereof, in the event (i) Sublessee defaults under this Sublease and/or the Master Lease or (ii) the entering into of this Sublease results in Lessor giving notice of default under the Master Lease, Sublessor shall have the right to terminate this Sublease immediately.
(d) The remedies provided for herein are cumulative and in addition to any other remedy provided by law or at equity. No action taken by or on behalf of Sublessor shall be construed to be an acceptance of a surrender of this Sublease. Forbearance by Sublessor to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default.
7.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[Signatures on Following Page]
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
SUBLESSOR
:
ADK GEORGIA, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
LC SNF, LLC,
a Florida limited liability company
By:
/s/ Bruce Wertheim
Name: Bruce Wertheim
Title: Manager
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of this 14th day of September, 2015, (the “
Execution Date
”) but effective upon the Effective Date (as hereinafter defined), by and between
ADK GEORGIA, LLC,
a Georgia limited liability company (“
Sublessor
”) and
C.R. OF LAGRANGE, LLC
, a Georgia limited liability company (hereinafter referred to as “
Sublessee
”).
W I T N E S S E T H:
WHEREAS
, Sublessor and Sublessee are parties to that certain Sublease Agreement dated as of April 1, 2015, (the “
Sublease
”); and
WHEREAS
, Sublessor and Sublessee desire to amend and modify certain terms and conditions of the Sublease.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessee, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Sublease.
2.
Effective Date
. This Amendment shall become effective upon Landlord’s written approval (such date is referred to herein as the “
Effective Date
”).
3.
Term
. Section 2 of the Sublease is hereby deleted in its entirety and the following is substituted in lieu thereof:
2.
Term
.
A “Lease Year” is the twelve (12) month period commencing on April 1 and each anniversary thereof during the Term. The “Term” commenced on April 1, 2015 and ends on August 31, 2027, unless sooner terminated as provided herein. This Sublease is subject to the Master Lease and all of the terms, covenants and conditions in the Master Lease are applicable to this Sublease with the same force and effect as if Sublessor were the lessor under the Master Lease and Sublessee were the lessee thereunder.
4.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF
, the undersigned have executed this Agreement as of the date first above written.
SUBLESSOR
:
ADK GEORGIA, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
C.R. OF LAGRANGE, LLC,
a Georgia limited liability company
By:
/s/ Michael E. Winget, Sr.
Name: Michael E. Winget, Sr.
Title: Manager
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 23rd day of September, 2015, (the “
Execution Date
”) but effective upon the Effective Date (as hereinafter defined), by and between
ADK GEORGIA, LLC,
a Georgia limited liability company (“
Sublessor
”) and
3460 POWDER SPRINGS ROAD ASSOCIATES, L.P.,
a Georgia limited Partnership (“
Sublessee
”).
W I T N E S S E T H:
WHEREAS
, pursuant to that certain lease dated August 1, 2010, as amended (the “
Master Lease
”), Sublessor leased from William F. Foster (“
Landlord
”) the premises described in the Master Lease;
WHEREAS
, Sublessor and Sublessee have entered into that certain Sublease Agreement dated January 31, 2015 for that certain skilled nursing facility located at 3460 Powder Springs Road, Powder Springs, Georgia 30127 (the “Sublease”); and
WHEREAS
, Sublessor and Sublessee desire to amend the Sublease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessee, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Sublease.
2.
Effective Date
. This Amendment shall become effective upon Landlord’s written approval (such date is referred to herein as the “
Effective Date
”). Following the execution and delivery of this Amendment, Sublessor shall use commercially reasonable efforts to obtain the written consent of Landlord to the parties entering into this Amendment, in form and substance reasonably acceptable to Sublessee.
3.
Term
. Section 2 of the Sublease is hereby amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
2.
Terms and Conditions
.
The term of this Sublease shall commence on March 1, 2015 and continue until midnight August 31, 2027 unless sooner terminated as hereinafter provided.
4.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
SUBLESSOR
:
ADK GEORGIA, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
3460 POWDER SPRINGS ROAD ASSOCIATES, L.P.
,
a Georgia limited partnership
By:
/s/ James J. Andrews
Name: James J. Andrews
Title: President
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 23rd day of September, 2015, (the “
Execution Date
”) but effective upon the Effective Date (as hereinafter defined), by and between
ADK GEORGIA, LLC,
a Georgia limited liability company (“
Sublessor
”) and
3223 FALLIGANT AVENUE ASSOCIATES, L.P.,
a Georgia limited Partnership (“
Sublessee
”).
W I T N E S S E T H:
WHEREAS
, pursuant to that certain lease dated August 1, 2010, as amended (the “
Master Lease
”), Sublessor leased from William F. Foster (“
Landlord
”) the premises described in the Master Lease;
WHEREAS
, Sublessor and Sublessee have entered into that certain Sublease Agreement dated January 31, 2015 for that certain skilled nursing facility located at 3223 Falligant Avenue, Thunderbolt, Georgia 31404 (the “Sublease”); and
WHEREAS
, Sublessor and Sublessee desire to amend the Sublease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessee, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Sublease.
2.
Effective Date
. This Amendment shall become effective upon Landlord’s written approval (such date is referred to herein as the “
Effective Date
”). Following the execution and delivery of this Amendment, Sublessor shall use commercially reasonable efforts to obtain the written consent of Landlord to the parties entering into this Amendment, in form and substance reasonably acceptable to Sublessee.
3.
Term
. Section 2 of the Sublease is hereby amended by deleting the first sentence thereof in its entirety and by substituting the following in lieu thereof:
2.
Terms and Conditions
.
The term of this Sublease shall commence on March 1, 2015 and continue until midnight August 31, 2027 unless sooner terminated as hereinafter provided.
4.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
SUBLESSOR
:
ADK GEORGIA, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
3223 FALLIGANT AVENUE ASSOCIATES, L.P.
,
a Georgia limited partnership
By:
/s/ James J. Andrews
Name: James J. Andrews
Title: President
THIRD AMENDMENT TO SUBLEASE AGREEMENT
THIS THIRD AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of this 9th day of September, 2015, (the “
Execution Date
”) but effective upon the Effective Date (as hereinafter defined), by and between
ADK GEORGIA, LLC,
a Georgia limited liability company (“
Sublessor
”) and
C.R. OF THOMASVILLE, LLC
, a Georgia limited liability company (hereinafter referred to as “
Sublessee
”).
W I T N E S S E T H:
WHEREAS
, pursuant to that certain lease dated August 1, 2010, as amended (the “
Master Lease
”), Sublessor leased from William F. Foster (“
Landlord
”) the premises described in the master Lease;
WHEREAS
, Sublessor and Sublessee are parties to that certain Sublease Agreement dated as of July 1, 2014, as amended (as amended, the “
Sublease
”); and
WHEREAS
, Sublessor and Sublessee desire to further amend and modify certain terms and conditions of the Sublease.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessee, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Sublease.
2.
Effective Date
. This Amendment shall become effective upon Landlord’s written approval (such date is referred to herein as the “
Effective Date
”).
3.
Term
. Section 2 of the Sublease is hereby deleted in its entirety and the following is substituted in lieu thereof:
2.
Term
.
A “Lease Year” is the twelve (12) month period commencing on July 1 and each anniversary thereof during the Term. The “Term” commenced on July 1, 2014 and ends on August 31, 2027, unless sooner terminated as provided herein. This Sublease is subject to the Master Lease and all of the terms, covenants and conditions in the Master Lease are applicable to this Sublease with the same force and effect as if Sublessor were the lessor under the Master Lease and Sublessee were the lessee thereunder.
4.
Rent
. Section 3 of the Sublease is hereby deleted in its entirety and the following is inserted in lieu thereof:
3.
Rent
.
During the Term, Tenant shall pay in advance to Landlord on or before the first day of each month the following amounts as Rent:
3.1
First Lease Year
.
Commencing with the Rent due on July 1, 2015, Rent shall be equal to Twenty-seven Thousand Five Hundred and 00/100 Dollars ($27,500.00) per month through June 30, 2016 (the first “Lease Year”).
3.2
Subsequent Lease Years
.
Commencing on July 1, 2016 and continuing during the Lease Years two (2) through five (5), Rent shall increase each Lease Year by two percent (2%) over Rent paid during the immediately preceding Lease Year. Commencing with the sixth (6
th
) Lease Year and during each subsequent Lease Year through the end of the Term, Rent shall increase each Lease Year by two and one-half percent (2.5%) over Rent paid during the immediately preceding Lease Year.
5.
Security Deposit
. Section 7 of the Sublease is hereby deleted in its entirety and the following is inserted in lieu thereof:
7.
Security Deposit
.
Sublessee has deposited with Sublessor and shall maintain during the Term the sum of Twenty-five Thousand and 00/100 Dollars ($25,000.00) as a security deposit (the “Security Deposit”) against the faithful performance by (i) Sublessee of its obligations under this Sublease and (ii) any affiliate of Sublessee under any lease or sublease with Sublessor or any affiliate of Sublessor.
6.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF
, the undersigned have executed this Agreement as of the date first above written.
SUBLESSOR
:
ADK GEORGIA, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
C.R. OF THOMASVILLE, LLC,
a Georgia limited liability company
By:
/s/ Michael E. Winget, Sr.
Name: Michael E. Winget, Sr.
Title: Manager
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT
(the “
Amendment
”) is made and entered into as of the 1st day of September, 2015, by and among
ADK BONTERRA/PARKVIEW, LLC,
a Georgia limited liability company (“
Sublessor
”),
2801 FELTON AVENUE, L.P.,
a Georgia limited partnership (“
Bonterra Sublessee
”), and
460 AUBURN AVENUE, L.P.,
a Georgia limited partnership (“
Parkview Sublessee
”) (Bonterra Sublessee and Parkview Sublessee are collectively referred to as “
Sublessees
”).
W I T N E S S E T H:
WHEREAS
, Sublessor and Sublessees have entered into that certain Sublease Agreement dated July 20, 2015 (the “Existing Sublease” and together with this Amendment, the “Sublease”); and
WHEREAS
, Sublessor and Sublessees desire to amend the Existing Sublease as hereinafter set forth.
NOW, THEREFORE
, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and benefits flowing between the parties, Sublessor and Sublessees, intending to be legally bound, do hereby covenant and agree as follows:
1.
Capitalized Terms
. Unless otherwise defined herein, all capitalized words and phrases used herein shall have the same meanings ascribed to them in the Existing Sublease. The “Existing Master Lease’ shall mean that certain Third Amended and Restated Multiple Facilities Lease, dated as of October 29, 2010, as amended pursuant to that certain First Amendment to Third Amended and Restated Multiple Facilities Lease, dated June 14, 2013, and that certain Second Amendment to Third Amended and Restated Multiple Facilities Lease, dated as of September 1, 2015.
2.
Subordination
. Section 5 of the Existing Sublease is hereby amended by deleting the Section in its entirety and by adding the following in lieu thereof.
5.
Subordination
.
This Sublease is subject and subordinate to the Existing Master Lease. Except as provided in Section 26(b) below, all applicable terms and conditions of the Existing Master Lease are incorporated into and made a part of this Sublease as if Sublessees were the Lessee under the Existing Master Lease. Without limiting the general nature of the immediately preceding sentence, Sublessees acknowledge and agree that Sublessees will protect, indemnify, save harmless and defend Lessor in accordance with Article XXI of the Existing Master Lease as if Sublessees were the Lessee under the Existing Master Lease. If any of the terms of this Sublease and the Existing Master Lease conflict, the terms of the Existing Master Lease will govern. Sublessor shall not agree with Lessor to terminate
the Existing Master Lease without first having obtained the prior written consent of Sublessees. Such prior written consent of Sublessees shall not be required for such termination if Lessor agrees to lease the Facilities directly to Sublessees upon the terms and conditions of the Sublease. Unless expressly provided for in this Sublease to the contrary, Sublessees assume and agree to perform the Sublessor’s obligations under the Existing Master Lease during the term of this Sublease, except that the obligation to pay Base Rent and Additional Charges to Lessor under the Existing Master Lease shall remain the obligation of Sublessor and shall be considered performed by Sublessees upon payment of Base Rent and Additional Charges due under this Sublease. Sublessees shall not cause or suffer any act of negligence that will violate any of the provisions of the Existing Master Lease. If the Existing Master Lease terminates for any reason, this Sublease shall terminate and the parties shall be relieved from all liabilities and obligations under this Sublease; provided, however, that if this Sublease is terminated by Lessor due to a default of Sublessor or Sublessees under the Existing Master Lease or under this Sublease, the defaulting party shall be liable to the non-defaulting party for all damage suffered by the non-defaulting party as a result of the termination.
3.
Initial Term
: Section 6 of the Existing Sublease is hereby amended by deleting the first sentence in its entirety and by adding the following in lieu thereof:
Subject to the provisions of Section 3 above, the initial term of this Sublease shall commence on the Commencement Date (as hereinafter defined) and continue until midnight April 30, 2025, unless sooner terminated as provided in this Sublease or upon termination of the Existing Master Lease (the “Initial Term”).
4.
Security Deposit
. Section 13 of the Existing Sublease is hereby amended by deleting the second sentence thereof in its entirety and by adding the following in lieu thereof:
The Security Deposit shall be paid in twelve (12) equal monthly payments of $14,167.00 each commencing on the first day of the second Lease Year and continuing on the first day of each month thereafter until paid in full.
5.
Insurance
. Section 22 of the Existing Sublease is hereby amended by deleting the Section in its entirety and by adding the following in lieu thereof:
22.
Insurance
.
Sublessees shall name Lessor, Sublessor and AdCare Health Systems, Inc. as additional insureds under all general liability and professional liability insurance policies to be provided by Sublessees under the Existing Master Lease.
6.
Entire Agreement
. Section 24 of the Existing Sublease is hereby amended by deleting the Section in its entirety and by adding the following in lieu thereof:
24.
Entire Agreement
.
This Sublease, the Sublease Consent Agreement, dated as of September 1, 2015, among Sublessees, Sublessor, Lessor,
et
al
. (the
“
Sublease Consent Agreement
”), and the “Transaction Documents”, as defined in the Sublease Consent Agreement, set forth the entire agreement between Sublessor and Sublessees concerning the Leased Properties and, except for the operations transfer agreements to be entered into between the licensed operators of the Facilities, there are no other agreements, either oral or written, between the parties relating to the Leased Properties.
7.
Existing Master Lease Provisions Not Incorporated
. Section 26(b) of the Existing Sublease is hereby amended by deleting such subsection in its entirety and by adding the following in lieu thereof:
(b)
Existing Master Lease Provisions Not Incorporated
.
Notwithstanding the foregoing or any other provision of this Sublease to the contrary, the following Sections of the Existing Master Lease are amended as follows as they relate to the Sublessees:
Section 7.3 (Certain Environmental Matters) – Where obligations under Section 7.3 of the Existing Master Lease are limited by “Pre-Existing Hazardous Substances” or “Pre-Existing Environmental Conditions”, Sublessees’ obligations will be limited to “Pre-Existing Hazardous Substances” or “Pre-Existing Environmental Conditions” existing prior to Commencement Date (as defined in the Existing Sublease);
Section 8.2.1 (Lessee’s Tangible Net Worth) – Sublessees will not be required to comply with Section 8.2.1 of the Existing Master Lease;
Section 8.2.2 (Guarantor’s Tangible Net Worth) – the Sublease Guarantors, Wellington Healthcare Services III, L.P. (“New Guarantor”) will not be required to comply with Section 8.2.2;
Section 8.2.3 (Cash Flow to Rent Ratio) – Sublessor’s and Sublessees’ consolidated Cash Flow to Rent Ratio will not be required to comply with the requirements of Section 8.2.3 until the twelve month period ending September 30, 2016 but Sublessor will continue to be required to meet Section 8.2.3 as if the Sublease had not been signed;
Section 8.5 (Other Facilities) – Except for the following Facilities, Sublessees will be required to comply with Section 8.5: (i) 560 Saint Charles Avenue, NE, Atlanta, Georgia, and (ii) 2920 Pharr Court South, NW, Atlanta, Georgia. Bombay Lane Partners, LLC, an Affiliate of Sublessees, provides administrative services to such Facilities but does not own, operate or manage such Facilities;
Section 23.1(a) (Annual Financial Statements) – Sublessees must provide Financial Statements but will only be required to provide reviewed or audited Financial Statements if available; and
Section 39.1 – Security Deposit.
For the avoidance of doubt, Sublessor’s obligations under the Existing Master Lease are not amended.
8.
Roof Repairs
. The Existing Sublease is further amended by adding the following new Section 29 at the end thereof:
29.
Roof Repairs
.
Notwithstanding any provision in this Sublease, Sublessor agrees, at its expense, to adequately repair or replace (if necessary) the roofs at both Facilities within ninety (90) days of the Commencement Date.
9.
Survey Deficiencies
. Sublessor shall indemnify, save harmless and defend Sublessees from and against all liabilities, obligations, claims, damages, penalties, costs and expenses (including, without limitation, defense costs, costs of corrective action and civil monetary penalties) arising from or relating to any survey deficiencies cited as immediate jeopardy which relate to the roof at either Facility and which occur during the period from the Commencement Date through December 31, 2015.
10.
Agreement in Effect
. Except as herein specifically provided, all other terms and provisions of the Existing Sublease shall remain in full force and effect, and are hereby ratified and reaffirmed by the parties.
[Signatures on Following Page]
IN WITNESS WHEREOF
, the undersigned have executed this Amendment as of the date first above written.
SUBLESSOR
:
ADK BONTERRA/PARKVIEW, LLC
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
[Signatures continued on following page]
[SIGNATURE PAGE TO FIRST AMENDMENT TO SUBLEASE AGREEMENT]
SUBLESSEES
:
BONTERRA SUBLESSEE
:
2801 FELTON AVENUE, L.P.,
a Georgia limited partnership
By:
/s/ James J. Andrews
Name: James J. Andrews
Title: President
PARKVIEW SUBLESSEE
:
460 AUBURN AVENUE, L.P.,
a Georgia limited partnership
By:
/s/ James J. Andrews
Name: James J. Andrews
Title: President
SECOND AMENDED AND RESTATED NOTE
|
|
|
U.S. $301,404.20
|
November 2, 2015
|
FOR VALUE RECEIVED
, the undersigned,
RIVERCHASE VILLAGE ADK, LLC,
a Georgia limited liability company (“Riverchase”), promises to pay to the order of
ADCARE HEALTH SYSTEMS, INC.,
a Georgia corporation (“AdCare”), the principal sum of
THREE HUNDRED ONE THOUSAND FOUR HUNDRED FOUR AND 20/100 DOLLARS
($301,404.20) (the “Principal”).
The unpaid Principal of this Note (the “Note”) shall not bear interest.
The Principal balance shall be paid upon the closing of the sale of the Riverchase Facility. All capitalized but undefined terms used in this paragraph shall have the meanings set forth in that certain Agreement dated as of February 28, 2014, as amended, between Christopher F. Brogdon and his affiliated entities, on the one hand, and AdCare and its affiliated entities, on the other hand.
Riverchase acknowledges and agrees that all amounts due under this Note are due and payable as stated herein, and AdCare has no obligation to renew or extend this Note.
ADDITIONAL COVENANTS:
1.
Default
.
a.
Each of the following shall be a default (“Default”) under this Note:
(a)
failure of Riverchase to pay any amount due hereunder, or any part hereof, or any extension or renewal hereof, within five (5) days of the due date; or
(b)
Riverchase's failure to perform or comply with any of the covenants or agreements contained herein.
b.
If this Note is placed in the hands of one or more attorneys for collection or in the hands of one or more attorneys for representation of AdCare in connection with any bankruptcy, probate or other court or by any other legal proceedings, Riverchase shall pay the fees and expenses of such attorneys in addition to the full amount due hereon, whether or not litigation is commenced.
c. In the event (
i
) that there occurs any Default hereunder; or (
ii
) that Riverchase shall become insolvent or make an assignment for the benefit of its creditors; or (
iii
) that a petition is filed or any other proceeding is commenced under the Federal Bankruptcy Act or any state insolvency statute by or against Riverchase; or (
iv
) that a receiver or similar person is appointed for Riverchase; then, in any such event, the entire unpaid Principal balance due hereon and all accrued interest at the option of the holder hereof shall become immediately due and payable without any notice or demand. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent Default.
2.
Prepayment
. Riverchase may prepay this Note at any time without premium or penalty.
3.
Waivers by Riverchase and Others
. Riverchase and all endorsers, sureties and guarantors hereof hereby severally waive presentment for payment, notice of non-payment, protest, and notice of protest, and diligence in enforcing payment hereof, and consent that the time of payment may be extended without notice. The makers, endorsers, guarantors, and sureties executing this Note also waive any and all defenses which they may have upon the ground of any extension of time of payment which may be given by the holder of this indebtedness to any of the undersigned, or to any other person assuming payment hereof.
4.
Amendments, Modifications and Waiver
. No amendment, modification or waiver of any provision of this Note, nor consent to any departure by Riverchase therefrom, shall be effective unless the same shall be in a writing signed by AdCare, and then only in the specific instance and for the purpose for which given. No failure or delay on the part of AdCare to exercise any right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise by AdCare of any right under this Note preclude any other or further exercise thereof, or the exercise of any other right. Each and every right granted to AdCare under this Note or allowed to it at law or in equity shall be deemed cumulative and such remedies may be exercised from time to time concurrently or consecutively at AdCare's option.
5.
Payment
. All payments due under this Note shall be paid to AdCare at such place as AdCare may direct. Whenever a payment is due on a day other than a business day (all days except Saturday, Sunday and legal holidays under federal or Georgia law), the maturity thereof shall be extended to the next succeeding business day. If any amount due hereunder is not paid within ten (10) days of the date when due, Riverchase agrees to pay an administrative and late charge equal to the lesser of (a) five percent (5%) on and in addition to the amount of such overdue amount, or (b) the maximum charges allowable under applicable law.
6.
Notices
. All notices or other communications required or otherwise given pursuant to this Note shall be in writing and shall be delivered by hand delivery or nationally recognized overnight courier to the following addresses:
If to Riverchase:
Riverchase Village ADK, LLC
Two Buckhead Plaza
3050 Peachtree Road NW, Suite 355
Atlanta, Georgia 30305
Attention: Christopher F. Brogdon
If to AdCare:
AdCare Health Systems, Inc.
Two Buckhead Plaza
3050 Peachtree Road NW, Suite 355
Atlanta, Georgia 30305
Attention: CEO
7.
Paragraph Headings
. Paragraph headings are inserted for convenience of reference only, do not form part of this Note and shall be disregarded for purposes of the interpretation of the terms of this Note.
8.
Time of Essence
. Time is of the essence with respect to each and every covenant and obligation of Riverchase under this Note.
9.
Governing Law
. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, RIVERCHASE HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIMS TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE.
[Signature on Following Page]
IN WITNESS WHEREOF
, Riverchase has executed this Note as of the date first written above.
RIVERCHASE VILLAGE ADK, LLC:
By:
/s/ Christopher F. Brogdon
Christopher F. Brogdon
Title: Manager
20818034.8
10-30-15
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT
(this
“
Agreement
”
) dated as of October 30, 2015 (the
“
Agreement Date
”
), is entered into by and among
APH&R PROPERTY HOLDINGS, LLC,
a Georgia limited liability company (
“
Borrower 1
”
),
NORTHRIDGE HC&R PROPERTY HOLDINGS, LLC
, a Georgia limited liability company (
“
Borrower 2
”
) and
WOODLAND HILLS HC PROPERTY HOLDINGS, LLC
, a Georgia limited liability company (
“
Borrower 3
”
) (collectively, the
“
Borrowers
”
),
ADCARE HEALTH SYSTEMS, INC.
, a Georgia corporation (
“
AdCare
”
) (the Borrowers and AdCare being sometimes referred to herein collectively as the
“
Borrower/Guarantor Parties
”
), and
THE PRIVATEBANK AND TRUST COMPANY
, an Illinois banking corporation (the
“
Lender
”
).
RECITALS
A. The Borrower/Guarantor Parties and the Lender heretofore entered into the following documents (the
“
Documents
”
):
(i) Loan Agreement dated as of February 25, 2015 (the
“
Loan Agreement
”
), by and among the Borrowers and the Lender.
(ii) Promissory Note dated February 25, 2015 (the
“
Note
”
), from the Borrowers to the Lender in the principal amount of $12,000,000.
(iii) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of February 25, 2015 (
“
Mortgage 1
”
), by Borrower 1 to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on March 4, 2015, as Document No. 2015012701.
(iv) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of February 25, 2015 (
“
Mortgage 2
”
), by Borrower 2 to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on March 2, 2015, as Document No. 2015012392.
(v) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of February 25, 2015 (
“
Mortgage 3
”
), by Borrower 3 to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on March 2, 2012, as Document No. 2015012316.
(vi) Absolute Assignment of Rents and Leases dated as of February 25, 2015, by Borrower 1 to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on March 4, 2015, as Document No. 2015012702.
(vii) Absolute Assignment of Rents and Leases dated as of February 25, 2015, by Borrower 2 to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on March 2, 2015, as Document No. 2015012393.
(viii) Absolute Assignment of Rents and Leases dated as of February 25, 2015, by Borrower 3 to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on March 2, 2015, as Document No. 2015012317.
(ix) Environmental Indemnity Agreement dated as of February 25, 2015, by the Borrowers and AdCare jointly and severally to and for the benefit of the Lender.
(x) Guaranty of Payment and Performance dated as of February 25, 2015, by AdCare to and for the benefit of the Lender.
B. The Documents encumber the real estate described in
Exhibit A
attached hereto and the personal property located thereon.
C. The parties desire to make certain modifications and amendments to the Documents, as more fully provided for herein, all as modifications, amendments and continuations of, but not as novations of, the Documents.
AGREEMENTS
In consideration of the premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
Section 1
.
Recitals Part of Agreement; Defined Terms
.
(a) The foregoing Recitals are hereby incorporated into and made a part of this Agreement.
(b) The following capitalized terms shall have the following meanings in this Agreement:
Little Rock Owner
: Little Rock HC&R Property Holdings, LLC, a Georgia limited liability company.
Little Rock Owner Loan Agreement
: The Loan Agreement dated as of March 30, 2012, by and among the Little Rock Owner, other borrowers and the Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Little Rock Owner Loan Documents
: The Little Rock Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and
all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
(c) All capitalized terms used and not otherwise defined in this Agreement shall have the meanings set forth in the Loan Agreement.
Section 2
.
Limited Waivers of Financial Covenant Compliance
.
(a) The parties hereby acknowledge and agree that compliance with the requirements of Section 7.17 (Minimum EBITDAR/Management Fee Adjusted for Operators) of the Loan Agreement (the
“
Minimum EBITDAR Covenant
”
) was not achieved for (i) the fiscal quarter ending March 31, 2015, and (ii) the fiscal quarter ending June 30, 2015. In addition, the parties hereby acknowledge and agree that in consideration of the additional cash collateral deposits described in Section 3 of this Agreement, the Lender heretofore waived compliance with the Minimum EBITDAR Covenant for the fiscal quarter ending March 31, 2015 (the
“
3/31/15 Waiver
”
). The Lender hereby waives compliance with the Minimum EBITDAR Covenant for the fiscal quarter ending June 30, 2015 (the
“
6/30/15 Waiver
”
). The Lender does not waive compliance with the Minimum EBITDAR Covenant for any fiscal quarter after the fiscal quarter ending June 30, 2015.
(b) Neither the 3/31/15 Waiver nor the 6/30/15 Waiver shall, without limitation, in any way operate as (i) an amendment or modification of the Loan Agreement or any of the other Documents, (ii) a waiver of compliance with any other provisions of the Loan Agreement or any of the other Documents, (iii) a waiver of repayment by the Borrowers of any portion of the outstanding liabilities under the Loan Agreement, or (iv) a waiver of, or consent with respect to, any existing or future Default or Event of Default under the Loan Agreement or any of the other Documents, or a waiver or abandonment of any right or remedy available to the Lender with respect to any such Default or Event of Default, all of which rights and remedies are reserved.
Section 3
.
AdCare Pledge of Collateral Account; Changes in Collateral Account Provisions
.
(a) The Collateral Account established and maintained pursuant to Section 3.4 of the Loan Agreement is Account No. 3294816 at the Lender, which was established and is maintained in the name of AdCare, rather than in the name of one or more Borrowers, as required by such Section 3.4. It is a condition of this Agreement and the Loan that the Collateral Account shall continue to be maintained in the name of AdCare. AdCare hereby pledges and assigns to the Lender, and grants to the Lender a first lien on and a first priority security interest in the Collateral Account, all cash and investments from time to time on deposit in the Collateral Account, and all proceeds of all of the foregoing. Pursuant to the Loan Agreement and the Benton Owner Loan Agreement, immediately prior to the execution and delivery of this Agreement, the Cash Collateral Account is held as additional security for (i) the payment and performance of all of the obligations of Borrowers under the Loan Agreement and the other Documents, and (ii) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents.
(b) In consideration of the 3/31/15 Waiver and the Lender’s limited waiver of non-compliance with certain financial covenants in the Benton Owner Loan Agreement and the Little Rock Owner Loan Agreement for the fiscal quarter ended March 31, 2015, the Borrowers and the Benton Owners deposited an additional $1,400,000 into the Collateral Account, and the Little Rock Owner deposited an additional $1,200,000 into the
“
Debt Service Reserve Account
”
established by the Little Rock Owner Loan Agreement, which is Account No. 3175210 at the Lender. The parties acknowledge and agree that as of the Agreement Date, the amount on deposit in the Collateral Account is $3,400,483, and the amount on deposit in the Debt Service Reserve Account is $2,142,934. In addition, in consideration of the 3/31/15 Waiver, the Borrower/Guarantor Parties agreed to establish the Excess Rent Account - ARK 3 provided for in Section 4 of this Agreement.
(c) The parties to the Documents, the Benton Owner Loan Documents and the Little Rock Owner Loan Documents have agreed that in consideration of the 6/30/15 Waiver and the Lender’s limited waiver of non-compliance with certain financial covenants in the Benton Owner Loan Agreement and the Little Rock Owner Loan Agreement for the fiscal quarter ended June 30, 2015, the Documents, the Benton Owner Loan Documents and the Little Rock Owner Loan Documents shall be modified and amended, pursuant to this Agreement, the Second Modification Agreement dated as of even date with this Agreement by and among the Benton Owners, AdCare, the Benton ADK Operators (as defined in the Benton Owner Loan Agreement) and the Lender (the
“
Benton Second Modification
”
), and the Sixth Modification Agreement dated as of even date with this Agreement by and among the Little Rock Owner, AdCare, Little Rock HC&R Nursing, LLC, a Georgia limited liability company, and the Lender (the
“
Little Rock Sixth Modification
”
) --
(i) to provide that from and after October 30, 2015, the Debt Service Reserve Account shall also be known as the
“
Additional Collateral Account
”
;
(ii) to provide that both the Collateral Account and the Additional Collateral Account shall be held as additional security for (A) the payment and performance of all of the obligations of Borrowers under the Loan Agreement and the other Documents, (B) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents, and (C) the payment and performance of all of the obligations of the Little Rock Owner under the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents; and
(iii) to revise the release provisions related to the Collateral Account and the Additional Collateral Account.
It is a condition of this Agreement and the Loan that the Benton Second Modification and the Little Rock Sixth Modification be executed and delivered to the Lender simultaneously with the execution and delivery of this Agreement.
(d) In order to provide for the modification and amendment of the Documents as described in paragraph (c) of this Section and in connection with the modification and amendment of the Documents as provided in Section 4 of this Agreement --
(i) Effective as of the Agreement Date, the following defined terms are hereby added to Section 1.1 of the Loan Agreement, in alphabetical order with the existing defined terms therein:
Additional Collateral Account
:
The Debt Service Reserve Account established pursuant to Section 3.7 of the Little Rock Owner Loan Agreement, which is Account No. 3175210 at the Lender, which Debt Service Reserve Account is, from and after October 30, 2015, also known as the Additional Collateral Account.
Benton Facility 3 Transition
: The Facility 3 Transition (as defined in the Benton Owner Loan Agreement).
Excess Rent Account - ARK 3
:
The account so designated that is provided for in Section 3.7 of this Agreement.
Little Rock Operator
: Highlands of Little Rock West Markham, LLC, a Delaware limited liability company.
Little Rock Owner
: Little Rock HC&R Property Holdings, LLC, a Georgia limited liability company.
Little Rock Owner Loan Agreement
: The Loan Agreement dated as of March 30, 2012, by and among the Little Rock Owner, other borrowers and Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Little Rock Owner Loan Documents
: The Little Rock Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
(ii) The defined term “Benton Operators” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety to read as follows effective as of the Agreement Date, with existing the existing defined term “Benton Operators” in Section 1.1 of the Loan Agreement to remain in effect for periods prior to the Agreement Date:
Benton Operators
: Highlands of Rogers Dixieland, LLC, a Delaware limited liability company, and Valley River Nursing, LLC, a Georgia limited liability company (or, after the Benton Facility 3 Transition, Highlands of Fort Smith, LLC, a Delaware limited liability company).
(iii) Section 3.4 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with existing Section 3.4 of the Loan Agreement, to remain in effect for periods prior to the Agreement Date:
3.4
Collateral Account; Additional Collateral Account
.
(a) The following are conditions of this Agreement and the Loan: Borrowers shall cause a collateral account to be established and maintained in the name of one or more of Borrowers, or in the name of the Guarantor, held by Lender (the
“
Collateral Account
”
), which shall be Account No. 3294816, a blocked, interest bearing money market account at Lender. The amount of the Collateral Account shall be $3,400,483, and Borrowers shall cause the sum of $3,400,483 to be on deposit in the Collateral Account as of October 30, 2015. Earnings on investments of amounts in the Collateral Account shall be added to the Collateral Account. The Collateral Account shall be held as additional security for (i) the payment and performance of all of the obligations of Borrowers under this Agreement and the other Loan Documents, (ii) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents, and (iii) the payment and performance of all of the obligations of the Little Rock Owner under the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents. Borrowers hereby pledge and assign to Lender, and grant to Lender a first lien on and a first priority security interest in the Collateral Account, all cash and investments from time to time on deposit in the Collateral Account, and all proceeds of all of the foregoing. In the event that the Collateral Account is at any time in the name of the Guarantor, the Guarantor shall immediately pledge and assign to Lender, and grant to Lender a first lien on and a first priority security interest in the Collateral Account, all cash and investments from time to time on deposit in the Collateral Account, and all proceeds of all of the foregoing, pursuant to a security agreement in form and substance acceptable to Lender.
(b) From and after October 30, 2015, the Additional Collateral Account shall also be held as additional security for (i) the payment and performance of all of the obligations of Borrowers under this Agreement and the other Loan Documents, (ii) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents, and (iii) the payment and performance of all of the obligations of the Little Rock Owner under the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents.
(c) All amounts on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the Benton Owners and the Little Rock Owner at such time, and only at such time, as all of the principal of and interest on the Loan, the “Loan” (as defined in the Benton Owner Loan Agreement) and the “Loan” (as defined in the Little Rock Owner Loan Agreement) have been paid in full and all of the other obligations to Lender under this Agreement and the other Loan Documents, the Benton Owner Loan Agreement and the other Benton Owner Loan Documents and the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents have been fully paid and performed, subject to earlier release as provided in paragraphs (d), (e) and (f) below.
(d) Notwithstanding the provisions of paragraph (c) of this Section, $1,500,000 of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the Benton Owners and the Little Rock Owner upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the Benton Owner Loan Agreement or any of the other Benton Owner Loan Documents, or the Little Rock Owner Loan Agreement or any of the other Little Rock Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for Operators is not less than $495,000, as determined based on financial statements of Operators which have been delivered to Lender as required by Section 7.4(a) of this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for Operators.
(iii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for the Benton Operators is not less than $265,000, as determined based on financial statements of the Benton Operators which have been delivered to Lender as required by Section 7.4(a) of the Benton Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Benton Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Benton Operators.
(iv) For each of two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for the Little Rock Operator shall be not less than $450,000, determined based on financial statements of the Little Rock Operator delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Little Rock Operator.
(e) Notwithstanding the provisions of paragraph (c) of this Section, $1,500,000 of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the Benton Owners and the Little Rock Owner upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the Benton Owner Loan Agreement or any of the other Benton Owner Loan Documents, or the Little Rock Owner Loan Agreement or any of the other Little Rock Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(ii) above is satisfied, the EBITDAR/Management Fee Adjusted for Operators is not less than $495,000, as determined based on financial statements of Operators which have been delivered to Lender as required by Section 7.4(a) of this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for Operators.
(iii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(iii) above is satisfied, the EBITDAR/Management Fee Adjusted for the Benton Operators is not less than $265,000, as determined based on financial statements of the Benton Operators which have been delivered to Lender as required by Section 7.4(a) of the Benton Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Benton Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Benton Operators.
(iv) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(iv) above is satisfied, the EBITDAR/Management Fee Adjusted for the Little Rock Operator shall be not less than $450,000, determined based on financial statements of the Little Rock Operator delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Little Rock Operator.
(f) Notwithstanding the provisions of paragraph (c) of this Section, the entire remainder of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the Benton Owners and the Little Rock Owner upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the Benton Owner Loan Agreement or any of the other Benton Owner Loan Documents, or the
Little Rock Owner Loan Agreement or any of the other Little Rock Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(ii) above is satisfied, the EBITDAR/Management Fee Adjusted for Operators is not less than $495,000, as determined based on financial statements of Operators which have been delivered to Lender as required by Section 7.4(a) of this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for Operators.
(iii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(iii) above is satisfied, the EBITDAR/Management Fee Adjusted for the Benton Operators is not less than $265,000, as determined based on financial statements of the Benton Operators which have been delivered to Lender as required by Section 7.4(a) of the Benton Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Benton Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Benton Operators.
(iv) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(iv) above is satisfied, the EBITDAR/Management Fee Adjusted for the Little Rock Operator shall be not less than $450,000, determined based on financial statements of the Little Rock Operator delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Little Rock Operator.
Section 4
.
Excess Rent Account - ARK 3
.
(a) The following new Section 3.7 is hereby added to the Loan Agreement effective as of the Agreement Date:
3.7
Excess Rent Account - ARK 3
.
(a) On or prior to October 30, 2015, Borrowers shall cause to be established and shall maintain at all times thereafter a collateral account held by Lender in the name of Borrower 2 (the
“
Excess Rent Account - ARK 3
”
), which shall be Account No. 2414589, a blocked, interest bearing money market account at Lender. Earnings on investments of amounts in the Excess Rent Account - ARK 3 shall be added to the Excess Rent Account - ARK 3. The Excess Rent Account - ARK 3 shall be held as additional security for the
payment and performance of all of the obligations of Borrowers under the Loan Agreement and the other Loan Documents, and Borrowers hereby pledge and assign to Lender, and grant to Lender a first lien on and a first priority security interest in the Excess Rent Account - ARK 3, all cash and investments from time to time on deposit in the Excess Rent Account - ARK 3, and all proceeds of all of the foregoing. For the avoidance of doubt, the Excess Rent Account - ARK 3 shall be held as additional security for the Loan only, as described above in this paragraph, and not as additional security for the loans evidenced and secured by the Benton Owner Loan Documents and the Little Rock Owner Loan Documents.
(b) Not later than November 10, 2015, Borrowers shall deposit into the Excess Rent Account - ARK 3 an amount equal to the Excess Rent, if any, for the month of September, 2015, as set forth in the covenant calculation certificate required to be furnished to the Lender pursuant to Section 7.4(a)(vii) of this Agreement. Within 10 days after the end of each calendar month commencing with the month of October, 2015, Borrowers shall deposit into the Excess Rent Account - ARK 3 an amount equal to the Excess Rent, if any, for such month, as set forth in the covenant calculation certificate required to be furnished to the Lender pursuant to Section 7.4(a)(viii) of this Agreement. For purposes of this Agreement, the following terms shall have the following respective meanings:
“
Debt Service
”
means, for any calendar month, principal and interest paid on the Loan during such month.
“
Excess Rent
”
means, for any calendar month, Income for such month minus Expenses and Debt Service for such quarter.
“
Expenses
”
means, for any calendar month, the operating expenses of the Projects paid by Borrowers during such month, including but not limited to real estate taxes, utilities, common area maintenance and insurance, but not including depreciation, amortization, Debt Service, management fees, or any operating expenses paid directly by ADK Operators or Aria Operators; all as determined on a cash basis in accordance with customary real estate accounting practices consistently applied.
“
Income
”
means, for any calendar month, all income of Borrowers under the Leases for such month, including rental payments by ADK Operators and payments by ADK Operators as payment or reimbursement of operating expenses, but excluding payments of security and other tenant deposits and prepaid rent; all as determined on a cash basis in accordance with customary real estate accounting practices consistently applied.
(c) All amounts on deposit in the Excess Rent Account - ARK 3 shall be released by Lender to Borrowers at such time, and only at such time, as all of the principal of and interest on the Loan has been paid in full and all of the other obligations to Lender under this Agreement and the other Loan Documents have been fully paid and performed, subject to earlier release as provided in paragraph (d) below.
(d) Notwithstanding the provisions of paragraph (c) of this Section, the entire amount on deposit in the Excess Rent Account - ARK 3 shall be released by Lender to Borrowers upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents.
(ii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for Operators is not less than $495,000, as determined based on financial statements of Operators which have been delivered to Lender as required by Section 7.4(a) of this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for Operators.
Section 5
.
Change in Furnishing Information Provisions
. The following new subparagraphs (vii) and (viii) are hereby added to Section 7.4(a) of the Loan Agreement effective as of the Agreement Date:
(vii) Without the necessity of any request by Lender, as soon as available and in no event later than November 10, 2015, a duly completed covenant compliance certificate dated the date of such certificate and certified as true and correct by the appropriate officer of Borrowers, containing a computation of Excess Rent for the month of September, 2015, as required by Section 3.7 of this Agreement.
(viii) Without the necessity of any request by Lender, as soon as available and in no event later than 10 days after the end of each calendar month commencing with the month of October, 2015, a duly completed covenant compliance certificate dated the date of such certificate and certified as true and correct by the appropriate officers of Borrowers, containing a computation of Excess Rent for such month, as required by Section 3.7 of this Agreement.
Section 6
.
Change in Distribution Provisions
. Section 7.11(c) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with the existing Section 7.11(c) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:
(c) Each Borrower shall not at any time make any Distribution which is in violation of any of the following provisions:
(i) On and after October 30, 2015, each Borrower shall not, directly or indirectly, at any time make any Distribution until such time as the conditions for the release of the entire remainder of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account which are provided for in Section 3.4(f) of this Agreement have been satisfied.
(ii) If any Default or Event of Default shall occur and be continuing under this Agreement or any of the other Loan Documents, each Borrower shall not, directly or indirectly, make any Distribution.
(iii) Each Borrower shall not, directly or indirectly, at any time make any Distribution that would cause its cash and cash equivalents remaining after such Distribution to be less than an amount equal to the aggregate of (A) the total amount of the security and other deposits received by such Borrower from tenants of its Project, (B) the total amount of accrued but unpaid real estate taxes on its Project, based on the last full year tax bill or bills received by such Borrower, minus any amount held in a real estate tax escrow by Lender, and (C) a reasonable working capital reserve.
Section 7
.
Lender Consent to Further Amendment of Subleases; Amendment to Loan Agreement Relating to Further Amendment of Subleases
.
(a) The Lender hereby consents to the further amendment of each of the Subleases pursuant to the Second, Third and Fourth Amendments to Sublease Agreement related to the Sublease of each of the Projects, such Amendments in the case of each Project dated as of March 31, 2015, April 30, 2015 and October 6, 2015, respectively.
(b) In order to induce the Lender to grant the consent described in paragraph (a) of this Section, the Borrower and the Guarantors are entering into the agreements with the Lender which are provided for in this Agreement.
(c) The defined term “Subleases” in Section 1.1 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with the existing defined term “Subleases” to continue to be effective for periods prior to the Agreement Date:
Subleases
: The Sublease Agreements by ADK Operator 1, ADK Operator 2 and ADK Operator 3 to Aria Operator 1, Aria Operator 2 and Aria Operator 3, respectively, each dated as of January 16, 2015, and each as amended by Amendments dated as of February 27, 2015, March 31, 2015, April 30, 2015 and October 6, 2015.
Section 8
.
Condition to Agreements
. It is a condition of this Agreement and the Loan that within 30 days after the Agreement Date, the Borrowers shall obtain and deliver to the Lender a date down endorsement to the Title Insurance Policy for the Project encumbered by the Mortgage 1, a date down endorsement to the Title Insurance Policy for the Project encumbered by the Mortgage 2, and a date down endorsement to the Title Insurance Policy for the Project encumbered by Mortgage 3, each dated on or after the date of the recording of the Memorandum of this Agreement, each of which endorsements shall show no new encumbrances other than those approved by the Lender and shall otherwise be in form and content acceptable to the Lender. The failure of this condition to be satisfied shall be an Event of Default under the Documents.
Section 9
.
Representations and Warranties
. The term “
Signing Entity
”
as used in this Section means any entity (other than a Borrower/Guarantor Party itself) that appears in the signature block of any Borrower/Guarantor Party in this Agreement, any of the Documents, if any. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby represent and warrant to Lender as follows as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement:
(a) Each Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the state of Arkansas, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement and each of the Documents to which it is a party, and to perform and consummate the transactions contemplated hereby and thereby.
(b) AdCare is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement and each of the Documents to which it is a party, and to perform and consummate the transactions contemplated hereby and thereby.
(c) Each Signing Entity is duly organized, validly existing and in good standing under the laws of the State in which it is organized, has all necessary power and authority to carry on its present business, and has full right, power and authority to execute this Agreement and the Documents in the capacity shown in each signature block contained in this Agreement and the Documents in which its name appears, and such execution has been duly authorized by all necessary legal action applicable to such Signing Entity.
(d) This Agreement and each of the Documents have been duly authorized, executed and delivered by such of the Borrower/Guarantor Parties as are parties thereto, and this Agreement and each of the Documents constitutes a valid and legally binding obligation enforceable against such of the Borrower/Guarantor Parties as are parties thereto. The execution and delivery of this Agreement and the Documents and compliance with the provisions thereof under the circumstances contemplated therein do not and will not conflict with or constitute a breach or violation of or default under the organizational documents of any Borrower/Guarantor Party or any Signing Entity, or any agreement or other instrument to which any of the Borrower/Guarantor Parties or any Signing Entity is a party, or by which any of them is bound, or to which any of their respective properties are subject, or any existing law, administrative regulation, court order or consent decree to which any of them is subject.
(e) The Borrower/Guarantor Parties are in full compliance with all of the terms and conditions of the Documents to which they are a party, and no Default or Event of Default has occurred and is continuing with respect to any of the Documents.
(f) There is no litigation or administrative proceeding pending or threatened to restrain or enjoin the transactions contemplated by this Agreement or any of the Documents, or questioning the validity thereof, or in any way contesting the existence or powers of any of the Borrower/Guarantor Parties or any Signing Entity, or in which an unfavorable decision, ruling or finding
would adversely affect the transactions contemplated by this Agreement or any of the Documents, or would result in any material adverse change in the financial condition, properties, business or operations of any of the Borrower/Guarantor Parties.
(g) The statements contained in the Recitals to this Agreement are true and correct.
Section 10
.
Documents to Remain in Effect; Confirmation of Obligations; References
. The Documents shall remain in full force and effect as originally executed and delivered by the parties, except as expressly modified and amended herein. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby (i) confirm and reaffirm all of their obligations under the Documents, as modified and amended herein; (ii) acknowledge and agree that Lender, by entering into this Agreement, does not waive any existing or future default or event of default under any of the Documents, or any rights or remedies under any of the Documents, except as expressly provided herein; (iii) acknowledge and agree that Lender has not heretofore waived any default or event of default under any of the Documents, or any rights or remedies under any of the Documents; and (iv) acknowledge and agree that they do not have any defense, setoff or counterclaim to the payment or performance of any of their obligations under, or to the enforcement by Lender of, the Documents, as modified and amended herein, including, without limitation, any defense, setoff or counterclaim based on the covenant of good faith and fair dealing. All references in the Documents to any one or more of the Documents, or to the “Loan Documents,” shall be deemed to refer to such Document, Documents or Loan Documents, as the case may be, as modified and amended by this Agreement. Electronic records of executed documents maintained by Lender shall be deemed to be originals thereof.
Section 11
.
Certifications, Representations and Warranties
. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby certify, represent and warrant to Lender that all certifications, representations and warranties contained in the Documents and in all certificates heretofore delivered to Lender are true and correct as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement, and all such certifications, representations and warranties are hereby remade and made to speak as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement.
Section 12
.
Entire Agreement; No Reliance
. This Agreement sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Agreement, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than as are herein set forth. The Borrower/Guarantor Parties acknowledge that they are executing this Agreement without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein.
Section 13
.
Successors
. This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors, assigns and legal representatives.
Section 14
.
Severability
. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.
Section 15
.
Amendments, Changes and Modifications
. This Agreement may be amended, changed, modified, altered or terminated only by a written instrument executed by all of the parties hereto.
Section 16
.
Construction
.
(a) The words “hereof,” “herein,” and “hereunder,” and other words of a similar import refer to this Agreement as a whole and not to the individual Sections in which such terms are used.
(b) References to Sections and other subdivisions of this Agreement are to the designated Sections and other subdivisions of this Agreement as originally executed.
(c) The headings of this Agreement are for convenience only and shall not define or limit the provisions hereof.
(d) Where the context so requires, words used in singular shall include the plural and vice versa, and words of one gender shall include all other genders.
(e) The Borrower/Guarantor Parties and Lender, and their respective legal counsel, have participated in the drafting of this Agreement, and accordingly the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Agreement.
Section 17
.
Counterparts; Electronic Signatures
. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. An electronic record of this executed Agreement maintained by Lender shall be deemed to be an original.
Section 18
.
Governing Law
. This Agreement is prepared and entered into with the intention that the law of the State of Illinois shall govern its construction and enforcement, except that insofar as this Agreement relates to a Document which by its terms is governed by the law of the State of Arkansas, this Agreement shall also be governed by the law of the State of Arkansas.
Section 19
.
Waiver of Trial by Jury
.
THE PROVISIONS OF THE LOAN AGREEMENT AND THE OTHER DOCUMENTS RELATING TO WAIVER OF TRIAL BY JURY SHALL APPLY TO THIS AGREEMENT.
[SIGNATURE PAGE(S) AND EXHIBIT(S),
IF ANY, FOLLOW THIS PAGE]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date first above written.
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APH&R PROPERTY HOLDINGS, LLC
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NORTHRIDGE HC&R PROPERTY HOLDINGS, LLC
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WOODLAND HILLS HC PROPERTY HOLDINGS, LLC
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By
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/s/ William McBride, III
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William McBride III, Manager of Each Borrower
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ADCARE HEALTH SYSTEMS, INC.
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By
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/s/ William McBride, III
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William McBride III, Chief Executive Officer
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THE PRIVATEBANK AND TRUST COMPANY
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By
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/s/ Amy K. Hallberg
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Amy K. Hallberg, Managing Director
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- AdCare Arkansas 3 2015 Owner Loan Modification Agreement -
- Signature Page -
EXHIBIT A
LEGAL DESCRIPTION
PROJECT 1 - CUMBERLAND (OWNED BY BORROWER 1)
Real property in the City of Little Rock, County of Pulaski, State of Arkansas, described as follows:
All of Block 19, Original City of Little Rock, Pulaski County, Arkansas, Less and Except the West 50 feet of Lots 1, 2 and 3 of said Block 19, Original City of Little Rock, Pulaski County, Arkansas.
Tax Parcel ID: 34L0200113600
PROJECT 2 - NORTHRIDGE (OWNED BY BORROWER 2)
Real property in the City of Little Rock, County of Pulaski, State of Arkansas, described as follows:
Lot 1, Oak Manor Addition to the City of Little Rock, Pulaski County, Arkansas, as shown on plat recorded in Book 1064, page 291, records of Pulaski County, Arkansas.
Tax Parcel ID: 33N2620000100
PROJECT 3 - WOODLAND HILLS (OWNED BY BORROWER 3)
Real property in the City of Little Rock, County of Pulaski, State of Arkansas, described as follows:
Tract C-1-R, Riley’s Replat of Tract C, Kellwood Subdivision, in the City of Little Rock, Arkansas as shown on plat recorded as Plat No. B-068 and the S1/2 of a strip of land formerly platted as Riley Drive, that is abutting and contiguous to Tract C-1-R, Riley’s Replat of Tract C, Kellwood, which was closed by Ordinance No. 16,354, a certified copy filed for record February 11, 1993 and recorded as Instrument No. 93-08724, records of Pulaski County, Arkansas, Less and Except: Part of Tract C-1-R, Riley’s Replat of Tract C, Kellwood Subdivision, in the City of Little Rock, Pulaski County, Arkansas, more particularly described as follows: Commencing at a found iron pin for the Southwest corner of said Tract C-1-R for the point of beginning; thence North 0 degrees17 minutes 06 seconds West, 303.41 feet to a set iron pin; thence North 88 degrees 55 minutes 59 seconds East, 656.12 feet to a set iron pin; thence South 0 degrees 18 minutes 35 seconds East, 319.52 feet to found iron pin; thence North 89 degrees 39 minutes 39 seconds West, 656.23 feet to the point of beginning.
Easement North Side:
Together with a non exclusive easement for ingress and egress over that portion of Riley Drive which was closed by Ordinance No. 16,354, a certified copy filed for record February 11, 1993 and recorded as Instrument No. 93-08724, records of Pulaski County, Arkansas.
Easement East Side:
And together with a non exclusive easement for ingress and egress described as: Commencing at the Southwest corner of Tract C-1-R; thence North 0 degrees 17 minutes 06 seconds West, 303.41 feet; thence North 88 degrees 55 minutes 59 seconds East, 656.12 feet; thence North 0 degrees 18 minutes 35 seconds West, 86.02 feet to the point of beginning of said road easement; thence North 0 degrees 18 minutes 35 seconds West, 135.0 feet; thence South 30 degrees 43 minutes 21 seconds East, 30.0 feet; thence South 7 degrees 37 minutes West, 110.18 feet to the point of beginning.
Tax Parcel ID: 44L0390100101
20873005.6
10-30-15
SECOND MODIFICATION AGREEMENT
THIS SECOND MODIFICATION AGREEMENT
dated as of October 30, 2015 (this
“
Agreement
”
), is entered into by and among
BENTON PROPERTY HOLDINGS, LLC
, a Georgia limited liability company (
“
Borrower 1
”
),
PARK HERITAGE PROPERTY HOLDINGS, LLC
, a Georgia limited liability company (
“
Borrower 2
”
), and
VALLEY RIVER PROPERTY HOLDINGS, LLC
, a Georgia limited liability company (
“
Borrower 3
”
) (collectively, the
“
Borrowers
”
),
ADCARE HEALTH SYSTEMS, INC.
, a Georgia corporation (
“
AdCare
”
),
BENTON NURSING, LLC
,
PARK HERITAGE NURSING, LLC,
and
VALLEY RIVER NURSING, LLC
, each a Georgia limited liability company (the
“
Operators
”
) (AdCare and the Operators being sometimes referred to herein collectively as the
“
Guarantors
”
) (the Borrower and the Guarantors being sometimes referred to herein collectively as the
“
Borrower/Guarantor Parties
”
), and
THE PRIVATEBANK AND TRUST COMPANY
, an Illinois banking corporation (
“
Lender
”
).
RECITALS
A. The Borrower/Guarantor Parties and Lender heretofore entered into the following documents:
(i) Loan Agreement dated as of September 1, 2011 (the
“
Loan Agreement
”
), by and among the Borrowers and the Lender.
(ii) Promissory Note dated September 1, 2011, from the Borrowers to the Lender in the principal amount of $11,800,000.
(iii) Environmental Indemnity Agreement dated as of September 1, 2011, by the Borrowers, AdCare and the Operators to and for the benefit of the Lender.
(iv) Guaranty of Payment and Performance dated as of September 1, 2011, by the Guarantors to and for the benefit of the Lender.
(v) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of September 1, 2011 (the
“
Benton Mortgage
”
), by Borrower 1 to and for the benefit of the Lender, recorded in the Official Records of Brenda DeShields, Circuit Clerk, Benton County, Arkansas, on September 23, 2011, at Book 2011, Page 127323, and which Benton Mortgage was released pursuant to the
“
Letter Agreement
”
(as defined below).
(vi) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of September 1, 2011 (the
“
Park Heritage Mortgage
”
), by Borrower 2 to and for the benefit of the Lender, recorded in the Official Records of Brenda DeShields, Circuit Clerk, Benton County, Arkansas, on September 23, 2011, at Book 2011 Page 127,459.
(vii) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of September 1, 2011 (the
“
River Valley Mortgage
”
), by Borrower 3 to and for the benefit of the Lender, recorded in the Official Records of Sharon Brooks, County Clerk and Recorder, Sebastian County, Arkansas, on September 23, 2011, as Document No. 2011F-14089.
(viii) Absolute Assignment of Rents and Leases dated as of September 1, 2011 (the
“
Benton Assignment of Rents
”
), by Borrower 1 to and for the benefit of the Lender, recorded in the Official Records of Brenda DeShields, Circuit Clerk, Benton County, Arkansas, on September 23, 2011, at Book 2011, Page 127354, and which Benton Assignment of Rents was released pursuant to the Letter Agreement.
(ix) Absolute Assignment of Rents and Leases dated as of September 1, 2011, by Borrower 2 to and for the benefit of the Lender, recorded in the Official Records of Brenda DeShields, Circuit Clerk, Benton County, Arkansas, on September 23, 2011, at Book 2011 , Page 127490.
(x) Absolute Assignment of Rents and Leases dated as of September 1, 2011, by Borrower 3 to and for the benefit of the Lender, recorded in the Official Records of Sharon Brooks, County Clerk and Recorder, Sebastian County, Arkansas, on September 23, 2011, as Document No. 2011F-14090.
B. All of the documents described in Recital A. above except the Benton Mortgage and the Benton Assignment of Rents are referred to herein as the
“
Documents
”
.
C. The Documents were previously modified and amended by the following documents (the
“
Previous Modifications
”
): (i) the Modification Agreement dated as of May 1, 2015 (the
“
First Modification
”
), by and among the Borrower/Guarantor Parties and the Lender, a Memorandum of which Modification Agreement was recorded on May 14, 2015, both in the Official Records of Brenda DeShields, Circuit Clerk, Benton County, Arkansas, at Book 2015, Page 83619, and in the Official Records of Sharon Brooks, County Clerk and Recorder, Sebastian County, Arkansas, as Document No. 2015F-06542, and (ii) the Letter Agreement dated as of July 1, 2015 (the
“
Letter Agreement
”
), by and among the Borrower/Guarantor Parties and the Lender.
D. The Documents, as modified and amended by the Previous Modifications, encumber the real estate described in
Exhibit A
attached hereto and the personal property located thereon.
E. The parties desire to make certain modifications and amendments to the Documents, as modified and amended by the Previous Modifications, as more fully provided for herein, all as modifications, amendments and continuations of, but not as novations of, the Documents.
AGREEMENTS
In consideration of the premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
Section 1
.
Recitals Part of Agreement; Defined Terms; References to Documents
.
(a) The foregoing Recitals are hereby incorporated into and made a part of this Agreement.
(b) The following capitalized terms shall have the following meanings in this Agreement:
ARK 3 Owners
: APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC, each a Georgia limited liability company.
ARK 3 Owner Loan Agreement
: The Loan Agreement dated as of February 25, 2015, by and among the ARK 3 Owners and the Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
ARK 3 Owner Loan Documents
: The ARK 3 Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Facility 3 Transition
: Sublease 3 has become effective and New Operator 3 has taken possession of and is operating Facility 3.
Little Rock Owner
: Little Rock HC&R Property Holdings, LLC, a Georgia limited liability company.
Little Rock Owner Loan Agreement
: The Loan Agreement dated as of March 30, 2012, by and among the Little Rock Owner, other borrowers and the Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Little Rock Owner Loan Documents
: The Little Rock Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
New Operator 3
: Highlands of Fort Smith, LLC, a Delaware limited liability company.
Sublease 3
: The Sublease Agreement dated as of July 17, 2015, by and among Borrower 3, Operator 3 and New Operator 3, as amended by First Amendment dated as of October 6, 2015, by which Operator 3 subleased its Project to New Operator 3 effective as of November 1, 2015.
(c) All capitalized terms used and not otherwise defined in this Agreement shall have the meanings set forth in the Loan Agreement.
(d) Except as otherwise stated herein, all references in this Agreement to any one or more of the Documents shall be deemed to include the previous modifications and amendments to the Documents provided for in the Previous Modifications, whether or not express reference is made to such previous modifications and amendments.
Section 2
.
Limited Waivers of Financial Covenant Compliance
. The parties hereby acknowledge and agree that (i) compliance with the requirements of Section 7.15 (Minimum Fixed Charge Coverage of Operators) of the Loan Agreement (the
“
Original Minimum FCCR Covenant
”
) was not achieved for each of the fiscal quarters ending March 31, 2014, June 30, 2014, September 30, 2014, December 31, 2014, and March 31, 2015, (ii) compliance with the requirements of Section 7.16 (Minimum Combined EBITDAR of Operators) of the Loan Agreement (the
“
Original Minimum EBITDAR Covenant
”
) was not achieved for each of the fiscal quarters ending March 31, 2014, June 30, 2014, September 30, 2014, December 31, 2014, and March 31, 2015, (iii) compliance with the requirements of Section 7.16 (Minimum EBITDAR/Management Fee Adjusted of Operators 1 and 3 New Operator 2) of the Loan Agreement as modified and amended by the First Modification (the
“
Amended Minimum EBITDAR Covenant - New Operators
”
) was not achieved for the fiscal quarter ending June 30, 2015, and (iv) compliance with the requirements of Section 7.14A (Minimum Fixed Charge Coverage Ratio of Borrowers) of the Loan Agreement as modified and amended by the First Modification (the
“
Minimum FCCR Covenant - Borrowers
”
) was not achieved for the fiscal quarter ending June 30, 2015. In addition, the parties hereby acknowledge and agree that in consideration of the additional cash collateral deposits described in Section 3 of this Agreement, the Lender heretofore waived compliance with the Original Minimum FCCR Covenant and the Original Minimum EBITDAR Covenant, in each case for each of the fiscal quarters ending March 31, 2014, June 30, 2014, September 30, 2014, December 31, 2014, and March 31, 2015 (the
“
3/31/15 and Prior Waivers
”
). The Lender hereby waives compliance with the Amended Minimum EBITDAR Covenant - New Operators and the Minimum FCCR Covenant - Borrowers, in each case for the fiscal quarter ending June 30, 2015 (the
“
6/30/15 Waivers
”
). The Lender does not waive compliance with the Amended Minimum EBITDAR Covenant - New Operators or the Minimum FCCR Covenant - Borrowers for any fiscal quarter after the fiscal quarter ending June 30, 2015.
Section 3
.
AdCare Collateral Account; Little Rock Additional Collateral Account
.
(a) The Collateral Account established and maintained pursuant to Section 3.4 of the ARK 3 Owner Loan Agreement (the
“
Collateral Account
”
) is Account No. 3294816 at the Lender, which was established and is maintained in the name of AdCare. It is a condition of this Agreement and the Loan that the Collateral Account shall continue to be maintained in the name of AdCare.
Pursuant to the Modification Agreement of even date herewith by and among the ARK 3 Owners, AdCare and the Lender (the
“
ARK 3 Modification
”
), AdCare pledges and assigns to the Lender, and grants to the Lender a first lien on and a first priority security interest in the Collateral Account, all cash and investments from time to time on deposit in the Collateral Account, and all proceeds of all of the foregoing. Pursuant to the ARK 3 Owner Loan Agreement and the Loan Agreement as modified and amended by the First Modification, immediately prior to the execution and delivery of this Agreement, the Cash Collateral Account is held as additional security for (i) the payment and performance of all of the obligations of ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (ii) the payment and performance of all of the obligations of the Borrowers under the Loan Agreement and the other Loan Documents.
(b) In consideration of the 3/31/15 and Prior Waivers and the Lender’s limited waiver of non-compliance with certain financial covenants in the ARK 3 Owner Loan Agreement and the Little Rock Owner Loan Agreement for the fiscal quarter ended March 31, 2015, the ARK 3 Owners and the Borrowers deposited an additional $1,400,000 into the Collateral Account, and the Little Rock Owner deposited an additional $1,200,000 into the
“
Debt Service Reserve Account
”
established by the Little Rock Owner Loan Agreement, which is Account No. 3175210 at the Lender. The parties acknowledge and agree that as of the Agreement Date, the amount on deposit in the Collateral Account is $3,400,483, and the amount on deposit in the Debt Service Reserve Account is $2,142,934.
(c) The parties to the Documents, the ARK 3 Owner Loan Documents and the Little Rock Owner Loan Documents have agreed that in consideration of the 6/30/15 Waivers and the Lender’s limited waiver of non-compliance with certain financial covenants in the ARK 3 Owner Loan Agreement and the Little Rock Owner Loan Agreement for the fiscal quarter ended June 30, 2015, the Documents, the ARK 3 Owner Loan Documents and the Little Rock Owner Loan Documents shall be modified and amended, pursuant to this Agreement, the ARK 3 Modification and the Sixth Modification Agreement dated as of even date with this Agreement by and among the Little Rock Owner, AdCare, Little Rock HC&R Nursing, LLC, a Georgia limited liability company, and the Lender (the
“
Little Rock Sixth Modification
”
) --
(i) to provide that from and after October 30, 2015, the Debt Service Reserve Account shall also be known as the
“
Additional Collateral Account
”
;
(ii) to provide that both the Collateral Account and the Additional Collateral Account shall be held as additional security for (A) the payment and performance of all of the obligations of the
Borrowers under the Loan Agreement and the other Documents, (B) the payment and performance of all of the obligations of the ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (C) the payment and performance of all of the obligations of the Little Rock Owner under the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents; and
(ii) to revise the release provisions related to the Collateral Account and the Additional Collateral Account.
It is a condition of this Agreement and the Loan that the ARK 3 Modification and the Little Rock Sixth Modification be executed and delivered to the Lender simultaneously with the execution and delivery of this Agreement.
(d) In order to provide for the modification and amendment of the Documents as described in paragraph (c) of this Section, and in connection with the other modifications and amendments of the Documents provided for in this Agreement --
(i) Effective as of the Agreement Date, the following defined terms are hereby added to Section 1.1 of the Loan Agreement, in alphabetical order with the existing defined terms therein:
Additional Collateral Account
:
The Debt Service Reserve Account established pursuant to Section 3.7 of the Little Rock Owner Loan Agreement, which is Account No. 3175210 at the Lender, which Debt Service Reserve Account is, from and after October 30, 2015, also known as the Additional Collateral Account.
ARK 3 Operators
: The Aria Operators (as defined in the ARK 3 Owner Loan Agreement).
ARK 3 Owners
: APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC, each a Georgia limited liability company.
ARK 3 Owner Loan Agreement
: The Loan Agreement dated as of February 25, 2015, by and among the ARK 3 Owners and the Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
ARK 3 Owner Loan Documents
: The ARK 3 Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Collateral Account
: The account so designated that is provided for in Section 3.4 of the ARK 3 Owner Loan Agreement.
Facility 3 Transition
: Sublease 3 has become effective and New Operator 3 has taken possession of and is operating Facility 3.
Little Rock Operator
: Highlands of Little Rock West Markham, LLC, a Delaware limited liability company.
Little Rock Owner
: Little Rock HC&R Property Holdings, LLC, a Georgia limited liability company.
Little Rock Owner Loan Agreement
: The Loan Agreement dated as of March 30, 2012, by and among the Little Rock Owner, other borrowers and Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Little Rock Owner Loan Documents
: The Little Rock Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
New Operator 3
: Highlands of Fort Smith, LLC, a Delaware limited liability company.
Operations Transfer Agreement 3
: The Operations Transfer Agreement dated as of July 17, 2015, by and among Operator 3, New Operator 3 and Borrower 3.
Sublease 3
: The Sublease Agreement dated as of July 17, 2015, by and among Borrower 3, Operator 3 and New Operator 3, as amended by First Amendment to Sublease Agreement dated as of October 6, 2015, by which Operator 3 subleased its Project to New Operator 3 effective as of November 1, 2015.
(ii) Section 3.5 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with existing Section 3.5 of the Loan Agreement, to remain in effect for periods prior to the Agreement Date:
3.5
Collateral Account; Additional Collateral Account
.
(a) From and after October 30, 2015, the Collateral Account shall be held as additional security for (i) the payment and performance of all of the obligations of Borrowers under this Agreement and the other Loan Documents, (ii) the payment and performance of all of the obligations of the ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (iii) the payment and performance of all of the obligations of the Little Rock Owner under the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents.
(b) From and after October 30, 2015, the Additional Collateral Account shall also be held as additional security for (i) the payment and performance of all of the obligations of Borrowers under this Agreement and the other Loan Documents, (ii) the payment and performance of all of the obligations of the ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (iii) the payment and performance of all of the obligations of the Little Rock Owner under the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents.
(c) All amounts on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the ARK 3 Owners and the Little Rock Owner at such time, and only at such time, as all of the principal of and interest on the Loan, the “Loan” (as defined in the ARK 3 Owner Loan Agreement) and the “Loan” (as defined in the Little Rock Owner Loan Agreement) have been paid in full and all of the other obligations to Lender under this Agreement and the other Loan Documents, the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and the Little Rock Owner Loan Agreement and the other Little Rock Owner Loan Documents have been fully paid and performed, subject to earlier release as provided in paragraphs (d), (e) and (f) below.
(d) Notwithstanding the provisions of paragraph (c) of this Section, $1,500,000 of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the ARK 3 Owners and the Little Rock Owner upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the ARK 3 Owner Loan Agreement or any of the other ARK 3 Owner Loan Documents, or the Little Rock Owner Loan Agreement or any of the other Little Rock Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for the ARK 3 Operators is not less than $495,000, as determined based on financial statements of the ARK 3 Operators which have been delivered to Lender as required by Section 7.4(a) of the ARK 3 Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the ARK 3 Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the ARK 3 Operators.
(iii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3), is not less than $265,000, as determined based on financial statements of New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3), which have been delivered to Lender as required by Section 7.4(a) of the Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Transition, New Operator 3).
(iv) For each of two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for the Little Rock Operator shall be not less than $450,000, determined based on financial
statements of the Little Rock Operator delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Little Rock Operator.
(e) Notwithstanding the provisions of paragraph (c) of this Section, $1,500,000 of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers the ARK 3 Owners and the Little Rock Owner upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the ARK 3 Owner Loan Agreement or any of the other ARK 3 Owner Loan Documents, or the Little Rock Owner Loan Agreement or any of the other Little Rock Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(ii) above is satisfied, the EBITDAR/Management Fee Adjusted for the ARK 3 Operators is not less than $495,000, as determined based on financial statements of the ARK 3 Operators which have been delivered to Lender as required by Section 7.4(a) of the ARK 3 Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the ARK 3 Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the ARK 3 Operators.
(iii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(iii) above is satisfied, the EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3) is not less than $265,000, as determined based on financial statements of New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3) which have been delivered to Lender as required by Section 7.4(a) of the Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3).
(iv) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(iv) above is satisfied, the EBITDAR/Management Fee Adjusted for the Little Rock Operator shall be not less than $450,000, determined based on financial statements of the Little Rock Operator delivered to Lender in accordance
with Section 7.4(a) of the Little Rock Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Little Rock Operator.
(f) Notwithstanding the provisions of paragraph (c) of this Section, the entire remainder of the total, aggregate amount on deposit in the Collateral Account and the Additional Collateral Account shall be released by Lender to Borrowers, the ARK 3 Owners and the Little Rock Owner upon the written request of Borrowers to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the ARK 3 Owner Loan Agreement or any of the other ARK 3 Owner Loan Documents, or the Little Rock Owner Loan Agreement or any of the other Little Rock Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(ii) above is satisfied, the EBITDAR/Management Fee Adjusted for the ARK 3 Operators is not less than $495,000, as determined based on financial statements of the ARK 3 Operators which have been delivered to Lender as required by Section 7.4(a) of the ARK 3 Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the ARK 3 Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the ARK 3 Operators.
(iii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(iii) above is satisfied, the EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3) is not less than $265,000, as determined based on financial statements of New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3) which have been delivered to Lender as required by Section 7.4(a) of the Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3).
(iv) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(iv) above is satisfied, the EBITDAR/Management Fee Adjusted for the Little Rock Operator shall be not less than $450,000, determined based on financial statements of the Little Rock Operator delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement, and
compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Little Rock Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Little Rock Operator.
Section 4
.
Change in Amount of Monthly Principal Payment
.
Section 3.1(b) of the Note is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with the existing Section 3.1(b) of the Note to continue to be effective for periods ending prior to the Agreement Date:
(b) On the first day of the month of November, 2015, and on the first day of each month thereafter through and including the month in which the Maturity Date occurs, in addition to accrued interest on this Note payable as provided in paragraph (a) above, a payment of principal on this Note shall be due and payable in the amount of $11,009.
Section 5
.
Lender Consent to Sublease of Project 3 and Further Amendment of Sublease of Project 2
.
(a) The Lender hereby consents to the sublease by Operator 3 of its Project to New Operator 3 effective as of November 1, 2015, pursuant to Sublease 3.
(b) The Lender hereby consents to the further amendment of Sublease 2 pursuant to the Fourth Amendment to Sublease Agreement dated as of October 6, 2015, by and among Borrower 2, Operator 2 and New Operator 2.
(c) In order to induce the Lender to grant the consents described in paragraphs (a) and (b) of this Section, the Borrowers and the Guarantors are entering into the agreements with the Lender which are provided for in this Agreement.
Section 6
.
Amendments to Loan Agreement Relating to Sublease of Project 3, New Operator 3 and Further Amendment of Sublease 2
.
(a) The defined term “Sublease 2” in Section 1.1 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with the existing defined term “Sublease 2” to continue to be effective for periods prior to the Agreement Date:
Sublease 2
: The Sublease Agreement dated as of January 16, 2015, by and among Borrower 2, Operator 2 and New Operator 2, by which Operator 2 subleased its Project to New Operator 2 effective as of May 1, 2015, as amended by Amendments dated as of February 27, 2015, March 31, 2015, April 30, 2015, and October 6, 2015.
(b) Paragraphs (q), (v), (w), (z) and (aa) in Section 2.1 of the Loan Agreement are hereby modified and amended in their entirety to read as follows effective as of November 1, 2015, with the existing paragraphs (q), (v), (w), (z) and (aa) in Section 2.1 of the Loan Agreement to continue to be effective for periods prior to November 1, 2015:
(q) Subject to the provisions of Section 7.9(b) of this Agreement, all governmental permits and licenses required by applicable law in order for each of Borrower 2 and Borrower 3 to own and lease its respective Project to the applicable Operator, for Operator 2 to sublease Project 2 to New Operator 2, for Operator 3 to sublease Project 3 to New Operator 3, and for New Operator 2 to operate Facility 2 and New Operator 3 to operate Facility 3, have been validly issued and are in full force.
(v) There are no leases or subleases for use or occupancy of any Project other than the applicable Lease and in the case of Project 2, Sublease 2, and in the case of Project 3, Sublease 3, with the exception of agreements entered into with residents and occupants in the ordinary course of business of operating the Facility.
(w) Each of the Leases and Sublease 2 and Sublease 3 is in full force and effect; no Defaults or Events of Default on the part of applicable Borrower or Operator, respectively, have occurred and are continuing thereunder; the tenant and subtenant, respectively, thereunder have no right of set-off against payment of rent due thereunder; and enforcement of each of the Leases and Sublease 2 and Sublease 3 by the applicable Borrower and Operator, respectively, or by Lender pursuant to an exercise of Lender’s rights under the applicable Assignment of Rents, would be subject to no defenses of any kind. All of the conditions precedent for both Operator 2 and New Operator 2 contained in Sublease 2, as amended, and for both Operator 3 and New Operator 3 contained in Sublease 3, as amended, have either been satisfied or waived, and neither Operator 2 nor New Operator 2 has any remaining right to terminate Sublease 2, as amended, and neither Operator 3 nor New Operator 3 has any remaining right to terminate Sublease 3, as amended, for failure of any condition precedent to be satisfied. Operations Transfer Agreement 2 is in full force and effect and no Defaults or Events of Default on the part of Operator 2 or New Operator 2 have occurred and are continuing thereunder. Operations Transfer Agreement 3 is in full force and effect and no Defaults or Events of Default on the part of Operator 3 or New Operator 3 have occurred and are continuing thereunder.
(z) Subject to the provisions of Section 7.9(b) of this Agreement, each Facility has all necessary licenses, permits and certifications required by any applicable governmental authority to operate and maintain a skilled nursing facility therein with its current number of beds in service, and participates in the Medicare and Medicaid programs. Subject to the provisions of Section 7.9(b) of this Agreement, Operators and New Operator 2 and New Operator 3 have complied with all applicable requirements of the United States of America, the State of Arkansas and all applicable local governments, and of its agencies and instrumentalities,
necessary to operate and maintain its Facility as such a facility. All utilities necessary for use, operation and occupancy of each Project and each Facility are available to such Project and such Facility. All requirements for unrestricted use of each Project and each Facility as a skilled nursing facility under the rules and regulations of the State of Arkansas Department of Human Services and of any other department or agency of the State of Arkansas having jurisdiction over each Project and each Facility have been fulfilled. All building, zoning, safety, health, fire, water district, sewerage and environmental protection agency and any other permits or licenses which are required by any governmental authority for use, occupancy and operation of each Project and each Facility as a skilled nursing facility have been obtained and are in full force and effect. Neither any Borrower, any Operator, any Guarantor, New Operator 2, New Operator 3, any Project nor any Facility is subject to any corporate integrity agreement, compliance agreement or other agreement governing the operation of any Project or any Facility or the operations of any Borrower, any Operator, any Guarantor, New Operator 2 or New Operator 3.
(aa) Each Borrower and Operator and each of New Operator 2 and New Operator 3 is in compliance in all material respects with all laws, orders, regulations and ordinances of all federal, foreign, state and local governmental authorities binding upon or affecting the business, operation or assets of Borrowers, Operators, New Operator 2 or New Operator 3. Neither any Borrower, any Operator, New Operator 2 or New Operator 3: (i) has had a civil monetary penalty assessed against it under the Social Security Act (the
“
SSA
”
) Section 1128(a) ), other than nominal amounts for violations which were not of a material nature, (ii) has been excluded from participation under the Medicare program or under a State health care program as defined in the SSA Section 1128(h) (
“
State Health Care Program
”
), or (iii) has been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the following categories of offenses as described in the SSA Section 1127(a) and (b)(l), (2), (3): (A) criminal offenses relating to the delivery of an item or service under Medicare or any State Health Care Program; (B) criminal offenses under federal or state law relating to patient neglect or abuse in connection with the delivery of a health care item or service; (C) criminal offenses under federal or state law relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service or with respect to any act or omission in a program operated by or financed in whole or in part by any federal, state or local government agency; (D) federal or state laws relating to the interference with or obstruction of any investigations into any criminal offense described in (A) through (C) above; or (E) criminal offenses under federal or state law relating to the unlawful manufacture, distribution, prescription or dispensing of a controlled substance. Without limiting the generality of the foregoing, neither any Borrower, any Operator, New Operator 2 nor New Operator 3 is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Medicare or Medicaid Provider Agreement or other agreement or instrument to which such Borrower or Operator or New Operator 2 or New Operator 3 is a party, which default has resulted in, or if not
remedied within any applicable grace period could result in, the revocation, termination, cancellation or suspension of the Medicare or Medicaid Certification of such Borrower or Operator or New Operator 2 or New Operator 3.
(c) Section 7.2 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of November 1, 2015, with the existing Section 7.2 of the Loan Agreement to continue to be effective for periods prior to November 1, 2015:
7.2 Except for security interests granted to Lender, Borrowers agree that all of the personal property, fixtures, attachments, furnishings and equipment delivered in connection with the construction, equipping or operation of the Projects will be kept free and clear of all chattel mortgages, vendor’s liens, and all other liens, claims, encumbrances and security interests whatsoever, and that Borrowers will be the absolute owners of said personal property, fixtures, attachments and equipment, subject to the rights of Operators under the Leases, the rights of New Operator 2 under Sublease 2 and the rights of New Operator 3 under Sublease 3. Borrowers, on request, shall furnish Lender with satisfactory evidence of such ownership, and of the terms of purchase and payment therefor.
(d) Sections 7.7 and 7.8 of the Loan Agreement are hereby modified and amended by changing the references therein to “Operators” to be references to “Operators and New Operator 2 and New Operator 3” effective as of November 1, 2015, with the existing Sections 7.7 and 7.8 of the Loan Agreement to continue to be effective for periods prior to November 1, 2015.
(e) Section 7.9 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of November 1, 2015, with the existing Section 7.9 of the Loan Agreement to continue to be effective for periods prior to November 1, 2015:
7.9
Licensure; Notices of Agency Actions
. The following are conditions of this Agreement and the Loan:
(a) Subject to the provisions of paragraph (b) of this Section, New Operator 2 and New Operator 3 shall be fully qualified by all necessary permits, licenses, certifications, accreditations and qualifications and shall be in compliance with all annual filing requirements of all regulatory authorities.
(b) The State of Arkansas license for the operation of Facility 2 is held by New Operator 2 in its own name. The State of Arkansas license for the operation of Facility 3 is held by New Operator 3 in its own name. The Medicare and Medicaid certifications for Facility 2 are currently held by New Operator 2. The Medicare and Medicaid certifications for Facility 3 are currently held by Operator 3. It is a condition of this Agreement and the Loan that by January 1, 2016, New Operator 3 shall have obtained Medicare and Medicaid certifications for Facility 3 in its own name. Pending the receipt of such Medicare and Medicaid certifications by New Operator 3, (i) Operator 3 shall retain the existing Medicare and Medicaid
certifications for Facility 3, and (ii) Prior to the Facility 3 Transition, Operator 3 shall operate Facility 3 and after the Facility 3 Transition, New Operator 3 shall operate Facility 3 under the Medicare and Medicaid certifications of Operator 3 under Operations Transfer Agreement 3. Upon the issuance of the Medicare and Medicaid certifications for Facility 3 to New Operator 3, the arrangements described above under Operations Transfer Agreement 3 shall terminate and New Operator 3 shall thereafter operate Facility 3 under its own Medicare and Medicaid certifications.
(c) Each Borrower and Operator and New Operator 2 and New Operator 3 shall within five days after receipt, furnish to Lender copies of all adverse notices from any licensing, certifying, regulatory, reimbursing or other agency which has jurisdiction over its Project or Facility or over any license, permit or approval under which its Project or Facility operates, and if any Borrower or Operator or New Operator 2 or New Operator 3 becomes aware that any such notice is to be forthcoming before receipt thereof, it shall promptly inform Lender thereof.
(f) Section 7.13 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of November 1, 2015, with the existing Section 7.13 of the Loan Agreement to continue to be effective for periods prior to November 1, 2015:
7.13
Leasing, Operation and Management of Projects
.
(a) Each Project shall at all times be owned by the applicable Borrower, leased to the applicable Operator under the applicable Lease, in the case of Borrower 2’s Project, subleased by Operator 2 to New Operator 2 under Sublease 2, and in the case of Borrower 3’s Project, subleased by Operator 3 to New Operator 3 under Sublease 3 (with the result that no Borrower shall operate a Facility). Each Borrower shall not agree or consent to or suffer or permit any modification, amendment, termination or assignment of, or sublease under, its Lease (other than Sublease 2 and Sublease 3), and shall not suffer or permit any Event of Default on the part of such Borrower to exist at any time under its Lease. It is a condition of this Agreement and the Loan that Operator 2 and Operator 3 shall not agree or consent to or suffer or permit any modification, amendment, termination or assignment of, or sublease under, Sublease 2 or Sublease 3, and shall not suffer or permit any Event of Default on the part of Operator 2 to exist at any time under Sublease 2, or on the part of Operator 3 to exist at any time under Sublease 3, including, without limitation, any amendment changing in the rent payable under Sublease 2 or Sublease 3. Each of the following is a condition of this Agreement and the Loan: Borrower 2, Operator 2 and New Operator 2 shall enter into an agreement in a form acceptable to Lender which shall require (i) New Operator 2 to pay all rental under Sublease 2 directly to an account of Borrower 2 at Lender, and (ii) Operator 2 to pay any rent under its Lease in addition to the amount of the rent payable under Sublease 2 directly to an account of Borrower 2 at Lender. Borrower 3, Operator 3 and New Operator 3 shall enter into an agreement in a form acceptable to Lender which shall require (i) New
Operator 3 to pay all rental under Sublease 3 directly to an account of Borrower 3 at Lender, and (ii) Operator 3 to pay any rent under its Lease in addition to the amount of the rent payable under Sublease 3 directly to an account of Borrower 3 at Lender.
(b) Each Facility shall at all times be operated as skilled nursing facility under the management of the applicable Operator or, in the case of Facility 2, New Operator 2, or, in the case of Facility 3, New Operator 3.
(g) Paragraphs (b), (g) and (n) in Section 10.1 of the Loan Agreement are hereby modified and amended in their entirety to read as follows effective as of November 1, 2015, with the existing paragraphs (g) and (n) in Section 10.1 of the Loan Agreement to continue to be effective for periods prior to November 1, 2015:
(b) If there is any failure to perform, observe or satisfy any obligation, covenant, agreement, term, condition or provision contained in any of the following provisions of this Agreement: Section 7.9(a), 7.10, 7.11, 7.12, 7.13, 7.14, 7.14A, 7.15, 7.16, 7.17, 7.18, 7.19, 7.20 or 7.21;
(g) The occurrence of a material adverse change in the financial condition of any Borrower, Operator or Guarantor or New Operator 2 or New Operator 3;
(n) The occurrence of an Event of Default (i) on the part of any Borrower or Operator under any Lease, (ii) on the part of Operator 2 or New Operator 2 under Sublease 2, (iii) on the part of Operator 2 or New Operator 2 under any Operations Transfer Agreement, (iv) on the part of Operator 3 or New Operator 3 under Sublease 3, or (v) on the part of Operator 3 or New Operator 3 under any Operations Transfer Agreement;
Section 7
.
Changes in Financial Reporting Requirements
.
(a) Subparagraphs (i), (iii) and (vi) in Section 7.4(a) of the Loan Agreement are hereby modified and amended in their entirety to read as follows effective as of November 1, 2015, with the existing subparagraphs (i), (iii) and (vi) in Section 7.4(a) of the Loan Agreement to continue to be effective for periods prior to November 1, 2015:
(i) Without necessity of any request by Lender, the following with respect to Borrowers:
(A) As soon as available and in no event later than 45 days after the end of each fiscal quarter commencing with the fiscal quarter ending March 31, 2015, quarterly financial statements of each Borrower showing the results of operations of its Project and consisting of a balance sheet, statement of income and expense and a statement of cash flows, prepared in accordance with GAAP, and certified by an officer of such Borrower.
(B) As soon as available and in no event later than 120 days after the end of each fiscal year commencing with the fiscal year ending December 31, 2014, annual financial statements of each Borrower showing the results of operations of its Project and consisting of a balance sheet, statement of income and expense and a statement of cash flows, prepared in accordance with GAAP, and certified by an officer of such Borrower, and accompanied by an audit report of a firm of independent certified public accountants acceptable to Lender.
(iii) Without necessity of any request by Lender, as soon as available and in no event later than 120 days after the end of each fiscal year commencing with the fiscal year ending December 31, 2014, annual financial statements of each Operator showing the results of operations of its Facility and consisting of a balance sheet, statement of income and expense, statement of cash flows and statement of payor mix, prepared in accordance with GAAP, certified by an officer of such Operator, and accompanied by an audit report of a firm of independent certified public accountants acceptable to Lender.
(vi) Without necessity of any request by Lender, with each financial statement of each Borrower, each Operator, New Operator 2, New Operator 3 and AdCare required to be furnished hereunder, a duly completed compliance certificate, dated the date of such financial statements and certified as true and correct by appropriate officers of each Borrower, each Operator, New Operator 2, New Operator 3 and AdCare, containing a computation of each of the financial covenants set forth in Sections 7.14, 7.14A, 7.15, 7.16 and 7.17 hereof which is required to be tested for or during the period covered by such financial statement, and stating that Borrowers have not become aware of any Default or Event of Default under this Agreement or any of the other Loan Documents that has occurred and is continuing or, if there is any such Default or Event of Default describing it and the steps, if any, being taken to cure it.
(b) The following new subparagraphs (ix) and (x) are hereby added to 7.4(a) of the Loan Agreement:
(ix) Without necessity of any request by Lender, as soon as available and in no event later than 45 days after the end of each fiscal quarter commencing with the fiscal quarter ending December 31, 2015, financial statements of New Operator 3 showing the results of operations of Facility 3 and consisting of a balance sheet, statement of income and expense, statement of cash flows and statement of payor mix, prepared in accordance with GAAP, and certified by an officer of New Operator 3.
(x) Without necessity of any request by Lender, as soon as available and in no event later than 120 days after the end of each fiscal year commencing with the fiscal year ending December 31, 2015, annual financial statements of New Operator 3 showing the results of operations of Facility 3 and consisting of a balance
sheet, statement of income and expense, statement of cash flows and statement of payor mix, prepared in accordance with GAAP, certified by an officer of New Operator 3, and accompanied by an audit report of a firm of independent certified public accountants acceptable to Lender.
Section 8
.
Change in Minimum EBITDAR/Management Fee Adjusted
.
Section 7.16 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective for the fiscal quarter ending September 30, 2015, and subsequent fiscal quarters, with the existing Section 7.16 of the Loan Agreement to continue to be effective for periods ended and ending prior to the fiscal quarter ending September 30, 2015:
7.16
Minimum EBITDAR/Management Fee Adjusted of New Operator 2 and Operator of Facility 3
. It is a condition of this Agreement and the Loan that for each fiscal quarter commencing with the fiscal quarter ending September 30, 2015, the combined EBITDAR/Management Fee Adjusted for New Operator 2 and Operator 3 (or, after the Facility 3 Transition, New Operator 3) shall be not less than $265,000.
Section 9
.
Condition to Agreements
. It is a condition of this Agreement and the Loan that within 30 days after the Agreement Date, the Borrowers shall obtain and deliver to the Lender a date down endorsement to the Title Insurance Policy for the Project encumbered by the Park Heritage Mortgage and an endorsement to the Title Insurance Policy for the Project encumbered by the River Valley Mortgage, each dated on or after the date of the recording of the Memorandum of this Agreement, each of which endorsements shall show no new encumbrances other than those approved by the Lender and shall otherwise be in form and content acceptable to the Lender. The failure of this condition to be satisfied shall be an Event of Default under the Documents.
Section 10
.
Representations and Warranties
. The term “
Signing Entity
”
as used in this Section means any entity (other than a Borrower/Guarantor Party itself) that appears in the signature block of any Borrower/Guarantor Party in this Agreement or any of the Documents, if any. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby represent and warrant to Lender as follows as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement:
(a) Each Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the state of Arkansas, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party, and to perform and consummate the transactions contemplated hereby and thereby.
(b) AdCare is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party, and to perform and consummate the transactions contemplated hereby and thereby.
(c) Each Operator is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the state of Arkansas. Each Operator has full power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement and each of the Documents to which it is a party and to perform and consummate the transactions contemplated hereby and thereby.
(d) Each Signing Entity is duly organized, validly existing and in good standing under the laws of the State in which it is organized, has all necessary power and authority to carry on its present business, and has full right, power and authority to execute this Agreement, the Documents in the capacity shown in each signature block contained in this Agreement, the Documents in which its name appears, and such execution has been duly authorized by all necessary legal action applicable to such Signing Entity.
(e) This Agreement, each of the Documents have been duly authorized, executed and delivered by such of the Borrower/Guarantor Parties as are parties thereto, and this Agreement, each of the Documents constitute a valid and legally binding obligation enforceable against such of the Borrower/Guarantor Parties as are parties thereto. The execution and delivery of this Agreement, the Documents and compliance with the provisions thereof under the circumstances contemplated therein do not and will not conflict with or constitute a breach or violation of or default under the organizational documents of any Borrower/Guarantor Party or any Signing Entity, or any agreement or other instrument to which any of the Borrower/Guarantor Parties or any Signing Entity is a party, or by which any of them is bound, or to which any of their respective properties are subject, or any existing law, administrative regulation, court order or consent decree to which any of them is subject.
(f) The Borrower/Guarantor Parties are in full compliance with all of the terms and conditions of the Documents to which they are a party, and no Default or Event of Default has occurred and is continuing with respect to any of the Documents.
(g) There is no litigation or administrative proceeding pending or threatened to restrain or enjoin the transactions contemplated by this Agreement or any of the Documents, or questioning the validity thereof, or in any way contesting the existence or powers of any of the Borrower/Guarantor Parties or any Signing Entity, or in which an unfavorable decision, ruling or finding would adversely affect the transactions contemplated by this Agreement or any of the Documents, or would result in any material adverse change in the financial condition, properties, business or operations of any of the Borrower/Guarantor Parties.
(h) The statements contained in the Recitals to this Agreement are true and correct.
Section 11
.
Documents to Remain in Effect; Confirmation of Obligations; References
. The Documents shall remain in full force and effect as originally executed and delivered by the parties, except as expressly modified and amended herein. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby (i) confirm and reaffirm all of their obligations under the Documents, as modified and amended herein; (ii) acknowledge and agree that
Lender, by entering into this Agreement, does not waive any existing or future default or event of default under any of the Documents, or any rights or remedies under any of the Documents, except as expressly provided herein; (iii) acknowledge and agree that Lender has not heretofore waived any default or event of default under any of the Documents, or any rights or remedies under any of the Documents; and (iv) acknowledge and agree that they do not have any defense, setoff or counterclaim to the payment or performance of any of their obligations under, or to the enforcement by Lender of, the Documents, as modified and amended herein, including, without limitation, any defense, setoff or counterclaim based on the covenant of good faith and fair dealing. All references in the Documents to any one or more of the Documents, or to the “Loan Documents,” shall be deemed to refer to such Document, Documents or Loan Documents, as the case may be, as modified and amended by this Agreement. Electronic records of executed documents maintained by Lender shall be deemed to be originals thereof.
Section 12
.
Certifications, Representations and Warranties
. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby certify, represent and warrant to Lender that all certifications, representations and warranties contained in the Documents and in all certificates heretofore delivered to Lender are true and correct as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement, and all such certifications, representations and warranties are hereby remade and made to speak as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement.
Section 13
.
Entire Agreement; No Reliance
. This Agreement sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Agreement, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than as are herein set forth. The Borrower/Guarantor Parties acknowledge that they are executing this Agreement without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein.
Section 14
.
Successors
. This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors, assigns and legal representatives.
Section 15
.
Severability
. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.
Section 16
.
Amendments, Changes and Modifications
. This Agreement may be amended, changed, modified, altered or terminated only by a written instrument executed by all of the parties hereto.
Section 17
.
Construction
.
(a) The words “hereof,” “herein,” and “hereunder,” and other words of a similar import refer to this Agreement as a whole and not to the individual Sections in which such terms are used.
(b) References to Sections and other subdivisions of this Agreement are to the designated Sections and other subdivisions of this Agreement as originally executed.
(c) The headings of this Agreement are for convenience only and shall not define or limit the provisions hereof.
(d) Where the context so requires, words used in singular shall include the plural and vice versa, and words of one gender shall include all other genders.
(e) The Borrower/Guarantor Parties and Lender, and their respective legal counsel, have participated in the drafting of this Agreement, and accordingly the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Agreement.
Section 18
.
Counterparts; Electronic Signatures
. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. An electronic record of this executed Agreement maintained by Lender shall be deemed to be an original.
Section 19
.
Governing Law
. This Agreement is prepared and entered into with the intention that the law of the State of Illinois shall govern its construction and enforcement, except that insofar as this Agreement relates to a Document which by its terms is governed by the law of the State of Arkansas, this Agreement shall also be governed by the law of the State of Arkansas.
Section 20
.
Waiver of Trial by Jury
.
THE PROVISIONS OF THE LOAN AGREEMENT AND THE OTHER DOCUMENTS RELATING TO WAIVER OF TRIAL BY JURY SHALL APPLY TO THIS AGREEMENT.
[SIGNATURE PAGE(S) AND EXHIBIT(S),
IF ANY, FOLLOW THIS PAGE]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date first above written.
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BENTON PROPERTY HOLDINGS, LLC
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PARK HERITAGE PROPERTY HOLDINGS, LLC
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VALLEY RIVER PROPERTY HOLDINGS, LLC
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By
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/s/ William McBride, III
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William McBride III, Manager of Each Borrower
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BENTON NURSING, LLC
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PARK HERITAGE NURSING, LLC
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VALLEY RIVER NURSING, LLC
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By
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/s/ William McBride, III
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William McBride III, Manager of Each Operator
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THE PRIVATEBANK AND TRUST COMPANY
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By
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/s/ Amy K. Hallberg
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Amy K. Hallberg, Managing Director
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EXHIBIT A
LEGAL DESCRIPTION
Parcel 2
Owned by Borrower 2, commonly known as 1513 South Dixieland Road, Rogers, Benton County, Arkansas, and legally described as follows:
Real property in the State of Arkansas, described as follows:
A part of Tract 3 of Robert Callaghan's Subdivision of the SW/4 of the NE/4 of Section 14, Township 19 North, Range 30W, Rogers, Arkansas, described as beginning South 89° 18' 12" East 196.06 feet from the SW corner of the said SW/4 of the NE/4, being on the centerline of Olrich Street, thence North 00° 10' 51" West 176.95 feet; thence South 89° 13' 49" East 133.94 feet; thence South 00° 10' 51" East 176.78 feet to said centerline; thence North 89° 18' 19" West 133.93 along said centerline to the place of beginning.
Also, a part of Tract 3 in Robert Callaghan's Subdivision to the City of Rogers, Arkansas, described as follows: Beginning at the SW corner of the SW/4 of the NE/4 of Section 14, Township 19 North, Range 30 West, running thence North 00° 10' 51" West 177.20 feet along the centerline of Dixieland Road; thence South 89° 13' 49" East 196.06 feet; thence South 00° 10' 51" East 176.95 feet to the centerline of Olrich Street; thence North 89° 18' 12" West 196.06 feet along said centerline to the point of Beginning. Both subject to the right of way of said street.
Also, A part of the SW/4 of the NE/4 of Section 14, Township 19 North, Range 30 West, described as follows: From the NW corner of the said SW/4 of the NE/4, thence South 00° 38' East 775 feet along the centerline of Dixieland Road to the point of beginning; thence South 00° 38' East 19 feet along said centerline; thence East 330 feet; thence North 00° 38' West 19 feet to the South right-of-way of Gum Street; thence West 330 feet along said right-of-way to the point of beginning.
Also, a part of the SW-1/4 of the NE-1/4 of Section 14, Township 19 North, Range 30 West, being more particularly described as follows: Beginning at the NW corner of Tract 3, Robert Callaghan's Subdivision to the City of Rogers, Arkansas, thence Southerly along the centerline of Dixieland Road, approximately 356.8 feet to a point which is North 00° 10' 51" West 177.20 feet from the SW corner of the SW-1/4 of the NE-1/4 of said Section 14; thence South 89° 13' 49" East approximately 330 feet to the East line of said Tract 3; thence North 00° 38' West approximately 356.47 feet to a point which is South 00° 38' East from the NW corner of Lot 1, Block 4, Weber's Addition to the City of Rogers, Arkansas; thence Westerly along the North line of said Tract 3, Robert Callaghan's Subdivision to the point of beginning.
Less and Except from the above Legal Descriptions: A Part of tract #3 of Robert Callaghan's Subdivision, located in a part of the SW 1/4 of the NE 1/4 of Section 14, Township 19 North range 30 West in Rogers, Benton County, Arkansas, more precisely described as follows: Starting at the SW corner of the SW 1/4 of the NE 1/4 of Section 14, also known as the SW corner of Tract #3 of Robert Callaghan's Subdivision; Thence South 86 Degrees 48 Minutes 16 Seconds East, 176.37 Feet to the True Point of Beginning; Thence North 2 degrees 38 minutes 31 seconds East, 176.97 Feet, Thence South 86 degrees 43 minutes 45 seconds East, 152.63 Feet, Thence South 02 degrees 19 minutes 12 seconds West, 176.78 feet, Thence North 86 degrees 48 minutes 16 seconds West, 153.62 feet to the True Point of Beginning, subject to the Right of Way of Dixieland Road and West Olrich Streets.
Parcel 3
Owned by Borrower 3, commonly known as 5301 Wheeler Avenue Fort Smith, Sebastian County, Arkansas, and legally described as follows:
The West Half of the South Half of the North Half of the Northeast Quarter of the Southeast Quarter of Section 32, Township 8 North, Range 32 West, Fort Smith District, Sebastian County, Arkansas and all that part described as beginning at the Southwest corner of the above described tract; thence South 62.00 feet; thence East 630.00 feet; then North 62.00 feet; thence West 630.00 feet to the point of beginning.
- AdCare Arkansas Owner Loan (Benton et al) Second Modification Agreement -
- Signature Page -
20850497.7
10-30-15
SIXTH MODIFICATION AGREEMENT
THIS SIXTH MODIFICATION AGREEMENT
(this
“
Agreement
”
) dated as of October 30, 2015 (the
“
Agreement Date
”
), is entered into by and among
LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC
, a Georgia limited liability company (the
“
Borrower
”
),
ADCARE HEALTH SYSTEMS, INC.
, a Georgia corporation (
“
AdCare
”
),
LITTLE ROCK HC&R NURSING, LLC
, a Georgia limited liability company (the
“
Operator
”
) (AdCare and the Operator being sometimes referred to herein collectively as the
“
Guarantors
”
) (the Borrower and the Guarantors being sometimes referred to herein collectively as the
“
Borrower/Guarantor Parties
”
), and
THE PRIVATEBANK AND TRUST COMPANY
, an Illinois banking corporation (
“
Lender
”
).
RECITALS
A. The Borrower/Guarantor Parties and Lender heretofore entered into the following documents:
(i) Loan Agreement dated as of March 30, 2012 (the
“
Loan Agreement
”
), by and among the Borrower, Northridge HC&R Property Holdings, LLC, a Georgia limited liability company (
“
Northridge
”
), Woodland Hills HC Property Holdings, LLC, a Georgia limited liability company (
“
Woodland
”
) and the Lender. Northridge and Woodland were released from their respective obligations under the Loan Agreement and the other Documents pursuant to the
“
Second Modification
”
(as defined below).
(ii) Promissory Note A dated March 30, 2012 (the
“
Note
”
), from the Borrower to the Lender in the principal amount of $13,664,956, which, along with Note B and Note C described below, replaced the Promissory Note dated March 30, 2012 (the
“
Original Note
”
), from the Borrower, Northridge and Woodland to the Lender in the principal amount of $21,800,000.
(iii) Promissory Note B dated March 30, 2012 (
“
Note B
”
), from Northridge to the Lender in the principal amount of $4,507,038, which, along with the Note and Note C described below, replaced the Original Note, and which Note B was repaid in full pursuant to the Second Modification.
(iv) Promissory Note C dated March 30, 2012 (
“
Note C
”
), from Woodlands to the Lender in the principal amount of $3,628,006, which, along with the Note and Note B, replaced the Original Note, and which Note C was repaid in full pursuant to the Second Modification.
(v) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of April 1, 2012 (the
“
Mortgage
”
), by the Borrower to and for the benefit
of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019925.
(vi) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of April 1, 2012 (
“
Mortgage 2
”
), by Northridge to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019978, and which Mortgage 2 was released pursuant to the Second Modification.
(vii) Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of April 1, 2012 (
“
Mortgage 3
”
), by Woodlands to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019971, and which Mortgage 3 was released pursuant to the Second Modification.
(viii) Absolute Assignment of Rents and Leases dated as of April 1, 2012 (the
“
Assignment of Rents
”
), by the Borrower to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019926.
(ix) Absolute Assignment of Rents and Leases dated as of April 1, 2012 (
“
Assignment of Rents 2
”
), by Northridge to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019979, and which Assignment of Rents 2 was released pursuant to the Second Modification.
(x) Absolute Assignment of Rents and Leases dated as of April 1, 2012 (
“
Assignment of Rents 3
”
), by Woodlands to and for the benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019972, and which Assignment of Rents 3 was released pursuant to the Second Modification.
(xi) Environmental Indemnity Agreement dated as of March 30, 2012 (the
“
Indemnity Agreement
”
), by the Borrower, AdCare, Northridge, Woodlands, the Guarantors, Northridge HC&R Nursing, LLC, a Georgia limited liability company (the
“
Northridge Operator
”
), and Woodland Hills HC Nursing, LLC, a Georgia limited liability company (the
“
Woodland Operator
”
), to and for the benefit of the Lender, with the Northridge, Woodland, the Northridge Operator and the Woodland Operator being released from their respective obligations under the Indemnity Agreement pursuant to the Second Modification.
(xii) Guaranty of Payment and Performance dated as of March 30, 2012 (the
“
Guaranty
”
), by the Guarantors, the Northridge Operator and the Woodlands Operator to and for the benefit of the Lender, with the Northridge Operator and the Woodland Operator being released from their respective obligations under the Guaranty pursuant to the Second Modification.
B. The Loan Agreement, the Note, the Mortgage, the Assignment of Rents, the Indemnity Agreement and the Guaranty are referred to herein as the
“
Documents
”
.
C. The Documents were previously modified and amended by the following documents (the
“
Previous Modifications
”
): (i) the Modification Agreement dated as of June 15, 2012, but effective as of March 30, 2012, by and among the Borrower/Guarantor Parties, the Lender and other parties, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on June 22, 2012, as Document No. 2012038003; (ii) the Second Modification Agreement dated as of December 28, 2012 (the
“
Second Modification
”
), by and among the Borrower/Guarantor Parties and the Lender, a Memorandum of which Second Modification Agreement was recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on January 4, 2013, as Document No. 2013001265; (iii) the Third Modification Agreement dated as of June 26, 2013, by and among the Borrower/Guarantor Parties and the Lender; (iv) the Fourth Modification Agreement dated as of November 8, 2013 (the
“
Fourth Modification
”
), by and among the Borrower/Guarantor Parties and the Lender, a Memorandum of which Fourth Modification Agreement was recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on November 12, 2013, as Document No. 2013081444; and (v) the Fifth Modification Agreement dated as of May 1, 2015 (the
“
Fifth Modification
”
), by and among the Borrower/Guarantor Parties and the Lender, a Memorandum of which Fifth Modification Agreement was recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on May 11, 2015, as Document No. 2015027758.
D. The Documents, as modified and amended by the Previous Modifications, encumber the real estate described in
Exhibit A
attached hereto and the personal property located thereon.
E. The parties desire to make certain modifications and amendments to the Documents, as modified and amended by the Previous Modifications, as more fully provided for herein, all as modifications, amendments and continuations of, but not as novations of, the Documents.
AGREEMENTS
In consideration of the premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
Section 1
.
Recitals Part of Agreement; Defined Terms; References to Documents
.
(a) The foregoing Recitals are hereby incorporated into and made a part of this Agreement.
(b) The following capitalized terms shall have the following meanings in this Agreement:
ARK 3 Owner
or
ARK 3 Owners
: One or more of APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC, each a Georgia limited liability company.
ARK 3 Owner Loan Agreement
: The Loan Agreement dated as of February 25, 2015, by and among the ARK 3 Owners and the Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
ARK 3 Owner Loan Documents
: The ARK 3 Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Benton Owners
: Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC, and Valley River Property Holdings, LLC, each a Georgia limited liability company.
Benton Owner Loan Agreement
: The Loan Agreement dated as of September 1, 2011, by and among the Benton Owners and Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Benton Owner Loan Documents
: The Benton Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
(c) All capitalized terms used and not otherwise defined in this Agreement shall have the meanings set forth in the Loan Agreement.
(d) Except as otherwise stated herein, all references in this Agreement to any one or more of the Documents shall be deemed to include the previous modifications and amendments to the Documents provided for in the Previous Modifications, whether or not express reference is made to such previous modifications and amendments.
Section 2
.
Limited Waivers of Financial Covenant Compliance
. The parties hereby acknowledge and agree that (i) compliance with the requirements of Section 7.16 (Minimum Combined EBITDAR of Operators) of the Loan Agreement as modified and amended by the Previous Modifications prior to the Fifth Modification (the
“
Minimum EBITDAR Covenant - Operators
”
) was not achieved for the fiscal quarter ending March 31, 2015, and (ii) compliance with the requirements of Section 7.16 (Minimum EBITDAR of New Operator) of the Loan Agreement as modified and amended by the Fifth Modification (the
“
Minimum EBITDAR Covenant - New Operator
”
) was not achieved for the fiscal quarter ending June 30, 2015, and (iii) compliance with the requirements of Section 7.14 (Minimum Fixed Charge Ratio of Borrower) of the Loan Agreement as modified and amended by the Fifth Modification (the
“
Minimum FCCR Covenant - Borrower
”
) was not achieved for the fiscal quarter ending June 30, 2015. In addition, the parties hereby acknowledge and agree that in consideration of the additional cash collateral deposits described in Section 3 of this Agreement, the Lender heretofore waived compliance with the Minimum EBITDAR Covenant - Operators for the fiscal quarter ending March 31, 2015 (the
“
3/31/15 Waiver
”
). The Lender hereby waives compliance with the Minimum EBITDAR Covenant - New Operator and the Minimum FCCR Covenant - Borrower, in each case for the fiscal quarter ending June 30, 2015 (the
“
6/30/15 Waivers
”
). The Lender does not waive compliance with the Minimum EBITDAR Covenant - New Operator or the Minimum FCCR Covenant - Borrower for any fiscal quarter after the fiscal quarter ending June 30, 2015.
Section 3
.
AdCare Collateral Account; Changes in Debt Service Reserve Account Provisions
.
(a) The Collateral Account established and maintained pursuant to Section 3.4 of the ARK 3 Owner Loan Agreement (the
“
Collateral Account
”
) is Account No. 3294816 at the Lender, which was established and is maintained in the name of AdCare. It is a condition of this Agreement and the Loan that the Collateral Account shall continue to be maintained in the name of AdCare. Pursuant to the Modification Agreement of even date herewith by and among the ARK 3 Owners, AdCare and the Lender (the
“
ARK 3 Modification
”
), AdCare pledges and assigns to the Lender, and grants to the Lender a first lien on and a first priority security interest in the Collateral Account, all cash and investments from time to time on deposit in the Collateral Account, and all proceeds of all of the foregoing. Pursuant to the ARK 3 Owner Loan Agreement and the Benton Owner Loan Agreement, immediately prior to the execution and delivery of this Agreement, the Cash Collateral Account is held as additional security for (i) the payment and performance of all of the obligations of ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (ii) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents.
(b) In consideration of the 3/31/15 Waiver and the Lender’s limited waiver of non-compliance with certain financial covenants in the ARK 3 Owner Loan Agreement and the Benton Owner Loan Agreement for the fiscal quarter ended March 31, 2015, the ARK 3 Owners and the Benton Owners deposited an additional $1,400,000 into the Collateral Account, and the Borrower deposited an additional $1,200,000 into the Debt Service Reserve Account established by the Fourth Modification, which is Account No. 3175210 at the Lender. The parties acknowledge and agree that as of the Agreement Date, the amount on deposit in the Collateral Account is $3,400,483, and the amount on deposit in the Debt Service Reserve Account is $2,142,934. In addition, in consideration of the 3/31/15 Waiver, the Borrower/Guarantor Parties agreed to establish the Excess Rent Account - Little Rock provided for in Section 4 of this Agreement.
(c) The parties to the Documents, the ARK 3 Owner Loan Documents and the Benton Owner Loan Documents have agreed that in consideration of the 6/30/15 Waivers and the Lender’s limited waiver of non-compliance with certain financial covenants in the ARK 3 Owner Loan Agreement and the Benton Owner Loan Agreement for the fiscal quarter ended June 30, 2015, the Documents, the ARK 3 Owner Loan Documents and the Benton Owner Loan Documents shall be modified and amended, pursuant to this Agreement, the ARK 3 Modification and the Second Modification Agreement dated as of even date herewith by and among the Benton Owners, AdCare, the Benton ADK Operators (as defined in the Benton Owner Loan Agreement) and the Lender (the
“
Benton Second Modification
”
) --
(i) to provide that from and after October 30, 2015, the Debt Service Reserve Account shall also be known as the
“
Additional Collateral Account
”
;
(ii) to provide that both the Collateral Account and the Additional Collateral Account shall be held as additional security for (A) the payment and performance of all of the obligations of the
Borrower under the Loan Agreement and the other Documents, (B) the payment and performance of all of the obligations of the ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (C) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents; and
(ii) to revise the release provisions related to the Collateral Account and the Additional Collateral Account.
It is a condition of this Agreement and the Loan that the ARK 3 Modification and the Benton Second Modification be executed and delivered to the Lender simultaneously with the execution and delivery of this Agreement.
(d) In order to provide for the modification and amendment of the Documents as described in paragraph (c) of this Section and in connection with the modification and amendment of the Documents as provided in Section 4 of this Agreement --
(i) Effective as of the Agreement Date, the following defined terms are hereby added to Section 1.1 of the Loan Agreement, in alphabetical order with the existing defined terms therein:
Additional Collateral Account
:
The Debt Service Reserve Account, which is Account No. 3175210 at the Lender, established by Section 3.7 of this Agreement and renamed the Additional Collateral Account pursuant to the Sixth Modification Agreement dated as of October 30, 2015, by and among Borrower, AdCare, Operator 1 and Lender.
ARK 3 Operators
: The Aria Operators (as defined in the ARK 3 Owner Loan Agreement).
ARK 3 Owners
: APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC, each a Georgia limited liability company.
ARK 3 Owner Loan Agreement
: The Loan Agreement dated as of February 25, 2015, by and among the ARK 3 Owners and the Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
ARK 3 Owner Loan Documents
: The ARK 3 Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other
documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Benton ADK Operators
: Benton Nursing, LLC, Park Heritage Nursing, LLC, and Valley River Nursing, LLC, each a Georgia limited liability company.
Benton Facility 3 Transition
: The Facility 3 Transition (as defined in the Benton Owner Loan Agreement).
Benton Operators
: Highlands of Rogers Dixieland, LLC, a Delaware limited liability company, and Valley River Nursing, LLC, a Georgia limited liability company (or, after the Benton Facility 3 Transition, Highlands of Fort Smith, LLC, a Delaware limited liability company).
Benton Owners
: Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC, and Valley River Property Holdings, LLC, each a Georgia limited liability company.
Benton Owner Loan Agreement
: The Loan Agreement dated as of September 1, 2011, by and among the Benton Owners and Lender, as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Benton Owner Loan Documents
: The Benton Owner Loan Agreement and the other Loan Documents, as defined in said Loan Agreement, and all other documents at any time evidencing or securing any indebtedness outstanding under any of the foregoing, and all as heretofore and hereafter modified, amended, restated, increased, renewed and extended.
Collateral Account
: The account so designated that is provided for in Section 3.4 of the ARK 3 Owner Loan Agreement.
Excess Rent Account - Little Rock
:
The account so designated that is provided for in Section 3.8 of this Agreement.
(ii) Section 3.7 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with existing Section 3.7 of the Loan Agreement, to remain in effect for periods prior to the Agreement Date:
3.7
Additional Collateral Account; Collateral Account
.
(a) Borrower shall establish and maintain a cash collateral account in the name of Borrower held by Lender to be known as the
“
Debt Service Reserve Account
,”
and from and after October 30, 2015, also known as the
“
Additional Collateral Account
,”
which shall be Account No. 3175210, a blocked, interest bearing money market account at Lender. From and after October 30, 2015, the amount of the Additional Collateral Account shall be $2,142,934, and Borrower shall
cause the sum of $2,142,934 to be on deposit in the Additional Collateral Account as of October 30, 2015. Earnings on investments of amounts in the Additional Collateral Account shall be added to the Additional Collateral Account. The Additional Collateral Account shall be held as additional security for (i) the payment and performance of all of the obligations of Borrower under this Agreement and the other Loan Documents, (ii) the payment and performance of all of the obligations of the ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (iii) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents. Borrower hereby pledges and assigns to Lender, and grants to Lender a first lien on and a first priority security interest in, the Debt Service Reserve Account (also known as the Additional Collateral Account), all cash and investments from time to time on deposit in the Debt Service Reserve Account (also known as the Additional Collateral Account), and all proceeds of all of the foregoing.
(b) From and after October 30, 2015, the Collateral Account shall also be held as additional security for (i) the payment and performance of all of the obligations of Borrower under this Agreement and the other Loan Documents, (ii) the payment and performance of all of the obligations of the ARK 3 Owners under the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and (iii) the payment and performance of all of the obligations of the Benton Owners under the Benton Owner Loan Agreement and the other Benton Owner Loan Documents.
(c) All amounts on deposit in the Additional Collateral Account and the Collateral Account shall be released by Lender to Borrower, the ARK 3 Owners and the Benton Owners at such time, and only at such time, as all of the principal of and interest on the Loan, the “Loan” (as defined in the ARK 3 Owner Loan Agreement) and the “Loan” (as defined in the Benton Owner Loan Agreement) have been paid in full and all of the other obligations to Lender under this Agreement and the other Loan Documents, the ARK 3 Owner Loan Agreement and the other ARK 3 Owner Loan Documents, and the Benton Owner Loan Agreement and the other Benton Owner Loan Documents have been fully paid and performed, subject to earlier release as provided in paragraphs (d), (e) and (f) below.
(d) Notwithstanding the provisions of paragraph (c) of this Section, $1,500,000 of the total, aggregate amount on deposit in the Additional Collateral Account and the Collateral Account shall be released by Lender to Borrower, the ARK 3 Owners and the Benton Owners upon the written request of Borrower to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the ARK 3 Owner Loan Agreement or any of the other ARK 3 Owner Loan Documents, or the
Benton Owner Loan Agreement or any of the other Benton Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for the ARK 3 Operators is not less than $495,000, as determined based on financial statements of the ARK 3 Operators which have been delivered to Lender as required by Section 7.4(a) of the ARK 3 Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the ARK 3 Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the ARK 3 Operators.
(iii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for the Benton Operators is not less than $265,000, as determined based on financial statements of the Benton Operators which have been delivered to Lender as required by Section 7.4(a) of the Benton Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Benton Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Benton Operators.
(iv) For each of two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for New Operator shall be not less than $450,000, determined based on financial statements of New Operator delivered to Lender in accordance with Section 7.4(a) of the this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator.
(e) Notwithstanding the provisions of paragraph (c) of this Section, $1,500,000 of the total, aggregate amount on deposit in the Additional Collateral Account and the Collateral Account shall be released by Lender to Borrower, the ARK 3 Owners and the Benton Owners upon the written request of Borrower to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the ARK 3 Owner Loan Agreement or any of the other ARK 3 Owner Loan Documents, or the Benton Owner Loan Agreement or any of the other Benton Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(ii) above is satisfied, the EBITDAR/Management Fee Adjusted for the ARK 3 Operators is not less than $495,000, as determined based on financial statements of the
ARK 3 Operators which have been delivered to Lender as required by Section 7.4(a) of the ARK 3 Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the ARK 3 Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the ARK 3 Operators.
(iii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(iii) above is satisfied, the EBITDAR/Management Fee Adjusted for the Benton Operators is not less than $265,000, as determined based on financial statements of the Benton Operators which have been delivered to Lender as required by Section 7.4(a) of the Benton Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Benton Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Benton Operators.
(iv) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(d)(iv) above is satisfied, the EBITDAR/Management Fee Adjusted for New Operator shall be not less than $450,000, determined based on financial statements of New Operator delivered to Lender in accordance with Section 7.4(a) of the this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator.
(f) Notwithstanding the provisions of paragraph (c) of this Section, the entire remainder of the total, aggregate amount on deposit in the Additional Collateral Account and the Collateral Account shall be released by Lender to Borrower, the ARK 3 Owners and the Benton Owners upon the written request of Borrower to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents, the ARK 3 Owner Loan Agreement or any of the other ARK 3 Owner Loan Documents, or the Benton Owner Loan Agreement or any of the other Benton Owner Loan Documents.
(ii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(ii) above is satisfied, the EBITDAR/Management Fee Adjusted for the ARK 3 Operators is not less than $495,000, as determined based on financial statements of the ARK 3 Operators which have been delivered to Lender as required by Section 7.4(a) of the ARK 3 Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the ARK 3 Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the ARK 3 Operators.
(iii) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(iii) above is satisfied, the EBITDAR/Management Fee Adjusted for the Benton Operators is not less than $265,000, as determined based on financial statements of the Benton Operators which have been delivered to Lender as required by Section 7.4(a) of the Benton Owner Loan Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of the Benton Owner Loan Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for the Benton Operators.
(iv) For any two consecutive fiscal quarters ending after the fiscal quarters for which the condition set forth in Section 3.4(e)(iv) above is satisfied, the EBITDAR/Management Fee Adjusted for New Operator shall be not less than $450,000, determined based on financial statements of New Operator delivered to Lender in accordance with Section 7.4(a) of the this Agreement, and compliance certificates delivered to Lender in accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator.
Section 4
.
Excess Rent Account - Little Rock
.
(a) The following new Section 3.8 is hereby added to the Loan Agreement effective as of the Agreement Date:
3.8
Excess Rent Account - Little Rock
.
(a) On or prior to October 30, 2015, Borrower shall cause to be established and shall maintain at all times thereafter a collateral account held by Lender in the name of Borrower (the
“
Excess Rent Account - Little Rock
”
), which shall be Account No. 2421836, a blocked, interest bearing money market account at Lender. Earnings on investments of amounts in the Excess Rent Account - Little Rock shall be added to the Excess Rent Account - Little Rock. The Excess Rent Account - Little Rock shall be held as additional security for the payment and performance of all of the obligations of Borrower under the Loan Agreement and the other Loan Documents, and Borrower hereby pledges and assigns to Lender, and grants to Lender a first lien on and a first priority security interest in the Excess Rent Account - Little Rock, all cash and investments from time to time on deposit in the Excess Rent Account - Little Rock, and all proceeds of all of the foregoing. For the avoidance of doubt, the Excess Rent Account - Little Roc shall be held as additional security for the Loan only, as described above in this paragraph, and not as additional security for the loans evidenced and secured by the ARK 3 Owner Loan Documents and the Benton Owner Loan Documents.
(b) Not later than November 10, 2015, Borrower shall deposit into the Excess Rent Account - Little Rock an amount equal to the Excess Rent, if any, for the month of September, 2015, as set forth in the covenant calculation certificate required to be furnished to the Lender pursuant to Section 7.4(a)(ix) of this Agreement. Within 10 days after the end
of each calendar month commencing with the month of October, 2015, Borrower shall deposit into the Excess Rent Account - Little Rock an amount equal to the Excess Rent, if any, for such month, as set forth in the covenant calculation certificate required to be furnished to the Lender pursuant to Section 7.4(a)(x) of this Agreement. For purposes of this Agreement, the following terms shall have the following respective meanings:
“
Debt Service
”
means, for any calendar month, principal and interest paid on the Loan during such month.
“
Excess Rent
”
means, for any calendar month, Income for such month minus Expenses and Debt Service for such quarter.
“
Expenses
”
means, for any calendar month, the operating expenses of the Projects paid by Borrower during such month, including but not limited to real estate taxes, utilities, common area maintenance and insurance, but not including depreciation, amortization, Debt Service, management fees, or any operating expenses paid directly by Operator or New Operator; all as determined on a cash basis in accordance with customary real estate accounting practices consistently applied.
“
Income
”
means, for any calendar month, all income of Borrower under the Lease for such month, including rental payments by Operator and payments by Operator as payment or reimbursement of operating expenses, but excluding payments of security and other tenant deposits and prepaid rent; all as determined on a cash basis in accordance with customary real estate accounting practices consistently applied.
(c) All amounts on deposit in the Excess Rent Account - Little Rock shall be released by Lender to Borrower at such time, and only at such time, as all of the principal of and interest on the Loan has been paid in full and all of the other obligations to Lender under this Agreement and the other Loan Documents have been fully paid and performed, subject to earlier release as provided in paragraph (d) below.
(d) Notwithstanding the provisions of paragraph (c) of this Section, the entire amount on deposit in the Excess Rent Account - Little Rock shall be released by Lender to Borrowers upon the written request of Borrower to Lender if all of the following conditions are satisfied:
(i) No Default or Event of Default has occurred and is continuing under this Agreement or any of the other Loan Documents.
(ii) For any two consecutive fiscal quarters ending on or after June 30, 2015, the EBITDAR/Management Fee Adjusted for New Operator shall be not less than $450,000, determined based on financial statements of New Operator delivered to Lender in accordance with Section 7.4(a) of the this Agreement, and compliance certificates delivered to Lender in
accordance with Section 7.4(a) of this Agreement containing a correct computation of such EBITDAR/Management Fee Adjusted for New Operator.
Section 5
.
Change in Furnishing Information Provisions
. The following new subparagraphs (x) and (xi) are hereby added to Section 7.4(a) of the Loan Agreement effective as of the Agreement Date:
(x) Without the necessity of any request by Lender, as soon as available and in no event later than November 10, 2015, a duly completed covenant compliance certificate dated the date of such certificate and certified as true and correct by the appropriate officer of Borrower, containing a computation of Excess Rent for the month of September, 2015, as required by Section 3.8 of this Agreement.
(xi) Without the necessity of any request by Lender, as soon as available and in no event later than 10 days after the end of each calendar month commencing with the month of October, 2015, a duly completed covenant compliance certificate dated the date of such certificate and certified as true and correct by the appropriate officer of Borrower, containing a computation of Excess Rent for such month, as required by Section 3.8 of this Agreement.
Section 6
.
Change in Distribution Provisions
. Section 7.11(c) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with the existing Section 7.11(c) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:
(c) Borrower shall not at any time make any Distribution which is in violation of any of the following provisions:
(i) On and after October 30, 2015, Borrower shall not, directly or indirectly, at any time make any Distribution until such time as the conditions for the release of the entire remainder of the total, aggregate amount on deposit in the Additional Collateral Account and the Collateral Account which are provided for in Section 3.7(f) of this Agreement have been satisfied.
(ii) If any Default or Event of Default shall occur and be continuing under this Agreement or any of the other Loan Documents, Borrower shall not, directly or indirectly, make any Distribution.
(iii) Borrower shall not, directly or indirectly, at any time make any Distribution that would cause its cash and cash equivalents remaining after such Distribution to be less than an amount equal to the aggregate of (A) the total amount of the security and other deposits received by Borrower from tenants of its Project, (B) the total amount of accrued but unpaid real estate taxes on its Project, based on the last full year tax bill or bills received
by Borrower, minus any amount held in a real estate tax escrow by Lender, and (C) a reasonable working capital reserve.
Section 7
.
Lender Consent to Further Amendment of Sublease; Amendment to Loan Agreement Relating to Further Amendment of Sublease
.
(a) The Lender hereby consents to the further amendment of the Sublease pursuant to the Fourth Amendment to Sublease Agreement dated as of October 6, 2015, by and among the Borrower, the Operator and the New Operator.
(b) In order to induce the Lender to grant the consent described in paragraph (a) of this Section, the Borrower and the Guarantors are entering into the agreements with the Lender which are provided for in this Agreement.
(c) The defined term “Sublease” in Section 1.1 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the Agreement Date, with the existing defined term “Sublease” to continue to be effective for periods prior to the Agreement Date:
Sublease
: The Sublease Agreement dated as of January 16, 2015, by and among Borrower, Operator and New Operator, by which Operator subleased the Project to New Operator effective as of May 1, 2015, as amended by Amendments dated as of February 27, 2015, March 31, 2015, April 30, 2015 and October 6, 2015.
Section 8
.
Condition to Agreements
. It is a condition of this Agreement and the Loan that within 30 days after the Agreement Date, the Borrower shall obtain and deliver to the Lender a date down endorsement to the Title Insurance Policy for the Project encumbered by the Mortgage, dated on or after the date of the recording of the Memorandum of this Agreement, which endorsement shall show no new encumbrances other than those approved by the Lender and shall otherwise be in form and content acceptable to the Lender. The failure of this condition to be satisfied shall be an Event of Default under the Documents.
Section 9
.
Representations and Warranties
. The term “
Signing Entity
”
as used in this Section means any entity (other than a Borrower/Guarantor Party itself) that appears in the signature block of any Borrower/Guarantor Party in this Agreement, any of the Documents or the Previous Modifications, if any. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby represent and warrant to Lender as follows as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement:
(a) Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the state of Arkansas, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party and the Previous Modifications, and to perform and consummate the transactions contemplated hereby and thereby.
(b) AdCare is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party and the Previous Modifications, and to perform and consummate the transactions contemplated hereby and thereby.
(c) Operator is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the state of Arkansas. Operator has full power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement and each of the Documents to which it is a party and to perform and consummate the transactions contemplated hereby and thereby.
(d) Each Signing Entity is duly organized, validly existing and in good standing under the laws of the State in which it is organized, has all necessary power and authority to carry on its present business, and has full right, power and authority to execute this Agreement, the Documents and the Previous Modifications in the capacity shown in each signature block contained in this Agreement, the Documents and the Previous Modifications in which its name appears, and such execution has been duly authorized by all necessary legal action applicable to such Signing Entity.
(e) This Agreement, each of the Documents and the Previous Modifications have been duly authorized, executed and delivered by such of the Borrower/Guarantor Parties as are parties thereto, and this Agreement, each of the Documents and the Previous Modifications constitute a valid and legally binding obligation enforceable against such of the Borrower/Guarantor Parties as are parties thereto. The execution and delivery of this Agreement, the Documents and the Previous Modifications and compliance with the provisions thereof under the circumstances contemplated therein do not and will not conflict with or constitute a breach or violation of or default under the organizational documents of any Borrower/Guarantor Party or any Signing Entity, or any agreement or other instrument to which any of the Borrower/Guarantor Parties or any Signing Entity is a party, or by which any of them is bound, or to which any of their respective properties are subject, or any existing law, administrative regulation, court order or consent decree to which any of them is subject.
(f) The Borrower/Guarantor Parties are in full compliance with all of the terms and conditions of the Documents to which they are a party and the Previous Modifications, and no Default or Event of Default has occurred and is continuing with respect to any of the Documents or the Previous Modifications.
(g) There is no litigation or administrative proceeding pending or threatened to restrain or enjoin the transactions contemplated by this Agreement or any of the Documents or the Previous Modifications, or questioning the validity thereof, or in any way contesting the existence or powers of any of the Borrower/Guarantor Parties or any Signing Entity, or in which an unfavorable decision, ruling or finding would adversely affect the transactions contemplated by this Agreement or any of the Documents or the Previous Modifications, or would result in any material adverse change in the financial condition, properties, business or operations of any of the Borrower/Guarantor Parties.
(h) The statements contained in the Recitals to this Agreement are true and correct.
Section 10
.
Documents to Remain in Effect; Confirmation of Obligations; References
. The Documents shall remain in full force and effect as originally executed and delivered by the parties, except as previously modified and amended by the Previous Modifications and as expressly modified and amended herein. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby (i) confirm and reaffirm all of their obligations under the Documents, as previously modified and amended by the Previous Modifications and as modified and amended herein; (ii) acknowledge and agree that Lender, by entering into this Agreement, does not waive any existing or future default or event of default under any of the Documents, or any rights or remedies under any of the Documents, except as expressly provided herein; (iii) acknowledge and agree that Lender has not heretofore waived any default or event of default under any of the Documents, or any rights or remedies under any of the Documents; and (iv) acknowledge and agree that they do not have any defense, setoff or counterclaim to the payment or performance of any of their obligations under, or to the enforcement by Lender of, the Documents, as previously modified and amended by the Previous Modifications and as modified and amended herein, including, without limitation, any defense, setoff or counterclaim based on the covenant of good faith and fair dealing. All references in the Documents to any one or more of the Documents, or to the “Loan Documents,” shall be deemed to refer to such Document, Documents or Loan Documents, as the case may be, as previously modified and amended by the Previous Modifications and as modified and amended by this Agreement. Electronic records of executed documents maintained by Lender shall be deemed to be originals thereof.
Section 11
.
Certifications, Representations and Warranties
. In order to induce Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby certify, represent and warrant to Lender that all certifications, representations and warranties contained in the Documents and the Previous Modifications and in all certificates heretofore delivered to Lender are true and correct as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement, and all such certifications, representations and warranties are hereby remade and made to speak as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement.
Section 12
.
Entire Agreement; No Reliance
. This Agreement sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Agreement, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than as are herein set forth. The Borrower/Guarantor Parties acknowledge that they are executing this Agreement without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein.
Section 13
.
Successors
. This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors, assigns and legal representatives.
Section 14
.
Severability
. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.
Section 15
.
Amendments, Changes and Modifications
. This Agreement may be amended, changed, modified, altered or terminated only by a written instrument executed by all of the parties hereto.
Section 16
.
Construction
.
(a) The words “hereof,” “herein,” and “hereunder,” and other words of a similar import refer to this Agreement as a whole and not to the individual Sections in which such terms are used.
(b) References to Sections and other subdivisions of this Agreement are to the designated Sections and other subdivisions of this Agreement as originally executed.
(c) The headings of this Agreement are for convenience only and shall not define or limit the provisions hereof.
(d) Where the context so requires, words used in singular shall include the plural and vice versa, and words of one gender shall include all other genders.
(e) The Borrower/Guarantor Parties and Lender, and their respective legal counsel, have participated in the drafting of this Agreement, and accordingly the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Agreement.
Section 17
.
Counterparts; Electronic Signatures
. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. An electronic record of this executed Agreement maintained by Lender shall be deemed to be an original.
Section 18
.
Governing Law
. This Agreement is prepared and entered into with the intention that the law of the State of Illinois shall govern its construction and enforcement, except that insofar as this Agreement relates to a Document which by its terms is governed by the law of the State of Arkansas, this Agreement shall also be governed by the law of the State of Arkansas.
Section 19
.
Waiver of Trial by Jury
.
THE PROVISIONS OF THE LOAN AGREEMENT AND THE OTHER DOCUMENTS RELATING TO WAIVER OF TRIAL BY JURY SHALL APPLY TO THIS AGREEMENT.
[SIGNATURE PAGE(S) AND EXHIBIT(S),
IF ANY, FOLLOW THIS PAGE]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date first above written.
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LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC
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By
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/s/ William McBride, III
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William McBride III, Manager
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ADCARE HEALTH SYSTEMS, INC.
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By
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/s/ William McBride, III
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William McBride III, Chief Executive Officer
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LITTLE ROCK HC&R NURSING, LLC
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By
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/s/ William McBride, III
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William McBride III, Manager
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THE PRIVATEBANK AND TRUST COMPANY
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By
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/s/ Amy K. Hallberg
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Amy K. Hallberg, Managing Director
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EXHIBIT A
LEGAL DESCRIPTION
Commonly known as 5720 West Markham Street, Little Rock, Pulaski County, Arkansas, improved with a skilled nursing facility containing 154 beds, and known as Little Rock Healthcare and Rehab a/k/a West Markham Sub Acute and Rehabilitation Center and legally described as follows:
Lot 13, Except the South 25 feet thereof; the West 10 feet of the South 30 feet and the North 20 feet of Lot 9; the West 10 feet of Lots 10, 11 and the North one half of Lot 12, and all of Lots 8, 14, 15, 16, 17 and 18, all in Block 2 of Strong & Waters Addition to the City of Little Rock, Pulaski County, Arkansas. Also a strip of ground formerly platted as an alley being 15 feet wide and lying immediately East of and contiguous to the North one-half of Lots 13 and 14, 15, 16 and 17 and a 7.5 foot strip lying immediately East of and contiguous to Lot 18, all in Block 2, Strong & Waters Addition to the City of Little Rock, Pulaski County, Arkansas, which was closed by Ordinance No. 10,127, a certified copy of which is recorded in Book 600 at page 631 and Ordinance No, 11,645, a certified copy of which is recorded in Book 933 page 557, records of Pulaski County, Arkansas.
- AdCare Little Rock Owner Loan Sixth Modification Agreement -
- Signature Page -
20718958.3
09-02-15
ELEVENTH MODIFICATION AGREEMENT
THIS ELEVENTH MODIFICATION AGREEMENT
dated as of September 2, 2015 (this
“
Agreement
”
), is entered into by and among
ADK LUMBER CITY OPERATOR, LLC
(
“
Borrower 2
”
),
ADK LAGRANGE OPERATOR, LLC
(
“
Borrower 4
”
),
ADK POWDER SPRINGS OPERATOR, LLC
(
“
Borrower 5
”
),
ADK THUNDERBOLT OPERATOR, LLC
(
“
Borrower 7
”
),
ATTALLA NURSING ADK, LLC
(
“
Borrower 9
”
),
MOUNTAIN TRACE NURSING ADK, LLC
, an Ohio limited liability company (
“
Borrower 10
”
),
ERIN NURSING, LLC
(
“
Borrower 12
”
),
CP NURSING, LLC
(
“
Borrower 13
”
),
BENTON NURSING, LLC
(
“
Borrower 14
”
),
VALLEY RIVER NURSING, LLC
(
“
Borrower 15
”
),
PARK HERITAGE NURSING, LLC
(
“
Borrower 16
”
),
HOMESTEAD NURSING, LLC
(
“
Borrower 17
”
),
MOUNTAIN VIEW NURSING, LLC
(
“
Borrower 19
”
),
LITTLE ROCK HC&R NURSING, LLC
(
“
Borrower 21
”
),
COOSA NURSING ADK, LLC
(
“
Borrower 25
”
), and
QC NURSING, LLC
(
“
Borrower 26
”
), each a Georgia limited liability company except as hereinabove set forth (the
“
Borrowers
”
),
ADCARE HEALTH SYSTEMS, INC.,
a Georgia corporation (the
“
Guarantor
”
) (the Borrowers and the Guarantor being sometimes referred to herein collectively as the
“
Borrower/Guarantor Parties
”
), and
THE PRIVATEBANK AND TRUST COMPANY
, an Illinois banking corporation (
“
Lender
”
).
RECITALS
A. The Borrower/Guarantor Parties and the Lender heretofore entered into the following documents (collectively, the
“
Documents
”
):
(i) Loan and Security Agreement dated as of September 20, 2012 (the
“
Loan Agreement
”
), by and among the Borrowers named therein and the Lender.
(ii) Promissory Note dated September 20, 2012 (the
“
Note
”
), from the Borrowers named therein to the Lender in the principal amount as amended effective April 1, 2015, of $6,000,000, and in the principal amount as amended effective August 1, 2015, of $5,750,000.
(iii) Guaranty of Payment and Performance dated as of September 20, 2012, by the Guarantor to and for the benefit of the Lender.
(iv) Pledge Agreement dated as of April 16, 2015 (the
“
Pledge Agreement
”
), by the Guarantor to and for the benefit of the Lender.
B. The parties previously entered into following documents (the
“
Previous Modifications
”
) which modified and amended or contained additional agreements concerning the Documents (all of which modifications, amendments and additional agreements are referred to herein as
“
Amending
”
the Documents): (i)
the Modification Agreement dated as of October 26, 2012; (ii) the Memorandum of Agreement dated January 25, 2013 (the
“
Second Modification
”
); (iii) the Third Modification Agreement dated as of September 30, 2013 (the
“
Third Modification
”
);
(iv) the Fourth Modification Agreement dated as of November 26, 2013; (v) the Fifth Modification Agreement dated as of July 22, 2014; (vi) the Sixth Modification Agreement dated as of September 24, 2014 (the
“
Sixth Modification
”
); (vii) the Seventh Modification Agreement dated as of December 17, 2014 (the “
Seventh Modification
”
); (viii) the Pledge Agreement; (ix) the Eighth Modification Agreement dated as of April 1, 2015 (the “
Eighth Modification
”
); (x) the Ninth Modification Agreement dated as of May 1, 2015 (the “
Ninth Modification
”
); and (xi) the Tenth Modification Agreement dated as of July 30, 2015 (the
“
Tenth Modification
”
).
C. Borrower 20, Borrower 22 and Borrower 23 (as defined in the Second Modification) were released from their respective obligations under the Documents pursuant to the Second Modification.
D. Borrower 3, Borrower 6 and Borrower 8 (as defined in the Third Modification) were released from their respective obligations under the Documents pursuant to the Third Modification.
E. Borrower 1, Borrower 18 and Borrower 24 (as defined in the Sixth Modification) were released from their respective obligations under the Documents pursuant to the Sixth Modification.
F. Borrower 11 (as defined in the Seventh Modification) was released from its obligations under the Documents pursuant to the Seventh Modification.
G. Borrowers 2, 5, 7, 9, 10, 12 and 25 transferred operations of their facilities with the consent of the Lender granted in the Eighth Modification.
H. Borrowers 4, 13, 16, 17, 19 and 21 transferred operations of their facilities with the consent of the Lender granted in the Ninth Modification.
I. The parties desire to make certain modifications and amendments to the Documents, as Amended by the Previous Modifications, as more fully provided for herein, all as modifications, amendments and continuations of, but not as novations of, the Documents.
AGREEMENTS
In consideration of the premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
Section 1
.
Recitals Part of Agreement; Defined Terms; References to Documents
.
(a) The foregoing Recitals are hereby incorporated into and made a part of this Agreement.
(b) All capitalized terms used and not otherwise defined in this Agreement shall have the meanings set forth in the Loan Agreement.
(c) Except as otherwise stated herein, all references in this Agreement to any one or more of the Documents shall be deemed to include the Previous Modifications and amendments to the Documents provided for in the Previous Modifications, whether or not express reference is made to such previous modifications and amendments.
Section 2
.
Reductions of Loan Amount
.
(a)
Pursuant to the Ninth Modification, the amount of the Loan and the Note and the Loan Amount, as previously reduced pursuant to one or more of the Previous Modifications, were further reduced from $5,750,000 to $3,750,000, effective as of September 1, 2015.
(b) Pursuant to the Tenth Modification, notwithstanding the provisions of the Ninth Modification, the effective date of the reduction of the amount of the Loan and the Note and the Loan Amount from $5,750,000 to $3,750,000 was changed from September 1, 2015, to July 30, 2015.
(c) The amount of the Loan and the Note and the Loan Amount are hereby further reduced from $3,750,000, to $1,750,000 effective as of the date of this Agreement, and all of the Documents, as Amended by the Previous Modifications, are hereby modified and amended accordingly.
(d) Without limitation on the generality of the foregoing provisions of this Section, the dollar amounts that appear in the Documents, as modified and amended by the Previous Modifications, in reference to the amount of the Loan and the Note are hereby modified and amended to be the respective reduced amounts set forth above in this Section effective as of the respective reduction dates set forth above in this Section, including, without limitation, in the defined term “Loan Amount” in Section 1.1 of the Loan Agreement, in the upper left corner of page 1 of the Note, in the definition of the term “Loan” in Section 1 of the Note, and in Recital paragraph A of the Guaranty, each as modified and amended by the Previous Modifications.
Section 3
.
Reduction of Letter of Credit Amount; Refund of Cash Collateral
.
(a) As of the date of this Agreement, there are no cash borrowings outstanding under the Loan Agreement, and there are two Letters of Credit outstanding issued pursuant to the Letter of Credit Documents in the aggregate face amount of $1,750,000, including one Letter of Credit in the original face amount of $3,400,000 (current face amount of $1,400,000) (
“
Letter of Credit A
”
), and another Letter of Credit in the current face amount of $350,000. The face amount of Letter of Credit A was recently reduced by $2,000,000, to $1,400,000.
(b) In order to reflect the reduction of the face amount of Letter of Credit A by $2,000,000, the Letter of Credit Amount is hereby reduced by $2,000,000, from $3,750,000 to $1,750,000, effective as of the date of this Agreement, and all of the Documents, as Amended by the Previous Modifications, are hereby modified and amended accordingly.
(c) Pursuant to the Tenth Modification, the Borrower/Guarantor Parties are required at all times have on deposit with the Lender, in a cash collateral account as security for the Loan in
the name of one or more of the Borrowers or the Guarantor, an amount equal to the face amount of all outstanding Letters of Credit. As a result of the reduction of the face amount of Letter of Credit A by $2,000,000, the Borrower/Guarantor Parties are required to have on deposit $1,750,000 in the cash collateral account established pursuant to the Tenth Modification. Upon the execution and delivery of this Agreement, the Lender shall release to the Borrower/Guarantor Parties $2,000,000 of the $3,750,000 currently on deposit in the cash collateral account established pursuant to the Tenth Modification.
Section 4
.
Elimination of Borrower Financial Reporting
. So long as the Borrower/Guarantor Parties are in compliance with the provisions of Section 4(b) of this Agreement, commencing with the fiscal quarter ending June 30, 2015, and with the fiscal year ending December 31, 2015, the Borrower/Guarantor Parties shall no longer be required to furnish to the Lender the quarterly and annual financial statements of the Borrowers provided for in Section 7.3(a)(i), 7.3(a)(ii) and 7.3(a)(iii) of the Loan Agreement, as Amended by the Previous Modifications. All of the Documents, as Amended by the Previous Modifications, are hereby modified and amended accordingly.
Section 5
.
Attachment to Note
. The Lender may, and prior to any transfer by it of the Note shall, attach a copy of this Agreement to the original Note and place an endorsement on the original Note making reference to the fact that such attachment has been made.
Section 6
.
Representations and Warranties
. The term “
Signing Entity
”
as used in this Section means any entity (other than a Borrower/Guarantor Party itself) that appears in the signature block of any Borrower/Guarantor Party in this Agreement, any of the Documents or any of the Previous Modifications, if any. In order to induce the Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby represent and warrant to the Lender as follows as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement:
(a) Each Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of which is stated in the Preambles to this Agreement, and if such State is not the State in which its Facility is located, such Borrower is duly registered or qualified to transact business and in good standing in the State in which its Facility is located. Each Borrower has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party and the Previous Modifications, and to perform and consummate the transactions contemplated hereby and thereby.
(b) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party and the Previous Modifications, and to perform and consummate the transactions contemplated hereby and thereby.
(c) Each Signing Entity is duly organized, validly existing and in good standing under the laws of the State in which it is organized, has all necessary power and authority to carry on its present business, and has full right, power and authority to execute this Agreement, the Documents
and the Previous Modifications in the capacity shown in each signature block contained in this Agreement, the Documents and the Previous Modifications in which its name appears, and such execution has been duly authorized by all necessary legal action applicable to such Signing Entity.
(d) This Agreement, the Documents and the Previous Modifications have been duly authorized, executed and delivered by such of the Borrower/Guarantor Parties as are parties thereto, and this Agreement, the Documents and the Previous Modifications constitute valid and legally binding obligations enforceable against such of the Borrower/Guarantor Parties as are parties thereto. The execution and delivery of this Agreement, the Documents and the Previous Modifications and compliance with the provisions thereof under the circumstances contemplated therein do not and will not conflict with or constitute a breach or violation of or default under the organizational documents of any Borrower/Guarantor Party or any Signing Entity, or any agreement or other instrument to which any of the Borrower/Guarantor Parties or any Signing Entity is a party, or by which any of them is bound, or to which any of their respective properties are subject, or any existing law, administrative regulation, court order or consent decree to which any of them is subject.
(e) The Borrower/Guarantor Parties are in full compliance with all of the terms and conditions of the Documents to which they are a party and the Previous Modifications, and no Default or Event of Default has occurred and is continuing with respect to any of the Documents or the Previous Modifications.
(f) There is no litigation or administrative proceeding pending or threatened to restrain or enjoin the transactions contemplated by this Agreement, any of the Documents or the Previous Modifications, or questioning the validity thereof, or in any way contesting the existence or powers of any of the Borrower/Guarantor Parties or any Signing Entity, or in which an unfavorable decision, ruling or finding would adversely affect the transactions contemplated by this Agreement, any of the Documents or the Previous Modifications, or would result in any material adverse change in the financial condition, properties, business or operations of any of the Borrower/Guarantor Parties.
(g) The statements contained in the Recitals to this Agreement are true and correct.
Section 7
.
Documents to Remain in Effect; Confirmation of Obligations; References
. The Documents shall remain in full force and effect as originally executed and delivered by the parties, except as previously modified and amended by the Previous Modifications and as expressly modified and amended herein. In order to induce the Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby (i) confirm and reaffirm all of their obligations under the Documents, as previously modified and amended by the Previous Modifications and as modified and amended herein; (ii) acknowledge and agree that the Lender, by entering into this Agreement, does not waive any existing or future default or event of default under any of the Documents, or any rights or remedies under any of the Documents, except as expressly provided herein; (iii) acknowledge and agree that the Lender has not heretofore waived any default or event of default under any of the Documents, or any rights or remedies under any of the Documents; and (iv) acknowledge and agree that they do not have any defense, setoff or counterclaim to the payment or performance of any of their obligations under, or to the enforcement by the Lender of, the Documents, as previously modified and amended by the Previous Modifications and as modified and amended herein, including, without limitation, any defense, setoff or counterclaim based on
the covenant of good faith and fair dealing. All references in the Documents to any one or more of the Documents, or to the “Loan Documents,” shall be deemed to refer to such Document, Documents or Loan Documents, as the case may be, as previously modified and amended by the Previous Modifications and as modified and amended by this Agreement. Electronic records of executed documents maintained by the Lender shall be deemed to be originals thereof.
Section 8
.
Certifications, Representations and Warranties
. In order to induce the Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby certify, represent and warrant to the Lender that all certifications, representations and warranties contained in the Documents and the Previous Modifications and in all certificates heretofore delivered to the Lender are true and correct as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement, and all such certifications, representations and warranties are hereby remade and made to speak as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement.
Section 9
.
Entire Agreement; No Reliance
. This Agreement sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Agreement, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than as are herein set forth. The Borrower/Guarantor Parties acknowledge that they are executing this Agreement without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein.
Section 10
.
Successors
. This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors, assigns and legal representatives.
Section 11
.
Severability
. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.
Section 12
.
Amendments, Changes and Modifications
. This Agreement may be amended, changed, modified, altered or terminated only by a written instrument executed by all of the parties hereto.
Section 13
.
Construction
.
(a) The words “hereof,” “herein,” and “hereunder,” and other words of a similar import refer to this Agreement as a whole and not to the individual Sections in which such terms are used.
(b) References to Sections and other subdivisions of this Agreement are to the designated Sections and other subdivisions of this Agreement as originally executed.
(c) The headings of this Agreement are for convenience only and shall not define or limit the provisions hereof.
(d) Where the context so requires, words used in singular shall include the plural and vice versa, and words of one gender shall include all other genders.
(e) The Borrower/Guarantor Parties and the Lender, and their respective legal counsel, have participated in the drafting of this Agreement, and accordingly the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Agreement.
Section 14
.
Counterparts; Electronic Signatures
. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. An electronic record of this executed Agreement maintained by the Lender shall be deemed to be an original.
Section 15
.
Governing Law
. This Agreement is prepared and entered into with the intention that the law of the State of Illinois shall govern its construction and enforcement.
Section 16
.
Waiver of Trial by Jury
.
THE PROVISIONS OF THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS RELATING TO WAIVER OF TRIAL BY JURY SHALL APPLY TO THIS AGREEMENT.
[SIGNATURE PAGE(S) AND EXHIBIT(S),
IF ANY, FOLLOW THIS PAGE]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date first above written.
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ADK LUMBER CITY OPERATOR, LLC
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ADK LAGRANGE OPERATOR, LLC
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ADK POWDER SPRINGS OPERATOR, LLC
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ADK THUNDERBOLT OPERATOR, LLC
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ATTALLA NURSING ADK, LLC
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MOUNTAIN TRACE NURSING ADK, LLC
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ERIN NURSING, LLC
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CP NURSING, LLC
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BENTON NURSING, LLC
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VALLEY RIVER NURSING, LLC
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PARK HERITAGE NURSING, LLC
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HOMESTEAD NURSING, LLC
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MOUNTAIN VIEW NURSING, LLC
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LITTLE ROCK HC&R NURSING, LLC
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COOSA NURSING ADK, LLC
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QC NURSING, LLC
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By
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/s/ Allan Rimland
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Allan Rimland, President and Chief Financial
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Officer of AdCare Health Systems, Inc., Duly
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Authorized Signatory on behalf of Each Borrower
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ADCARE HEALTH SYSTEMS, INC.
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By
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/s/ Allan Rimland
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Allan Rimland, President and Chief Financial Officer
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THE PRIVATEBANK AND TRUST COMPANY
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By
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/s/ Amy K. Hallberg
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Amy K. Hallberg, Managing Director
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- AdCare Portfolio Operator Loan Eleventh Modification Agreement -
- Signature Page -
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE
GEORGIA LESSOR – BONTERRA/PARKVIEW, LLC
AND
ADK BONTERRA/PARKVIEW, LLC
DATED: SEPTEMBER 1, 2015
Facilities:
(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED
MULTIPLE FACILITIES LEASE
(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE (“
Second Amendment
”) is executed and delivered as of September 1, 2015, and is entered into by
Georgia Lessor – Bonterra/Parkview, LLC
, a Maryland limited liability company (successor to Georgia Lessor – Bonterra/Parkview, Inc. by conversion) (“
Lessor
”), and
ADK Bonterra/Parkview, LLC
, a Georgia limited liability company (“
Lessee
”).
RECITALS:
A. Lessee has executed and delivered to Lessor a Third Amended and Restated Multiple Facilities Lease dated as of October 29, 2010, as amended by First Amendment to Third Amended and Restated Multiple Facilities Lease dated June 14, 2013 (as previously amended, the “
Existing Master Lease
”) pursuant to which Lessee leases from Lessor certain healthcare facilities located in the State of Georgia.
B. Lessee has requested that Lessor consent to the sublease for the Facilities and, pursuant to the Consent to Subleases, Landlord desires to do so.
C. Lessor and Lessee desire to amend the Existing Master Lease to, among other things, (i) acknowledge the Consent to Sublease, (ii) amend the expiration of the Initial Term, and (iii) amend the Options to Renew.
NOW THEREFORE, the parties agree as follows:
1.
Definitions
. Any capitalized term used but not defined in this Second Amendment will have the meaning assigned to such term in the Existing Master Lease. From and after the date of this Second Amendment, each reference in the Existing Master Leases or the other Transaction Documents to the "Lease" or "Master Lease" means, as applicable, the Existing Master Lease as modified by this Second Amendment. Additionally:
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a.
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The following definitions in Section 2.1 of the Existing Master Lease are amended and restated in their entirety as follows:
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Cash Flow
: For any period, the sum of (a) Net Income of Lessee and any Sublessee (on a consolidated basis) arising solely from the operation of the Facilities for the applicable period, and (b) the amounts deducted in computing Lessee’s and Sublessee’s Net Income for the period for (i) depreciation, (ii) amortization, (iii) the greater of the Base Rent and Wellington Sublease Rent (the amount added back for Base Rent or Wellington Sublease Rent to be the amount used, whether actual amounts paid or “straight-line” rent amounts, in calculating Net Income), (iv) interest (including payments in the nature of interest under capitalized leases and interest on any Purchase Money Financing), (v) income taxes (or, if greater, income tax actually
Second Amendment to Third Amended and Restated Multiple Facilities Lease (
Parkview and Bonterra
)
v4 (Bakhuyzen 8-31-15)
paid during the period) and (vi) management fees, and less (c) an imputed management fee equal to five percent (5%) of gross revenues.
Cash Flow to Rent Ratio
: For any fiscal period, the ratio of Cash Flow to the greater of the actual Base Rent or Wellington Sublease Rent payable.
Expiration Date
: means August 31, 2025, or August 31, 2037 if the second Renewal Term has been exercised, or August 31, 2049 if the third Renewal Term as been exercised.
Lease Year
: means each twelve-month period from and including May 1 through April 30. The Parties acknowledge that the last Lease Year of the Term will be a partial Lease Year.
Rent
: Collectively, Base Rent, Wellington Base Rent, and Additional Charges.
Sublease
: Subleases expressly approved in writing by Lessor prior to execution by Lessee. As of the date of the Second Amendment, the Wellington Sublease is the only Sublease.
Sublessee
: A Sublessee under a Sublease. As of the date of the Second Amendment, the Wellington Sublessee is the only Subleesee.
Transaction Documents
: means the following documents: this Lease, the Guaranties, the Letter of Credit Agreement, the Security Agreement, the Pledge Agreement, the Subordination Agreements, the Consent to Sublease, and any security agreements, pledge agreements, letter of credit agreements, guarantees, notes or other documents which evidence, secure or otherwise relate to this Lease, or the transactions contemplated by this Lease; and any and all amendments, modifications, extensions and renewals of any of the foregoing documents.
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b.
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The following definitions are added to Section 2.1 of the Master Lease:
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Consent to Sublease
: That certain Sublease Consent Agreement dated as of the date of this Second Amendment by and among Lessor, Lessee, Wellington Guarantors and the Subtenants.
Wellington Base Rent
: For the applicable period, the Wellington Base Rent will be thirty-seven and one half percent (37.5%) of the difference between (i) the Wellington Sublease Rent for such period, and (ii) the Base Rent for such period; if the Base Rent exceeds the Wellington Sublease Rent, the amount of the Wellington Base Rent will be $0.00.
Wellington Sublease Rent
: means the annual amount of base rent payable under the Wellington Sublease.
Wellington Sublessee
: means collectively, 460 Auburn Avenue, L.P., a Georgia limited partnership and 2801 Felton Avenue, L.P., a Georgia limited partnership.
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Second Amendment to Third Amended and Restated Multiple Facilities Lease (
Parkview and Bonterra
)
v4 (Bakhuyzen 8-31-15)
Wellington Sublease
: means the sublease agreement between Lessee (as sublandlord) and Wellington Sublesees (as subtenants) dated July 20, 2015 for the sublease of the Facilities.
2.
Term Amendments
. Section 1.3 of the Existing Master Lease is amended and restated in its entirety as follows:
1.3
Option to Renew
. Lessee is hereby granted three (3) successive options to renew this Lease (each a “
Renewal Term
”). The first option to renew has been exercised and is for the period of May 1, 2010 thru August 31, 2025. The second option to renew is for the period of September 1, 2025 thru August 31, 2037. The third option to renew is for the period of September 1, 2037 thru August 31, 2049. The maximum Term if such options are exercised of approximately thirty-nine (39) Lease Years, four (4) months. Lessee’s exercise of the second and third options to renew this Lease are subject to the following terms and conditions (which conditions may be waived by Lessor in its sole discretion):
(a) An option to renew is exercisable only by Notice to Lessor at least one hundred and eighty (180) days, and not more than three hundred sixty (360) days, prior to the expiration of the Initial Term (or prior to the expiration of the preceding Renewal Term, as the case may be);
(b) No Event of Default or Unmatured Event of Default shall have occurred and be continuing either at the time a renewal option is exercised or at the commencement of a Renewal Term;
(c) During a Renewal Term, all of the terms and conditions of this Lease shall remain in full force and effect; and
(d) Lessee may exercise its options to renew with respect to all (and no fewer than all) of the Leased Properties.
3.
Payment of Rent
. Section 3.1 of the Existing Master Lease is amended and restated in its entirety as follows:
3.1
Base Rent; Monthly Installments
. In addition to all other payments to be made by Lessee under this Lease, Lessee shall pay Lessor the Base Rent and Wellington Base Rent in lawful money of the United States of America which is legal tender for the payment of public and private debts, Lessee shall pay the Base Rent and Wellington Base Rent in advance, in equal, consecutive monthly installments, each of which shall be in an amount equal to monthly Base Rent and Wellington Base Rent payable for the Lease Year in which such installment is payable. The first installment of Base Rent shall be payable on the Commencement Date, together with a prorated amount of Base Rent for the period from the Commencement Date until the last day of the first full calendar month of the Term; and the first installment of Wellington Base Rent shall be payable on September 1, 2015. Thereafter, installments of Base Rent and Wellington Base Rent shall be payable on the first (1st) day of each calendar month. Base Rent and Wellington Base Rent shall
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Second Amendment to Third Amended and Restated Multiple Facilities Lease (
Parkview and Bonterra
)
v4 (Bakhuyzen 8-31-15)
be paid to Lessor, or to such other Person as Lessor from time to time may designate by Notice to Lessee, by wire transfer of immediately available federal funds to the bank account designated in writing by Lessor. If Lessor directs Lessee to pay any Base Rent, Wellington Base Rent, or Additional Charges to any Person other than Lessor, Lessee shall send to Lessor, simultaneously with payment of the Base Rent, Wellington Base Rent, or Additional Charges, a copy of the transmittal letter or invoice and check evidencing such, or such other evidence of payment as Lessor requires.
4.
Cash Flow to Rent Ratio
. Pursuant to Section 8.2.3 of the Existing Master Lease, Lessee covenanted to maintain, on a consolidated basis with the Sublessees, a Cash Flow to Rent Ratio (in each case, for the immediately preceding 12 month period) not less than 1.30:1. Lessor agrees that Lessee’s and Wellington Sublessee’s, and their consolidated Cash Flow to Rent Ratio will not be required to comply with the requirements of Section 8.2.3 until the twelve month period ending September 30, 2016.
5.
Representations and Warranties of Lessee
. Lessee hereby represents and warrants as of the date of this Second Amendment as follows: (i) it is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) the execution, delivery and performance by it of this Second Amendment and the Transaction Documents, as applicable, are within its powers, have been duly authorized, and do not contravene (A) its articles of organization, operating agreement, or other organizational documents, or (B) any applicable law; (iii) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any Governmental Authority or other Person (except for those that have already been obtained), is required in connection with the execution, delivery, performance, validity or enforceability of this Second Amendment or the Transaction Documents, as applicable, by or against it; (iv) this Second Amendment and the Transaction Documents, as applicable, have been duly executed and delivered by it; (v) this Second Amendment and the Transaction Documents, as applicable, constitute its legal, valid and binding obligations enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity; (vi) it is not in default under the Transaction Documents and no Event of Default or Unmatured Event of Default exists, has occurred or is continuing, (vii) all Impositions required to be paid by Lessee under the Existing Master Lease as of the date of this Second Amendment have been paid in full; (viii) Lessor has fully performed all of its obligations under each of the Transactions Documents through the date of this Second Amendment, and Lessor is in full compliance with its obligations under each of the Transaction Documents; and (ix) prior to the date of this Second Amendment, Lessee has made no Distributions to the holders of their equity securities or any Affiliate in violation of the Existing Master Lease.
6.
Single, Indivisible Lease
. Notwithstanding Landlord's approval of the Wellington Sublease in the Consent to Sublease, the Master Lease constitutes one indivisible lease of the Leased Property and not separate leases governed by similar terms. The Leased Property constitute one economic unit, and the Base Rent, Wellington Base Rent, and all other provisions have been negotiated and agreed to based on a demise of all of the Leased Property to Tenant as a single, composite, inseparable transaction and would have been substantially different had separate leases or a divisible lease been intended. Except as expressly provided in this Lease for specific, isolated purposes (and then only to the extent expressly otherwise stated), all provisions of this Lease apply equally and
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Second Amendment to Third Amended and Restated Multiple Facilities Lease (
Parkview and Bonterra
)
v4 (Bakhuyzen 8-31-15)
uniformly to all of the Leased Property as one unit. An Event of Default with respect to any Leased Property is an Event of Default as to all of the Leased Property. The parties intend that the provisions of this Lease shall at all times be construed, interpreted and applied so as to carry out their mutual objective to create an indivisible lease of all of the Leased Property and, in particular but without limitation, that, for purposes of any assumption, rejection or assignment of this Lease under 11 U.S.C. 365, this is one indivisible and non-severable lease and executory contract dealing with one legal and economic unit and that this Lease must be assumed, rejected or assigned as a whole with respect to all (and only as to all) of the Leased Property.
7.
Expenses of Lessor
. Lessee shall pay all reasonable expenses of Lessor incurred in connection with this Second Amendment, including reasonable attorneys fees and expenses.
8.
Release
. Each of Lessee, Sublessees, and their Affiliates hereby releases and forever discharges each of Lessor and its respective successors, assigns, agents, shareholders, directors, officers, employees, parent corporations, subsidiary corporations, affiliated corporations, and affiliates, from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action, of every nature and description, whether known or unknown, absolute, mature, or not yet due, liquidated or non-liquidated, contingent, non-contingent, direct, or indirect or otherwise arising prior to the date hereof; provided, however, that such release and discharge shall not release Lessor for failure to comply with the terms and conditions of the Master Lease relating to the period after the date of this Second Amendment.
9.
Execution and Counterparts
. This Second Amendment may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but when taken together shall constitute one and the same Second Amendment.
10.
Headings
. Section headings used in this Second Amendment are for reference only and shall not affect the construction of the Second Amendment.
11.
Enforceability
. Except as expressly and specifically set forth herein, the Existing Master Lease remains unmodified and in full force and effect. In the event of any discrepancy between the Existing Master Lease and this Second Amendment, the terms and conditions of this Second Amendment will control and the Existing Master Lease is deemed amended to conform hereto
SIGNATURE PAGES FOLLOW
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Second Amendment to Third Amended and Restated Multiple Facilities Lease (
Parkview and Bonterra
)
v4 (Bakhuyzen 8-31-15)
Signature Page to
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED
MULTIPLE FACILITIES LEASE
(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))
LESSOR
:
Georgia Lessor – Bonterra/Parkview, LLC
, a Maryland limited liability company (successor to Georgia Lessor – Bonterra/Parkview, Inc. by conversion)
By:
/s/ Daniel J. Booth
Name: Daniel J. Booth
Title: Chief Operating Officer
THE STATE OF MARYLAND )
)
COUNTY OF BALTIMORE )
This instrument was acknowledged before me on August 27, 2015, by Daniel J. Booth, the Chief Operating Officer of Georgia Lessor – Bonterra/Parkview, LLC, a Maryland limited liability company, on behalf of the company.
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Notary Public
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/s/ Judith A. Jacobs
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Judith Jacobs
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LESSEE
:
ADK Bonterra/Parkview, LLC
, a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
THE STATE OF GEORGIA )
)
COUNTY OF FULTON )
This instrument was acknowledged before me on August 31, 2015, by William McBride, the Manager of ADK Bonterra/Parkview, LLC, a Georgia limited liability company, on behalf of said company.
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Notary Public
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/s/ Kirsten N. Parker
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Kirsten N. Parker
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Acknowledgement and Ratification follows.
Acknowledgement and Ratification to
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED
MULTIPLE FACILITIES LEASE
(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))
The undersigned hereby ratify and affirm their respective Guaranties, Pledge Agreements, Security Agreements, Subordination Agreements and other Transaction Documents, and acknowledge and agree that the performance of the Master Lease and obligations described therein are secured by their Guaranties, Pledge Agreements, Security Agreement, Subordination Agreement and other Transaction Documents on the same terms and conditions in effect prior to this Second Amendment
.
The undersigned hereby join in the release set forth in Section 8 of the Second Amendment.
ADCARE HEALTH SYSTEMS INC., an Ohio corporation
By:
/s/ William McBride
Name: William McBride
Title: Chairman and CEO
HEARTH & HOME OF OHIO, INC., an Ohio corporation
By:
/s/ William McBride
Name: William McBride
Title: Chairman and CEO
Acknowledgement Page - 1 of 1
AGREEMENT REGARDING LEASE AND SUBLEASE
THIS AGREEMENT REGARDING LEASE AND SUBLEASE (this “
Agreement
”) is entered into as of the 1
st
day of August, 2015, by COVINGTON REALTY, LLC, an Ohio limited liability company (“
Landlord
”), ADCARE HEALTH SYSTEMS, INC., a Georgia corporation (“
Tenant
”), and CC SNF LLC, a Florida corporation (“
Subtenant
”).
Recitals
A. Landlord and Tenant are parties to a Lease Agreement dated August 26, 2002, as amended by a First Amendment to Lease Agreement dated July 14, 2003, a Second Amendment to Lease Agreement dated April 1, 2008, a Third Amendment to Lease Agreement dated May 1, 2011, and a Fourth Amendment to Lease Agreement dated April 14, 2014 (the “
Fourth Amendment
”) (as so amended, the “
Prime Lease
”), pursuant to which Landlord leased to Tenant the facility commonly known as Covington Care Center, 75 Mote Drive, Covington, Ohio (the “
Leased Premises
”), including related personal property, as more particularly described in the Prime Lease.
B. Tenant desires to sublease the Leased Premises to Subtenant, and Subtenant desires to sublease the Leased Premises from Tenant, pursuant to a Sublease Agreement dated August 1, 2015 (the “
Sublease
”).
C. Pursuant to Section 16.01 of the Lease, Tenant may not sublease the Leased Premises without the prior written consent of Landlord. Therefore, Tenant and Subtenant have requested that Landlord consent to the Sublease.
D. Landlord is willing to consent to the Sublease, on and subject to the terms and conditions set forth in this Agreement.
Statement of Agreement
Landlord, Tenant and Subtenant hereby agree as follows:
1.
Express Assumption of Prime Lease by Tenant
. The original tenant under the Prime Lease was Adcare Health Systems, Inc., an Ohio corporation. However, Adcare Health Systems, Inc. has been dissolved and no longer exists as an Ohio corporation. Tenant, which is a Georgia corporation authorized to transact business in Ohio, expressly and retroactively assumes the Prime Lease.
2.
Amendment of Prime Lease
. The Prime Lease is amended as follows:
a.
Base Rent
. Effective as of May 1, 2014, the annual base rent under the Prime Lease was set at $600,000.00. Effective as of May 1, 2015 and each May 1 thereafter, the annual Base Rent under the Prime Lease shall be adjusted to 102% of the annual base rent in effect immediately prior to such date.
b.
Term
. The term of the Prime Lease is extended through April 30, 2025. Tenant has no option to extend the term of the Prime Lease beyond April 30, 2025.
3.
Non-Disturbance and Attornment
. If the Prime Lease terminates prior to April 30, 2025 other than by reason of fire or other casualty pursuant to Section 4.07 of the Prime Lease or condemnation pursuant to Article 12 of the Prime Lease, then, as of the date of such termination (the “
Early Termination Date
”), the Sublease shall become a direct lease between Landlord, as landlord, and Subtenant, as tenant, on the same terms and conditions as are provided for in the Prime Lease (as if the Prime Lease had not terminated), provided that the rent shall be as provided in the Sublease. If the Sublease becomes a direct lease between Landlord and Subtenant as provided above, then (a) Tenant shall, on the Early Termination Date, pay over to Landlord the security deposit made by Subtenant pursuant to Section 3 of the Sublease, (b) Landlord shall not be subject to the obligations of Tenant accruing under the Sublease prior to the Early Termination Date, (c) Subtenant shall not have any claims or rights of offset as against Landlord with respect to the obligations of Tenant accruing under the Sublease prior to the Early Termination Date, and (d) Subtenant will be responsible to Landlord for curing any defaults by Tenant existing under the Prime Lease as of the Early Termination Date.
4.
Security Deposit
. Subtenant is paying to Tenant a security deposit in accordance with Section 3 of the Sublease. Until such time, if any, that the Sublease becomes a direct lease between Landlord and Subtenant and Tenant pays over to Landlord the security deposit as contemplated by Section 3 of this Agreement, Landlord shall not have any obligations to Subtenant or otherwise with respect to the security deposit.
5.
Replacement Reserve
. On the date of this Agreement and on the first day of each calendar month after the date of this Agreement until termination of the Prime Lease, Tenant shall pay $3,000 to Landlord, in addition to any other amounts owing by Tenant to Landlord under the Prime Lease, which Landlord shall deposit in a federally insured account in the name of Landlord (such funds being called the “
Replacement Reserve Funds
”). Any interest earned on the Replacement Reserve Funds shall be added to and become a part of the Replacement Reserve Funds. Landlord shall disburse the Replacement Reserve Funds to pay or reimburse Subtenant for actual costs of capital improvements and capital replacements to the Leased Premises (“
Capital Costs
”) as determined in accordance with generally accepted accounting principles. From time to time as Subtenant incurs Capital Costs, Subtenant may submit to Landlord a written request for disbursement of Replacement Reserve Funds to pay or reimburse Subtenant for such Capital Costs, which written request shall be supported by such backup documentation as Landlord may reasonably request. Within 15 days after receipt of such a written request and backup documentation, Landlord shall disburse Replacement Reserve Funds to pay or reimburse Subtenant for the applicable Capital Costs. Any balance of Replacement Reserve Funds remaining upon termination of the Prime Lease shall be retained by Landlord without restriction.
6.
Costs
. Tenant shall pay or reimburse Landlord for the reasonable attorneys’ fees incurred by Landlord in connection with the Sublease and this Agreement within 30 days after invoice by Landlord.
7.
Consent by Landlord to Sublease
. Landlord consents to the Sublease, on and subject to the terms of this Agreement. Landlord’s consent is limited to the Sublease, and does not apply to any assignment of the Prime Lease or the Sublease or to any further sublease or all or any portion of the Leased Premises. Subtenant shall not assign the Sublease or further sublease all or any portion of the Leased Premises without the prior written consent of Landlord, which consent may be given or withheld by Landlord as Landlord shall determine in its sole discretion.
8.
Continuing Effect of Prime Lease
. To the extent that the provisions of this Agreement are inconsistent with the provisions of the Prime Lease, the provisions of this Agreement shall control and the Prime Lease shall be deemed to be amended hereby. Except as amended by this Agreement, the provisions of the Prime Lease remain in full force and effect. Tenant remains primarily and fully liable for all of its obligations under the Prime Lease.
9.
Sublease; Amendments
. Tenant and Subtenant represent and warrant to Landlord that a true, correct and complete copy of the Sublease is
Exhibit A
hereto, and that the Sublease, as affected by this Agreement, constitutes the entire agreement of Tenant and Subtenant with respect to the sublease of the Leased Premises by Tenant to Subtenant. Tenant and Subtenant will not modify or amend the Sublease, or agree to any early termination of the Sublease, without the prior written consent of Landlord, which Landlord will not unreasonably withhold.
10.
Priority of Prime Lease
. The Prime Lease is superior to the Sublease in all respects. Except to the extent, if any, that the Sublease becomes a direct lease between Landlord and Subtenant as contemplated by Section 3 of this Agreement, the Sublease imposes no obligations upon Landlord and Landlord shall not be or be deemed a party to the Sublease.
11.
General Obligations of Subtenant to Landlord
. Subtenant agrees, for the benefit of Landlord, to comply with each and every covenant, agreement and condition on the part of Tenant to be performed under the Prime Lease, other than the payment of rent.
12.
Estoppel Statements
. Tenant and Subtenant shall, from time to time, upon not less than ten business days’ prior written request by Landlord, execute and deliver to Landlord and/or other third parties designated by Landlord a statement in writing addressed to such party as Landlord shall designate, certifying that the Sublease is unmodified and in full force and effect and that Subtenant has no defenses, offsets or counterclaims against its obligations to pay the rent and to perform its other covenants under the Sublease (or, if there have been any permitted modifications thereunder that the same is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, counterclaims or defaults, setting them forth in reasonable detail), the dates to which rent has been paid, a statement that neither Tenant nor Subtenant is in default under the Sublease (or if in default, the nature of such default, in reasonable detail), and any additional factual information reasonably requested by Landlord. Any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser or mortgagee of the Leased Premises.
13.
Notices
. Each of Tenant and Subtenant shall, simultaneously with the giving of any default notice to the other under the Sublease, give a copy of the same to Landlord in accordance with the provisions of the Prime Lease.
14.
Insurance Certificates
. Landlord (and its designees) shall be a named insured under Subtenant’s insurance policies and shall receive certificates evidencing such insurance upon execution hereof and thereafter upon five days’ written request, which insurance shall not be cancelable on less than 30 days’ prior written notice to Landlord. Subtenant shall comply with the insurance requirements of the Prime Lease, including securing insurance in such amounts and policies as is required for Tenant to secure under the Prime Lease; provided that the terms of this Section shall not excuse Tenant from, or otherwise affect, Tenant’s obligations under the Prime Lease regarding insurance.
15.
Release; Indemnification
. Subtenant releases Landlord (and any and all persons claiming by, through or under Landlord) from any liability for any loss or damage of any kind or for any injury to or death of persons or damage to property of Subtenant or any other person from any cause whatsoever (including, without limitation, bursting pipes, water leaks and smoke) by reason of the use, occupancy or enjoyment of the Leased Premises by Subtenant or any person therein or holding under Subtenant, except to the extent any such liability is caused by the negligence or willful misconduct of Landlord or its agents. Subtenant shall indemnify and hold harmless Landlord harmless from and against any and all liabilities, claims, costs and expenses arising from or in any way related to the use or occupancy of the Leased Premises by or through Subtenant, except to the extent caused by the negligence or willful misconduct of Landlord, or any breach of the Sublease or this Agreement by Subtenant.
16.
Binding Effect
. This Agreement shall be binding upon the parties and their respective successors and assigns.
17.
Entire Agreement
. This Agreement, together with the Prime Lease and the Sublease, constitutes the entire agreement among the parties regarding the subject matter hereof. This Agreement may not be modified or amended other than by an instrument in writing signed by all parties.
18.
Captions
. The captions to the Sections of this Agreement have been inserted for convenience only and shall in no way modify or restrict any provisions hereof or be used to construe any such provisions.
19.
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio.
20.
Multiple Counterparts
. This Agreement may be signed in multiple counterparts, which counterparts, when assembled with the signatures of all parties, shall constitute one document.
Executed as of the date first written above.
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COVINGTON REALTY, LLC
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By:
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/s/ Fred D. Kanter
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Name:
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Fred D. Kanter
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Title:
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Manager
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ADCARE HEALTH SYSTEMS, INC.
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By:
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/s/ William McBride
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Name:
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William McBride
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Title:
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Chief Executive Officer
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CC SNF LLC
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By:
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/s/ Bruce E. Wertheim
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Name:
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Bruce E. Wertheim
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Title:
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Manager
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EXHIBIT A
(copy of Sublease attached)
MASTER SUBLEASE AGREEMENT
THIS MASTER SUBLEASE AGREEMENT
(this “
Sublease
”) is entered into as of the
3
rd
day of November, 2015 (the “
Execution Date
”) by and among
ADK GEORGIA, LLC,
a Georgia limited liability company (“
Sublessor
”) and
JEFFERSONVILLE HEALTHCARE & REHAB, LLC,
a Tennessee limited liability company (“
Jeffersonville H&R
”)
,
OCEANSIDE HEALTHCARE & REHAB, LLC,
a Tennessee limited liability company (“
Oceanside H&R
”) and
SAVANNAH BEACH HEALTHCARE & REHAB, LLC,
a Tennessee limited liability company (“
Savannah H&R
”) (hereinafter Jeffersonville H&R, Oceanside H&R and Savannah H&R are sometimes collectively referred to as “
Sublessee
”) for the improved real property described on
Exhibit “A-1”
and any and all improvements now or hereinafter located on such real property, together with all parking and loading areas, all easements, rights of way, and other rights appurtenant thereto (collectively, the “
Premises
”), on which Premises are located those certain Facilities (as defined below) including the “
Sublessor Personal Property
” associated therewith described on
Exhibit “A-2”
. Certain capitalized terms used in this Sublease are defined on
Exhibit “B”
.
RECITALS
WHEREAS
, pursuant to that certain Lease dated August 1, 2010, as amended by that certain First Amendment to Lease dated August 31, 2010, by that certain Second Amendment to Lease dated August 14, 2015 and by that certain Third Amendment to Lease dated October 2015 (as amended, the “
Master Lease
”), Sublessor leased from William F. Foster (“
Landlord
”) the improved real property described in the Master Lease, which improved real property includes the Premises; and
WHEREAS,
Sublessor desires to sublease to Jeffersonville H&R that certain 131 bed skilled nursing facility located in Jeffersonville, Georgia (the “
Jeffersonville Facility
”); and
WHEREAS
, Sublessor desires to sublease to Oceanside H&R that certain 85 bed skilled nursing facility located in Tybee Island, Georgia (the “
Oceanside Facility
”); and
WHEREAS
, Sublessor desires to sublease to Savannah H&R that certain 50 bed skilled nursing facility located in Tybee Island, Georgia (the “
Savannah Beach Facility
”); and
WHEREAS
, the Jeffersonville Facility, Oceanside Facility and the Savannah Beach Facility are sometimes collectively referred to as the “
Facilities
” and individually as a “
Facility
”; and
WHEREAS,
Sublessor desires to sublease the Premises to Sublessee and Sublessee desires to sublease the Premises from Sublessor on the terms and conditions hereinafter set forth.
NOW, THEREFORE,
in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.
Condition to Effectiveness
.
This Sublease shall not be effective or binding upon the parties until Landlord has approved this Sublease.
2.
Sublease Subordinate to Master Lease
.
This Sublease is subject and subordinate to the Master Lease. As and to the extent hereinafter provided, all applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublessee were the lessee under the Master Lease. Unless expressly provided for in this Sublease to the contrary, Sublessee assumes and agrees to perform the Sublessor’s obligations under the Master Lease during the term of this Sublease with respect to the Premises, except that the obligation to pay rent to Lessor under the Master Lease shall be considered performed by Sublessee by virtue of its payments and reimbursements to Sublessor pursuant to this Sublease. Sublessee shall not cause or suffer any act of negligence that will violate any of the provisions of the Master Lease. If the Master Lease terminates for any reason, this Sublease shall terminate and the parties shall be relieved from all liabilities and obligations under this Sublease.
3.
Term
. Subject to Landlord’s written approval, this Sublease shall commence on November 1, 2015 (the “
Commencement Date
”) and end on July 31, 2020 (the “
Term
”). Except for Sublease Year One which begins on the Commencement Date and ends on July 31, 2016, a “
Sublease Year
” is the twelve (12) month period commencing on August 1 and each anniversary thereof during each year of the Term. For purposes hereof, “
Termination Date
” shall mean the last day of the Term or the earlier date on which this Sublease may be terminated as provided herein.
4.
Rent
. During the Term, Sublessee shall pay in advance to Sublessor on or before the 1
st
day of each month the following amounts (“
Rent
”):
4.1
Rent
.
(a)
Sublease Year One
.
During Sublease Year one, Rent shall be One Hundred Nine Thousand and 00/100 Dollars ($109,000.00) per month.
(b)
Subsequent Sublease Years
.
Commencing on the first day of the second (2
nd
) Sublease Year and continuing on the first day of each Sublease Year thereafter through the end of the Term, the Rent due each Sublease Year shall increase by two and one-half percent (2.5%) over the Rent payable for the immediately preceding Sublease Year.
4.2
Absolute Net Sublease.
All Rent payments shall be absolutely net to Sublessor, free of any and all Taxes (as defined below in
Section 7
), Other Charges (as defined below in
Section 7
), and operating or other expenses of any kind whatsoever, all of which shall be paid by Sublessee, except as otherwise provided in this Sublease. Sublessee shall at all times during the Term remain obligated under this Sublease without any right of set-off, counterclaim, abatement, deduction, reduction or defense of any kind. Sublessee’s sole right to recover damages against Sublessor under this Sublease shall be to prove such damages in a separate action.
4.3
Payment Terms
. All Rent and other payments to Sublessor hereunder shall be paid by wire transfer in accordance with Sublessor’s wire transfer instructions to be provided by Sublessor from time to time.
5.
Security Deposit.
Sublessee shall deposit with Sublessor and maintain during the Term the sum of One Hundred Nine Thousand and 00/100 Dollars ($109,000.00) as a security deposit (the “
Security Deposit
”) which Sublessor shall hold as security for the full and faithful performance by Sublessee of every term, provision, obligation and covenant under this Sublease. The Security Deposit shall be included in the principal amount due under that certain Replacement Promissory Note of even date herewith given by Sublessee and New Beginnings Care, LLC in favor of AdCare Health Systems, Inc. (the “
Replacement Note
”)
.
The Security Deposit shall not be considered an advance payment of Rent (or of any other sum payable by Sublessee under this Sublease) or a measure of Sublessor’s damages in case of a default by Sublessee under this Sublease. Sublessor shall have no obligation to maintain the Security Deposit separate and apart from Sublessor’s general and/or other funds. If Sublessee defaults beyond the applicable notice and/or cure period in respect of any of the terms, provisions, covenants and conditions of this Sublease. Sublessor may, but shall not be required to, in addition to and not in lieu of any other rights and remedies available to Sublessor, apply all or any part of the Security Deposit to the payment of any sum in default, or any other sum that Sublessor may expend or be required to expend by reason of such default, including but not limited to, any damages or deficiency in reletting the Premises. Whenever, and as often as, Sublessor has applied any portion of the Security Deposit to cure any such default beyond the applicable notice and/or cure period hereunder, Sublessee shall, within ten (10) days after Notice from Sublessor, deposit additional money with Sublessor sufficient to restore the Security Deposit to the full amount then required to be deposited with Sublessor, and Sublessee’s failure to do so shall constitute an Event of Default without any further Notice. If Sublessor transfers or assigns its interest under this Sublease, Sublessor shall assign the Security Deposit to the new Sublessor and thereafter Sublessor shall have no further liability for the return of the Security Deposit, and Sublessee agrees to look solely to the new Sublessor for the return of the Security Deposit. Sublessee agrees that it will not assign or encumber or attempt to assign or encumber the Security Deposit and that Sublessor, its successors and assigns may return the Security Deposit to the last Sublessee in possession of the Premises at the last address for which Notice has given by such Sublessee and that Sublessor thereafter shall be relieved of any liability therefor, regardless of one or more assignments of this Sublease or any such actual or attempted assignment or encumbrances of the Security Deposit.
6.
Late Charges
.
The late payment of Rent or other amounts due under this Sublease will cause Sublessor to lose the use of such money and incur administrative and other expenses not contemplated under this Sublease. While the exact amount of the foregoing is difficult to ascertain, the parties agree that as a reasonable estimate of fair compensation to Sublessor, if Rent or any other amount is not paid within (a) five (5) days after the due date for such payment, then Sublessee shall thereafter pay to Sublessor on demand a late charge equal to five percent (5%) of such delinquent amounts, and (b) thirty (30) days after the due date for such payment, such unpaid amount shall accrue interest from such date at the rate of eight percent (8%) per annum (the “
Agreed Rate
”).
7.
Taxes and Other Charges
.
Sublessor shall promptly forward to Sublessee copies of all bills and payment receipts for Taxes or Other Charges received by it. Throughout the Term, Sublessee shall pay and discharge (including the filing of all required returns), prior to delinquency or imposition of any fine, penalty, interest or other cost (“
Penalty
”), (a) “
Taxes
”, consisting of any real property and other taxes and assessments levied or assessed with respect to the Premises
(excluding income taxes, franchise taxes, estate taxes, transfer taxes and/or gross receipts taxes that may be imposed upon Sublessor), and (b) “
Other Charges
”, consisting of any utilities and other costs and expenses of the Facilities or any portion of the Premises and all other charges, obligations or deposits assessed against any portion of the Premises during the Term. Sublessee shall pay the foregoing prior to delinquency and before any Penalty, but may pay the foregoing in permitted installments (whether or not interest accrues on the unpaid balance). Within ten (10) days of its receipt of Sublessor’s written notice of payment, Sublessee shall pay Sublessor an amount equal to any Taxes or Penalty that Sublessor at any time is assessed or otherwise becomes responsible and for which Sublessee is liable under this Sublease. However, nothing in this Sublease shall obligate Sublessee to pay penalties incurred as a result of Sublessor’s failure to timely forward bills to Sublessee.
7.1
Protests
.
Sublessee has the right, but not the obligation, in good faith to protest or contest (a “
Protest
”) in whole or in part (a) the amount or payment of any Taxes or Other Charges, and (b) the existence, amount or validity of any Lien (as defined in
Section 10
), by appropriate proceedings sufficient to (i) prevent the collection or other realization of such Taxes, Other Charges or Liens, or (ii) prevent the sale, forfeiture or loss of any portion of the Premises, or (iii) prevent the forfeiture of Rent to satisfy such Taxes, Other Charges or Liens. If Sublessee commences a Protest, Sublessee shall diligently prosecute any such Protest at its sole cost and expense and pay such Taxes, Other Charges or Lien. Sublessor shall cooperate in any Protest that involves an amount assessed against the Premises.
7.2
Impound
. Upon Sublessor’s written notice to Sublessee during the Term, Sublessor may require Sublessee to pay with each Rent payment a deposit of
one-twelfth (1/12
th
)
of the amount required to discharge the annual amount of real property Taxes encumbering any portion of the Premises as and when they become due. The deposits shall not bear interest nor be held by Sublessor in trust or as an agent of Sublessee, but rather shall be applied to the payment of the related obligations. If at any time within
thirty (30) days
prior to the due date the deposits shall be insufficient for the payment of the obligation in full, Sublessee shall within
ten (10) days
after demand deposit the deficiency with Sublessor. If deposits are in excess of the actual obligation, the required monthly deposits for the ensuing Sublease Year shall be reduced proportionately and any such excess as of the Termination Date shall be refunded to Sublessee. Sublessee shall forward to Sublessor or its designee all Tax bills, bond and assessment statements promptly upon receipt. If Sublessor transfers this Sublease, it shall transfer all such deposits to the transferee, and Sublessor shall thereafter have no liability of any kind with respect thereto.
8.
Insurance
.
Sublessee shall provide and maintain at its expense during the Term, all insurance required under the Master Lease. Such insurance shall (i) be maintained under valid and enforceable policies issued by insurers licensed and approved to do business in the state of Georgia, (ii) name Sublessor as an additional insured, (iii) be on an “occurrence” basis, or if claims made, include a provision whereby tail coverage costs are specified upon policy inception, (iv) cover all of Sublessee’s operations at the Facilities, (v) provide that the policy may not be canceled except upon not less than thirty (30) days’ prior written notice to Sublessor and (vi) be primary and provide that any insurance with respect to any portion of the Premises maintained by Landlord is excess and noncontributing with Sublessee’s insurance. The property policy(ies) shall also name the
Sublessor, Landlord and Landlord’s lenders as loss payees; provided, however, that (a) all proceeds from any property insurance shall be made available to Sublessee to make repairs or replacements to the Facilities, and (b) all insurance proceeds related to equipment break-down shall be paid directly to Sublessee so that Sublessee can use such proceeds to repair the applicable equipment. The parties hereby waive as to each other all rights of subrogation which any insurance carrier, or either of them, may have by reason of any provision in any policy issued to them, provided such waiver does not thereby invalidate such policy. Insurer certificates evidencing the existence of the insurance required by this Sublease and showing the interest of Sublessor, Landlord and Landlord’s lenders shall be provided to Sublessor prior to the Commencement Date or, for a renewal policy, not less than ten (10) days prior to the expiration date of the insurance policy being renewed. If Sublessor is provided with a certificate, it may demand that Sublessee provide a complete copy of the related policy within thirty (30) days. Sublessee may satisfy the insurance requirements hereunder through coverage under so-called blanket policy(ies) of insurance carried and maintained by Sublessee regarding other operations or facilities; provided, however, that the coverage afforded Sublessor will not be reduced or diminished or otherwise be different from that which would exist under a separate policies of insurance meeting all other requirements of the Master Lease by reason of the use of such blanket policies of insurance.
9.
Use, Regulatory Compliance and Preservation of Business
.
9.1
Permitted Use; Qualified Care
. Sublessee shall continuously use and occupy the Facilities during the Term as a skilled nursing facilities with not less than the number of licensed beds set forth in the Recitals hereto and for ancillary services relating thereto, but for no other purpose. Sublessee shall not be in default of the foregoing requirement at any time when Sublessee is prevented from use or occupancy of any of the Facilities due to the need to repair damage from a casualty, or during renovations by Sublessee. Sublessee shall provide care, treatment and services to all residents of the Facilities in a manner consistent with all applicable laws. Notwithstanding any common law or statutory right, Sublessee agrees not to transfer, move or otherwise take action that reduces the licensed bed complement of the Facilities and Sublessee agrees not to take any of the licensed beds out of service or move the beds to a different location.
9.2
Regulatory Compliance
. During the Term, Sublessee, the Facilities and the Premises shall comply in all material respects with all licensing and other laws and all covenants, conditions, restrictions and other use or maintenance requirements applicable to the Facilities. To the extent applicable, Sublessee shall comply in all material respects with all Medicare, Medicaid and other third-party payor certification requirements, including timely filing properly completed cost and other required reports, timely paying all expenses shown thereon, and ensuring that the Facilities continue to be fully certified for participation in Medicare and Medicaid (if applicable) throughout the Term and when they are returned to Sublessor, all without any suspension, revocation, decertification or other material limitation of such certification. Further, Sublessee shall not commit any act or omission that would in any way materially violate any certificate of occupancy affecting the Facilities, result in closure of the Facilities or result in the sale or transfer of all or any portion of any related certificate of need (if applicable), bed rights or other similar certificate or license at the Facilities. During the Term, all inspection fees, costs and charges associated with a change of such licensure or certification shall be borne solely by Sublessee. Notwithstanding anything to the
contrary contained in this Sublessee, Sublessee shall have the right to protest or appeal any licensing and other laws and all covenants, conditions, restrictions and other use or maintenance requirements applicable to the Facilities and, to the extent applicable, all Medicare, Medicaid and other third-party payor certification requirements. Sublessor agrees to cooperate with Sublessee provided that Sublessor does not incur any out-of-pocket expenses in connection therewith that are not reimbursed by Sublessee.
10.
Repairs, Improvements and Environmental
.
10.1
Repairs and Improvements
.
Sublessor shall not be required to make any repairs or improvements to the Premises. Sublessee shall make no alterations in, or additions to, any Facility in excess of twenty-five thousand dollars ($25,000) without first obtaining, in writing, Sublessor's consent for such alterations or additions. All such alterations or additions shall be at the sole cost and expense of Sublessee and shall become a part of the Premises. Sublessee covenants and agrees that it will take good care of the Premises, its fixtures and appurtenances, and suffer no waste or injury thereto and keep and maintain same in good and clean condition, reasonable wear and tear excepted. Sublessee shall be liable for and shall indemnify and hold Sublessor harmless in respect of any claims, liabilities, actions, damage, or injury to Sublessor, the Premises, and property or persons of anyone else, if due to wrongful act or negligence of Sublessee, or Sublessee's agents, employees, licensees or invitees. With respect to work, services, repairs, repainting, restoration, the provision of utilities or HVAC services, or the performance of other obligations required of Landlord under the Master Lease, Sublessor shall, at the written request of Sublessee, request the same from Landlord and use reasonable efforts to obtain the same from Landlord at Sublessee’s expense. Sublessee shall reasonably cooperate with Sublessor as may be required to obtain from Landlord any such work, services, repairs, repainting restoration, the provision of utilities or HVAC services, or the performance of any of Landlord’s other obligations under the Master Lease with respect to the Premises.
10.2
Hazardous Materials
. Sublessee’s use of the Premises shall comply in all material respects with all Hazardous Materials Laws. If any Environmental Activities occur or are suspected to have occurred in violation of any Hazardous Materials Laws by Sublessee during the Term or if Sublessee has received written notice of any Hazardous Materials Claim against any portion of the Premises as a result of Sublessee’s acts or omissions during the Term, Sublessee shall promptly obtain all permits and approvals necessary to remedy any such actual or suspected problem through the removal of Hazardous Materials or otherwise, and upon Sublessor’s approval of the remediation plan, remedy any such problem to the reasonable satisfaction of Sublessor and all applicable governmental authorities, in accordance with all Hazardous Materials Laws and good business practices. During the Term, Sublessee shall promptly advise Sublessor in writing of (a) any Environmental Activities in violation of any Hazardous Materials Laws; (b) any Hazardous Materials Claims against Sublessee or any portion of the Premises; (c) any remedial action taken by Sublessee in response to any Hazardous Materials Claims or any Hazardous Materials on, under or about any portion of the Premises in violation of any Hazardous Materials Laws; (d) Sublessee’s discovery of any occurrence or condition on or in the vicinity of any portion of the Premises that materially increase the risk that any portion of the Premises will be exposed to Hazardous Materials; and (e) all written communications to or from Sublessee, any governmental authority or any other
Person relating to Hazardous Materials Laws or Hazardous Materials Claims with respect to any portion of the Premises, including copies thereof. Sublessor shall have the right, at Sublessee’s sole cost and expense (including, without limitation, Sublessor’s reasonable attorneys’ fees and costs) and with counsel chosen by Sublessor, to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims.
11.
Sublessee Personal Property
. Sublessee may bring his own articles of personal property to the Premises for use and Sublessee shall have the right to remove any such personal property from the Premises provided that Sublessee, at its expense, shall repair any damages to the Premises caused by such removal or by the original installation thereof.
12.
Financial, Management and Regulatory Reports
.
In addition to any reports required under the Master Lease, Sublessee shall provide Sublessor with the reports listed in
Exhibit “D”
at the time described therein, and such other information about it or the operations of the Facilities as Sublessor may reasonably request from time to time, including such information requested in connection with any financing of the Premises sought by Sublessor. All financial information provided by Sublessee shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be submitted electronically in the form of unrestricted, unlocked “.xlsx” spreadsheets created using Microsoft Excel (2003 or newer editions). Similarly, should Sublessor or its parent, AdCare Health Systems, Inc., be subject to any particular reporting requirements of the Securities Exchange Commission during the Term for which it needs reports, documentation or other information from Sublessee, Sublessee agrees to deliver such reports, documentation and information within ten (10) days after Sublessor’s request for the same. Sublessor shall comply with all requirements of applicable law with respect to any such information provided by Sublessee, including, without limitation, the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations as amended by the Health Information Technology for Economic and Clinical Health Act (“HIPAA”). Sublessee shall provide copies of all reports required under the Master Lease to Sublessor and to Lessor.
13.
Representations and Warranties
.
Sublessor and Sublessee each represents and warrants to the other that: (a) this Sublease and all other documents executed or to be executed by it in connection herewith have been duly authorized and shall be binding upon it; (b) it is duly organized, validly existing and in good standing under the laws of the state of its formation and is duly authorized and qualified to perform this Sublease within the states where the Facilities are located; and (c) neither this Sublease nor any other document executed or to be executed in connection herewith violates the terms of any other agreement of such party and will not result in a breach of or default by Sublessor under any term or provision of any law, order, writ, decree, contract, agreement or other instrument to which the party is a party or to which the party or any Facility is subject.
14.
Events of Default
.
So long as there is no Event of Default, Sublessee shall peaceably and quietly have, hold and enjoy the Premises for the Term, free of any claim or other action not caused or created by Sublessee or pursuant to
Sections 16
or
17
. The occurrence of any of the following events will constitute an “
Event of Default
” on the part of Sublessee, and there shall be no cure period therefor except as otherwise expressly provided:
(a)
Sublessee’s failure to pay within ten (10) days of when due any Rent, Taxes, Other Charges or other required payments;
(b)
(i) The revocation, suspension or termination of any material license held by Sublessee required for the operation of the Facilities or the certification of the Facilities for provider status under Medicare or Medicaid, if applicable; provided, however, that in the case of a suspension or other action which is temporary and not irrevocable, and which does not require a closure of any Facility, Sublessee shall have failed to cure the applicable violations and restore use of the license within one hundred eighty (180) days after the action was initially taken; (ii) the closure of the Facilities (except with respect to the time required to make any required repairs or to make any Alterations); (iii) the sale or transfer by Sublessee of all or any portion of any certificate of need, bed rights or other similar certificate or license relating to the Facilities; or (iv) the use of any portion of the Facilities other than for skilled nursing facilities and for ancillary services relating thereto;
(c)
Any other material suspension, termination or restriction placed upon Sublessee, the Facilities or the ability to admit residents or patients (e.g., an admissions ban or non-payment for new admissions by Medicare or Medicaid resulting from an inspection survey, if applicable); provided, however, that in the case of a suspension, restriction or other action which is temporary and not irrevocable, Sublessee shall have failed to cure the applicable violations within one hundred eighty (180) days after the action was initially taken;
(d)
Sublessee’s failure to perform or comply with the provisions of
the Master Lease
;
(e)
(i) Sublessee shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment of all or substantially all of its property for the benefit of creditors; or (ii) a receiver, trustee or liquidator shall be appointed for Sublessee or its property, if not discharged within ninety (90) days after the date of such appointment; (iii) the filing by Sublessee of a voluntary petition under any federal bankruptcy or state law to be adjudicated as bankrupt or for any arrangement or other debtor’s relief; or (iv) the involuntary filing of such a petition against Sublessee by any other party, unless dismissal is diligently prosecuted and such petition is dismissed within one hundred twenty (120) days after filing;
(f)
Sublessee’s failure to perform or comply with any provision of this Sublease not requiring the payment of money unless remedied within thirty (30) days after such notice from Sublessor or if such default cannot with due diligence be so cured because of the nature of the default or delays beyond the control of Sublessee, then such default shall not constitute an Event of Default if Sublessee uses its commercially reasonable efforts to cure such default by promptly commencing and diligently pursuing such cure to the completion thereof;
(g)
The default by New Beginnings Care, LLC and/or the Sublessee under the Replacement Note; or
(h)
The default by the Sublessee under those certain operations transfer agreements between Sublessee and affiliates of Sublessor relating to the Facilities.
15.
Remedies
. Upon the occurrence of an Event of Default, Sublessor may exercise all rights and remedies under this Sublease and the laws of the State of Georgia that are available to a Sublessor of real and personal property in the event of a default by its Sublessee, and as to the Sublessee Property, all remedies granted under the laws of such state to a secured party under its Uniform Commercial Code. Sublessor shall use commercially reasonable efforts to mitigate damages, however, Sublessor shall not be responsible or liable for any failure to relet the Premises or to collect any rent due upon any such reletting notwithstanding such commercially reasonable efforts. Upon the occurrence of an Event of Default, Sublessee shall pay Sublessor, promptly upon demand, all reasonable expenses incurred by it in obtaining possession and reletting any of the Premises, including reasonable fees, commissions and costs of attorneys, architects, agents and brokers.
15.1
General
. Without limiting the foregoing, Sublessor shall have the right (but not the obligation) to do any of the following upon an Event of Default: (a) sue for the specific performance of any covenant of Sublessee as to which it is in breach; (b) enter upon any portion of the Premises, terminate this Sublease, dispossess Sublessee from the Premises through appropriate legal procedures and/or collect money damages by reason of Sublessee’s breach, including pursue its rights with respect to all obligations and liabilities of Sublessee under this Sublease which survive the termination of the Term; (c) elect to leave this Sublease in place and sue for Rent and other money damages as the same come due; and (d) (before or after repossession of the Premises pursuant to clause (b) above and whether or not this Sublease has been terminated) relet any portion of the Premises to such Sublessee(s), for such term(s) (which may be greater or less than the remaining balance of the Term), rent, conditions (which may include concessions or free rent) and uses as it may determine in its sole discretion and collect and receive any rents payable by reason of such reletting.
15.2
Remedies Cumulative; No Waiver
. No right or remedy herein conferred upon or reserved to Sublessor or Sublessee is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. Any notice or cure period provided herein shall run concurrently with any provided by applicable law. No failure of Sublessor or Sublessee to insist at any time upon the strict performance of any provision of this Sublease or to exercise any option, right, power or remedy contained herein shall be construed as a waiver, modification or relinquishment thereof as to any similar or different breach (future or otherwise) by Sublessee or Sublessor, as applicable. Sublessor’s receipt of and Sublessee’s payment of any Rent or other sum due hereunder (including any late charge) with knowledge of any breach shall not be deemed a waiver of such breach, and no waiver by Sublessor of any provision of this Sublease shall be effective unless expressed in a writing signed by it.
15.3
Performance of Sublessee’s Obligations
. If Sublessee at any time shall fail to make any payment or perform any act on its part required to be made or performed under this Sublease and not remedy the same within the applicable notice and/or cure period, then Sublessor may, without waiving or releasing Sublessee from any obligations or default hereunder, make such payment or perform such act for the account and at the expense of Sublessee, and enter upon any portion of the Premises for the purpose of taking all such action as may be reasonably necessary. No such entry shall be deemed an eviction of Sublessee. All sums so paid by Sublessor and all necessary and reasonable incidental costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the performance of any such act by it from the date of the making of such payment or the incurring of such costs and expenses, shall be payable by Sublessee to Sublessor upon Sublessor’s written demand therefor.
16.
Provisions on Termination
.
16.1
Surrender of Possession
. On the Termination Date, Sublessee shall deliver to Sublessor or its designee possession of (a) the Facilities in a neat and clean condition and in as good a condition as existed at the date of Sublessee’s possession and occupancy pursuant to this Sublease, ordinary wear and tear casualty and acts of God excepted, (b) a fully operational, licensed and certified (if applicable) business at the Facilities including, at Sublessee’s sole cost, any alterations required to be made prior to the termination of this Sublease, including any alterations required in connection with a change of ownership inspection survey for the transfer of operation of any portion of the Premises to Sublessor or its designee, and (c) all patient charts and resident records along with appropriate resident consents if necessary and copies of all of its books and records relating to the Facilities and the Premises. Accordingly, Sublessee shall not at any time during or after the Term seek to transfer, surrender, allow to lapse, or grant any security interest or any other interest in and to the licenses, permits or certifications relating to the Facilities or the Premises, nor shall Sublessee commit or omit any act that would jeopardize the Facilities or any licensure or certification of the Facilities. Sublessee shall, at no cost to Sublessee, cooperate fully with Sublessor or its designee in transferring or obtaining all necessary licenses and certifications for Sublessor or its designee, and Sublessee shall comply with all reasonable requests for an orderly transfer of the Facilities licenses, and Medicare and Medicaid certifications and possession at the time of its surrender of the Premises to Sublessor or its designee to operate the Facilities. Subject to all applicable laws, Sublessee hereby assigns, to the extent assignable, effective upon the Termination Date, all rights to operate the Facilities to Sublessor or its designee, including all required licenses and permits and all rights to apply for or otherwise obtain them relating to any portion of the Premises.
16.2
Management of Premises
. Commencing on the Termination Date, Sublessor or its designee, upon written notice to Sublessee, may elect to assume the responsibilities and obligations for the management and operation of the Facilities and Sublessee agrees to cooperate fully to accomplish the transfer of such management and operation without interrupting the operation of the Facilities. To the extent permitted by applicable law, Sublessee agrees that Sublessor or its designee may operate the Facilities under Sublessee’s licenses and certifications pending the issuance of new licenses and certifications to Sublessor or its designee. Sublessee shall not commit any act or be remiss in the undertaking of any act that would directly jeopardize any then existing
licensure or certification of the Facilities, and Sublessee shall, at no cost to Sublessee, comply with all reasonable requests for an orderly transfer to the extent permitted by applicable law, of any and all Facilities and other licenses, Medicare and Medicaid certifications and possession of the Premises at the time of any such surrender. If Sublessor or its designee operates any of the Facilities under the licenses and certifications held by Sublessee, Sublessor will do so at Sublessor’s sole risk and Sublessor shall indemnify and hold Sublessee harmless from and against any and all claims, causes of action, liabilities, expenses, and costs related to the operation of any of the Facilities under such licenses and certifications.
16.3
Holding Over
. If Sublessee shall for any reason remain in possession of the Premises after the Termination Date without Sublessor’s consent, such possession shall be a month-to-month tenancy during which time Sublessee shall pay as rental on the first (1
st
) business day of each month one hundred twenty-five percent (125%) of the monthly Rent payable with respect to the last Sublease Year, plus all additional charges accruing during the month and all other sums, if any, payable by Sublessee pursuant to this Sublease. Nothing contained herein shall constitute the consent, express or implied, of Sublessor to the holding over of Sublessee after the Termination Date, nor shall anything contained herein be deemed to limit Sublessor’s remedies. In the event that as of the Termination Date Sublessor does not have a replacement operator to operate all of the Facilities effective as of the Termination Date, and Sublessee continues to operate the Facilities after the Termination Date until a replacement operator is permitted under applicable law to operate the Facilities, the Rent for such period of time after the Termination Date shall equal fifty percent (50%) of the monthly Rent payable with respect to the last Sublease Year.
16.4
Survival
. All representations, warranties, covenants and other obligations of Sublessee and Sublessor under this Sublease shall survive the Termination Date.
17.
Certain Sublessor Rights
.
17.1
Entry and Examination of Records
. Sublessor and its representatives may enter any portion of the Premises with a representative designated by Sublessee at any reasonable time after at least forty-eight (48) hours’ written notice to Sublessee to inspect the Premises for compliance or for any other reason; provided that no such notice shall be required in the event of an emergency, upon an Event of Default or to post notices of non-responsibility under any mechanics’ or materialmans’ lien law. No such entry shall unreasonably interfere with residents, patients, patient care or the Sublessee’s operations of the Facilities, and Sublessor shall not contact or communicate with any of Sublessee’s employees at any time when Sublessor or its representatives are at the Premises. Sublessor and its representatives shall abide by all rules and regulations governing nursing facilities during any time when they are at the Premises. During normal business hours, Sublessee will permit Sublessor and its representatives, inspectors and consultants to examine all contracts, books and financial and other records at Sublessee’s offices relating to Sublessee’s operations of the Facilities.
17.2
Grant Liens
. This Sublease shall be subordinate to the right, title, and interest of any lender or other party holding a security interest in or a lien upon the Premises under any and all mortgage instruments or deeds to secure debt presently encumbering the Premises or the Facilities and to any and all other deeds to secure debt or mortgage instruments hereafter encumbering the
Premises or the Facilities. Sublessee shall at any time hereafter, on demand of Landlord, Sublessor or the holder of any such deed to secure debt or mortgage instrument, execute any instruments which may reasonably be required by such party for the purpose of evidencing the subordination of this Sublease to the lien or security of such party.
Sublessee shall, upon demand, at any time or times, execute, acknowledge, and deliver to Landlord, Sublessor or the holder of any such instruments or deeds to secure debt, without expense, any and all documents that may be reasonably necessary to make this Sublease superior to the lien of any of the same.
If the holder of any of said instruments or deeds to secure debt shall hereafter succeed to the rights of Sublessor under this Sublease, Sublessee shall, at the option of such holder or a purchaser at any foreclosure or sale under power, attorn to and recognize such successor as Sublessor under this Sublease. Sublessee shall promptly execute, acknowledge, and deliver any instrument that may be reasonably necessary to evidence such attornment.
17.3
Estoppel Certificates
. Sublessor and Sublessee shall, at any time upon not less than ten (10) business days’ prior written request by the other party, have an authorized representative execute, acknowledge and deliver to Landlord, Sublessor or Sublessee, as the case may be, or their designee a written statement certifying (a) that this Sublease, together with any specified modifications, is in full force and effect, (b) the dates to which Rent and additional charges have been paid, (c) to the party’s knowledge, that no default by either party exists or specifying any such default, and (d) as to such other matters as Landlord, Sublessor or Sublessee, as the case may be, may reasonably request.
17.4
Conveyance Release
. If Landlord or any successor owner shall sell or transfer any portion of the Premises, they shall thereafter be released from all future liabilities and obligations hereunder first arising or accruing from and after the date of such conveyance or other transfer, which instead shall thereupon be binding upon the new owner.
18.
Assignment and Subletting
.
18.1
Except as otherwise expressly permitted in this Sublease, without Sublessor’s prior written consent, Sublessee shall not assign this Sublease, or sublease all or any part of the Premises, or permit the use of the Premises by any party other than Sublessee. This prohibition includes an assignment or subletting to or by a receiver or trustee in any federal or state bankruptcy, insolvency, or other proceeding. For purposes of this Section, a sale or transfer of all or a controlling ownership interest in Sublessee or a merger or other combination by Sublessee or a sale of all or substantially all of Sublessee’s assets in lieu thereof shall be deemed an assignment or other transfer of this Sublease.
19.
Damage by Fire or Other Casualty
.
19.1
Damage by Fire or Other Casualty
.
Sublessee shall promptly notify Sublessor of any damage or destruction of any portion of the Premises and, subject to Sublessee’s receipt of sufficient insurance proceeds and any funds due from Sublessor as set forth below, diligently repair or reconstruct such portion of the Premises to a like or better condition than existed prior to such damage or destruction. Any net insurance proceeds payable with respect to the casualty shall be paid directly to Sublessor and, if an Event of Default has not occurred hereunder, shall be
used for the repair or reconstruction of the applicable portion of the Premises. If such proceeds are insufficient, Sublessor shall provide the required additional funds; provided, however, that Sublessee shall contribute an amount equal to the applicable deductible under the property insurance coverage. If the proceeds are more than sufficient, the surplus shall belong and be paid to Sublessee. Sublessee shall not have any right under this Sublease, and hereby waives all rights under applicable law, to abate, reduce or offset rent by reason of any damage or destruction of any portion of the Premises by reason of an insured or uninsured casualty.
If any of the Facilities is damaged and the damage is so extensive that more than thirty-three percent (33%) of the licensed beds for that Facility is damaged by fire or other casualty and cannot be used in the opinion of Sublessee, then Sublessee shall have the right to terminate this Sublease as to such Facility upon thirty (30) days written notice to Sublessor. In the event of such termination, the Rent and Additional Rent payable under this Sublease thereafter shall be equitably adjusted.
20.
Condemnation
.
Except as provided to the contrary in this
Section 18
, this Sublease shall not terminate and shall remain in full force and effect in the event of a taking or condemnation of the Premises, or any portion thereof, and the Base Rent and Additional Rent payable under this Sublease thereafter shall be equitably adjusted. If during the Term all or substantially all (a “
Complete Taking
”) or a smaller portion (a “
Partial Taking
”) of any Facility is taken or condemned by any competent public or quasi-public authority, then (a) in the case of a Complete Taking, Sublessee may at its election made within thirty (30) days of the effective date of such Taking, terminate this Sublease as to the applicable Facility and the current Rent and Additional Rent payable under this Sublease thereafter shall be equitably adjusted as of the effective date of such termination, or (b) in the case of a Partial Taking, the Rent shall be abated to the same extent as the resulting diminution in Fair Market Value of the applicable portion of the Premises. The resulting diminution in Fair Market Value on the effective date of a Partial Taking shall be as established pursuant to
Exhibit “E”
. Sublessor alone shall be entitled to receive and retain any award for a taking or condemnation other than a temporary taking; provided, however, Sublessee shall be entitled to submit its own claim in the event of any such taking or condemnation with respect to the value of Sublessee’s Subleasehold interest in any portion of the Premises and/or the relocation costs incurred by Sublessee as a result thereof. In the event of a temporary taking of less than all or substantially all of any Facility, Sublessee shall be entitled to receive and retain any and all awards for the temporary taking and the Rent due under this Sublease shall be not be abated during the period of such temporary taking.
21.
Indemnification.
Sublessee agrees to protect, indemnify, defend and save harmless Sublessor, its members, managers, Affiliates, directors, officers, shareholders, agents and employees from and against any and all foreseeable or unforeseeable liability, expense, loss, cost, deficiency, fine, penalty or damage (including consequential or punitive damages) of any kind or nature, including reasonable attorneys’ fees, from any suits, claims or demands, on account of any matter or thing, action or failure to act arising out of or in connection with this Sublease, the Premises or the operations of Sublessee on any portion of the Premises, including, without limitation, (a) the breach by Sublessee or any of its representations, warranties, covenants or other obligations hereunder, (b) any Protest, (c) all known and unknown Environmental Activities on any portion of the Premises, Hazardous Materials Claims or violations by Sublessee of a Hazardous Materials Law
with respect to any portion of the Premises, and (d) upon or following the Termination Date, the correction of all deficiencies of a physical nature identified by, and any liability assessed or asserted by, any governmental agency or Medicare or Medicaid as a result of or arising out of or in connection with Sublessee’s use, occupancy and operations of the Facilities during the Term (including any refunds or overpayments to Medicare, Medicaid or any other third party payor). Upon receiving knowledge of any suit, claim or demand asserted by a third party that Sublessor believes is covered by this indemnity, it shall give Sublessee notice of this matter. Sublessee shall then defend Sublessor at Sublessee’s expense (including Sublessor’s reasonable attorneys’ fees and costs) with legal counsel satisfactory to Sublessor. The foregoing indemnity shall exclude any liability, expense, loss, cost, deficiency, fine, penalty or damage (including consequential or punitive damages) of any kind or nature resulting due to acts or omissions of Sublessor, its members, managers, Affiliates, directors, officers, shareholders, agents and employees.
22.
Disputes
.
If any party brings any action to interpret or enforce this Sublease, or for damages for any alleged breach, the prevailing party shall be entitled to reasonable attorneys’ fees and costs as awarded by the court in addition to all other recovery, damages and costs, at all trial and appellate levels.
EACH PARTY HEREBY WAIVES ANY RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER IN CONNECTION WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SUBLEASE, INCLUDING RELATIONSHIP OF THE PARTIES, SUBLESSEE’S USE AND OCCUPANCY OF ANY PORTION OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE RELATING TO THE FOREGOING OR THE ENFORCEMENT OF ANY REMEDY.
23.
Notices
.
All notices and demands, certificates, requests, consents, approvals and other similar instruments under this Sublease shall be in writing and sent by personal delivery, U. S. certified or registered mail (return receipt requested, postage prepaid) or FedEx or similar generally recognized overnight carrier regularly providing proof of delivery, addressed as follows:
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If to Sublessee:
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If to Sublessor:
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New Beginnings Care
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AdCare Health Systems, Inc.
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4704 Hixson Pike
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Two Buckhead Plaza
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Hixson TN 37343
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3050 Peachtree Road NW, Suite 355
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Attention: Trent Tolbert
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Atlanta, Georgia 30305
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Attention: CEO
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With a copy to:
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Attention:
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A party may designate a different address by notice as provided above. Any notice or other instrument so delivered (whether accepted or refused) shall be deemed to have been given and received on the date of delivery established by U.S. Post Office return receipt or the carrier’s proof of delivery or, if not so delivered, upon its receipt. Delivery to any officer, general partner or principal of a party shall be deemed delivery to such party. Notice to any one co-Sublessee shall be deemed notice to all co-Sublessees.
24.
Miscellaneous
.
This Sublease has been freely and fairly negotiated, and all provisions shall be interpreted according to their fair meaning and shall not be strictly construed against any party. While nothing contained in this Sublease should be deemed or construed to constitute an extension of credit by Sublessor to Sublessee, if a portion of any payment made to Sublessor is deemed to violate any applicable laws regarding usury, such portion shall be held by Sublessor to pay the future obligations of Sublessee as such obligations arise and if Sublessee discharges and performs all obligations hereunder, such funds will be reimbursed (without interest) to Sublessee on the Termination Date. If any part of this Sublease shall be determined to be invalid or unenforceable, the remainder shall nevertheless continue in full force and effect. Time is of the essence, and whenever action must be taken (including the giving of notice or the delivery of documents) hereunder during a certain period of time or by a particular date that ends or occurs on a Saturday, Sunday or federal holiday, then such period or date shall be extended until the immediately following business day. Whenever the words “
including
”, “
include
” or “
includes
” are used in this Sublease, they shall be interpreted in a non-exclusive manner as though the words “
without limitation
” immediately followed. Whenever the words day or days are used in this Sublease, they shall mean “
calendar day
” or “
calendar days
” unless expressly provided to the contrary. The titles and headings in this Sublease are for convenience of reference only and shall not in any way affect the meaning or construction of any provision. Unless otherwise expressly provided, references to any “Section” mean a section of this Sublease (including all subsections), to any “
Exhibit
” or “
Schedule
” mean an exhibit or schedule attached hereto or to “
Medicare
” or “
Medicaid
” include any successor program. If more than one Person is Sublessee hereunder, their liability and obligations hereunder shall be joint and several. Promptly upon the request of either party and at its expense, the parties shall prepare, enter into and record a suitable short form memorandum of this Sublease. This Sublease (a) contains the entire agreement of the parties as to the subject matter hereof and supersedes all prior or contemporaneous verbal or written agreements or understandings, (b) may be executed in several counterparts, (including electronically mailed copies in portable document format (PDF)), each of which shall be deemed an original, but all of which shall constitute one and the same document, (c) may only be amended by a writing executed by the parties, (d) shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties, (e) shall be governed by and construed and enforced in accordance with the internal laws of the State of South Carolina, (f) venue of any legal action arising under or pursuant to this Sublease shall be in the county where the premises are located, and (g) incorporates by this reference any Exhibits and Schedules attached hereto.
25.
Sublease of Entire Premises
.
Sublessee and Sublessor each acknowledge and agree that this Sublease constitutes a single, indivisible Sublease of the entire Premises, and the Premises constitutes a single economic unit, except as specifically set forth in this Sublease. The Rent, other amounts payable hereunder and all other provisions contained herein have been negotiated and agreed upon based on the intent to the Sublease the entirety of the Premises as a single and inseparable transaction as set forth in this Sublease, and such Rent, other amounts and other provisions would have been materially different had the parties intended to enter into separate subleases or a divisible sublease. Any Event of Default under this Sublease shall constitute an Event of Default as to the entire Premises.
Sublessee acknowledges and agrees that Sublessor is entering into this Sublease as an accommodation to Sublessee. Sublessee, in order to induce Sublessor to enter into this Sublease, to the extent permitted by law:
(a)
Agrees, acknowledges and is forever estopped from asserting to the contrary that the statements set forth in the first sentence of this Section are true, correct and complete;
(b)
Agrees, acknowledges and is forever estopped from asserting to the contrary that this Sublease is a single Sublease pursuant to which the collective Premises are demised as a whole to Sublessee; and
(c)
Agrees, acknowledges and is forever estopped from asserting to the contrary that if, notwithstanding the provisions of this Section, this Sublease were to be determined or found to be in any proceeding, action or arbitration under state or federal bankruptcy, insolvency, debtor-relief or other applicable laws to constitute multiple Subleases demising multiple properties, such multiple Subleases could not, by the debtor, trustee, or any other party, be /selectively or individually assumed, rejected or assigned.
26.
Brokers
. Sublessor and Sublessee represent and warrant to each other that no brokerage commissions are due to any real estate broker in relation to this Sublease, and agree to indemnify and hold each other harmless for any damages, costs or legal fees which may be incurred as a result of any claims for such commissions in contravention of the representations in this Section.
27.
Relationship of Parties
. Nothing contained in this Sublease shall be deemed or construed as creating the relationship of principal and agent or of partnership or joint venture between the parties hereto, it being understood and agreed that neither the method of computing Rent nor any other provision contained herein nor any acts of the parties hereto shall be deemed to create any relationship between the parties hereto other than that of landlord and tenant.
28.
Master Lease Provisions Not Incorporated
. Notwithstanding the foregoing or any other provision of this Sublease to the contrary, the following Sections of the Master Lease are not incorporated into this Sublease, and Sublessee shall have no obligation to perform and shall not be bound by them: 1(b)(i)-(iii), 1(c), 1(d), 1(e), 6(c), 27 and 30(a).
29.
Sublessor Consent
: In each case provided herein for the consent or approval of Sublessor, in no event shall Sublessor’s consent or approval be unreasonably withheld, conditioned or delayed. If a consent or approval of Landlord is required under the Master Lease, the giving of such consent or approval shall be deemed the consent or approval of Sublessor and no further consent or approval of Sublessor shall be required.
30.
Counterparts
.
This Sublease may be executed in any number of counterparts, all of which will be considered one and the same Sublease notwithstanding that all parties hereto have not signed the same counterpart. Signatures on this Sublease which are transmitted electronically shall be valid for all purposes. Any party shall, however, deliver an original signature on this Sublease to the other party upon request.
31.
Collateral
.
Sublessee agrees that, upon Sublessor’s request, Sublessee shall grant Sublessor a security interest in Sublessee’s accounts receivable as collateral for Sublessee’s obligations under this Sublease. Sublessee further agrees to cooperate and to use its reasonable best efforts to cause any lender then holding a security interest in such accounts receivable to consent to a subordinate security interest in favor of Sublessor.
[Signatures on Following Page]
IN WITNESS WHEREOF
, this Sublease has been executed by Sublessor and Sublessee as of the date first written above.
SUBLESSOR
:
ADK GEORGIA, LLC,
a Georgia limited liability company
By:
/s/ William McBride
Name: William McBride
Title: Manager
SUBLESSEE
:
JEFFERSONVILLE HEALTHCARE
& REHAB, LLC,
a
Tennessee
limited liability company
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
OCEANSIDE HEALTHCARE
& REHAB, LLC,
a
Tennessee
limited liability company
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
SAVANNAH BEACH HEALTHCARE & REHAB, LLC,
a
Tennessee
limited liability company
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
The undersigned hereby guarantees the payment and performance obligations of Sublessee under this Sublease.
NEW BEGINNINGS CARE, LLC
a
Tennessee
limited liability company
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
EXHIBIT “A-1”
LEGAL DESCRIPTIONS
EXHIBIT A-2
SUBLESSOR PERSONAL PROPERTY
“Sublessor Personal Property” means: (i) all personal property used in the operation or management of the Facilities, including machinery, equipment, furniture, furnishings, beds, computers, signage, trade fixtures or other personal property and consumable inventory and supplies, including any and all such personal property replaced by Sublessee as set forth in the Sublease, and (ii) all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans, and other plans and studies that relate to the Facilities; provided, however, that Sublessor Personal Property shall not include: (a) any vehicles or computer software used in connection with the operation of the Facilities, or (b) any equipment Subleased by Sublessee from third parties, which equipment is not a replacement of what would otherwise be Sublessor Personal Property. A detailed description of Sublessor Personal Property is as follows:
[
SUBLESSOR TO INSERT LIST OF SUBLESSOR PERSONAL PROPERTY
]
EXHIBIT “B”
CERTAIN DEFINITIONS
For purposes of this Sublease, the following terms and words shall have the specified meanings:
“
Affiliate
” shall mean with respect to any Person, any other Person which Controls, is Controlled by or is under common Control with the first Person.
“
Control
” shall mean, as applied to any Person, the possession, directly or indirectly, of the power to direct the management and policies of that Person, whether through ownership, voting control, by contract or otherwise.
“
Environmental Activities
” shall mean the use, generation, transportation, handling, discharge, production, treatment, storage, release or disposal of any Hazardous Materials at any time to or from any portion of the Premises or located on or present on or under any portion of the Premises.
“
Facility Mortgage
” shall mean any mortgage, deed of trust or other security agreement or lien encumbering the Premises or any portion thereof and securing an indebtedness of Sublessor or any Affiliate of Sublessor or any ground, building or similar Sublease or other title retention agreement to which the Premises or any portion thereof is subject from time to time.
“
Facility Mortgagee
” shall mean the holder or beneficiary of a Facility Mortgage and any other rights of the lender, credit party or Sublessor under the applicable Facility Mortgage Documents.
“
Facility Mortgage Documents
” shall mean with respect to each Facility Mortgage and Facility Mortgagee, the applicable Facility Mortgage, loan or credit agreement, Sublease, note, collateral assignment instruments, guarantees, indemnity agreements and other documents or instruments evidencing, securing or otherwise relating to the loan made, credit extended, Sublease or other financing vehicle pursuant thereto.
“
Hazardous Materials
” shall mean (a) any petroleum products and/or by-products (including any fraction thereof), flammable substances, explosives, radioactive materials, hazardous or toxic wastes, substances or materials, known carcinogens or any other materials, contaminants or pollutants which pose a hazard to any portion of the Premises or to Persons on or about any portion of the Premises or cause any portion of the Premises to be in violation of any Hazardous Materials Laws; (b) asbestos in any form which is friable; (c) urea formaldehyde in foam insulation or any other form; (d) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million or any other more restrictive standard then prevailing; (e) medical wastes and biohazards not disposed of in accordance with applicable law; (f) radon gas; and (g) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of any portion of the Premises or the owners and/or occupants of property adjacent to or surrounding any portion of the Premises, including, without limitation, any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) as amended from time to time.
“
Hazardous Materials Claims
” shall mean any and all enforcement, clean up, removal or other governmental or regulatory actions or orders threatened, instituted or completed pursuant to any Hazardous Material Laws, together with all claims made or threatened by any third party against any portion of the Premises, Sublessor or Sublessee relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials.
“
Hazardous Materials Laws
” shall mean any laws, ordinances, regulations, rules, orders, guidelines or policies relating to the environment, health and safety, Environmental Activities, Hazardous Materials, air and water quality, waste disposal and other environmental matters.
“
Person
” shall mean any individual, partnership, association, corporation, limited liability company or other entity.
EXHIBIT “C-1”
FAIR MARKET RENTAL
“
Fair Market Rental”
means, as of the date of determination, the fair market rental of the Premises at its highest and best use, operated as a business consistent with the business to be operated pursuant to the terms of this Sublease, that a willing, comparable, non‑equity Sublessee (excluding release and assignment transactions) would pay, and a willing, comparable Sublessor of a comparable building located in the area in applicable geographical areas would accept, at arm’s length, for buildings of comparable size and quality as the Premises, taking into account the age, quality and layout of the existing improvements in the Premises and taking into account items that professional real estate appraisers customarily consider, including, but not limited to, rental rates, availability of competing facilities, Sublessee size and any Sublease concessions, if any, then being charged or granted by Sublessor or the Sublessors of such similar facilities. The Fair Market Rental shall be in such amount as agreed to by the parties, or failing such agreement within
ten (10) days
of such date, as established pursuant to the following appraisal process.
Each party shall within
ten (10) days
after written demand by the other select one MAI Appraiser to participate in the determination of Fair Market Rental. Within
ten (10) days
of such selection, the MAI Appraisers so selected by the parties shall select a third (3
rd
) MAI Appraiser. The three (3) selected MAI Appraisers shall each determine the Fair Market Rental of the Premises or applicable portion thereof within
thirty (30) days
of the selection of the third appraiser. Sublessee shall pay the fees and expenses of any MAI Appraiser retained pursuant to this Exhibit.
If either party fails to select a MAI Appraiser within the time period set forth in the foregoing paragraph, the MAI Appraiser selected by the other party shall alone determine the Fair Market Rental of the Premises in accordance with the provisions of this Exhibit and the Fair Market Rental so determined shall be binding upon the parties. If the MAI Appraisers selected by the parties are unable to agree upon a third (3
rd
) MAI Appraiser within the time period set forth in the foregoing paragraph, either party shall have the right to apply at their own expense to the presiding judge of the court of original trial jurisdiction in the county in which the Premises or applicable portion thereof are located to name the third (3
rd
) MAI Appraiser.
Within
five (5) days
after completion of the third (3
rd
) MAI Appraiser’s appraisal, all three (3) MAI Appraisers shall meet and a majority of the MAI Appraisers shall attempt to determine the Fair Market Rental of the Premises or applicable portion thereof. If a majority are unable to determine the fair market value at such meeting, the three (3) appraisals shall be added together and their total divided by three (3). The resulting quotient shall be the Fair Market Rental. If, however, either or both of the low appraisal or the high appraisal are more than
ten percent (10%)
lower or higher than the middle appraisal, any such lower or higher appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2), and the resulting quotient shall be the Fair Market Rental. If both the lower appraisal and higher appraisal are disregarded as provided herein, the middle appraisal shall be the Fair Market Rental. In any event, the result of the foregoing appraisal process shall be final and binding.
“
MAI Appraiser
” shall mean an appraiser licensed or otherwise qualified to do business in the state(s) where the Premises or applicable portion thereof are located and who has substantial experience in performing appraisals of facilities similar to the Premises or applicable portion thereof and holds the Appraisal Institute’s MAI designation, or, if such organization no longer exists or certifies appraisers, such successor organization or such other organization as is reasonably agreed upon by Sublessee and Sublessor.
EXHIBIT “D”
FINANCIAL, MANAGEMENT AND REGULATORY REPORTS
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REPORT
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DUE DATE
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Monthly financial reports concerning the Business at the Facilities
consisting of:
(1) a reasonably detailed income statement showing, among other things, gross revenues;
(2) total patient days;
(3) occupancy; and
(4) payor mix.
(All via e-mail to _______________________)
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Thirty (30) days
after the end of each calendar month
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Quarterly consolidated or combined financial statements
of Sublessee
(via e-mail to financials@adcarehealth.com)
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Thirty (30) days
after the end of each of the first three quarters of the fiscal year of Sublessee and such Guarantor
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Annual consolidated or combined financial statements
of Sublessee audited by a reputable certified public accounting firm
(via e-mail to financials@adcarehealth.com)
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Ninety (90) days
after the fiscal year end of Sublessee and such Guarantor
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Regulatory reports with respect to the Facilities
, as follows:
(1) all federal, state and local licensing and reimbursement certification surveys, inspection and other reports received by Sublessee as to any portion of the Premises and any portion of the Business, including state department of health licensing surveys;
(2) Medicare and Medicaid certification surveys; and
(3) life safety code reports.
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Five (5) business days
after receipt
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Reports of regulatory violations
,
by written notice of the following:
(1) any violation of any federal, state or local licensing or reimbursement certification statute or regulation, including Medicare or Medicaid;
(2) any suspension, termination or restriction placed upon Sublessee or any portion of the Premises, the operation of any portion of the Business or the ability to admit residents or patients; or
(3) any violation of any other permit, approval or certification in connection with any portion of the Premises or any portion of the Business, by any federal, state or local authority, including Medicare or Medicaid.
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Two(2) business days after
receipt
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Cost Reports
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Fifteen (15) days after filing
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EXHIBIT “E”
FAIR MARKET VALUE
“
Fair Market Value
” means the fair market value of the Premises and/or Facilities or applicable portion thereof on a specified date as agreed to by the parties, or failing such agreement within ten (10) days of such date, as established pursuant the following appraisal process. Each party shall within ten (10) days after written demand by the other party select one MAI Appraiser to participate in the determination of Fair Market Value. For all purposes under this Sublease, the Fair Market Value shall be the fair market value of the Premises and/or Facilities or applicable portion thereof unencumbered by this Sublease. Within ten (10) days of such selection, the MAI Appraisers so selected by the parties shall select a third (3
rd
) MAI Appraiser. The three (3) selected MAI Appraisers shall each determine the Fair Market Value of the Premises and/or Facilities or applicable portion thereof within thirty (30) days of the selection of the third appraiser. Sublessee shall pay the fees and expenses of any MAI Appraiser it retains pursuant to this Exhibit. Sublessor shall pay the fees and expenses of any MAI Appraiser it retains pursuant to this Exhibit. Each party shall pay half the fees and expenses of the third MAI Appraiser selected by the respective MAI Appraisers selected by each of the parties.
If either party fails to select a MAI Appraiser within the time period set forth in the foregoing paragraph, the MAI Appraiser selected by the other party shall alone determine the fair market value of the Premises and/or Facilities or applicable portion thereof in accordance with the provisions of this Exhibit and the Fair Market Value so determined shall be binding upon the parties. If the MAI Appraisers selected by the parties are unable to agree upon a third (3
rd
) MAI Appraiser within the time period set forth in the foregoing paragraph, either party shall have the right to apply to the presiding judge of the court of original trial jurisdiction in the county in which the Premises and/or Facilities or applicable portion thereof are located to name the third (3
rd
) MAI Appraiser. The cost of such application to the presiding judge shall be equally shared by the parties.
Within five (5) days after completion of the third (3
rd
) MAI Appraiser’s appraisal, all three (3) MAI Appraisers shall meet and a majority of the MAI Appraisers shall attempt to determine the fair market value of the Premises and/or Facilities or applicable portion thereof. If a majority are unable to determine the fair market value at such meeting, the three (3) appraisals shall be added together and their total divided by three (3). The resulting quotient shall be the Fair Market Value. If, however, either or both of the low appraisal or the high appraisal are more than ten percent (10%) lower or higher than the middle appraisal, any such lower or higher appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2), and the resulting quotient shall be such Fair Market Value. If both the lower appraisal and higher appraisal are disregarded as provided herein, the middle appraisal shall be such Fair Market Value. In any event, the result of the foregoing appraisal process shall be final and binding.
“
MAI Appraiser
” shall mean an appraiser licensed or otherwise qualified to do business in the state(s) where the Premises or applicable portion thereof are located and who has substantial experience in performing appraisals of facilities similar to the Premises or applicable portion thereof and is certified as a member of the American Institute of Real Estate Appraisers or certified as a SRPA by the Society of Real Estate Appraisers, or, if such organizations no longer exist or certify appraisers, such successor organization or such other organization as is approved by Sublessor.
EXHIBIT “F”
MEMORANDUM OF SUBLEASE
[TO BE ATTACHED]
$470,000.00 Atlanta, Georgia
As of November 1, 2015
REPLACEMENT PROMISSORY NOTE
FOR VALUE RECEIVED,
NEW BEGINNINGS CARE, LLC, SAVANNAH BEACH HEALTHCARE & REHAB, LLC, OCEANSIDE HEALTHCARE & REHAB, LLC
and
JEFFERSONVILLE HEALTHCARE & REHAB, LLC,
each a Tennessee limited liability company (hereinafter collectively referred to as “Maker”), jointly and severally, promise to pay to the order of
ADCARE HEALTH SYSTEMS, INC.
, a Georgia corporation (hereinafter, together with any other holder hereof, referred to as “Holder”), at Two Buckhead Plaza, 3050 Peachtree Road, NW, Suite 355, Atlanta, Georgia 30305, or to such other party or parties as Holder from may from time to time designate in writing, the principal sum of FOUR HUNDRED SEVENTY THOUSAND AND 00/100 DOLLARS ($470,000.00), together with simple interest accruing on the unpaid balance of this Note at a rate equal to thirteen and one-half percent (13.5%) per annum (the “Interest Rate”).
Payments of interest only shall be made monthly commencing on November 30, 2015 and continuing on the last day of each month thereafter. The principal sum of this Note together with all accrued and unpaid interest is due and payable on October 31, 2016 (the “Maturity Date”).
The principal amount of the Note together with accrued interest may be prepaid in whole from time to time and at any time without premium or penalty.
If the payment obligation under this Note is not paid when due, the Holder shall provide written notice of default to the Maker at the address written above, and Maker will have five (5) days from the receipt of such written notice to cure the default. If Maker fails to cure any payment default within the cure period, the Maker will be obligated to pay the Holder’s costs of collection, including reasonable attorney fees actually incurred. Any payment which is not paid within the cure period (including that which may become due upon acceleration as hereinafter provided) will bear interest at the rate which is eight percent (8%) per annum in excess of the Interest Rate (the “Default Rate”), from the date of the payment default until paid.
If Maker fails to pay when due any amount payable hereunder, then, after the notice and expiration of the cure period described above, the entire unpaid principal balance of this Note, together with accrued interest thereon, will, at the option of Holder, be immediately due and payable, and Holder may proceed forthwith to collect the same regardless of the stipulated date of maturity, TIME BEING OF THE ESSENCE HEREOF FOR ALL PURPOSES. Neither Holder’s failure to exercise this right of acceleration of the maturity of the indebtedness evidenced hereby, nor Holder’s acceptance of one or more past due installments, nor Holder’s granting of any indulgences from time to time, will constitute a novation of this contract or a waiver of the right of Holder thereafter to insist upon strict compliance with the terms of this Note.
This Replacement Promissory note supersedes and replaces that certain $100,000.00 Promissory Note dated August 1, 2015.
No extension of time for the payment of this Note or any installment due hereunder will release, discharge, modify or change the liability of the Maker or any endorser under this Note.
This Note may not be assigned to or assumed by any other party, without the express written consent of the Maker and the Holder.
A default under those certain operations transfer agreements between Maker and affiliates of Holder as more particularly described in the Master Sublease (as defined below).
A default by the Sublessee under that certain master sublease agreement of even date herewith (the “Master Sublease”) shall constitute a default under this Note.
A default by Maker or its affiliated entity under any indebtedness (where the principal amount of such indebtedness exceeds $500,000.00) shall constitute a default under this Note.
Maker agrees that, upon Holder’s request, Maker shall grant Holder a security interest in Maker’s accounts receivable as collateral for Maker’s obligations under this Note. Maker further agrees to cooperate and to use its reasonable best efforts to cause any lender then holding a security interest in such accounts receivable to consent to a subordinate security interest in favor of Holder.
The terms of this Note are binding upon and inure to the benefit of the parties, and their respective legal representatives, successors and assigns. This instrument is governed by the laws of the State of Georgia. Whenever the singular or plural number or the masculine, feminine or neuter gender is used herein, it will equally include the other.
[SIGNATURE ON NEXT PAGE]
IN WITNESS WHEREOF, Maker has executed this Note effective as of the day and year first above written.
NEW BEGINNINGS CARE, LLC
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
SAVANNAH BEACH HEALTHCARE
& REHAB, LLC
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
OCEANSIDE HEALTHCARE &
REHAB, LLC
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
JEFFERSONVILLE HEALTHCARE
& REHAB, LLC
By:
/s/ Trent Tolbert
Name: Trent Tolbert
Title: CAO
AMENDED AND RESTATED NOTE
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U.S. $261,664.72
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October 1, 2015
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FOR VALUE RECEIVED
, the undersigned,
RIVERCHASE VILLAGE ADK, LLC,
a Georgia limited liability company (“Riverchase”), promises to pay to the order of
ADCARE HEALTH SYSTEMS, INC.,
a Georgia corporation (“AdCare”), the principal sum of
TWO HUNDRED SIXTY-ONE THOUSAND SIX HUNDRED SIXTY-FOUR AND 72/100 DOLLARS
($261,664.72) (the “Principal”).
The unpaid Principal of this Note (the “Note”) shall not bear interest.
The Principal balance shall be paid upon the closing of the sale of the Riverchase Facility. All capitalized but undefined terms used in this paragraph shall have the meanings set forth in that certain Agreement dated as of February 28, 2014, as amended, between Christopher F. Brogdon and his affiliated entities, on the one hand, and AdCare and its affiliated entities, on the other hand.
Riverchase acknowledges and agrees that all amounts due under this Note are due and payable as stated herein, and AdCare has no obligation to renew or extend this Note.
ADDITIONAL COVENANTS:
1.
Default
.
a.
Each of the following shall be a default (“Default”) under this Note:
(a)
failure of Riverchase to pay any amount due hereunder, or any part hereof, or any extension or renewal hereof, within five (5) days of the due date; or
(b)
Riverchase's failure to perform or comply with any of the covenants or agreements contained herein.
b.
If this Note is placed in the hands of one or more attorneys for collection or in the hands of one or more attorneys for representation of AdCare in connection with any bankruptcy, probate or other court or by any other legal proceedings, Riverchase shall pay the fees and expenses of such attorneys in addition to the full amount due hereon, whether or not litigation is commenced.
c. In the event (
i
) that there occurs any Default hereunder; or (
ii
) that Riverchase shall become insolvent or make an assignment for the benefit of its creditors; or (
iii
) that a petition is filed or any other proceeding is commenced under the Federal Bankruptcy Act or any state insolvency statute by or against Riverchase; or (
iv
) that a receiver or similar person is appointed for Riverchase; then, in any such event, the entire unpaid Principal balance due hereon and all accrued interest at the option of the holder hereof shall become immediately due and payable without any notice or demand. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent Default.
This Amended and Restated Note supersedes and replaces that certain Note dated October 10, 2014 in the principal amount of $177,323.00.
2.
Prepayment
. Riverchase may prepay this Note at any time without premium or penalty.
3.
Waivers by Riverchase and Others
. Riverchase and all endorsers, sureties and guarantors hereof hereby severally waive presentment for payment, notice of non-payment, protest, and notice of protest, and diligence in enforcing payment hereof, and consent that the time of payment may be extended without notice. The makers, endorsers, guarantors, and sureties executing this Note also waive any and all defenses which they may have upon the ground of any extension of time of payment which may be given by the holder of this indebtedness to any of the undersigned, or to any other person assuming payment hereof.
4.
Amendments, Modifications and Waiver
. No amendment, modification or waiver of any provision of this Note, nor consent to any departure by Riverchase therefrom, shall be effective unless the same shall be in a writing signed by AdCare, and then only in the specific instance and for the purpose for which given. No failure or delay on the part of AdCare to exercise any right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise by AdCare of any right under this Note preclude any other or further exercise thereof, or the exercise of any other right. Each and every right granted to AdCare under this Note or allowed to it at law or in equity shall be deemed cumulative and such remedies may be exercised from time to time concurrently or consecutively at AdCare's option.
5.
Payment
. All payments due under this Note shall be paid to AdCare at such place as AdCare may direct. Whenever a payment is due on a day other than a business day (all days except Saturday, Sunday and legal holidays under federal or Georgia law), the maturity thereof shall be extended to the next succeeding business day. If any amount due hereunder is not paid within ten (10) days of the date when due, Riverchase agrees to pay an administrative and late charge equal to the lesser of (a) five percent (5%) on and in addition to the amount of such overdue amount, or (b) the maximum charges allowable under applicable law.
6.
Notices
. All notices or other communications required or otherwise given pursuant to this Note shall be in writing and shall be delivered by hand delivery or nationally recognized overnight courier to the following addresses:
If to Riverchase:
Riverchase Village ADK, LLC
Two Buckhead Plaza
3050 Peachtree Road NW, Suite 355
Atlanta, Georgia 30305
Attention: Christopher F. Brogdon
If to AdCare:
AdCare Health Systems, Inc.
Two Buckhead Plaza
3050 Peachtree Road NW, Suite 355
Atlanta, Georgia 30305
Attention: CEO
7.
Paragraph Headings
. Paragraph headings are inserted for convenience of reference only, do not form part of this Note and shall be disregarded for purposes of the interpretation of the terms of this Note.
8.
Time of Essence
. Time is of the essence with respect to each and every covenant and obligation of Riverchase under this Note.
9.
Governing Law
. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, RIVERCHASE HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIMS TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE.
[Signature on Following Page]
IN WITNESS WHEREOF
, Riverchase has executed this Note as of the date first written above.
RIVERCHASE VILLAGE ADK, LLC:
By:
/s/ Christopher F. Brogdon
Christopher F. Brogdon
Title: Manager
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(A) AND 15d-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, William McBride III, certify that:
1. I have reviewed this Form 10-Q for the quarter ended
September 30, 2015
, of AdCare Health Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:
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November 16, 2015
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/s/ William McBride III
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William McBride III
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Chief Executive Officer
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Exhibit 31.2
CERTIFICATION OF CHIEF ACCOUNTING OFFICER
PURSUANT TO RULES 13a-14(A) AND 15d-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Allan J. Rimland, certify that:
1. I have reviewed this Form 10-Q for the quarter ended
September 30, 2015
of AdCare Health Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:
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November 16, 2015
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/s/ Allan J. Rimland
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Allan J. Rimland
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President and Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AdCare Health Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2015
, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William McBride III, Chief Executive Officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date:
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November 16, 2015
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/s/ William McBride III
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William McBride III
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Chief Executive Officer
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Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AdCare Health Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2015
, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Allan J. Rimland, President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted by § 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date:
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November 16, 2015
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/s/ Allan J. Rimland
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Allan J. Rimland
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President and Chief Financial Officer
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