Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number 001-33135

 

AdCare Health Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Ohio

 

31-1332119

(State or other jurisdiction

of incorporation)

 

(I.R.S. Employer Identification Number)

 

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  x   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  x   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.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of July 22, 2013:  14,788,288 shares of common stock with no par value were outstanding.

 

 

 



Table of Contents

 

AdCare Health Systems, Inc.

 

Form 10-Q

 

Table of Contents

 

 

 

Page
Number

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012

4

 

Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012 (unaudited)

5

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2013 (unaudited)

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

46

 

 

 

Signatures

 

51

 

2



Table of Contents

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q 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, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange 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 and 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. These forward-looking statements are found at various places throughout this report and in the documents incorporated herein by reference. These 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 and other reports that the Company files with the SEC that discuss factors germane to the Company’s business.

 

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Table of Contents

 

Part I.  Financial Information

 

Item 1.   Financial Statements

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,870

 

$

15,937

 

Restricted cash and investments

 

1,594

 

1,742

 

Accounts receivable, net of allowance of $4,668 and $3,729

 

27,976

 

26,037

 

Prepaid expenses and other

 

2,547

 

489

 

Assets of disposal group held for sale

 

3,595

 

6,159

 

Total current assets

 

45,582

 

50,364

 

 

 

 

 

 

 

Restricted cash and investments

 

7,189

 

7,215

 

Property and equipment, net

 

150,826

 

151,064

 

Intangible assets - bed licenses

 

2,471

 

2,471

 

Intangible assets - lease rights, net

 

6,595

 

6,844

 

Goodwill

 

5,023

 

5,023

 

Escrow deposits for acquisitions

 

400

 

 

Lease deposits

 

1,694

 

1,720

 

Deferred loan costs, net

 

5,751

 

6,137

 

Other assets

 

3,633

 

3,611

 

Total assets

 

$

229,164

 

$

234,449

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of notes payable and other debt

 

$

14,318

 

$

6,941

 

Revolving credit facilities and lines of credit

 

1,525

 

1,498

 

Current portion of convertible debt, net of discount

 

15,620

 

10,948

 

Accounts payable

 

17,268

 

19,503

 

Accrued expenses

 

15,602

 

13,730

 

Liabilities of disposal group held for sale

 

3,644

 

3,662

 

Total current liabilities

 

67,977

 

56,282

 

 

 

 

 

 

 

Notes payable and other debt, net of current portion:

 

 

 

 

 

Senior debt

 

104,645

 

112,160

 

Bonds, net of discounts

 

16,067

 

16,088

 

Revolving credit facilities

 

8,166

 

7,706

 

Convertible debt

 

7,500

 

12,009

 

Other debt

 

237

 

864

 

Derivative liability

 

1,481

 

3,630

 

Other liabilities

 

1,481

 

1,394

 

Deferred tax liability

 

104

 

104

 

Total liabilities

 

207,658

 

210,237

 

 

 

 

 

 

 

Commitments and contingency (Note 16)

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, no par value; 1,000 shares authorized; 450 shares issued and outstanding

 

9,159

 

9,159

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock and additional paid-in capital, no par value; 29,000 shares authorized; 14,701 and 14,659 issued and outstanding

 

41,994

 

41,644

 

Accumulated deficit

 

(28,617

)

(25,753

)

Total stockholders’ equity

 

13,377

 

15,891

 

Noncontrolling interest in subsidiaries

 

(1,030

)

(838

)

Total equity

 

12,347

 

15,053

 

Total liabilities and equity

 

$

229,164

 

$

234,449

 

 

See accompanying notes to unaudited consolidated financial statements

 

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in 000’s, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Revenues:

 

 

 

 

 

Patient care revenues

 

$

57,132

 

$

42,953

 

Management revenues

 

510

 

524

 

Total revenues

 

57,642

 

43,477

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

Cost of services (exclusive of facility rent, depreciation and amortization)

 

49,066

 

36,280

 

General and administrative expenses

 

4,928

 

3,954

 

Audit committee investigation expense

 

1,134

 

 

Facility rent expense

 

1,892

 

1,914

 

Depreciation and amortization

 

1,829

 

1,569

 

Total expense

 

58,849

 

43,717

 

 

 

 

 

 

 

Loss from Operations

 

(1,207

)

(240

)

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

Interest expense, net

 

(3,436

)

(2,500

)

Acquisition costs, net of gains

 

(97

)

(293

)

Derivative gain

 

2,136

 

410

 

Loss on extinguishment of debt

 

(2

)

 

Other expense

 

 

(14

)

Total other expense, net

 

(1,399

)

(2,397

)

 

 

 

 

 

 

Loss from Continuing Operations Before Income Taxes

 

(2,606

)

(2,637

)

Income tax expense

 

(78

)

(1

)

Loss from Continuing Operations

 

(2,684

)

(2,638

)

 

 

 

 

 

 

(Loss) Income from Discontinued Operations, net of tax

 

(66

)

226

 

Net Loss

 

(2,750

)

(2,412

)

 

 

 

 

 

 

Net Loss Attributable to Noncontrolling Interests

 

192

 

144

 

Net Loss Attributable to AdCare Health Systems, Inc.

 

(2,558

)

(2,268

)

 

 

 

 

 

 

Preferred stock dividend

 

(306

)

 

Net Loss Attributable to AdCare Health Systems, Inc. Common Stockholders

 

$

(2,864

)

$

(2,268

)

 

 

 

 

 

 

Net (loss) income per Common Share attributable to AdCare Health Systems, Inc.

 

 

 

 

 

Common Stockholders -

 

 

 

 

 

Basic:

 

 

 

 

 

Continuing Operations

 

$

(0.19

)

$

(0.20

)

Discontinued Operations

 

(0.01

)

0.01

 

 

 

$

(0.20

)

$

(0.19

)

 

 

 

 

 

 

Net (loss) income per Common Share attributable to AdCare Health Systems, Inc.

 

 

 

 

 

Common Stockholders -

 

 

 

 

 

Diluted:

 

 

 

 

 

Continuing Operations

 

$

(0.19

)

$

(0.20

)

Discontinued Operations

 

(0.01

)

0.01

 

 

 

$

(0.20

)

$

(0.19

)

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

Basic

 

14,683

 

12,225

 

Diluted

 

14,683

 

12,225

 

 

See accompanying notes to unaudited consolidated financial statements

 

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Table of Contents

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in 000’s)

(Unaudited)

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

Common

 

Additional

 

 

 

 

 

 

 

 

 

Stock

 

Paid-in

 

Accumulated

 

Noncontrolling

 

 

 

 

 

Shares

 

Capital

 

Deficit

 

Interests

 

Total

 

Balances, December 31, 2012

 

14,659

 

$

41,644

 

$

(25,753

)

$

(838

)

$

15,053

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

260

 

 

 

260

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercises of options and warrants

 

29

 

30

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for converted debt

 

13

 

60

 

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend

 

 

 

(306

)

 

(306

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

(2,558

)

(192

)

(2,750

)

Balances, March 31, 2013

 

14,701

 

$

41,994

 

$

(28,617

)

$

(1,030

)

$

12,347

 

 

See accompanying notes to unaudited consolidated financial statements

 

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(2,750

)

$

(2,412

)

Loss (Income) from discontinued operations, net of tax

 

66

 

(226

)

Loss from continuing operations

 

(2,684

)

(2,638

)

Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,829

 

1,569

 

Stock-based compensation expense

 

260

 

190

 

Lease expense in excess of cash

 

87

 

157

 

Amortization of deferred financing costs

 

525

 

334

 

Amortization of debt discounts

 

193

 

213

 

Derivative gain

 

(2,136

)

(410

)

Loss on debt extinguishment

 

2

 

 

Deferred tax expense

 

 

9

 

Gain on disposal of assets

 

 

(2

)

Provision for bad debts

 

1,387

 

890

 

Changes in certain assets and liabilities, net of acquisitions:

 

 

 

 

 

Accounts receivable

 

(4,159

)

(2,930

)

Prepaid expenses and other

 

(2,000

)

(75

)

Other assets

 

4

 

(111

)

Accounts payable and accrued expenses

 

534

 

3,719

 

Net cash (used in) provided by operating activities - continuing operations

 

(6,158

)

915

 

Net cash provided by operating activities - discontinued operations

 

45

 

590

 

Net cash (used in) provided by operating activities

 

(6,113

)

1,505

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

3

 

Change in restricted cash and investments and escrow deposits for acquisitions

 

(336

)

435

 

Acquisitions

 

 

(7,919

)

Purchase of property and equipment

 

(1,342

)

(414

)

Net cash used in investing activities - continuing operations

 

(1,678

)

(7,895

)

Net cash provided by investing activities - discontinued operations

 

2,443

 

79

 

Net cash provided by (used in) investing activities

 

765

 

(7,816

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from debt

 

2,372

 

8,300

 

Repayment on notes payable

 

(1,282

)

(1,184

)

Change in lines of credit

 

487

 

(556

)

Debt issuance costs

 

(142

)

(183

)

Exercise of warrants and options

 

30

 

23

 

Proceeds from stock issuances, net

 

 

3,641

 

Dividends paid on preferred stock

 

(306

)

 

Net cash flows provided by financing activities - continuing operations

 

1,159

 

10,041

 

Net cash flows (used in) provided by financing activities - discontinued operations

 

(1,878

)

86

 

Net cash flows (used in) provided by provided by financing activities

 

(719

)

10,127

 

Net Change in Cash

 

(6,067

)

3,816

 

Cash, Beginning

 

15,937

 

7,364

 

Cash decrease due to deconsolidation of variable interest entities

 

 

(180

)

Cash, Ending

 

$

9,870

 

$

11,000

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest

 

$

2,696

 

$

2,554

 

Income taxes

 

$

 

$

 

Conversions of debt to equity

 

$

49

 

$

 

Acquisitions in exchange for debt and equity instruments

 

$

 

$

5,000

 

Warrants issued for financing costs

 

$

 

$

276

 

 

See accompanying notes to unaudited consolidated financial statements

 

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

For the Three Months Ended March 31, 2013 and 2012

 

NOTE 1.         DESCRIPTION OF BUSINESS

 

AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively with AdCare, the “Company” or “we”), owns and operates skilled nursing and assisted living facilities in the states of Alabama, Arkansas, Georgia, Missouri, North Carolina, Ohio, Oklahoma and South Carolina. The Company, through wholly owned separate operating subsidiaries, as of March 31, 2013, operates 49 facilities comprised of 45 skilled nursing facilities, three assisted living facilities and one independent living/senior housing facility totaling approximately 4,900 beds. The Company’s facilities provide a range of health care services to their patients and residents including, but not limited to, skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term residents and short-stay patients. As of March 31, 2013, of the total 49 facilities, the Company owned and operated 26 facilities, leased and operated 11 facilities, and managed 12 facilities (including one consolidated variable interest entity). As part of the Company’s strategy to focus on the growth of skilled nursing facilities, the Company decided in the fourth quarter of 2011 to exit the home health business; therefore, this business is reported as discontinued operations (see Note 11 — Discontinued Operations ). The Company sold the assets of the home health business in 2012. Additionally, in the fourth quarter of 2012, the Company entered into an agreement to sell six assisted living facilities located in Ohio and executed a sublease arrangement to exit the skilled nursing business in Jeffersonville, Georgia. The six Ohio assisted living facilities and the Jeffersonville, Georgia skilled nursing facility had an aggregate of 313 units in service. These seven facilities are also reported as discontinued operations (see Note 11 — Discontinued Operations ). The Company sold the assets of four of the six Ohio assisted living facilities in December 2012, one in February 2013, and one in May, 2013.

 

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.  Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs’”) to the FASB’s Accounting Standards Codification (“ASC”).  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 months ended March 31, 2013 and 2012, are not necessarily indicative of the results that may be expected for the fiscal year.  The balance sheet at December 31, 2012, 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 these consolidated financial statements together with the historical consolidated financial statements of the Company for the year ended December 31, 2012 included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on July 8, 2013.

 

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 majority owned subsidiaries and variable interest entity (“VIE”) in which AdCare has control as primary beneficiary.  All inter-company accounts and transactions were eliminated in the consolidation.

 

NOTE 2.         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, 2012, for a description of all significant accounting policies.

 

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.  These

 

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reclassifications included separating bonds, net of discounts, within Notes payable and other debt within the total liabilities to define the Company’s debt instruments in further detail for March 31, 2013 and December 31, 2012.  Reclassifications were made to March 31, 2012 Statement of Operations to reflect the same facilities in discontinued operations for both periods presented.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Patient Care Receivables and Revenues

 

Patient care accounts receivable and revenues for the Company are recorded in the month in which the services are provided.

 

The Company provides services to certain patients under contractual arrangements with third-party payors, primarily under federal Medicare and state Medicaid programs. Amounts paid under these contractual arrangements are subject to review and final determination by the appropriate government authority or its agent. In the opinion of management, adequate provision was made in the consolidated financial statements for any adjustments resulting from the respective government authorities’ review.

 

For residents under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts on a per patient, daily basis.

 

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 the allowance. As of March 31, 2013 and December 31, 2012, management recorded an allowance for uncollectible accounts of $4.7 million and $3.7 million, respectively.

 

Management Fee Receivables and Revenues

 

Management fee receivables and revenue are recorded in the month that services are provided. As of March 31, 2013 and 2012, there was no allowance for uncollectible management fee receivables.

 

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 and investments, accounts receivable, notes receivable, notes payable and other debt, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments since 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

 

The Company considers the applicability and impact of all ASUs. For the three months ended March 31, 2013 and through the date of this report, all ASUs issued, effective and not yet effective, were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

 

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NOTE 3.         EARNINGS PER SHARE

 

Basic earnings per common share is computed using the weighted-average number of common shares outstanding during the period.  Diluted net loss per common share is computed using the weighted-average number of common and dilutive common equivalent shares from stock options, warrants and convertible promissory notes using the treasury stock method.  For all periods presented, diluted net loss per share is the same as basic net loss per share, as the inclusion of equivalent shares from outstanding common stock options, warrants and convertible promissory notes would be anti-dilutive.

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

(Amounts in 000’s, except per share data)

 

Income
(loss)

 

Shares

 

Per
Share

 

Income
(loss)

 

Shares

 

Per
Share

 

Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(2,684

)

 

 

 

 

$

(2,638

)

 

 

 

 

Net loss attributable to noncontrolling interests

 

192

 

 

 

 

 

144

 

 

 

 

 

Basic loss from continuing operations

 

$

(2,492

)

14,683

 

$

(0.17

)

$

(2,494

)

12,225

 

$

(0.20

)

Preferred stock dividend

 

(306

)

14,683

 

$

(0.02

)

 

 

$

 

Effect of dilutive securities: Stock options, warrants outstanding and convertible debt (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted loss from continuing operations

 

$

(2,798

)

14,683

 

$

(0.19

)

$

(2,494

)

12,225

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) income from discontinued operations

 

(66

)

14,683

 

$

(0.01

)

226

 

12,225

 

$

0.01

 

Diluted (loss) income from discontinued operations

 

(66

)

14,683

 

$

(0.01

)

226

 

12,225

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to AdCare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss

 

(2,864

)

14,683

 

$

(0.20

)

(2,268

)

12,225

 

$

(0.19

)

Diluted loss

 

(2,864

)

14,683

 

$

(0.20

)

(2,268

)

12,225

 

$

(0.19

)

 


(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:

 

(Amounts in 000’s)

 

March 31, 2013

 

December 31, 2012

 

Outstanding Stock Options

 

1,402

 

1,351

 

Outstanding Warrants - employee

 

1,806

 

1,806

 

Outstanding Warrants - nonemployee

 

1,904

 

1,961

 

Convertible Debt shares issuable(a)

 

7,124

 

7,140

 

Total anti-dilutive securities

 

12,236

 

12,258

 

 


(a) The number of shares issuable upon conversion of convertible promissory notes is 120% of the aggregate principal amount of the convertible promissory notes divided by the current conversion price, which is the number required to be reserved for issuance by the Company under the applicable registration rights agreement.

 

NOTE 4.          LIQUIDITY AND PROFITABILITY

 

For the three months ended and as of March 31, 2013, we had a net loss of $2.8 million and negative working capital of $22.4 million. At March 31, 2013, we had $9.9 million in cash and cash equivalents and $171.7 million in indebtedness, including current maturities and discontinued operations, of which $35.1 million is current debt (including the Company’s outstanding convertible promissory notes with a principal amount in the aggregate of $11.6 million and $4.5 million which mature in October 2013 and March 2014, respectively, and approximately $3.7 million of mortgage notes included in liabilities of disposal group that were assumed by the buyer in May 2013). Our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs.

 

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We anticipate that scheduled debt service (excluding outstanding subordinated convertible promissory notes and approximately $7.0 million of bullet maturities due February 2014 that the Company believes will be refinanced on a longer term basis but including principal, interest, collateral and capital improvement fund or other escrow deposits) will total approximately $17.7 million and cash outlays for acquisition costs, maintenance capital expenditures, dividends on our Series A Preferred Stock and income taxes will total approximately $4.2 million for the 12 months ending March 31, 2014.  In recent periods, we 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. Although, we anticipate the conversion to common stock of the Company’s outstanding subordinated convertible promissory notes with a principal amount in the aggregate of $11.6 million and $4.5 million that mature in October 2013 and March 2014, respectively, we believe that our anticipated cash flow and committed funding sources would allow us to pay these notes in cash. These promissory notes are convertible at the option of the holder into shares of common stock of the Company at $3.73 per share and $4.80 per share, respectively. The closing price of the common stock exceeded $4.00 per share from January 1, 2013 through July 23, 2013, except for the last three trading days in March 2013. As discussed further below, if we were required to pay these subordinated convertible promissory notes in cash and were unable to refinance the $7.0 million of bullet maturities due February 2014, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans due to our limited liquidity in such an event.

 

The Company expanded its existing credit facility with Gemino Healthcare Finance, LLC (“Gemino”): (i) in May 2013, to refinance and include one of the facilities the Company acquired in December 2012; and (ii) in June 2013, to refinance and include two additional facilities the Company also acquired in December 2012. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis. 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 2013.

 

Based on existing cash balances, anticipated cash flows for the 12 months ending March 31, 2014, the anticipated refinancing of the $7.0 million of bullet maturities due February 2014, and new sources of capital, we believe there will be sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next 12 months. On a longer term basis, we have approximately $73.3 million of debt payments and maturities due between 2015 and 2017, excluding subordinated convertible promissory notes which are convertible into shares of common stock. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.

 

In order to satisfy these capital needs, we intend to: (i) improve our operating results by increasing facility occupancy, optimizing our payor mix by increasing the proportion of sub-acute patients within our skilled nursing facilities, continuing our cost optimization and efficiency strategies and acquiring additional long-term care facilities with existing operating cash flow; (ii) expand our borrowing arrangements with certain existing lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities. We anticipate that these actions, if successful, will provide the opportunity for us to maintain liquidity on a short and long term basis, thereby permitting us to meet our operating and financing obligations for the next 12 months and provide for the continuance of our acquisition strategy. However, there is no guarantee that such actions will be successful or that anticipated operating results will be achieved. We currently have limited borrowing availability under our existing revolving credit facilities. If the Company is unable to improve operating results, expand existing borrowing agreements, refinance current debt (including the $7.0 million of bullet maturities due February 2014), raise capital through the issuance of securities, or the subordinated convertible promissory notes due October 2013 and March 2014 are not converted into common stock and are required to be repaid by us in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans.

 

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NOTE 5.          RESTRICTED CASH AND INVESTMENTS

 

The following table sets forth the Company’s various restricted cash, escrow deposits and investments:

 

(Amounts in 000’s)

 

March 31,
2013

 

December 31,
2012

 

HUD escrow deposits

 

$

235

 

$

279

 

Principal and interest escrow

 

 

106

 

Collateral certificates of deposit

 

1,359

 

1,357

 

Total current portion

 

1,594

 

1,742

 

 

 

 

 

 

 

HUD reserve replacement

 

320

 

372

 

Reserves for capital improvements

 

1,598

 

1,602

 

Restricted investments for other debt obligations

 

5,271

 

5,241

 

Total noncurrent portion

 

7,189

 

7,215

 

 

 

 

 

 

 

Total restricted cash and investments

 

$

8,783

 

$

8,957

 

 

NOTE 6.          PROPERTY AND EQUIPMENT

 

The following table sets forth the Company’s property and equipment:

 

(Amounts in 000’s)

 

Estimated Useful
Lives (Years)

 

March 31, 2013

 

December 31, 2012

 

Buildings and improvements

 

5-40

 

$

138,226

 

$

137,842

 

Equipment

 

2-10

 

10,825

 

10,448

 

Land

 

 

8,469

 

8,469

 

Computer related

 

2-10

 

2,946

 

2,670

 

Construction in process

 

 

815

 

510

 

 

 

 

 

161,281

 

159,939

 

Less: Accumulated depreciation and amortization expense

 

 

 

10,455

 

8,875

 

Property and equipment, net

 

 

 

$

150,826

 

$

151,064

 

 

For the three months ended March 31, 2013 and 2012, depreciation and amortization expense was approximately $1.8 million and $1.6 million, respectively.

 

During the quarter ended March 31, 2012, the Company recognized a $0.4 million impairment charge to write down the carrying value of an office building located in Rogers, Arkansas.  The office building was acquired in 2011.  The purchase price allocation for that acquisition was deemed to be final as of December 31, 2011.  Subsequent to December 31, 2011, it was determined that the acquired office building would not be utilized and the building was not in use as of March 31, 2012.  The impairment charge represents a change in fair value from value recognized in the purchase price allocation.  The impairment charge is classified as depreciation expense in the consolidated statement of operations.

 

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NOTE 7.          INTANGIBLE ASSETS AND GOODWILL

 

There have been no impairment adjustments to intangible assets and goodwill during the three months ended March 31, 2013.

 

Intangible assets consist of the following: 

 

 

 

Bed Licenses

 

 

 

 

 

 

 

 

 

(included in

 

 

 

 

 

 

 

 

 

property and

 

Bed Licenses -

 

Lease

 

 

 

(Amounts in 000’s)

 

equipment

 

Separable

 

Rights

 

Total

 

Balances, December 31, 2012:

 

 

 

 

 

 

 

 

 

Gross

 

$

38,478

 

$

2,471

 

$

9,545

 

$

50,494

 

Accumulated amortization

 

(1,438

)

 

(2,701

)

(4,139

)

Net carrying amount

 

$

37,040

 

$

2,471

 

$

6,844

 

$

46,355

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

Disposals

 

 

 

 

 

Amortization expense

 

(290

)

 

(249

)

(539

)

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2013:

 

 

 

 

 

 

 

 

 

Gross

 

38,478

 

2,471

 

9,545

 

50,494

 

Accumulated amortization

 

(1,728

)

 

(2,950

)

(4,678

)

Net carrying amount

 

$

36,750

 

$

2,471

 

$

6,595

 

$

45,816

 

 

Amortization expense for bed licenses included in property and equipment was approximately $0.3 million and $0.2 million for the three months ended March 31, 2013 and 2012, respectively.  Amortization expense for lease rights was approximately $0.2 million and $0.1 million for the three months ended March 31, 2013 and 2012, respectively.

 

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

 

2013 (a)

 

$

962

 

$

748

 

2014

 

1,283

 

938

 

2015

 

1,283

 

813

 

2016

 

1,283

 

813

 

2017

 

1,283

 

813

 

Thereafter

 

30,656

 

2,470

 

Total expected amortization expense

 

$

36,750

 

$

6,595

 

 


(a)          Estimated amortization expense for the year ending December 31, 2013 includes only amortization to be recorded after March 31, 2013.

 

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The following table summarizes the carrying amount of goodwill at March 31, 2013 as compared with December 31, 2012:

 

 

 

(Amounts in 000’s)

 

Balances, December 31, 2012:

 

 

 

Gross

 

$

5,023

 

Accumulated impairment losses

 

 

Total

 

$

5,023

 

 

 

 

 

Goodwill acquired in acquisitions

 

 

Disposed in sale of business, net

 

 

Impairment losses

 

 

 

 

 

 

Balances, March 31, 2013:

 

 

 

Gross

 

$

5,023

 

Accumulated impairment losses

 

 

Total

 

$

5,023

 

 

The Company does not amortize goodwill or indefinite lived intangibles, which consist of separable bed licenses.

 

NOTE 8.          ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

(Amounts in 000’s)

 

March 31,
2013

 

December 31,
2012

 

Accrued payroll related

 

$

5,194

 

$

5,626

 

Accrued employee benefits

 

4,617

 

3,790

 

Real estate and other taxes

 

1,579

 

1,245

 

Other accrued expenses

 

4,212

 

3,069

 

Total accrued expenses

 

$

15,602

 

$

13,730

 

 

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NOTE 9.          NOTES PAYABLE AND OTHER DEBT

 

Notes payable and other debt consist of the following:

 

(Amounts in 000’s)

 

March 31, 2013

 

December 31, 2012

 

Senior debt - guaranteed by HUD (a)

 

$

7,793

 

$

9,699

 

Senior debt - guaranteed by USDA

 

28,218

 

28,370

 

Senior debt - guaranteed by SBA

 

6,130

 

6,189

 

Senior debt - bonds, net of discount

 

16,246

 

16,265

 

Senior debt - other mortgage indebtedness

 

74,988

 

75,188

 

Revolving credit facilities and lines of credit

 

9,691

 

9,204

 

Convertible debt issued in 2010, net of discount

 

11,111

 

10,948

 

Convertible debt issued in 2011

 

4,509

 

4,509

 

Convertible debt issued in 2012

 

7,500

 

7,500

 

Other debt

 

5,536

 

4,004

 

Total

 

$

171,722

 

$

171,876

 

Less: current portion

 

31,463

 

19,387

 

Less: portion included in liabilities of disposal group held for sale

 

3,644

 

3,662

 

Notes payable and other debt, net of current portion

 

$

136,615

 

$

148,827

 

 


(a)          The senior debt - guaranteed by HUD includes $3.6 million related to the Vandalia HUD mortgage note classified as liabilities of disposal group held for sale at March 31, 2013, that was assumed by the buyer of the Hearth & Home of Vandalia assisted living facility that the Company sold in a transaction that closed in May 2013 (See Note 18 - Subsequent Events).

 

Scheduled Maturities

 

The schedule below summarizes the scheduled maturities as of March 31, 2013 for each of the next five years and thereafter.

 

 

 

(Amounts in 000’s)

 

2014

 

$

35,505

 

2015

 

24,962

 

2016

 

14,403

 

2017

 

41,390

 

2018

 

3,733

 

Thereafter

 

52,306

 

Subtotal

 

172,299

 

Less: unamortized discounts ($489 classifed as current)

 

(913

)

Plus: unamortized premiums ($91 classified as current)

 

336

 

Total notes and other debt

 

$

171,722

 

 

Debt Covenant Compliance

 

As of March 31, 2013, the Company (including its consolidated variable interest entity) has over twenty different credit facilities (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 subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries comprising less than the Company’s consolidated

 

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financial measurements). Some covenants are based on annual financial metric measurements whereas others are based on monthly or quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of March 31, 2013, the Company has not been in compliance with certain financial and administrative 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.

 

Senior Debt—Guaranteed by HUD

 

Sale of Ohio ALFs

 

On February 28, 2013, the Company completed the sale of one additional assisted living facility and used the proceeds to repay the principal balance of its loan which was insured by the U.S. Department of Housing and Urban Development (“HUD”), with respect to the facility in the amount of $1.9 million.

 

Hearth and Home of Vandalia

 

In connection with the Company’s January 2012 refinancing of the assisted living facility known as Hearth and Home of Vandalia (“Vandalia”), owned by a wholly owned subsidiary of AdCare, the Company obtained a note, insured by HUD, with a financial institution for a total amount of $3.7 million that matures in 2041. The HUD note requires monthly principal and interest payments with a fixed interest rate of 3.74%. The Company incurred deferred financing costs on the note of approximately $0.2 million, which are being amortized to interest expense over the life of the note. The HUD note has a prepayment penalty of 8% starting in 2014 declining by 1% each year through 2022. This note was assumed by the buyer in the closing of the sale of this facility that occurred in May 2013 pursuant to the terms of the sale agreement related to the sale of six of the Company’s assisted living facilities located in Ohio (see Note 18 -  Subsequent Events ).

 

Revolving Credit Facilities and Lines of Credit

 

PrivateBank Credit Facility

 

On January 25, 2013, the Company entered into a Memorandum of Agreement with PrivateBank. Pursuant to the memorandum, three of the Company’s subsidiaries and their collateral, which comprise the three skilled nursing facilities located in Arkansas known as the Aviv facilities, were released from liability under that certain Loan and Security Agreement, dated October 26, 2012 and as so amended, between PrivateBank and the Company. In exchange for the release from liability under the loan agreement, the Company made a payment in the amount of $0.7 million on December 28, 2012. The memorandum did not change the maximum amount that may be borrowed under the loan agreement by the Company, which remains $10.6 million.

 

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As of March 31, 2013, $8.2 million was outstanding of the maximum borrowing amount of $10.6 million under the loan agreement under the PrivateBank Credit Facility.  There were $1.3 million of outstanding letters of credit that are pledged as collateral of  borrowing capacity on this revolver.

 

Convertible Debt

 

Subordinated Convertible Promissory Notes Issued in 2010

 

In February 2013, there was a conversion of a $0.02 million convertible promissory note, which was part of the October 26, 2010 offering, at a price of $3.73 per share and resulted in the issuance of 6,635 shares of common stock.  In March 2013, another conversion of a $0.02 million convertible promissory note, which was also a part of the October 26, 2010 offering, at a price of $3.73 per share, resulted in the issuance of 6,635 shares of common stock.

 

Other Debt

 

During the three months ended March 31, 2013, the Company obtained financing from AON Premium Finance, LLC and entered into Commercial Insurance Premium Finance Security Agreements for the insurance programs, including general and professional liability, property, casualty, crime, and employment practices liability effective January 1, 2013 and matures on December 31, 2013.  The total amount financed was approximately $2.4 million requiring monthly payments of $0.2 million with interest ranging from 2.87% to 4.79%.  The outstanding amount was approximately $1.9 million at March 31, 2013.

 

NOTE 10.                        ACQUISITIONS

 

On February 15, 2013, the Company entered into a Purchase and Sale Agreement with Avalon Health Care, LLC to acquire certain land, buildings, improvements, furniture, vehicles, contracts, fixtures and equipment comprising: (i) a 180-bed skilled nursing facility known as Bethany Health and Rehab; and (ii) a 240-bed skilled nursing facility known as Trevecca Health and Rehab, both located in Nashville, Tennessee.  The Company deposited $0.4 million of earnest money escrow deposits in February 2013.  On June 1, 2013, the Purchase and Sale Agreement was terminated due to the failure of the transaction to close by May 31, 2013.  (See Note 18 — Subsequent Events for discussion of recent events).

 

During the three months ended March 31, 2013, the Company has incurred a total of approximately $0.1 million of acquisition costs and has recorded the cost in “Other Income (Expense)” section of the consolidated statements of  operations.

 

During the three months ended March 31, 2012, the Company acquired two facilities.

 

Unaudited Pro forma Financial Information

 

The above acquisitions have been included in the consolidated financial statements since the dates of the acquisition. The following table represents pro forma results of consolidated operations as if all of the 2012 acquisitions had occurred at the beginning of the earliest fiscal year being presented, after giving effect to certain adjustments.

 

 

 

Three Months Ended March 31,

 

(Amounts in 000s)

 

2012

 

Pro forma revenue

 

$

55,841

 

Pro forma operating expenses

 

$

55,491

 

Pro forma (loss) income from operations

 

$

350

 

 

The forgoing pro forma information is not indicative of what the results of operations would have been if the acquisitions had actually occurred at the beginning of the periods presented and is not intended as a projection of future results or trends.

 

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Table of Contents

 

NOTE 11.                        DISCONTINUED OPERATIONS

 

As part of the Company’s strategy to focus on the growth of its skilled nursing segment, the Company decided in the fourth quarter of 2011 to exit the home health segment of the business. In the fourth quarter of 2012, the Company continued this strategy and entered into an agreement to sell six assisted living facilities located in Ohio. The Company also entered into a sublease arrangement in the fourth quarter of 2012 to exit the operations of a skilled nursing facility in Jeffersonville, Georgia. The results of operations and cash flows for the home health business, the six Ohio assisted living facilities and the Jeffersonville, Georgia skilled nursing facility are reported as discontinued operations in 2013 and 2012.

 

Total revenues from discontinued operations were $0.8 million and $3.7 million for the three months ended March 31, 2013 and 2012, respectively. Net loss from discontinued operations was $0.1 million and net income $0.2 million for the three months ended March 31, 2013 and 2012, respectively. Interest expense included in discontinued operations was approximately $0.06 million and $0.2 million for the three months ended March 31, 2013 and 2012, respectively.

 

On February 28, 2013, the Company completed the sale of the facility known as Lincoln Lodge Retirement Residence and used the proceeds to pay the principal balance of the HUD mortgage note with respect to the facility of $1.9 million. The Company recognized a loss on the sale of $0.2 million and cash proceeds, net of costs and debt payoff, of $0.4 million.  The one remaining Ohio assisted living facility held for sale at March 31, 2013 is Vandalia. The Vandalia assets to be sold and the Vandalia HUD mortgage note to be assumed by the buyer are reflected as assets and liabilities of a disposal group held for sale at March 31, 2013 and December 31, 2012 (see Note 18 — Subsequent Events for discussion of recent events).

 

Assets and liabilities of the disposal groups held for sale at March 31, 2013 and December 31, 2012 are as follows:

 

(Amounts in 000’s)

 

March 31, 2013

 

December 31, 2012

 

Property and equipment, net

 

$

2,800

 

$

5,840

 

Other assets

 

795

 

319

 

Assets of disposal group held for sale

 

$

3,595

 

$

6,159

 

 

 

 

 

 

 

Current portion of debt

 

$

3,644

 

$

3,662

 

Liabilities of disposal group held for sale

 

$

3,644

 

$

3,662

 

 

NOTE 12.  PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

Stock Dividend

 

On September 6, 2012, the Company’s Board of Directors declared a 5% stock dividend issued on October 22, 2012 to holders of the common stock as of October 8, 2012. As a result of the stock dividend, the number of outstanding shares of common stock increased by 0.7 million shares in 2012.

 

2012 Public Common Stock Offering

 

In March 2012, the Company closed a firm commitment underwritten public offering of 1.1 million shares of common stock at an offering price to the public of $3.75 per share. The Company also granted the underwriter in the offering an option for 45 days to purchase up to an additional 165,000 shares of common stock to cover over-allotments, if any. In connection with the underwriter’s partial exercise of this option, the Company issued an additional 65,000 shares of common stock at an offering price to the public of $3.75 per share on May 22, 2012. The Company received net proceeds of $3.8 million after deducting underwriting discounts and other offering-related expenses of $0.6 million.

 

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Preferred Stock

 

On November 7, 2012, the Company announced a “best efforts” public offering of 450,000 shares of its newly designated Series A Preferred Stock. The Series A Preferred Stock was offered at $23 per share. In November 2012, the Company issued 450,000 shares of Series A Preferred Stock at $23 per share, receiving proceeds of $9.2 million after deducting underwriting discounts and other offering-related expenses of $1.2 million. The liquidation preference per share is $25. Cumulative dividends accrue and are paid in the amount of $2.72 per share each year, which is equivalent to 10.875% of the $25.00 liquidation preference per share. The dividend rate may increase under certain circumstances.

 

Holders of the Series A Preferred Stock generally have limited voting rights under certain circumstances. The Company may not redeem the Series A Preferred Stock before December 1, 2017, however the Company is required to redeem the Series A Preferred Stock following a “Change of Control,” as defined. On and after December 1, 2017, the Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, by paying $25.00 per share, plus any accrued and unpaid dividends to the redemption date.

 

The change-in-control provision requires the preferred stock to be classified as temporary equity because, although deemed a remote possibility, a purchaser could acquire a majority of the voting power of the outstanding common stock without company approval, thereby triggering redemption. FASB ASC Topic 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities , requires classification outside of permanent equity for redeemable instruments for which the redemption triggers are outside of the issuer’s control. The assessment of whether the redemption of an equity security could occur outside of the issuer’s control is required to be made without regard to the probability of the event or events that may result in the instrument becoming redeemable.

 

NOTE 13.  STOCK BASED COMPENSATION

 

Stock Incentive Plans

 

The Company has three share-based compensation plans: the AdCare Health Systems, Inc. 2011 Stock Incentive Plan (the “2011 Plan”), the 2005 Stock Option Plan of AdCare Health Systems, Inc. (the “2005 Plan”) and the 2004 Stock Option Plan of AdCare Health Systems, Inc. (the “2004 Plan”) which provide for the granting of qualified incentive and non-qualified stock options to employees, directors, consultants and advisors. The 2011 Plan also permits the granting of restricted stock to employees, directors, consultants and advisors.  The awards are subject to a vesting schedule as set forth in each individual agreement. The Company intends to use only the 2011 Plan to make future grants. The number of options under the 2004 Plan and 2005 Plan outstanding at March 31, 2013 totaled 42,046.  The maximum number of shares of common stock which can be issued under the 2011 Plan is 2,100,000 at March 31, 2013.

 

The fair value of options granted by the Company is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate.  Expected volatilities are based on historical volatility of the Company’s common stock and other factors estimated over the expected term of the options.  The term of employee options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term.  The term for non-employee options is generally based upon the contractual term of the option.  The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term or contractual term as described.

 

The assumptions used in calculating the fair value of employee options granted during the three months ended March 31, 2013, using the Black-Scholes-Merton option-pricing model are set forth in the following table:

 

 

 

Three Months Ended
March 31, 2013

 

Expected volatility

 

46.20

%

Expected life (in years)

 

6.5

 

Expected dividend yield

 

 

Risk-free interest rate

 

1.09

%

 

The weighted-average grant date fair value for options granted during the three months ended March 31, 2013 was approximately $2.27.

 

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Employee Common Stock Options

 

Activity with respect to employee stock options is summarized as follows:

 

 

 

Number of
Shares

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term
(in years)

 

Aggregate
Intrinsic
Value
(in 000’s)

 

Outstanding at January 1, 2013

 

1,350,861

 

$

4.57

 

 

 

 

 

Granted

 

125,000

 

$

4.90

 

 

 

 

 

Exercised

 

 

$

 

 

 

 

 

Unvested options forfeited or cancelled

 

(52,500

)

$

3.93

 

 

 

 

 

Vested options expired

 

(21,669

)

$

1.30

 

 

 

 

 

Outstanding at March 31, 2013

 

1,401,692

 

$

4.67

 

6.7

 

$

166

 

Vested at March 31, 2013

 

374,871

 

$

4.29

 

4.9

 

$

122

 

 

Total unrecognized compensation expense related to granted stock options at March 31, 2013, was approximately $1.3 million and is expected to be recognized over a weighted-average period of 2.2 years.

 

Employee Common Stock Warrants

 

Activity with respect to employee common stock warrants is summarized as follows:

 

 

 

Number of
Shares

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term
(in years)

 

Aggregate
Intrinsic
Value
(in 000’s)

 

Outstanding at January 1, 2013

 

1,806,024

 

$

2.99

 

 

 

 

 

Granted

 

 

$

 

 

 

 

 

Exercised

 

 

$

 

 

 

 

 

Unvested warrants forfeited or cancelled

 

 

$

 

 

 

 

 

Vested warrants expired

 

 

$

 

 

 

 

 

Outstanding at March 31, 2013

 

1,806,024

 

$

2.99

 

5.4

 

$

1,924

 

Vested at March 31, 2013

 

1,631,020

 

$

2.85

 

5.0

 

$

1,920

 

 

Total unrecognized compensation expense related to granted employee stock warrants at March 31, 2013, was approximately $0.2 million and is expected to be recognized over a weighted-average period of 2.2 years.

 

Restricted Stock

 

In June 2012, the Company approved issuing, pursuant to the 2011 Plan, 270,000 shares of common stock with a three year restriction on transfer to its nine directors.  The restricted stock 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 calculated the fair value of the restricted stock to be equal to the closing stock price of $3.20 on the date of grant.  The related compensation expense is being recognized over the three year restricted period.  The compensation expense for the three months ended March 31, 2013 was approximately $0.1 million with unrecognized compensation expense of approximately $0.7 million remaining at March 31, 2013.

 

On July 2, 2012, in connection with the issuance of the $7.5 million principal amount of 8% subordinated convertible notes,  the Company granted 50,000 shares of restricted common stock with a one year restriction on transferability to the placement agent as partial consideration for its service on the offering.  The Company calculated the fair value of the restricted stock to be equal to the closing stock price of $3.50 on the date of grant date.  The related compensation expense is included in deferred loan costs and is being amortized as interest expense over the term of the 8% subordinated convertible notes.  The expense for the three months ended March 31, 2013 was less than $0.02 million with unrecognized expense of approximately $0.1 million remaining at March 31, 2013.

 

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The following summarizes the Company’s restricted stock activity for the three months ended March 31, 2013:

 

 

 

Number of Shares

 

Weighted Avg.
Grant Date Fair
Value

 

Unvested at January 1, 2013

 

283,500

 

$

3.20

 

Granted

 

 

$

 

Vested

 

 

$

 

Forfeited

 

 

$

 

Unvested at March 31, 2013

 

283,500

 

$

3.20

 

 

Nonemployee Common Stock Warrants

 

The Company grants common stock warrants in connection with equity share purchases by investors as an additional incentive for providing long-term equity capital to the Company and as additional compensation to consultants and advisors.  The warrants are granted at negotiated prices in connection with the equity share purchases and at the market price of the common stock in other instances.  The warrants have been issued for terms between two and ten years.

 

Following is a summary of the warrant activity for the three months ended March 31, 2013:

 

 

 

Number of
Shares

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term
(in years)

 

Aggregate
Intrinsic
Value

 

Outstanding at January 1, 2013

 

1,961,457

 

$

3.78

 

 

 

 

 

Granted

 

 

$

 

 

 

 

 

Exercised

 

(28,825

)

$

1.05

 

 

 

 

 

Unvested warrants forfeited or cancelled

 

 

$

 

 

 

 

 

Vested warrants expired

 

(28,941

)

$

2.27

 

 

 

 

 

Outstanding at March 31, 2013

 

1,903,691

 

$

3.84

 

1.5

 

$

546

 

Vested at March 31, 2013

 

1,903,691

 

$

3.84

 

1.5

 

$

546

 

 

For the three months ended March 31, 2013 and 2012, the Company recognized stock-based compensation as follows:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2013

 

2012

 

Employee compensation:

 

 

 

 

 

Stock options

 

$

154

 

$

108

 

Employee warrants

 

32

 

57

 

Total option and warrants compensation

 

$

186

 

$

165

 

Board restricted stock

 

74

 

 

Total Employee Compensation Expense

 

$

260

 

$

165

 

 

 

 

 

 

 

Non-employee compensation:

 

 

 

 

 

Warrants

 

$

 

$

302

 

Less: Deferred financing and prepaid services

 

 

(277

)

Amortization of prepaid services

 

4

 

 

Total Nonemployee Compensation Expense

 

$

4

 

$

25

 

 

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NOTE 14.  VARIABLE INTEREST ENTITIES

 

As further described in Note 20 our Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, the Company has certain variable interest entities that are required to be consolidated because AdCare has control as primary beneficiary. A “primary beneficiary” is the party in a VIE that has both of the following characteristics:  (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) 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 June 2013, the Company amended the Option Agreement to purchase Riverchase Village facility to extend the option exercise period to June 22, 2014 (see Note 18 — Subsequent Events for discussion of recent events).  The following summarizes the assets and liabilities of the variable interest entity included in the consolidated balance sheets:

 

(Amounts in 000’s)

 

March 31, 2013

 

December 31, 2012

 

Cash

 

$

40

 

$

(38

)

Accounts receivable

 

(15

)

 

Restricted investments

 

364

 

343

 

Property and equipment, net

 

5,981

 

5,974

 

Other assets

 

420

 

391

 

Total assets

 

$

6,790

 

$

6,670

 

 

 

 

 

 

 

Accounts payable

 

$

1,591

 

$

1,316

 

Accrued expenses

 

107

 

67

 

Current portion of notes payable

 

87

 

92

 

Notes payable, net of current portion

 

6,035

 

6,033

 

Non-controlling interest

 

(1,030

)

(838

)

Total liabilities

 

$

6,790

 

$

6,670

 

 

NOTE 15.  FAIR VALUE MEASUREMENTS

 

The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2013, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).

 

(Amounts in 000’s)

 

Level 1:

 

Level 2:

 

Level 3:

 

Total at March 31,
2013

 

Derivative liability - 2013

 

 

 

$

1,481

 

$

1,481

 

Derivative liability - 2012

 

 

 

$

3,630

 

$

3,630

 

 

Set forth below is a reconciliation of the beginning and ending balances for the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2013:

 

(Amounts in 000’s)

 

Derivative Liability

 

Beginning balance

 

$

3,630

 

Converted debt

 

(13

)

Derivative gain

 

(2,136

)

Ending balance

 

$

1,481

 

 

The derivative liability is the result of the Company issuing subordinated convertible notes in 2010.  The notes are convertible into shares of common stock of the Company at a current conversion price of $3.73 (adjusted for various stock dividends) that is subject to future reductions if the Company issues equity instruments at a lower price. Because there is no minimum conversion price, an indeterminate number of shares may be issued in the future. Accordingly, the Company determined an embedded derivative existed that was required to be bifurcated from the subordinated convertible notes and

 

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accounted for separately as a derivative liability recorded at fair value. The Company estimates the fair value of the derivative liability using the Black-Scholes Merton option-pricing model with changes in fair value being reported in the consolidated statement of operations. This model requires certain key inputs that are significant unobservable inputs (Level 3).

 

The Company currently has no plans to issue equity instruments at a price lower than the conversion price of $3.73, the current conversion price of the subordinated convertible notes issued in 2010.  The derivative liability is a non-cash item.  Upon conversion to common stock, the debt and derivative liability will be extinguished, the current fair market value of the common stock will be reflected as common stock and additional paid-in capital, and there may be a resulting gain or loss on the debt extinguishment.  If not converted to common stock, upon settlement at the date of maturity, the debt and derivative liability will result in a gain on debt extinguishment for the remaining fair value of the derivative.

 

NOTE 16.                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.

 

A significant portion of the Company’s revenue is derived from Medicaid and Medicare, for which reimbursement rates are subject to regulatory changes and government funding restrictions. Any significant future change to reimbursement rates could have a material effect on the Company’s operations.

 

Operating Leases

 

The Company leases certain office space and 11 skilled nursing facilities under non-cancelable operating leases, most of which have initial lease terms of ten to twelve years with rent escalation clauses and provisions for payments by the Company of real estate taxes, insurance and maintenance costs.  For the three months ended March 31, 2013 and 2012, facility rent expense totaled $1.9 million and $1.9 million, respectively.

 

Eight of the Company’s facilities are operated under a single master lease arrangement. The lease has a term of ten years into 2020. Under the master 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 Medicare and Medicaid provider requirements, is a default under the Company’s master lease agreement. In addition, other potential defaults related to an individual facility may cause a default of the entire master lease agreement. 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. The Company is not aware of any defaults as of March 31, 2013.

 

Two of the Company’s facilities are operated under a separate lease agreement. The lease is a single indivisible lease; therefore, a breach at a single facility could subject the second facility to the same default risk. The lease has a term of 12 years into 2022 and includes covenants and restrictions. A commitment is included that requires 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. In recent periods, including as of March 31, 2013, the Company has not been in compliance with certain financial and administrative covenants of this lease agreement. The Company has obtained a waiver for each instance of such non-compliance.

 

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

 

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program (such as Medicare) or payer. A violation may provide the basis for exclusion from federally funded healthcare programs. As of March 31, 2013, 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.

 

In 2012, the Company was named as a defendant in two related lawsuits asserting breach of contract claims arising out of consulting agreements executed in 2010 in connection with the Company’s becoming the operator of certain leased facilities that were previously operated by a third-party. The same transaction was already the subject of litigation commenced by the Company in 2011 against several entities which had previously operated the leased facilities. After becoming the operator of the leased facilities, the Company incurred certain losses for pre-closing activities for which the Company was entitled to indemnification. The Company sought to enforce its rights to indemnity by filing a lawsuit against the former operators of the leased facilities for breach of contract and related tort claims, and the Company proceeded to set off its losses against payment due under the consulting agreements referenced above. The defendants filed counterclaims against the Company. In the third quarter of 2012, a settlement was reached with respect to the three lawsuits that permitted the Company to eliminate a previously accrued liability in light of the lower than expected settlement amount of $1.0 million resulting in a non-cash settlement gain of $0.4 million recognized in the third quarter of 2012. During the third quarter of 2012, $0.3 million of the settlement was paid.  During the three months ended March 31, 2013, $0.1 million of the settlement was paid, leaving $0.2 million remaining balance to be paid during the remainder of 2013.

 

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 Chief Executive Officer (collectively, the “AdCare Defendants”); (ii) Christopher Brogdon, Vice Chairman of the Board of Directors, and his wife; and (iii) five entities controlled by Mr. and Mrs. Brogdon, which entities own five skilled-nursing facilities located in Oklahoma (the “Oklahoma Facilities”) that are managed by an AdCare subsidiary. The Company believes that the complaint is without merit and intends to vigorously defend itself against the claims set forth therein.

 

The complaint alleges, with respect to the AdCare Defendants, that: (i) the AdCare Defendants tortuously interfered with contractual relations between the Plaintiffs and Mr. Brogdon, and with Plaintiffs’ prospective economic advantage, relating to SSSI’s right to manage the Oklahoma Facilities and seven other skilled-nursing facilities located in Oklahoma (collectively, the “Facilities”), respectively; (ii) the AdCare Defendants fraudulently induced the Plaintiffs to perform work and incur expenses with respect to the Facilities; and (iii) one of the AdCare subsidiaries which is an AdCare Defendant provided false and defamatory information to an Oklahoma regulatory authority regarding SSSI’s management of one of the Oklahoma Facilities. The complaint seeks damages against the AdCare Defendants, including punitive damages, in an unspecified amount, as well as costs and expenses, including reasonable attorney fees.

 

Commitments

 

Special Termination Benefits

 

The Company incurred certain salary retirement and continuation costs of $1.5 million related to separation agreements with certain of the Company’s former officers. The benefits include wage continuation and fringe benefits which are to be paid out to these former employees over various future periods ranging from a 6-month period to a 24-month period. The remaining unpaid balance accrued as of March 31, 2013 is $0.1 million.

 

Commitment to Future Lease Payments

 

A leased skilled nursing facility has signed a security agreement associated with the lessor, Covington Realty, LLC, in conjunction with the lessor’s refinancing of the project through HUD. The commitment gives the lender the right to pursue the facility for unpaid lease payments to the lessor.

 

NOTE 17.                                        RELATED PARTY TRANSACTIONS

 

As of the date of this report, there have been no material changes to the disclosure with respect to related party transactions included in Item 13 to our Annual Report on Form 10-K for the year ended December 31, 2012.

 

NOTE 18.                                        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.

 

Termination of Avalon Purchase and Sale Agreement

 

On February 15, 2013, the Company entered into a Purchase and Sale Agreement with Avalon Health Care, LLC to acquire certain land, buildings, improvements, furniture, vehicles, contracts, fixtures and equipment comprising: (i) a 180-bed skilled nursing facility known as Bethany Health and Rehab; and (ii) a 240-bed skilled nursing facility known as Trevecca Health and Rehab, both located in Nashville, Tennessee. On June 1, 2013, the Purchase and Sale Agreement was terminated due to the failure of the transaction to close by May 31, 2013. In connection with the termination of the Purchase and Sale Agreement, the Company is seeking the return of $0.4 million previously deposited earnest money escrow deposits. The Company incurred approximately $0.5 million in acquisition costs expensed in 2013.

 

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Table of Contents

 

Conversion of Convertible Notes to Common Stock

 

On April 23, 2013, the Company issued to holders of the Company’s subordinated convertible promissory notes dated October 31, 2010, shares of common stock upon conversion of $0.3 million of the principal amount of the convertible promissory notes. The conversion price was $3.73 per share for 67,024 shares.

 

On April 24, 2013, the Company issued to holders of the Company’s subordinated convertible promissory notes dated March 31, 2011, shares of common stock upon conversion of $0.05 million of the principal amount of the convertible promissory notes.  The conversion price was $4.79 for 10,438 shares.

 

Sale of Hearth & Home of Vandalia, Inc.

 

On May 6, 2013, Hearth & Home of Vandalia, Inc. (the “Vandalia Seller”), a wholly owned subsidiary of the Company, sold to H & H of Vandalia LLC (the “Vandalia Purchaser”), pursuant to that certain Agreement of Sale, dated October 11, 2012 and amended December 28, 2012 (as amended, the “Ohio Sale Agreement”), between the Company and certain of its subsidiaries, including the Vandalia Seller (together, the “Ohio ALF Sellers”), on the one hand, and CHP Acquisition Company, LLC (“CHP”) on the other hand, certain land, buildings, improvements, furniture, fixtures and equipment comprising the Vandalia facility located in Vandalia, Ohio. CHP had previously assigned its rights in the Ohio Sale Agreement with respect to the Vandalia facility to the Vandalia Purchaser.

 

The sale price for the Vandalia facility consisted of, among other items: (i) an assumption, by the Vandalia Purchaser, of a mortgage in an aggregate amount of $3.6 million (the “Vandalia Mortgage”) that secures the Vandalia facility; and (ii) a release of the Vandalia Seller from its obligations to Red Mortgage Capital, LLC (the “Vandalia Mortgagee”) and HUD with respect to the Vandalia Mortgage, pursuant to a release and assumption agreement entered into among the Vandalia Purchaser, the Vandalia Seller, HUD and the Vandalia Mortgagee. In connection with the sale of the Vandalia facility, the Vandalia Seller and Vandalia Purchaser also entered into an assignment and assumption agreement of trust funds and service contracts, containing customary terms and conditions.

 

Assignment of Purchase and Sale Agreement

 

On May 7, 2013, AdCare Property Holdings, LLC, a wholly owned subsidiary of the Company (“AdCare Holdings”), executed and delivered that certain Reinstatement, Sixth Amendment and Assignment of Purchase and Sale Agreement by and among AdCare Holdings, First Commercial Bank (“First Commercial”) and Brogdon Family, LLC (“Brogdon Family”), which amends the Purchase and Sale Agreement, dated May 5, 2011 pursuant to which AdCare Holdings or its assignee had the right to acquire certain land, buildings, improvements, furniture, fixtures, operating agreements and equipment comprising the following six skilled nursing facilities located in Oklahoma: (i) Harrah Nursing Center; (ii) McLoud Nursing Center; (iii) Meeker Nursing Center ((i) through (iii) collectively, the “Unsold Oklahoma Facilities”); (iv) Whispering Pines Nursing Center; (v) Northwest Nursing Center (the “Northwest Facility”); and (vi) Edwards Redeemer Nursing Center. The Company acquired the Northwest Facility from First Commercial for an aggregate purchase price of $3.0 million on December 28, 2012.

 

Pursuant to the amendment, Brogdon Family assumed all of AdCare Holdings’s obligations under the purchase agreement and AdCare Holdings assigned to Brogdon Family all of its right, title and interest in and to the purchase agreement, which includes the right to acquire the Unsold Oklahoma Facilities.  Brogdon Family is controlled by Christopher Brogdon, Vice Chairman of the Board of Directors and beneficial owner of greater than 10% of the outstanding common stock.

 

Northwest Credit Facility

 

On May 30, 2013, NW 61st Nursing, LLC (“Northwest”), a wholly owned subsidiary of the Company, entered into a Credit Agreement (the “Northwest Credit Facility”) between Northwest and Gemino. The Northwest Credit Facility provides for a $1.0 million principal amount senior-secured revolving credit facility.

 

The Northwest Credit Facility matures on January 31, 2015. Interest on the Northwest Credit Facility accrues on the principal balance thereof at an annual rate of 4.75% plus the current LIBOR rate. Northwest shall also pay 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. In the event the Northwest Credit Facility is terminated prior to January 31, 2015, Northwest shall also be required to pay a fee to Gemino in an amount equal to 1.0% of the Northwest Credit Facility. The Northwest 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 skilled nursing

 

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facility located in Oklahoma City, Oklahoma known as the Northwest Nursing Center. The Company has unconditionally guaranteed all amounts owing under the Northwest Credit Facility.

 

The Northwest 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, Gemino may terminate the Northwest Credit Facility.

 

In connection with entering into the Northwest Credit Facility, certain affiliates of the Company and Northwest, as applicable, also entered into an intercreditor and subordination agreement, governmental depository agreement and subordination of management fee agreement, each containing customary terms and conditions.

 

On June 25, 2013, Northwest entered into a First Amendment to Credit Agreement between Northwest and Gemino which amended the Northwest Credit Facility. The amendment, among other things: (i) amends certain financial covenants regarding Northwest’s fixed charge coverage ratio and minimum EBITDA; and (ii) amends the Northwest Credit Facility to include the Gemino-Bonterra credit facility (discussed below) as an affiliated credit agreement in determining whether certain financial covenants are being met.

 

Gemino-Bonterra Amendment—May 2013

 

On May 30, 2013, ADK Bonterra/Parkview, LLC, a wholly owned subsidiary of the Company (“Bonterra”), entered into a Fourth Amendment to Credit Agreement with Gemino, which amended that certain Credit Agreement, dated April 27, 2011, between Bonterra and Gemino (as amended, the “Gemino-Bonterra credit facility”). The amendment, among other things: (i) extends the term of the Gemino-Bonterra credit facility from January 31, 2014 to January 31, 2015; (ii) amends certain financial covenants regarding Bonterra’s fixed charge coverage ratio and maximum loan turn days; and (iii) amends 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.

 

KeyBank Amendment—May 2013

 

On May 31, 2013, certain subsidiaries of the Company entered into a First Amendment to Secured Loan Agreement and Payment Guaranty (the “KeyBank Amendment”) with KeyBank National Association (“KeyBank”), which amended that certain Secured Loan Agreement, dated December 28, 2012, between the Company and KeyBank (“KeyBank Credit Facility”). Pursuant to the KeyBank Amendment, KeyBank waives any default or events of default that may exist relating to the Company’s: (i) failure to timely file with the SEC its Annual Report on Form 10-K for the year ended December 31, 2012; (ii) process of restating its previously issued financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012; and (iii) non-compliance with the continued listing standards of the NYSE MKT LLC, as well as certain other events. The KeyBank Amendment, among other things: (1) establishes a special account under the sole dominion and control of KeyBank pursuant to which certain subsidiaries of the Company shall deposit certain funds, on a monthly basis, to be held as collateral; (2) amends certain financial covenants regarding such subsidiaries implied debt service coverage and furnishing of certain financial information; and (3) amends certain financial covenants provided for in a guaranty made by the Company for the benefit of KeyBank relating to the KeyBank Credit Facility. In addition, as a condition precedent for KeyBank to enter into the KeyBank Amendment, the Company granted a first-priority security interest in the real property and improvements, leases and rents, revenues and accounts receivables relating to the 32 unit assisted-living facility located in Mountain View, Arkansas known as the Stone County Residential Care Center. The KeyBank Amendment also requires the Company to pledge to KeyBank, as additional collateral, that certain secured promissory note dated December 28, 2012, issued by CHP to the Company in the amount of $3.6 million (as amended, the “CHP Note”); provided, however, that the Company shall be entitled to any excess payments of principal or prepayments over $2.0 million made by CHP on the CHP Note.

 

In connection with entering into the KeyBank Amendment, certain affiliates and subsidiaries of the Company, as applicable, entered into environmental indemnities, pledge and security agreements, subordination of lease liens and subordination of management fee agreements, each containing customary terms and conditions.

 

Preferred Stock Dividends

 

On June 7, 2013, the Company declared a quarterly dividend out of capital surplus of $0.68 per share on the Series A Preferred Stock. The dividend payment is equivalent to an annualized 10.875% per share, based on the $25.00 per share stated liquidation preference, accruing from April 1, 2013. The dividend was paid on July 1, 2013 to holders of the Series A Preferred Stock of record on June 20, 2013.

 

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CHP Note Release

 

On June 20, 2013, the Company released CHP in connection with CHP’s purchase of certain assets of the Company under the Ohio Sale Agreement pursuant to which CHP executed and delivered to the Company the CHP Note. CHP is prepaying the CHP Note for a discounted amount, which amount is equal to $3.2 million (the “Discounted Payment”). The Company acknowledges that the Discounted Payment shall be treated as a payment in full of the CHP Note and all obligations thereunder shall expire immediately upon the Company’s receipt of the Discounted Payment. The Company further acknowledges that such discount shall be treated as a reduction in the purchase price payable by CHP to the Company under the Ohio Sale Agreement and shall not be treated as forgiveness of debt.

 

Riverchase—Management Agreement Termination

 

On June 22, 2013, a wholly owned subsidiary of the Company and an entity owned and controlled by Mr. Christopher Brogdon, agreed to mutually terminate the five-year year management agreement, dated June 22, 2010. Pursuant to the management agreement, such subsidiary of the Company supervised the management of the Riverchase Village facility for a monthly fee equal to 5% of the monthly gross revenues of the Riverchase Village facility.

 

Riverchase—Option Agreement Extension

 

On June 22, 2013, a wholly owned subsidiary of the Company and Mr. Brogdon amended that certain Option Agreement, dated June 22, 2010, pursuant to which the Company has the exclusive and irrevocable right to acquire from Mr. Brogdon all of the issued and outstanding membership interests in Riverchase Village ADK, LLC (“Riverchase”), which owns the Riverchase Village facility. The amendment extended the option provided for thereby from June 22, 2013 to June 22, 2014.

 

PrivateBank Amendment—June 2013

 

On June 27, 2013, certain wholly owned subsidiaries of the Company entered into a Third Modification Agreement with PrivateBank, dated as of June 26, 2013, which modified that certain Loan Agreement, dated March 30, 2012, between such subsidiaries and PrivateBank. Pursuant to the modification, PrivateBank waives certain financial covenants under the credit facility regarding the minimum fixed charge coverage ratio and minimum EBITDAR of one of the subsidiaries that is the operator of the Company’s skilled nursing facility located in Little Rock, Arkansas.

 

Keybank Amendment—June 2013

 

On June 27, 2013, certain wholly owned subsidiaries of the Company entered into a Second Amendment to Secured Loan Agreement and Payment Guaranty with KeyBank, which amended the KeyBank Credit Facility. Pursuant to the amendment: (i) KeyBank waives the failure of certain financial covenants of such subsidiaries regarding fixed charge coverage ratio and implied debt service coverage such that no default or events of default under the KeyBank Credit Facility occurred due to such failure; and (ii) KeyBank and the Company agreed to amend certain financial covenants regarding the Company’s fixed charge ratio.

 

Gemino Amendment—June 2013

 

On June 28, 2013, certain wholly owned subsidiaries of the Company entered into a Joinder Agreement, Second Amendment and Supplement to Credit Agreement with Northwest and Gemino pursuant to which such subsidiaries became additional borrowers under the Northwest Credit Facility. Pursuant to the joinder, the borrowers granted a continuing security interest in, among other things, their accounts receivables, payment intangibles, chattel paper, general intangibles, collateral relating to any accounts or payment intangibles, commercial lockboxes and cash, as additional collateral under the Northwest Credit Facility; however, the joinder did not change the maximum amount that the borrowers may borrow under the credit facility, which remains at $1.0 million. In connection with the execution of the joinder, the borrowers issued an amended and restated revolving promissory note in favor of Gemino in the amount of $1.5 million.

 

Oceanside Sublease Agreement—June 2013

 

On June 30, 2013, ADK Georgia, LLC (“ADK Georgia”), a certain wholly owned subsidiary of the Company, entered into a Sublease Termination Agreement with  a certain wholly owned subsidiary of the Company pursuant to which such subsidiary agreed to terminate its sublease of the facility located at 7 Rosewood Avenue, Tybee Island, Georgia (“Rosewood”), in accordance with the terms of the sublease.

 

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On June 30, 2013, ADK Georgia entered into a Sublease Agreement with Tybee NH, LLC pursuant to which it agreed to lease Rosewood.  The sublease requires total monthly rent payments of approximately $0.03 million subject to rent increases and other charges under the certain master lease agreement.  The sublease expires in August 2020.

 

Savannah Beach Sublease Agreement—June 2013

 

On June 30, 2013, ADK Georgia entered into a Sublease Termination Agreement with a certain wholly owned subsidiary of the Company, pursuant to which such subsidiary agreed to terminate its sublease of the facility located at 26 Van Horne Street, Tybee Island, Georgia (“Van Horne”) in accordance with the terms of the Agreement.

 

On June 30, 2013, ADK Georgia entered into a Sublease Agreement with Tybee NH, LLC pursuant to which it agreed to lease Van Horne.  The sublease requires total monthly rent payments of approximately $0.02 million subject to rent increases and other charges under certain master lease agreement.  The sublease expires in August 2020.

 

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”), owns and operates skilled nursing and assisted living facilities in the states of Alabama, Arkansas, Georgia, Missouri, North Carolina, Ohio, Oklahoma and South Carolina. The Company, through wholly owned separate operating subsidiaries, as of March 31, 2013, operates 49 facilities comprised of 45 skilled nursing facilities, three assisted living facilities and one independent living/senior housing facility totaling approximately 4,900 beds. The Company’s facilities provide a range of health care services to their patients and residents including, but not limited to, skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term residents and short-stay patients. As of March 31, 2013, of the total 49 facilities, the Company owned and operated 26 facilities, leased and operated 11 facilities, and managed 12 facilities (including one consolidated variable interest entity). As part of the Company’s strategy to focus on the growth of skilled nursing facilities, the Company decided in the fourth quarter of 2011 to exit the home health business; therefore, this business is reported as discontinued operations (see Note 11 — Discontinued Operations ). The Company sold the assets of the home health business in 2012. Additionally, in the fourth quarter of 2012, the Company entered into an agreement to sell six assisted living facilities located in Ohio and executed a sublease arrangement to exit the skilled nursing business in Jeffersonville, Georgia. The six Ohio assisted living facilities and the Jeffersonville, Georgia skilled nursing facility have an aggregate of 313 units in service. These seven facilities are also reported as discontinued operations (see Note 11 — Discontinued Operations ). The Company sold the assets of four of the six Ohio assisted living facilities in December 2012, one in February 2013, and one in May, 2013.

 

The Company owns and manages skilled nursing facilities (“SNF”) and assisted living facilities.  The Company delivers skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries.  During the first quarter of 2013, the Company discontinued management services on one facility, bringing our Company’s total bed count to 4,916 at March 31, 2013.  The following tables provide summary information regarding our recent acquisitions and facility composition.

 

 

 

March 31, 2013

 

March 31 2012

 

Cumulative number of facilities

 

49

 

42

 

Cumulative number of operational beds

 

4,916

 

4,207

 

 

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Number of Facilities at March 31, 2013

 

State

 

Number of
Operational
Beds/Units

 

Owned

 

Leased

 

VIE

 

Managed
For Third
Parties

 

Total

 

Alabama

 

408

 

2

 

 

1

 

 

3

 

Arkansas

 

1,041

 

10

 

 

 

 

10

 

Georgia

 

1,514

 

4

 

9

 

 

 

13

 

Missouri

 

80

 

 

1

 

 

 

1

 

North Carolina

 

106

 

1

 

 

 

 

1

 

Ohio

 

705

 

4

 

1

 

 

3

 

8

 

Oklahoma

 

882

 

3

 

 

 

8

 

11

 

South Carolina

 

180

 

2

 

 

 

 

2

 

Total

 

4,916

 

26

 

11

 

1

 

11

 

49

 

 

Facility Type

 

 

 

 

 

 

 

 

 

 

 

 

 

Skilled Nursing

 

4,617

 

24

 

11

 

 

10

 

45

 

Assisted Living

 

216

 

2

 

 

1

 

 

3

 

Independent Living

 

83

 

 

 

 

1

 

1

 

Total

 

4,916

 

26

 

11

 

1

 

11

 

49

 

 

Liquidity

 

For the three months ended and as of March 31, 2013, we had a net loss of $2.8 million and negative working capital of $22.4 million. At March 31, 2013, we had $9.9 million in cash and cash equivalents and $171.7 million in indebtedness, including current maturities and discontinued operations, of which $35.1 million is current debt (including the Company’s outstanding convertible promissory notes with a principal amount in the aggregate of $11.6 million and $4.5 million which mature in October 2013 and March 2014, respectively, and approximately $3.7 million of mortgage notes included in liabilities of disposal group that were assumed by the buyer in May 2013). Our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs.

 

We anticipate that scheduled debt service (excluding outstanding subordinated convertible promissory notes and approximately $7.0 million of bullet maturities due February 2014 that the Company believes will be refinanced on a longer term basis but including principal, interest, collateral and capital improvement fund or other escrow deposits) will total approximately $17.7 million and cash outlays for acquisition costs, maintenance capital expenditures, dividends on our Series A Preferred Stock and income taxes will total approximately $4.2 million for the 12 months ending March 31, 2014.  In recent periods, we 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. Although, we anticipate the conversion to common stock of the Company’s outstanding subordinated convertible promissory notes with a principal amount in the aggregate of $11.6 million and $4.5 million that mature in October 2013 and March 2014, respectively, we believe that our anticipated cash flow and committed funding sources would allow us to pay these notes in cash. These promissory notes are convertible at the option of the holder into shares of common stock of the Company at $3.73 per share and $4.80 per share, respectively. The closing price of the common stock exceeded $4.00 per share from January 1, 2013 through July 23, 2013, except for the last three trading days in March 2013. As discussed further below, if we were required to pay these subordinated convertible promissory notes in cash and were unable to refinance the $7.0 million of bullet maturities due February 2014, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans due to our limited liquidity in such an event.

 

The Company expanded its existing credit facility with Gemino Healthcare Finance, LLC (“Gemino”): (i) in May 2013, to refinance and include one of the facilities the Company acquired in December 2012; and (ii) in June 2013, to refinance and include two additional facilities the Company also acquired in December 2012. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis. 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 2013.

 

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Based on existing cash balances, anticipated cash flows for the 12 months ending March 31, 2014, the anticipated refinancing of the $7.0 million of bullet maturities due February 2014, and new sources of capital, we believe there will be sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next 12 months. On a longer term basis, we have approximately $73.3 million of debt payments and maturities due between 2015 and 2017, excluding subordinated convertible promissory notes which are convertible into shares of common stock. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.

 

In order to satisfy these capital needs, we intend to: (i) improve our operating results by increasing facility occupancy, optimizing our payor mix by increasing the proportion of sub-acute patients within our skilled nursing facilities, continuing our cost optimization and efficiency strategies and acquiring additional long-term care facilities with existing operating cash flow; (ii) expand our borrowing arrangements with certain existing lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities. We anticipate that these actions, if successful, will provide the opportunity for us to maintain liquidity on a short and long term basis, thereby permitting us to meet our operating and financing obligations for the next 12 months and provide for the continuance of our acquisition strategy. However, there is no guarantee that such actions will be successful or that anticipated operating results will be achieved. We currently have limited borrowing availability under our existing revolving credit facilities. If the Company is unable to improve operating results, expand existing borrowing agreements, refinance current debt (including the $7.0 million of bullet maturities due February 2014), raise capital through the issuance of securities, or the subordinated convertible promissory notes due October 2013 and March 2014 are not converted into common stock and are required to be repaid by us in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans.

 

Acquisitions

 

The Company has embarked on a strategy to grow its business through acquisitions and leases of senior care facilities.

 

On February 15, 2013, the Company entered into a Purchase and Sale Agreement with Avalon Health Care, LLC to acquire certain land, buildings, improvements, furniture, vehicles, contracts, fixtures and equipment comprising: (i) a 180-bed skilled nursing facility known as Bethany Health and Rehab; and (ii) a 240-bed skilled nursing facility known as Trevecca Health and Rehab, both located in Nashville, Tennessee.  The Company deposited $0.4 million of earnest money escrow deposits in February 2013.  On June 1, 2013, the Purchase and Sale Agreement was terminated due to the failure of the transaction to close by May 31, 2013.  (See Note 18 — Subsequent Events for discussion of recent events).

 

During the three months ended March 31, 2013, the Company has incurred a total of approximately $0.1 million of acquisition costs and has recorded the cost in “Other Income (Expense)” section of the consolidated statements of operations.

 

Divestitures

 

As part of the Company’s strategy to focus on the growth of its skilled nursing business, the Company decided in the fourth quarter of 2011 to exit the home health business. In the fourth quarter of 2012, the Company continued this strategy and entered into an agreement to sell six assisted living facilities located in Ohio. The Company also entered into a sublease arrangement in the fourth quarter of 2012 to exit the operations of a skilled nursing facility in Jeffersonville, Georgia. The results of operations and cash flows for the home health business, the six Ohio assisted living facilities and the Jeffersonville, Georgia skilled nursing facility are reported as discontinued operations in 2013 and 2012.

 

On February 28, 2013, the Company completed the sale of the facility known as Lincoln Lodge Retirement Residence and used the proceeds to pay the principal balance of the HUD mortgage note with respect to the facility of $1.9 million. The Company recognized a loss on the sale of $0.2 million and cash proceeds, net of costs and debt payoff, of $0.4 million.  The one remaining Ohio assisted living facility held for sale at March 31, 2013 is Vandalia. The Vandalia assets to be sold and the Vandalia HUD mortgage note to be assumed by the buyer are reflected as assets and liabilities of a disposal group held for sale at March 31, 2013 and December 31, 2012 (see Note 18 — Subsequent Events for discussion of recent events).

 

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The following table summarizes the activity of Discontinued Operations for the three months ended March 31, 2013 and 2012:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2013

 

2012

 

Total revenues from discontinued operations

 

$

649

 

$

3,710

 

Net (loss) income from discontinued operations

 

$

(66

)

$

226

 

Interest expense, net from discontinued operations

 

$

59

 

$

182

 

Income tax expense from discontinued operations

 

$

 

$

17

 

Loss on sale of assets from discontinued operations

 

$

187

 

$

 

 

Primary Performance Indicators

 

The Company owns and manages skilled nursing facilities and assisted living facilities, and delivers its services through wholly owned separate operating subsidiaries.

 

The Company focuses on two primary indicators in evaluating its financial performance. Those indicators are facility occupancy and patient mix. Facility occupancy is critical, since higher occupancy generally leads to higher revenues. In addition, concentrating on increasing the number of Medicare covered admissions (“the patient mix”) helps in increasing revenues. The Company includes commercial insurance covered admissions that are reimbursed at the same level as those covered by Medicare in the Company’s Medicare utilization percentages and analysis. The Company also evaluates “Same Facilities” and “Recently Acquired Facilities” results. Same Facilities represent those owned and leased facilities the Company began to operate prior to January 1, 2012. Recently Acquired Facilities results represents those owned and leased facilities the Company began to operate subsequent to January 1, 2012.

 

Patient mix at the Company’s skilled nursing facilities for the three months ended March 31, 2013 and 2012 was as follows:

 

 

 

Patient Mix (SNF only)

 

 

 

Three Months Ended March 31,

 

 

 

Same Facilities

 

Recently Acquired Facilities

 

All Facilities

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Medicare

 

16.0

%

15.2

%

15.2

%

n/a

 

15.8

%

15.2

%

Medicaid

 

69.3

%

72.3

%

74.7

%

n/a

 

70.6

%

72.3

%

Other

 

14.7

%

12.5

%

10.1

%

n/a

 

13.6

%

12.5

%

Total

 

100.0

%

100.0

%

100.0

%

n/a

 

100.0

%

100.0

%

 

Medicare reimburses our skilled nursing facilities under a prospective payment system (“PPS”) for certain inpatient covered services. Under the PPS, facilities are paid a predetermined amount per patient, per day, based on the anticipated costs of treating patients. The amount to be paid is determined by classifying each patient into a resource utilization group (“RUG”) category that is based upon each patient’s acuity level. In October 2010, the number of RUG categories was expanded from 53 to 66 as part of the implementation of the RUGs IV system and the introduction of a revised and substantially expanded patient assessment tool called the Minimum Data Set, version 3.0.

 

On July 29, 2011, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule providing for, among other things, a net 11.1% reduction in PPS payments to skilled nursing facilities for CMS’s fiscal year 2012 (which began October 1, 2011) as compared to PPS payments in CMS’s fiscal year 2011 (which ended September 30, 2011). The 11.1% reduction is on a net basis, after the application of a 2.7% market basket increase, and reduced by a 1.0% multi-factor productivity adjustment required by the Patient Protection and Affordable Care Act of 2010 (“PPACA”). The final CMS rule also adjusted the method by which group therapy is counted for reimbursement purposes, and changed the timing in which patients who are receiving therapy must be reassessed for purposes of determining their RUG category.

 

The Middle Class Tax Relief and Job Creation Act of 2012 was signed into law on February 22, 2012, extending the Medicare Part B outpatient therapy cap exceptions process through December 31, 2012. The statutory Medicare Part B

 

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outpatient therapy cap for occupational therapy (“OT”) was $1,880 for 2012, and the combined cap for physical therapy (“PT”) and speech-language pathology services (“SLP”) was also $1,880 for 2012. This is the annual per beneficiary therapy cap amount determined for each calendar year. Similar to the therapy cap, Congress established a threshold of $3,700 for PT and SLP services combined and another threshold of $3,700 for OT services. All therapy services rendered above the $3,700 amount are subject to manual medical review and may be denied unless pre-approved by the provider’s Medicare Administrative Contractor. The law requires an exceptions process to the therapy cap that allows providers to receive payment from Medicare for medically necessary therapy services above the therapy cap amount. Beginning October 1, 2012, some therapy providers may submit requests for exceptions (pre-approval for up to 20 therapy treatment days for beneficiaries at or above the $3,700 threshold) to avoid denial of claims for services above the threshold amount. The $3,700 figure is the defined threshold that triggers the provision for an exception request. Prior to October 1, 2012, there was no provision for an exception request when the threshold was exceeded.

 

On July 27, 2012, CMS issued a final rule providing for, among other things, a net 1.8% increase in PPS payments to skilled nursing facilities for CMS’s fiscal year 2013 (which began on October 1, 2012) as compared to PPS payments to skilled nursing facilities in CMS’s fiscal year 2012 (which ended September 30, 2012). The 1.8% increase was on a net basis, reflecting the application of a 2.5% market basket increase, less a 0.7% multi-factor productivity adjustment mandated by PPACA. This increase is offset by the 2% sequestration reduction, discussed below, which became effective April 1, 2013.

 

On January 1, 2013 the American Taxpayer Relief Act of 2012 (the “ATRA”) extended the therapy cap exception process for one year. The ATRA also made additional changes to the Multiple Procedure Payment Reduction previously implemented in 2010. The existing discount to multiple therapy procedures performed in an outpatient environment during a single day was 25%. Effective April 1, 2013, ATRA increased the discount rate by an additional 25% to 50%. The ATRA additionally delayed the sequestration reductions of 2% to all Medicare payments until April 1, 2013.

 

On May 8, 2013, CMS issued a proposed rule providing for an increase of 1.4% in PPS payments to skilled nursing facilities for CMS’s fiscal year 2014 (which begins October 1, 2013) as compared to the PPS payments in CMS’s fiscal year 2013 (which ends September 30, 2013). The proposed 1.4% increase is on a net basis, after the application of a 2.3% market basket increase reduced by a 0.5% forecast error correction and further reduced by a 0.4% multifactor productivity adjustment required by PPACA.

 

Should future changes in PPS include further reduced rates or increased standards for reaching certain reimbursement levels (including as a result of automatic cuts tied to federal deficit cut efforts or otherwise), our Medicare revenues derived from our skilled nursing facilities) could be reduced, with a corresponding adverse impact on our financial condition or results of operation.

 

We also derive a substantial portion of our consolidated revenue from Medicaid reimbursement, primarily through our skilled nursing business. Medicaid programs are administered by the applicable states and financed by both state and federal funds. Medicaid spending nationally has increased significantly in recent years, becoming an increasingly significant component of state budgets. This, combined with slower state revenue growth and other state budget demands, has led both the federal government to institute measures aimed at controlling the growth of Medicaid spending (and in some instances reducing it).

 

Historically, adjustments to reimbursement under Medicare and Medicaid have had a significant effect on our revenue and results of operations. Recently enacted, pending and proposed legislation and administrative rulemaking at the federal and state levels could have similar effects on our business. Efforts to impose reduced reimbursement rates, greater discounts and more stringent cost controls by government and other payors are expected to continue for the foreseeable future and could adversely affect our business, financial condition and results of operations. Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and adversely affect our business, financial condition and results of operations.

 

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Average occupancy and reimbursement rates at the Company’s skilled nursing facilities for the three months ended March 31, 2013 and 2012 were as follows:

 

 

 

Operational

 

Period’s

 

 

 

Medicare

 

 

 

 

 

 

 

 

 

Beds at

 

Average

 

Occupancy

 

Utilization

 

2013 QTD

 

Medicare

 

 

 

 

 

Period

 

Operational

 

(Operational

 

(Skilled

 

Total

 

(Skilled)

 

Medicaid

 

State (SNF Only) 

 

End (1)

 

Beds

 

Beds)

 

%ADC)(2)

 

Revenues

 

$PPD(3)

 

$PPD(3)

 

Alabama

 

304

 

304

 

73.2

%

12.3

%

$

3,834

 

$

395.20

 

$

167.36

 

Arkansas

 

1,009

 

1,009

 

60.1

%

18.0

%

$

12,480

 

$

431.35

 

$

173.62

 

Georgia

 

1,514

 

1,514

 

87.1

%

15.6

%

$

25,151

 

$

450.72

 

$

157.11

 

Missouri

 

80

 

80

 

72.3

%

15.6

%

$

993

 

$

442.05

 

$

133.93

 

North Carolina

 

106

 

106

 

82.1

%

16.5

%

$

1,766

 

$

455.00

 

$

161.83

 

Ohio

 

293

 

293

 

85.5

%

18.1

%

$

5,506

 

$

451.47

 

$

168.02

 

Oklahoma

 

318

 

318

 

67.6

%

14.1

%

$

3,747

 

$

449.17

 

$

137.78

 

South Carolina

 

180

 

180

 

78.9

%

11.7

%

$

2,558

 

$

413.93

 

$

162.59

 

Total

 

3,804

 

3,804

 

76.2

%

15.8

%

$

56,035

 

$

441.37

 

$

160.84

 

 

 

 

Operational

 

Period’s

 

 

 

Medicare

 

 

 

 

 

 

 

 

 

Beds at

 

Average

 

Occupancy

 

Utilization

 

2012 QTD

 

Medicare

 

 

 

 

 

Period

 

Operational

 

(Operational

 

(Skilled

 

Total

 

(Skilled)

 

Medicaid

 

State (SNF Only)

 

End (1)

 

Beds

 

Beds)

 

%ADC)(2)

 

Revenues

 

$PPD(3)

 

$PPD(3)

 

Alabama

 

304

 

304

 

83.7

%

12.8

%

$

4,881

 

$

372.31

 

$

182.77

 

Arkansas

 

932

 

498

 

70.9

%

12.8

%

$

6,411

 

$

352.68

 

$

171.31

 

Georgia

 

1,380

 

1,380

 

88.4

%

15.3

%

$

22,556

 

$

456.32

 

$

146.28

 

Missouri

 

80

 

80

 

61.3

%

24.1

%

$

918

 

$

394.89

 

$

134.01

 

North Carolina

 

106

 

106

 

89.0

%

18.1

%

$

1,904

 

$

464.29

 

$

154.91

 

Ohio

 

293

 

293

 

82.9

%

17.7

%

$

5,240

 

$

456.46

 

$

158.76

 

Oklahoma

 

 

 

 

 

 

 

 

South Carolina

 

 

 

 

 

 

 

 

Total

 

3,095

 

2,661

 

83.2

%

15.2

%

$

41,911

 

$

432.52

 

$

155.95

 

 


(1) Excludes managed beds which are not consolidated.

(2) ADC is the Average Daily Census.

(3) PPD is the Per Patient Day equivalent.

 

Critical Accounting Policies

 

The Company prepares financial statements in accordance with 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. The Company bases estimates on historical experience, business knowledge and on various other assumptions that the Company believes 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.

 

There have been no significant changes during the three months ended March 31, 2013 to the items that the Company disclosed as its critical accounting policies and use of estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2012.

 

Results of Operations

 

Same and Recently Acquired Facility Occupancy and Revenue Analysis:

 

 

 

Average Occupancy

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Same Facilities

 

81.2

%

83.2

%

Recently Acquired Facilities

 

62.8

%

n/a

 

All Facilities

 

76.2

%

83.2

%

 

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Table of Contents

 

 

 

Total Revenues

 

 

 

Three Months Ended March 31,

 

 (Amounts in 000’s) 

 

2013

 

2012

 

Same Facilities

 

$

44,518

 

$

42,953

 

Recently Acquired Facilities

 

12,614

 

 

All Facilities

 

$

57,132

 

$

42,953

 

 

Comparison for the three months ended March 31, 2013 and 2012

 

The table below summarizes the operating results as of March 31, 2013 and 2012:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2013

 

2012

 

Change

 

Percent Change

 

Revenues:

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

57,132

 

$

42,953

 

$

14,179

 

33

%

Management revenues

 

510

 

524

 

(14

)

-3

%

Total revenues

 

57,642

 

43,477

 

14,165

 

33

%

Expenses:

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of facility rent, depreciation and amortization)

 

49,066

 

36,280

 

12,786

 

35

%

General and administrative expenses

 

4,928

 

3,954

 

974

 

25

%

Audit committee investigation expense

 

1,134

 

 

1,134

 

 

Facility rent expense

 

1,892

 

1,914

 

(22

)

-1

%

Depreciation and amortization

 

1,829

 

1,569

 

260

 

17

%

Total Expense

 

58,849

 

43,717

 

15,132

 

35

%

Loss from Operations

 

(1,207

)

(240

)

(967

)

403

%

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(3,436

)

(2,500

)

(936

)

37

%

Acquisition costs, net of gains

 

(97

)

(293

)

196

 

-67

%

Derivative gain

 

2,136

 

410

 

1,726

 

421

%

Loss on extinguishment of debt

 

(2

)

 

(2

)

0

%

Other expense

 

 

(14

)

14

 

-100

%

Total other expense, net

 

(1,399

)

(2,397

)

998

 

-42

%

Loss from Continuing Operations Before Income Taxes

 

(2,606

)

(2,637

)

31

 

-1

%

Income tax expense

 

(78

)

(1

)

(77

)

7700

%

Loss from Continuing Operations

 

$

(2,684

)

$

(2,638

)

$

(46

)

2

%

 

Patient Care Revenues —Total patient care revenues increased by $14.2 million, or 33% for the three months ended March 31, 2013 as compared to the same period in 2012.  The increase was primarily the result of the eleven skilled nursing facilities and one assisted living facility acquired in 2012, as well as the improvement in patient mix, partially  offset by a reduction in facility occupancy.

 

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Table of Contents

 

Management Revenues— Management revenues (net of eliminations) decreased by $0.01 million, or 3% for the three months ended March 31, 2013, as compared to the same period in 2012.   The decrease was primarily due to the discontinuance of one management contract in February 2013.

 

Cost of Services— Cost of services increased by $12.8 million, or 35%, during the three months ended March 31, 2013, as compared to the same period in 2012.  The increase was primarily due to the eleven skilled nursing facilities and one assisted living facility acquired during 2012.  Cost of services as a percentage of patient care revenue increased slightly from 84.5% at March 31, 2012 to 85.9% at March 31, 2013.  The increase in cost of services as a percentage of patient care revenue is primarily due to the effect in 2013 from the operations of certain 2012 acquired facilities prior to the Company achieving completion of its cost reduction optimization strategy for acquired facilities.

 

General and Administrative— General and administrative costs increased by $1.0 million to $5.0 million for the three months ended March 31, 2013, compared to $4.0 million for the same period in 2012. The increase is primarily due to the following: (i) increases in salaries, wage and employee benefits expense of approximately $0.4 million due to the Company’s increased corporate overhead structure throughout 2012 in response to the growth needs and the opening of an accounting service center located in Roswell, Georgia, (ii) increase in repair and maintenance expense of approximately $0.1 million, (iii) increase of approximately $0.2 million in expense due to a new data center agreement, (iv) increase of approximately $0.1 million in employee stock compensation amortization, (v) increase in  legal costs of approximately $0.1 million, and (vi) increase in accounting and audit expense of approximately $0.1 million.   As a percentage of revenue, general and administrative costs declined to 8.5% for the three months ended March 31, 2013, compared to 9.1% for the same period in 2012, reflecting increased leverage of the Company’s fixed costs over the scale of expanding operations from acquisitions.

 

Audit Committee Investigation Expense— As previously disclosed, the Audit Committee, in consultation with management, concluded that: (i) the Company’s previously issued financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 (the “Relevant Financial Statements”) should no longer be relied upon due to errors in the Relevant Financial Statements identified in connection with the audit of the Company’s financial statements for the year ended December 31, 2012; and (ii) the Company would restate the Relevant Financial Statements. The Audit Committee initiated a further review of, and inquiry with respect to, the accounting and financial issues related to these and other potential errors and engaged counsel to assist the Audit Committee with such matters.  The Audit Committee completed its inquiry and, in connection therewith, assisted in the correction of certain errors relating to accounting and financial matters and identified certain material weaknesses in the Company’s internal control over financial reporting, including weakness in the Company’s ability to appropriately account for complex or non-routine transactions and in the quality and sufficiency of the Company’s finance and accounting resources. On July 8, 2013, the Company restated the Relevant Financial Statements by filing with the SEC amendments to its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012.

 

In connection with the restatement process and the Audit Committee’s review and inquiry, the Company has incurred significant professional services costs and other expenses which have been recognized as a special charge for approximately $1.1 million for the three months ended March 31, 2013. The Company has continued to incur significant professional services costs and other expenses which will be recognized as a special charge in the second quarters of 2013.

 

Facility Rent Expense— Facility rent expenses for the three months ended March 31, 2013, was $1.9 million, which was the same as the three months ended March 31, 2012.

 

Depreciation and Amortization— Depreciation and amortization for the three months ended March 31, 2013 increased by $0.2 million to $1.8 million, compared to $1.6 million for the same period in 2012. The depreciation increase is directly related to the 2012 acquisition activity.

 

Interest Expense, net— Interest expense, net increased by $0.9 million, or 37%, to $3.4 million for the three months ended March 31, 2013, compared to $2.5 million for the same period in 2012. The Company has entered into numerous debt instruments in relation to the Company’s growth strategy for the acquisition of the facilities which began in the third quarter of 2010.

 

Acquisition Costs, net of Gains— For the three months ended March 31, 2013, acquisition costs decreased by $0.2 million, or 67%, to $0.1 million, compared to $0.3 million for the same period in 2012. The decrease was a result of less acquisition activity during the three months ended March 31, 2013 compared to the same period in 2012.

 

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Table of Contents

 

Derivative Gain/Loss— For the three months ended March 31, 2013, the derivative gain was $2.1 million, compared to $0.4 million for the same period in 2012.  The increase of 421% was due to volatility of the Company’s stock price during the first quarter of 2013. The derivative is a product of subordinated convertible promissory notes entered into during the third quarter of 2010. The expense associated with the derivative is subject to volatility based on a number of factors including increases or decreases in our stock price. Increases in our stock price generally result in increases in expense. Conversely, a decrease in our stock price generally results in the recognition of a gain in our statements of operations. The expense or gain recognized in a period is based on the fair value of the derivative instrument at the end of the period in comparison to the beginning of the period. The fair value of the derivative instrument was $1.5 million at March 31, 2013 compared to $3.6 million at December 31, 2012.

 

Income Tax Expense— The Company recognized an income tax expense for the three months ended March 31, 2013, of $0.1 million, compared to an income tax expense of $0.001 million for the same period in 2012.  Income tax expense for the Company is related to state and local taxes.

 

Liquidity and Capital Resources

 

For the three months ended and as of March 31, 2013, we had a net loss of $2.8 million and negative working capital of $22.4 million. At March 31, 2013, we had $9.9 million in cash and cash equivalents and $171.7 million in indebtedness, including current maturities and discontinued operations, of which $35.1 million is current debt (including the Company’s outstanding convertible promissory notes with a principal amount in the aggregate of $11.6 million and $4.5 million which mature in October 2013 and March 2014, respectively, and approximately $3.7 million of mortgage notes included in liabilities of disposal group that were assumed by the buyer in May 2013). Our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs.

 

We anticipate that scheduled debt service (excluding outstanding subordinated convertible promissory notes and approximately $7.0 million of bullet maturities due February 2014 that the Company believes will be refinanced on a longer term basis but including principal, interest, collateral and capital improvement fund or other escrow deposits) will total approximately $17.7 million and cash outlays for acquisition costs, maintenance capital expenditures, dividends on our Series A Preferred Stock and income taxes will total approximately $4.2 million for the 12 months ending March 31, 2014.  In recent periods, we 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. Although, we anticipate the conversion to common stock of the Company’s outstanding subordinated convertible promissory notes with a principal amount in the aggregate of $11.6 million and $4.5 million that mature in October 2013 and March 2014, respectively, we believe that our anticipated cash flow and committed funding sources would allow us to pay these notes in cash. These promissory notes are convertible at the option of the holder into shares of common stock of the Company at $3.73 per share and $4.80 per share, respectively. The closing price of the common stock exceeded $4.00 per share from January 1, 2013 through July 23, 2013, except for the last three trading days in March 2013. As discussed further below, if we were required to pay these subordinated convertible promissory notes in cash and were unable to refinance the $7.0 million of bullet maturities due February 2014, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans due to our limited liquidity in such an event.

 

The Company expanded its existing credit facility with Gemino Healthcare Finance, LLC (“Gemino”): (i) in May 2013, to refinance and include one of the facilities the Company acquired in December 2012; and (ii) in June 2013, to refinance and include two additional facilities the Company also acquired in December 2012. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis. 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 2013.

 

Based on existing cash balances, anticipated cash flows for the 12 months ending March 31, 2014, the anticipated refinancing of the $7.0 million of bullet maturities due February 2014, and new sources of capital, we believe there will be sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next 12 months. On a longer term basis, we have approximately $73.3 million of debt payments and maturities due between 2015 and 2017, excluding subordinated convertible promissory notes which are convertible into shares of common stock. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.

 

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Table of Contents

 

In order to satisfy these capital needs, we intend to: (i) improve our operating results by increasing facility occupancy, optimizing our payor mix by increasing the proportion of sub-acute patients within our skilled nursing facilities, continuing our cost optimization and efficiency strategies and acquiring additional long-term care facilities with existing operating cash flow; (ii) expand our borrowing arrangements with certain existing lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities. We anticipate that these actions, if successful, will provide the opportunity for us to maintain liquidity on a short and long term basis, thereby permitting us to meet our operating and financing obligations for the next 12 months and provide for the continuance of our acquisition strategy. However, there is no guarantee that such actions will be successful or that anticipated operating results will be achieved. We currently have limited borrowing availability under our existing revolving credit facilities. If the Company is unable to improve operating results, expand existing borrowing agreements, refinance current debt (including the $7.0 million of bullet maturities due February 2014), raise capital through the issuance of securities, or the subordinated convertible promissory notes due October 2013 and March 2014 are not converted into common stock and are required to be repaid by us in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans.

 

The following table presents selected data from the Company’s consolidated statement of cash flows for the periods presented:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2013

 

2012

 

Net cash (used in) provided by operating activities - continuing operations

 

$

(6,158

)

$

915

 

Net cash provided by operating activities - discontinued operations

 

45

 

590

 

Net cash (used in) investing activities - continuing operations

 

(1,678

)

(7,895

)

Net cash provided by investing activities - discontinued operations

 

2,443

 

79

 

Net cash provided by financing activities - continuing operations

 

1,159

 

10,041

 

Net cash (used in) financing activities - discontinued operations

 

(1,878

)

86

 

Net change in cash and cash equivalents

 

(6,067

)

3,816

 

Cash and cash equivalents at beginning of period

 

15,937

 

7,364

 

Cash decrease due to deconsolidation of variable interest entities

 

 

(180

)

Cash and cash equivalents at end of period

 

$

9,870

 

$

11,000

 

 

Three Months Ended March 31, 2013

 

Net cash used in operating activities—continuing operations for the three months ended March 31, 2013, was approximately $6.2 million, consisting primarily of the Company’s loss from operations, non cash charges and changes in working capital, including increased accounts receivable of $4.2 million, and increased prepaid expenses of $2.0 million.

 

Net cash used in investing activities—continuing operations for the year ended March 31, 2013, was approximately $1.7 million. This is primarily the result of capital expenditures.  The net cash provided by investing activities—discontinued operations was approximately $2.4 million for the three months ended March 31, 2013, related to proceeds from the sale of one additional assisted living facility.

 

Net cash provided by financing activities—continuing operations was approximately $1.2 million for the three months ended March 31, 2013. This is primarily the result of proceeds received under the Company’s lines of credit and insurance premium financing, offset by repayment on notes payable, debt issuance costs and payment of the preferred stock dividend. Net cash used in financing activities—discontinued operations was approximately $1.9 million consisting of repayments of existing debt obligations related to the sale of the Lincoln Lodge Retirement Residence facility.

 

Three Months Ended March 31, 2012

 

Net cash provided by operating activities—continuing operations for the three months ended March 31, 2012, was $0.9 million, consisting primarily of the Company’s loss from operations offset by positive changes in working capital and noncash charges.

 

Net cash used in investing activities—continuing operations for the three months ended March 31, 2012, was approximately $7.9 million. This is primarily the result of funding the Company’s acquisitions, including making escrow deposits as well as capital expenditures.

 

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Table of Contents

 

Net cash provided by financing activities—continuing operations was approximately $10.0 million for the three months ended March 31, 2012.  This is primarily the result of cash proceeds received from warrant exercises, the public stock offering, and proceeds from debt financings to fund the Company’s acquisitions, partially offset by repayments of existing debt obligations.

 

Notes Payable and Other Debt

 

Total notes payable and other debt obligations as of March 31, 2013 and December 31, 2012 were as follows:

 

(Amounts in 000’s)

 

March 31, 2013

 

December 31, 2012

 

Senior debt - guaranteed by HUD (a)

 

$

7,793

 

$

9,699

 

Senior debt - guaranteed by USDA

 

28,218

 

28,370

 

Senior debt - guaranteed by SBA

 

6,130

 

6,189

 

Senior debt - bonds, net of discount

 

16,246

 

16,265

 

Senior debt - other mortgage indebtedness

 

74,988

 

75,188

 

Revolving credit facilities and lines of credit

 

9,691

 

9,204

 

Convertible debt issued in 2010, net of discount

 

11,111

 

10,948

 

Convertible debt issued in 2011

 

4,509

 

4,509

 

Convertible debt issued in 2012

 

7,500

 

7,500

 

Other debt

 

5,536

 

4,004

 

Total

 

$

171,722

 

$

171,876

 

Less: current portion

 

31,463

 

19,387

 

Less: portion included in liabilities of disposal group held for sale

 

3,644

 

3,662

 

Notes payable and other debt, net of current portion

 

$

136,615

 

$

148,827

 

 


(a) The senior debt - guaranteed by HUD includes $3.6 million related to the Vandalia HUD mortgage note classified as liabilities of disposal group held for sale at March 31, 2013, that was assumed by the buyer of the Hearth & Home of Vandalia assisted living facility that the Company sold in a transaction that closed in May 2013 (See Note 18 - Subsequent Events)

 

Scheduled Maturities

 

The schedule below summarizes the scheduled maturities as of March 31, 2013 for each of the next five years and thereafter.

 

 

 

(Amounts in 000’s)

 

2014

 

$

35,505

 

2015

 

24,962

 

2016

 

14,403

 

2017

 

41,390

 

2018

 

3,733

 

Thereafter

 

52,306

 

Subtotal

 

172,299

 

Less: unamortized discounts ($489 classifed as current)

 

(913

)

Plus: unamortized premiums ($91 classified as current)

 

336

 

Total notes and other debt

 

$

171,722

 

 

38



Table of Contents

 

Debt Covenant Compliance

 

As of March 31, 2013, the Company (including its consolidated variable interest entity) has over twenty different credit facilities (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 subsidiary level (i.e.; facility, multiple facilities or a combination of subsidiaries comprising less than the Company’s consolidated financial measurements). Some covenants are based on annual financial metric measurements whereas others are based on monthly or quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of March 31, 2013, the Company has not been in compliance with certain financial and administrative 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 following table includes financial covenant requirements as of the last measurement date as of or prior to March 31, 2013 in instances where the Company was not in compliance with the financial covenant or it achieved compliance with the covenant requirement by a margin of 10% or less. The table also identifies the related credit facility, outstanding balance at March 31, 2013 and the next applicable future financial covenant requirement inclusive of adjustments to covenant requirements resulting from amendments executed subsequent to March 31, 2013.

 

39



Table of Contents

 

Credit Facility

 

Balance at
March 31,
2013 (in
000’s)

 

Consolidated or
Subsidiary Level
Covenant
Requirement

 

Financial Covenant

 

Measurement
Period

 

Min/Max
Financial
Covenant
Required

 

Financial
Covenant
Metric
Achieved

 

Future
Financial
Covenant
Metric
Required

 

PrivateBank - Line of Credit

 

$

8,166

 

Subsidiary

 

Rent and debt service coverage ratio

 

Quarterly

 

1.25

 

1.25

 

1.25

 

 

 

 

 

Consolidated

 

Guarantor minimum debt service coverage ratio (DSCR)

 

Annual

 

1.00

 

1.01

 

1.00

 

 

 

 

 

Consolidated

 

Guarantor maximum leverage ratio

 

Annual

 

11.00

 

10.09

 

11.00

 

Contemporary Healthcare Capital - Term Note and Line of Credit - Companion Care

 

$

5,294

 

Subsidiary

 

Minimum implied current ratio

 

Quarterly

 

1.00

 

0.86

*

1.00

 

 

 

 

 

Subsidiary

 

Minimum liquidity (in 000’s)

 

Quarterly

 

$

250

 

$

237

*

$

250

 

 

 

 

 

Subsidiary

 

Debt Service Coverage Ratio

 

Quarterly

 

1.00

 

-0.18

*

1.00

 

 

 

 

 

Subsidiary

 

Minimum Occupancy

 

Quarterly

 

70.00

%

68.68

%*

70.00

%

PrivateBank - Mortgage Note - Valley River

 

$

11,434

 

Consolidated

 

DSCR

 

Annual

 

1.00

 

1.01

 

1.00

 

Square 1 USDA - Term Note - Homestead

 

$

3,511

 

Subsidiary

 

Current ratio

 

Quarterly

 

1.00

 

0.35

*

1.00

 

 

 

 

 

Subsidiary

 

Maximum debt to net worth

 

Quarterly

 

9.00

 

5.58

 

9.00

 

 

 

 

 

Subsidiary

 

Tangible net worth

 

Quarterly

 

10.0

%

15.2

%

10.0

%

PrivateBank - Mortgage Note - West Markham

 

$

13,665

 

Subsidiary

 

EBITDAR (in 000’s)

 

Monthly

 

$

15

 

$

22

 

$

75

 

 

 

 

 

Subsidiary

 

Fixed Charge Coverage Ratio (FCCR)

 

Quarterly

 

1.05

 

0.65

*

1.05

 

 

 

 

 

Consolidated

 

DSCR

 

Annual

 

1.00

 

1.01

 

1.00

 

 

 

 

 

Consolidated

 

Maximum Annual Leverage

 

Annual

 

11.00

 

10.09

 

11.00

 

KeyBank - Mortgage Note - Northridge - Woodland Hills - Abington

 

$

16,500

 

Subsidiary

 

Debt Service Coverage Ratio

 

Quarterly

 

1.40

 

0.34

*

1.00

 

 

 

 

 

Consolidated

 

FCCR

 

Quarterly

 

1.15

 

0.46

*

0.85

 

PrivateBank - Mortgage Note - Glenvue

 

$

6,519

 

Subsidiary

 

DSCR

 

Quarterly

 

1.35

 

2.96

 

1.35

 

 

 

 

 

Consolidated

 

DSCR

 

Annual

 

1.00

 

1.01

 

1.00

 

 

 

 

 

Consolidated

 

Maximum leverage

 

Annual

 

11.00

 

10.09

 

11.00

 

PrivateBank - Mortgage Note - Woodland Manor

 

$

4,681

 

Subsidiary

 

Minimum quarterly EBITDAR (in 000’s)

 

Quarterly

 

$

250

 

$

337

 

$

250

 

 

 

 

 

Subsidiary

 

Minimum trailing twelve month FCCR

 

Quarterly

 

1.10

 

1.19

 

1.10

 

Medical Clinic Board of the City of Hoover - Bonds

 

$

6,290

 

VIE

 

DSCR

 

Annual

 

1.20

 

0.21

*

1.20

 

 

 

 

 

VIE

 

Days cash on hand

 

Annual

 

15

 

6.11

*

15

 

 

 

 

 

VIE

 

Trade payables

 

Annual

 

10.0

%

1.6

%*

10.00

%

City of Springfield - Bonds

 

$

7,230

 

Subsidiary

 

DSCR

 

Annual

 

1.10

 

0.83

*

1.10

 

 

 

 

 

Subsidiary

 

Days Cash on Hand

 

Annual

 

15

 

1.06

*

15

 

 

 

 

 

Subsidiary

 

Trade payables

 

Annual

 

10.0

%

1.75

%*

10.0

%

 


* Waiver or amendment for violation of covenant obtained.

 

Senior Debt—Guaranteed by HUD

 

Sale of Ohio ALFs

 

On February 28, 2013, the Company completed the sale of one additional assisted living facility and used the proceeds to repay the principal balance of the HUD loan with respect to the facility in the amount of $1.9 million.

 

Hearth and Home of Vandalia

 

In connection with the Company’s January 2012 refinancing of Vandalia, owned by a wholly owned subsidiary of AdCare, the Company obtained a note, insured by HUD, with a financial

 

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institution for a total amount of $3.7 million that matures in 2041. The HUD note requires monthly principal and interest payments with a fixed interest rate of 3.74%. The Company incurred deferred financing costs on the note of approximately $0.2 million, which are being amortized to interest expense over the life of the note. The HUD note has a prepayment penalty of 8% starting in 2014 declining by 1% each year through 2022. This note was assumed by the buyer in the closing of the sale of this facility that occurred in May 2013 pursuant to the terms of the sale agreement related to the sale of six of the Company’s assisted living facilities located in Ohio (see Note 18 -  Subsequent Events ).

 

Revolving Credit Facilities and Lines of Credit

 

PrivateBank Credit Facility

 

On January 25, 2013, the Company entered into a Memorandum of Agreement with PrivateBank. Pursuant to the memorandum, three of the Company’s subsidiaries and their collateral, which comprise the three skilled nursing facilities located in Arkansas known as the Aviv facilities, were released from liability under the PrivateBank Credit Facility, dated October 26, 2012 and as so amended, between PrivateBank and the Company. In exchange for the release from liability under the PrivateBank Credit Facility, the Company made a payment in the amount of $0.7 million on December 28, 2012. The memorandum did not change the maximum amount that may be borrowed under the PrivateBank Credit Facility by the Company, which remains $10.6 million.

 

As of March 31, 2013, $8.2 million was outstanding of the maximum borrowing amount of $10.6 million under the loan agreement under the PrivateBank Credit Facility.  There were $1.3 million of outstanding letters of credit that are pledged as collateral of  borrowing capacity on this revolver.

 

Convertible Debt

 

Subordinated Convertible Promissory Notes Issued in 2010

 

In February 2013, there was a conversion of a $0.02 million convertible promissory note, which was part of the October 26, 2010 offering, at a price of $3.73 per share and resulted in the issuance of 6,635 shares of common stock.  In March 2013, another conversion of a $0.02 million convertible promissory note, which was also a part of the October 26, 2010 offering, at a price of $3.73 per share, resulted in the issuance of 6,635 shares of common stock.

 

Other Debt

 

During the three months ended March 31, 2013, the Company obtained financing from AON Premium Finance, LLC and entered into Commercial Insurance Premium Finance Security Agreements for the insurance programs, including general and professional liability, property, casualty, crime, and employment practices liability effective January 1, 2013 and matures on December 31, 2013.  The total amount financed was approximately $2.4 million requiring monthly payments of $0.2 million with interest ranging from 2.87% to 4.79%.  The outstanding amount was approximately $1.9 million at March 31, 2013.

 

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Receivables

 

The Company’s operations could be adversely affected if we experience significant delays in reimbursement from Medicare, Medicaid and other third-party revenue sources. The Company’s future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash and patient accounts receivable and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on our liquidity. Continued efforts by governmental and third-party payors to contain or reduce the acceleration of costs by monitoring reimbursement rates, by increasing medical review of bills for services, or by negotiating reduced contract rates, as well as any delay by the staff at our facilities in the processing of our invoices, could adversely affect our liquidity and results of operations.

 

Accounts receivable attributable to patient services of continuing operations totaled $27.1 million at March 31, 2013, compared to $24.7 million at December 31, 2012, representing approximately 43 and 45 days of revenue in accounts receivable as of March 31, 2013 and December 31, 2012, respectively. The increase in accounts receivable is primarily the result of increased revenue in 2013.

 

The allowance for bad debt was $4.7 million and $3.7 million at March 31, 2013 and December 31, 2012, respectively. The Company continually evaluates 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. The Company continues to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts.

 

Inflation

 

The Company has historically derived a substantial portion of our revenue from the Medicare program. The Company also derives revenue from 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, the Company has generally been able to implement cost control measures or obtain increases in reimbursement sufficient to offset increases in these expenses. The Company may not be successful in offsetting future cost increases.

 

Off-Balance Sheet Arrangements

 

There were $1.3 million of outstanding letters of credit of March 31, 2013 that are pledged as collateral of borrowing capacity on the PrivateBank Credit Facility.

 

Contractual Obligations - Operating Leases

 

The Company leases certain office space and 11 skilled nursing facilities under non-cancelable operating leases, most of which have initial lease terms of ten to twelve years with rent escalation clauses and provisions for payments by the Company of real estate taxes, insurance and maintenance costs.  For the three months ended March 31, 2013 and 2012, facility rent expense totaled $1.9 million and $1.9 million, respectively.

 

Eight of the Company’s facilities are operated under a single master lease arrangement. The lease has a term of ten years into 2020. Under the master 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 Medicare and Medicaid provider requirements, is a default under the Company’s master lease agreement. In addition, other potential defaults related to an individual facility may cause a default of the entire master lease agreement. 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. The Company is not aware of any defaults as of March 31, 2013.

 

Two of the Company’s facilities are operated under a separate lease agreement. The lease is a single indivisible lease; therefore, a breach at a single facility could subject the second facility to the same default risk. The lease has a term of 12 years into 2022 and includes covenants and restrictions. A commitment is included that requires minimum capital expenditures of $375 per licensed bed per lease year at each facility which amounts to $0.1 million per year for both

 

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facilities. In recent periods, the Company has not been in compliance with certain financial and administrative covenants of this lease agreement. The Company has obtained a waiver for each instance of such non-compliance.

 

Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations

 

Due to the material amount of non-cash related items included in the Company’s results of operations, the Company has 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 use of cash (see the table below).  The Adjusted EBITDA from continuing operations for the first quarter of 2013 was approximately $2.0 million, which is an improvement of approximately $0.5 million as compared to the same period in the prior year.  This improvement was the result of increased revenue and improved gross margins. The Company has also developed an Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and Rent (“Adjusted EBITDAR from continuing operations”) metric that is used primarily in some debt covenants of the Company’s loans.

 

“Adjusted EBITDA from continuing operations” and “Adjusted EBITDAR from continuing operations” are measures of operating performance that are not calculated in accordance with GAAP. The Company defines: (i) “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), acquisition costs (net of gains), loss on extinguishment of debt, derivative loss or gain, other non-routine adjustments; and (ii) “Adjusted EBITDAR 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), acquisition costs (net of gains), loss on extinguishment of debt, derivative loss; other non-routine adjustments.  The Company has provided below for your reference, 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 and EBITDAR from continuing operations:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2013

 

2012

 

Condensed Consolidated Statement of Operations Data:

 

 

 

 

 

Net loss (income)

 

$

(2,750

)

$

(2,412

)

Discontinued operations

 

66

 

(226

)

Loss from continuing operations (Per GAAP)

 

(2,684

)

(2,638

)

Add back:

 

 

 

 

 

Interest expense, net

 

3,436

 

2,500

 

Income tax expense

 

78

 

1

 

Amortization of stock based compensation

 

260

 

190

 

Depreciation and amortization

 

1,829

 

1,569

 

Acquisition costs, net of gain

 

97

 

293

 

Loss on extinguishment of debt

 

2

 

 

Derivative gain

 

(2,136

)

(410

)

Audit committee investigation expense and other

 

1,134

 

(2

)

Adjusted EBITDA from continuing operations

 

2,016

 

1,503

 

Faculty rent expense

 

1,892

 

1,914

 

Adjusted EBITDAR from continuing operations

 

$

3,908

 

$

3,417

 

 

Adjusted EBITDA from continuing operations and Adjusted EBITDAR 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.  Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations are used by management to focus on operating performance and management without mixing in items of income and expense that relate to the financing and capitalization of the business, fixed rent or lease payments of facilities, derivative loss or gain, and certain acquisition related charges.

 

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The Company believes these measures are useful to investors in evaluating the Company’s performance, results of operations and financial position for the following reasons:

 

·                   They are 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;

 

·                   They provide 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

 

·                   They provide data that assists management determine whether or not adjustments to current spending decisions are needed.

 

AdCare believes that the use of the measures provides a meaningful and consistent comparison of the Company’s underlying business between periods by eliminating certain items required by GAAP, which have little or no significance in the Company’s day-to-day operations.

 

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.

 

Audit Committee Review and Inquiry

 

As previously disclosed, the Audit Committee, in consultation with management, concluded in March 2013 that: (i) the Relevant Financial Statements (i.e., the Company’s previously issued financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012) should no longer be relied upon due to errors in the Relevant Financial Statements identified in connection with the audit of the Company’s consolidated financial statements for the year ended December 31, 2012; and (ii) the Company would restate the Relevant Financial Statements.

 

The Audit Committee initiated a further review of, and inquiry with respect to, the accounting and financial issues related to these and other potential errors and engaged counsel to assist the Audit Committee with such matters. The Audit Committee completed its inquiry and, in connection therewith, assisted in the correction of certain errors relating to accounting and financial matters and identified certain material weaknesses in the Company’s internal control over financial reporting, including weakness in the Company’s ability to appropriately account for complex or non-routine transactions and in the quality and sufficiency of the Company’s finance and accounting resources.

 

On July 8, 2013, the Company restated the Relevant Financial Statements by filing with the SEC amendments to its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012.

 

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 Chief Executive Officer and Chief Financial Officer have 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 on Form 10-Q for the quarter ended March 31, 2013  (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 were not effective.

 

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Changes in Internal Control over Financial Reporting and Remediation

 

In response to the material weaknesses in the Company’s internal control over financial reporting identified by the Audit Committee’s review and inquiry and as identified in Management’s Report on Internal Control Over Financial Reporting included in Part II, Item 9A., “Controls and Procedures,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, and based in part on recommendations made by the Audit Committee to the Board of Directors following the completion of the Audit Committee’s review and inquiry, we have implemented, or plan to implement, the changes to our internal control over financial reporting discussed below.

 

·                   We hired Ronald W. Fleming to serve as Chief Financial Officer of the Company effective May 15, 2013. Mr. Fleming has relevant industry experience as well as experience with generally accepted accounting principles and SEC reporting and compliance.

 

·                   We have empowered Mr. Fleming to hire additional accounting and finance staff to ensure adequate internal control over financial reporting and operations.

 

·       We hired a Vice President, Controller and Chief Accounting Officer effective July 16, 2013.

 

·                   We have expanded the scope of our annual internal audit plan to include quarterly internal audit procedures with emphasis on the review of journal entries and non-recurring transactions.

 

Since January 2013, the Company has hired eight new finance and accounting personnel, including a Vice President of Facility Accounting Operations. Our new finance and accounting leadership continue to evaluate the qualifications and sufficiency of our accounting and finance department. The expanded internal audit scope has commenced and will be completed prior to the Company filing its Quarterly Reports on Form 10-Q for each of the remaining 2013 quarterly periods.

 

Due to the short time period since we commenced our efforts to remediate our material weaknesses, we have not yet been able to fully evaluate the effectiveness of such efforts. We have incurred, and will continue to incur, additional incremental costs associated with our remediation efforts, primarily due to hiring new finance and accounting personnel and external consultants and the implementation and validation of improved accounting and financial reporting procedures. If we are not successful in remediating our material weaknesses, or if we determine in future fiscal periods that we have additional material weaknesses in our internal control over financial reporting, then the reliability of our financial reports may be adversely impacted, we may be unable to file our reports with the SEC in a timely fashion and we could be required to restate our financial results. This could cause our investors to lose confidence in our financial reporting, which could adversely affect the trading price of our stock.

 

Other than the remediation efforts discussed above, which occurred in 2013 and have included the involvement of our new finance and accounting leadership in the preparation, review, and approval of the consolidated financial statements included in this Quarterly Report, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II.  Other Information

 

Item 1.  Legal Proceedings.

 

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 Chief Executive Officer (collectively, the “AdCare Defendants”); (ii) Christopher Brogdon, Vice Chairman of the Board of Directors, and his wife; and (iii) five entities controlled by Mr. and Mrs. Brogdon, which entities own five skilled-nursing facilities located in Oklahoma (the “Oklahoma Facilities”) that are managed by an AdCare subsidiary. The Company believes that the complaint is without merit and intends to vigorously defend itself against the claims set forth therein.

 

The complaint alleges, with respect to the AdCare Defendants, that: (i) the AdCare Defendants tortuously interfered with contractual relations between the Plaintiffs and Mr. Brogdon, and with Plaintiffs’ prospective economic advantage, relating to SSSI’s right to manage the Oklahoma Facilities and seven other skilled-nursing facilities located in Oklahoma (collectively, the “Facilities”), respectively; (ii) the AdCare Defendants fraudulently induced the Plaintiffs to perform work and incur expenses with respect to the Facilities; and (iii) one of the AdCare subsidiaries which is an AdCare Defendant provided false and defamatory information to an Oklahoma regulatory authority regarding SSSI’s management of one of the Oklahoma Facilities. The complaint seeks damages against the AdCare Defendants, including punitive damages, in an unspecified amount, as well as costs and expenses, including reasonable attorney fees.

 

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.

 

None.

 

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Item 3.  Defaults upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5.  Other Information.

 

None.

 

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

 

Purchase and Sale Agreement, dated February 15, 2013, by and among Avalon Health Care, LLC and AdCare Property Holdings, LLC

 

Incorporated by reference from Exhibit 2.27 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012

 

 

 

 

 

2.2

 

First Amendment to Purchase and Sale Agreement, dated March 14, 2013, by and between Avalon Health Care, LLC and AdCare Property Holdings, LLC

 

Incorporated by reference from Exhibit 2.28 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012

 

 

 

 

 

2.3

 

Reinstatement, Sixth Amendment and Assignment of Purchase and Sale Agreement, dated May 7, 2013, by and among First Commercial Bank, Brogdon Family, LLC and AdCare Property Holdings, LLC

 

Filed herewith

 

 

 

 

 

3.1

 

Amended and Restated Articles of Incorporation

 

Incorporated by reference from Exhibit 3.1 of the Registrant’s

 

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Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

 

 

 

 

Registration Statement Form SB (Registration No. 333-131542) filed February 3, 2006

 

 

 

 

 

3.2

 

Code of Regulations

 

Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) filed February 3, 2006

 

 

 

 

 

3.3

 

Amendment to Amended and Restated Articles of Incorporation

 

Incorporated by reference to Exhibit 3.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011

 

 

 

 

 

3.4

 

Affidavit, dated June 28, 2012

 

Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on July 5, 2012

 

 

 

 

 

3.5

 

Certificate of Amendment to Amended and Restated Articles of Incorporation of AdCare Health Systems, Inc.

 

Incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form 8-A filed on November 7, 2012

 

 

 

 

 

4.1

 

Warrant to Purchase 70,000 Shares of Common Stock, dated May 15, 2013, issued by AdCare Health Systems, Inc. to Ronald W. Fleming

 

Incorporated by reference from Exhibit 4.23 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012

 

 

 

 

 

10.1

 

Memorandum of Agreement, dated January 25, 2013, by and between The PrivateBank and Trust Company and the subsidiaries of AdCare Health Systems, Inc. named therein

 

Incorporated by reference from Exhibit 10.289 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012

 

 

 

 

 

10.2

 

Amendment to Secured Promissory Note, dated February 28, 2013, by and between CHP Acquisition Company, LLC and AdCare Health Systems, Inc.

 

Filed herewith

 

 

 

 

 

10.3

 

Assignment and Assumption of Leases, Rents and Security Deposits, dated February 28, 2013, by and among AdCare Health Systems, Inc., New Lincoln Ltd. and Lincoln Lodge Retirement Residence LLC

 

Filed herewith

 

 

 

 

 

10.4

 

Release and Assumption Agreement, dated May 6, 2013, by and among H & H of Vandalia LLC, Hearth & Home of Vandalia, Inc., Red Mortgage Capital, LLC and the Secretary of Housing and Urban Development

 

Filed herewith

 

 

 

 

 

10.5

 

Assignment and Assumption Agreement, dated May 6, 2013, by and between Hearth & Home of Vandalia, Inc. and H & H of Vandalia LLC

 

Filed herewith

 

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Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

10.6

 

Fourth Amendment to Credit Agreement, dated May 30, 2013, by and between ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC

 

Filed herewith

 

 

 

 

 

10.7

 

Credit Agreement, dated May 30, 2012, by and among NW 61 st  Nursing, LLC and Gemino Healthcare Finance, LLC

 

Filed herewith

 

 

 

 

 

10.8

 

Revolving Note, dated May 30, 2013, issued by NW 61 st  Nursing, LLC in favor of Gemino Healthcare Finance, LLC in the amount of $1,000,000

 

Filed herewith

 

 

 

 

 

10.9

 

Subordination Agreement, dated May 30, 2013, by and between First Commercial Bank and Gemino Healthcare Finance, LLC

 

Filed herewith

 

 

 

 

 

10.10

 

Guaranty Agreement, dated May 30, 2013, made by NW 61 st  Nursing, LLC in favor of Gemino Healthcare Finance, LLC

 

Filed herewith

 

 

 

 

 

10.11

 

Guaranty Agreement, dated May 30, 2013, made by AdCare Health Systems, Inc. in favor of Gemino Healthcare Finance, LLC

 

Filed herewith

 

 

 

 

 

10.12

 

First Amendment to Secured Loan Agreement and Payment Guaranty, dated May 31, 2013, by and among AdCare Health Systems, Inc., its subsidiaries named therein, AdCare Property Holdings, LLC, AdCare Operations, LLC and KeyBank National Association

 

Filed herewith

 

 

 

 

 

10.13

 

Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated May 31, 2013, made by Mountain Top Property Holdings, LLC, to and for the benefit of KeyBank National Association

 

Filed herewith

 

 

 

 

 

10.14

 

Absolute Assignment of Leases and Rents, dated May 31, 2013, by Mountain Top Property Holdings, LLC in favor of KeyBank National Association

 

Filed herewith

 

 

 

 

 

10.15

 

Pledge and Security Agreement, dated May 31, 2013, between AdCare Health Systems, Inc. and KeyBank National Association

 

Filed herewith

 

 

 

 

 

10.16

 

Separation and Release Agreement, dated May 31, 2013, by and between AdCare Health Systems, Inc. and Martin D. Brew

 

Filed herewith

 

 

 

 

 

10.17

 

Second Amendment to Secured Loan Agreement and Payment Guaranty, dated June 27, 2013, by and among AdCare Health Systems, Inc., its subsidiaries named therein, AdCare Property Holdings, LLC, AdCare Operations, LLC and KeyBank National Association

 

Filed herewith

 

 

 

 

 

10.18

 

Third Modification Agreement, dated as of June 26, 2013, 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

 

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Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

10.19

 

Joinder Agreement, Second Amendment and Supplement to Credit Agreement , dated June 28, 2013, by and among NW 61 st  Nursing, LLC, Georgetown HC&R Nursing, LLC, Sumter N&R, LLC and Gemino Healthcare Finance, LLC

 

Filed herewith

 

 

 

 

 

10.20

 

Amended and Restated Revolving Note, dated June 28, 2013, issued by certain subsidiaries of AdCare Health Systems, Inc. in favor of Gemino Healthcare Finance, LLC in the amount of $1,500,000

 

Filed herewith

 

 

 

 

 

10.21

 

Management Fee Subordination Agreement, dated June 28, 2013, by and among Gemino Healthcare Finance, LLC, Georgetown HC&R Nursing, LLC, Sumter N&R, LLC and AdCare Administrative Services, LLC

 

Filed herewith

 

 

 

 

 

10.22

 

Sublease Termination Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and ADK Oceanside Operator, LLC

 

Filed herewith

 

 

 

 

 

10.23

 

Sublease Termination Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and ADK Savannah Beach Operator, LLC

 

Filed herewith

 

 

 

 

 

10.24

 

Sublease Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and Tybee NH, LLC

 

Filed herewith

 

 

 

 

 

10.25

 

Sublease Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and Tybee NH, LLC

 

Filed herewith

 

 

 

 

 

10.26

 

Employment Agreement, dated July 3, 2013, by and between AdCare Health Systems, Inc. and Ronald W. Fleming

 

Incorporated by reference from Exhibit 10.296 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012

 

 

 

 

 

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 March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i)  Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012, (ii) Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, (iv) Consolidated Statements of Stockholders’ Equity for the

 

Filed herewith

 

49



Table of Contents

 

Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

 

 

three months ended March 31, 2013 and (v) the Notes to Consolidated Financial Statements.

 

 

 

50



Table of Contents

 

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: 

July 26, 2013

 

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Date: 

July 26, 2013

 

/s/ Ronald W. Fleming

 

 

Ronald W. Fleming

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

51


Exhibit 2.3

 

REINSTATEMENT, SIXTH AMENDMENT AND ASSIGNMENT OF

PURCHASE AND SALE AGREEMENT

 

This Reinstatement, Sixth Amendment and Assignment of Purchase and Sale Agreement (this “ Sixth Amendment ”) is made and entered into as of May 7, 2013 (the “ Effective Date ”) by and among FIRST COMMERCIAL BANK , a Missouri corporation (“ Seller ”), BROGDON FAMILY, LLC , a Georgia limited liability company (“ Brogdon ”), and ADCARE PROPERTY HOLDINGS, LLC , an Ohio limited liability company or its permitted assigns (“ ADK Property ”).

 

WITNESSETH :

 

WHEREAS, Brogdon, as purchaser, and Seller were the original  parties to that certain Purchase and Sale Agreement dated as of May 5, 2011, as amended pursuant to that certain First Amendment to Purchase and Sale Agreement dated as of June 13, 2011, as further amended and assigned to ADK Property pursuant to that certain Amendment and Assignment of Purchase and Sale Agreement dated as of September 30, 2011, as further amended pursuant to that certain Third Amendment to Purchase and Sale Agreement dated as of April 17, 2012, that certain Fourth Amendment to Purchase and Sale Agreement and that certain Fifth Amendment to Purchase and Sale Agreement dated as of November 30, 2012 (as amended and assigned, the “ Agreement ”);

 

WHEREAS , pursuant to that Assignment of Purchase Agreement from ADK Property to Northwest Property Holdings, LLC (“ Northwest Property ”), Seller sold the Facility commonly known as “Northwest” to Northwest Property on December 31, 2012;

 

WHEREAS , pursuant to an Assignment of Purchase Agreement from ADK property to Edwards Redeemer Property Holdings, LLC (“ ER Property ”), Seller sold the Facility commonly known as “Edwards Redeemer” to ER Property on December 27, 2012;

 

WHEREAS , the Closing of the remaining Facilities was to occur on or before March 31, 2013, but such closing did not occur;

 

WHEREAS , the parties desire to reinstate the Agreement to allow for the Closing of the sale of the remaining Facilities; and

 

WHEREAS , ADK Property desires to assign to Brogdon all of ADK Property’s rights, title and interest in and to the Agreement as they relate to the remaining Facilities, and Brogdon desires to assume all of Purchaser’s obligations under the Agreement with respect to the remaining Facilities.

 

In consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.             Recitals; Terms .  The foregoing recitals are true and correct and incorporated into this Sixth Amendment as if fully set forth herein.  Capitalized but undefined terms used in this Sixth Amendment shall have the meanings set forth in the Agreement.

 



 

2.             Reinstatement .  The parties hereby agree that the Agreement is reinstated and declared to be in full force and effect according to its terms and provisions, as amended hereby.

 

3.             Assignment and Assumption .  ADK Property hereby assigns to Brogdon all of  ADK Property’s right, title and interest in and to the Agreement and Brogdon hereby assumes from ADK Property all of ADK Property’s obligations under the Agreement.  Brogdon shall be recognized as the “Purchaser” under the Agreement with respect to the remaining Facilities.

 

4.             Closing Date and Purchase Price .  Seller and Brogdon agree that the Closing Date for the remaining Facilities shall be on or before June 30, 2013.  Seller and Brogdon agree that the Purchase Price for the remaining Facilities (after considering the Purchase Price paid for the Northwest and Edwards Redeemer Facilities) is Ten Million Nine Hundred Thousand and No/100 Dollars ($10,900,000.00).

 

5.             Notice .  Section 12.3(c) of the Agreement is hereby amended to delete the notice to ADK Property and to substitute in lieu thereof the following notice address for Brogdon as Purchaser:

 

If to Purchaser, to:

Brogdon Family, LLC

 

Two Buckhead Plaza

 

3050 Peachtree Road NW, Suite 355

 

Atlanta, GA 30305

 

Attn: Christopher F. Brogdon

 

6.             Ratification . Except to the extent amended hereby, Brogdon and Seller ratify and confirm that all other terms and conditions of the Agreement remain in full force and effect.

 

7.             Counterparts . This Sixth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall be taken to be one and the same Amendment, for the same effect as if all parties hereto had signed the same signature page, and an electronic PDF or facsimile copy of an executed counterpart shall constitute the same as delivery of the original of such executed counterpart. Any signature page of this Sixth Amendment (whether original or facsimile) may be detached from any counterpart of this Amendment (whether original or facsimile) without impairing the legal effect of any signatures thereof and may be attached to another counterpart of this Sixth Amendment (whether original, PDF or facsimile) identical in form hereto but having attached to it one or more additional signature pages (whether original, PDF or facsimile).

 

[Signatures on next page]

 

2



 

IN WITNESS WHEREOF, each party has caused this instrument to be executed as of the date set forth hereinabove.

 

 

BROGDON:

 

 

 

BROGDON FAMILY, LLC,

 

a Georgia limited liability company

 

 

 

 

 

By:

/s/ Christopher F. Brogdon

 

 

Christopher F. Brogdon, Manager

 

 

 

 

 

SELLER:

 

 

 

FIRST COMMERCIAL BANK,

 

a Missouri corporation

 

 

 

 

 

By:

/s/ Norman B. Harty

 

 

Norman B. Harty, President

 

 

 

 

 

ADK PROPERTY:

 

 

 

ADCARE PROPERTY HOLDINGS, LLC,

 

an Ohio limited liability company

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, Manager

 

3


Exhibit 10.2

 

AMENDMENT TO SECURED PROMISSORY NOTE

 

THIS AMENDMENT TO SECURED PROMISSORY NOTE (this “Amendment”) is made and entered into as of the 28 day of February, 2013 by and between CHP Acquisition Company, LLC an Ohio limited liability company (“Borrower”) and AdCare Health Systems, Inc., an Ohio corporation (“Lender”).  Any capitalized items not other defined herein shall have the meaning ascribed to them in the Note (as defined below).

 

WITNESSETH:

 

WHEREAS, on December 28, 2012, Borrower executed and delivered to Lender that certain Secured Promissory Note in the amount of $3,600,000 (the “Note”);

 

WHEREAS, Borrower and Lender desire to modify and amend the Note and desire to set forth their agreement in writing.

 

NOW, THEREFORE, for and in consideration of the foregoing premesis, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender Agree that the Note shall be modified and amended in the following respects.

 

1.             The second paragraph on page 1 of the Note is hereby deleted in its entirety and replaced with the following:

 

The unpaid Principal of this Note shall bear interest from the date hereof until paid in full at the annual percentage rate of five percent (5%) provided, however, that if, for any reason whatsoever, the Borrower has not assumed the Vandalia HUD Loan (as defined below) by May 31, 2013, then, and in such an event, the interest rate on the unpaid Principal of the Note shall automatically be increased by one percentage point for each month or part thereof during which any of the principal amount of this Note shall remain unpaid up to a maximum annual percentage rate of eight percent (8%).

 

2.             The definition of Maturity Date is hereby deleted in its entirety and replaced with the following:

 

“Maturity Date” means the earlier of (i) Borrower’s refinancing of that certain HUD Loan secured by the real property commonly known as Hearth & Home of Vandalia, 55 Great Hill Drive, Vandalia, Ohio, which HUD Loan is evidenced by that certain Mortgage of record from Hearth & Home of Vandalia, Inc., an Ohio corporation, to Red Mortgage Capital, Inc., dated January 26, 2012, filed for record on January 31, 2012 in Official Record 2012-00006113, Recorder’s Officer, Montgomery County, Ohio (the “Vandalia HUD Loan”) or (ii) September 1, 2014.

 

3.             In all other respects, the Note is hereby ratified and confirmed in its entirety.

 



 

IN WITNESS WHEREOF , Borrower and Lender have caused this Amendment to be executed as of the date first written above.

 

 

 

BORROWER :

 

 

 

CHP Acquisition Company, LLC,

 

an Ohio limited liability company

 

 

 

 

 

By:

/s/ Roger C. Vincent

 

Name:

Roger C. Vincent

 

Title:

 

 

 

 

 

 

LENDER:

 

 

 

AdCare Health Systems, Inc.,

 

An Ohio Corporation

 

 

 

 

 

By:

/s/ Martin D. Brew

 

Name:

Martin D. Brew

 

Title:

CFO

 

2


Exhibit 10.3

 

ASSIGNMENT AND ASSUMPTION OF LEASES,

RENTS, AND SECURITY DEPOSITS

 

THIS ASSIGNMENT AND ASSUMPTION OF LEASES, RENTS, AND SECURITY DEPOSITS AGREEMENT dated the 28 th  day of February, 2013, (the “Agreement”) is made and entered into by and between ADCARE HEALTH SYSTEMS, INC., an Ohio corporation and NEW LINCOLN LTD., an Ohio limited partnership, collectively, as Seller (“Assignor”), and LINCOLN LODGE RETIREMENT RESIDENCE LLC , an Ohio limited liability company an Ohio nonprofit corporation as Buyer (“Assignee”).

 

WITNESSETH:

 

WHEREAS, Assignor is the lessor under certain leases executed with respect to that certain real property commonly known as 4959 Medfield Way, Columbus, Ohio (the “Property”), which leases are described in Schedule 1 attached hereto (the “Leases”); and

 

WHEREAS, Assignor desires to transfer and assign all its right, title and interest in, as lessor in the Leases and amendments or modifications thereto, the rents and payments accruing under such Leases on or after the date of closing, and the transfer of all Security Deposits to Assignee upon the date of closing of the purchase and sale of the Property, and Assignee desires to accept the assignment thereof;

 

NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows:

 

1.                                       Assignor hereby assigns to Assignee all of its right, title and interest in and to the Leases herein described.

 

2.                                       Assignor warrants and represents that as of the date hereof;

 

(a)                                  The attached list includes all of the Leases affecting the property being acquired by Assignee from Assignor. As of the date hereof, there are no assignments of or agreements to assign the Leases to any other party.

 

(b)                                  The Leases are in full force and effect and there exist no defaults on the part of Assignor thereunder, nor does Assignor have any actual knowledge of any defaults or any acts or events which with the passage of time or the giving of notice could become defaults thereunder on the part of any tenant.

 

3.                                       Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys’ fees, originating prior to the date hereof and arising out of the lessor’s obligations under the Leases described in Schedule 1.

 



 

4.                                       Assignee hereby assumes all of the landlord’s or lessor’s obligations under the Leases described in Schedule 1 and agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys’ fees, originating subsequent to the date hereof and arising out of the lessor’s obligations under the Leases.

 

5.                                       In the event of any litigation between Assignor and Assignee arising out of the obligations of the parties under this Assignment or concerning the meaning or interpretation of any provision contained herein, the losing party shall pay the prevailing party’s costs and expenses of such litigation, including, without limitation, reasonable attorney’s fees.

 

6.                                       This Agreement shall be binding on and insure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns.

 

[Signature page follows]

 



 

IN WITNESS WHEREOF, the Assignor and Assignee have executed this Agreement the day and year first above written.

 

 

ASSIGNOR:

 

 

 

ADCARE HEALTH SYSTEMS, INC.,

 

an Ohio corporation

 

 

 

By:

/s/ Martin D. Brew

 

Name:

Martin D. Brew

 

Title:

CFO

 

 

 

 

 

NEW LINCOLN LTD.,

 

an Ohio limited partnership

 

 

 

By:

/s/ Martin D. Brew

 

Name:

Martin D. Brew

 

Title:

CFO

 

 

 

 

 

ASSIGNEE:

 

 

 

LINCOLN LODGE RETIREMENT RESIDENCE LLC,

 

an Ohio limited liability company

 

 

 

By:

CHP ACQUISITION COMPANY LLC,

 

 

an Ohio limited liability company,

 

 

its Sole Member and Manager

 

 

 

 

 

By:

/s/ Roger C. Vincent

 

 

Roger C. Vincent, Manager

 

SIGNATURE PAGE

ASSIGNMENT OF LEASES

 


Exhibit 10.4

 

Prepared by and return to:

Scot C. Crow, Esq.

Dickinson Wright PLLC

150 E. Gay Street, Suite 2400

Columbus, Ohio 43215

(614) 744-2585

 

Hearth & Home of Vandalia

Dayton, Ohio

FHA Project No. 046-43057

 

RELEASE AND ASSUMPTION AGREEMENT

 

THIS RELEASE AND ASSUMPTION AGREEMENT (this “Agreement”) is made, as of May 6 , 2013, by and among H & H OF VANDALIA LLC , an Ohio limited liability company, 4100 Regent Street, Suite F, Columbus, Ohio 43219 (the “Owner”), HEARTH & HOME OF VANDALIA, INC. , an Ohio corporation aka Hearth and Home of Vandalia, Inc., an Ohio corporation, 5057 Troy Road, Springfield, OH 45502 (“Prior Owner”), RED MORTGAGE CAPITAL, LLC , a Delaware limited liability company, 2 Miranova Place Columbus, OH 43215 (the “Mortgagee”) and the SECRETARY OF HOUSING AND URBAN DEVELOPMENT , Washington, D.C., acting by and through the Federal Housing Commissioner (the “Secretary”), under certain provisions of the National Housing Act, as amended.

 

RECITALS

 

A. Owner and Prior Owner entered into that certain Purchase and Sale Agreement dated October 11, 2012 as amended (collectively, the “Purchase Agreement”), pursuant to which the Prior Owner agreed to sell, and the Owner agreed to purchase, all of that certain real property located in the City of Dayton, in the County of Montgomery, in the State of Ohio, as more particularly described in Exhibit A attached hereto and made a part hereof (the “Real Property”), on which is constructed that certain rental apartment project known as Hearth & Home of Vandalia, FHA Project No. 046-43057 (the “Project” and, together with the Real Property, the “Property”).

 



 

B. The Property is encumbered by that certain first lien mortgage loan (the “Loan”) made to the Prior Owner by the Mortgagee, which Loan is evidenced and/or secured by (i) that certain Mortgage/Deed of Trust Note dated as of January 1, 2012 in the original principal amount of Three Million Seven Hundred Twenty One Thousand Five Hundred and No/100 Dollars ($3,721,500.00) (the “Note”), (ii) that certain Mortgage/Deed of Trust as of even date therewith and recorded on January 31, 2012, among the land records of Montgomery County, Ohio (the “Land Records”), Instrument Number 2012-00006113 (the “Mortgage”), (iii) that certain Security Agreement dated January 1, 2012 between the Prior Owner and the Mortgagee, (iv) those certain UCC-1 Financing Statements filed in the Land Records and with the Ohio Secretary of State showing Prior Owner (as debtor) and Mortgagee (as secured party), (v) that certain Account Control Agreement dated as of January 27, 2012 among Mortgagee, Prior Owner and Huntington National Bank (the “Depository Bank”); (vi) that certain Deposit Account Instruction and Services Agreement dated as of January 27, 2012 among Mortgagee, Prior Owner and the Depository Bank; and (vii) and all other instruments executed in connection with the Loan (collectively the “Loan Documents”).

 

C. The Loan is insured by the Secretary under Section 232 pursuant to Section 223(a)(7) of the National Housing Act, as amended. In connection therewith, the Prior Owner and the Secretary executed that certain Regulatory Agreements for Insured Multifamily Housing Projects dated January 1, 2012 and recorded on January 31, 2012 among the Land Records of Montgomery County, Ohio, Instrument Number 2012-00006115 and that certain Regulatory Agreements Nursing Homes dated January 1, 2012 and recorded on January 31, 2012 among the Land Records of Montgomery County, Ohio, Instrument Number 2012-00006114 (together, the “Regulatory Agreements”). The Regulatory Agreements are incorporated by reference into and made a part of the Mortgage.

 

D.   Immediately prior to the execution of this Agreement, the outstanding principal balance of the Loan equals Three Million Six Hundred Thirty Seven Thousand Eight Hundred Forty Seven and 91/100 Dollars ($3,637,847.91).

 

E.   Owner has agreed to assume the Prior Owner’s obligations under the Note, the Mortgage and other Loan Documents (collectively the “Assumed Documents” and individually referred to herein as an “Assumed Document”) pursuant to the terms of this Agreement, and the Prior Owner shall be released of its obligations under the Assumed Documents as of the date hereof, both with the Mortgagee’s and the Secretary’s consent thereto, as set forth herein.

 

F.   Pursuant to the Purchase Agreement, the Prior Owner has, as of the date hereof, conveyed to the Owner all of the Prior Owner’s right, title and interest in and to the Property and has entered into the Assumed Documents with the Mortgagee and the Secretary, respectively.

 

G.   In connection with its assumption of the Assumed Documents, Owner and the Secretary have entered into a Regulatory Agreement for Insured Multifamily Housing Projects dated as of the date hereof and to be recorded among the Land Records of Montgomery County, Ohio (the “New Regulatory Agreement”).

 



 

NOW, THEREFORE, in consideration of the foregoing premises, the sum of Ten Dollars ($10.00) in hand paid, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, for themselves and for their respective successors and assigns, hereby agree as follows:

 

1.    Incorporation of Recitals. The foregoing recitals are hereby incorporated by reference as if fully set forth herein.

 

2.    Prior Owner’s Acknowledgements, Representations and Warranties. The Prior Owner acknowledges, represents and warrants, as of the date of this Agreement that:

 

a.                                       The unpaid principal balance on the Note as of April 25, 2013 is approximately $3,637,847.91 and prior to default, the Note bears interest at the rate of 3.74% per annum.

 

b.                                       The Note requires that monthly payments of principal and interest in the amount of $17,453.72 be made on the first day of each month, with the balance of principal (if any) remaining unpaid and accrued interest being payable on May 1, 2041.

 

c.                                        The Mortgage is a valid first lien on the Property for the full unpaid principal amount of the Note and all other amounts as stated in the Note and Mortgage.

 

d.                                       To the best of Prior Owner’s knowledge, there are no defenses, offsets or counterclaims to the Loan Documents.

 

e.                                        To the best of Prior Owner’s knowledge, there are no defaults by the Prior Owner under the provisions of the Loan Documents, nor are there any conditions, which, with the giving of notice or the passage of time or both, may constitute a default by Prior Owner under the provisions of the Loan Documents.

 

f.                                         To the best of Prior Owner’s knowledge, all provisions of the Loan Documents are valid, in full force and effect and enforceable in accordance with their terms.

 

g.                                        There are no subordinate liens of any kind covering or relating to the Property, nor are there any mechanics liens or liens for unpaid taxes or assessments encumbering the Property, nor has notice of a lien or notice of intent to file a lien been received, except for the following: None .

 

h.                                   To the best of Prior Owner’s knowledge, all of the Prior Owner’s representations, warranties and covenants contained in the Loan Documents are true and correct in all material respects as of the date hereof.

 

3



 

The Prior Owner understands and intends that Mortgagee, Owner and Secretary will rely upon the acknowledgements, representations and warranties contained herein.

 

3. Assumption and Release.

 

a.                                       The Owner agrees to assume, and does hereby assume, the obligations of the Prior Owner under the Assumed Documents from and after the date of this Agreement and does hereby agree to be bound by each and every Assumed Document.

 

b.                                       The Owner does not assume personal liability for payments due under the Note, the Mortgage, the Security Agreement or for the payments to the reserve for replacements under the Regulatory Agreements, or for matters not under its control, provided that the Owner shall remain liable under said Regulatory Agreements only with respect to the matters hereinafter stated, namely:

 

(i) for funds or property for the Project coming into its hands which, by the provisions thereof, it is not entitled to retain; and

 

(ii) for its own acts and deeds or acts and deeds of others which it has authorized in violation of the provisions thereof; and

 

(iii) the acts and deeds of affiliates, as defined in the Regulatory Agreements, which person or entity it has authorized in violation of the provisions of the Regulatory Agreements.

 

The Owner is to be bound by the Assumed Documents with respect to obligations arising from and after the date hereof, subject to the foregoing limitation of personal liability, from the date of this Agreement to the same extent as if it has been an original party to said instruments.

 

c.                                        In reliance on the Prior Owner’s acknowledgements, representations and warranties in this Agreement, the Mortgagee and the Secretary jointly and severally hereby release the Prior Owner from all liability arising under or in connection with the Assumed Documents, from and after the date hereof. If any material element of the representations and warranties contained herein as the same relates to Prior Owner is false as of the date of this Agreement or in the event Prior Owner takes or causes any other party hereto (other than Mortgagee) to take any actions which are in contradiction with the provisions of this Agreement, then the release set forth in this Paragraph 3 shall be deemed canceled effective as of the date of this Agreement and the Prior Owner shall remained obligated under the Note,

 

4



 

Mortgage and Security Agreement and though there has been no such release. Further, notwithstanding the foregoing in this Section 3(c), the Prior Owner shall remain liable under said Regulatory Agreements with respect to following matters hereinafter stated, namely:

 

(i) for funds or property for the Project coming into Prior Owner’s hands which, by the provisions thereof, it is not entitled to retain; and

 

(ii) for Prior Owner’s own acts and deeds or acts and deeds of others which it has authorized in violation of the provisions thereof; and

 

(iii) the acts and deeds of affiliates, as defined in the Regulatory Agreements, which person or entity Prior Owner has authorized in violation of the provisions of the Regulatory Agreements.

 

4.   Revised References.   All references in any of the foregoing Assumed Documents to the “Maker,” the “Mortgagor” or the “Grantor” shall hereinafter be deemed to refer to the Owner. All references in any of the foregoing Assumed Documents to “Regulatory Agreement” shall hereinafter be deemed to refer to the New Regulatory Agreement.

 

5.   Equal Opportunity Compliance.   The Owner agrees that there shall be full compliance with the provisions of (1) any laws prohibiting discrimination in housing on the basis of race, color, creed, national origin, familial status or disability; and (2) with the Regulations of the Federal Housing Administration providing for non-discrimination and equal opportunity in housing. It is understood and agreed that failure or refusal to comply with any such provisions shall be a proper basis for the Secretary to take any corrective action he may deem necessary, including, but not limited to, the rejection of future applications for FHA mortgage insurance and the refusal to enter into future contracts of any kind with which the Owner is identified; and further, the Secretary shall have a similar right of corrective action (1) with respect to any individuals who are officers, directors, principal stockholders, trustees, managers, partners or associates of the Owner; and (2) with respect to any corporation or any other type of business association or organization with which the officers, directors, principal stockholders, trustees, managers, partners or associates of the Owner may be identified.

 

6.    No Defenses.   The Owner acknowledges and affirms to the Mortgagee and the Secretary that, as of the date hereof, there are no defenses, set-offs or counterclaims, whether legal or equitable, to the Owner’s obligations under the Assumed Documents and the Owner hereby waives the right to raise or assert any such defenses, set-offs or counterclaims that the Owner may have had with respect to any suit, proceeding or foreclosure action under any of said instruments that the Mortgagee or the Secretary, or any of its or their predecessors in interest in and to the Loan may or could have brought against

 

5



 

the Prior Owner prior to the date hereof.

 

7.    No Impairment.   Nothing in this Agreement shall in any way impair the Assumed Documents or any other security now held for such indebtedness, or alter, waive, compromise, annul, impair or prejudice any provision, condition or covenant in the aforesaid instruments, except as specifically provided herein, nor affect or impair any rights, powers or remedies of the Mortgagee or the Secretary under the Assumed Documents, nor create a novation or new agreement by and between the parties thereto, it being the intent of the parties that the terms and provisions of the Assumed Documents, are expressly approved, ratified and confirmed, and shall continue in full force and effect except as expressly modified hereby, and that the lien of the Mortgage and the priority thereof shall be unchanged.

 

8.    Binding Effect.   This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and/or assigns. The Mortgagee’s execution and delivery of this Agreement is contingent upon the execution and delivery of this Agreement by the Secretary.

 

9.    Amendment.   The Assumed Documents, each as amended by this Agreement, shall not be further modified except by an instrument in writing executed by each of the parties thereto.

 

10.    Severability.   Notwithstanding anything herein contained, if any one or more of the provisions of this Agreement shall for any reason whatsoever be held to be illegal, invalid or unenforceable in any respect, such illegality, invalidity or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such illegal, invalid or unenforceable provision had never been contained herein.

 

11.    Headings.   The headings and titles to the sections of this Agreement are inserted for convenience only and shall not be deemed a part hereof nor affect the construction or interpretation of any provisions hereof.

 

12.    Governing Law.   This Agreement shall be governed by all applicable federal laws and the laws of the state in which the Project is located.

 

13.    Counterparts.   This Agreement may be executed in any number of counterparts, all of which counterparts shall be construed together and shall constitute but one agreement.

 

14.    Effective Date.   This Agreement shall be effective upon the recording hereof in the land records where the Mortgage is recorded.

 

15.   THIS WRITTEN AGREEMENT AND ALL OTHER LOAN DOCUMENTS,

 

6



 

AS AMENDED, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL ARGUMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

[Signatures appear on following page]

 

7



 

IN WITNESS WHEREOF , the parties hereto have caused this Assumption Agreement to be executed and made effective as of the date first above written.

 

 

 

OWNER:

 

 

 

Witness/Attest:

 

H & H OF VANDALIA LLC,

 

 

an Ohio limited liability company

 

 

 

By:

/s/ Katy A. Wiles

 

By:

CHP Acquisition Company LLC,

 

Name: Katy A. Wiles

 

 

an Ohio limited liability company,

 

Title:

 

 

its Manager

 

 

 

 

 

 

 

 

By:

/s/ Roger C. Vincent

 

 

Name:

Roger C. Vincent

 

 

Title:

Manager

 

 

STATE OF OHIO

)

 

) ss:

COUNTY OF FRANKLIN

)

 

I, the undersigned, a notary public, in and for the County and State aforesaid, do hereby certify, that Roger C. Vincent, as Manager of CHP Acquisition Company LLC , an Ohio limited liability company, which is the Manager of H & H of Vandalia LLC , an Ohio limited liability company, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and he acknowledged to me that he, being thereunto duly authorized, signed and delivered said instrument as his own free and voluntary act, and as the free and voluntary act of said company, for the use and purposes set forth therein.

 

GIVEN under my hand and Notarial Seal this 3 rd  day of May, 2013.

 

JEFFREY D. MEYER

Notary Public, State of Ohio

My Commission Has No Expiration Date

Section 147.03 R.C.

 

 

 

 

 

/s/ Jeffrey D. Meyer

 

Notary Public:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE PAGE (Owner)

Assumption Agreement

 



 

IN WITNESS WHEREOF , the parties hereto have caused this Assumption Agreement to be executed and made effective as of the date first above written.

 

 

 

PRIOR OWNER:

 

 

 

Witness/Attest:

 

Hearth & Home of Vandalia, Inc.

 

 

 

By:

/s/ Lilliana Keane

 

By:

/s/ Boyd P. Gentry

Name:

 

 

 

Boyd P. Gentry, President and CEO

Title:

Executive Assistant

 

 

 

 

STATE OF Georgia

)

 

) ss:

COUNTY OF Fulton

)

 

I, the undersigned, a notary public, in and for the County and State aforesaid, do hereby certify, that Boyd P, Gentry, as President and CEO of Hearth & Home of Vandalia, Inc. , an Ohio corporation, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and he acknowledged to me that he, being thereunto duly authorized, signed and delivered said instrument as his own free and voluntary act, and as the free and voluntary act of said corporation, for the use and purposes set forth therein.

 

GIVEN under my hand and Notarial Seal this 29 th  day of April, 2013.

 

 

 

/s/ Kirsten N Parker

 

 

Notary Public

 

 

 

 

 

Kirsten N Parker

 

 

NOTARY PUBLIC

 

 

Gwinnett County, GEORGIA

 

 

My Comm. Exp. 4/16/16

 

 

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE PAGE (Prior Owner)

Assumption Agreement

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Assumption Agreement to be executed and made effective as of the date first above written.

 

 

 

MORTGAGEE:

 

 

 

Witness/Attest:

 

Red Mortgage Capital, LLC

 

 

 

 

 

 

By:

/s/ Tina M. Pfeifer

 

By:

/s/ Barry Fuller

Name:

Tina M. Pfeifer

 

Name:

Barry Fuller

Title:

Asset Manager

 

Title:

Director

 

 

STATE OF Ohio

)

 

) ss:

COUNTY OF Franklin

)

 

I, the undersigned, a notary public, in and for the County and State aforesaid, do hereby certify, that Barry Fuller, as Director of Red Mortgage Capital, LLC , a Delaware limited liability company, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and she acknowledged to me that she, being thereunto duly authorized, signed and delivered said instrument as her own free and voluntary act, and as the free and voluntary act of said company, for the use and purposes set forth therein.

 

GIVEN under my hand and Notarial Seal this 6 th  day of May, 2013.

 

 

 

/s/ Brenda L. Easley

 

Notary Public

 

 

 

BRENDA L EASLEY

NOTARY PUBLIC

STATE OF OHIO

Comm. Expires

May 07, 2016

Recorded in

Fairfield County

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE PAGE (Mortgagee)

Assumption Agreement

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Assumption Agreement to be executed and made effective as of the date first above written.

 

 

SECRETARY OF HOUSING AND

 

URBAN DEVELOPMENT,

 

WASHINGTON, D.C.

 

 

 

 

 

By:

/s/ Jennifer S. Buhlman

 

Authorized Agent

 

Office of Residential Care Facilities

 

 

STATE OF Washington

)

 

) ss:

COUNTY OF District of Columbia

)

 

The foregoing instrument was acknowledged before me this 3 day of May, 2013, by Jennifer S. Buhlman, as the Authorized Agent for the Secretary of the U.S. Department of Housing and Urban Development, acting by and through the Federal Housing Commissioner, and a Supervisory Account Executive in the Office of Residential Care Facilities, U.S. Department of Housing and Urban Development, and that he, being authorized to do so by virtue of such office, executed the foregoing instrument on behalf of the Federal Housing Commissioner, acting for the Secretary of the U.S. Department of Housing and Urban Development.

 

 

 

/s/ Peggy A. Russo

 

Notary Public

 

 

 

 

 

Peggy A. Russo

 

Notary Public, District of Columbia

 

My Commission Expires 3/14/2016

 

 

 

 

 

 

 

SIGNATURE PAGE (Secretary)

Assumption Agreement

 


Exhibit 10.5

 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “ Agreement ”) is made and entered into as of 12:01 a.m. on May 6, 2013 by and between HEARTH & HOME OF VANDALIA, INC., an Ohio corporation (“ Assignor ”), and H & H OF VANDALIA LLC, an Ohio limited liability company (“ Assignee ”).

 

WITNESSETH :

 

WHEREAS, Assignor and Assignee are parties to that certain Agreement of Sale, dated as of October 11, 2012, as amended from time to time and assigned (as so amended and assigned, the “ Purchase Agreement ”), for certain facilities described therein; and

 

WHEREAS, Assignor and Assignee are entering into this Agreement in connection with the closing of the transactions contemplated by the Purchase Agreement and, in particular, with respect to that certain assisted living facility commonly known as “Hearth & Home of Vandalia” located at 55 Great Hill Drive, Vandalia, Ohio;

 

NOW, THEREFORE, in accordance with the terms and provisions of the Purchase Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Assignor and Assignee hereby agree as follows:

 

1.             Capitalized Terms .  Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement.

 

2.             Assignment and Assumption .  Assignor hereby assigns to Assignee all of Assignor’s right, title and interest (if any) in and to the Resident Trust Funds and the Assumed Service Contracts identified on Schedule 1 attached hereto (collectively, the “ Subject Property ”); provided, however, Assignor shall retain whatever right, title or interest it may have in any unpaid accounts receivable with respect to the foregoing which relate to periods ending on or before the date hereof.  Assignee hereby assumes from the Assignor all of the Assignor’s obligations under the Subject Property to the extent arising from and after the date hereof (including, without limitation, any such obligations arising pursuant to applicable law).  Assignee hereby agrees to pay, perform and observe all of such obligations arising under or in connection with the Subject Property to the extent arising from and after the date hereof.

 

3.             Indemnifications .

 

(a)           Assignor shall indemnify and defend and hold harmless Assignee from and against all claims, demands, liabilities, losses, damages, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, arising under the Subject Property to the extent related to periods prior to the date hereof.

 

(b)           Assignee shall indemnify and defend and hold harmless Assignor from and against all claims, demands, liabilities, losses, damages, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, arising under the Subject Property to the extent related to periods from and after the date hereof.

 

4.             Purchase Agreement Controls .  Nothing in this Agreement shall supersede, enlarge or modify any provision of the Purchase Agreement and to the extent of any conflict between this Agreement and the Purchase Agreement, the Purchase Agreement shall govern.

 



 

5.             Successors and Assigns .  This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors in interest and assigns.

 

6.             Counterparts .  This Agreement may be executed in two or more counterparts, all of which shall be construed together as a single instrument.

 

7.             Governing Law .  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio.

 

[Remainder of page intentionally left blank; Signature page follows.]

 



 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered this Agreement under seal as of the day and year first hereinabove written.

 

ASSIGNOR:

 

 

 

HEARTH & HOME OF VANDALIA, INC.

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

 

Boyd P. Gentry, President and CEO

 

 



 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered this Agreement under seal as of the day and year first hereinabove written.

 

ASSIGNEE :

 

H & H OF VANDALIA LLC

 

 

 

By: CHP ACQUISITION COMPANY LLC, its Manager

 

 

 

 

 

By:

/s/ Roger C. Vincent

 

 

 

Roger C. Vincent, Manager

 

 


Exhibit 10.6

 

FOURTH AMENDMENT TO CREDIT AGREEMENT

 

THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”) is made and entered into this 30th day of May, 2013, by and between ADK BONTERRA/PARKVIEW, LLC , a Georgia limited liability company (hereinafter referred to as “ Borrower ”), with its chief executive office at Two Buckhead Plaza, 3050 Peachtree Road NW, Suite 355, Atlanta, Georgia 30305, and GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (hereinafter referred to as “ Lender ”) with an office at One International Plaza, Suite 220, Philadelphia, Pennsylvania 19113.

 

Recitals :

 

Lender and Borrower are parties to a certain Credit Agreement dated April 27, 2011 (as at any time amended, restated, modified or supplemented, the “ Credit Agreement ”) pursuant to which Lender has made certain revolving credit loans to Borrower.

 

The parties desire to amend the Credit Agreement as hereinafter set forth.

 

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1.                                       Definitions .   All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Credit Agreement.

 

2.                                       Amendments to Credit Agreement .   The Credit Agreement is hereby amended as follows:

 

(a)                                  By deleting Section 2.01(d)  of the Credit Agreement and by substituting in lieu thereof the following:

 

(d)                                  The initial term of the Credit Facility (“ Initial Term ”) shall expire on January 31, 2015.  All Loans shall be repaid on or before the earlier of the last day of the Initial Term, termination of the Credit Facility or termination of this Agreement (“ Maturity Date ”).  After the Maturity Date no further Revolving Loans shall be available from Lender.

 

(b)                                  By adding the following sentence to the end of Section 2.3(a)  of the Credit Agreement:

 

If at any time the Minimum Balance exceeds the outstanding balance of the Revolving Loans under this Agreement, Borrowers shall pay interest on the Revolving Loans under this Agreement at a rate per annum equal to the Interest Rate multiplied by the Minimum Balance until such time as the Minimum Balance no longer exceeds the outstanding balance of the Revolving Loans under this Agreement.

 

(c)                                   By deleting Section 6.06(b)  of the Credit Agreement and by substituting in lieu thereof the following:

 

(b)                                  Maximum Loan Turn Days .  Borrowers and Affiliated Borrowers shall maintain at all times a Maximum Loan Turn Days, measured quarterly at the end of the fiscal quarter ending June 30, 2013, and at the end of each fiscal quarter thereafter, of not greater than 40 days.

 



 

(d)                                  By deleting the last sentence of Section 7.08 of the Credit Agreement in its entirety and by substituting in lieu thereof the following:

 

In addition, unless consented to by Lender, or if a replacement acceptable to Lender is employed within ninety (90) days of any terminations, Boyd P. Gentry and at least one other senior officer of ADK acceptable to Lender shall continue as senior management of ADK actively involved in the day-to-day management of ADK and AdCare Management shall continue as senior management of Borrowers actively involved in the day-to-day management of such Borrowers.

 

(e)                                   By deleting Section 9.27 of the Credit Agreement and by substituting in lieu thereof the following:

 

9.27                         Liability for Obligations Under Affiliated Credit Agreement .  Notwithstanding anything to the contrary in this Agreement or the other Loan Documents, without the prior written consent of Bonterra/Parkview Lessor, no Borrower shall be obligated, directly or indirectly, for any indebtedness, liabilities and obligations of the Affiliated Borrowers to Lender, including the Obligations (as defined in the Affiliated Credit Agreements).

 

(f)                                    By deleting the definitions of “Affiliated Credit Agreement” and “Non-Bonterra/Parkview Borrowers” set forth in Annex I to the Credit Agreement.

 

(g)                                   By deleting the definitions of “Fixed Charge Coverage Ratio”, “Guarantors” and “Maximum Loan Turn Days” set forth in Annex I to the Credit Agreement and by substituting in lieu thereof the following, respectively:

 

Fixed Charge Coverage Ratio ” means the ratio of (a) EBITDA, to (b) the sum of (i) interest expense paid, plus (ii) the current portion of any long-term Indebtedness excluding (A) payments with respect to that certain Promissory Note made by ADK and ADK Georgia, LLC, a Georgia limited liability company, on July 31, 2010 in the principal amount of $500,000 in favor of Triad Health Management of Georgia II, LLC, a Georgia limited liability company, to the extent such payments are not made, and (B) payments with respect to certain temporary bridge financing from time to time obtained by ADK or certain of its Subsidiaries, but only to the extent and only for so as Lender agrees in its sole discretion that such payments may be excluded from the calculation of the Fixed Charge Coverage Ratio pursuant to this clause (B), plus (iii) the current portion of obligations under capitalized leases, plus (iv) cash taxes paid, plus (v) cash Distributions, plus (vi) the Unfinanced CapEx Formula, all as determined for ADK on a consolidated basis, in accordance with GAAP consistently applied, on a rolling four quarter basis.

 

Guarantors ” means ADK, NW 61 st  Nursing, LLC and each other Person who guarantees payment or performance of any Obligations.

 

Maximum Loan Turn Days ” means, as of any date of determination, (i) the result of (a) (1) the average daily outstanding balance of the Revolving Loans during the immediately preceding three (3) months, plus (2) the average daily outstanding balance of the Revolving Loans (as defined in the Affiliated Blue Dolphin Credit Agreement) during the immediately preceding three (3) months, plus (3) the average daily outstanding balance of the Revolving Loans (as defined in the Affiliated ADK Credit Agreement) during the immediately preceding three (3) months, divided by (b)(1) the average monthly Collections in the Commercial Lockbox and Government Lockbox for the immediately preceding three (3) months, plus (2) the average monthly Collections in the Commercial Lockbox and

 

2



 

Government Lockbox (in each case with respect to the terms “Collections”, “Commercial Lockbox” and “Government Lockbox” used in this clause (2), as such term is defined in the Affiliated Blue Dolphin Credit Agreement) for the immediately preceding three (3) months, plus (3) the average monthly Collections in the Commercial Lockbox and Government Lockbox (in each case with respect to the terms “Collections”, “Commercial Lockbox” and “Government Lockbox” used in this clause (3), as such term is defined in the Affiliated ADK Credit Agreement) for the immediately preceding three (3) months, multiplied by (ii) 30.

 

(h)                                  By adding the following new definitions of “Affiliated Borrowers”, “Affiliated ADK Credit Agreement”, “Affiliated Blue Dolphin Credit Agreement”, “Affiliated Credit Agreements”, “Minimum Balance” and “Unfinanced CapEx Formula” to Annex I to the Credit Agreement in appropriate alphabetical order:

 

Affiliated Borrowers ” means Living Center, LLC, a Georgia limited liability company, Kenmetal, LLC, a Georgia limited liability company, Senior NH, LLC, a Georgia limited liability company, BAN NH, LLC, a Georgia limited liability company, Oak Lake, LLC, a Georgia limited liability company, and NW 61 st  Nursing, LLC, a Georgia limited liability company.

 

Affiliated ADK Credit Agreement ” means the Credit Agreement dated May 30, 2013, among NW 61 st  Nursing, LLC, a Georgia limited liability company, such other Persons from time to time party thereto as borrowers, and Lender.

 

Affiliated Blue Dolphin Credit Agreement ” means the Credit Agreement dated December 20, 2012, among Living Center, LLC, a Georgia limited liability company, Kenmetal, LLC, a Georgia limited liability company, Senior NH, LLC, a Georgia limited liability company, BAN NH, LLC, a Georgia limited liability company, Oak Lake, LLC, a Georgia limited liability company, such other Persons from time to time party thereto as borrowers, and Lender.

 

Affiliated Credit Agreements ” means, collectively, (i) the Affiliated Blue Dolphin Credit Agreement, and (ii) the Affiliated ADK Credit Agreement.

 

Minimum Balance ” means $1,000,000.

 

Unfinanced CapEx Formula ” means, as of any date of determination, an amount equal to (a) $400, multiplied by (b) the number of licensed beds in service for ADK and its Subsidiaries as of such date.

 

3.                                       Ratification and Reaffirmation .   Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

4.                                       Acknowledgments and Stipulations.   Borrower acknowledges and stipulates that the Credit Agreement and the other Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower that are enforceable against Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by Borrower); the security interests and liens granted by Borrower in favor of Lender are duly perfected, first priority security interests and liens; and the unpaid principal amount of the Loans on and as of May 29, 2013, totaled $1,245,283.38.

 

3



 

5.                                       Representations and Warranties .  Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that no Event of Default or Unmatured Event of Default exists on the date hereof; the execution, delivery and performance of this Amendment have been duly authorized by all requisite company action on the part of Borrower and this Amendment has been duly executed and delivered by Borrower; and all of the representations and warranties made by Borrower in the Credit Agreement are true and correct on and as of the date hereof.

 

6.                                       Reference to Credit Agreement .   Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement,” “hereunder,” or words of like import shall mean and be a reference to the Credit Agreement, as amended by this Amendment.

 

7.                                       Breach of Amendment .   This Amendment shall be part of the Credit Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

 

8.                                       Conditions Precedent.   The effectiveness of the amendments contained in Section 2 hereof are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a)                                  Lender shall have received a counterpart of this Amendment duly executed by Borrower;

 

(b)                                  Lender shall have received a Consent and Reaffirmation to this Amendment duly executed by ADK;

 

(c)                                   Lender shall have received a Guaranty duly executed by NW 61 ST  Nursing; and

 

(d)                                  The Affiliated Credit Agreements and the Loan Documents (as defined in the Affiliated Credit Agreements) shall be in full force and effect, and Lender shall have received fully executed counterparts of each.

 

9.                                       Expenses of Lender .  Borrower agrees to pay, on demand , all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

 

10.                                Governing Law .   This Amendment shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.

 

11.                                Successors and Assigns .   This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

12.                                No Novation, etc.   Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Credit Agreement or any of the other Loan Documents, each of which shall remain in full force and effect.  This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Credit Agreement as herein modified shall continue in full force and effect.

 

4



 

13.                                Counterparts; Electronic Signatures .  This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any manually executed signature page to this Amendment delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

14.                                Further Assurances .  Borrower agrees to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.

 

15.                                Section Titles .  Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

16.                                Manager Certification of Borrower .  By his execution and delivery of this Amendment, Christopher F. Brogdon hereby certifies that: (a) the Unanimous Consent in Lieu of a Special Meeting of the Sole Member and the Managers of Borrower dated as of February 21, 2011 (the “ Consent ”), remains in full force and effect; (b) pursuant to the Consent, the Managers or designees of Borrower are authorized and empowered (either alone or in conjunction with any one or more of the other Managers of Borrower) to take, from time to time, all or any part of the following actions on or in behalf of Borrower, as applicable:  (i) to make, execute and deliver to Lender this Amendment and all other agreements, documents and instruments contemplated by or referred to herein or executed by Borrower in connection herewith; and (ii) to carry out, modify, amend or terminate any arrangements or agreements at any time existing between Lender and Borrower; (c) any arrangements, agreements, security agreements, or other instruments or documents referred to or executed pursuant to this Amendment by Christopher F. Brogdon, Boyd P. Gentry or any other Manager of Borrower, by Ronald W. Fleming as Chief Financial Officer of Borrower, or by the Chief Financial Officer of ADK (currently, Ronald W. Fleming) or an employee of Borrower acting pursuant to delegation of authority, may be attested by such person and may contain such terms and provisions as such person shall, in his or her sole discretion, determine, and (d) the signature and title of Boyd P. Gentry are as set forth in the signature block of Borrower hereto.

 

17.                                Release of Claims .  To induce Lender to enter into this Amendment, Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise.  Borrower represents and warrants to Lender that Borrower has not transferred or assigned to any Person any claim that Borrower ever had or claimed to have against Lender.

 

18.                                Waiver of Jury Trial .  To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment .

 

[Remainder of page intentionally left blank; signatures begin on following page.]

 

5



 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers on the date first written above.

 

For purposes of the Manager Certification of Borrower in Section 16 above:

 

 

 

 

 

/s/ Christopher F. Brogdon                          

(SEAL)

 

Christopher F. Brogdon

 

 

 

BORROWER:

ADK BONTERRA/PARKVIEW, LLC

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 

[Signatures continued on following page.]

 

Fourth Amendment to Credit Agreement (ADK Bonterra)

 



 

LENDER:

GEMINO HEALTHCARE FINANCE, LLC

 

 

 

 

 

By:

/s/ Jeffrey M. Joslin

 

 

Jeffrey M. Joslin , Senior Portfolio

 

 

Manager

 

Fourth Amendment to Credit Agreement (ADK Bonterra)

 



 

CONSENT AND REAFFIRMATION

 

The undersigned guarantor of the Obligations of Borrower at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing Fourth Amendment to Credit Agreement; (ii) consents to Borrower’s execution and delivery thereof and of the other documents, instruments or agreements Borrower agrees to execute and deliver pursuant thereto; (iii) agrees to be bound thereby; and (iv) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect.

 

IN WITNESS WHEREOF, the undersigned has executed this Consent and Reaffirmation as of the date of such Fourth Amendment to Credit Agreement.

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , President and Chief

 

 

Executive Officer

 

Fourth Amendment to Credit Agreement (ADK Bonterra)

 


Exhibit 10.7

 

CREDIT AGREEMENT

 

among

 

NW 61 ST  NURSING, LLC

 

and

 

such other Persons joined hereto as Borrowers from time to time,

 

as Borrowers,

 

with

 

GEMINO HEALTHCARE FINANCE, LLC,

 

as Lender

 



 

TABLE OF CONTENTS

 

 

PAGE

ARTICLE 1 DEFINITIONS, ACCOUNTING TERMS AND PRINCIPLES OF CONSTRUCTION

1

1.01

Terms Defined

1

1.02

Matters of Construction

1

1.03

Accounting Principles

1

1.04

Fiscal Quarters

1

 

 

ARTICLE 2 THE LOANS

2

2.01

Credit Facility

2

2.02

Funding Procedures

2

2.03

Interest and Fees

3

2.04

Additional Interest Provisions

4

2.05

Payments

5

2.06

Use of Proceeds

6

2.07

Lockboxes and Collections

6

2.08

Application of Proceeds of Collateral

7

2.09

Fees

7

 

 

ARTICLE 3 COLLATERAL

7

3.01

Description

7

3.02

Extent of Security Interests

8

3.03

Lien Documents

8

3.04

Other Actions

9

3.05

Searches

9

3.06

Good Standing Certificates

9

3.07

Filing Security Agreement

9

3.08

Power of Attorney

9

3.09

Reserved

10

3.10

Limited License

10

3.11

Credit Balances; Additional Collateral

10

3.12

Reference to Other Loan Documents

10

 

 

ARTICLE 4 CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

10

4.01

Resolutions, Opinions, and Other Documents

11

4.02

Additional Preconditions to Loans

12

4.03

Absence of Certain Events

13

4.04

Compliance with this Agreement

13

4.05

Closing Certificate

13

4.06

Closing

13

4.07

Non-Waiver of Rights

13

 

 

ARTICLE 5 REPRESENTATIONS AND WARRANTIES

13

5.01

Organization and Validity

13

5.02

Places of Business

14

5.03

Healthcare Matters

14

5.04

Pending Litigation

17

5.05

Medicaid and Medicare Cost Reporting

17

5.06

Title to Collateral

17

5.07

Governmental Consent

18

5.08

Taxes

18

5.09

Financial Statements

18

5.10

Full Disclosure

18

5.11

Guarantees, Contracts, etc.

18

5.12

Compliance with Laws

19

5.13

Other Associations

19

 



 

5.14

Environmental Matters

19

5.15

Capital Stock

19

5.16

Lockboxes

20

5.17

Borrowing Base Certificates

20

5.18

Security Interest

20

5.19

Accounts

20

5.20

ERISA

20

5.21

Representations and Warranties for each Loan

20

5.22

Interrelatedness of Borrowers

22

5.23

Commercial Tort Claims

22

5.24

Letter-of-Credit Rights

22

5.25

Intellectual Property

22

5.26

Solvency

23

5.27

Schedules

23

 

 

ARTICLE 6 AFFIRMATIVE COVENANTS

23

6.01

Payment of Taxes and Claims

23

6.02

Maintenance of Insurance, Financial Records and Existence

23

6.03

Business Conducted

24

6.04

Litigation

24

6.05

Taxes

24

6.06

Financial Covenants

24

6.07

Financial and Business Information

24

6.08

Officer’s Certificate

26

6.09

Inspection

26

6.10

Tax Returns and Reports

26

6.11

Material Adverse Developments

27

6.12

Places of Business

27

6.13

Notice of Action

27

6.14

Verification of Information

27

6.15

Accounts Receivables Monitoring System

27

6.16

Commercial Tort Claim

27

6.17

Compliance with Laws

27

6.18

Collateral Reporting

28

6.19

Collateral

28

6.20

Intellectual Property

29

6.21

Right of First Refusal

29

6.22

Post-Closing Matters

29

 

 

ARTICLE 7 NEGATIVE COVENANTS

29

7.01

Merger, Consolidation, Dissolution or Liquidation

30

7.02

Liens and Encumbrances

30

7.03

Negative Pledge

30

7.04

Transactions With Affiliates or Subsidiaries

30

7.05

Guarantees

30

7.06

Investments

30

7.07

Loans to Other Persons

31

7.08

Change in Ownership/Management

31

7.09

Subordinated Debt Payments

31

7.10

Distributions

32

7.11

No Change in Business

32

7.12

Indebtedness

32

 

 

ARTICLE 8 DEFAULT

32

8.01

Events of Default

32

8.02

Cure

36

8.03

Rights and Remedies on Default

36

 

ii



 

8.04

WARRANT OF ATTORNEY TO CONFESS JUDGMENT

37

8.05

Special Provisions Regarding Certain SEC Filing Matters

39

8.06

Nature of Remedies

40

8.07

Set-Off

40

8.08

Application of Proceeds

40

 

 

ARTICLE 9 MISCELLANEOUS

40

9.01

EFFECTIVENESS; GOVERNING LAW

40

9.02

Integrated Agreement

40

9.03

Waiver and Indemnity

41

9.04

Time

41

9.05

Expenses of Lender

41

9.06

Confidentiality

42

9.07

Notices

42

9.08

Brokerage

42

9.09

Headings

42

9.10

Survival

43

9.11

Successors and Assigns

43

9.12

Duplicate Originals

43

9.13

Modification

43

9.14

Signatories

43

9.15

Third Parties

43

9.16

Waivers

43

9.17

CONSENT TO JURISDICTION

44

9.18

WAIVER OF JURY TRIAL

44

9.19

Publication

44

9.20

Discharge of Taxes, Borrowers’ Obligations, Etc.

44

9.21

Injunctive Relief

45

9.22

Assignment or Syndication by Lender

45

9.23

Severability

45

9.24

Authority

45

9.25

Usury Limit

45

9.26

Termination

46

 

 

ARTICLE 10 SPECIAL INTER-BORROWER PROVISIONS

46

10.01

Certain Borrower Acknowledgments and Agreements

46

10.02

Maximum Amount of Joint and Several Liability

47

10.03

Authorization of Borrower Representative by Borrowers

47

10.04

Joint and Several Liability

47

 

iii



 

LIST OF EXHIBITS AND ANNEXES

 

Exhibit 2.01(b)

 

Form of Revolving Note

Exhibit 2.02(a)

 

Form of Borrowing Base Certificate

Exhibit 2.02(c)

 

Loan Request

Exhibit 4.01

 

Form of Opinion of Counsel

Exhibit 4.02(c)

 

Notice Letter Re: Commercial Obligors

Exhibit 4.02(d)

 

Notice Letter Re: Government Obligors

Exhibit 6.08

 

Officer’s Certificate

 

 

 

Annex I

 

Definitions

 

iv



 

LIST OF SCHEDULES

 

Schedule 1.01

 

Ineligible Obligors and Concentration Limits

Schedule 5.01

 

Borrowers’ States of Qualifications

Schedule 5.02

 

Jurisdictions of Organization/Chief Executive Office/Other Locations of Collateral

Schedule 5.03

 

Provider Identification Numbers

Schedule 5.04

 

Pending Litigation

Schedule 5.06

 

Permitted Liens

Schedule 5.09

 

Fiscal Year End/Tax Identification Number/Organization Number

Schedule 5.11

 

Guaranties, Investments and Borrowings

Schedule 5.13

 

Other Associations

Schedule 5.14

 

Environmental Matters

Schedule 5.15

 

Capital Stock

Schedule 5.23

 

Commercial Tort Claims

Schedule 5.24

 

Letter-of-Credit Rights

Schedule 5.25

 

Intellectual Property

Schedule 7.06

 

Investments

Schedule 7.12

 

Indebtedness

 

v



 

CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT (“ Agreement ”) is dated this 30 th  day of May, 2013, by and among  NW 61 ST  NURSING, LLC , a Georgia limited liability company, and such other Persons joined hereto as a Borrower from time to time (collectively, “ Borrowers ” and each individually a “ Borrower ”) and GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company, as lender (“ Lender ”).

 

RECITALS

 

WHEREAS, Borrowers have requested that Lender make available to them, on a joint and several basis, a Credit Facility in the maximum amount of $1,000,000 which will be secured by a first priority perfected security interest in all Accounts and other Collateral of Borrowers; and

 

WHEREAS, Lender is willing to make the Credit Facility available to Borrowers pursuant to the terms and provisions hereinafter set forth; and

 

WHEREAS, the parties desire to set forth the terms and conditions of their relationship to writing.

 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS, ACCOUNTING TERMS AND
PRINCIPLES OF CONSTRUCTION

 

1.01                         Terms Defined .  As used in this Agreement, those terms set forth in Annex I shall have the respective meanings set forth therein.

 

1.02                         Matters of Construction .  The terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.  The words “include”, “includes” and “including” when used in any Loan Document, shall be deemed to be followed by the phrase “without limitation”. Any pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa.  All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.  Unless otherwise provided, all references to any instruments or agreements to which Lender and/or, where applicable, a Borrower, is a party, including references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

 

1.03                         Accounting Principles .  Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with GAAP, to the extent applicable, except as otherwise expressly provided in this Agreement.

 

1.04                         Fiscal Quarters .  For the purposes hereof, “fiscal quarter” shall mean each quarterly accounting period during any fiscal year; provided, that, all references to the fiscal quarter ending

 



 

March 31, June 30, September 30 or December 31 shall mean the first, second, third or fourth fiscal quarter of the applicable fiscal year, respectively, irrespective of the actual date on which such fiscal quarter may end.

 

ARTICLE 2

 

THE LOANS

 

2.01                         Credit Facility - Description.

 

(a)                                  Subject to the terms and conditions of this Agreement, Lender hereby establishes for the joint and several benefit of Borrowers, a credit facility (“ Credit Facility ”) which shall include Advances which may be extended by Lender to or for the benefit of Borrowers from time to time hereunder in the form of revolving loans (“ Revolving Loans ”).  The aggregate outstanding amount of all Advances, shall not at any time exceed the Maximum Credit Limit and the aggregate outstanding amount of all Revolving Loans shall not, at any time, exceed the Borrowing Base.  In no event shall the initial principal amount of any Revolving Loan be less than $25,000.00.  Subject to such limitation, the outstanding balance of all Revolving Loans may fluctuate from time to time, to be reduced by repayments made by Borrowers, to be increased by future Revolving Loans which may be made by Lender.  If the aggregate outstanding amount of all Revolving Loans exceeds the Borrowing Base, or if the aggregate outstanding amount of all Advances (whether in the form of Revolving Loans or otherwise), exceeds the Maximum Credit Limit, Borrowers shall immediately repay such excess in full.  Lender has the right at any time, and from time to time, to set aside reasonable reserves against the Borrowing Base in such amounts as it may deem appropriate.  The Obligations of Borrowers under the Credit Facility and this Agreement are joint and several and shall at all times be absolute and unconditional.

 

(b)                                  At Closing, Borrowers shall execute and deliver a promissory note to Lender in the principal amount of One Million Dollars ($1,000,000) (as may be amended, modified or replaced from time to time, the “ Revolving Note ”).  The Revolving Note shall evidence Borrowers joint and several, absolute and unconditional obligation to repay Lender for all Revolving Loans made by Lender under the Credit Facility, with interest as herein and therein provided.  Each and every Revolving Loan under the Credit Facility shall be deemed evidenced by the Revolving Note, which is deemed incorporated herein by reference and made a part hereof.  The Revolving Note shall be substantially in the form set forth in Exhibit 2.01(b)  attached hereto and made a part hereof.

 

(c)                                   Reserved.

 

(d)                                  The initial term of the Credit Facility (“ Initial Term ”) shall expire on January 31, 2015.  All Loans shall be repaid on or before the earlier of the last day of the Initial Term, termination of the Credit Facility, termination of this Agreement, termination of a Credit Facility under (and as defined in) either Affiliated Credit Agreement, or termination of either Affiliated Credit Agreement (“ Maturity Date ”).  After the Maturity Date no further Revolving Loans shall be available from Lender.

 

(e)                                   From time to time, upon not less than three (3) Business Days notice to Borrowers, Lender may adjust the Advance Rate in order to reflect, in Lender’s reasonable judgment, the experience with Borrowers (including by way of illustration, to adjust for any known or potential offsets by Medicare or Medicaid) or the aggregate amount or percentage of the Collections with respect to the Accounts.

 

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2.02                         Funding Procedures.

 

(a)                                  Subject to the terms and conditions of this Agreement and so long as no Event of Default or Unmatured Event of Default has occurred hereunder, Lender will make Revolving Loans to Borrowers upon request. Borrowers shall provide Lender with a signed report regarding the Borrowing Base then in effect, which shall be in substantially the form of Exhibit 2.02(a)  hereto (each, a “ Borrowing Base Certificate ”) on a specified Business Day of each week (such day to be mutually agreeable to Borrowers and Lender (such date shall be referred to herein as the “ Settlement Date ”, whether or not Borrowers have requested a Revolving Loan to be made on such date)). Borrowers may request a Revolving Loan on the Settlement Date or any other day of the week (such day along with the Settlement Date are referred to herein as the “ Funding Date ”).  Whether or not Borrowers have requested a Revolving Loan to be made on such date, Lender may at any time deduct from the Borrowing Base an amount equal to all fees, Expenses, principal, interest or other amounts due and payable to Lender hereunder, and such deduction shall be deemed to be a Revolving Loan and an Advance hereunder.

 

(b)                                  Not later than 11:00 A.M. (Eastern Time) two (2) Business Days prior to each Settlement Date (“ Download Date ”), Borrowers will deliver to Lender the computer file data associated with the Accounts, which shall include the information (including changes in the Obligor reimbursement rates and changes in federal or state laws or regulations affecting payment for medical services), required by Lender to enable Lender to process and value the outstanding Accounts of Borrowers, as well as bill and collect such Accounts following an Event of Default (“ Accounts Detail File ”).  Upon completion of the processing of the data with respect to such Accounts, Lender or its agent will prepare and deliver to Borrowers by no later than 10:00 A.M. (Eastern Time) on the second Business Day following the Download Date (or if such Accounts Detail File is not delivered until after 11:00 A.M. (Eastern Time) on the Download Date, the third Business Day following the Download Date), a Borrowing Base Certificate.  In addition, within five (5) Business Days after the last day of each calendar month, Borrowers will deliver to Lender a cash posting file.

 

(c)                                   If Borrowers request that a Revolving Loan be made on any date other than the Settlement Date, Borrowers shall deliver to Lender an executed Borrowing Base Certificate and a written request for such Loan substantially in the form of Exhibit 2.02(c)  hereto (a “ Loan Request ”).  The Borrowing Base Certificate and Loan Request may be delivered via facsimile or digitally scanned and delivered by electronic mail and Borrowers acknowledge that Lenders may rely on Borrowers’ signatures by facsimile or digitally scanned image by electronic mail, which shall be legally binding upon Borrowers.

 

(d)                                  Subject to the terms and conditions of this Agreement, if the Borrowing Base Certificate (if applicable) and Loan Request are delivered to Lender before 12:00 P.M. (Eastern Time) on the Funding Date, Lender will advance on the Funding Date (or the next Business Day if the Borrowing Base Certificate and Loan Request are delivered after 12:00 P.M. (Eastern Time)) to Borrowers a Revolving Loan in the amount equal to the lesser of (i) the amount of the Revolving Loan requested by Borrowers in the Loan Request, or (ii) the Borrowing Base Excess as of such date.  Any Advances made by Lender hereunder shall be treated for all purposes as, and shall accrue interest at the same rate applicable to, Revolving Loans.

 

(e)                                   Lender’s determination of the Estimated Net Value of the Eligible Accounts and other amounts to be determined or calculated under this Agreement shall, in the absence of manifest error, be binding and conclusive.

 

2.03                         Interest and Fees.

 

(a)                                  Each Revolving Loan shall bear interest on the outstanding principal amount thereof from the date made until such Revolving Loan is paid in full, at a rate per annum equal to the

 

3



 

LIBOR Rate plus the Applicable Margin (together, the “ Interest Rate ”).  The Interest Rate on all amounts outstanding under the Credit Facility shall be adjusted daily based on the LIBOR Rate.  If at any time the Minimum Balance exceeds the outstanding balance of the Revolving Loans under this Agreement, Borrowers shall pay interest on the Revolving Loans under this Agreement at a rate per annum equal to the Interest Rate multiplied by the Minimum Balance until such time as the Minimum Balance no longer exceeds the outstanding balance of the Revolving Loans under this Agreement.

 

(b)                                  If any Event of Default shall occur and be continuing, the rate of interest applicable to each Loan then outstanding shall be the Default Rate.  The Default Rate shall apply from the date of the Event of Default until the date such Event of Default is waived, and interest accruing at the Default Rate shall be payable upon demand.

 

(c)                                   Should the Credit Facility be terminated for any reason prior to the last day of the Initial Term, in addition to repayment of all Obligations then outstanding and termination of Lender’s commitment hereunder, Borrowers shall unconditionally be obligated to pay at the time of such termination, a fee (“ Termination Fee ”) in an amount equal to one percent (1.0%) of the Revolving Loan Commitment.

 

Borrowers acknowledge that the Termination Fee is an estimate of Lender’s damages in the event of early termination and is not a penalty.  In the event of termination of the Credit Facility, all of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination.  All undertakings, agreements, covenants, warranties and representations of Borrowers contained in the Loan Documents shall survive any such termination, and Lender shall retain its security interests in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrowers have paid the Obligations to Lender, in full, in immediately available funds, together with the applicable Termination Fee, if any.  Notwithstanding the payment in full of the Obligations, Lender shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage Lender may incur as a result of dishonored checks or other items of payment received by Lender from Borrowers or any Obligor and applied to the Obligations, Lender shall, at its option, (i) have received a written agreement executed by Borrowers and any Person whose loans or other advances to Borrowers are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such loss or damage; or (ii) have retained such monetary reserves and security interests on the Collateral for such period of time as Lender, in its reasonable discretion, may deem necessary to protect Lender from any such loss or damage.

 

(d)                                  Borrowers shall unconditionally pay to Lender a fee (“ Unused Line Fee ”) equal to one-half percent (0.5%) per annum of the unused portion of the Credit Facility.  The unused portion of the Credit Facility shall be the difference between the Revolving Loan Commitment and the average daily outstanding balance of the Revolving Loans during each month (or portion thereof, as applicable), which fees shall be calculated and payable monthly, in arrears, and shall be due and payable on the first calendar day of each month.

 

(e)                                   Borrowers shall unconditionally pay to Lender a collateral monitoring fee (“ Collateral Monitoring Fee ”) equal to one percent (1.0%) per annum of the average daily outstanding balance of the Revolving Loans during each month (or portion thereof, as applicable), which Collateral Monitoring Fee shall be calculated and payable monthly, in arrears, and shall be due and payable on the first calendar day of each month.

 

4



 

2.04                         Additional Interest Provisions.

 

(a)                                  Calculation of Interest .  Interest on the Loans shall be based on a year of three hundred sixty (360) days and charged for the actual number of days elapsed.

 

(b)                                  Continuation of Interest Charges .  All contractual rates of interest chargeable on outstanding Loans shall continue to accrue and be paid even after default, maturity, acceleration, termination of the Credit Facility, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.

 

(c)                                   Applicable Interest Limitations .  In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto.  In the event that such court determines Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall, in its sole discretion, apply and set off such excess interest received by Lender against other Obligations due or to become due and such rate shall automatically be reduced to the maximum rate permitted by such law.

 

2.05                         Payments.

 

(a)                                  All accrued interest on the Revolving Loans shall be due and payable monthly on the first calendar day of each month.  Any accrued Unused Line Fees and Collateral Monitoring Fees shall be due and payable monthly on the first calendar day of the following calendar month.

 

(b)                                  If at any time the aggregate principal amount of all Revolving Loans outstanding exceeds the Borrowing Base then in effect, or, the aggregate of all Loans exceeds the Maximum Credit Limit, Borrowers shall immediately make such principal prepayments of the Revolving Loans (subject to the terms of Sections 2.03(c) and (d) hereof), as is necessary to eliminate such excess.

 

(c)                                   The entire principal balance of all of the Advances, together with all unpaid accrued interest thereon and the Termination Fee, if any, and any unpaid Unused Line Fees and Collateral Monitoring Fees, shall be due and payable on the Maturity Date.

 

(d)                                  Subject to the terms of Sections 2.03(c) and 2.03(d) hereof, Borrowers may prepay the principal of the Loans on any Settlement Date by giving Lender written notice of the proposed prepayment at least  two (2) Business Days prior to such Settlement Date.

 

(e)                                   Borrower authorizes Lender to charge principal and interest on the Loans against the Borrowing Base with respect to any principal and interest payments due and payable under the Loans, and such charge shall be deemed to be a Revolving Loan and an Advance hereunder, as of the first calendar day of the calendar month in which such payment is due.

 

(f)                                    If any Borrower sells any of the Collateral or if any of the Collateral is lost or destroyed or taken by condemnation, such Borrower shall pay to Lender a sum equal to the proceeds (including insurance proceeds) received by such Borrower from such sale, loss or destruction unless otherwise agreed to by Lender, or as otherwise expressly authorized by this Agreement, as and when received by such Borrower and as a mandatory prepayment of the outstanding Loans, until all Obligations are paid and satisfied in full.

 

(g)                                   Monthly, on the first calendar day of each month, all payments and prepayments shall be applied first to any unpaid interest, fees, and thereafter to the principal of the Loans and to other amounts due Lender, in the order provided in Section 2.07(f)  hereof.  Except as otherwise provided herein, all payments of principal, interest, fees, or other amounts payable by Borrowers hereunder shall be

 

5



 

remitted to Lender in immediately available funds not later than 11:00 a.m. (Eastern Time) on the day due.

 

2.06                         Use of Proceeds .  The extensions of credit under and proceeds of the Credit Facility shall be used to repay existing Indebtedness of Borrowers secured by the Collateral, if any, and for working capital and general business purposes of Borrowers and, in connection with or as the result of Distributions by Borrowers or Intercompany Loans, or both, not prohibited hereunder, other Subsidiaries of ADK.

 

2.07                         Lockboxes and Collections.

 

(a)                                  Borrowers will enter into Depository Agreements in respect of the Government Lockbox and Commercial Lockbox in such form and with the Lockbox Bank or such other bank as is acceptable to Lender.  Borrowers shall instruct the Lockbox Bank maintaining the Government Lockbox that all Collections sent to the Government Lockbox shall be deposited into a bank account at the Lockbox Bank in which Lender has a first priority perfected security interest.  Borrower shall instruct the Lockbox Bank maintaining the Commercial Lockbox that all Collections sent to the Commercial Lockbox shall be deposited into a bank account at the Lockbox Bank in the name of Lender.  Borrower shall also instruct the Lockbox Bank as described further in the Depository Agreements to initiate a daily transfer of all available funds to an account of Lender to be designated by Lender (“ Collection Account ”).

 

(b)                                  Borrowers will cause all Collections with respect to all of the Accounts, other than Government Accounts, to be sent directly to the Commercial Lockbox, and will cause all Collections with respect to all of the Government Accounts to be sent directly to the Government Lockbox (which may be effectuated by electronic transfer directly to the Government Lockbox).  In the event that any Borrower receives any Collections that should have been sent to the Commercial Lockbox or the Government Lockbox (including Collections received from Transferor during the Transition Period), such Borrower will, promptly upon receipt and in any event within one Business Day of receipt, forward such Collections directly to the Commercial Lockbox or Government Lockbox, as applicable, in the form received, and if requested by Lender, promptly notify Lender of such event.  Until so forwarded, such Collections not generated from Government Accounts shall be held in trust for the benefit of Lender.

 

(c)                                   No Borrower shall withdraw any amounts from the accounts into which the Collections remitted to the Commercial Lockbox are deposited nor shall any Borrower change the procedures under the agreements governing the Commercial Lockbox and related accounts.

 

(d)                                  Borrowers will cooperate with Lender in the identification and reconciliation on a daily basis of all amounts received in the Commercial Lockbox and the Government Lockbox.  If more than five percent (5%) of the Collections since the most recent Settlement Date is not identified or reconciled to the satisfaction of Lender within ten (10) Business Days of receipt, Lender shall not be obligated to make further Loans until such amount is identified or is reconciled to the reasonable satisfaction of Lender, as the case may be.  In addition, if any such amount cannot be identified or reconciled to the satisfaction of Lender, Lender may utilize its own staff or, if it deems necessary, engage an outside auditor, in either case at Borrowers’ expense (which in the case of Lender’s own staff shall be in accordance with Lender’s then prevailing customary charges (plus expenses)), to make such examination and report as may be necessary to identify and reconcile such amount.

 

(e)                                   No Borrower will send to or deposit in the Commercial Lockbox or the Government Lockbox any funds other than payments made with respect to Accounts.

 

6



 

(f)                                    Prior to the occurrence of an Event of Default, on each Settlement Date, Lender shall cause all Collections deposited and/or transferred to the Collection Account since the last Settlement Date to be disbursed in the following order of priority:

 

(i)                                      to Lender, any costs and Expenses of Lender required to be paid or reimbursed by Borrowers under this Agreement or under any of the other Loan Documents;

 

(ii)                                   to Lender, the amount of any Borrowing Base Deficiency, if any;

 

(iii)                                subject to Section 2.03(c), to Lender, the amount of any prepayment of principal of which Borrowers have given notice to Lender in accordance with Section 2.05(d) hereof; and

 

(iv)                               to Lender, to be applied to any Advances outstanding under the Revolving Loans.

 

In addition, promptly upon the request of Borrowers, so long as no Event of Default shall have occurred, Lender shall disburse to Borrowers the amount, if any, by which the collected balance in the Collection Account exceeds the aggregate outstanding principal amount of the Advances (other than the Term Loan) and all interest and other amounts that will be payable on or before the next Settlement Date.

 

2.08                         Application of Proceeds of Collateral .

 

(a)                                  Unless this Agreement expressly provides otherwise, so long as no Event of Default shall have occurred and remain outstanding, Lender agrees to apply all Collections as set forth in Section 2.07(f) hereof.

 

(b)                                  If an Event of Default shall have occurred and remain outstanding, Lender may apply Collections, any other proceeds of Collateral and all other payments received by Lender to the payment of the Obligations in such manner and in such order as Lender may elect in its sole discretion.

 

2.09                         Fees .  Lender has fully earned a non-refundable commitment fee (“ Commitment Fee ”) equal to Ten Thousand Dollars ($10,000), which Commitment Fee is due and payable at Closing.

 

ARTICLE 3

 

COLLATERAL

 

3.01                         Description .  To secure the prompt payment and performance in full when due, whether by lapse of time, acceleration, mandatory prepayment or otherwise, of the Obligations, each Borrower hereby grants to the Lender a continuing security interest in, and a right to set off against, any and all right, title and interest of such Borrower in and to all of the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the “ Collateral ”): (a) all Accounts; (b) all Payment Intangibles; (c) all Instruments, Chattel Paper (including Electronic Chattel Paper), Documents, Letter-of-Credit Rights, Supporting Obligations and Commercial Tort Claims set forth on Schedule 5.23 hereto, in each case to the extent arising out of, relating to or given in exchange for or settlement of or to evidence the obligation to pay any Account or Payment Intangible; (d) all General Intangibles (including contract rights and trademarks, copyrights, patents and other intellectual property) that arise out of or relate to any Account or Payment Intangible or from which any Account or Payment Intangible arises; (e) all remedies, guarantees and collateral evidencing, securing or otherwise relating to or associated with any Account or Payment Intangible, including all rights of enforcement and collection; (f) all Commercial

 

7



 

Lockboxes, Governmental Lockboxes, Collection Accounts and other Deposit Accounts into which Collections or other proceeds of Collateral or Advances are deposited, and all checks or Instruments from time to time representing or evidencing the same; (g) all cash, currency and other monies at any time in the possession or under the control of Lender or a bailee of Lender; (h) all books and records evidencing or relating to or associated with any of the foregoing; (i) all information and data compiled or derived with respect to any of the foregoing (other than any such information and data subject to legal restrictions of patient confidentiality); and (j) all Collections, Accessions, receipts and Proceeds derived from any of the foregoing.

 

All capitalized terms in this Section 3.01 and elsewhere in this Agreement that are defined in the UCC, unless otherwise defined herein, shall have the meanings set forth in the UCC.

 

Notwithstanding anything to the contrary contained herein, the security interests granted under this Agreement shall not extend to (a) any Property that is the subject of a Lien securing purchase money Indebtedness permitted under this Agreement pursuant to documents that prohibit such Borrower from granting any other Liens in such Property, and (b) any lease, license or other contract of a Borrower if the grant of a security interest in such lease, license or contract in the manner contemplated by this Agreement is prohibited by the terms of such lease, license or contract or by Applicable Law and would result in the termination of such lease, license or contract or give the other parties thereto the right to terminate, accelerate or otherwise adversely alter such Borrower’s rights, titles and interests thereunder (including upon the giving of notice or the lapse of time or both); provided that (i) any such limitation described in the foregoing clauses (a) and (b) on the security interests granted hereunder shall only apply to the extent that any such prohibition could not be rendered ineffective or unenforceable pursuant to the UCC or any other Applicable Law (including Debtor Relief Laws) or principles of equity and (ii) in the event of the termination or elimination of any such prohibition or the requirement for any consent contained in such lease, license or contract or in any Applicable Law,  to the extent sufficient to permit any such item to become Collateral hereunder, or upon the granting of any such consent, or waiving or terminating any requirement for such consent, a security interest in such lease, license or contract shall be automatically and simultaneously granted hereunder and shall be included as Collateral hereunder.

 

Borrowers and the Lender hereby acknowledge and agree that the security interest created hereby in the Collateral (i) constitutes continuing collateral security for all of the Obligations, whether now existing or hereafter arising, and (ii) is not to be construed as an assignment of any copyrights, copyright licenses, patents, patent licenses, trademarks or trademark licenses.

 

3.02                         Extent of Security Interests .  The security interest granted in Section 3.01 hereof shall extend and attach to all Collateral which is presently in existence or hereafter acquired and which is owned by any Borrower or in which any Borrower has any interest, whether held by such Borrower or by others for such Borrower’s account, and wherever located.

 

3.03                         Lien Documents .  At Closing and thereafter as Lender deems necessary, each Borrower shall execute (if required) and deliver to Lender, or shall have executed (if required) and delivered (all in form and substance reasonably satisfactory to Lender):

 

(a)                                  Financing Statements .  Financing statements pursuant to the UCC, which Lender may file in the jurisdiction where any Borrower is organized and in any other jurisdiction that Lender deems appropriate; and

 

(b)                                  Other Agreements .  Any other agreements, documents, instruments and writings, including security agreements, deposit account control agreements, and assignment agreements, reasonably required by Lender to evidence, perfect or protect Lender’s liens and security interest in the

 

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Collateral or as Lender may reasonably request from time to time, including a waiver agreement from each landlord with respect to any real property of any Borrower, in form and substance satisfactory to Lender.

 

3.04                         Other Actions.

 

(a)                                  In addition to the foregoing, each Borrower shall do anything further that may be lawfully and reasonably required by Lender to perfect its security interests and to effectuate the intentions and objectives of this Agreement, including the execution (if required) and delivery of continuation statements, amendments to financing statements, security agreements, contracts and any other documents required hereunder. At Lender’s request, each Borrower shall also immediately deliver (with execution by such Borrower of all necessary documents or forms to reflect Lender’s security interest therein) to Lender, all items for which Lender must or may receive possession to obtain a perfected security interest.

 

(b)                                  Lender is hereby authorized to file financing statements naming any Borrower as debtor, in accordance with the Uniform Commercial Code, and if necessary, to the extent applicable, to otherwise file financing statements without any Borrower’s signature if permitted by law.  Each Borrower hereby authorizes Lender to file all financing statements and amendments to financing statements describing the Collateral in any filing office as Lender, in its sole, discretion may determine, and containing language indicating that the acquisition by a third party of any right, title or interest in or to the Collateral without Lender’s consent shall be a violation of Lender’s rights.  Borrowers agree to comply with the requirements of all federal and state laws and requests of Lender in order for Lender to have and maintain a valid and perfected first priority security interest in the Collateral including executing and causing any other Person to execute such documents as Lender may require to obtain Control (as defined in the UCC) over all Deposit Accounts, Electronic Chattel Paper and Letter-of-Credit Rights that constitute Collateral.

 

3.05                         Searches .  Lender shall, prior to or at Closing, and thereafter as Lender may reasonably determine from time to time, at Borrowers’ expense, obtain the following searches (the results of which are to be consistent with the warranties made by Borrowers in this Agreement):

 

(a)                                  UCC Searches .  With respect to each Borrower, UCC searches with the Secretary of State and local filing office of each state where such Borrower maintains its chief executive office, its jurisdiction of organization and/or a place of business or assets;

 

(b)                                  Judgments, Etc.   Judgment, federal tax lien and corporate tax lien searches against each Borrower, in all applicable filing offices of each state searched under Section 3.04(a) hereof.

 

3.06                         Good Standing Certificates .  Borrowers shall, prior to or at Closing and at Borrowers’ expense, obtain and deliver to Lender good standing or equivalent certificates showing each Borrower to be in good standing in its state of incorporation or organization and authorized to transact business as a foreign corporation or entity in each other state or foreign country in which it is doing and presently intends to do business for which such Borrower’s failure to be so qualified could reasonably be expected to cause a Material Adverse Effect.

 

3.07                         Filing Security Agreement .  A carbon, photographic or other reproduction or other copy of this Agreement or of a financing statement is sufficient as and may be filed in lieu of a financing statement.

 

3.08                         Power of Attorney .  Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring any of them

 

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to act as such) with full power of substitution to do the following (such power to be deemed coupled with an interest):  (a) endorse the name of such Borrower upon any and all checks, drafts, money orders and other instruments for the payment of monies that are payable to such Borrower and constitute collections on the Collateral; (b) execute in the name of such Borrower any financing statements, schedules, assignments, instruments, documents and statements that such Borrower is obligated to give Lender hereunder or is necessary to perfect Lender’s security interest or lien in the Collateral; (c) to verify validity, amount or any other matter relating to the Collateral by mail, telephone, telecopy or otherwise; and (d) do such other and further acts and deeds in the name of such Borrower that Lender may reasonably deem necessary or desirable to enforce its right with respect to any Collateral.

 

3.09                         Reserved .

 

3.10                         Limited License .  Regardless of whether Lender’s security interests in any of the General Intangibles has attached or is perfected, each Borrower hereby irrevocably grants to Lender a royalty-free, non-exclusive license to use such Borrower’s trademarks, copyrights, patents and other proprietary and intellectual property rights, in connection with the advertisement for sale and the sale, billing and collecting, or other disposition of, any Collateral by, or on behalf of, Lender in accordance with the provisions of this Agreement.

 

3.11                         Credit Balances; Additional Collateral .

 

(a)                                  The rights and security interests granted to the Lender hereunder shall continue in full force and effect, notwithstanding the termination of this Agreement or the fact that the Revolving Loans may from time to time be temporarily in a credit position, until the termination of this Agreement and the full and final payment and satisfaction of the Obligations.  Any reserves or balances to the credit of the Borrowers, and any other Property of the Borrowers (or any of them) in the possession of Lender, may be held by Lender, and applied in whole or partial satisfaction of such Obligations when due, subject to the terms of this Agreement.  The liens and security interests granted to Lender herein and any other lien or security interest which Lender may have in any other assets of the Borrowers secure payment and performance of all present and future Obligations.

 

(b)                                  Notwithstanding Lender’s security interests in the Collateral, to the extent that the Obligations are now or hereafter secured by any assets or Property other than the Collateral, or by the guaranty, endorsement, assets or property of any other Person, Lender shall have the right in its sole discretion to determine which rights, security, liens, security interests or remedies Lender shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of such rights, security, liens, security interests or remedies, or any of Lenders’ rights under this Agreement

 

3.12                         Reference to Other Loan Documents .  Reference is hereby made to the other Loan Documents for additional representations, covenants and other agreements of the Borrowers regarding the Collateral covered by such Loan Documents.

 

ARTICLE 4

 

CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

 

Closing under this Agreement and the making of each Loan are subject to the following conditions precedent (all documents to be in form and substance satisfactory to Lender and Lender’s counsel):

 

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4.01                         Resolutions, Opinions, and Other Documents .  Prior to the Closing, Borrowers shall have delivered (or caused to be delivered) to Lender the following:

 

(a)                                  this Agreement and the Revolving Note, each properly executed;

 

(b)                                  any other Loan Document and each document and agreement required to be executed under any provision of this Agreement or any of the other Loan Documents;

 

(c)                                   certified copies of (i) resolutions of each Borrower’s and Guarantor’s board of director(s), or manager(s), as applicable authorizing the execution of this Agreement, the Revolving Note, the other Loan Documents and each other document to which it is a party, required to be delivered by any Section hereof and (ii) each Borrower’s and Guarantor’s Organizational Documents;

 

(d)                                  incumbency certificates identifying all Authorized Officers of each Borrower, with specimen signatures;

 

(e)                                   a written opinion of Borrowers’ and Guarantors’ independent counsel addressed to Lender in the form attached hereto as Exhibit 4.01 or otherwise acceptable to Lender, which shall include an opinion that Lender has a perfected security interest in the Collateral;

 

(f)                                    payment by Borrowers of all Expenses associated with the Credit Facility incurred to the Closing Date and the Commitment Fee;

 

(g)                                   the Business Associate Agreement properly executed;

 

(h)                                  the Depository Agreements required pursuant to Section 2.07 hereof and such other deposit account control agreements as Lender shall require;

 

(i)                                      Uniform Commercial Code, judgment, federal and state tax lien searches pursuant to Section 3.05 hereof, which searches shall verify that Lender will have a first priority security interest in the Collateral, subject to Permitted Liens;

 

(j)                                     an initial borrowing base certificate dated the Closing Date evidencing Borrower’s availability under the Borrowing Base;

 

(k)                                  to the extent applicable, Lender shall have received payoff letters and releases from all Persons having a security interest or other interest in the Collateral, together with all UCC-3 terminations or partial releases necessary to terminate such Persons’ interests in the Collateral;

 

(l)                                      certification by Borrowers that all past due payroll and unemployment taxes have been paid in full and that Borrowers remain current on such taxes;

 

(m)                              Lender shall have received copies of each of the accreditations, licenses, permits and certifications related to the representations in Section 5.03 hereof, and all Contracts requested by Lender;

 

(n)                                  each fully executed Subordination Agreement;

 

(o)                                  ADK’s quarterly and year to date consolidated and consolidating financial statements for the most recent quarter end prior to Closing and each Borrower’s monthly and year to date

 

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financial statements for the most recent month end prior to Closing (within fifteen (15) days prior to closing or such shorter period as Lender may determine);

 

(p)                                  satisfactory background checks on the senior management of Borrowers and Guarantors;

 

(q)                                  evidence satisfactory to Lender that the Required Insurance is in full force and effect and that Lender has been named as a lender’s loss payee or additional insurer with respect to such Required Insurance in a manner satisfactory to Lender;

 

(r)                                     all UCC financing statements and similar documents required to be filed in order to create in favor of Lender a first priority and exclusive (except for Permitted Liens) perfected security interest in the Collateral (to the extent that such a security interest may be perfected by a filing under the UCC or Applicable Law), shall have been properly filed in each office in each jurisdiction required;

 

(s)                                    Borrowers shall have delivered to Lender all information necessary for Lender to issue wire transfer instructions on behalf of each Borrower for the initial and subsequent Loans and/or Advances, including disbursement authorizations in form acceptable to Lender;

 

(t)                                     evidence satisfactory to Lender that each Borrower has taken all steps necessary to complete and file all documentation regarding the CHOW with the appropriate Governmental Authorities, intermediaries or other designated agents;

 

(u)                                  evidence satisfactory to Lender that any Medicare overpayment liability of Transferor has been satisfied and that Borrowers have no such liability with respect to the Healthcare Facilities; and

 

(v)                                  all other documents, information and reports required or requested to be executed and/or delivered by Borrowers under any provision of this Agreement or any of the Loan Documents.

 

4.02                         Additional Preconditions to Loans .  Lender’s obligation to make the initial Revolving Loan and each subsequent Revolving Loan shall be subject to the satisfaction of each of the following conditions:

 

(a)                                  After giving effect to each such Revolving Loan:

 

(i)                                      the aggregate principal amount of all Revolving Loans outstanding shall not exceed the Borrowing Base then in effect and the aggregate amount of all Loans outstanding shall not exceed the Maximum Credit Limit; and

 

(ii)                                   the ENV of all Eligible Accounts shall not exceed any of the Concentration Limits.

 

(b)                                  All representations and warranties of Borrowers shall be deemed reaffirmed as of the making of such Loan and shall be true both before and after giving effect to such Loan, and no Event of Default or Unmatured Event of Default shall have occurred and be continuing, Borrowers shall be in compliance with this Agreement and the other Loan Documents, and Borrowers shall have certified such matters to Lender.

 

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(c)                                   Each Borrower shall have signed and delivered to Lender notices, in the form of Exhibit 4.02(c) , directing the Obligors (other than Obligors with respect to Government Accounts) to make payment to the Commercial Lockbox.

 

(d)                                  Each Borrower shall have signed and delivered to Lender notices, in the form of Exhibit 4.02(d) , directing the Obligors with respect to Government Accounts to make payment to the Government Lockbox.

 

(e)                                   Borrowers shall have taken all actions necessary to permit Lender to record all of the Eligible Accounts in Lender’s accounts receivable monitoring system.

 

(f)                                    The lockbox arrangements required by Section 2.07 hereof shall be in effect, and the amounts received in the lockboxes shall have been identified or reconciled to Lender’s satisfaction, as required by Section 2.07(e) hereof.

 

(g)                                   Borrowers shall have taken such other actions, including the delivery of documents and opinions as Lender may reasonably request.

 

4.03                         Absence of Certain Events .  As of the Closing Date and prior to each Loan, no Event of Default or Unmatured Event of Default hereunder shall have occurred and be continuing.

 

4.04                         Compliance with this Agreement .  Borrowers shall have performed and complied with all agreements, covenants and conditions contained herein including the provisions of Sections 6 and 7 hereof, which are required to be performed or complied with by Borrowers before or at the Closing Date and as of the date of each Advance.

 

4.05                         Closing Certificate .  Lender shall have received a certificate dated the Closing Date and signed by the chief financial officer of Borrowers certifying that all of the conditions specified in this Section have been fulfilled and that there has not occurred any material adverse change in the operations and conditions (financial or otherwise) of Borrowers since December 31, 2012.

 

4.06                         Closing .  Subject to the conditions of this Article 4, the Credit Facility shall be made available on the date (“Closing Date ”) this Agreement is executed and all of the conditions contained in Section 4.01 hereof are completed (“ Closing ”).

 

4.07                         Non-Waiver of Rights .  By completing the Closing hereunder, or by making Advances hereunder, Lender does not thereby waive a breach of any warranty, representation or covenant made by Borrowers hereunder or under any agreement, document, or instrument delivered to Lender or otherwise referred to herein, and any claims and rights of Lender resulting from any breach or misrepresentation by Borrowers are specifically reserved by Lender.

 

ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES

 

To induce Lender to complete the Closing and make the Loans under the Credit Facility to Borrowers, Borrowers warrant and represent to Lender that:

 

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5.01                         Organization and Validity.

 

(a)                                  Each Borrower is duly organized as either a partnership, corporation or limited liability company and validly existing under the laws of its state of organization, incorporation or formation, is duly qualified, validly existing and, to the extent applicable, in good standing and has lawful power and authority to engage in the business it conducts in each state and other jurisdiction where the nature and extent of its business requires qualification, except where the failure to so qualify could not reasonably be expected to cause a Material Adverse Effect.  A list of all states and other jurisdictions where each Borrower is qualified to do business is attached hereto as Schedule 5.01 and made a part hereof.

 

(b)                                  The making and performance of this Agreement and related agreements, and each document required by any Section hereof will not (i) violate any law, government rule, regulation, order, judgment or award applicable to such Borrower or its Property, (ii) violate any provision of such Borrower’s Organizational Documents, or (iii) violate or result in a default (immediately, with the passage of time or with the giving of notice) under any contract, agreement or instrument to which such Borrower is a party, or by which such Borrower is bound.  No Borrower is in violation of, nor has any Borrower knowingly caused any other Person to violate any term of any agreement or instrument to which it or such other Person is a party or by which it may be bound or of its Organizational Documents or minutes, which violation could reasonably be expected to cause a Material Adverse Effect.

 

(c)                                   Each Borrower has all requisite power and authority to enter into and perform this Agreement and the other Loan Documents and to incur the Obligations herein provided for, and has taken all proper and necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents.

 

(d)                                  This Agreement, the Revolving Note, and the other Loan Documents required to be executed and delivered by any Borrower hereunder, when delivered, will be valid and binding upon all such Borrowers a party thereto and enforceable in accordance with their respective terms.

 

(e)                                   Each Guaranty is valid and binding upon the Guarantor party thereto and enforceable in accordance with its terms.

 

5.02                         Places of Business Schedule 5.02 hereto sets forth (a) each Borrower’s jurisdiction of organization, (b) the address of each Borrower’s chief executive office, (c) all other places of business of each such Borrower and (d) any other locations of any Collateral.  Except as disclosed on Schedule 5.02 hereto:  (a) no Borrower has been organized in any other jurisdiction nor changed any such location in the last five (5) years, (b) no Borrower has changed its name in the last five (5) years, and (c) during such period no Borrower used, nor does any Borrower now use, any fictitious or trade name.

 

5.03                         Healthcare Matters .

 

(a)                                  Operation of Facilities . Each Borrower owns or leases facilities in which it provides health care services and (i) maintains Medicare and Medicaid provider status and is the holder of the provider identification numbers identified on Schedule 5.03 hereto, all of which are current and valid and such Borrower has not allowed, permitted, authorized or caused any other Person to use any such provider identification number, and (ii) has obtained all material Permits necessary for such Borrower to own its assets, to carry on its business, to execute, deliver and perform the Loan Documents, and to receive payments from the Obligors and, if organized as a not-for-profit entity, has and maintains its status, if any, as an organization exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code.  No Borrower has been notified by any such governmental authority or other Person during the immediately preceding 24 month period that such party has rescinded, limited or not renewed, or intends to rescind, limit or not renew, any such license or approval.

 

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(b)                                  Healthcare Permits . Each Borrower has (i) each Permit and other rights from, and has made all declarations and filings with, all applicable Governmental Authorities, all self regulatory authorities and all courts and other tribunals necessary to engage in the ownership and operation of the Healthcare Facilities, and (ii) no knowledge that any Governmental Authority is considering limiting, suspending or revoking any such Permit.  All such Permits are valid and in full force and effect and each Borrower is in material compliance with the terms and conditions of all such Permits except where failure to be in such compliance or for a Permit to be valid and in full force and effect could not reasonably be expected to have a Material Adverse Effect.

 

(c)                                   Specific Licensing .  Each Healthcare Facility is duly licensed under the Applicable Laws of the state where the Healthcare Facility is located.  The licensed bed or unit capacity of each Healthcare Facility is shown on Schedule 5.03 hereto.  No Borrower has granted to any third party the right to reduce the number of licensed beds or units in the Healthcare Facilities or the right to apply for approval to move any and all of the licensed beds or units in the Healthcare Facilities to any other location and there are no proceedings or contemplated to reduce the number of licensed beds in the Healthcare Facilities.

 

(d)                                  Participation Agreements/Provider Status/Cost Reports .

 

(i)                                      Each Borrower has the requisite participation agreement or provider number or other Permit to bill the respective Medicaid program in the state or states in which such Borrower operates (to the extent such Borrower participates in the Medicare or Medicaid program in such state or states) and all other Third Party Payor Programs (including Medicare) which have historically accounted for any portion of the revenues of such Healthcare Facility.

 

(ii)                                   There is no investigation, audit, claim review, or other action pending or, to the knowledge of any Borrower, threatened which could result in a revocation, suspension, termination, probation, restriction, limitation, or non-renewal of any participation agreements with Third Party Payors with respect to the business of each Borrower (collectively, “ Participation Agreements ”) or provider number or other Permit or result in a Borrower’s exclusion from any Third Party Payor Program, nor has any Third Party Payor Program made any decision not to renew any Participation Agreement or provider agreement or other Permit related to any Healthcare Facility, nor has any Borrower made any decision not to renew any Participation Agreement or provider agreement or other Permit, nor is there any action pending or threatened to impose material intermediate or alternative sanctions with respect to any Healthcare Facility.

 

(iii)                                Each Borrower, and, to the knowledge of such Borrower, its contractors, have properly and legally billed all intermediaries and Third Party Payors for services rendered with respect to the Healthcare Facilities and have maintained their records to reflect such billing practices.  No funds relating to any Borrower are now, or, to the knowledge of any Borrower will be, withheld by any Third Party Payor.

 

(iv)                               All Medicare, Medicaid, and private insurance cost reports and financial reports submitted by each Borrower are and will be materially accurate and complete and have not been and will not be misleading in any material respects.  No cost reports for the Healthcare Facilities remain “open” or unsettled.  There are no current, pending or outstanding Medicare, Medicaid or Third Party Payor Program reimbursement audits or appeals pending with respect to the Healthcare Facilities or any Borrower.

 

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(e)                                   No Violation of Healthcare Laws .

 

(i)                                      None of the Healthcare Facilities or any Borrower is in violation of any Healthcare Laws, except where any such violation could not reasonably be expected to have a Material Adverse Effect.

 

(ii)                                   Each Borrower is HIPAA Compliant.

 

(iii)                                No Healthcare Facility has received a statement of deficiencies or survey violation of a “Level A” (or equivalent) or worse (with respect to assisted living facilities), or a tag level of “G” or higher with respect to any skilled nursing facility, within the past three years for which a plan of correction has not been filed with the applicable state authority.  No Healthcare Facility is currently subject to any plan of correction that has not been accepted by or is currently the subject of a review by the applicable state authority.  No Borrower has received notice of any charges of patient abuse.

 

(f)                                    Proceedings . No Borrower or Healthcare Facility is subject to any proceeding, suit or, to Borrowers’ knowledge, investigation by any federal, state or local government or quasi-governmental body, agency, board or authority or any other administrative or investigative body (including the Office of the Inspector General of the United States Department of Health and Human Services):  (i) which may result in the imposition of a fine, alternative, interim or final sanction, a lower reimbursement rate for services rendered to eligible patients which has not been provided for on their respective financial statements, or which could reasonably be expected to have a Material Adverse Effect on any Borrower or the operation of any individual Healthcare Facility; (ii) which could result in the revocation, transfer, surrender, suspension or other impairment of the operating certificate provider agreement or Permits of any Healthcare Facility; (iii) which pertains to any state or federal Medicare or Medicaid cost reports or claims filed by any Borrower (including any reimbursement audits), or any disallowance by any commission, board or agency in connection with any audit of such cost reports; or (iv) which pertains to or requests any voluntary disclosure pertaining to a potential overpayment matter involving the submission of claims to such payor by any Borrower.

 

(g)                                   Fraud & Abuse .

 

(i)                                      No Borrower has, or to its knowledge has been threatened to have, and no owner, officer, manager, employee or person with a “direct or indirect ownership interest” (as that phrase is defined in 42 C.F.R. §420.201) in any Borrower has, engaged in any of the following:  (A) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment under any Healthcare Laws; (B) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment under any Healthcare Laws; (C) failing to disclose knowledge by a claimant of the occurrence of any event affecting the initial or continued right to any benefit or payment under any Healthcare Laws on its own behalf or on behalf of another, with intent to secure such benefit or payment fraudulently; (D) knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind or offering to pay such remuneration (1) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part by any Healthcare Laws, or (2) in return for purchasing, leasing or ordering or arranging for or recommending the purchasing, leasing or ordering of any good, facility, service, or item for which payment may be made in whole or in part by any Healthcare Laws; (E) presenting or causing to be presented a claim for reimbursement for services that is for an item or services that was known or should have been known to be (1) not provided as claimed, or (2) false or fraudulent; or (E) knowingly and willfully making or causing to be made or inducing or seeking to induce the making of any false statement or representation (or omitting to state a fact required to be stated therein or necessary to make the statements contained therein not misleading) of a material fact with respect to (1) a facility in order

 

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that the facility may qualify for Governmental Authority certification, or (2) information required to be provided under 42 U.S.C. § 1320a-3.

 

(ii)                                   No Borrower has been, or to its knowledge has been threatened to be, and no owner, officer, manager, employee or person with a “direct or indirect ownership interest” (as that phrase is defined in 42 C.F.R. §420.201) in any Borrower:  (A) has had a civil monetary penalty assessed against him or her pursuant to 42 U.S.C. §1320a-7a or is the subject of a proceeding seeking to assess such penalty; (B) has been excluded from participation in a Federal Health Care Program (as that term is defined in 42 U.S.C. §1320a-7b) or is the subject of a proceeding seeking to assess such penalty, or has been “suspended” or “debarred” from selling products to the U.S. government or its agencies pursuant to the Federal Acquisition Regulation, relating to debarment and suspension applicable to federal government agencies generally (48 C.F.R. Subpart 8.4), or other Applicable Laws or regulations; (C) has been convicted (as that term is defined in 42 C.F.R. §1001.2) of any of those offenses described in 42 U.S.C. §1320a-7b or 18 U.S.C. §§669, 1035, 1347, 1518 or is the subject of a proceeding seeking to assess such penalty; (D) has been involved or named in a U.S. Attorney complaint made or any other action taken pursuant to the False Claims Act under 31 U.S.C. §§3729-3731 or qui tam action brought pursuant to 31 U.S.C. §3729 et seq.; (E) has been made a party to any other action by any governmental authority that may prohibit it from selling products to any governmental or other purchaser pursuant to any law; or (F) was or has become subject to any federal, state, local governmental or private payor civil or criminal investigations or inquiries, proceedings, validation review, program integrity review or statement of charges involving and/or related to its compliance with Healthcare Laws or involving or threatening its participation in Medicare, Medicaid or other Third Party Payor Programs or its billing practices with respect thereto.

 

5.04                         Pending Litigation .  There are no judgments or judicial or administrative orders, proceedings or investigations (civil or criminal) pending, or to the knowledge of any Borrower, threatened, against any Borrower in any court or before any Governmental Authority or arbitration board or tribunal, other than as set forth on Schedule 5.04 hereto, none of which (including matters set forth on Schedule 5.04 ), if adversely determined could reasonably be expected to cause a Material Adverse Effect.  No Borrower is in default with respect to any order of any court, Governmental Authority, regulatory agency or arbitration board or tribunal.  No Shareholder or executive officer of any Borrower has been indicted or convicted in connection with or is engaging in any criminal conduct, or is currently subject to any lawsuit or proceeding or under investigation in connection with any anti-racketeering or other conduct or activity.

 

5.05                         Medicaid and Medicare Cost Reporting .  The Medicaid and Medicare cost reports of each facility and of the home office of each Borrower for all cost reporting periods have been submitted when and as required to (a) as to Medicaid, the state agency, or other CMS-designated agent or agent of such state agency, charged with such responsibility or (b) as to Medicare, the Medicare intermediary or other CMS-designated agent charged with such responsibility.  No cost report indicates and no audit has resulted in any determination that any Borrower was overpaid for Medicaid and Medicare by One Hundred Thousand Dollars ($100,000) or more in any of the most recent three (3) fiscal years covered by such audit.

 

5.06                         Title to Collateral .  Each Borrower has good and marketable title to all the Collateral it respectively purports to own, free from co-owners, liens, claims and encumbrances, except (a) those of Lender, (b) those listed on Schedule 5.06 hereto (“ Permitted Liens ”) and (c) liens securing purchase money indebtedness permitted pursuant to Section 7.12(c) hereof.  The possession and use of the Collateral does not and will not infringe, misappropriate or otherwise violate the intellectual property rights of any property.

 

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5.07                         Governmental Consent .  Neither the nature of any Borrower or of any Borrower’s business or Property, nor any relationship between any Borrower and any other Person, nor any circumstance affecting any Borrower in connection with the execution, issuance and/or delivery of this Agreement or the Revolving Note is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority on the part of any such Borrower in connection with the execution and delivery of this Agreement or the issuance or delivery of the Revolving Note or other Loan Documents.

 

5.08                         Taxes .  All tax returns required to be filed by Borrowers, or any of them, in any jurisdiction have in fact been filed, and all Taxes, assessments, fees and other governmental charges upon Borrowers, or any of them, or upon any of their respective Property, income or franchises, which are shown to be due and payable on such returns have been paid, except for those Taxes being contested in good faith with due diligence by appropriate proceedings and for which appropriate reserves have been maintained under GAAP.  No Borrower is aware of any proposed additional tax assessment or tax to be assessed against or applicable to any Borrower that could reasonably be expected to cause a Material Adverse Effect.

 

5.09                         Financial Statements .

 

(a)                                  Each Borrower’s internally prepared balance sheet as of December 31, 2012,and each Borrower’s internally prepared quarterly balance sheet as of December 31, 2012, and the related income statements and statements of cash flows as of such dates (complete copies of which have been delivered to Lender), have been prepared in accordance with GAAP and present fairly, accurately and completely the financial position of such Borrower as of such dates and the results of such Borrower’s operations for such periods.

 

(b)                                  Since December 31, 2012, there has been no event or circumstance that has had or could reasonably be expected to have a Material Adverse Effect.

 

(c)                                   The fiscal year for each Borrower currently ends on the date set forth on Schedule 5.09 hereto.  Each Borrower’s  federal tax identification number and organization number are as set forth on Schedule 5.09 hereto.

 

5.10                         Full Disclosure .  Neither the financial statements referred to in Section 5.09 hereof, nor this Agreement or related agreements and documents or any written statement furnished by any Borrower to Lender in connection with the negotiation of the Credit Facility and contained in any financial statements or documents relating to any Borrower contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading.

 

5.11                         Guarantees, Contracts, etc.

 

(a)                                  No Borrower owns nor holds partnership interests or equity or long term debt investments in, has any outstanding advances to, or serves as guarantor, surety or accommodation maker for the obligations of, or has any outstanding borrowings from, any Person except as described in Schedule 5.11 hereto.

 

(b)                                  No Borrower is a party to any contract or agreement, or subject to any charter or other entity restriction which could reasonably be expected to cause a Material Adverse Effect.

 

(c)                                   Except as otherwise specifically provided in this Agreement, no Borrower has agreed or consented to cause or permit any of the Collateral whether now owned or hereafter acquired to

 

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be subject in the future (upon the happening of a contingency or otherwise) to a lien or encumbrance not permitted by this Agreement.

 

5.12                         Compliance with Laws .

 

(a)                                  No Borrower is in violation of, has received written notice that it is in violation of, or has knowingly caused any Person to violate, any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or of any other jurisdiction, or of any agency, or department thereof, (including environmental laws and regulations), which could reasonably be expected to cause a Material Adverse Effect.

 

(b)                                  Each Borrower is current with all reports and documents required to be filed with any state or federal securities commission (if any) or similar agency and is in full compliance with all applicable rules and regulations of such commissions, except where such failure to so comply could not reasonably be expected to cause a Material Adverse Effect.

 

5.13                         Other Associations .  No Borrower is engaged in nor has an interest in any joint venture or partnership with any other Person or has any Subsidiaries or Affiliates, except as described on Schedule 5.13 hereto.

 

5.14                         Environmental Matters .  Except as disclosed on Schedule 5.14 hereto, no Borrower has knowledge:

 

(a)                                  of violations of any Environmental Laws on any of the real property where any Borrower maintains operations or has its personal property, or where any Collateral is located;

 

(b)                                  of any claims or actions pending or threatened, or claims or actions in the past during Borrower’s period of ownership, against Borrower or any of such real property by any governmental entity or agency or by any other person or entity relating to Hazardous Substances or pursuant to any Environmental Laws;

 

(c)                                   of the presence of any Hazardous Substances on any of such real property;

 

(d)                                  of any such real property ever having been used by any of the Borrowers or, to the best of Borrowers’ knowledge any other person, to refine, produce, store, handle, transfer, process, transport, or dispose of Hazardous Substances other than in full compliance with Environmental Laws;

 

(e)                                   of storage tanks (including petroleum or heating oil storage tanks), underground or above-ground, present on or under any of such real property, or that have been on or under any such real property but removed therefrom;

 

(f)                                    of any on-site spills, releases, discharges, disposal, or storage of Hazardous Substances that have occurred or are presently occurring on any of such real property; or

 

(g)                                   of any spills, releases, discharges, disposal, or storage of Hazardous Substances that have occurred or are presently occurring on any other real property as a result of the conduct, action, or activities of any Borrower.

 

5.15                         Capital Stock .  The authorized and outstanding Capital Stock of each Borrower is as set forth on Schedule 5.15 hereto.  All of the Capital Stock and equity interests of each Borrower have been duly and validly authorized and issued and are fully paid and non-assessable and have been sold and

 

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delivered to the holders thereof in compliance with, or under valid exemption from, all Federal and state laws and the rules and regulations of all regulatory bodies thereof governing the sale and delivery of securities.  Except for the rights and obligations set forth in Schedule 5.15 hereto, there are no subscriptions, warrants, options, calls, commitments, rights or agreements by which any Borrower or any of the Shareholders of any Borrower is bound relating to the issuance, transfer, voting or redemption of its Capital Stock or any preemptive rights held by any Person with respect to the Capital Stock of any such Borrower.  Except as set forth in Schedule 5.15 hereto, no Borrower has issued any securities convertible into or exchangeable for its Capital Stock or any options, warrants or other rights to acquire such Capital Stock or securities convertible into or exchangeable for such Capital Stock.

 

5.16                         Lockboxes .  The Government Lockbox and the Commercial Lockbox are the only lockbox accounts maintained by Borrowers, and each Obligor of an Eligible Account has been directed by the notice attached as Exhibit 4.02(c) to this Agreement, and is required to, remit all payments with respect to such Account for deposit in the Commercial Lockbox (other than the Obligors of Government Accounts which have been directed by the notice attached as Exhibit 4.02(d) to this Agreement to remit all payments with respect to such Accounts for deposit in the Government Lockbox).

 

5.17                         Borrowing Base Certificates.  Each Borrowing Base Certificate signed by Borrowers, on behalf of Borrowers, contains and will contain an accurate summary of all Eligible Accounts of Borrowers contained in the Borrowing Base as of its date.

 

5.18                         Security Interest .  The Borrowers represent and warrant to Lender that except for the Permitted Liens, (a) upon the filing of UCC financing statements covering the Collateral in all required jurisdictions, this Agreement creates a valid, perfected, first priority and exclusive security interest in all Property of the Borrowers as to which perfection may be achieved by filing, (b) Lender’s security interests in the Collateral constitute, and will at all times constitute, first priority and exclusive liens on the Collateral, and (c) each Borrower is, or will be at the time additional Collateral is acquired by such Borrower, the absolute owner of such additional Collateral with full right to pledge, sell, transfer and create a security interest therein, free and clear of any and all claims or liens other than Permitted Liens.

 

5.19                         Accounts.

 

(a)                                  No Borrower has done nor shall do anything to interfere with the collection of the Accounts and no Borrower shall amend or waive the terms or conditions of any Account or any related Contract in any material adverse manner without Lender’s prior written consent.

 

(b)                                  Each Borrower has made and will continue to make all payments to Obligors necessary to prevent any Obligor from offsetting any earlier overpayment to such Borrower against any amounts such Obligor owes on an Account.

 

5.20                         ERISA .  Borrowers and each other member of Borrowers’ Controlled Group have fulfilled their obligations under the minimum funding standards of, and are in compliance in all material respects with, ERISA and the Code to the extent applicable to it and, other than a liability for premiums under Section 4007 of ERISA, have not incurred any liability to the PBGC or a Plan under Title IV of ERISA.  Borrowers and their Subsidiaries and/or Affiliates have no contingent liabilities with respect to any post-retirement benefits under a welfare plan, as defined in Section 3(1) of ERISA, other than liability for continuation coverage described in Article 6 of Title 1 of ERISA.

 

5.21                         Representations and Warranties for each Loan .  As of each date that Borrowers shall request any Loan, each Borrower shall be deemed to make, with respect to each Eligible Account included in the Borrowing Base, each of the following representations and warranties:

 

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(a)                                  Such Account satisfies each of the conditions of an Eligible Account.

 

(b)                                  All information relating to such Account that have been delivered to Lender is true, complete and correct in all material respects.  With respect to each such Account that has been billed, the corresponding Borrower has delivered to the Obligor all requested supporting claim documents and all information set forth in the bill and supporting claim documents is true, complete and correct in all material respects.

 

(c)                                   There is no lien or adverse claim in favor of any third party, nor any filing against any Borrower, as debtor, covering or purporting to cover any interest in such Account.

 

(d)                                  Such Account is (i) payable in an amount not less than its Estimated Net Value by the Obligor identified by Borrowers as being obligated to do so, and is recognized as such by the Obligor, (ii) the legally enforceable obligation of such Obligor, and (iii) an account  or general intangible within the meaning of the UCC, or is a right to payment under a policy of insurance or proceeds thereof, and is not evidenced by any instrument or chattel paper.  There is no payor other than the Obligor identified by Borrowers as the payor primarily liable on such Account.

 

(e)                                   No such Account (i) requires the approval of any third person for such Account to be assigned to Lender hereunder, (ii) is subject to any legal action, proceeding or investigation (pending or threatened), dispute, set-off, counterclaim, defense, abatement, suspension, deferment, deductible, reduction or termination by the Obligor, or (iii) is past, or within one hundred eighty (180) days of, the statutory limit for collection applicable to the Obligor.

 

(f)                                    Such Borrower does not have any guaranty of, letter of credit support for, or collateral security for, such Account, other than any such guaranty, letter of credit or collateral security as has been assigned to Lender.

 

(g)                                   The services constituting the basis of such Account (i) were medically necessary for the patient and (ii) at the time such services were rendered, were fully covered by the insurance policy or Contract obligating the applicable Obligor to make payment with respect to such Account (and the corresponding Borrower has verified such determination), and (iii) the patient received such services in the ordinary course of such Borrower’s business.

 

(h)                                  The fees and charges charged for the services constituting the basis for such Account were when rendered and are currently consistent with (i) the usual, customary and reasonable fees charged by Borrowers or (ii) pursuant to negotiated fee contracts, or imposed fee schedules, with or by the applicable Obligors.

 

(i)                                      The Obligor with respect to such Account is located in the United States, and is (i) a party which in the ordinary course of its business or activities agrees to pay for healthcare services received by individuals, including commercial insurance companies and non-profit insurance companies issuing health, or other types of insurance, employers or unions, self-insured healthcare organizations, preferred provider organizations, and health insured, prepaid maintenance organizations, (ii) a state, an agency or instrumentality of a state or a political subdivision of a state, or (iii) the United States or an agency or instrumentality of the United States.

 

(j)                                     The insurance policy or Contract obligating an Obligor to make payment (i) does not prohibit the transfer of such payment obligation from the patient to the corresponding Borrower and (ii) is and was in full force and effect and applicable to the patient at the time the services constituting the basis for such Account were performed.

 

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(k)                                  The representations and warranties made by Borrowers in the Loan Documents and all financial or other information delivered to Lender with respect to Borrowers and such Account do not contain any untrue statement of material fact or omit to state a material fact necessary to make the statement made not misleading.

 

(l)                                      If requested by Lender, a copy of each related Contract to which each Borrower is a party has been delivered to Lender unless any such Borrower shall have, prior to the related Funding Date, certified in an Officer’s Certificate that such delivery is prohibited by the terms of the Contract or by law, and the circumstances of such prohibition.

 

(m)                              The services giving rise to such Account have been properly recorded in the corresponding Borrower’s accounting system.

 

(n)                                  Such Account was in any event billed no later than thirty (30) days after the date the services or goods giving rise to such Account were rendered as provided, as applicable, and each bill contains an express direction requiring the Obligor to remit payments to either the Government Lockbox or Commercial Lockbox, as applicable.

 

(o)                                  Such Account has an Estimated Net Value which, when added to the Estimated Net Value of all other Accounts owing by the same Obligor and which constitute Eligible Accounts hereunder, does not exceed any applicable Concentration Limit.

 

(p)                                  Neither such Account nor the related Contract contravenes any laws, rules or regulations applicable thereto (including laws, rules and regulations relating to usury, consumer protection, truth-in-lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and no party to such related Contract is in violation of any such law, rule or regulation in connection with such Contract.

 

(q)                                  As of the applicable Funding Date, to the best of Borrowers’ knowledge, no Obligor on such Account is bankrupt, insolvent, or is unable to make payment of its obligations when due, and no other fact exists which would cause any Borrower reasonably to expect that the amount billed to the related Obligor for such Account will not be paid in full when due.

 

5.22                         Interrelatedness of Borrowers .  The business operations of each Borrower are interrelated and complement one another, and such companies have a common business purpose, with intercompany bookkeeping and accounting adjustments used to separate their respective Properties, liabilities and transactions.  To permit their uninterrupted and continuous operation, such companies now require and will from time to time hereafter require funds for general business purposes.  The proceeds of Advances under the Credit Facility will directly or indirectly benefit each Borrower hereunder severally and jointly, regardless of which Borrower requests or receives part or all of the proceeds of such Loan.

 

5.23                         Commercial Tort Claims .  Borrowers have no commercial tort claims against any third parties, except as shown on Schedule 5.23 hereto.

 

5.24                         Letter-of-Credit Rights .  Borrowers have no letter-of-credit rights (as defined in the UCC) except as shown on Schedule 5.24 hereto.

 

5.25                         Intellectual Property .  Except as shown on Schedule 5.25 hereto and made part hereof, (a) Borrowers do not require any copyrights, patents, trademarks, other intellectual property or other general intangibles (as defined in the UCC), or any license(s) to use any patents, trademarks or other intellectual property in order to (i) provide services to their customers, (ii) bill Obligors and collect

 

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therefrom, in the ordinary course of business or (iii) otherwise conduct Borrowers’ business as presently conducted, and (b) Borrowers have not granted an exclusive license to any party that relates to Borrowers’ intellectual property.  All of Borrowers’ rights in their intellectual property are enforceable, valid and subsisting.  No action, suit, demand, charge or claim has been made or threatened which challenges the enforceability or validity of Borrowers’ intellectual property.

 

5.26                         Solvency .  On the Closing Date and immediately prior to and after giving effect to each borrowing hereunder and the use of the proceeds thereof, with respect to each Borrower (a) the fair value of its assets is greater than the amount of its liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated, (b) the present fair saleable value of its assets is not less than the amount that will be required to pay the probable liability on its debts as they become absolute and matured, (c) it is able to realize upon its assets and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (d) it does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature, and (e) it is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which its property would constitute unreasonably small capital.

 

5.27                         Schedules .  Each of the Schedules attached to this Agreement sets forth a true, correct and complete description of the matter or matters covered thereby.

 

ARTICLE 6

 

AFFIRMATIVE COVENANTS

 

Each Borrower covenants that until all of Borrowers’ Obligations to Lender are paid and satisfied in full and the Credit Facility has been terminated:

 

6.01                         Payment of Taxes and Claims .  Each Borrower shall pay, before they become delinquent, all Taxes, assessments and governmental charges or levies imposed upon it or upon such Borrower’s Property, except for those being contested in good faith with due diligence by appropriate proceedings and for which appropriate reserves have been maintained under GAAP.

 

6.02                         Maintenance of Insurance, Financial Records and Existence.

 

(a)                                  Required Insurance - Borrowers shall maintain or cause to be maintained insurance on Borrowers’ Property against fire, flood, casualty, public liability, business interruption and such other hazards, as well as general liability, medical malpractice insurance and other liability insurance related to the business of the Borrowers required by Lender, all in such amounts, with such deductibles and with such insurers as are at all times reasonably satisfactory to Lender (the “ Required Insurance ”).  All of the policies relating to the Required Insurance shall contain standard “lender loss payable” and “additional insured” clauses issued in favor of Lender pursuant to which all losses thereunder shall be paid to Lender as Lender’s interests may appear.  Such policies shall expressly provide that the Required Insurance cannot be altered or canceled without thirty (30) days prior written notice to Lender and shall insure Lender notwithstanding the act or neglect of the insured.  At or prior to Closing, Borrowers shall furnish Lender with insurance certificates certified as true and correct and being in full force and effect as of the Closing Date or such other evidence of the Required Insurance as Lender may require.  In the event Borrowers fail to procure or cause to be procured any of the Required Insurance or to timely pay or cause to be paid the premium(s) on any of the Required Insurance, Lender may do so for Borrowers, but Borrowers shall continue to be liable for the same.  Borrowers further covenant that all insurance premiums owing under Borrowers’ current casualty policy have been paid.  Borrowers also agree to notify

 

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Lender, promptly, upon any Borrower’s receipt of a notice of termination, cancellation or non-renewal from its insurance company of any of the Required Insurance.  Each Borrower hereby appoints Lender as its attorney-in-fact, exercisable at Lender’s option, to endorse any check which may be payable to such Borrower in order to collect the proceeds of the Required Insurance.

 

(b)                                  Financial Records - Borrowers shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of Borrowers’ business transactions, and will reflect in Borrowers’ financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP.  No Borrower shall change its respective fiscal year end date without prior written notice thereof to Lender.

 

(c)                                   Existence and Rights - Each Borrower shall do (or cause to be done) all things necessary to preserve and keep in full force and effect its legal existence, good standing, rights and franchises.

 

6.03                         Business Conducted .  Each Borrower shall continue in the business presently operated by it using its best efforts to maintain its customers.  No Borrower shall engage, directly or indirectly,  in any line of business substantially different from the businesses conducted by it immediately prior to the Closing Date.

 

6.04                         Litigation .  Borrowers shall give prompt notice to Lender of any litigation claiming in excess of Fifty Thousand Dollars ($50,000) from Borrowers, or any of them, or which could reasonably be expected to cause a Material Adverse Effect.

 

6.05                         Taxes .  Borrowers shall pay all Taxes when due (other than taxes based upon or measured by Lender’s income or revenues), if any, in connection with the Loans and/or the recording of any financing statements or other Loan Documents.  The Obligations of Borrowers under this section shall survive the payment of Borrowers’ Obligations under this Agreement and the termination of this Agreement.

 

6.06                         Financial Covenants .  Borrowers shall perform and comply with each of the following financial covenants as reflected and computed from their financial statements:

 

(a)                                  Minimum Fixed Charge Coverage Ratio .  Borrowers shall cause ADK to maintain at all times a Fixed Charge Coverage Ratio measured quarterly at the end of the fiscal quarter ending June 30, 2013, and at the end of each fiscal quarter thereafter, of at least 1.10:1.

 

(b)                                  Maximum Loan Turn Days .  Borrowers and Affiliated Borrowers shall maintain at all times a Maximum Loan Turn Days, measured quarterly at the end of the fiscal quarter ending September 30, 2013, and at the end of each fiscal quarter thereafter, of not greater than 40 days.

 

6.07                         Financial and Business Information .  Borrowers shall deliver to Lender the following (all to be in form and substance satisfactory to Lender):

 

(a)                                  Financial Statements and Collateral Reports .

 

(i)                                      as soon as available but in any event, within one hundred twenty (120) days after the end of each fiscal year of ADK, deliver (or cause to be delivered) financial statements of ADK for such year which present fairly ADK’s financial condition, including the balance sheet of ADK as at the end of such fiscal year and a statement of cash flows and income statement for such fiscal year, all on a consolidated and consolidating basis, setting forth in the consolidated statements in comparative

 

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form, the corresponding figures as at the end of and for the previous fiscal year, all in reasonable detail, including all supporting schedules, and audited by independent public accountants of recognized standing, selected by ADK and reasonably satisfactory to Lender, and prepared in accordance with GAAP;

 

(ii)                                   as soon as available but in any event within forty-five (45) days after the end of each fiscal quarter deliver to Lender ADK’s internally prepared quarterly consolidated and consolidating financial statements, along with year to date information, including a balance sheet, income statement and statement of cash flows with respect to the periods measured;

 

(iii)                                as soon as available but in any event within forty-five (45) days after the end of each fiscal quarter deliver to Lender each Borrower’s internally prepared quarterly financial statements, along with year to date information, including a balance sheet, income statement and statement of cash flows with respect to the periods measured;

 

(iv)                               promptly upon request, deliver such other information concerning Borrowers as Lender may from time to time request, including Medicare and Medicaid cost reports and audits, annual reports, security law filings and reports to any security holders;

 

(v)                                  at least thirty (30) days prior to the first day of each fiscal year an annual consolidated projected income statement for ADK for such year, prepared on a monthly basis;

 

(vi)                               contemporaneously with delivery of the annual financial statements referred to in clause (i) above, census data for each Borrower and a good standing certificate from each Borrower’s jurisdiction of organization evidencing that such Borrower remains in good standing in, and continues to be organized under the laws of, such jurisdiction;

 

(vii)                            on or before July 31, 2013, ADK’s annual audited consolidated and consolidating balance sheet as of December 31, 2012, accompanied by reports thereon from ADK’s independent certified public accountants, and ADK’s quarterly consolidated balance sheet as of December 31, 2012, and the related income statements and statements of cash flows as of such dates, prepared in accordance with GAAP and presenting fairly, accurately and completely the financial position of ADK as of such dates and the results of its operations for such periods;

 

(viii)                         on or before June 30, 2013, each Borrower’s internally prepared balance sheet as of March 31, 2013, and each Borrower’s internally prepared quarterly balance sheet as of March 31, 2013, and the related income statements and statements of cash flows as of such dates, prepared in accordance with GAAP and presenting fairly, accurately and completely the financial position of such Borrower as of such dates and the results of such Borrower’s operations for such periods;

 

(ix)                               on or before June 30, 2013, each of ADK’s consolidated internally prepared balance sheet as of March 31, 2013, and ADK’s internally prepared quarterly balance sheet as of March 31, 2013, and the related income statements and statements of cash flows as of such dates, prepared in accordance with GAAP and presenting fairly, accurately and completely the financial position of ADK as of such dates and the results of such Borrower’s operations for such periods;

 

(x)                                  on or before July 31, 2013, ADK’s Form 10-Q (as filed with the Securities and Exchange Commission);

 

(xi)                               on or before June 30, 2013, ADK’s Form 10-K (as filed with the Securities and Exchange Commission); and

 

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(xii)                            such other data, reports, statements and information (financial or otherwise), as Lender may reasonably request.

 

(b)                                  Notice of Event of Default or Unmatured Event of Default - promptly (but at least within 2 calendar days) upon becoming aware of the existence of any condition or event which constitutes an Event of Default or Unmatured Event of Default under this Agreement, a written notice specifying the nature and period of existence thereof and what action Borrowers are taking (and propose to take) with respect thereto;

 

(c)                                   Notice of Claimed Default - promptly upon receipt by any Borrower, notice of default, oral or written, given to such Borrower by any creditor for borrowed money in excess of $50,000.00; and

 

(d)                                  Subordination Agreement .  Promptly (but at least within 2 days) of any default or breach or any event which, with the giving of notice or lapse of time, or both, would constitute a default or breach, under any Subordination Agreement, or any other subordination or intercreditor agreement relative to any Indebtedness (other than the Loans or other Obligations), a certificate of an Authorized Officer of Borrowers specifying the nature thereof and Borrowers’ proposed response thereto, in reasonable detail.

 

6.08                         Officer’s Certificate .  Along with the set of financial statements delivered to Lender at the end of each fiscal quarter and fiscal year pursuant to Section 6.07(a) hereof, deliver to Lender a certificate (in the form of Exhibit 6.08 hereto and made a part hereof) from the chief financial officer of Borrowers setting forth:

 

(a)                                  Covenant Compliance - the information (including detailed calculations) required in order to establish whether Borrowers are in compliance with the requirements of Section 6.06 as of the end of the period covered by the financial statements then being furnished (and any exhibits appended thereto) under Section 6.07 hereof; and

 

(b)                                  Event of Default - that the signer in his capacity as an officer of Borrowers has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of Borrowers from the beginning of the accounting period covered by the financial statements being delivered therewith to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or Unmatured Event of Default or if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Borrowers have taken or propose to take with respect thereto.

 

6.09                         Inspection .  Borrowers will permit any of Lender’s officers or other representatives to visit and inspect any Borrower’s location(s) or where any Collateral is kept during regular business hours to examine and audit all of such Borrower’s  books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss its affairs, finances and accounts with its officers, employees and independent certified public accountants and attorneys.  Borrowers shall pay to Lender all reasonable fees based on standard rates for such inspections, currently at the rate of $1,000 per day, per person (plus out-of-pocket expenses). All costs, fees and expenses incurred by Lender in connection with such inspections shall constitute Expenses for purposes of this Agreement.

 

6.10                         Tax Returns and Reports .  At Lender’s request from time to time, Borrowers shall promptly furnish Lender with copies of any annual federal and state income tax returns, any other tax returns of Borrowers or any other documents related to Taxes of the Borrowers

 

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6.11                         Material Adverse Developments .  Each Borrower agrees that immediately (but at least within 2 calendar days) upon it or any of its officers becoming aware of any development or other information which would reasonably be expected to have a Material Adverse Effect, it shall give to Lender telephonic, facsimile or scanned image notice specifying the nature of such development or information and such anticipated effect.  In addition, such verbal communication shall be confirmed by written notice thereof to Lender on the next Business Day after such verbal notice is given.

 

6.12                         Places of Business .  Each Borrower shall give thirty (30) days prior written notice to Lender of any changes to (a) its jurisdiction of organization, (b) the location of any of its chief executive office or any other places of business, or the establishment of any new, or the discontinuance of any existing place of business, and (c) its name.

 

6.13                         Notice of Action .  Each Borrower will promptly notify Lender in the event of any legal action, dispute, setoff, counterclaim, defense or reduction that is or may be asserted by an Obligor with respect to any Account that may have a material adverse effect on the collectibility of such Account or all Accounts collectively.

 

6.14                         Verification of Information .  At the request of Lender, Borrowers will promptly provide and verify the accuracy of information concerning Borrowers and their Affiliates of the type provided to Lender in connection with Lender’s decision to enter into this Agreement and such other information concerning Borrowers and their Affiliates as Lender may reasonably request in connection with any offering documents with respect to the contemplated securitization of, and sale of securities backed by, the Eligible Accounts (the “Securities”), including all information necessary to provide full and complete disclosure of all material facts pertaining to an investment in the Securities in compliance with federal and state securities and blue sky laws, and such information may be published in such offering documents and relied upon by Lender and any party arranging the offering of such Securities by Lender or its assignee.  Such information will be true and complete in all material respects and will not omit to state a material fact necessary to make the statements contained in such information, in light of the circumstances under which they were made, not misleading.

 

6.15                         Accounts Receivables Monitoring System .  Borrowers shall permit Lender or its agents to interface its accounts receivables monitoring system to Borrowers’ data files and will assist Lender or its agent in completing and maintaining such interface such that the interface can interpret, track and reconcile the Accounts Detail File provided by Borrowers.

 

6.16                         Commercial Tort Claim .  Borrowers shall provide written notice to Lender of any commercial tort claim to which a Borrower is or becomes a party or which otherwise inures to the benefit of a Borrower. Such notice shall contain a sufficient description of such commercial tort claim including the parties, the court in which the claim was commenced (if applicable), the docket number assigned to the case (if applicable), and a detailed explanation of the events giving rise to such claim.  Borrowers shall grant Lender a security interest in such commercial tort claim to secure payment of the Obligations.  Borrowers shall execute and deliver such instruments, documents and agreements as Lender may require in order to obtain and perfect such security interest including a security agreement or amendment to this Agreement all in form and substance satisfactory to Lender.  Each Borrower authorizes Lender to file (without such Borrower’s signature) financing statements or amendments to existing financing statements as Lender deems necessary to perfect the security interest in such commercial tort claim.

 

6.17                         Compliance with Laws .

 

(a)                                  Borrowers agree to comply with all Applicable Laws, and all orders of any federal, state or local legislative, administrative or judicial body or official, provided that  Borrowers may

 

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contest any acts, rules, regulations, orders and directions of such bodies or officials in any reasonable manner which Lender determines will not materially and adversely affect Lender’s rights or priorities in the Collateral.

 

(b)                                  Without limiting the generality of the foregoing, each Borrower agrees to comply with all Environmental Laws applicable to the ownership (to the extent such Borrower owns any real property) and/or use of such Borrower’s real property and operation of its business, if the failure to so comply could reasonably be expected to have a Material Adverse Effect.  No Borrower shall be deemed to have breached any provision of this Section 6.17(b) if (i) the failure to comply with the requirements of this Section 6.17(b) resulted from good faith error or innocent omission, (ii) such Borrower promptly commences and diligently pursues a cure of such breach and (iii) such failure is cured within thirty (30) days following such Borrower’s receipt of notice from Lender of such failure, or if such breach cannot in good faith be cured within thirty (30) days following such Borrower’s receipt of such notice, then such breach is cured within a reasonable time frame based on the extent and nature of the breach and the necessary remediation, and in conformity with any applicable consent order, consensual agreement and Applicable Law.

 

(c)                                   Borrowers will (i) maintain in full force and effect, and free from restrictions, probations, conditions or known conflicts which would materially impair the use or operation of any Healthcare Facility for its current use, all Permits necessary under Healthcare Laws to continue to receive reimbursement under all Third Party Payor Programs in which any Borrower or any Healthcare Facility participates as of the date of this Agreement, and (ii) provide to Lender upon request, an accurate, complete and current list of all Participation Agreements.  Each Borrower will at all times comply with all requirements, contracts, conditions and stipulations applicable to such Borrower in order to maintain in good standing and without default or limitation all such Participation Agreements.

 

6.18                         Collateral Reporting .  Borrowers agree to furnish to Lender such information as Lender reasonably requires in connection with monitoring the Collateral, at the times and in the manner determined by Lender, including Medicare and Medicaid cost reports and audits.

 

6.19                         Collateral.

 

(a)                                  If any Borrower at any time holds or acquires a commercial tort claim not shown on Schedule 5.23 , such Borrower agrees to promptly notify Lender in writing of the details thereof, and in such writing such Borrower shall grant to Lender, a security interest in such commercial tort claim and in the Proceeds (as defined in the UCC) thereof, all upon the terms of this Agreement.

 

(b)                                  If any Borrower becomes a beneficiary under any letter of credit not shown on Schedule 5.24 hereto, such Borrower agrees to promptly notify Lender, and upon request by Lender, such Borrower agrees to either (i) cause the issuer of such letter of credit to consent to the assignment of the proceeds of such letter of credit to Lender, pursuant to an agreement in form and substance satisfactory to Lender, or (ii) cause the issuer of such letter of credit to name Lender, as the transferee beneficiary of such letter of credit.

 

(c)                                   Each Borrower agrees to maintain such Borrower’s rights in, and the value of, all copyrights, patents, trademarks, other intellectual property and General Intangibles shown on Schedule 5.25 hereof, and to pay when due all payments required to maintain in effect any licensed rights.  Borrowers shall provide Lender with adequate notice of the acquisition of rights with respect to any additional patents, trademarks and copyrights so that Lender may, to the extent permitted under the documentation granting such rights or Applicable Law, perfect Lender’s security interest in such rights in a timely manner.

 

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(d)                                  Borrowers, at their expense, agree to forever warrant and defend the Collateral from any and all claims and demands of any other person, other than holders of Permitted Liens.

 

6.20                         Intellectual Property .  Borrowers shall make all appropriate filings and do all things necessary to maintain their rights under the intellectual property owned and used by the Borrowers, including the filing of registrations and continuations thereof, execution license agreements, etc.  Further, no Borrower shall grant to any person an exclusive license to use any of such Borrower’s intellectual property.  In the event that an action, suit, demand, charge or claim that is made or threatened which challenges the enforceability or validity of any Borrower’s intellectual property, Borrowers shall give Lender immediate notice of such fact, including a detailed description of the issue as well as the Borrowers’ plans to resolve it.

 

6.21                         Right of First Refusal .  Borrowers hereby agree that if, at any time during the term hereof, Borrowers receive from a third party an offer, term sheet or commitment, or Borrowers make a proposal substantially acceptable to or accepted by any Person (all of the foregoing being referred to as an “Offer”), which Offer provides for permanent financing, long-term financing, short-term financing, cash flow financing, working capital financing, accounts receivable financing, financing secured in whole or in part by assets (tangible or intangible) or other personal property of Borrowers secured by the Credit Facility that is intended to or will fully or partially refinance or replace the Credit Facility, Borrowers shall, notwithstanding any confidentiality provisions contained in such Offer, immediately notify Lender of the Offer in writing (including all material terms of the Offer).  Lender shall have thirty (30) Business Days after receipt thereof (the “Option Period”) to agree, in its sole discretion, whether to provide similar financing in the place of such Person upon substantially the same terms and conditions set forth in the Offer and to notify Borrowers in writing of Lender’s acceptance of the Offer (the “Acceptance Notice”).  If Borrowers have not received an Acceptance Notice within the Option Period, Borrowers shall be free to consummate the transaction described in the Offer with the third party providing the Offer (the “Offer Transaction”); provided, however, that the foregoing, and Lender’s failure to respond by issuing an Acceptance Notice, shall not be construed as a waiver of any of the terms, covenants or conditions of the Loan Documents, including the Termination Fee.  In the event that the Offer Transaction is not consummated under similar terms with such Person during the ninety (90) day period following the expiration of the Option Period, or any material term is changed, Borrowers shall not be permitted to consummate the Offer Transaction without again complying with this Section 6.21.  The right of first refusal granted to Lender hereunder shall survive payment in full of all of the Revolving Loans for a period of six (6) months following such payment.  Nothing in this Section 6.21 is intended, or shall be construed, to constitute Lender’s consent to the consummation of any transaction described in any Offer.

 

6.22                         Post-Closing Matters .  Borrowers shall provide to Lender (a) on or before June 28, 2013 (or such later date as may be expressly agreed to by Lender), a deposit account control agreement in form and substance satisfactory to Lender with respect to each Deposit Account of any Borrower maintained with The PrivateBank and Trust Company or any of its Affiliates, and (b) on or before June 7, 2013, (or such later date as may be expressly agreed to by Lender), a lender’s loss payable endorsement in form and substance satisfactory to Lender with respect to Borrowers’ property insurance.

 

ARTICLE 7

 

NEGATIVE COVENANTS

 

Each Borrower covenants that until all of Borrowers’ Obligations to Lender are paid and satisfied in full and the Credit Facility has been terminated:

 

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7.01                         Merger, Consolidation, Dissolution or Liquidation.

 

(a)                                  No Borrower shall sell, lease, license, transfer or otherwise dispose of its Property other than inventory sold to patients/customers in the ordinary course or ordinary operation of such Borrower’s business, without Lender’s prior written consent.

 

(b)                                  No Borrower shall merge or consolidate with, or acquire, any other Person or commence a dissolution or liquidation, other than through a merger with another Borrower, without Lender’s prior written consent.

 

7.02                         Liens and Encumbrances. : No Borrower shall:  (a) execute a negative pledge agreement with any Person covering any of the Collateral, or (b) cause or permit or agree or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the Collateral, whether now owned or hereafter acquired, to be subject to any lien, claim or encumbrance other than (i) those of Lender, (ii) Permitted Liens and (iii) liens securing purchase money indebtedness permitted pursuant to Section 7.12(c) hereof.

 

7.03                         Negative Pledge .  No Borrower shall permit a lien or security interest to exist on its Capital Stock nor shall any such Borrower permit, pledge or grant a lien or security interest to exist on the Capital Stock of its Subsidiaries and/or Affiliates.

 

7.04                         Transactions With Affiliates or Subsidiaries.

 

(a)                                  No Borrower shall enter into any transaction with any Affiliate (other than another Borrower or any other Subsidiary of ADK) including the purchase, sale, lease or exchange of Property, or the loaning, capitalization or giving of funds to any such Affiliate or any Subsidiary, unless (i) (A) such Affiliate is engaged in a business substantially related to the business conducted by such Borrower, (B) the transaction is in the ordinary course of and pursuant to the reasonable requirements of such Borrower’s business and upon terms substantially the same and no less favorable to such Borrower as it would obtain in a comparable arm’s length transactions with any Person not an Affiliate, and (C) such transaction is not prohibited hereunder, or (ii) the transaction involves the payment of Management Fees to Manager or any other Affiliate of ADK in compliance with the terms and conditions of the Subordination Agreement applicable thereto.

 

(b)                                  Except with the prior written consent of Lender, no Borrower shall create or acquire any Subsidiary or own any Capital Stock in any Person.  In the event that Lender permits the foregoing, Lender may, in its sole discretion, require that such Person becomes a Borrower hereunder.

 

(c)                                   No Borrower shall enter into any Management Agreement with an Affiliate that provides for the payment of Management Fees unless such Management Agreement and Management Fees are reasonably acceptable to Lender and the parties to such Management Agreement shall have entered into a Subordination Agreement that is in form and substance acceptable to Lender.

 

7.05                         Guarantees .  No Borrower shall become or be liable, directly or indirectly, primary or secondary, matured or contingent, in any manner, whether as guarantor, surety, accommodation maker, or otherwise, for the existing or future indebtedness of any kind of any other Person, except endorsements in the ordinary course of business of negotiable instruments for deposit or collection.

 

7.06                         Investments .  Without Lender’s prior written consent, no Borrower shall make any Investments, except:

 

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(a)                                  Investments consisting of cash or Cash Equivalents;

 

(b)                                  Investments consisting of Accounts and promissory notes created, acquired or made and trade credit extended in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;

 

(c)                                   Investments consisting of Capital Stock, obligations, securities or other property received in settlement of Accounts from financially troubled obligors in the ordinary course of business;

 

(d)                                  Investments existing as of the Closing Date and set forth on Schedule 7.06 hereto;

 

(e)                                   Guarantees permitted by Section 7.05 hereof;

 

(f)                                    Investments in any other Borrower that is a Borrower prior to giving effect to such Investment or in other Affiliates of ADK made in the ordinary course of business; and

 

(g)                                   Investments permitted under Section 7.04.

 

7.07                         Loans to Other Persons .  No Borrower shall make or be permitted to have outstanding any loans, advances or extensions of credit to any Person.  Borrowers may make intercompany loans to other Borrowers or Affiliates of ADK in the ordinary course of business (collectively, “ Intercompany Loans ”) subject to the following: (i) each Borrower hereby subordinates to the payment in full and performance of the Obligations the payment of all Intercompany Loans owing to such Borrower by any other Borrower or other Affiliate of ADK, howsoever arising, due or owing or whether heretofore, now or hereafter existing, (ii) payments by such Borrower or other Affiliate of ADK on any such Intercompany Loan owing by it to a Borrower may be made in the ordinary course of business but shall only be made directly to Lender for application to the Obligations, including to cash collateralize any Obligations that are contingent in nature, in accordance with the terms of this Agreement, and (iii) such Intercompany Loans shall be documented prior to the disbursement of the loan proceeds with such promissory notes, loan agreements and collateral documents as Lender may require in its sole discretion.

 

7.08                         Change in Ownership/Management .  No Borrower shall permit (a) its current Shareholders to at any time own, legally or beneficially, less than one hundred percent (100%) of the aggregate voting interest of all classes of Capital Stock of such Borrower entitled to vote generally, or (b) a change in the majority of directors of ADK, unless approved by the then majority of directors.  In addition, unless consented to by Lender, or if a replacement acceptable to Lender is employed within ninety (90) days of any terminations, Boyd P. Gentry and at least one other senior officer of ADK acceptable to Lender shall continue as senior management of ADK actively involved in the day-to-day management of ADK and ADK (either directly or through Manager and AdCare Operations, LLC) shall continue as senior management of Borrowers actively involved in the day-to-day management of such Borrowers.

 

7.09                         Subordinated Debt Payments .

 

(a)                                  No Borrower shall make any payment in contravention of the terms and conditions of the Subordination Agreements.

 

(b)                                  No Borrower shall pay any Management Fees in contravention of the terms and conditions of the Subordination Agreement applicable thereto.

 

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7.10                         Distributions .  Borrowers shall not declare or pay or make any forms of Distributions to its Shareholders, Affiliates, officers or directors or their respective successors or assigns, nor may any Borrower declare to pay or make any form of Distribution, if, in either case, an Unmatured Event of Default or Event of Default has occurred at the time thereof or would result therefrom.

 

7.11                         No Change in Business .  No Borrower shall engage in any line of business which has not been disclosed in writing to Lender prior to the date hereof without Lender’s prior written consent.

 

7.12                         Indebtedness .  Without Lender’s prior written consent, Borrower shall not create, incur, assume or suffer to exist any Indebtedness (exclusive of trade debt) except (subject to compliance with Section 6.06 hereof):

 

(a)                                  Indebtedness to Lender,

 

(b)                                  Indebtedness specifically identified on Schedule 7.12 hereto (but excluding any refinancings, refundings, renewals, or extensions thereof);

 

(c)                                   Indebtedness constituting purchase money indebtedness for the financing of capital expenditures so long as such Indebtedness is secured only by a security interest in the equipment being financed and so long as such Indebtedness does not cause, or result in, an Event of Default or Unmatured Event of Default;

 

(d)                                  Indebtedness of Borrower to any other Borrower;

 

(e)                                   Unfunded pension or employment benefit plan obligations not constituting an Event of Default;

 

(f)                                    Indebtedness resulting from judgments not otherwise constituting an Event of Default;

 

(g)                                   Indebtedness arising from the honoring by a bank of checks or similar instruments against insufficient funds;

 

(h)                                  Indebtedness in respect of taxes, assessments, governmental charges or levies or claims of customs authorities and claims for labor, worker’s compensation, materials and supplies;

 

(i)                                      Short-term unsecured trade credit incurred in the ordinary course of business;

 

(j)                                     Credit card debt incurred by or on behalf of Borrowers’ directors, managers, members, officers, employees or agents in connection with their duties on behalf of Borrowers in the ordinary course of business, provided all such credit card debt together shall not exceed in the aggregate Fifty Thousand Dollars ($50,000) at any one time outstanding; and

 

(k)                                  Indebtedness constituting Subordinated Debt.

 

ARTICLE 8

 

DEFAULT

 

8.01                         Events of Default .  Each of the following events shall constitute an event of default (“ Event of Default ”) and Lender shall thereupon have the option to declare the Obligations immediately

 

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due and payable, all without demand, notice, presentment or protest or further action of any kind (it also being understood that the occurrence of any of the events or conditions set forth in Sections 8.01(i), (j), (k), (l) or (q) shall automatically cause an acceleration of the Obligations without notice or demand):

 

(a)                                  Payments .  If Borrowers fail to make any payment of principal, interest, or any other charges, fees, Expenses or other monetary obligations owing to Lender, arising out of or incurred in connection with this Agreement on the date when such payment is due and payable and such failure continues for a period of one (1) Business Day; provided , however , that the one (1) Business Day grace period shall not be applicable if such payments are due and payable due to maturity, acceleration or demand, whether following an Event of Default or otherwise;

 

(b)                                  Particular Covenant Defaults .  (i) if any Borrower fails to perform, comply with or observe any covenant or undertaking contained in Section 6.06 of this Agreement, or (ii) if any Borrower fails to perform, comply with or observe any covenant or undertaking contained in this Agreement not otherwise described in this Section 8.01, and such failure continues for a period of five (5) Business Days after the earlier of a Borrower becoming aware of such failure or a Borrower receiving written notice of such failure;

 

(c)                                   Financial Information .  If any statement, report, financial statement, or certificate made or delivered by a Borrower or any of their officers, employees or agents, to Lender is not true and correct, in all material respects, when made;

 

(d)                                  Uninsured Loss .  If there shall occur any uninsured damage to or loss, theft, or destruction in excess of $50,000.00 with respect to any portion of any Borrower’s Property;

 

(e)                                   Warranties or Representations .  If any warranty, representation or other statement by or on behalf of Borrowers, or any of them, contained in or pursuant to this Agreement, any Loan Document, or in any document, agreement or instrument furnished in compliance with, relating to, or in reference to this Agreement, is false, erroneous, or misleading in any material respect when made;

 

(f)                                    Agreements with Others .  If Borrowers, or any of them, shall default beyond any grace period under any agreement with respect to any Indebtedness or Subordinated Debt and (i) such default consists of the failure to pay any principal, premium or interest with respect to such Indebtedness or (ii) such default consists of the failure to perform any covenant or agreement with respect to such Indebtedness, if the effect of such default is to cause or permit such Indebtedness to become due prior to its maturity date or prior to its regularly scheduled date of payment;

 

(g)                                   Other Agreements with Lender .

 

(i)                                      The occurrence of any default or event of default (after giving effect to any applicable grace cure period) under any of the other Loan Documents;

 

(ii)                                   any of the other Loan Documents ceases to be valid, binding and enforceable in accordance with its terms; and

 

(iii)                                Borrowers, or any of them, breach or violate the terms of, or if a default or an event of default, occurs under, any other existing or future agreement (related or unrelated) between or among Borrowers, or any of them and Lender, including any lease agreements or finance agreements with any affiliate of Lender;

 

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(h)                                  Judgments .  If any final judgment for the payment of money in excess of $50,000.00 shall be rendered against Borrowers, or any of them, which is not fully and unconditionally covered by insurance (such coverage to be acknowledged in writing by a financially sound and reputable insurance company) or an appeal bond, or for which such Person has not established a cash or cash equivalent reserve in the amount of such judgment each in the form, substance and amount satisfactory to Lender in its sole discretion;

 

(i)                                      Assignment for Benefit of Creditors, etc .  If Borrowers, or any of them, calls a meeting of the creditors of any Borrower for the purpose of compromising such Borrower’s debts or obligations, or makes or proposes an assignment for the benefit of creditors generally, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter owned or conducted by any Borrower which might materially and adversely affect such Person;

 

(j)                                     Bankruptcy, Dissolution, etc .  Upon the commencement of any action for the bankruptcy, insolvency, receivership, assignment for the benefit of creditors, dissolution or liquidation, or similar proceeding under any federal or state law, of Borrowers, or any of them, or the commencement of any proceeding to avoid any transaction entered into by Borrowers, or any of them, or the commencement of any case or proceeding for reorganization or liquidation of Borrowers’, or any of their debts under the United States Bankruptcy Code or any other state or federal law now or hereafter enacted for the relief of debtors, whether instituted by or against any Borrower; provided , however , that Borrowers shall have ten (10) days to contest such proceeding and thirty (30) days from the commencement of the action to obtain the dismissal or discharge of involuntary proceedings filed against a Borrower, it being understood that during such ten (10) and thirty (30) day periods, respectively, Lender shall be not obligated to make Advances hereunder and Lender may seek adequate protection, stay relief, right to setoff or recoupment, and/or any other right or remedy deemed necessary in the sole discretion of Lender in any bankruptcy proceeding;

 

(k)                                  Receiver . Upon the appointment of a receiver, liquidator, custodian, trustee or similar official or fiduciary for Borrowers, or any of them, or for any of any such Borrower’s Property;

 

(l)                                      Execution Process, Seizure, etc .  The issuance of any execution or distraint process against any Borrower, or any of them, or any Property of any such Borrower is seized by any governmental entity, federal, state or local;

 

(m)                              Termination of Business .  If Borrowers, or any of them, cease any material portion of their business operations as presently conducted or any Borrower fails to generally meet its debts as those debts mature;

 

(n)                                  Plans, etc .  Any Borrower or ERISA Affiliate shall (i) engage in any “prohibited transaction” as defined in ERISA, (ii) incur any “accumulated funding deficiency” as defined in ERISA, (iii) incur any “reportable event” as defined in ERISA, (iv) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan, (v) become subject to the assertion of a material claim (other than routine claims for benefits) against any “plan” (as defined in ERISA) or against any Borrower or ERISA Affiliate in connection with any such plan, (vi) receive from the Internal Revenue Service notice of the failure of any “plan” (as defined in ERISA) intended to be qualified under Section 401(a) of the Code to qualify under such section or (vii) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or ERISA Affiliate, and with respect to this Section 8.01(n), such event or condition either (i) remains uncured for a period of thirty (30) days from date of occurrence or (ii) could, in Lender’s reasonable

 

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business judgment, subject any Borrower to any tax, penalty or other liability having a Material Adverse Effect;

 

(o)                                  Investigations .  Any indication or evidence received by Lender that reasonably leads it to believe Borrowers, or any of them, may have directly or indirectly been engaged in any type of activity which would be reasonably likely to result in the forfeiture of any Property of Borrowers, or any of them, to any governmental entity, federal, state or local;

 

(p)                                  Material Adverse Events .

 

(i)                                      Lender reasonably determines that an event which adversely affects the collectibility of a material portion of the Accounts has occurred; and

 

(ii)                                   a Material Adverse Effect has occurred;

 

(q)                                  Lockbox Instructions .  Any instruction or agreement regarding the Commercial Lockbox or the Government Lockbox or the bank accounts related thereto, including the Depository Agreements and any standing transfer instructions, is amended or terminated without the written consent of Lender, or if any Borrower fails, within one (1) Business Day of receipt, to forward Collections it receives with respect to any Accounts to the Commercial Lockbox or the Government Lockbox, as the case may be;

 

(r)                                     Modification of Subordinated Debt .  Borrowers (or any of them) shall modify the terms or provisions of any agreement, instrument or other document relating to any Subordinated Debt without Lender’s prior written consent, unless such modification is permitted by the applicable Subordination Agreement;

 

(s)                                    Change in Ownership/Management .  Any Borrower fails to perform, comply with or observe the covenants and undertakings contained in Section 7.08 hereof;

 

(t)                                     Restraint on Business .  Any Borrower shall be prohibited or otherwise restrained from conducting the business theretofore conducted by it at any of the Healthcare Facilities in any manner that has or could reasonably be expected to have or result in a Material Adverse Effect by virtue of any determination, ruling, decision, decree, ordinance, or order of any court of competent jurisdiction, Governmental Authority, or municipality;

 

(u)                                  Repudiation or Revocation .  Any Guarantor repudiates, revokes or attempts to revoke its Guaranty; a Loan Party or third party denies or contests the validity or enforceability of any Loan Documents or Obligations, or the perfection of any security interest granted to Lender; or any Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Lender);

 

(v)                                  Revocation of Permits .  A Governmental Authority shall have revoked any material Permit, including any license, permit, certificate or Medicaid or Medicare qualification pertaining to any Healthcare Facility, regardless of whether such material Permit was held by or originally issued for the benefit of any Borrower;

 

(w)                                CHOW .  The CHOW with respect to each Healthcare Facility of Borrowers shall not have been unconditionally and in writing approved by each of the appropriate Governmental Authorities, intermediaries or other designated agents with respect to each such Borrower and each such Healthcare Facility on or before July 31, 2013;

 

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(x)                                  Transition Services Agreement .  the Transition Services Agreement is terminated prior to completion of the transition of operations with respect to the Healthcare Facilities and unconditional written approval of the CHOW; or

 

(y)                                  Affiliated Credit Agreements .  There occurs an Event of Default under (and as defined in) either Affiliated Credit Agreement.

 

8.02                         Cure .  Nothing contained in this Agreement or the Loan Documents shall be deemed to compel Lender to accept a cure of any Event of Default hereunder.

 

8.03                         Rights and Remedies on Default.

 

(a)                                  In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents, or otherwise available at law or in equity, upon or at any time after the occurrence of an Event of Default or Unmatured Event of Default, Lender may, in its discretion, charge the Default Rate on all then outstanding or thereafter incurred Obligations and/or withhold or cease making Advances under the Credit Facility, unless such Event of Default or Unmatured Event of Default is cured to Lender’s satisfaction or waived in accordance herewith.

 

(b)                                  In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), Lender may, in its   discretion, upon or at any time after the occurrence of an Event of Default, terminate the Credit Facility (it also being understood that the occurrence of any of the events or conditions set forth in Sections 8.01(i), (j), (k) or (q) hereof shall automatically cause a termination of the Credit Facility without notice or demand).

 

(c)                                   The Lender will be entitled to take any and all actions to enforce its claims against  Borrowers to recover the balance of the Indebtedness then due, including being entitled to pursue all remedies provided for by law, equity, or otherwise, and to exercise the warrants of attorney to confess judgment against Borrowers, or any of them, contained in this Agreement or the other Loan Documents;

 

(d)                                  The Lender will be entitled to take any and all actions permitted by this Agreement, the other Loan Documents, and/or by law, equity or otherwise;

 

(e)                                   In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), Lender may, upon or at any time after the occurrence of an Event of Default, exercise all rights under the UCC and any other applicable law or in equity, by contract or otherwise, and under all Loan Documents permitted to be exercised after the occurrence of an Event of Default, including the following rights and remedies (which list is given by way of example and is not intended to be an exhaustive list of all such rights and remedies):

 

(i)                                      Subject to all applicable laws and regulations governing payment of Medicare and Medicaid receivables, the right to “take possession” of or foreclose on the Collateral (including removing from any premises where same may be located any and all books and records, computers, electronic media and software programs associated with any Collateral (including electronic records, contracts and signatures pertaining thereto), documents, instruments and files, and any receptacles or cabinets containing same, relating to the Accounts) by any available judicial procedure, or without judicial process, and to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same, and notify all Obligors of Lender’s security interest in the Collateral and require payment under the Accounts to be made directly to Lender and Lender may, in its

 

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own name or in the name of the applicable Borrower, exercise all rights of a secured party with respect to the Collateral and collect, sue for and receive payment on all Accounts, and settle, compromise and adjust the same on any terms as may be satisfactory to Lender, in its sole and absolute discretion for any reason or without reason and Lender may do all of the foregoing with or without judicial process (including notifying the United States postal authorities to redirect mail addressed to Borrowers, or any of them, to an address designated by Lender) and may use, at Borrowers’ expense, such of the Borrowers’ personnel, supplies or space as may be necessary to manage such Accounts;

 

(ii)                                   Require Borrowers, at Borrowers’ expense, to assemble all or any part of the Collateral and make it available to Lender at any place designated by Lender, which may include providing Lender or any entity designated by Lender with access (either remote or direct) to Borrowers’ information system for purposes of monitoring, posting payments and rebilling Accounts to the extent deemed desirable by Lender in its sole discretion;

 

(iii)                                The right to reduce or modify the Revolving Loan Commitment, Borrowing Base or any portion thereof or the Advance Rates or to modify the terms and conditions upon which Lender may be willing to consider making Advances under the Credit Facility or to take additional reserves in the Borrowing Base for any reason; or

 

(iv)                               The right to sell, assign and deliver all or any part of the Collateral and any returned, reclaimed or repossessed merchandise, in the name of the Borrowers (or any of them) or Lender, or in the name of such other party as Lender may designate, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at Lender’s sole  discretion, with or without warranties or representations (including warranties of title, possession, quiet enjoyment and the like), and upon such other terms and conditions as Lender in its sole discretion may deem advisable, and Lender may bid or become a purchaser at any such sale, free from any right of redemption, which right is hereby expressly waived by the Borrowers.

 

(f)                                    Borrowers hereby agree that a notice received by them at least ten (10) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition.  If permitted by applicable law, any Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrowers.  Each Borrower covenants and agrees not to interfere with or impose any obstacle to Lender’s exercise of its rights and remedies with respect to the Collateral.

 

(g)                                   Lender is hereby granted, until the Obligations are paid in full and all obligations of Lender hereunder are terminated, a worldwide license to use, after the occurrence and during the continuance of an Event of Default and without charge, all of Borrowers’ labels, trademarks (and associated goodwill), copyrights, patents and advertising matter, and any other form of intellectual property, as they pertain to the Collateral, in completing production of, advertising for sale and selling of any Collateral.

 

8.04                         WARRANT OF ATTORNEY TO CONFESS JUDGMENT .

 

(a)                                  Acknowledgment of Warrant of Attorney .  THE FOLLOWING PARAGRAPH SETS FORTH A GRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST BORROWERS.  IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST BORROWERS, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR THE BORROWERS AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, BORROWERS HEREBY KNOWINGLY, INTENTIONALLY,

 

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VOLUNTARILY, INTELLIGENTLY AND UNCONDITIONALLY WAIVE ANY AND ALL RIGHTS ANY OF THEM HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE INCLUDING, WITHOUT LIMITATION, A HEARING PRIOR TO GARNISHMENT AND ATTACHMENT OF BORROWERS’ BANK ACCOUNTS AND OTHER ASSETS.  BORROWERS ACKNOWLEDGE AND UNDERSTAND THAT BY ENTERING INTO THIS AGREEMENT CONTAINING A CONFESSION OF JUDGMENT CLAUSE THAT BORROWERS ARE EACH VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY GIVING UP ANY AND ALL RIGHTS, INCLUDING CONSTITUTIONAL RIGHTS, THAT ANY BORROWER HAS OR MAY HAVE TO NOTICE AND A HEARING BEFORE JUDGMENT CAN BE ENTERED AGAINST ANY BORROWER AND BEFORE BORROWERS’ ASSETS, INCLUDING, WITHOUT LIMITATION, THEIR BANK ACCOUNTS, MAY BE GARNISHED, LEVIED, EXECUTED UPON AND/OR ATTACHED.  BORROWERS UNDERSTAND THAT ANY SUCH GARNISHMENT, LEVY, EXECUTION AND/OR ATTACHMENT SHALL RENDER THE PROPERTY GARNISHED, LEVIED, EXECUTED UPON OR ATTACHED IMMEDIATELY UNAVAILABLE TO BORROWERS.  IT IS SPECIFICALLY ACKNOWLEDGED BY BORROWERS THAT THE LENDER HAS RELIED ON THIS WARRANT OF ATTORNEY AND THE RIGHTS WAIVED BY BORROWERS HEREIN IN CONSENTING TO THIS AGREEMENT AND AS AN INDUCEMENT TO GRANT THE ACCOMMODATIONS OUTLINED HEREIN TO BORROWERS.

 

(b)                                  WARRANT OF ATTORNEY TO CONFESS JUDGMENT - Money .  BORROWERS, AND EACH OF THEM, HEREBY AUTHORIZE AND EMPOWER, UPON AN EVENT OF DEFAULT HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, ANY ATTORNEY OF ANY COURT OF RECORD OR THE PROTHONOTARY OR CLERK OF ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA, OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, OR THE CLERK OF ANY UNITED STATES DISTRICT COURT, TO APPEAR FOR BORROWERS IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, AND ENTER AND CONFESS JUDGMENT AGAINST BORROWERS, JOINTLY AND SEVERALLY, IN FAVOR OF LENDER OR ITS ASSIGNEE FOR THE ENTIRE AMOUNT OF THE INDEBTEDNESS THEN DUE AND OUTSTANDING UNDER THE TERMS OF THIS AGREEMENT, AND/OR UNDER THE TERMS OF THE OTHER LOAN DOCUMENTS, TOGETHER WITH ATTORNEYS’ FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE FOREGOING SUMS THEN DUE AND OWING, BUT IN NO EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS, ALL WITH OR WITHOUT DECLARATION, WITHOUT PRIOR NOTICE, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL PROCEDURAL ERRORS AND THE RIGHT TO ISSUE EXECUTIONS FORTHWITH.  TO THE EXTENT PERMITTED BY LAW, EACH OF BORROWERS WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTION THIS VOLUNTARY CONDEMNATION AND AGREES THAT SUCH REAL ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; AND ALSO WAIVES ANY RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED.  IF COPIES OF THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS VERIFIED BY AFFIDAVIT OF ANY REPRESENTATIVE OF LENDER SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINALS THEREOF AS A WARRANT OF ATTORNEY, ANY PRACTICE OR USAGE TO THE CONTRARY NOTWITHSTANDING.  THE AUTHORITY HEREIN GRANTED TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY SINGLE EXERCISE THEREOF, BUT SHALL CONTINUE AND MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE

 

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LENDER SHALL FIND IT NECESSARY AND DESIRABLE AND AT ALL TIMES UNTIL FULL PAYMENT OF ALL AMOUNTS DUE HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS.  THE LENDER MAY CONFESS ONE OR MORE JUDGMENTS IN THE SAME OR DIFFERENT JURISDICTIONS FOR ALL OR ANY PART OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, WITHOUT REGARD TO WHETHER JUDGMENT HAS THERETOFORE BEEN CONFESSED ON MORE THAN ONE OCCASION FOR THE SAME INDEBTEDNESS OR OBLIGATIONS.  IN THE EVENT THAT ANY JUDGMENT CONFESSED AGAINST BORROWERS IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BEHALF OF ANY OF BORROWERS FOR ANY REASON, LENDER IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR FOR AND CONFESS JUDGMENT AGAINST BORROWERS FOR ANY PART OR ALL OF THE INDEBTEDNESS DUE AND OWING TO LENDER HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS.

 

(c)                                   WARRANT OF ATTORNEY TO CONFESS JUDGMENT — General Provisions .  IN ANY ACTION OR PROCEEDING DESCRIBED IN SECTION 8.04 HEREIN OR IN CONNECTION THEREWITH, IF COPIES OF THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS ARE THEREIN VERIFIED BY THE LENDER OR SOMEONE ACTING FOR THE LENDER TO BE TRUE AND CORRECT COPIES OF THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS (AND SUCH COPIES SHALL BE CONCLUSIVELY PRESUMED TO BE TRUE AND CORRECT BY VIRTUE OF SUCH VERIFICATION), THEN IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL OF THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS, ANY STATUTE, RULE OF COURT OF LAW, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.  BORROWERS HEREBY RELEASE TO THE LENDER, ANYONE ACTING FOR THE LENDER AND ALL ATTORNEYS WHO MAY APPEAR FOR BORROWERS, ALL ERRORS IN PROCEDURE REGARDING THE ENTRY OF JUDGMENT OR JUDGMENTS BY CONFESSION OR OTHERWISE BY VIRTUE OF THE WARRANTS OF ATTORNEY CONTAINED IN THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS, AND ALL LIABILITY THEREFOR.  THE RIGHT TO ENTER JUDGMENT OR JUDGMENTS BY CONFESSION OR OTHERWISE BY VIRTUE OF THE WARRANTS OF ATTORNEY CONTAINED IN THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS, AND TO ENFORCE ALL OF THE OTHER PROVISIONS OF THE AFORESAID DOCUMENTS MAY BE EXERCISED BY ANY ASSIGNEE OF THE LENDER’S RIGHT, TITLE AND INTEREST IN THIS AGREEMENT AND/OR THE OTHER LOAN DOCUMENTS IN SUCH ASSIGNEE’S OWN NAME, ANY STATUTE, RULE OF COURT OR LAW, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.

 

8.05                         Special Provisions Regarding Certain SEC Filing Matters .  Lender acknowledges that (a) ADK failed to timely file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”) and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (“Form 10-Q”); (b) ADK’s previously issued financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 (the “Relevant Financial Statements”) should no longer be relied upon due to certain errors therein; (c) ADK is in the process of restating the Relevant Financial Statements and will amend its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012; (d) ADK’s Audit Committee of the Board of Directors (the “Audit Committee”) initiated a further review of, and inquiry with respect to, the accounting and financial issues related to these and other potential errors in ADK’s financial statements and engaged counsel to assist the Audit Committee with such matters; (e) in connection with such review and inquiry, the Audit Committee identified certain material weaknesses in ADK’s internal control over financial reporting; (f) ADK is not in compliance with the continued listing standards of the NYSE MKT LLC (the “Exchange”) and, therefore, the Exchange is authorized to suspend, and unless

 

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prompt corrective action is taken, remove ADK’s securities from the Exchange; and (g) subject to the Exchange’s acceptance of a compliance plan submitted by ADK to the Exchange on May 1, 2013, and subject to ADK making  progress consistent with its compliance plan by July 16, 2013, ADK will have until July 16, 2013, with respect to the filing of the Form 10-K, and until August 15, 2013, with respect to the filing of the Form 10-Q, to regain compliance with the Exchange’s continued listing standards (the events described in clauses (a) through (g), collectively, the “Events”). Notwithstanding whether the existence of the Events would otherwise constitute an Event of Default or Unmatured Event of Default under Section 8.01, unless ADK fails to file Form 10-K by July 16, 2013 no Event of Default or Unmatured Event of Default shall exist solely due to the existence of the Events until the earlier of (i) August 15, 2013, and (ii) the date on which ADK files Form 10-Q.

 

8.06                         Nature of Remedies .  All rights and remedies granted Lender hereunder and under the Loan Documents, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until all Obligations are satisfied in full.  The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon or at any time after the occurrence of an Event of Default, may proceed against Borrowers, or any of them, at any time, under any agreement, with any available remedy and in any order.

 

8.07                         Set-Off .  Upon the occurrence of an Event of Default, Lender and/or any Affiliate of Lender and/or participant with Lender shall have and be deemed to have, without notice to Borrowers, the immediate right of set-off and may apply the funds or other amounts or Property thus set off against any of Borrowers’ Obligations hereunder.

 

8.08                         Application of Proceeds .  The net cash proceeds resulting from Lender’s exercise of any of Lenders rights pursuant to this Article 8 (after deducting all Expenses relating thereto) shall be applied by Lender to the payment of the Obligations as set forth in Section 2.08(b) hereof, and the Borrowers shall remain liable to Lender for any deficiencies, and Lender in turn agrees to remit to the Borrowers or their successors or assigns, any surplus resulting therefrom.

 

ARTICLE 9

 

MISCELLANEOUS

 

9.01                         EFFECTIVENESS; GOVERNING LAW .  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE EFFECTIVE UPON ACCEPTANCE BY LENDER IN PHILADELPHIA, PENNSYLVANIA (NOTICE OF WHICH ACCEPTANCE IS WAIVED BY EACH BORROWER) WHEREUPON THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS, AND SHALL BE CONSTRUED WITHOUT THE AID OF ANY CANON, CUSTOM OR RULE OF LAW REQUIRING CONSTRUCTION AGAINST THE DRAFTSMAN.

 

9.02                         Integrated Agreement .  The Revolving Note, the other Loan Documents, all related agreements, and this Agreement shall be construed as integrated and complementary of each other, and as augmenting and not restricting Lender’s rights and remedies.  If, after applying the foregoing, an inconsistency still exists, the provisions of this Agreement shall constitute an amendment thereto and shall control.

 

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9.03                         Waiver and Indemnity.

 

(a)                                  No omission or delay by Lender in exercising any right or power under this Agreement or any related agreements and documents will impair such right or power or be construed to be a waiver of any default, or Event of Default or an acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise thereof or the exercise of any other right, and as to any Borrower no waiver will be valid unless in writing and signed by Lender and then only to the extent specified.

 

(b)                                  Each Borrower releases and shall indemnify, defend and hold harmless Lender, and its respective officers, directors, employees, attorneys and agents (each, an “ Indemnified Party ”), of and from any claims, demands, liabilities, obligations, judgments, injuries, losses, damages and costs and expenses (including Expenses and reasonable legal fees) of any kind or nature, which at any time may be imposed on, incurred by, or asserted against any Indemnified Party, resulting from (i) acts or conduct of a Borrower under, pursuant or related to this Agreement and the other Loan Documents; (ii) as a result of Lender’s exercise of (or failure to exercise) any of Lender’s rights and remedies hereunder or under the other Loan Documents, including (A) any sale or transfer of the Collateral, (B) the preservation, repair, maintenance, preparation for sale or securing of any Collateral, and (C) the defense of Lender’s interests in the Collateral (including the defense of claims brought by the Borrowers (or any of them) as a debtor-in-possession or otherwise, any secured or unsecured creditors of the Borrowers (or any of them), or any trustee or receiver in bankruptcy), and (D) rights, remedies or obligations under the Business Associate Agreement; (iii) as a result of any environmental pollution, hazardous material or environmental clean-up and the Borrowers’ off-site disposal practices; (iv) in connection with any regulatory investigation or proceeding by any regulatory authority or agency having jurisdiction over the Borrowers (or any of them); (v) otherwise relating to or arising out of the transactions contemplated by this Agreement and the other Loan Documents, or any action taken (or failure to act) by any Indemnified Party with respect thereto; (vi) any Borrower’s breach, or alleged breach, or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents, and (vii) any Borrower’s failure, or alleged failure, to comply with any or all laws, statutes, ordinances, governmental rules, regulations or standards, whether federal, state or local, or court or administrative orders or decrees (including environmental laws, etc.), and all costs, expenses, fines, penalties or other damages resulting therefrom, unless resulting from acts or conduct of Lender constituting willful misconduct or gross negligence, as finally determined by a court of competent jurisdiction.  This indemnification shall survive the termination of this Agreement and the payment in full and satisfaction of the Obligations.

 

(c)                                   Lender shall not be liable for, and Borrowers hereby agree that Lender’s liability in the event of a breach by Lender of this Agreement or any other Loan Document shall be limited to Borrowers’ direct damages suffered and shall not extend to, any consequential or incidental damages.  In the event Borrowers bring suit against Lender in connection with the transactions contemplated hereunder, and Lender is found not to be liable, Borrowers shall indemnify and hold Lender harmless from all costs and expenses, including attorneys’ fees, incurred by Lender in connection with such suit.

 

9.04                         Time .  Whenever Borrowers, or any of them, shall be required to make any payment, or perform any act, on a day which is not a Business Day, such payment may be made, or such act may be performed, on the next succeeding Business Day.  Time is of the essence in Borrowers’  performance under all provisions of this Agreement and all related agreements and documents.

 

9.05                         Expenses of Lender.

 

(a)                                  At Closing and from time to time thereafter, Borrowers will pay all reasonable expenses of Lender on demand (including search costs, audit fees, appraisal fees, and the fees and

 

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expenses of legal counsel for Lender) relating to this Agreement, and all related agreements and documents, including expenses incurred in the analysis, negotiation, preparation, closing, administration and enforcement of this Agreement and the other Loan Documents, the enforcement, protection and defense of the rights of Lender in and to the Loans and Collateral or otherwise hereunder, and any reasonable expenses relating to extensions, amendments, waivers or consents pursuant to the provisions hereof, or any related agreements and documents or relating to agreements with other creditors, or termination of this Agreement (collectively, the “ Expenses ”).  Any Expenses not paid upon demand by Lender shall bear interest at the highest per annum rate of interest applicable to the Loans.

 

(b)                                  In addition, at any time following the date of this Agreement, Borrowers effect any changes which results in a change in the format or sequence of Borrowers’ data, Borrowers shall pay to Lender its reasonable charge for implementing such changes as are necessary to accommodate the changes in the format or sequence of the data such that Lender’s accounts receivable monitoring system is capable of importing such data, including an hourly fee of $125.00.

 

9.06                         Confidentiality .  Except as provided in Section 9.19 hereof or to the extent required by Applicable Law, Borrowers and Lender agree to maintain the confidentiality of this Agreement and not to disclose the contents hereof or provide a copy hereof to any third party, except (i) accountants, lawyers and financial advisers of the parties who are informed of and agree to be bound by this Section 9.06, and (ii) that copies hereof may be provided to any assignee or participant (or potential assignee or participant) of Lender’s interests herein, any investors or prospective investors who acquire or may acquire Securities backed by Accounts and any parties which facilitate the issuance of such Securities, including rating agencies, guarantors and insurers.  Lender agrees to maintain the confidentiality of patient information obtained as a result of its interests in, or duties with respect to, the Accounts and as otherwise may be required pursuant to the Business Associate Agreement.

 

9.07                         Notices.

 

(a)                                  Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed given if delivered in person or if sent by telecopy or by nationally recognized overnight courier, or via first class, certified or registered mail, postage prepaid, to the address of such party set forth on the signature pages hereof, unless such address is changed by written notice hereunder;

 

(b)                                  Any notice sent by Lender or Borrowers, or any of them, by any of the above methods shall be deemed to be given when so received; and

 

(c)                                   Lender shall be fully entitled to rely upon any facsimile transmission or other writing purported to be sent by any Authorized Officer (whether requesting an Advance or otherwise) as being genuine and authorized.

 

9.08                         Brokerage .  Borrowers represent that Borrowers have not committed Lender to the payment of any brokerage fee, commission or charge in connection with this transaction.  If any such claim is made on Lender by any broker, finder or agent or other Person, each Borrower hereby indemnifies, defends and saves Lender harmless against such claim and further will defend, with counsel satisfactory to Lender, any action or actions to recover on such claim, at Borrowers’ own cost and expense, including Lender’s reasonable counsel fees.  Each Borrower further agrees that until any such claim or demand is adjudicated in Lender’s favor, the amount demanded shall be deemed an Obligation of Borrowers under this Agreement.

 

9.09                         Headings .  The headings of any paragraph or section of this Agreement are for convenience only and shall not be used to interpret any provision of this Agreement.

 

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9.10                         Survival .  All warranties, representations, and covenants made by any or all Borrowers and/herein, or in any agreement referred to herein or on any certificate, document or other instrument delivered by it or on its behalf under this Agreement, shall be considered to have been relied upon by Lender, and shall survive the delivery to Lender of the Revolving Note, regardless of any investigation made by Lender or on its behalf.  All statements in any such certificate or other instrument prepared and/or delivered for the benefit of Lender shall constitute warranties and representations by Borrowers hereunder.  Except as otherwise expressly provided herein, all covenants made by any or all Borrowers hereunder or under any other agreement or instrument shall be deemed continuing until all Obligations are satisfied in full.

 

9.11                         Successors and Assigns .  This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties.  No Borrower may transfer, assign or delegate any of its duties or obligations hereunder.

 

9.12                         Duplicate Originals .  Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument.  This Agreement may be executed in counterparts and by PDF or facsimile signature, all of which counterparts taken together shall constitute one completed fully executed document.

 

9.13                         Modification .  No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed by Borrowers and Lender.

 

9.14                         Signatories .  Each individual signatory hereto represents and warrants that he is duly authorized to execute this Agreement on behalf of his principal and that he executes the Agreement in such capacity and not as a party.

 

9.15                         Third Parties .  No rights are intended to be created hereunder, or under any related agreements or documents for the benefit of any third party donee, creditor or incidental beneficiary of any Borrower.  Nothing contained in this Agreement shall be construed as a delegation to Lender of any Borrower’s duty of performance, including such Borrower’s duties under any account or contract with any other Person.

 

9.16                         Waivers.

 

(a)                                  Borrowers hereby waive diligence, demand, presentment, protest and any notices thereof as well as notices of nonpayment, intent to accelerate and acceleration. Borrowers each hereby irrevocably, unconditionally and fully subordinate in favor of Lender, any and all rights they or any of them, may have at any time (whether arising directly or indirectly, by operation of law or contract) to assert or receive payment on any claim against each other or any of them, on account of payments made under this Agreement, including any and all rights of subrogation, reimbursement, exoneration, contribution or indemnity.  Each Borrower waives any event or circumstances which might constitute a legal or equitable defense of, or discharge of, such Borrower.  Furthermore, each Borrower agrees that if any payment on the Obligations is recovered from or repaid by Lender in whole or in part in any bankruptcy, insolvency or similar proceeding instituted by or against any Borrower, the remaining Borrowers and/shall be obligated to the same extent as if the recovered or repaid payment had never been originally made on such Obligation.  Each Borrower consents and agrees that Lender shall be under no obligation to marshal any assets or Collateral in favor of such Borrower or against or in payment of any or all of the Obligations.

 

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(b)                                  Each Borrower hereby consents and agrees that Lender, at any time or from time to time in its discretion may:  (i) settle, compromise or grant releases for liabilities of other Borrowers, and/or any other Person or Persons liable for any Obligations, (ii) exchange, release, surrender, sell, subordinate or compromise any Collateral of any party now or hereafter securing any of the Obligations, and (iii) following an Event of Default, apply any and all payments received at any time against the Obligations in any order as Lender may determine; all of the foregoing in such manner and upon such terms as Lender may see fit, without notice to or further consent from such Borrower who hereby agrees and shall remain bound upon this Agreement notwithstanding any such action on Lender’s part.

 

(c)                                   The liability of each Borrower hereunder is absolute and unconditional and shall not be reduced, impaired or affected in any way by reason of (i) any failure to obtain, retain or preserve, or the lack of prior enforcement of, any rights against any Person or Persons (including other Borrowers), or in any Property, (ii) the invalidity or unenforceability of any Obligations or rights in any Collateral, (iii) any delay in making demand upon other Borrowers or any delay in enforcing, or any failure to enforce, any rights against other Borrowers or in any Collateral even if such rights are thereby lost, (iv) any failure, neglect or omission to obtain, perfect or retain any lien upon, protect, exercise rights against, or realize on, any Property of any Borrower, or any other party securing the Obligations, (v) the existence or nonexistence of any defenses which may be available to the other Borrowers with respect to the Obligations, or (vi) the commencement of any bankruptcy, reorganization, liquidation, dissolution or receivership proceeding or case filed by or against any Borrower.

 

9.17                         CONSENT TO JURISDICTION .  EACH BORROWER AND LENDER HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE JURISDICTION OF, AND VENUE IN, ANY STATE OR FEDERAL COURT LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING.  BORROWERS WAIVE ANY OBJECTION TO IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT OR COURTS AND ALL RIGHTS TO TRANSFER FOR ANY REASON.  EACH BORROWER IRREVOCABLY AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE APPROPRIATE PARTY SET FORTH HEREIN.

 

9.18                         WAIVER OF JURY TRIAL .  EACH BORROWER AND LENDER HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS, WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE.

 

9.19                         Publication .  Borrowers grant Lender the right to publish and/or advertise information to the effect that this transaction has closed, which information may include, without limit, (a) the names of Borrowers and Lender, (b) the size of the transaction and (c) those items of information commonly included within a “tombstone advertisement” of the type customarily published in financial or business periodicals.

 

9.20                         Discharge of Taxes, Borrowers’ Obligations, Etc .  Lender, in its sole discretion, shall have the right at any time, and from time to time, with prior notice to Borrowers, if Borrowers fail to do so five (5) Business Days after requested in writing to do so by Lender, to: (a) pay for the performance of any of Borrowers’ Obligations hereunder, and (b) discharge taxes or liens, at any time levied or placed on any of Borrowers’ Property in violation of this Agreement unless Borrowers are in good faith with due diligence by appropriate proceedings contesting such taxes or liens and have established appropriate reserves therefor under GAAP.  Expenses and advances shall be deemed Advances hereunder and shall

 

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bear interest at the highest rate applied to the Loans until reimbursed to Lender.  Such payments and advances made by Lender shall not be construed as a waiver by Lender of any Event of Default under this Agreement.

 

9.21                         Injunctive Relief .  The parties acknowledge and agree that, in the event of a breach or threatened breach of any party’s obligations hereunder, the other party may have no adequate remedy in money damages and, accordingly, shall be entitled to an injunction (including a temporary restraining order, preliminary injunction, writ of attachment, or order compelling an audit) against such breach or threatened breach, including maintaining the cash management and collection procedure described herein.  However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach or threatened breach of any provision of this Agreement.

 

9.22                         Assignment or Syndication by Lender.   Lender may, at its sole discretion, assign in whole or in part any and all of its rights and/or obligations herein to any other person, including but not limited to any assignment by Lender to an Affiliate of Lender or any assignment in part or in whole of its rights herein to another party as collateral security for Lender’s obligation(s) to such other party (a “Collateral Assignment”).

 

9.23                         Severability .  If any provision hereof or of any other Loan Document is held to be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions of the applicable agreement shall remain in full force and effect and shall not be affected by such provision’s severance.  Furthermore, in lieu of any such provision, there shall be added automatically as a part of the applicable agreement a legal and enforceable provision as similar in terms to the severed provision as may be possible.

 

9.24                         Authority .  Without limiting the powers granted to Lender in Section 8.03 hereof, if an Event of Default shall have occurred, the Borrowers hereby authorize Lender, or any person or agent which Lender may designate, at the Borrowers’ cost and expense, to exercise all of the following powers, which authority shall be irrevocable until the termination of this Agreement and the full and final payment and satisfaction of the Obligations to: (a) receive, take, endorse, sign, assign and deliver, all in the name of Lender or the Borrowers (or any of them), any and all checks, notes, drafts, and other documents or instruments relating to the Collateral; (b) receive, open and dispose of all mail addressed to the Borrowers (or any of them), and to notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (c) request from customers indebted on Accounts at any time, in the name of Lender, information concerning the amounts owing on the Accounts; (d) request from customers indebted on Accounts at any time, in the name of the Borrowers (or any of them), any certified public accountant designated by Lender or any other designee of Lender, information concerning the amounts owing on the Accounts; (e) transmit to customers indebted on Accounts notice of Lender’s interest therein and to notify customers indebted on Accounts to make payment directly to Lender for the Borrowers’ account (subject to all applicable laws and regulations governing payment of Medicare and Medicaid receivables); and/or (f) take or bring, in the name of Lender or the Borrowers (or any of them), all steps, actions, suits or proceedings deemed by Lender necessary or desirable to enforce or effect collection of the Accounts.

 

9.25                         Usury Limit .  In no event shall the Borrowers, upon demand by Lender for payment of any indebtedness relating hereto, by acceleration of the maturity thereof, or otherwise, be obligated to pay interest and fees in excess of the amount permitted by law.  Regardless of any provision herein or in any agreement made in connection herewith, Lender shall never be entitled to receive, charge or apply, as interest on any indebtedness relating hereto, any amount in excess of the maximum amount of interest permissible under Applicable Law.  If Lender ever receives, collects or applies any such excess, it shall be deemed a partial repayment of principal and treated as such.  If as a result, the entire principal amount of

 

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the Obligations is paid in full, any remaining excess shall be refunded to Borrowers.  This Section 9.25 shall control every other provision of this Agreement, the other Loan Documents and any other agreement made in connection herewith.

 

9.26                         Termination .  Except as otherwise provided in Article 8 hereof, Lender may terminate this Agreement only as of the Maturity Date.  Borrowers, or any one of them, may terminate this Agreement at any time prior to the Maturity Date only in accordance with the terms of Section 2.03(d).  A termination by one Borrower shall be deemed to be a termination by all Borrowers.

 

ARTICLE 10

 

SPECIAL INTER-BORROWER PROVISIONS

 

10.01                  Certain Borrower Acknowledgments and Agreements.

 

(a)                                  Each Borrower acknowledges that it will enjoy significant benefits from the business conducted by the other Borrowers because of, inter alia, their combined ability to bargain with other Persons including their ability to receive the Credit Facility on favorable terms granted by this Agreement and other Loan Documents which would not have been available to an individual Borrower acting alone.  Each Borrower has determined that it is in its best interest to procure the Credit Facility which each Borrower may utilize directly and which receive the credit support of the other Borrowers as contemplated by this Agreement and the other Loan Documents.

 

(b)                                  Lender has advised Borrowers that it is unwilling to enter into this Agreement and the other Loan Documents and make available the Credit Facility extended hereby to any Borrower unless each Borrower agrees, among other things, to be jointly and severally liable for the due and proper payment of the Obligations of each Borrower under this Agreement and other Loan Documents.  Each Borrower has determined that it is in its best interest and in pursuit of its purposes that it so induce Lender to extend credit pursuant to this Agreement and the other documents executed in connection herewith (i) because of the desirability to each Borrower of the Credit Facility, the interest rates and the modes of borrowing available hereunder, (ii) because each Borrower may engage in transactions jointly with other Borrowers and (iii) because each Borrower may require, from time to time, access to funds under this Agreement for the purposes herein set forth.

 

(c)                                   Each Borrower has determined that it has and, after giving effect to the transactions contemplated by this Agreement and the other Loan Documents (including the inter-Borrower arrangement set forth in this Section 10.01) will have, assets having a fair saleable value in excess of the amount required to pay its probable liability on its existing debts as they fall due for payment and that the sum of its debts is not and will not then be greater than all of its Property at a fair valuation, that such Borrower has, and will have, access to adequate capital for the conduct of its business and the ability to pay its debts from time to time incurred in connection therewith as such debts mature and that the value of the benefits to be derived by such Borrower from the access to funds under this Agreement (including the inter-Borrower arrangement set forth in this Section 10.1) is reasonably equivalent to the obligations undertaken pursuant hereto.

 

(d)                                  Borrower Representative (on behalf of each Borrower) shall maintain records specifying (i) all Obligations incurred by each Borrower, (ii) the date of such incurrence, (iii) the date and amount of any payments made in respect of such Obligations and (iv) all inter-Borrower obligations pursuant to this Section 10. Borrower Representative shall make copies of such records available to Lender, upon request.

 

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10.02                  Maximum Amount of Joint and Several Liability .  Notwithstanding any provisions of this Agreement to the contrary, it is the intent of the parties hereto that the primary and secondary nature of the liabilities of the Borrowers, and the security interests granted by the Borrowers to secure the Obligations directly incurred by any Borrower not constitute a fraudulent conveyance under Section 548 of Chapter 11 of Title II of the United States Code (11 U.S.C. § 101, et seq.), as amended, or a fraudulent conveyance or fraudulent transfer under the applicable provisions of any fraudulent conveyance, fraudulent transfer or similar law of any state, nation or other governmental unit, as in effect from time to time or otherwise be rendered invalid or unenforceable due to the nature of the joint and several liability.  Accordingly,  Lender and Borrowers agree that if the Obligations of any Borrower, or any security interests granted by such Borrower securing the Obligations would, but for the application of this sentence, constitute a fraudulent conveyance or fraudulent transfer under Applicable Law, or would otherwise render such Borrower’s Obligations or the security interests granted herein invalid or unenforceable, the Obligations of such Borrower hereunder, as well as the security interests securing such Obligations, shall be valid and enforceable only to the maximum extent that would not cause such Obligations or security interests to constitute a fraudulent conveyance or fraudulent transfer under Applicable Law or otherwise result in such invalidity or unenforceability; provided however that each Borrower’s Obligations shall be presumptively valid and enforceable to their fullest extent in accordance with the terms hereof or thereof, as if this Section 10.02 were not a part of this Agreement.

 

10.03                  Authorization of Borrower Representative by Borrowers.

 

(a)                                  Each of Borrowers hereby irrevocably authorizes Borrower Representative to give notices, make requests, make payments, receive payments and notices, give receipts and execute agreements, make agreements or take any other action whatever on behalf of such Borrower under and with respect to any Loan Document and each Borrower shall be bound thereby.  This authorization is coupled with an interest and shall be irrevocable, and Lender may rely on any notice, request, information supplied by Borrower Representative, every document executed by Borrower Representative, every agreement made by Borrower Representative or other action taken by Borrower Representative in respect of Borrowers or any thereof as if the same were supplied, made or taken by any or all Borrowers.  Without limiting the generality of the foregoing, the failure of one or more Borrowers to join in the execution of any writing in connection herewith shall not, unless the context clearly requires, relieve any such Borrower from obligations in respect of such writing.

 

(b)                                  Borrowers acknowledge that the credit provided hereunder is on terms more favorable than any Borrower acting alone would receive and that each Borrower benefits directly and indirectly from all Advances hereunder.  Each of Borrowers, shall be jointly and severally liable for all Obligations, regardless of, inter alia, which Borrower requested (or received the proceeds of) a particular Advance.

 

10.04                  Joint and Several Liability .  The Loans made to the Borrowers shall be deemed jointly funded to, and received by, all of the Borrowers.  Each Borrower jointly and severally agrees to pay, and shall be joint and severally liable for the payment and performance of, all Obligations directly incurred by any other Borrower, regardless of whether such Borrower actually receives the proceeds of the indebtedness governed hereby or the benefit of any other extensions of credit hereunder.  Each Borrower acknowledges and agrees that the joint and several liability of the Borrowers is provided as an inducement to Lender to provide loans and other financial accommodations to the Borrowers, and that each such Loan or other financial accommodation shall be deemed to have been done or extended by Lender in consideration of, and in reliance upon, the joint and several liability of the Borrowers. The joint and several liability of each Borrower hereunder is absolute, unconditional and continuing, regardless of the validity or enforceability of any of the Obligations, or the fact that a security interest or lien in any Collateral may not be enforceable or subject to equities or defenses or prior claims in favor of others, or

 

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may be invalid or defective in any way and for any reason.  Each Borrower hereby waives:  (a) all notices to which such Borrower may be entitled as a co-obligor with respect to the Obligations, including notice of (i) acceptance of this Agreement, (ii) the making of Loans or other financial accommodations under this Agreement, or the creation or existence of the Obligations, and (iii) presentment, demand, protest, notice of protest and notice of non-payment; and (b) all defenses based on (i) any modification (or series of modifications) of this Agreement, the other Loan Documents, that may create a substituted contract, or that may fundamentally alter the risks imposed on such Borrower hereunder, (ii) the release of any other Borrower from its duties this Agreement, the other Loan Documents, or the extension of the time of performance of any other Borrower’s duties hereunder or thereunder, (iii) the taking, releasing, impairment or abandonment of any Collateral, or the settlement, release or compromise of the Obligations or any other Borrower’s liabilities with respect to all or any portion of the Obligations, or (iv) any other act (or any failure to act) that fundamentally alters the risks imposed on such Borrower by virtue of its joint and several liability hereunder.  It is the intent of each Borrower by this paragraph to waive any and all suretyship defenses available to such Borrower with respect to the Obligations, whether or not specifically enumerated above.  Borrowers acknowledge that the credit provided hereunder is on terms more favorable than any Borrower acting alone would receive and that each Borrower benefits directly and indirectly from the Loans made hereunder.  Each Borrower shall be jointly and severally liable for all Obligations regardless of, inter alia, which Borrower received proceeds of the Loans.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF , this Agreement has been duly executed as of the day and year first above written

 

BORROWERS:

 

 

 

Address for notices to Borrowers:

NW 61 ST  NURSING, LLC

1145 Hembree Road

 

Roswell, Georgia 30076

 

Attn:

Manager

 

Fax:

(404) 842-1899

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 

[Signatures continue on the following page.]

 

Credit Agreement (Northwest)

 



 

LENDER:

 

 

 

Address for notices to Lender:

GEMINO HEALTHCARE FINANCE, LLC

 

 

 

 

One International Plaza, Suite 220

By:

/s/ Jeffrey M. Joslin

Philadelphia, Pennsylvania 19113

 

Jeffrey M. Joslin , Senior Portfolio

Attn:

Thomas Schneider

 

Manager

Fax:

(610) 870-5401

 

 

Credit Agreement (Northwest)

 



 

ANNEX I

 

DEFINITIONS

 

Acceptance Notice ” has the meaning set forth in Section 6.21 hereof.

 

Account(s) ” means (a) all of each Borrower’s present and future accounts, payment intangibles, instruments, chattel paper (including electronic chattel paper) (all as defined in the UCC) and all other rights of each Borrower to receive payments including the third party reimbursable portion of accounts receivable owing to a Borrower arising out of the delivery by such Borrower of medical, surgical, diagnostic, treatment or other professional or medical or healthcare related services and/or the supply of goods related to any of such services (whether such services are supplied by a Borrower or a third party), including, without limitation all health-care-insurance-receivables (as defined in the UCC) and all other rights to reimbursement under any agreements with an Obligor, (b) all accounts, general intangibles, rights, remedies, guarantees, supporting obligations, letter-of-credit rights, and security interests in respect of the foregoing and, all rights of enforcement and collection, all books and records evidencing or related to the foregoing, and all rights under this Agreement in respect of the foregoing, (c) all information and data compiled or derived by such Borrower in respect of such accounts receivable (other than any such information and data subject to legal restrictions of patient confidentiality), and (d) all proceeds of any of the foregoing.

 

Accounts Detail File ” has the meaning set forth in Section 2.02(b) hereof.

 

ADK ” means AdCare Health Systems, Inc., an Ohio corporation.

 

Advance(s) ” means any monies advanced or credit extended, including the Loans to or for the benefit of Borrowers, or any of them by Lender, under the Credit Facility.

 

Advance Rate ” means eighty-five percent (85%) or such other percentage(s) resulting from an adjustment pursuant to Section 2.01(e) hereof.

 

Affiliate ” means with respect to any Person (the “ Specified Person ”), (a) any Person which directly or indirectly controls, or is controlled by, or is under common control with, the Specified Person, and (b) any partner, director or officer (or, in the case of a Person which is not a corporation, any individual having analogous powers) of the Specified Person or of a Person who is an Affiliate of the Specified Person within the meaning of the preceding clause (a).  For purposes of the preceding sentence, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, or direct or indirect ownership (beneficially or of record) of, or direct or indirect power to vote, five percent (5%) or more of the Capital Stock of such Person. Notwithstanding the foregoing, Lender shall not be deemed to be an Affiliate of any Borrower or any Affiliate thereof.

 

Affiliated Borrowers ” means Living Center, LLC, a Georgia limited liability company, Kenmetal, LLC, a Georgia limited liability company, Senior NH, LLC, a Georgia limited liability company, BAN NH, LLC, a Georgia limited liability company, Oak Lake, LLC, a Georgia limited liability company, and ADK Bonterra/Parkview, LLC, a Georgia limited liability company.

 

Affiliated B/P Credit Agreement ” means the Credit Agreement dated April 27, 2011, among ADK Bonterra/Parkview, LLC, a Georgia limited liability company, such other Persons from time to time party thereto as borrowers, and Lender.

 



 

Affiliated Blue Dolphin Credit Agreement ” means the Credit Agreement dated December 20, 2012, among Living Center, LLC, a Georgia limited liability company, Kenmetal, LLC, a Georgia limited liability company, Senior NH, LLC, a Georgia limited liability company, BAN NH, LLC, a Georgia limited liability company, Oak Lake, LLC, a Georgia limited liability company, such other Persons from time to time party thereto as borrowers, and Lender.

 

Affiliated Credit Agreements ” means, collectively, (i) the Affiliated B/P Credit Agreement, and (ii) the Affiliated Blue Dolphin Credit Agreement.

 

Applicable Law ” means, as to any Borrower or its assets, any law, ordinance, policy, manual provision, administrative guidance, statute, rule or regulation, or any determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Borrower or any of its assets, or to which such Borrower or any of its assets is subject.

 

Applicable LIBOR Floor ” means a percentage equal to two and one-quarter percent (2.25%).

 

Applicable Margin ” means a percentage equal to four and three-quarters percent (4.75%).

 

Authorized Officer ” means any officer, member or partner of a Borrower authorized by specific resolution of Borrower to request Loans as set forth in the incumbency certificate referred to in Section 4.01(d) of this Agreement.

 

Billing Date ” means (a) the last Business Day of the week in which goods or the services giving rise to the corresponding Account were rendered or provided in the case of out- patient services and (b) the earlier of the discharge date or the regular monthly billing date for billing the respective Obligor, or if none, the last Business Day of a calendar month, in the case of inpatient services.

 

Borrower Representative ” means NW 61 ST  Nursing, LLC.

 

Borrowing Base ” means, at any date, an amount equal to the lesser of (a) the Revolving Loan Commitment, or (b) the product of (i) the applicable Advance Rate then in effect, times (ii) the Estimated Net Value of all Eligible Accounts as of such date, minus (iii) an amount equal to any reserves, minus (iv) unposted cash.

 

Borrowing Base Certificate ” has the meaning set forth in Section 2.02(a) hereof.

 

Borrowing Base Deficiency ” means, as of any date, the amount, if any, by which (a) the aggregate amount of all Advances outstanding as of such date exceeds (b) the Borrowing Base as of such date.

 

Borrowing Base Excess ” means, as of any date, the amount, if any, by which (a) the Borrowing Base as of such date exceeds (b) the aggregate amount of all Advances outstanding as of such date.

 

Business Associate Agreement ” means that certain Business Associate Agreement among Borrowers and Lender of even date herewith, as the same may be modified, amended, restated or replaced from time to time.

 

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Business Day ” means any day other than a Saturday, Sunday or any day on which banking institutions in Philadelphia, Pennsylvania or New York City, New York are permitted or required by law, executive order or governmental decree to remain closed or a day on which Lender is closed for business.

 

Capital Lease ” means, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee which would, in accordance with GAAP, be required to be accounted for as a capital lease on the balance sheet of such person.

 

Capital Stock ” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, units, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

 

Cash Equivalents ” means, as at any date:

 

(a)                                  securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve (12) months from the date of acquisition;

 

(b)                                  dollar denominated time deposits and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000.00 or (iii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank being an “ Approved Institution ”), in each case with maturities of not more than two hundred seventy (270) days from the date of acquisition;

 

(c)                                   commercial paper and variable or fixed rate notes issued by any Approved Institution (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within six (6) months of the date of acquisition;

 

(d)                                  repurchase agreements entered into by any Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000.00 for direct obligations issued by or fully guaranteed by the United States in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least one hundred percent (100%) of the amount of the repurchase obligations;

 

(e)                                   debt obligations issued by any domestic corporation or any domestic government instrumentality, in each case rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within six (6) months of the date of acquisition; and

 

(f)                                    Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940 which are administered by reputable financial institutions having capital of at least $500,000,000.00 and the

 

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portfolios of which are limited to Investments of the character described in the foregoing clauses (a) through (e).

 

CHOW ” means the change in ownership with respect to each Borrower’s Healthcare Facility from Transferor to each such Borrower, the transfer of Transferor’s (or issuance of new) Medicare and Medicaid provider numbers to each of the Borrowers necessary for Borrowers to obtain reimbursement in their own names from Medicare and Medicaid in connection with their operation of the Healthcare Facilities in their own names and the licensure of each of the Borrowers by all federal, state and local Governmental Authorities necessary to lawfully operate the Healthcare Facilities in their own names.

 

Closing ” has the meaning set forth in Section 4.06 hereof.

 

Closing Date ” has the meaning set forth in Section 4.06 hereof.

 

CMS ” means the Centers for Medicare and Medicaid Services of the United States Department of Health and Human Services and any successor thereof and any predecessor thereof, including the United States Health Care Financing Administration.

 

Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

Collateral ” has the meaning set forth in Section 3.01 hereof.

 

Collateral Assignment of Transition Services Agreement ” means, the Collateral Assignment of Operations Transfer Agreement of even date herewith among Borrowers and Lender.

 

Collateral Monitoring Fee ” has the meaning set forth in Section 2.03(e) hereof.

 

Collateral Pledge Agreement ” has the meaning set forth in Section 3.09 hereof.

 

Collections ” means with respect to any Account, all cash collections on such Account.

 

Collection Account ” has the meaning set forth in Section 2.07(a) hereof.

 

Commercial Lockbox ” means a lockbox in the name of Lender (or a nominee of Lender) and maintained at the Lockbox Bank, or such other bank as is acceptable to Lender, to which Collections on all Accounts, other than Government Accounts, are sent.

 

Commitment Fee ” has the meaning set forth in Section 2.09 hereof.

 

Concentration Limits ” means the various financial tests, expressed as percentages of the then current ENV of all Eligible Accounts, described on Schedule 1.01 hereto as in effect from time to time.

 

Contract ” means an agreement by which an Obligor is obligated to pay for services rendered to patients of Borrower.

 

Controlled Group ” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrowers, are treated as a single employer under Section 414 of the Code.

 

Credit Facility ” has the meaning set forth in Section 2.01(a) hereof.

 

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Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

 

Default Rate ” means three percent (3%) above the Interest Rate otherwise applicable on the Loans.

 

Defaulted Account ” means an Account as to which (a) the initial ENV has not been received in full as Collections within one hundred fifty (150) days of the Billing Date, or (b) Lender reasonably deems uncollectible because of the bankruptcy or insolvency of the Obligor or any other reason.

 

Depository Agreement(s) ” means those certain Depository Agreements entered into in connection with this Agreement among Borrowers, Lender and the Lockbox Bank, relating to the Commercial Lockbox and the Government Lockbox, as applicable.

 

Distribution ” means (a) dividends or other distributions on Capital Stock of a Borrower; (b) the redemption, repurchase or acquisition of such Capital Stock or of warrants, rights or other options to purchase such Capital Stock; and (c) loans made to any Shareholders, officers, directors and/or Affiliates of such Borrower, including Intercompany Loans.

 

Download Date ” has the meaning set forth in Section 2.02(b) hereof.

 

EBITDA ” means the sum of net income plus interest expense, plus taxes, plus depreciation and amortization, (but excluding non-cash stock compensation expense, acquisition loss or gain and derivative loss or gain, if any).

 

Eligible Account ” means an Account of a Borrower:

 

(a)                                  which is a liability of an Obligor which is (i) a commercial insurance company acceptable to Lender, organized under the laws of any jurisdiction in the United States, having its principal office in the United States, other than those listed on Schedule 1.01 hereto as ineligible, (ii) a Blue Cross/Blue Shield Plan other than those listed on Schedule 1.01 hereto as ineligible, (iii) Medicare or Medicaid, (iv) a HMO, PPO, or an institutional Obligor acceptable to Lender or (v) any other type of obligor, not included in the categories of obligors listed in the foregoing clauses (i) - (iii), organized under the laws of any jurisdiction in the United States, having its principal office in the United States, and listed on Schedule 1.01 hereto as an eligible Obligor,

 

(b)                                  the Obligor of which is not an Affiliate of Borrower;

 

(c)                                   the Obligor of which has received a letter substantially in the form of Exhibit 4.02(c) , (in the case of all Accounts other than Government Accounts), or a letter substantially in the form of Exhibit 4.02(d)  (in the case of all Government Accounts);

 

(d)                                  in an amount, as relating to an individual patient, not less than $5.00 nor more than $50,000.00, denominated and payable in dollars in the United States;

 

(e)                                   as to which the representations and warranties of Section 5.21 hereof are true;

 

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(f)                                    which, if such Account is in the form of a cost report receivable owing from any governmental agency, Lender has agreed to include it in the Borrowing Base;

 

(g)                                   which (i) does not arise from the delivery of cosmetic surgery services, (ii) is not a workers’ compensation claim (unless approved in writing by Lender), (iii) does not arise from any services delivered for injury sustained in a motor vehicle accident (unless the Obligor on such Account is a type of Obligor permitted pursuant to clause (a) of this definition) and (iv) is not an Individual Payor Account;

 

(h)                                  which is not outstanding more than one hundred eighty (180) days past the Billing Date; provided , however that in no event may the Account be outstanding more than one hundred eighty (180) days past the date the corresponding services and/or goods were provided;

 

(i)                                      the Obligor on which does not have fifty percent (50%) or more of its Accounts owing to Borrowers constituting Defaulted Accounts;

 

(j)                                     to the extent such Account does not include late charges or finance charges;

 

(k)                                  which is not subject to a dispute between the Obligor and applicable Borrower;

 

(l)                                      which has a Billing Date that is both on or after January 1, 2013 and on or after the date on which the applicable Borrower acquired the Healthcare Facility with respect to which such Account arose;

 

(m)                              to the extent such Account is Medicaid Pending, it is not outstanding more than thirty (30) days past the date the corresponding services and/or goods were provided; and

 

(n)                                  which complies with such other criteria and requirements as may be specified from time to time by Lender in its reasonable discretion.

 

Environmental Laws ” means, collectively, any local, state or federal law, rule or regulation or common law duty pertaining to the environment, natural resources, pollution, health (including any environmental cleanup statutes and all regulations adopted by any local, state, federal or other governmental authority, and any statute, ordinance, code, order, decree, law rule or regulation all of which pertain to or impose liability or standards of conduct concerning medical waste or medical products, equipment or supplies), safety or clean-up, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq .), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et seq .), the Federal Water Pollution Control Act (33 U.S.C. §  1251 et seq .), the Hazardous Materials Transportation Act (49 U.S.C. § 5101 et seq .), the Clean Air Act (42 U.S.C. § 7401 et seq .), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq .), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq .), the Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. § 4851 et seq .), any analogous state or local laws, any amendments thereto, and the regulations promulgated pursuant to said laws, together with all amendments from time to time to any of the foregoing.

 

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

 

ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with any Borrower, is treated as a single employer under Sections 414(b) or (c) of the Code or,

 

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solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

 

Estimated Net Value ” or “ ENV ” means on any date of calculation with respect to any Account an amount equal to the anticipated cash collections as calculated by Lender, except that if Lender determines that all Obligor payments with respect to an Account have been made or if an Account has become a Defaulted Account, the ENV of such Account shall be zero.

 

Event of Default ” has the meaning set forth in Section 8.01 hereof.

 

Expenses ” has the meaning set forth in Section 9.05(a) hereof.

 

Fixed Assets ” means, as of any date of determination, plant, property and equipment of the Borrowers on a consolidated basis on such day as determined in accordance with GAAP.

 

Fixed Charge Coverage Ratio ” means the ratio of (a) EBITDA, to (b) the sum of (i) interest expense paid, plus (ii) the current portion of any long-term Indebtedness excluding payments with respect to certain temporary bridge financing from time to time obtained by ADK or certain of its Subsidiaries, but only to the extent and only for so as Lender agrees in its sole discretion that such payments may be excluded from the calculation of the Fixed Charge Coverage Ratio pursuant to this clause, plus (iii) the current portion of obligations under capitalized leases, plus (iv) cash taxes paid, plus (v) cash Distributions, plus (vi) the Unfinanced CapEx Formula, all as determined for ADK on a consolidated basis, in accordance with GAAP consistently applied, on a rolling four quarter basis.

 

Form 10-K” has the meaning set forth in Section 8.05 hereof.

 

Form 10-Q” has the meaning set forth in Section 8.05 hereof.

 

Funded Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

 

(a)                                  all obligations for borrowed money, whether current or long-term (including the Obligations, and the Subordinated Debt) and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

 

(b)                                  all purchase money indebtedness;

 

(c)                                   the principal portion of all obligations under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business);

 

(d)                                  the maximum amount available to be drawn under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

 

(e)                                   all obligations in respect of the deferred purchase price of Property or services (other than trade accounts payable in the ordinary course of business);

 

(f)                                    all indebtedness in respect of Capital Leases;

 

(g)                                   all preferred stock or other equity interests providing for mandatory redemptions, sinking fund or like payments prior to the Maturity Date;

 

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(h)                                  all Funded Indebtedness of others secured by (or for which the holder of such Funded Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed; and

 

(i)                                      all guarantees with respect to Funded Indebtedness of the types specified in clauses (a) through (h) above of another Person.

 

Funding Date ” has the meaning set forth in Section 2.02(a) hereof.

 

GAAP ” means generally accepted accounting principles, consistently applied.

 

Government Accounts ” means Accounts on which any federal or state governmental unit or any intermediary for federal or state governmental unit is the Obligor.

 

Government Lockbox ” means a lockbox and/or deposit account in the name of Borrower(s) maintained at the Lockbox Bank, or such other bank as is acceptable to Lender, to which Collections on all Government Accounts are sent.

 

Governmental Authority ” means any nation or government, any state or other political subdivision thereof, and any agency, department or person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other person owned or controlled (through Capital Stock or capital ownership or otherwise) by any of the foregoing, whether domestic or foreign.

 

Guarantors ” means ADK and each other Person who guarantees payment or performance of any Obligations.

 

Guaranty ” means each guaranty agreement executed by a Guarantor in favor of Lender.

 

Hazardous Substances ” means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance or similar term, by any environmental statute, rule or regulation of any governmental entity presently in effect and applicable to such real property.

 

Healthcare Facility ” or “ Healthcare Facilities ”, as applicable, shall mean any one or more of the skilled nursing facilities and other healthcare facilities operated by a Borrower, including the healthcare facilities described on Schedule 2.02 hereto.

 

Healthcare Laws ” means:  (a) any and all federal, state and local fraud and abuse laws, including (i) the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7(b)), (ii) the Stark Law (42 U.S.C. § 1395nn and §1395(q)), (iii) the civil False Claims Act (31 U.S.C. § 3729 et seq.), (iv) Sections 1320a-7 and 1320a-7a of Title 42 of the United States Code, and (v) the regulations promulgated pursuant to such statutes; (b) the federal Food, Drug & Cosmetic Act (21 U.S.C. §§ 301 et seq.) and the regulations promulgated pursuant thereto; (c) the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191) and the regulations promulgated pursuant thereto; (d) laws, rules and regulations governing Medicare and Medicaid; (e) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) and the regulations promulgated pursuant thereto; (f) quality, safety, life safety, and accreditation standards and requirements of all applicable state laws or regulatory bodies; (g) any Applicable Law relating to the Borrowers’ ownership, management, or operation of a healthcare facility or business, or assets used in connection therewith; (h) any Applicable Law relating to the billing

 

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or submission of claims, collection of accounts receivable, underwriting the cost of, or provision of management or administrative services in connection with, any and all of the foregoing, by any Borrower; and (i) any and all other applicable healthcare laws, regulations, manual provisions, policies and administrative guidance, each of (a) through (h) as may be amended from time to time.

 

HIPAA ” means the Health Insurance Portability and Accountability Act of 1996 (Pub.L.No. 104-101) and the regulations promulgated pursuant thereto, each as amended from time to time.

 

Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

 

(a)                                  all Funded Indebtedness; and

 

(b)                                  all guarantees with respect to outstanding Indebtedness of the type specified in clause (a) above of any other Person.

 

Indemnified Party ” has the meaning set forth in Section 9.03(b) hereof.

 

Individual Payor Account ” means an Account owing by an Obligor who is the individual patient or Person who received the goods or services rendered.

 

Initial Term ” has the meaning set forth in Section 2.01(d) hereof.

 

Intercompany Loans ” has the meaning set forth in Section 7.07 hereof.

 

Interest Rate ” and “ Interest Rates ” has the meaning set forth in Section 2.03(a) hereof.

 

Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Capital Stock of another Person, or (b) a loan, advance or capital contribution to, guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person.  For purposes of determining covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

 

JCAHO ” means the Joint Commission for Accreditation of Healthcare Organizations, a nationally recognized organization providing accreditations to hospitals and other healthcare facilities, or any successor entity charged with performing its functions.

 

LIBOR Rate ” means an annual rate equal to, as a reference rate, the greater of (a) the annual rate reported as the London Interbank Offer Rate applicable to thirty (30) day deposits of United States dollars as reported in the Money Rates Section of The Wall Street Journal on the date of determination, and (b) the Applicable LIBOR Floor.  If The Wall Street Journal is not published on such Business Day or does not report such rate, such rate shall be as reported by such other publication or source as Lender may select.

 

Loan(s) ” means, collectively, the Revolving Loans, and each may also be referred to as a “Loan”.

 

9



 

Loan Documents ” means this Agreement, the Revolving Note, the Business Associate Agreement, Depository Agreements, the Collateral Assignment of Transition Services Agreement, and all agreements relating to the Government Lockbox and the Commercial Lockbox, all financing statements, the Subordination Agreement(s), and any other agreements, instruments, documents and certificates delivered in connection with this Agreement.

 

Loan Party ” means a Borrower or a Guarantor, if any, individually and collectively.

 

Loan Request ” has the meaning set forth in Section 2.02(c) hereof.

 

Lockbox Bank ” means Citizens Bank of Pennsylvania or such other bank that is acceptable to Lender.

 

Management Agreement ” means any agreement entered into on or after the Closing Date between or among Manager, any Affiliate of ADK or any other Person and Borrowers, or any of them, providing for the provision by Manager, such Affiliate of ADK or such other Person of management or similar services to Borrowers, or any of them.

 

Management Fees ” means management, payroll or service fees that may be payable from time to time after the Closing Date by Borrowers to Manager, any Affiliate of ADK or any other Person pursuant to the Management Agreement.

 

Manager ” means AdCare Oklahoma Management, LLC, a Georgia limited liability company.

 

Material Adverse Effect ” means a material adverse effect upon, or a material adverse change in, any of (a) the financial condition, operations, business, Property or prospects of Borrowers, or any of them; (b) the ability of Borrowers, or any of them, to perform their Obligations; (c) the legality, validity or enforceability of any Loan Document; (d) the perfection or priority of the liens of Lender granted under the Loan Documents or the rights and remedies of Lender under the Loan Documents; (e) the condition or value of any portion of the Collateral (other than market fluctuations in the values of such Collateral); (f) the use or scope of any Permit; or (g) the continued participation or the ability to accept or bill for goods or services in the Medicaid, Medicare or other government reimbursement programs by any Borrower.

 

Maturity Date ” has the meaning set forth in Section 2.01(d) hereof.

 

Maximum Credit Limit ” means an amount, from time to time, equal to the Revolving Loan Commitment.

 

Maximum Loan Turn Days ” means, as of any date of determination, (i) the result of (a) (1) the average daily outstanding balance of the Revolving Loans during the immediately preceding three (3) months, plus (2) the average daily outstanding balance of the Revolving Loans (as defined in the Affiliated B/P Credit Agreement) during the immediately preceding three (3) months, plus (3) the average daily outstanding balance of the Revolving Loans (as defined in the Affiliated Blue Dolphin Credit Agreement) during the immediately preceding three (3) months, divided by (b)(1) the average monthly Collections in the Commercial Lockbox and Government Lockbox for the immediately preceding three (3) months, plus (2) the average monthly Collections in the Commercial Lockbox and Government Lockbox (in each case with respect to the terms “Collections”, “Commercial Lockbox” and “Government Lockbox” used in this clause (2), as such term is defined in the Affiliated B/P Credit Agreement) for the immediately preceding three (3) months, plus (3) the average monthly Collections in the Commercial

 

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Lockbox and Government Lockbox (in each case with respect to the terms “Collections”, “Commercial Lockbox” and “Government Lockbox” used in this clause (2), as such term is defined in the Affiliated Blue Dolphin Credit Agreement) for the immediately preceding three (3) months  multiplied by (ii) 30.

 

Medicaid ” means, collectively, the healthcare assistance program established by Title XIX of the Social Security Act (42 U.S.C. §§ 1396 et. seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals, orders, guidelines or requirements (whether or not having the force of law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

 

Medicaid Pending ” means an amount that will be billed to Medicaid for services rendered to patients that are expected to qualify for such state Medicaid program, but which patients are at the time in question in the process of completing the necessary paperwork and have not yet been officially accepted by such state as eligible Medicaid patients.

 

Medicare ” means, collectively, the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. §§ 1395 et. seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals, orders or guidelines (whether or not having the force of law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

 

Minimum Balance ” means $500,000.

 

Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

Obligations ” means all now existing or hereafter arising debts, obligations, covenants, and duties of payment or performance of every kind, matured or unmatured, direct or contingent, owing, arising, due, or payable to Lender, by or from Borrowers, or any of them, whether arising out of this Agreement or any other Loan Document or otherwise, including all obligations to repay principal of and interest on all the Loans, and to pay interest, fees, costs, charges, Expenses, professional fees, and all sums chargeable to Borrowers, or any of them, under the Loan Documents, whether or not evidenced by any note or other instrument.

 

Obligor ” means the party primarily obligated to pay an Account.

 

Offer ” has the meaning set forth in Section 6.21 hereof.

 

Offer Transaction ” has the meaning set forth in Section 6.21 hereof.

 

Option Period ” has the meaning set forth in Section 6.21 hereof.

 

Organizational Documents ” means, (a) with respect to any corporation, the charter, certificate or articles of incorporation and the bylaws (or equivalent or comparable constituent documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

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Participation Agreements ” has the meaning set forth in Section 5.03(d)(ii) hereof.

 

PBGC ” means the Pension Benefit Guaranty Corporation or any Person succeeding to any or all of its functions under ERISA.

 

Permit ” means any permit, approval, authorization, license, accreditation, certification, provider or supplier number, registration, certificate of authority, certificate of need, certificate of reimbursement, variance, qualification, filing or consent required under any Applicable Law.

 

Permitted Liens ” has the meaning set forth in Section 5.06 hereof.

 

Permitted Tax Distributions ” means as to any taxable year of a Borrower for which it is a pass through entity for income tax purposes (i.e., a limited liability company, limited partnership or S-corporation), an annual distribution in an amount not to exceed forty percent (40%) of annual taxable income of such Borrower necessary to enable each Shareholder of such Borrower to pay federal and state income taxes attributable to such Shareholder resulting solely from the allocated share of income of such Borrower for such period.

 

Person ” means any individual, corporation, partnership, limited liability partnership, limited liability company, association, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof, or other entity.

 

Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which Borrowers or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

Property ” means an interest of Borrowers, or any of them, in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

 

Required Insurance ” has the meaning set forth in Section 6.02(a) hereof.

 

Revolving Loan(s) ” has the meaning set forth in Section 2.01(a) hereof.

 

Revolving Loan Commitment ” means an amount equal to One Million Dollars ($1,000,000).

 

Revolving Note ” has the meaning set forth in Section 2.01(b) hereof.

 

Securities ” has the meaning set forth in Section 6.14 hereof.

 

Settlement Date ” has the meaning set forth in Section 2.02(a) hereof.

 

Shareholder ” means, as applicable, a shareholder, member or partner of a Borrower.

 

Subordinated Debt ” means debt or other obligations of a Borrower that is subordinated to the Obligations of Borrowers to Lender on terms and conditions that are satisfactory to the Lender in its sole discretion;

 

Subordination Agreement ” means collectively and individually those certain Subordination Agreements, in form and substance satisfactory to Lender, from the holders of the Subordinated Debt in favor of Lender.

 

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Subsidiary ” of a Person means a corporation, partnership, limited liability company or other business entity of which fifty-one percent (51%) of the Capital Stock having ordinary voting power for the election of directors or other governing body (other than Capital Stock having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrowers.

 

Taxes ” shall mean all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto, and including liabilities under escheat, unclaimed property laws or similar laws, and the term “Tax” means any of the foregoing taxes.

 

Termination Fee ” has the meaning set forth in Section 2.03(c) hereof.

 

Third Party Payor ” means Medicare, Medicaid, TRICARE, and other state or federal health care program, Blue Cross and/or Blue Shield, private insurers, managed care plans and any other person or entity which presently or in the future maintains Third Party Payor Programs.

 

Third Party Payor Programs ” means all payment and reimbursement programs sponsored by a Third Party Payor, in which a Borrower participates.

 

Transferor ” means Receiver Care, LLC.

 

Transition Period ” means the period during which Transferor has agreed to provide transition services to Borrowers pursuant to the Transition Services Agreement.

 

Transition Services Agreement ” means the Operations Transfer Agreement entered into as of January 1, 2013, among Borrowers, Transferor and AdCare Oklahoma Management, L.L.C.

 

TRICARE ” means the health care plan for the uniformed services, retirees and their families.

 

Uniform Commercial Code ” or “ UCC ” means the Uniform Commercial Code as in effect from time to time in the Commonwealth of Pennsylvania or any other state, as applicable.

 

Unfinanced CapEx Formula ” means, as of any date of determination, an amount equal to (a) $400, multiplied by (b) the number of licensed beds in service for ADK and its Subsidiaries as of such date.

 

Unmatured Event of Default ” means an event which with the passage of time, giving of notice or both, would become an Event of Default.

 

Unused Line Fee ” has the meaning set forth in Section 2.03(e).

 

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Exhibit 10.8

 

REVOLVING NOTE

 

$1,000,000.00

Date: May 30, 2013

 

FOR VALUE RECEIVED, the undersigned (the “ Borrowers ”), hereby promise to pay to GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (the “ Lender ”), or its successors or assigns, the principal amount of each Revolving Loan from time to time made in accordance with the provisions of the Credit Agreement dated the date hereof (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “ Credit Agreement ” the terms defined therein being used herein as therein defined), among the Borrowers and Lender.

 

The Borrowers promise to pay interest on the unpaid principal amount of each Revolving Loan from the date of such Revolving Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Credit Agreement.  All payments of principal and interest shall be made to the Lender in Dollars in immediately available funds.  If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement.

 

This Revolving Note is one of the Revolving Notes referred to in the Credit Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein.  This Revolving Note is secured by the Collateral.  Upon the occurrence and during the continuation of one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Revolving Note shall become, or may be declared to be, immediately due and payable all as provided in the Credit Agreement.  Revolving Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business.  The Lender may also attach schedules to this Revolving Note and endorse thereon the date, amount and maturity of its Revolving Loans and payments with respect thereto.

 

The Borrowers, for themselves, their successors and assigns, hereby waive diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Revolving Note.

 

THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.

 

[Remainder of Page Intentionally Left Blank]

 



 

SIGNATURE PAGE TO REVOLVING NOTE

 

 

NW 61 ST  NURSING, LLC

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 


Exhibit 10.9

 

SUBORDINATION AGREEMENT

 

THIS SUBORDINATION AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “ Agreement ”) is made and entered into May 30, 2013, by and between FIRST COMMERCIAL BANK , a Missouri corporation (“ FCB ”), and GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (together with its successors and assigns, “ Gemino ”).  Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings assigned to such terms in the Gemino Credit Agreement (as defined herein).

 

W I T N E S S E T H :

 

WHEREAS, NW 61 st  Nursing, LLC, a Georgia limited liability company, and certain of its Affiliates (individually and collectively, the “ Company ”), and Gemino are or from time to time hereafter may be parties to that certain Credit Agreement dated the date hereof (collectively with all replacements, substitutions, renewals, or refinancings for the obligations under such Credit Agreement, in each case as amended, restated, supplemented or otherwise modified from time to time, the “ Gemino Credit Agreement ”) pursuant to which Gemino has made and will from time to time make loans and provide other financial accommodations to the Company, which loans are secured by a lien on, and security interest in, certain of the Company’s assets and properties, all as more particularly described in the Gemino Loan Documents (as defined below);

 

WHEREAS, Northwest Property Holdings, LLC, a Georgia limited liability company (“ Northwest Property ”) issued to FCB that certain Promissory Note dated December 31, 2012, in the original principal amount of $1,501,500 (as in effect on the date hereof, the “ Northwest Property Note ”) to evidence certain loans made by FCB to Northwest Property.

 

WHEREAS, Company has guaranteed the obligations of Northwest Property owing to FCB under the Northwest Property Note pursuant to a certain Commercial Guaranty dated December 31, 2012 (as in effect on the date hereof, the “ FCB Guaranty ”), which guaranty is secured by a lien on, and security interest in, certain of Company’s assets and properties, all as more particularly described in the Second Lien Loan Documents (as defined below);

 

WHEREAS, in order to induce Gemino to enter into the Gemino Credit Agreement and the other Gemino Loan Documents (as defined below) and Gemino to extend the financial accommodations to Company pursuant to the Gemino Credit Agreement, and in consideration thereof, and in consideration of any loans or other financial accommodations extended by Gemino to Company, whether pursuant to the Gemino Credit Agreement or otherwise, FCB has agreed to enter into this Agreement; and

 

WHEREAS, it is a condition to entering into the Gemino Credit Agreement and the Gemino Loan Documents and the extension of loans and other financial accommodations by Gemino to Company under the Gemino Credit Agreement that FCB enter into this Agreement.

 



 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, FCB hereby agrees with Gemino as follows:

 

1.             Definitions .

 

Applicable Law ” shall mean, with respect to any Person, any law, ordinance, policy, manual provision, administrative guidance, statute, rule or regulation, or any determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its assets, or to which such Person or any of its assets is subject.

 

Bankruptcy Code ” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§101 et seq ., as in effect from time to time.

 

Collatera l” means all assets and properties of any kind whatsoever (including all Gemino Collateral), real or personal, tangible or intangible and wherever located, of Company (including any stock or other equity securities), whether now owned or hereafter acquired, and upon which a Lien is now or hereafter granted or purported to be granted by such Person in favor of a Secured Creditor, as security for all or any part of the Obligations and the proceeds (including insurance proceeds) thereof.

 

Company ” has the meaning set forth in the recitals hereto.

 

Enforcement Action ” means, upon the occurrence and during the continuation of an Event of Default and in connection with the exercise of remedies:  (i) any action by any Secured Creditor to foreclose on the Lien of such Person in any Collateral, (ii) any action by any Secured Creditor to take possession or control of, or sell or otherwise realize upon, or to exercise any other rights or remedies with respect to, including, without limitation through a stock power, power of attorney, other transfer document or otherwise, any Collateral, including, without limitation, a sale, transfer or other disposition of any Collateral by Company with the consent of, or at the direction of, a Secured Creditor, (iii) any action by any Secured Creditor to retain, or direct or cause Company to retain, a broker, investment banker or appraiser to sell (or appraise in connection with a proposed sale) all or any material portion of the Collateral, and which action has been designated as an “Enforcement Action” in a written notice to Gemino or FCB, as the case may be, and to Company, (iv) the delivery of any notice, claim or demand relating to the Collateral to any Person in the possession or control of any Collateral or acting as bailee, custodian or agent for any holder of a Lien in respect of any Collateral, (v) any action by any Secured Creditor to retain, or direct or cause Company to retain, a restructuring officer, crisis manager or similar Person in respect of Company, (vi) the taking of any other actions by a Secured Creditor to collect or enforce all or any part of the Obligations payable to such Secured Creditor or any claims in respect thereof against (x) Company or (y) any of Company’s Property, including the taking of control or possession of, or the exercise of any right of setoff or other legal right with respect to, any Property of Company or the sale, transfer or other disposition of any interest in such Property or assets, or (vii) the commencement by any Secured Creditor (or joinder with any Person in the commencement) of any legal proceedings or actions against, in connection with, or with respect to (x) Company or (y) any of Company’s Property or assets or any Collateral to facilitate the actions described in any of clauses (i), (ii), (iii), (iv), (v) and (vi) above,

 

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including any Proceeding and any action to have the automatic stay lifted in any Proceeding of Company.

 

FCB Debt ” means any and all present and future indebtedness, liabilities and obligations, whether matured or unmatured, contingent or absolute, direct or indirect, now or hereafter existing, due or to become due by Company to FCB as may be evidenced by the Second Lien Loan Documents or any other documents, instruments or agreements now or hereafter executed and delivered by Company with, to or in favor of FCB.

 

FCB Guaranty ” has the meaning set forth in the recitals hereto.

 

Gemino ” has the meaning set forth in the recitals hereto.

 

Gemino Collateral ” shall mean all of the types and items of Property of Company that are described in Exhibit A attached hereto and made a part hereof, whether such Property is acquired, created or arises prior to, during the pendency of or after any Proceeding.

 

Gemino Credit Agreement ” has the meaning set forth in the recitals hereto.

 

Gemino Debt ” as used herein, shall mean any and all Obligations (as defined in the Gemino Credit Agreement), including, without limitation, any and all now existing and future indebtedness, obligations or liabilities of the Company to Gemino under the Gemino Credit Agreement and any other Gemino Loan Document, whether direct or indirect, absolute or contingent, secured or unsecured, arising under, or in connection with, the Gemino Credit Agreement or any other Gemino Loan Document (including, without limitation, any guaranty executed in connection therewith) in favor of Gemino, as each of the foregoing may be from time to time amended, modified, waived, supplemented, extended, renewed, deferred, refinanced, replaced, refunded or restated, in whole or in part, in accordance with the terms and conditions thereof, by operation of law or otherwise, whether any of the foregoing arises before or after commencement of a Proceeding, including any and all expenses (including, without limitation, reasonable attorneys’ fees and disbursements), premiums, fees and charges incurred in connection therewith and any interest thereon, including, without limitation, any post-petition interest accruing on such Gemino Debt after Company becomes subject to a Proceeding (whether or not such interest is allowable or enforceable against Company or recoverable against Company or its bankruptcy estates), whether by means of an adequate protection payment or otherwise.  For all purposes hereunder, Gemino Debt shall also include all indebtedness, obligations and liabilities of the Company to repay any amounts previously paid by the Company pursuant to the Gemino Credit Agreement, which amounts have been returned to the Company, to the Company’s bankruptcy estates, to a trust or similar structure established under a plan of reorganization or liquidation of Company or to a trustee or similar Person by Gemino pursuant to Sections 542, 544, 545, 547, 548, 549, 550, 553 and 724(a) of the Bankruptcy Code or otherwise under other applicable legislation.

 

Gemino Loan Documents ” means the Gemino Credit Agreement, all Loan Documents (as such term is defined in the Gemino Credit Agreement) and all other agreements, documents and instruments at any time executed or delivered by Company or any other Person with, to or in favor of

 

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Gemino in connection therewith or related thereto, in each case, as amended, restated, supplemented or otherwise modified from time to time.

 

Lien ” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or otherwise) or preference, priority or other right or preferential arrangement of any kind or nature whatsoever and any contingent or other agreement to provide any of the foregoing.

 

Obligations ” means the Gemino Debt and the FCB Debt, collectively.

 

Paid in Full ” or “ Payment in Full ” shall mean the indefeasible payment in full in cash of all Gemino Debt and the irrevocable termination of all commitments to lend or otherwise extend credit under the Gemino Loan Documents.  Gemino Debt shall be considered to be outstanding whenever any commitment to make loans or otherwise extend credit under the Gemino Loan Documents is outstanding.

 

Person ” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or governmental authority.

 

Proceeding ” means any insolvency, bankruptcy, receivership, trusteeship, custodianship, liquidation, dissolution, reorganization, foreclosure, assignment for the benefit of creditors or similar case or proceeding for the liquidation, dissolution, reorganization, recapitalization, adjustment or marshalling of assets or liabilities, or other winding up of Company or any of its respective Property, in each case whether involuntary or voluntary or whether or not under the Bankruptcy Code.

 

Property ” means, with respect to any Person, all property and interests in property of such Person, whether real, personal or mixed, whether now owned or existing or hereafter acquired or arising and wheresoever located.

 

Release Notice ” has the meaning given to it in Section 6(c) .

 

Secured Creditor ” means Gemino and FCB, individually and collectively.

 

FCB ” has the meaning set forth in the recitals hereto.

 

Second Lien Loan Documents ” means the FCB Guaranty and all other agreements, documents and instruments at any time executed or delivered by Company with, to or in favor of FCB in connection therewith or related thereto (including, without limitation, that certain Commercial Security Agreement dated December 31, 2012, among Company, Northwest Property and FCB), in each case, as amended, restated, supplemented or otherwise modified from time to time.

 

Transferee ” has the meaning given to it in Section 2 .

 

UCC ” means the Uniform Commercial Code, as in effect from time to time in any applicable jurisdiction.

 

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2.             Restriction on Transfer .  Without limiting any other provision of this Agreement, FCB hereby covenants and agrees that, until such time as this Agreement is terminated as provided herein, FCB will not directly or indirectly sell, assign, transfer, endorse, pledge, encumber or otherwise dispose of (whether by means of participation or otherwise) any portion of the FCB Debt or any interest therein to any Person (each such transferee, a “ Transferee ”), unless such Transferee shall have agreed in writing to be bound in all respects by the terms and provisions of this Agreement.

 

3.             Inducement .  This Agreement is executed as an inducement to Gemino to make loans or advances to the Company or otherwise to extend credit or financing accommodations to the Company, and to enter into the Gemino Loan Documents and to continue a financing arrangement with the Company and is executed in consideration of Gemino entering into the Gemino Loan Documents and continuing such financing arrangement.

 

4.             Continuing Agreement .  This Agreement (a) may be terminated only upon the occurrence of the Payment in Full of the Gemino Debt, (b) is a continuing agreement of subordination, (c) shall be binding upon FCB, Company and their respective successors, transferees and assigns, and (d) shall inure to the benefit of Gemino and be enforceable by Gemino and its successors, transferees and assigns.  Without limiting the generality of the foregoing, nothing herein shall limit the ability of Gemino to assign or otherwise transfer the Gemino Debt to any other Person in accordance with the terms of the Gemino Credit Agreement, and such other Person shall thereupon become vested with all the rights and benefits in respect thereof granted to Gemino herein or otherwise.  FCB hereby waives any right it may have under Applicable Law to revoke this Agreement or any of the provisions hereof.

 

5.             Non-Offset, etc .  Without limiting any other provision of this Agreement, FCB hereby covenants and agrees that, until such time as this Agreement is terminated as provided herein, FCB will not assert any right, directly or indirectly, of setoff or recoupment against the FCB Debt.

 

6.             Liens on Collateral .

 

(a)           Rights as Unsecured Creditors .  Notwithstanding anything to the contrary set forth in this Section 6 , nothing in this Section 6 is intended or shall be deemed or construed to limit in any way the exercise by FCB against Company or its Property of any of FCB’s rights and remedies as an unsecured creditor of Company so long as such rights and remedies are not exercised in contravention of this Agreement, and, subject to the other terms and provisions of this Agreement, FCB may exercise at any time against Company or its Property FCB’s rights and remedies as an unsecured creditor of Company under the Second Lien Loan Documents and Applicable Law.  In the event FCB becomes a judgment Lien creditor in respect of Gemino Collateral as a result of its enforcement of its rights as an unsecured creditor, such judgment Lien shall be deemed subordinated to the Liens of Gemino on the same basis as the other Liens of FCB are so subordinated to the Liens of Gemino under this Agreement.

 

(b)           Lien Subordination .  Notwithstanding the date, manner or order of grant, attachment or perfection of the Liens on all or any part of the Collateral granted to Gemino and FCB, respectively, and notwithstanding the provisions of the UCC or any other Applicable Law or decision, or the terms or provisions of the Gemino Loan Documents or Second Lien Loan

 

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Documents, respectively, or any other circumstance whatsoever, each of Gemino and FCB hereby agrees that (a) Gemino shall have a first, prior, senior and continuing Lien on all of the Gemino Collateral to secure the prompt and complete payment, performance and observance of all Gemino Debt, and (b) any Lien on all or any part of the Gemino Collateral now or hereafter held by FCB, regardless of when or how acquired, whether by grant, statute, operation of law, subrogation or otherwise, shall be in all respects and for all purposes subject to, junior to and subordinate to all Liens on all or any part of the Gemino Collateral granted to or held by Gemino.  Subject to the terms and provisions of this Agreement, including the respective definitions of “Gemino Debt” and “FCB Debt” set forth in Section 1 hereof, the relative priorities of the respective Liens described in this Section 6(b)  shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement, replacement or refinancing of the Gemino Debt or FCB Debt, respectively, or by any action or inaction which Gemino, on the one hand, or FCB, on the other hand, may take or fail to take, in each case in respect of the Collateral.

 

(c)           Release of Gemino Collateral .  In the event Gemino releases or agrees to release any of its Liens on all or any part of the Gemino Collateral in connection with the sale, transfer or other disposition thereof at the request of Company or pursuant to any Enforcement Action or otherwise, Gemino agrees to notify FCB in writing at least two (2) Business Days in advance thereof with such notice describing with reasonable specificity the portion of the Gemino Collateral to be sold or disposed of and further stating that such Gemino Collateral will be sold free and clear of the Liens of Gemino and FCB (each such notice a “ Release Notice ”).  FCB acknowledges, confirms and agrees that upon Gemino providing such a Release Notice to FCB in accordance with Section 18 hereof, FCB shall be deemed automatically and unconditionally to have consented to such sale or other disposition under the Second Lien Loan Documents and the Lien of FCB on such Gemino Collateral automatically and unconditionally shall be deemed to be, and shall be, released and terminated contemporaneously with the release by Gemino of its Lien thereon.  FCB agrees that no further act or documentation shall be necessary to evidence the release and termination by FCB of such Lien and the delivery of the Release Notice to FCB and the release by Gemino of its Lien on the Gemino Collateral shall be prima facie evidence of FCB’s release and termination of its Lien upon such Gemino Collateral.  In the event that Gemino reasonably requests FCB to execute and deliver any formal release or termination of FCB’s Lien upon such Gemino Collateral, FCB agrees to execute the same forthwith.  Notwithstanding the terms and provisions of this Section 6(c) , in the event that Gemino releases its Liens on the Gemino Collateral in connection with the Payment in Full of the Gemino Debt, FCB shall not be obligated to release its Liens (nor be deemed to release its Liens as contemplated above) on any Gemino Collateral remaining after giving effect to the Payment in Full of the Gemino Debt (and any sale, transfer or other disposition of Gemino Collateral occurring in connection therewith).

 

(d)           Perfection .  Gemino, on the one hand, and FCB, on the other hand, shall be solely responsible for perfecting and maintaining the perfection of their respective Liens on each item constituting Collateral.  The provisions of this Section 6(d)  are intended solely to govern the respective Lien priorities as between the holders of Gemino Debt and the holders of FCB Debt and shall not impose on any such Person any obligations in respect of the disposition of proceeds of any Collateral which would conflict with prior perfected claims therein in favor of any other Person or any applicable order or decree of any court or governmental authority or any Applicable Law.

 

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(e)           Notice of Liens .  FCB and Gemino each acknowledge that this Agreement shall constitute notice of their respective interests in the Collateral under and for any purpose such a notice may be required by the UCC.

 

7.             Management of Gemino Collateral .  Until the Payment in Full of the Gemino Debt, and both in and outside of a Proceeding, the holders of Gemino Debt (or any representative thereof) shall have the exclusive right to manage, perform and enforce the terms of the Gemino Debt and the Gemino Loan Documents with respect to all Gemino Collateral and to exercise and enforce all privileges and rights thereunder and with respect thereto, in each case in the exercise of their business judgment and sole and absolute discretion, including, without limitation, the sole and exclusive right to take or retake control or possession of any Gemino Collateral, to hold, prepare for sale, process, sell, lease, foreclose upon, collect, exercise rights or remedies with respect to, dispose of, or liquidate any Gemino Collateral, to incur expenses in connection with any of the foregoing and to exercise all rights and remedies of a secured lender under the UCC, and FCB shall not take or seek to take any such action.  In furtherance and not in limitation of the foregoing, FCB waives any and all rights to direct the method or challenge the appropriateness of any action by any holder of Gemino Debt (or any representative thereof) in connection with, and any right to object to, a strict foreclosure with respect to any Gemino Collateral, waives any and all rights of redemption and hereby consents to each holder of Gemino Debt (or any representative thereof) dealing in all respects with the Gemino Collateral as if there were no Liens on the Gemino Collateral securing FCB Debt.

 

8.             Proceedings .

 

(a)           Covenants of FCB .  In the event of any Proceeding involving Company, FCB agrees that it will:

 

(i)            not object to, contest or oppose (or support any other Person in objecting to, contesting or opposing), and waives any right to object to, contest or oppose, any sale, transfer or other disposition of all or any part of the Gemino Collateral free and clear of Liens or other claims of FCB under Section 363 of the Bankruptcy Code or any other law applicable to such Proceeding if Gemino has consented to such sale, transfer or disposition;

 

(ii)           (A) at the request of Gemino, challenge, contest or otherwise object to any use of cash collateral or debtor-in-possession financing under Sections 363 or 364 of the Bankruptcy Code or otherwise that is challenged, contested or otherwise objected to by Gemino and (B) not challenge, contest or otherwise object to (or support any other Person in challenging, contesting or otherwise objecting to) in any manner (1) any use of cash collateral or debtor-in-possession financing under Sections 363 or 364 of the Bankruptcy Code or otherwise that is consented to or provided by Gemino, (2) any request by Gemino for “adequate protection” under Sections 361, 362, 363 or 364 of the Bankruptcy Code (or its equivalent) or (3) any objection by Gemino to any motion, relief, action or proceeding based on a Gemino’s claim of lack of adequate protection;

 

(iii)          not assert (or support any other Person in asserting) in any manner any right it may have to adequate protection of its interest in any Gemino Collateral absent written consent or direction of Gemino; provided, that (A) if Gemino is granted adequate

 

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protection in the form of a Lien on additional or replacement collateral in connection with use of cash collateral or any debtor-in-possession financing under Sections 363 or 364 of the Bankruptcy Code, FCB may seek adequate protection in the form of a Lien on such additional or replacement collateral, which Lien, if granted, will be subordinate to the Liens securing the Gemino Debt and any such debtor-in-possession financing on the same basis as the other Liens securing the FCB Debt are so subordinated under this Agreement, and (B) in the event Gemino consents to the request by FCB to seek adequate protection in respect of its FCB Debt and such adequate protection request is granted in the form of a Lien on additional or replacement collateral, then FCB agrees that Gemino may seek and obtain, and FCB hereby consents to the granting of, a senior Lien on such additional or replacement collateral as security for the Gemino Debt and for any debtor-in-possession financing provided by Gemino and to any other Liens granted to Gemino as adequate protection on the same basis as the other Liens securing the FCB Debt are subordinated under this Agreement.  If and to the extent any such additional or replacement Liens are insufficient to provide adequate protection of the interests of FCB, any claim of FCB under Section 507(b) of the Bankruptcy Code shall be subordinate in right of payment to any claim of Gemino consistent with this Agreement;

 

(iv)          immediately segregate and turn over to Gemino any adequate protection of its interest in any Gemino Collateral that it receives, directly or indirectly, in any Proceeding for application to the Gemino Debt owed to Gemino, other than adequate protection of the type described in clause (iii) above;

 

(v)           not seek (or support any other Person seeking) to have the automatic stay of Section 362 of the Bankruptcy Code (or any similar stay under any other Applicable Law) lifted, vacated or modified with respect to any Gemino Collateral without the prior written consent of Gemino; provided , that, in the case of this clause (v), if Gemino seeks such aforementioned relief, FCB hereby irrevocably consents thereto and shall join in any such motion or application seeking such relief if requested by Gemino;

 

(vi)          (A) not object to, contest or oppose (or support any other Person in objecting to, contesting or opposing) in any manner an election under Section 1111(b) of the Bankruptcy Code by Gemino and (B) and does expressly waive any claim it may now or hereafter have arising under, in connection with or out of the election by Gemino of the application of Section 1111(b) of the Bankruptcy Code;

 

(vii)         not assert or enforce, at any time when any Gemino Debt exists that has not been Paid in Full, any claim under Section 506(c) of the Bankruptcy Code senior to or on a parity with the Gemino Debt for costs or expenses of preserving or disposing of any Gemino Collateral;

 

(viii)        not object to, contest or oppose (or support any other Person in objecting to, contesting or opposing) in any manner the exercise by Gemino of the right to “credit bid” Gemino Debt pursuant to Section 363(k) of the Bankruptcy Code or other Applicable Law in any Proceeding; and

 

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(ix)          not request (or cause or support any other Person to request) judicial relief, in any Proceeding or in any other court, that would hinder, delay, limit or prohibit the lawful exercise or enforcement of any right or remedy otherwise available to Gemino or that would limit, invalidate, avoid, set aside or subordinate any senior Lien or Gemino Loan Document or grant the Liens of FCB equal ranking to the senior Liens of Gemino in or to the Gemino Collateral.

 

(b)           Prohibition on Contesting Liens .  Each of Gemino and FCB agrees not to seek to challenge, to avoid, to subordinate or to contest or directly or indirectly to cause or support any other Person in challenging, avoiding or contesting in any judicial or other proceeding, including, without limitation, any Proceeding, the priority, validity, extent, perfection or enforceability of any Lien held by Gemino or FCB, as the case may be, on all or any part of the Collateral; provided , that nothing in this Section 8(b)  is intended or shall be deemed or construed to limit in any way the ability of Gemino or FCB to enforce all of the terms and provisions of this Agreement.  As between Gemino, on the one hand, and FCB, on the other hand, the terms of this Agreement shall govern and control even if part or all of the FCB Debt or Gemino Debt, as the case may be, or the respective Liens securing payment, observance and performance thereof are avoided, disallowed, set aside or otherwise invalidated in any Proceeding or otherwise.

 

9.             Marshalling; Additional Waiver .  FCB hereby waives to the fullest extent permitted by Applicable Law any rights such Person may have under Applicable Law to assert the doctrine of marshalling or otherwise to require Gemino to marshal any Property of Company for the benefit of FCB.  FCB expressly waives all notice of the acceptance by Gemino of the subordination and other terms and provisions of this Agreement and all the notices whatsoever not specifically required pursuant to the terms of this Agreement or under the UCC in connection with any foreclosure on or sale of Property of the Company, and FCB expressly consents to reliance by Gemino upon the subordination and other terms and provisions of this Agreement.

 

10.          No Liability .  Gemino shall not in any event be liable for: (a) any failure to prove the FCB Debt; (b) any failure to exercise any rights with respect thereto; (c) any failure to collect any sums payable thereon; or (d) any impairment or nonpayment of the FCB Debt that results, directly or indirectly, from the exercise by Gemino of any of its rights or remedies under this Agreement, the Gemino Credit Agreement, the other Gemino Loan Documents or under Applicable Law.

 

11.          Subordination Rights Not Impaired by Acts or Omissions of the Company or Gemino .  No right of Gemino to enforce subordination as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of Company or by any act or failure to act by Gemino, or by any noncompliance by FCB or any agent thereof with the terms of this Agreement, regardless of any knowledge thereof with which any such Person may have or otherwise be charged.  Gemino may extend, renew, modify or amend any terms of the Gemino Debt or any security therefor or guaranty thereof and grant any waiver, release or consent in respect of, or release, sell or exchange such security and otherwise deal freely with Company and its respective Affiliates, all without notice to or consent from FCB and without in any way impairing or affecting this Agreement.

 

12.          No Enforcement Action .  FCB hereby agrees that, so long as any Gemino Debt shall remain unpaid, or the Gemino Credit Agreement shall be in effect, FCB shall not commence (or

 

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cause the commencement of) an Enforcement Action or join with or support any other creditor of Company (other than Gemino) in commencing an Enforcement Action.

 

13.          Action Against .  If FCB, in violation of this Agreement, shall commence an Enforcement Action against Company, Company may interpose as a defense or dilatory plea the making of this Agreement, or upon failure to do so, Gemino is hereby irrevocably authorized to intervene and to interpose such defense or plea in its name or in the name of Company.  If FCB shall attempt to enforce, collect or realize upon any FCB Debt or any collateral, security or guarantees (if any) securing the FCB Debt in violation of this Agreement, Company may, by virtue of this Agreement, restrain any such enforcement, collection or realization, or upon failure to do so Gemino may restrain such enforcement, collection or realization, either in its own name or in the name of Company.

 

14.          Further Assurances .  FCB and Company will at their expense and at any time and from time to time promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary to reflect the priorities set forth herein and to protect any right or interest of Gemino granted hereunder or to enable Gemino to exercise and enforce its rights and remedies hereunder, including, without limitation, to amend financing statements to reflect that the Liens relating thereto are subordinate to the Liens of Gemino as provided herein.

 

15.          Modifications to the Second Lien Loan Documents .  Except as otherwise expressly permitted under the Gemino Credit Agreement or any other applicable Gemino Loan Document, none of the Second Lien Loan Documents shall be amended or otherwise modified without obtaining the prior written consent of Gemino, or as otherwise permitted under the Gemino Credit Agreement, so as to provide for (a) the granting or obtaining of any collateral security or obtaining any Lien on any Gemino Collateral or (b) any other amendment or modification which would have a material adverse effect on the operations of any Company, Gemino’s security interests in the Gemino Collateral or the claims of Gemino.

 

16.          No Impairment of Company’s Obligations .  Subject to all of Gemino’s rights as provided in this Agreement, nothing contained in this Agreement shall impair, as between Company, on the one hand, and FCB, on the other hand, the obligation of Company, which is unconditional and absolute, to pay the FCB Debt to FCB as and when all or any portion thereof shall become due and payable in accordance with the FCB Guaranty or prevent FCB, upon any default under the FCB Debt, from exercising all rights, powers and remedies otherwise provided therein or by Applicable Law.

 

17.          Entire Agreement, etc .  This Agreement embodies the whole agreement of the parties with respect to the subject matter hereof and may not be modified except in writing executed and delivered by the parties hereto.  The failure of Gemino to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other rights at any other time and from time to time thereafter, and such rights shall be considered as cumulative rather than alternative.  No knowledge of any breach or other non-observance by FCB of the terms and provisions of this Subordination Agreement shall constitute a waiver, nor a waiver of any obligations to be performed by FCB hereunder.

 

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18.          Notices .  All notices and other communications hereunder shall be sent in accordance with the provisions of, and to the addresses set forth in, the Gemino Credit Agreement, and if to FCB, to the address set forth below:

 

First Commercial Bank

303 W. Market

P.O. Box 574

Dexter, MO 63841

Attention: Norman B. Harty, President

Facsimile: 573-624-8884

 

19.          Construction .  Except as otherwise expressly provided herein, the rules of interpretation set forth in the Gemino Credit Agreement shall apply mutatis mutandis to this Agreement.

 

20.          CHOICE OF LAW; JURISDICTION; JURY TRIAL WAIVER; ETC .  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.  EACH OF THE PARTIES HERETO AGREES THAT ANY FEDERAL COURT IN THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT IN PHILADELPHIA, PENNSYLVANIA SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG THE PARTIES HERETO PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR TO ANY MATTER ARISING HEREFROM.  EACH OF THE PARTIES HERETO EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURT.  EACH OF THE PARTIES HERETO WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY PROCEEDING IN ANY SUCH COURT OR THAT SUCH PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND EACH AGREES NOT TO PLEAD OR CLAIM THE SAME.  EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO A JURY TRIAL AS TO ANY DISPUTE UNDER THIS AGREEMENT.

 

21.          Counterparts; Effectiveness .  This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts (and by facsimile or other electronic transmission) and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

 

22.          Severability .  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

23.          Conflicts .  In the event of any conflict between the provisions of this Agreement and the provisions of any of the Second Lien Loan Documents, the provisions of this Agreement shall govern and control.

 

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24.          Successors and Assigns .  The provisions of this Agreement shall be binding upon, and inure to the benefit of, Gemino and FCB and their respective successors and assigns.

 

25.          Section Headings .  The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

 

(Signature Pages Follow)

 

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Signature Page to Subordination Agreement

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Subordination Agreement effective as of the date first above written.

 

 

FIRST LIEN LENDER:

 

 

 

GEMINO HEALTHCARE FINANCE, LLC

 

 

 

 

By:

/s/ Jeffrey M. Joslin

 

 

Jeffrey M. Joslin , Senior Portfolio Manager

 



 

Signature Page to Subordination Agreement

 

 

SECOND LIEN CREDITOR:

 

 

 

FIRST COMMERCIAL BANK

 

 

 

 

By:

/s/ [Illegible]

 

Name:

 

 

Title:

 

 



 

Signature Page to Subordination Agreement

 

The undersigned Company referred to in the foregoing Subordination Agreement (“ Subordination Agreement ”) hereby agrees to comply with all of the terms and provisions of the Subordination Agreement in all respects.  Company hereby covenants that it will not, and will not allow any of its members to, make any payment on account of, recognize any forgiveness, assignment or transfer of, nor give any security for, the FCB Debt while the Subordination Agreement is in effect.

 

COMPANY:

NW 61 ST  NURSING, LLC

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 


Exhibit 10.10

 

GUARANTY AGREEMENT

 

This GUARANTY AGREEMENT (as the same may from time to time be amended, restated, supplemented or otherwise modified, this “ Guaranty ”) is made as of May 30, 2013 by NW 61 ST  NURSING , a Georgia limited liability company (“ Guarantor ”), in favor of GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company  (together with its successors and assigns, the “ Lender ”).

 

W I T N E S S E T H :

 

WHEREAS , Lender has made an extension of credit to ADK Bonterra/Parkview, LLC, a Georgia limited liability company (hereinafter referred to, together with its successors and permitted assigns and any other Person from time to time joined to the Credit Agreement as a borrower, as “ Borrowers ” and individually referred to as a “ Borrower ”), under that certain Credit Agreement dated April 27, 2011 (as amended, restated, modified and supplemented from time to time, the “ Credit Agreement ”) by and among the Lender and the Borrowers;

 

WHEREAS , Guarantor is an affiliate of each Borrower and will derive both direct and indirect economic benefit from the financial accommodations made to the Borrowers under the Credit Agreement;

 

WHEREAS , the Lender has required, as a condition to it entering into the Credit Agreement, that the Guarantor execute and deliver this Guaranty; and

 

WHEREAS , capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them under the Credit Agreement.

 

NOW THEREFORE , for and in consideration of the foregoing and of any financial accommodations or extensions of credit (including, without limitation, any loan or advance by renewal, refinancing or extension of the agreements described hereinabove or otherwise) heretofore, now or hereafter made to or for the benefit of the Borrowers pursuant to the Credit Agreement or any other Loan Document executed pursuant to or in connection therewith, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows:

 

1.                                       Guaranty of Payment .  Guarantor hereby guarantees the full and prompt payment and performance when due, whether by acceleration or otherwise, and at all times thereafter, of all Obligations of the Borrowers to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due (all such obligations, together with any extensions or renewals thereof, being hereinafter collectively called the “ Liabilities ”), and Guarantor further agrees to pay all expenses (including, reasonable attorneys’ and legal assistants’ fees and legal expenses) paid or incurred by the Lender in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty.  The right of recovery against Guarantor is unlimited.  Notwithstanding any provisions of this Guaranty to the contrary, it is intended that this Guaranty not constitute a “Fraudulent Conveyance” (as defined below).  Consequently, Guarantor agrees that if this Guaranty would, but for the application of this sentence, constitute a Fraudulent Conveyance, this Guaranty shall be valid and enforceable only to the maximum extent that would not cause this Guaranty to

 



 

constitute a Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have been amended accordingly at all relevant times.  For purposes hereof, “ Fraudulent Conveyance ” means a fraudulent conveyance under Section 548 of the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under the provisions of any applicable fraudulent conveyance or fraudulent transfer law, order, ruling, decision or similar law, order, ruling or decision binding upon the undersigned of any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof or any court or arbitrator, as in effect from time to time.

 

2.                                       Primary Liability of the Guarantor .  Guarantor agrees that this Guaranty may be enforced by the Lender without the necessity at any time of resorting to or exhausting any other security or collateral.  This is a guaranty of payment and not merely of collection.

 

3.                                       Acceleration of the Time of Payment of Amount Payable Under Guaranty .  Guarantor agrees that, in the event of the dissolution or insolvency of any Borrower or Guarantor, or the inability of any Borrower or Guarantor to pay debts as they mature, or an assignment by any Borrower or Guarantor for the benefit of creditors, or the institution of any proceeding by or against any Borrower or Guarantor alleging that such Borrower or Guarantor is insolvent or unable to pay debts as they mature, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, Guarantor will pay to the Lender forthwith the full amount which would be payable hereunder by Guarantor if all of the Liabilities were then due and payable.

 

4.                                       Continuing Guaranty .  This Guaranty shall in all respects be a continuing, absolute and unconditional guaranty, and shall remain in full force and effect, subject to discontinuance as to Guarantor only upon actual receipt by the Lender of the indefeasible payment in full of the Liabilities and the termination of the Credit Agreement (the date of such receipt, the “ Termination Date ”).

 

5.                                       Rescission or Return of Payment on Liabilities .  Guarantor further agrees that, if at any time all or any part of any payment theretofore applied by the Lender to any of the Liabilities is or must be rescinded or returned by the Lender for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Guarantor or any Borrower), such Liabilities shall, for the purposes of this Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Lender, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by the Lender had not been made.

 

6.                                       Lender Permitted to Take Certain Actions .  The Lender may, from time to time (but shall not be obligated to), whether before or after any discontinuance of this Guaranty, at its sole discretion and without notice to Guarantor, take any or all of the following actions:  (a) retain or obtain a security interest in any property to secure any of the Liabilities or any obligation hereunder; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the Guarantor, with respect to any of the Liabilities; (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of Guarantor or any obligation of any nature of any other obligor with respect to any of the Liabilities; (d) release its security interest

 

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in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (e) resort to Guarantor for payment of any of the Liabilities, whether or not the Lender (i) shall have resorted to any property securing any of the Liabilities or any obligation hereunder or (ii) shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Liabilities (all of the actions referred to in preceding clauses (i) and (ii) being hereby waived by Guarantor).

 

7.                                       Application of Payments .  Any amounts received by the Lender from whatsoever source on account of the Liabilities may be applied by it toward the payment of such Liabilities, and in such order of application, as the Lender may from time to time elect, subject to the terms of the Credit Agreement.

 

8.                                       Subrogation .  Until such time as this Guaranty shall have been discontinued as to Guarantor and the Lender shall have received payment of the full amount of all of the Liabilities, no payment made by or for the account of Guarantor pursuant to this Guaranty shall entitle Guarantor by subrogation or otherwise to any payment by the Borrowers or from or out of any property of the Borrowers, and Guarantor shall not exercise any right or remedy against the Borrowers or any property of the Borrowers by reason of any performance by Guarantor of this Guaranty.

 

9.                                       Waiver of Notice and Other Matters .  Guarantor waives: (a) notice of the acceptance by the Lender of this Guaranty; (b) notice of the existence or creation or non-payment of all or any of the Liabilities; (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever; and (d) all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing.

 

10.                                Assignment of Liabilities .  The Lender may, from time to time, whether before or after any discontinuance of this Guaranty, without notice to Guarantor, assign or transfer any or all of the Liabilities or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this Guaranty, and each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of the interest of such assignee or transferee in the Liabilities, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were the Lender; provided, however, that, unless the Lender shall otherwise consent in writing, the Lender shall have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce this Guaranty, for the benefit of the Lender, as to those of the Liabilities which the Lender has not assigned or transferred.

 

11.                                Information Concerning Borrowers; No Reliance on Representations by Lender .  Guarantor hereby warrants to the Lender that Guarantor now has and will continue to have independent means of obtaining information concerning the affairs, financial condition and business of the Borrowers.  The Lender shall not have any duty or responsibility to provide Guarantor with any credit or other information concerning the affairs, financial condition or

 

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business of the Borrowers which may come into the Lender’s possession.  Guarantor has executed and delivered this Guaranty without reliance upon any representation by the Lender with respect to (a) the due execution, validity, effectiveness or enforceability of any instrument, document or agreement evidencing or relating to any of the Liabilities or any loan or other financial accommodation made or granted to the Borrowers; (b) the validity, genuineness, enforceability, existence, value or sufficiency or any property securing any of the Liabilities or the creation, perfection or priority of any lien or security interest in such property; or (c) the existence, number, financial condition or creditworthiness of other guarantors or sureties with respect to any of the Liabilities.

 

12.                                Waiver and Modifications .  No delay on the part of the Lender in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Lender of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon the Lender except as expressly set forth in a writing duly signed and delivered on behalf of the Lender.

 

13.                                Obligations Under Guaranty .  No action of the Lender permitted hereunder shall in any way affect or impair the rights of the Lender and the obligations of Guarantor under this Guaranty.  For the purposes of this Guaranty, Liabilities shall include all Obligations of the Borrowers to the Lender, notwithstanding any right or power of the Borrowers or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such Obligation, and no such claim or defense shall affect or impair the obligations of Guarantor hereunder.  The obligations of Guarantor under this Guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of Guarantor.  Guarantor acknowledges that there are no conditions to the effectiveness of this Guaranty.

 

14.                                Successors .  This Guaranty shall be binding upon Guarantor, and upon the successors and assigns of Guarantor.

 

15.                                Representations and Warranties .  Guarantor warrants that:

 

(a)                                  Guarantor has the full and absolute power to execute and deliver this Guaranty and to perform its obligations hereunder.

 

(b)                                  The execution and delivery of this Guaranty and the performance by Guarantor of Guarantor’s obligations hereunder do not and will not conflict with any provision of law or of any agreement binding upon Guarantor.

 

(c)                                   The Guaranty is the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.

 

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16.                                Reserved .

 

17.                                Law .  THIS GUARANTY, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS GUARANTY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS, AND SHALL BE CONSTRUED WITHOUT THE AID OF ANY CANON, CUSTOM OR RULE OF LAW REQUIRING CONSTRUCTION AGAINST THE DRAFTSMAN.

 

18.                                Warrant of Attorney to Confess Judgment .

 

(a)                                  Acknowledgment of Warrant of Attorney .  THE FOLLOWING PARAGRAPH SETS FORTH A GRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST GUARANTOR.  IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST GUARANTOR, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR GUARANTOR AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, GUARANTOR HEREBY KNOWINGLY, INTENTIONALLY, VOLUNTARILY, INTELLIGENTLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS GUARANTOR HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE INCLUDING, WITHOUT LIMITATION, A HEARING PRIOR TO GARNISHMENT AND ATTACHMENT OF GUARANTOR’S BANK ACCOUNTS AND OTHER ASSETS.  GUARANTOR ACKNOWLEDGES AND UNDERSTANDS THAT BY ENTERING INTO THIS AGREEMENT CONTAINING A CONFESSION OF JUDGMENT CLAUSE THAT GUARANTOR IS VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY GIVING UP ANY AND ALL RIGHTS, INCLUDING CONSTITUTIONAL RIGHTS, THAT GUARANTOR HAS OR MAY HAVE TO NOTICE AND A HEARING BEFORE JUDGMENT CAN BE ENTERED AGAINST GUARANTOR AND BEFORE GUARANTOR’S ASSETS, INCLUDING, WITHOUT LIMITATION, BANK ACCOUNTS, MAY BE GARNISHED, LEVIED, EXECUTED UPON AND/OR ATTACHED.  GUARANTOR UNDERSTANDS THAT ANY SUCH GARNISHMENT, LEVY, EXECUTION AND/OR ATTACHMENT SHALL RENDER THE PROPERTY GARNISHED, LEVIED, EXECUTED UPON OR ATTACHED IMMEDIATELY UNAVAILABLE TO GUARANTOR.  IT IS SPECIFICALLY ACKNOWLEDGED BY GUARANTOR THAT THE PAYEE HAS RELIED ON THIS WARRANT OF ATTORNEY AND THE RIGHTS WAIVED BY GUARANTOR HEREIN IN CONSENTING TO THIS AGREEMENT AND AS AN INDUCEMENT TO GRANT THE ACCOMMODATIONS OUTLINED HEREIN TO GUARANTOR.

 

(b)                                  Warrant Of Attorney To Confess Judgment — Money .  GUARANTOR HEREBY AUTHORIZES AND EMPOWERS, UPON AN EVENT OF DEFAULT HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, ANY ATTORNEY OF ANY COURT OF RECORD OR THE PROTHONOTARY OR CLERK OF ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA, OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, OR THE CLERK OF ANY UNITED STATES DISTRICT COURT, TO APPEAR FOR GUARANTOR IN ANY AND ALL ACTIONS WHICH MAY BE

 

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BROUGHT HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, AND ENTER AND CONFESS JUDGMENT AGAINST GUARANTOR IN FAVOR OF THE LENDER OR ITS ASSIGNEE FOR THE ENTIRE AMOUNT OF THE INDEBTEDNESS THEN DUE AND OUTSTANDING UNDER THE TERMS OF THE NOTES, AND/OR UNDER THE TERMS OF THE OTHER LOAN DOCUMENTS, TOGETHER WITH ATTORNEYS’ FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE FOREGOING SUMS THEN DUE AND OWING, BUT IN NO EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS, ALL WITH OR WITHOUT DECLARATION, WITHOUT PRIOR NOTICE, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL PROCEDURAL ERRORS AND THE RIGHT TO ISSUE EXECUTIONS FORTHWITH.  TO THE EXTENT PERMITTED BY LAW, GUARANTOR WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTION THIS VOLUNTARY CONDEMNATION AND AGREES THAT SUCH REAL ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; AND ALSO WAIVES ANY RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED.  IF COPIES OF THE NOTES AND/OR THE OTHER LOAN DOCUMENTS VERIFIED BY AFFIDAVIT OF ANY REPRESENTATIVE OF THE LENDER SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINALS THEREOF AS A WARRANT OF ATTORNEY, ANY PRACTICE OR USAGE TO THE CONTRARY NOTWITHSTANDING.  THE AUTHORITY HEREIN GRANTED TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY SINGLE EXERCISE THEREOF, BUT SHALL CONTINUE AND MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE LENDER SHALL FIND IT NECESSARY AND DESIRABLE AND AT ALL TIMES UNTIL FULL PAYMENT OF ALL AMOUNTS DUE HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS.  THE LENDER MAY CONFESS ONE OR MORE JUDGMENTS IN THE SAME OR DIFFERENT JURISDICTIONS FOR ALL OR ANY PART OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, WITHOUT REGARD TO WHETHER JUDGMENT HAS THERETOFORE BEEN CONFESSED ON MORE THAN ONE OCCASION FOR THE SAME INDEBTEDNESS OR OBLIGATIONS.  IN THE EVENT THAT ANY JUDGMENT CONFESSED AGAINST GUARANTOR IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BEHALF OF GUARANTOR FOR ANY REASON, THE LENDER IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR FOR AND CONFESS JUDGMENT AGAINST GUARANTOR FOR ANY PART OR ALL OF THE INDEBTEDNESS DUE AND OWING TO THE LENDER HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS.

 

(c)                                   Warrant of Attorney to Confess Judgment — General Provisions .  IN ANY ACTION OR PROCEEDING DESCRIBED IN SECTION 18 HEREIN OR IN CONNECTION THEREWITH, IF COPIES OF THIS AND/OR THE OTHER LOAN DOCUMENTS ARE THEREIN VERIFIED BY THE LENDER OR SOMEONE ACTING FOR THE LENDER TO BE TRUE AND CORRECT COPIES OF THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS (AND SUCH COPIES SHALL BE CONCLUSIVELY PRESUMED TO BE TRUE AND CORRECT BY VIRTUE OF SUCH VERIFICATION), THEN IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL OF THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS, ANY STATUTE, RULE OF COURT OF LAW, CUSTOM OR

 

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PRACTICE TO THE CONTRARY NOTWITHSTANDING.  GUARANTOR HEREBY RELEASES TO THE LENDER, ANYONE ACTING FOR THE LENDER AND ALL ATTORNEYS WHO MAY APPEAR FOR GUARANTOR, ALL ERRORS IN PROCEDURE REGARDING THE ENTRY OF JUDGMENT OR JUDGMENTS BY CONFESSION OR OTHERWISE BY VIRTUE OF THE WARRANTS OF ATTORNEY CONTAINED IN THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS, AND ALL LIABILITY THEREFOR.  THE RIGHT TO ENTER JUDGMENT OR JUDGMENTS BY CONFESSION OR OTHERWISE BY VIRTUE OF THE WARRANTS OF ATTORNEY CONTAINED IN THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS, AND TO ENFORCE ALL OF THE OTHER PROVISIONS OF THE AFORESAID DOCUMENTS MAY BE EXERCISED BY ANY ASSIGNEE OF THE LENDER’S RIGHT, TITLE AND INTEREST IN THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS IN SUCH ASSIGNEE’S OWN NAME, ANY STATUTE, RULE OF COURT OR LAW, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.

 

19.                                Severability .  Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty.

 

20.                                Captions .  Section captions used in this Guaranty are for convenience only, and shall not affect the construction of this Guaranty.

 

21.                                Waiver of Jury Trial .  GUARANTOR WAIVES, AND, BY ACCEPTING THIS GUARANTY, THE LENDER SHALL BE DEEMED TO WAIVE, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B) ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY, AND GUARANTOR AGREES, AND, BY ACCEPTING THIS GUARANTY, THE LENDER SHALL BE DEEMED TO AGREE, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

22.                                Consent to Jurisdiction .  GUARANTOR AND LENDER HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE JURISDICTION OF, AND VENUE IN, ANY STATE OR FEDERAL COURT LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING.  BORROWERS WAIVE ANY OBJECTION TO IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT OR COURTS AND ALL RIGHTS TO TRANSFER FOR ANY REASON.  GUARANTOR IRREVOCABLY AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE APPROPRIATE PARTY SET FORTH HEREIN.

 

[SIGNATURE PAGE FOLLOWS]

 

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Signature Page to Guaranty Agreement

 

IN WITNESS WHEREOF , this Guaranty Agreement has been duly executed as of the day and year first above written.

 

 

GUARANTOR :

 

 

 

NW 61 ST  NURSING, LLC

 

 

 

By:

/s/ Boyd P. Gentry

 

 

   Boyd P. Gentry , Manager

 


Exhibit 10.11

 

GUARANTY AGREEMENT

 

This GUARANTY AGREEMENT (as the same may from time to time be amended, restated, supplemented or otherwise modified, this “ Guaranty ”) is made as of May 30, 2013 by ADCARE HEALTH SYSTEMS, INC. , an Ohio corporation (“ Guarantor ”), in favor of GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (together with its successors and assigns, the “ Lender ”).

 

W I T N E S S E T H :

 

WHEREAS , Lender has made or is about to make an extension of credit to NW 61 st  Nursing, LLC, a Georgia limited liability company (hereinafter referred to, together with its successors and permitted assigns and any other Person from time to time joined to the Credit Agreement as a borrower, as “ Borrowers ” and individually referred to as a “ Borrower ”), under that certain Credit Agreement dated the date hereof (as amended, restated, modified and supplemented from time to time, the “ Credit Agreement ”) by and among the Lender and the Borrowers;

 

WHEREAS , Guarantor is a direct or indirect shareholder of each Borrower and will derive both direct and indirect economic benefit from the financial accommodations made to the Borrowers under the Credit Agreement;

 

WHEREAS , the Lender has required, as a condition to it entering into the Credit Agreement, that the Guarantor executes and delivers this Guaranty; and

 

WHEREAS , capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them under the Credit Agreement.

 

NOW THEREFORE , for and in consideration of the foregoing and of any financial accommodations or extensions of credit (including, without limitation, any loan or advance by renewal, refinancing or extension of the agreements described hereinabove or otherwise) heretofore, now or hereafter made to or for the benefit of the Borrowers pursuant to the Credit Agreement or any other Loan Document executed pursuant to or in connection therewith, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows:

 

1.                                       Guaranty of Payment .  Guarantor hereby guarantees the full and prompt payment and performance when due, whether by acceleration or otherwise, and at all times thereafter, of all Obligations of the Borrowers to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due (all such obligations, together with any extensions or renewals thereof, being hereinafter collectively called the “ Liabilities ”), and Guarantor further agrees to pay all expenses (including, reasonable attorneys’ and legal assistants’ fees and legal expenses) paid or incurred by the Lender in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty.  The right of recovery against Guarantor is unlimited.  Notwithstanding any provisions of this Guaranty to the contrary, it is intended that this Guaranty not constitute a “Fraudulent Conveyance” (as defined below).  Consequently, Guarantor agrees that if this Guaranty would, but for the application of this sentence, constitute a Fraudulent Conveyance, this Guaranty shall

 



 

be valid and enforceable only to the maximum extent that would not cause this Guaranty to constitute a Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have been amended accordingly at all relevant times.  For purposes hereof, “ Fraudulent Conveyance ” means a fraudulent conveyance under Section 548 of the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under the provisions of any applicable fraudulent conveyance or fraudulent transfer law, order, ruling, decision or similar law, order, ruling or decision binding upon the undersigned of any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof or any court or arbitrator, as in effect from time to time.

 

2.                                       Primary Liability of the Guarantor .  Guarantor agrees that this Guaranty may be enforced by the Lender without the necessity at any time of resorting to or exhausting any other security or collateral.  This is a guaranty of payment and not merely of collection.

 

3.                                       Acceleration of the Time of Payment of Amount Payable Under Guaranty .  Guarantor agrees that, in the event of the dissolution or insolvency of any Borrower or Guarantor, or the inability of any Borrower or Guarantor to pay debts as they mature, or an assignment by any Borrower or Guarantor for the benefit of creditors, or the institution of any proceeding by or against any Borrower or Guarantor alleging that such Borrower or Guarantor is insolvent or unable to pay debts as they mature, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, Guarantor will pay to the Lender forthwith the full amount which would be payable hereunder by Guarantor if all of the Liabilities were then due and payable.

 

4.                                       Continuing Guaranty .  This Guaranty shall in all respects be a continuing, absolute and unconditional guaranty, and shall remain in full force and effect, subject to discontinuance as to Guarantor only upon actual receipt by the Lender of the indefeasible payment in full of the Liabilities and the termination of the Credit Agreement (the date of such receipt, the “ Termination Date ”).

 

5.                                       Rescission or Return of Payment on Liabilities .  Guarantor further agrees that, if at any time all or any part of any payment theretofore applied by the Lender to any of the Liabilities is or must be rescinded or returned by the Lender for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Guarantor or any Borrower), such Liabilities shall, for the purposes of this Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Lender, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by the Lender had not been made.

 

6.                                       Lender Permitted to Take Certain Actions .  The Lender may, from time to time (but shall not be obligated to), whether before or after any discontinuance of this Guaranty, at its sole discretion and without notice to Guarantor, take any or all of the following actions:  (a) retain or obtain a security interest in any property to secure any of the Liabilities or any obligation hereunder; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the Guarantor, with respect to any of the Liabilities; (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of

 

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the Liabilities, or release or compromise any obligation of Guarantor or any obligation of any nature of any other obligor with respect to any of the Liabilities; (d) release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (e) resort to the Guarantor for payment of any of the Liabilities, whether or not the Lender (i) shall have resorted to any property securing any of the Liabilities or any obligation hereunder or (ii) shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Liabilities (all of the actions referred to in preceding clauses (i) and (ii) being hereby waived by Guarantor).

 

7.                                       Application of Payments .  Any amounts received by the Lender from whatsoever source on account of the Liabilities may be applied by it toward the payment of such Liabilities, and in such order of application, as the Lender may from time to time elect, subject to the terms of the Credit Agreement.

 

8.                                       Subrogation .  Until such time as this Guaranty shall have been discontinued as to Guarantor and the Lender shall have received payment of the full amount of all of the Liabilities, no payment made by or for the account of Guarantor pursuant to this Guaranty shall entitle Guarantor by subrogation or otherwise to any payment by the Borrowers or from or out of any property of the Borrowers, and Guarantor shall not exercise any right or remedy against the Borrowers or any property of the Borrowers by reason of any performance by Guarantor of this Guaranty.

 

9.                                       Waiver of Notice and Other Matters .  Guarantor waives: (a) notice of the acceptance by the Lender of this Guaranty; (b) notice of the existence or creation or non-payment of all or any of the Liabilities; (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever; and (d) all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing.

 

10.                                Assignment of Liabilities .  The Lender may, from time to time, whether before or after any discontinuance of this Guaranty, without notice to Guarantor, assign or transfer any or all of the Liabilities or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this Guaranty, and each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of the interest of such assignee or transferee in the Liabilities, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were the Lender; provided, however, that, unless the Lender shall otherwise consent in writing, the Lender shall have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce this Guaranty, for the benefit of the Lender, as to those of the Liabilities which the Lender has not assigned or transferred.

 

11.                                Information Concerning Borrowers; No Reliance on Representations by Lender .  Guarantor hereby warrants to the Lender that Guarantor now has and will continue to

 

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have independent means of obtaining information concerning the affairs, financial condition and business of the Borrowers.  The Lender shall not have any duty or responsibility to provide Guarantor with any credit or other information concerning the affairs, financial condition or business of the Borrowers which may come into the Lender’s possession.  Guarantor has executed and delivered this Guaranty without reliance upon any representation by the Lender with respect to (a) the due execution, validity, effectiveness or enforceability of any instrument, document or agreement evidencing or relating to any of the Liabilities or any loan or other financial accommodation made or granted to the Borrowers; (b) the validity, genuineness, enforceability, existence, value or sufficiency or any property securing any of the Liabilities or the creation, perfection or priority of any lien or security interest in such property; or (c) the existence, number, financial condition or creditworthiness of other guarantors or sureties with respect to any of the Liabilities.

 

12.                                Waiver and Modifications .  No delay on the part of the Lender in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Lender of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon the Lender except as expressly set forth in a writing duly signed and delivered on behalf of the Lender.

 

13.                                Obligations Under Guaranty .  No action of the Lender permitted hereunder shall in any way affect or impair the rights of the Lender and the obligations of Guarantor under this Guaranty.  For the purposes of this Guaranty, Liabilities shall include all Obligations of the Borrowers to the Lender, notwithstanding any right or power of the Borrowers or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such Obligation, and no such claim or defense shall affect or impair the obligations of Guarantor hereunder.  The obligations of Guarantor under this Guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of Guarantor.  Guarantor acknowledges that there are no conditions to the effectiveness of this Guaranty.

 

14.                                Successors .  This Guaranty shall be binding upon Guarantor, and upon the successors and assigns of Guarantor.

 

15.                                Representations and Warranties .  Guarantor warrants that:

 

(a)                                  Guarantor has the full and absolute power to execute and deliver this Guaranty and to perform its obligations hereunder.

 

(b)                                  The execution and delivery of this Guaranty and the performance by Guarantor of Guarantor’s obligations hereunder do not and will not conflict with any provision of law or of any agreement binding upon Guarantor.

 

(c)                                   The Guaranty is the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the

 

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enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.

 

16.                                Reserved .

 

17.                                Law .  THIS GUARANTY, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS GUARANTY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS, AND SHALL BE CONSTRUED WITHOUT THE AID OF ANY CANON, CUSTOM OR RULE OF LAW REQUIRING CONSTRUCTION AGAINST THE DRAFTSMAN.

 

18.                                Warrant of Attorney to Confess Judgment .

 

(a)                                  Acknowledgment of Warrant of Attorney .  THE FOLLOWING PARAGRAPH SETS FORTH A GRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST GUARANTOR.  IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST GUARANTOR, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR GUARANTOR AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, GUARANTOR HEREBY KNOWINGLY, INTENTIONALLY, VOLUNTARILY, INTELLIGENTLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS GUARANTOR HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE INCLUDING, WITHOUT LIMITATION, A HEARING PRIOR TO GARNISHMENT AND ATTACHMENT OF GUARANTOR’S BANK ACCOUNTS AND OTHER ASSETS.  GUARANTOR ACKNOWLEDGES AND UNDERSTANDS THAT BY ENTERING INTO THIS AGREEMENT CONTAINING A CONFESSION OF JUDGMENT CLAUSE THAT GUARANTOR IS VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY GIVING UP ANY AND ALL RIGHTS, INCLUDING CONSTITUTIONAL RIGHTS, THAT GUARANTOR HAS OR MAY HAVE TO NOTICE AND A HEARING BEFORE JUDGMENT CAN BE ENTERED AGAINST GUARANTOR AND BEFORE GUARANTOR’S ASSETS, INCLUDING, WITHOUT LIMITATION, BANK ACCOUNTS, MAY BE GARNISHED, LEVIED, EXECUTED UPON AND/OR ATTACHED.  GUARANTOR UNDERSTANDS THAT ANY SUCH GARNISHMENT, LEVY, EXECUTION AND/OR ATTACHMENT SHALL RENDER THE PROPERTY GARNISHED, LEVIED, EXECUTED UPON OR ATTACHED IMMEDIATELY UNAVAILABLE TO GUARANTOR.  IT IS SPECIFICALLY ACKNOWLEDGED BY GUARANTOR THAT THE PAYEE HAS RELIED ON THIS WARRANT OF ATTORNEY AND THE RIGHTS WAIVED BY GUARANTOR HEREIN IN CONSENTING TO THIS AGREEMENT AND AS AN INDUCEMENT TO GRANT THE ACCOMMODATIONS OUTLINED HEREIN TO GUARANTOR.

 

(b)                                  Warrant Of Attorney To Confess Judgment — Money .  GUARANTOR HEREBY AUTHORIZES AND EMPOWERS, UPON AN EVENT OF DEFAULT HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, ANY ATTORNEY

 

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OF ANY COURT OF RECORD OR THE PROTHONOTARY OR CLERK OF ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA, OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, OR THE CLERK OF ANY UNITED STATES DISTRICT COURT, TO APPEAR FOR GUARANTOR IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, AND ENTER AND CONFESS JUDGMENT AGAINST GUARANTOR IN FAVOR OF THE LENDER OR ITS ASSIGNEE FOR THE ENTIRE AMOUNT OF THE INDEBTEDNESS THEN DUE AND OUTSTANDING UNDER THE TERMS OF THE NOTES, AND/OR UNDER THE TERMS OF THE OTHER LOAN DOCUMENTS, TOGETHER WITH ATTORNEYS’ FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE FOREGOING SUMS THEN DUE AND OWING, BUT IN NO EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS, ALL WITH OR WITHOUT DECLARATION, WITHOUT PRIOR NOTICE, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL PROCEDURAL ERRORS AND THE RIGHT TO ISSUE EXECUTIONS FORTHWITH.  TO THE EXTENT PERMITTED BY LAW, GUARANTOR WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTION THIS VOLUNTARY CONDEMNATION AND AGREES THAT SUCH REAL ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; AND ALSO WAIVES ANY RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED.  IF COPIES OF THE NOTES AND/OR THE OTHER LOAN DOCUMENTS VERIFIED BY AFFIDAVIT OF ANY REPRESENTATIVE OF THE LENDER SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINALS THEREOF AS A WARRANT OF ATTORNEY, ANY PRACTICE OR USAGE TO THE CONTRARY NOTWITHSTANDING.  THE AUTHORITY HEREIN GRANTED TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY SINGLE EXERCISE THEREOF, BUT SHALL CONTINUE AND MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE LENDER SHALL FIND IT NECESSARY AND DESIRABLE AND AT ALL TIMES UNTIL FULL PAYMENT OF ALL AMOUNTS DUE HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS.  THE LENDER MAY CONFESS ONE OR MORE JUDGMENTS IN THE SAME OR DIFFERENT JURISDICTIONS FOR ALL OR ANY PART OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS, WITHOUT REGARD TO WHETHER JUDGMENT HAS THERETOFORE BEEN CONFESSED ON MORE THAN ONE OCCASION FOR THE SAME INDEBTEDNESS OR OBLIGATIONS.  IN THE EVENT THAT ANY JUDGMENT CONFESSED AGAINST GUARANTOR IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BEHALF OF GUARANTOR FOR ANY REASON, THE LENDER IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR FOR AND CONFESS JUDGMENT AGAINST GUARANTOR FOR ANY PART OR ALL OF THE INDEBTEDNESS DUE AND OWING TO THE LENDER HEREUNDER, AND/OR UNDER THE OTHER LOAN DOCUMENTS.

 

(c)                                   Warrant of Attorney to Confess Judgment — General Provisions .  IN ANY ACTION OR PROCEEDING DESCRIBED IN SECTION 18 HEREIN OR IN CONNECTION THEREWITH, IF COPIES OF THIS AND/OR THE OTHER LOAN DOCUMENTS ARE THEREIN VERIFIED BY THE LENDER OR SOMEONE ACTING FOR THE LENDER TO BE TRUE AND CORRECT COPIES OF THIS INSTRUMENT AND/OR THE OTHER LOAN

 

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DOCUMENTS (AND SUCH COPIES SHALL BE CONCLUSIVELY PRESUMED TO BE TRUE AND CORRECT BY VIRTUE OF SUCH VERIFICATION), THEN IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL OF THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS, ANY STATUTE, RULE OF COURT OF LAW, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.  GUARANTOR HEREBY RELEASES TO THE LENDER, ANYONE ACTING FOR THE LENDER AND ALL ATTORNEYS WHO MAY APPEAR FOR GUARANTOR, ALL ERRORS IN PROCEDURE REGARDING THE ENTRY OF JUDGMENT OR JUDGMENTS BY CONFESSION OR OTHERWISE BY VIRTUE OF THE WARRANTS OF ATTORNEY CONTAINED IN THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS, AND ALL LIABILITY THEREFOR.  THE RIGHT TO ENTER JUDGMENT OR JUDGMENTS BY CONFESSION OR OTHERWISE BY VIRTUE OF THE WARRANTS OF ATTORNEY CONTAINED IN THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS, AND TO ENFORCE ALL OF THE OTHER PROVISIONS OF THE AFORESAID DOCUMENTS MAY BE EXERCISED BY ANY ASSIGNEE OF THE LENDER’S RIGHT, TITLE AND INTEREST IN THIS INSTRUMENT AND/OR THE OTHER LOAN DOCUMENTS IN SUCH ASSIGNEE’S OWN NAME, ANY STATUTE, RULE OF COURT OR LAW, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.

 

19.                                Severability .  Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty.

 

20.                                Captions .  Section captions used in this Guaranty are for convenience only, and shall not affect the construction of this Guaranty.

 

21.                                Waiver of Jury Trial .  GUARANTOR WAIVES, AND, BY ACCEPTING THIS GUARANTY, THE LENDER SHALL BE DEEMED TO WAIVE, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B) ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY, AND GUARANTOR AGREES, AND, BY ACCEPTING THIS GUARANTY, THE LENDER SHALL BE DEEMED TO AGREE, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

22.                                Consent to Jurisdiction .  GUARANTOR AND LENDER HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE JURISDICTION OF, AND VENUE IN, ANY STATE OR FEDERAL COURT LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING.  BORROWERS WAIVE ANY OBJECTION TO IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT OR COURTS AND ALL RIGHTS TO TRANSFER FOR ANY REASON.  GUARANTOR IRREVOCABLY AGREES

 

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TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE APPROPRIATE PARTY SET FORTH HEREIN.

 

[SIGNATURE PAGE FOLLOWS]

 

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Signature Page to Guaranty Agreement

 

IN WITNESS WHEREOF , this Guaranty Agreement has been duly executed as of the day and year first above written.

 

 

GUARANTOR :

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , President and Chief

 

 

Exexutive Officer

 


Exhibit 10.12

 

Execution Version

 

FIRST AMENDMENT TO SECURED LOAN AGREEMENT

AND PAYMENT GUARANTY

 

This FIRST AMENDMENT TO SECURED LOAN AGREEMENT AND PAYMENT GUARANTY (this Amendment ), made this 31 st  day of May, 2013, by and among WOODLAND HILLS HC PROPERTY HOLDINGS, LLC, NORTHRIDGE HC&R PROPERTY HOLDINGS, LLC, APH&R PROPERTY HOLDINGS, LLC, WOODLAND HILLS HC NURSING, LLC, NORTHRIDGE HC&R NURSING, LLC, and APH&R NURSING, LLC , each a Georgia limited liability company (each a “ Borrower ,” and together, the “ Borrowers ”), ADCARE HEALTH SYSTEMS, INC., an Ohio corporation, ADCARE PROPERTY HOLDINGS, LLC, an Ohio limited liability company, and ADCARE OPERATIONS, LLC, a Georgia limited liability company (each a “ Guarantor ”, and together, the “ Guarantors ”), and KEYBANK NATIONAL ASSOCIATION , a national banking association, its successors and assigns (“ Lender ”).

 

W I T N E S S E T H:

 

WHEREAS, Borrowers entered into that certain Secured Loan Agreement dated as of December 28, 2012 (the “ Loan Agreement ”), pursuant to which Lender made a $16,500,000 term loan to Borrowers (the “ Loan ”); and

 

WHEREAS, all capitalized terms used herein have the meanings ascribed thereto in the Loan Agreement unless otherwise provided herein; and

 

WHEREAS, the Obligations of Borrowers are guaranteed by the Guarantors pursuant to the Guaranties; and

 

WHEREAS, Loan Parties have requested that certain terms of the Loan Agreement and the Parent Guaranty be modified and amended as hereinafter set forth; and

 

WHEREAS, Lender has agreed to such modifications and amendments as set forth herein, subject to the terms and conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Amendment hereby agree as follows:

 

1.                                       Amendments to §2.1 of the Loan Agreement .  Section 2.1 of the Loan Agreement, Defined Terms , is hereby modified and amended as follows:

 

(a)          the existing definition of “Projects” is deleted in its entirety and the following new definition is substituted in lieu thereof:

 

“Projects .  The Abington Project, the Northridge Project and the Woodland Hills Project.  The term “Project,” as used herein, shall mean any of the Projects.”

 



 

(b)          the following new definitions are inserted in their appropriate alphabetical order:

 

AdCare Administrative Services :  AdCare Administrative Services, LLC, a Georgia limited liability company.

 

AdCare Consulting :  AdCare Consulting, LLC, a Georgia limited liability company.

 

CHP :  CHP Acquisition Company LLC, an Ohio limited liability company.

 

CHP Note :  Secured Promissory Note dated December 28, 2012, made by CHP and payable to Parent in the original principal amount of $3,600,000.00, as amended by Amendment to Secured Promissory Note dated as of February 28, 2013.

 

CHP Note Collateral :  One hundred percent (100%) of the ownership interest in H&H of Vandalia LLC, an Ohio limited liability company, which was pledged to secure the CHP Note pursuant to a Pledge and Security Agreement dated December 28, 2012 from CHP in favor of Parent.

 

First Amendment :  First Amendment to Secured Loan Agreement and Payment Guaranty dated May 31, 2013 by and among the Borrowers, the Guarantors and Lender.

 

First Amendment Effective Date :  The date on which the conditions to effectiveness of the First Amendment, as described in Paragraph 12 of the First Amendment, are satisfied.  The First Amendment Effective Date shall be not later than May 31, 2013.

 

Mountain Top Property Holdings :  Mountain Top Property Holdings, LLC, a Georgia limited liability company, and the owner of the Stone County Property.

 

Note Pledge Agreement :  Pledge and Security Agreement from Parent in favor of Lender pledging and granting to Lender a first priority security interest in and to the CHP Note and the CHP Note Collateral.

 

Special Collateral Account :  As such term is defined in Section 9.5 .

 

Stone County Indemnity :  Indemnity Agreement Regarding Hazardous Materials from Mountain Top Property Holdings in favor of Lender with respect to the Stone County Property.

 

Stone County Lease :  Facility Lease dated November 30, 2011 between Mountain Top Property Holdings, as landlord, and Mountain Top ALF, LLC, a

 

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Georgia limited liability company, as tenant, covering the Stone County Property and improvements thereon.

 

Stone County Lease Assignment :  Absolute Assignment of Leases and Rents from Mountain Top Property Holdings in favor of Lender with respect to the Stone County Property Lease.

 

Stone County Mortgage :  A Mortgage, Assignment of Rents, Security Agreement and Fixture Filing executed by Mountain Top Property Holdings for the benefit of Lender securing the Obligations, granting a first priority lien on the Stone County Property, subject to such title exceptions as are shown on the Stone County Title Policy.

 

Stone County Property :  That parcel of land located in Stone County, Arkansas having a physical address of 414 Massey, Mountain View, Arkansas and being owned by Mountain Top Property Holdings.

 

Stone County Title Policy :  A policy of title insurance (or commitment to issue title insurance) issued by First American Title Insurance Company insuring the lien of the Stone County Mortgage, in form and substance satisfactory to Lender.

 

2.                                       Amendment to Article 9 of the Loan Agreement .  Article 9 of the Loan Agreement, SPECIAL PROVISIONS, is hereby modified and amended by adding new Sections 9.5 and 9.6 thereto as follows:

 

“9.5  Special Collateral Account.  From and after the First Amendment Effective Date, the Tenants shall, on a monthly basis on or before the first day of each month, transfer from the Tenant Operating Accounts the sum of $75,000, increasing to $90,000 after January 1, 2014, to a deposit account established by Tenants with Lender, which account shall be under the sole dominion and control of Lender and with respect to which Tenants shall have no withdrawal rights (the “ Special Collateral Account ”).  Pursuant to an amendment to each of the Subordination of Management Agreements dated December 28, 2012, entered into by AdCare Consulting, AdCare Administrative Services and each of the Tenants for the benefit of Lender, AdCare Consulting and AdCare Administrative Services shall agree to waive the monthly fees payable to them under their respective Management Agreements to the extent of $75,000 per month, or $90,000 per month, as applicable, in the aggregate.  Any Tenant may request that Lender release funds from the Special Collateral Account to pay costs of renovation, refurbishment and similar improvements to its Project, subject to review and approval by, and satisfactory evidence delivered to, Lender of such improvements and the costs thereof; provided that such Lender approval requirement shall not prohibit any Tenant from expending its own funds for improvement costs.  Provided no Default or Event of Default is then existing, Lender will release funds from time to time from the Special Collateral Account to Tenants to pay costs of renovation, refurbishment and similar improvements

 

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that Lender shall have approved as provided in the immediately preceding sentence.  Any of the foregoing to the contrary notwithstanding, Lender may at any time and from time to time in its sole discretion apply any funds on deposit in the Special Collateral Account to the then current outstanding principal balance of the Loan.

 

9.6  Pledge of CHP Note.  On or before the First Amendment Effective Date, Parent shall execute and deliver the Note  Pledge Agreement, an allonge executed in blank and any certificate evidencing the CHP Note Collateral accompanied by an assignment separate from certificate executed in blank.  Parent shall perfect its security interest created under the pledge agreement securing the CHP Note.  Parent shall notify CHP in writing of the collateral assignment of the CHP Note to Lender and direct CHP to make all payments (or prepayments) of principal and interest on the CHP Note to Lender for application to the Obligations; provided, however, that Lender agrees that principal payments or prepayments on the CHP Note in excess of $2,000,000.00 are made, Parent shall be entitled to the excess over $2,000,000.00.  Parent shall provide Lender all necessary consents to such assignment of the CHP Note, including, but not limited to, the consent of Huntington National Bank (“ Huntington ”), as the “Senior Creditor” under that certain Debt Subordination Agreement dated as of December 28, 2012 by and among Parent, Huntington and CHP.  If any such consent is not obtained within thirty (30) days following the First Amendment Effective Date, Borrowers shall pay to Lender the amount of $500,000.00 to be applied to the outstanding principal balance of the Loan.”

 

3.                                       Amendment to §10.1(l) of the Loan Agreement . Section 10.1(l) of the Loan Agreement, Appraisals , is hereby modified and amended by adding, at the end of the paragraph, the following sentence:

 

“The foregoing provisions of this Section 10.1(l) shall apply in all respects to the Stone County Property.”

 

4.                                       Amendment to §10.1(m) of the Loan Agreement . Section 10.1(m) of the Loan Agreement, Furnishing Information , is hereby modified and amended by:

 

(a)                                  adding, at the end of paragraph (ii) thereof, the following proviso:

 

“provided, however, that the quarterly unaudited financial statements for the fiscal quarter ended March 31, 2013 as required by this paragraph shall be delivered to Lender not later than August 15, 2013”; and

 

(b)                                  adding, at the end of paragraph (iii) thereof, the following proviso:

 

“provided, however, that the annual audited financial statements for the fiscal year ended December 31, 2012 as required by this paragraph shall be delivered to Lender not later than July 16, 2013,”

 

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5.                                       Amendment to §10.1(w) of the Loan Agreement .  Section 10.1(w) of the Loan Agreement, Implied Debt Service Coverage , is hereby modified and amended by deleting the existing language thereof in its entirety and substituting the following in lieu thereof:

 

“(w) Implied Debt Service Coverage .  Borrower shall not permit the Implied Debt Service Coverage for the Projects, tested quarterly at the end of each fiscal quarter commencing with the fiscal quarter ending June 30, 2013, to be less than (i) 1.0 to 1.0 for the fiscal quarter ending June 30, 2013, (ii) 1.20 to 1.0 for the two (2) fiscal quarters ending September 30, 2013, (iii) 1.20 to 1.0 for the three (3) fiscal quarters ending December 31, 2013, and (iv) 1.40 to 1.0 for the four (4) fiscal quarters ending March 31, 2014 and thereafter on a rolling four (4) quarter basis.”

 

6.                                       Amendment to Section 10.1(z) of the Loan Agreement .  Section 10.1(z) of the Loan Agreement, Health Care Permits and Reimbursement Approvals , is modified and amended by deleting the existing language thereof in its entirety and substituting the following in lieu thereof:

 

“(z)   Health Care Permits and Reimbursement Approvals .  No Tenant shall (i) fail to maintain in effect all Health Care Permits and Reimbursement Approvals necessary to the operation of its business, or (ii) receive payment under the appropriate Medicare, Medicaid, or any other federal, state or local government sponsored health care program, or any related reimbursement programs, or engage in any activity that constitutes or, with the giving of notice, the passage of time, or both, would result in a material violation of any Health Care Permit necessary for the lawful conduct of its business or operations.  If any Borrower or Tenant shall receive a “denial of payment for new admissions” (“ DPNA ”) or any other material notice affecting any Project from any applicable regulatory agency or otherwise, a copy of such DPNA or such other notice shall be promptly delivered to Lender.”

 

7.                                       Amendment to Article 10 of the Loan Agreement . Article 10 of the Loan Agreement, BORROWERS’ AGREEMENTS, is hereby modified and amended by adding a new Section 10.1(cc) thereto as follows:

 

“(cc) Environmental Reporting .  Lender shall have the right, at Borrowers’ expense, to obtain (i) updates to that certain Phase I Environmental Site Assessment Report dated November 18, 2011 by Partner Engineering and Science, Inc. covering the Stone County Property or (ii) such new environmental site assessment(s) covering the Stone County Property from time to time as  Lender may request in Lender’s sole and absolute discretion. Borrowers shall cooperate with Lender in connection with obtaining any and all such environmental reports or updates.

 

8.                                       Amendment to Section 16.13 of the Loan Agreement .  Section 16.13 of the Loan Agreement, Set-Offs, is modified and amended by adding the following new sentence at the end thereof as follows:

 

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“Any of the forgoing to the contrary notwithstanding, Lender may at any time and from time to time in its sole discretion apply any funds on deposit in the Cash Collateral Account or Special Collateral Account to the outstanding principal balance of the Loan, provided that Lender shall give Borrowers one (1) Business Day’s prior notice by telecopier of any such application of funds in the Cash Collateral Account.”

 

9.                                       Amendments to the Parent Guaranty .  The Parent Guaranty is hereby modified and amended as follows:

 

(a)          Subparagraph 6(b)(i) is amended by deleting the second sentence thereof in its entirety and substituting the following in lieu thereof:

 

“The term, “ AdCare Tangible Net Worth ,” means, as of any date of determination, total assets minus intangible assets (as defined below) and minus total liabilities of Guarantor and its consolidated Subsidiaries.”

 

(b)          Subparagraph 6(b)(ii)(A) is amended by deleting the amount “$2,000,000.00” therein and substituting the amount “$1,000,000.00” in lieu thereof.

 

(c)           The language of subparagraph 6(c) is deleted in its entirety and the following is substituted in lieu thereof:

 

“(c)(i) Guarantor shall not permit the ratio of AdCare Total EBITDAR (as hereinafter defined) to AdCare Fixed Charges (as hereinafter defined), in each case tested as of the end of each fiscal quarter, to be less than (A) .85 to 1.0 on a trailing one (1) fiscal quarter basis commencing with the fiscal quarter ending June 30, 2013, (B) 1.0 to 1.0 on a trailing two (2) quarter basis for the test period ending September 30, 2013, (C) 1.15 to 1.0 on a trailing three (3) quarter basis for the test period ending December 31, 2013, and (D) 1.15 to 1.0 on a trailing four (4) quarter basis thereafter.

 

(ii)  For purposes of subparagraph 6(c)(i) hereof:

 

(A)                                AdCare Fixed Charges means, for any period, on a consolidated basis for Guarantor and its consolidated Subsidiaries, the sum of the following amounts (without duplication): (i) scheduled payments of principal on AdCare Total Debt, (ii) AdCare Interest Expense, (iii) AdCare Rent Expense, and (iv) provisions for taxes based on income.

 

(B)                                AdCare Interest Expense means, for any period, the interest expense of the Guarantor and its Subsidiaries on a consolidated basis during such period, determined in accordance with GAAP, consistently applied, and shall in any event include, without limitation, (i) the amortization or write-off of debt discounts, and (ii) the portion of payments under Capital Lease Obligations allocable to interest expense; provided that AdCare Interest Expense

 

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shall not include amortization of debt issuance costs, commissions and other fees payable in connection with the incurrence of Indebtedness.

 

(C)                                AdCare Rent Expense means, for any period, the aggregate amount of fixed and contingent rentals payable by Guarantor and its consolidated Subsidiaries for such period with respect to leases of real and personal property , determined on a consolidated basis in accordance with GAAP, consistently applied.

 

(D)                                AdCare Total Debt means, as of any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Guarantor and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, consistently applied.

 

(E)                                 AdCare Total EBITDAR means, for the Guarantor, with respect to any period (without duplication): (a) Net Income (or Loss) on a Consolidated basis, in accordance with GAAP, exclusive of any income or losses from minority interests and the following (but only to the extent included in determination of such Net Income (or Loss)): (i) depreciation and amortization expense; (ii) Interest Expense; (iii) income tax expense; (iv) rent expense and (v) extraordinary or non-recurring gains and losses (including, without limitation, gains and losses on the sale of assets); and (vi) up to $800,000 in the aggregate for all periods of non-operating special charges related to Guarantor’s recent change of auditors and Guarantor’s Audit Committee review and inquiry with respect to accounting and financial reporting issues; minus (b) a capital expenditure reserve in an amount equal to the greater of (i) actual capital expenditures for maintenance during such period, or (ii) $500.00 per bed, based on the total number of beds at the beginning of the most recent quarter.”

 

(d)          Subparagraph 6(d) is amended by deleting the first sentence thereof in its entirety and substituting the following in lieu thereof:

 

“At all times from and after the First Amendment Effective Date, Guarantor shall not permit Liquidity (as hereinafter defined) to be less than $5,000,000.00; provided, however, that Liquidity may be less than $5,000,000.00 for up to five (5) five different (5) consecutive Business Day periods during the third fiscal quarter of 2013 and two (2) different five (5) consecutive Business Day periods per fiscal quarter at all other times so long as (i) Liquidity is never less than $3,000,000.00, and (ii) Parent provides written notice by telecopier to Lender not later than one (1) Business Day after the date Liquidity falls below $5,000,000.00.”

 

(e)           A new Subparagraph 6(f) is added to the Parent Guaranty as follows:

 

“Guarantor covenants and agrees to (i) provide to Lender, promptly after receipt by Guarantor, copies of any written notices or correspondence received by, from or on behalf of the New York Stock Exchange relating to Guarantor’s listing

 

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status on such exchange, and (ii) provide to Lender within five (5) days after Lender’s request, evidence satisfactory to Lender of the amount of unrestricted cash and Cash Equivalents not pledged or unencumbered and the use of which is not restricted by any agreement then held by Guarantor and its consolidated subsidiaries.”

 

10.                                Certain Acknowledgments and Waivers .  Lender acknowledges that (a) Parent failed to timely file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”) and Parent’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (“Form 10-Q”); (b) Parent’s previously issued financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 (the “Relevant Financial Statements”) should no longer be relied upon due to certain errors therein; (c) Parent is in the process of restating the Relevant Financial Statements and will amend its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012; (d) Parent’s Audit Committee of the Board of Directors (the “Audit Committee”) initiated a further review of, and inquiry with respect to, the accounting and financial issues related to these and other potential errors in Parent’s financial statements and engaged counsel to assist the Audit Committee with such matters; (e) in connection with such review and inquiry, the Audit Committee identified certain material weaknesses in Parent’s internal control over financial reporting; (f) Parent is not in compliance with the continued listing standards of the NYSE MKT LLC (the “Exchange”) and, therefore, the Exchange is authorized to suspend, and unless prompt corrective action is taken, remove Parent’s securities from the Exchange; and (g) subject to the Exchange’s acceptance of a compliance plan submitted by Parent to the Exchange on May 1, 2013, and subject to Parent making progress consistent with its compliance plan by July 16, 2013, Parent will have until July 16, 2013, with respect to the filing of the Form 10-K, and until August 15, 2013, with respect to the filing of the Form 10-Q, to regain compliance with the Exchange’s continued listing standards (the events described in clauses (a) through (g), collectively, the “Events”). Lender waives any Default or Event of Default that may exist as a result of the Events described in clauses (a) through (e) only.

 

11.                                No Other Amendments, Waivers .  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided or permitted herein, operate as an amendment or waiver of any right, power or remedy of Lender under the Loan Agreement, the Parent Guaranty or any of the other Loan Documents, nor constitute an amendment or waiver of any provision of the Loan Agreement, the Parent Guaranty or any of the other Loan Documents.  Except for the amendments expressly set forth above, the text of the Loan Agreement, the Parent Guaranty and all other Loan Documents shall remain unchanged and in full force and effect, and Borrowers and Guarantors hereby ratify and confirm their respective obligations thereunder, as herein modified and amended.  This Amendment shall not constitute a course of dealing with Lender at variance with the Loan Agreement, the Parent Guaranty or the other Loan Documents such as to require further notice by Lender to require strict compliance with the terms of the Loan Agreement, the Parent Guaranty and the other Loan Documents in the future.

 

12.                                Conditions of Effectiveness .  This Amendment shall become effective as of the date hereof when, and only when, the following conditions have been met to the satisfaction of Lender:

 

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(a)                                  Counterparts of this Amendment duly executed by each Borrower and each Guarantor have been received by Lender;

 

(b)                                  Tenants shall have established the Special Collateral Account;

 

(c)                                   Tenants shall have made the first monthly transfer of funds from the Tenant Operating Accounts to the Special Collateral Account pursuant to Section 9.5 of the Loan Agreement;

 

(d)                                  AdCare Consulting and AdCare Administrative Services shall have entered into the amendment to the Subordination of Management Agreements described in Section 9.5 of the Loan Agreement in form and substance satisfactory to Lender;

 

(e)                                   Parent shall have delivered the Note Pledge Agreement and the other items required by Section 9.6 of the Loan Agreement, and Parent shall have provided evidence of the written notification to CHP required by such Section 9.6;

 

(f)                                    Mountain Top Property Holdings shall have executed the Stone County Mortgage, the Stone County Lease Assignment and the Stone County Indemnity, each in form and substance satisfactory to Lender, and Lender shall have received the Stone County Title Policy and an opinion of Arkansas counsel with respect to the enforceability of the Stone County Mortgage and the Stone County Lease Assignment in form and substance satisfactory to Lender;

 

(g)                                   The representations and warranties made pursuant to Section 13 of this Amendment shall be true and correct; and

 

(h)                                  The Loan Parties have paid all reasonable and documented expenses incurred by Lender in connection with the execution and delivery of this Amendment, together with reasonable fees and actually incurred expenses of Lender’s counsel with respect to this Amendment and other post-closing matters.

 

13.                                Post First Amendment Effective Date Covenant .  Parent covenants and agrees to deliver to Lender, no later than June 15, 2013, (i) the original CHP Note, (ii) the most recent balance sheet of H&H of Vandalia LLC, and (iii) an organizational chart showing the organizational structure of, and listing of assets for, H&H of Vandalia LLC.  Failure to comply with this covenant shall constitute an Event of Default.

 

14.                                Representations and Warranties .  Each of the Loan Parties represents and warrants as follows:

 

(a)                                  The execution, delivery and performance by each Borrower and each Guarantor of this Amendment are within each such party’s legal powers, have been duly authorized by all necessary shareholder, partner or member action and do not contravene (i) any such Borrower’s or any such Guarantor’s organizational documents, respectively, or (ii) any law or contractual restriction binding on or affecting such Person;

 

(b)                                  No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body, except for those already obtained or made,

 

9



 

is required for the due execution, delivery and performance by any Borrower or any Guarantor of  this Amendment;

 

(c)                                   This Amendment constitutes the legal, valid and binding obligations of each such party, enforceable against such Person in accordance with their respective terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws affecting enforcement of creditor’s rights generally and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefore may be brought;

 

(d)                                  All of the representations and warranties of the Loan Parties in the Loan Documents are true and correct in all material respects as of the date hereof (or if such representations and warranties by their terms relate solely to an earlier date, then as of such earlier date); and

 

(e)                                   No Default or Event of Default is existing and none would result, in each case upon this Amendment becoming effective and after giving effect hereto.

 

15.                                Reaffirmation of Guaranties .  By execution of this Amendment, each Guarantor reaffirms and restates its guaranty of the Obligations pursuant to its Guaranty and agrees that its obligations thereunder are not released, diminished, impaired or reduced or otherwise adversely affected by this Amendment, except as expressly provided herein with respect to the Parent Guaranty.

 

16.                                Release of Claims As further consideration to induce the Lender to execute, deliver and perform this Amendment, each Borrower and each Guarantor hereby represents and warrants that there are no claims, causes of action, suits, debts, obligations, liabilities, defenses, counterclaims, or demands of any kind, character or nature whatsoever, fixed or contingent, which such Borrower or such Guarantor may have, or claim to have, against the Lender in connection with the Loan, the Loan Agreement and the other Loan Documents, and each Borrower and each  Guarantor hereby releases, acquits, and forever discharges the Lender, and each and every past and present subsidiary, affiliate, stockholder, officer, director, agent, servant, employee, representative, and attorney of the Lender (collectively, the “ Released Parties ”), from any and all claims, causes of action, suits, debts, liens, obligations, liabilities, demands, losses, costs and expenses (including attorneys’ fees) of any kind, character, or nature whatsoever, known or unknown, fixed or contingent, which such Borrower or such Guarantor may have or claim to have now against each of such Released Parties from the beginning of time until and through the First Amendment Effective Date.

 

17.                                Reference to and Effect on the Loan Documents .  Upon the effectiveness of this Amendment, on and after the date hereof: (a) each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to the “Loan Agreement,” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended and modified hereby, and (b) each reference in the Parent Guaranty to “this Guaranty,” “hereunder,” “hereof” or words of like import referring to the Parent

 

10



 

Guaranty, and each reference in the other Loan Documents to the “Parent Guaranty,” “thereunder,” “thereof” or words of like import referring to the Parent Guaranty, shall mean and be a reference to the Parent Guaranty as amended and modified hereby.

 

18.                                Costs, Expenses and Taxes .  Borrowers agree to pay on demand all reasonable out-of-pocket expenses of Lender actually incurred in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of Lender’s counsel with respect thereto and with respect to advising Lender as to its rights and responsibilities hereunder and thereunder.

 

19.                                Governing Law .  This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the conflict of laws principles thereof.

 

20.                                Loan Document .  This Amendment shall be deemed to be a Loan Document for all purposes.

 

21.                                Counterparts .  This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of this Amendment by facsimile or other electronic transmission shall be as effective as delivery of a manually executed counterpart hereof.

 

[The remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the date first set forth above.

 

BORROWERS :

WOODLAND HILLS HC PROPERTY HOLDINGS, LLC

 

NORTHRIDGE HC&R PROPERTY HOLDINGS, LLC

 

APH&R PROPERTY HOLDINGS, LLC

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

 

 

 

 

 

 

WOODLAND HILLS HC NURSING, LLC

 

NORTHRIDGE HC&R NURSING, LLC

 

APH&R NURSING, LLC

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

Signature Page to First Amendment To Secured Loan Agreement and Payment Guaranty

 



 

[Execution of First Amendment to Secured Loan Agreement

and Payment Guaranty Continued]

 

GUARANTORS :

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

ADCARE OPERATIONS, LLC

 

 

 

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

 

 

 

 

 

 

ADCARE PROPERTY HOLDINGS, LLC

 

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

Signature Page to First Amendment To Secured Loan Agreement and Payment Guaranty

 



 

[Execution of First Amendment to Secured Loan Agreement

and Payment Guaranty Continued]

 

LENDER :

KEYBANK NATIONAL ASSOCIATION

 

 

 

By:

/s/ Amy L. MacLearie

 

 

Name:

Amy L. MacLearie

 

 

Title:

AVP — Senior Closing Officer

 

Signature Page to First Amendment To Secured Loan Agreement and Payment Guaranty

 


Exhibit 10.13

 

MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND

FIXTURE FILING

(ARKANSAS)

 

MADE BY

 

 

MOUNTAIN TOP PROPERTY HOLDINGS, LLC

 

 

as Mortgagor

 

 

to and for the benefit of

 

 

KEYBANK NATIONAL ASSOCIATION

 

as Lender

 

Dated as of: May 31, 2013

 

PREPARED BY AND UPON RECORDATION RETURN TO:

 

Bryan Cave LLP

One Atlantic Center

1201 West Peachtree Street, NW

Fourteenth Floor

Atlanta, Georgia 30309

Attention:  F. Donald Nelms, Jr., Esq.

 



 

This Document Prepared by

and after Recording Return to:

 

F. Donald Nelms, Jr., Esq.

Bryan Cave LLP

One Atlantic Center

1201 West Peachtree Street, NW

Fourteenth Floor

Atlanta, Georgia 30309

 

MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING

( Stone County Residential Care )

 

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING dated as of May 31, 2013 (this Mortgage ), is executed by MOUNTAIN TOP PROPERTY HOLDINGS, LLC , a Georgia limited liability company, having an address at 1145 Hembree Road, Roswell, GA 30076 (the “ Mortgagor ”) to and for the benefit of KEYBANK NATIONAL ASSOCIATION , its successors and assigns (“ Lender ”) whose address is 4910 Tiedeman Road, 3 rd  Floor, Brooklyn, Ohio 44144.

 

RECITALS

 

A.                                     Pursuant to the terms and conditions of that certain Secured Loan Agreement dated as of December 28, 2012, as amended by that certain First Amendment to Secured Loan Agreement and Payment Guaranty dated as of even date herewith (the First Amendment ; as such loan agreement may be further amended, restated, or otherwise modified from time to time, collectively, the Loan Agreement ) by and among Woodland Hills HC Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, APH&R Property Holdings, LLC, Woodland Hills HC Nursing, LLC, Northridge HC&R Nursing, LLC, and APH&R Nursing, LLC, each a Georgia limited liability company (the foregoing entities, referred to herein individually, as the “ Borrower and collectively as the Borrowers ) and Lender, Lender made a loan to the Borrowers in the original principal amount of $16,500,000 (the Loan ), which Loan is evidenced by a promissory note dated as of December 28, 2012 (the Note ”) , executed by the Borrowers and payable to the order of Lender in the principal amount of the Loan, final payment on which is due on February 27, 2015  (the Initial Maturity Date ) , except as it may be accelerated pursuant to the terms hereof, or of the Note or the Loan Agreement or any of the other Loan Documents (as defined in the Loan Agreement) or as may be extended pursuant to the Loan Agreement.  Capitalized terms used herein without definition shall have the meanings given to them in the Loan Agreement.

 

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B.                                     A condition precedent to Lender’s entering into the First Amendment is the execution and delivery by Mortgagor of this Mortgage.

 

AGREEMENTS

 

FOR GOOD AND VALUABLE CONSIDERATION , including the indebtedness hereby secured, the receipt and sufficiency of which are hereby acknowledged, Mortgagor agrees as follows:

 

Mortgagor HEREBY MORTGAGES, GRANTS, BARGAINS, SELLS, ASSIGNS, REMISES, RELEASES, WARRANTS, TRANSFERS, AND CONVEYS WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, to Lender, its successors and assigns, and grants a security interest in, the following described property, rights and interests (referred to collectively herein as the Premises ), all of which property, rights and interests are hereby pledged primarily and on a parity with the Real Estate (as defined below) and not secondarily, and as to any portion of the Premises constituting property subject to the Code (as defined in Section 36 of this Mortgage), this Mortgage is intended to be a security agreement under the Code for the purpose of creating hereby a security interest in such portion of the Premises, which Mortgagor hereby grants to Lender as secured party, and with all terms used below with respect to such portions of the Premises which are defined in the Code to have the meanings provided in the Code:

 

(a)                                  The real estate located in the County of Stone, State of Arkansas and legally described on Exhibit A attached hereto and made a part hereof (the Real Estate );

 

(b)                                  All improvements of every nature whatsoever now or hereafter situated on the Real Estate, and all fixtures and personal property of every nature whatsoever now or hereafter owned by Mortgagor and located on, or used in connection with the Real Estate or the improvements thereon, or in connection with any construction thereon, including all extensions, additions, improvements, betterments, renewals, substitutions and replacements to any of the foregoing and all of the right, title and interest of Mortgagor in and to any such personal property or fixtures together with the benefit of any deposits or payments now or hereafter made on such personal property or fixtures by Mortgagor or on its behalf (the Improvements );

 

(c)                                   All easements, rights of way, gores of real estate, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, all oil, gas and other minerals, whether surface or subsurface, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances whatsoever, in any way now or hereafter belonging, relating or appertaining to the Real Estate, and the reversions, remainders, rents, issues and profits thereof, and all the estate, right, title, interest, property, possession, claim and demand whatsoever, at law as well as in equity, of Mortgagor of, in and to the same;

 

(d)                                  All rents, revenues, issues, profits, proceeds, income, royalties, accounts, including health-care-insurance receivables, escrows, letter-of-credit rights, security

 

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deposits, impounds, reserves, tax refunds and other rights to monies from the Premises and/or the businesses and operations conducted by Mortgagor thereon, to be applied against the Indebtedness (as hereinafter defined); provided, however, that Mortgagor, so long as no “ Event of Default ” (as defined in Section 36 of this Mortgage) has occurred and is continuing hereunder, may collect rent as it becomes due, but not more than one month in advance thereof;

 

(e)                                   All interest of Mortgagor in all leases now or hereafter on the Premises, whether written or oral (each, a Lease , and collectively, the Leases ), including, but not limited to, that certain Facility Lease dated November 30, 2011, between Mortgagor and Mountain Top ALF, LLC (the Facility Lease ),  together with all security therefor and all monies payable thereunder, subject, however, to the conditional permission hereinabove given to Mortgagor to collect the rentals under any such Lease;

 

(f)                                    All goods, materials, supplies, chattels, fixtures and articles of personal property now or hereafter owned by Mortgagor and forming a part of, attached to, placed in or on, or used in connection with the use, enjoyment, occupancy or operation of all or any part of the Real Estate or the Improvements, whether stored on the Real Estate or elsewhere, including, but without limitation, any and all air conditioners, antennae, appliances, apparatus, awnings, basins, bathtubs, bidets, boilers, bookcases, cabinets, carpets, computer hardware and software used in the operation of the Premises, coolers, curtains, dehumidifiers, disposals, doors, drapes, dryers, ducts, dynamos, elevators, engines, equipment, escalators, exercise equipment, fans, fittings, floor coverings, furnaces, furnishings, furniture, hardware, heaters, humidifiers, incinerators, lighting, machinery, motors, ovens, pipes, plumbing, pumps, radiators, ranges, recreational facilities, refrigerators, screens, security systems, shades, shelving, sinks, sprinklers, stokers, stoves, toilets, ventilators, wall coverings, washers, windows, window coverings, wiring, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are or shall be attached to the Real Estate or the Improvements in any manner; it being mutually agreed that all of the aforesaid property owned by Mortgagor and placed on the Real Estate or the Improvements, so far as permitted by law, shall be deemed to be fixtures, a part of the realty, and security for the Indebtedness (as hereinafter defined); notwithstanding the agreement hereinabove expressed that certain articles of property form a part of the realty covered by this Mortgage and be appropriated to its use and deemed to be realty, to the extent that such agreement and declaration may not be effective and that any of said articles may constitute goods (as such term is used in the Code), this instrument shall constitute a security agreement, creating a security interest in such goods, as collateral, in Lender, as secured party, and Mortgagor, as debtor, all in accordance with the Code;

 

(g)                                   All of Mortgagor’s interests in general intangibles including payment intangibles and software now owned or hereafter acquired and related to the Premises, including, without limitation, all of Mortgagor’s right, title and interest in and to: (i) all agreements, licenses, permits and contracts to which Mortgagor is or may become a party and which relate to the Premises; (ii) all obligations and indebtedness owed to Mortgagor thereunder; (iii) all intellectual property related to the Premises; and (iv) all choses in action and causes of action relating to the Premises;

 

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(h)                                  All of Mortgagor’s accounts now owned or hereafter created or acquired which relate to the Premises or the businesses and operations conducted thereon, including, without limitation, all of the following now owned or hereafter created or acquired by Mortgagor:  (i) accounts, contract rights, health-care-insurance receivables, book debts, notes, drafts, and other obligations or indebtedness owing to Mortgagor arising from the sale, lease or exchange of goods or other property and/or the performance of services; (ii) Mortgagor’s rights in, to and under all purchase orders for goods, services or other property; (iii) Mortgagor’s rights to any goods, services or other property represented by any of the foregoing; (iv) monies due or to become due to Mortgagor under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services including the right to payment of any interest or finance charges in respect thereto (whether or not yet earned by performance on the part of Mortgagor); (v) securities, investment property, financial assets and securities entitlements; (vi) proceeds of any of the foregoing and all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing; and (vii) all warranties, guarantees, permits and licenses in favor of Mortgagor with respect to the Premises;

 

(i)                                      All insurance policies pertaining to the Premises and all proceeds, including all claims to and demands for them, of the voluntary or involuntary conversion of any of the Premises, Improvements or the other property described above into cash or liquidated claims, including proceeds of all present and future fire, hazard or casualty insurance policies and all condemnation awards or payments now or later to be made by any public body or decree by any court of competent jurisdiction for any taking or in connection with any condemnation or eminent domain proceeding, and all causes of action and their proceeds for any damage or injury to the Premises, Improvements or the other property described above or any part of them, or breach of warranty in connection with the Improvements, including causes of action arising in tort, contract, fraud or concealment of a material fact;

 

(j)                                     All of Mortgagor’s rights in and to all Interest Rate Agreements;

 

(k)                                  All books and records pertaining to any and all of the property described above, including computer-readable memory and any computer hardware or software necessary to access and process such memory (“Books and Records”);

 

(l)                                      All proceeds of, additions and accretions to, substitutions and replacements for, and changes in any of the property described above, including, without limitation, all or proceeds of any sale, option or contract to sell the Premises or any portion thereof; and

 

(m)                              Any and all judgments in connection with the foregoing.

 

TO HAVE AND TO HOLD the Premises, unto Lender, its successors and assigns, forever, for the purposes and upon the uses herein set forth together with all right to possession of the Premises after the occurrence and during the continuance of any Event of Default under

 

4



 

this Mortgage; Mortgagor hereby RELEASING AND WAIVING all rights under and by virtue of the homestead exemption laws of the State of Arkansas.

 

FOR THE PURPOSE OF SECURING the following (collectively, the Indebtedness ):

 

(i)                                      The payment by the Borrowers of the Loan, the Obligations under the Loan Agreement, and all interest, late charges, LIBOR breakage charges, prepayment premium, if any, exit fee, if any, interest rate swap or hedge expenses, if any, reimbursement obligations, fees and expenses for letters of credit issued by Lender for the account of the Borrowers, if any, and other indebtedness evidenced by or owing under the Note, any of the other Loan Documents, and any application for letters of credit and master letter of credit agreement, together with any renewals, extensions, replacements, amendments, modifications and refinancings of any of the foregoing;

 

(ii)                                   The performance and observance of the covenants, conditions, agreements, representations, warranties and other liabilities and obligations of the Borrowers or any other obligor to or benefiting Lender which are evidenced or secured by or otherwise provided in the Note, this Mortgage or any of the other Loan Documents;

 

(iii)                                Any and all Hedging Obligations (as defined in the Loan Agreement), contingent or otherwise, whether now existing or hereafter arising, of the Borrowers arising under or in connection with all Interest Rate Protection Products and Interest Rate Agreements (as each such capitalized term is defined in the Loan Agreement) to which Lender is a party;

 

(iv)                               The reimbursement to Lender of any and all sums incurred, expended or advanced by Lender pursuant to any term or provision of or constituting additional indebtedness under or secured by this Mortgage, any of the other Loan Documents, any such Hedging Obligations, Interest Rate Protection Products and Interest Rate Agreements or any application for letters of credit and master letter of credit agreement, with interest thereon as provided herein or therein; and

 

(v)                                  To the extent not included in clauses (i) through (iv) above, any and all other Obligations.

 

PROVIDED, HOWEVER , that if the Borrowers shall pay the principal and all interest as provided in the Note and all Obligations under the Loan Agreement, and if all other sums secured hereby are paid, and if Mortgagor shall pay all other sums herein provided for, and shall well and truly keep and perform all of the covenants herein contained, then this conveyance shall be null and void and may be cancelled of record at the request and at the cost of Mortgagor, otherwise to remain in full force and effect.

 

IT IS FURTHER UNDERSTOOD AND AGREED THAT :

 

1.                                       Title .   Mortgagor represents, warrants and covenants that (a) Mortgagor is the owner and holder of the fee simple title to the Premises, free and clear of all liens and encumbrances, except those conveyances, liens and encumbrances in favor of Lender and except

 

5



 

for Permitted Exceptions (as defined in the Loan Agreement); (b) Mortgagor has legal power and authority to convey, mortgage and encumber the Premises.

 

2.                                       Maintenance, Repair, Restoration, Prior Liens, Parking .  Mortgagor covenants that, so long as any portion of the Indebtedness remains unpaid, Mortgagor will:

 

(a)                                  Promptly repair, restore or rebuild any Improvements now or hereafter on the Premises which may become damaged or be destroyed to a condition substantially similar to the condition immediately prior to such damage or destruction, whether or not proceeds of insurance are available or sufficient for the purpose;

 

(b)                                  Keep the Premises in good condition and repair, without waste, and free from mechanics’, materialmen’s or like liens or claims or other liens or claims for lien (other than Permitted Exceptions and subject to Mortgagor’s right to contest liens as permitted by the terms of Section 26 hereof);

 

(c)                                   Pay when due the Loan in accordance with the terms of the Note and the other Loan Documents and duly perform and observe all of the terms, covenants and conditions to be observed and performed by Mortgagor under the Note, this Mortgage and the other Loan Documents;

 

(d)                                  Pay when due any indebtedness which may be secured by a permitted lien or charge on the Premises on a parity with, superior to or inferior to this Mortgage, and upon request exhibit satisfactory evidence of the discharge of such lien to Lender (subject to Mortgagor’s right to contest liens as permitted by the terms of Section 26 hereof);

 

(e)                                   Complete within a reasonable time any improvements at any time in the process of erection upon the Premises;

 

(f)                                    Comply with all requirements of law, municipal ordinances or restrictions and covenants of record with respect to the Premises and the use thereof;

 

(g)                                   Obtain and maintain in full force and effect, and abide by and satisfy the material terms and conditions of, all material permits, licenses, registrations and other authorizations with or granted by any governmental authorities that may be required from time to time with respect to the performance of Mortgagor’s obligations under this Mortgage;

 

(h)                                  Make no material alterations in the Premises or demolish any portion of the Premises without Lender’s prior written consent, except as required by law or municipal ordinance;

 

(i)                                      Suffer or permit no change in the use or general nature of the occupancy of the Premises, without Lender’s prior written consent;

 

(j)                                     Pay when due all operating costs of the Premises;

 

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(k)                                  Not initiate or acquiesce in any zoning reclassification with respect to the Premises, without Lender’s prior written consent;

 

(l)                                      Provide and thereafter maintain adequate parking areas within the Premises as may be required by law, ordinance or regulation (whichever may be greater), together with any sidewalks, aisles, streets, driveways and sidewalk cuts and sufficient paved areas for ingress, egress and right of way to and from the adjacent public thoroughfares necessary or desirable for the use thereof; and

 

(m)                              Comply with, and cause the Premises at all times to be operated in compliance with, all applicable federal, state, local and municipal environmental, health and safety laws, statutes, ordinances, rules and regulations.

 

3.                                       Payment of Taxes and Assessments .  Mortgagor will pay when due and before any penalty attaches, all general and special taxes, levies, assessments, water charges, sewer charges, and other fees, taxes, charges and assessments of every kind and nature whatsoever (all herein generally called Taxes ), whether or not assessed against Mortgagor, if applicable to the Premises or any interest therein, or the Indebtedness, or any obligation or agreement secured hereby, subject to Mortgagor’s right to contest the same, as provided by the terms hereof and in Section 10.1(f) of the Loan Agreement; and Mortgagor will, upon written request, furnish to Lender duplicate receipts therefor within 10 days after Lender’s request.

 

4.                                       Tax Deposits . Mortgagor shall establish and maintain at all times while this Mortgage continues in effect an impound account (the “ Impound Account ”) with Lender for payment of Taxes and insurance premiums on the Premises and as additional security for the Indebtedness secured hereby.  Mortgagor shall deposit in the Impound Account an amount determined by Lender to be sufficient (when added to the monthly deposits described herein) to pay the next due installment of real estate taxes and assessments on the Premises at least one (1) month prior to the due date or the delinquency date thereof (as Lender shall determine in its sole discretion) and, if a monthly impound for insurance premiums is required under the terms of the Loan Agreement, the next due annual insurance premiums with respect to the Premises, at least one (1) month prior to the due date thereof.  Commencing on the first monthly interest payment date (each, a “ Monthly Payment Date ”) under the Loan Agreement and continuing thereafter on each Monthly Payment Date under the Loan Agreement, Mortgagor shall pay to Lender, concurrently with the Monthly Payment due under the Loan Agreement, deposits in an amount equal to one-twelfth (1/12) of one hundred fiver percent (105%) of the most recently ascertainable annual Taxes on the Premises (the “ Monthly Tax Impound ”), plus (if applicable) one-twelfth (1/12) of the amount of the annual insurance premiums that will next become due and payable on insurance policies which Mortgagor is required to maintain hereunder (the “ Monthly Insurance Impound ”), each as estimated and determined by Lender.  The Monthly Tax Impound or Monthly Insurance Impound, and the payments of interest or principal or both, payable pursuant to the Note and the Loan Agreement, shall be added together and shall be paid as an aggregate sum by Mortgagor to Lender.  If Lender at any time determines that the Monthly Tax Impound or Monthly Insurance Impound is insufficient, Lender may in its discretion adjust the required monthly payments of such amounts, and Mortgagor shall be obligated to pay the increased amounts for the Monthly Tax Impound or (if applicable) Monthly Insurance Impound commencing with the next Monthly Payment Date under the Loan Agreement.  So long as no

 

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Event of Default or Default has occurred and is continuing, all sums in the Impound Account shall be held by Lender in the Impound Account and used to pay Taxes and insurance premiums before the same become delinquent.  Mortgagor shall be responsible for ensuring the receipt by Lender, at least thirty (30) days prior to the respective due date or the delinquency date for payment thereof (as Lender shall determine in its sole discretion), of all bills, invoices and statements for all Taxes and (if applicable) insurance premiums to be paid from the Impound Account, and so long as no Event of Default has occurred and is continuing, Lender shall pay the Governmental Authority or other party entitled thereto directly to the extent funds are available for such purpose in the Impound Account.  In making any payment from the Impound Account, Lender shall be entitled to rely on any bill, statement or estimate procured from the appropriate public office or insurance company or agent without any inquiry into the accuracy of such bill, statement or estimate and without any inquiry into the accuracy, validity, enforceability or contestability of any tax, assessment, valuation, sale, forfeiture, tax lien or title or claim thereof.  Lender shall pay no interest on funds contained in the Impound Account to Mortgagor, and any interest or other earnings on funds deposited in the Impound Account shall be solely for the account of Lender.  If the total funds in the Impound Account shall exceed the amount of payments actually applied by Lender for the purposes of the Impound Account, such excess may be credited by Lender on subsequent payments to be made hereunder or, at the option of Lender, refunded to Mortgagor. In allocating such excess, Lender may deal with the person shown on the records of Lender to be the owner of the Premises.  If, however, the Impound Account shall not contain sufficient funds to pay the sums required when the same shall become due and payable, Mortgagor shall, within ten (10) days after receipt of written notice thereof, deposit with Lender the full amount of any such deficiency.  The Impound Account shall not constitute a trust fund and may be commingled with other monies held by Lender.

 

5.                                       Lender’s Interest In and Use of Deposits .  Upon an Event of Default under this Mortgage, Lender may, at its option, apply any monies at the time on deposit pursuant to Section 4 hereof to cure any Event of Default under this Mortgage or to pay any of the Indebtedness in such order and manner as Lender may elect.  If such deposits are used to cure an Event of Default or pay any of the Indebtedness, Mortgagor shall immediately, upon demand by Lender, deposit with Lender an amount equal to the amount so used from the deposits.  When the Indebtedness has been fully paid, any remaining deposits shall be returned to Mortgagor.  Such deposits are hereby pledged as additional security for the Indebtedness and shall not be subject to the direction or control of Mortgagor.  Lender shall not be liable for any failure to apply to the payment of Taxes any amount so deposited unless Mortgagor, prior to an Event of Default under this Mortgage, shall have requested Lender in writing to make application of such funds to the payment of such amounts, accompanied by the bills for such Taxes.  Lender shall not be liable for any act or omission taken in good faith or pursuant to the instruction of any party.

 

6.                                       Insurance .

 

(a)                                  Mortgagor shall at all times keep all buildings, improvements, fixtures and articles of personal property now or hereafter situated on the Premises insured against loss or damage by fire and such other hazards as may reasonably be required by Lender, in accordance with the terms, coverages and provisions described in the Loan Agreement, and such other insurance as Lender may from time to time reasonably require.  Unless Mortgagor provides Lender evidence of the insurance coverages required hereunder,

 

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Lender may purchase insurance at Mortgagor’s expense to cover Lender’s interest in the Premises.  The insurance may, but need not, protect Mortgagor’s interest.  The coverages that Lender purchases may not pay any claim that Mortgagor makes or any claim that is made against Mortgagor in connection with the Premises.  Mortgagor may later cancel any insurance purchased by Lender, but only after providing Lender with evidence that Mortgagor has obtained insurance as required by this Mortgage.  If Lender purchases insurance for the Premises, Mortgagor will be responsible for the costs of such insurance, including, without limitation, interest and any other charges which Lender may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance.  The costs of the insurance may be added to the Indebtedness.  The cost of the insurance may be more than the cost of insurance Mortgagor may be able to obtain on its own.

 

(b)                                  Mortgagor shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained hereunder unless Lender is included thereon as the loss payee or an additional insured as applicable, under a standard mortgage clause acceptable to Lender and such separate insurance is otherwise acceptable to Lender.

 

(c)                                   In the event of loss, Mortgagor shall give prompt notice thereof to Lender, and Lender shall have the sole and absolute right to make proof of loss.  Lender shall have the right, at its option and in its sole discretion, to apply any insurance proceeds arising from such loss, after the payment of all of Lender’s expenses, either (i) on account of the Indebtedness, irrespective of whether such principal balance is then due and payable, whereupon Lender may declare the whole of the balance of Indebtedness to be due and payable, or (ii) to the restoration or repair of the property damaged as provided in paragraph (d) of this Section.  If insurance proceeds are made available to Mortgagor by Lender as hereinafter provided, Mortgagor shall repair, restore or rebuild the damaged or destroyed portion of the Premises so that the condition and value of the Premises are substantially the same as the condition and value of the Premises prior to being damaged or destroyed.  Any insurance proceeds applied on account of the unpaid principal balance of the Note shall be subject to the prepayment provisions contained in the Loan Agreement and the Note.  In the event of foreclosure of this Mortgage, all right, title and interest of Mortgagor in and to any insurance policies then in force shall pass to the purchaser at the foreclosure sale.

 

(d)                                  If insurance proceeds are made available by Lender to Mortgagor, and subject to the provisions of Article 11 of the Loan Agreement, the following provisions shall apply:

 

(i)                                      Before commencing to repair, restore or rebuild following damage to, or destruction of, all or a portion of the Improvements, whether by fire or other casualty, Mortgagor shall obtain from Lender its approval of all site and building plans and specifications pertaining to such repair, restoration or rebuilding.

 

(ii)                                   Prior to each payment or application of any insurance proceeds to the repair or restoration of such Improvements (which payment or application may be

 

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made, at Lender’s option, through an escrow, the terms and conditions of which are satisfactory to Lender and the cost of which is to be borne by Mortgagor), Lender shall be satisfied as to the following:

 

(A)                                No Default (as defined in Section 36 of this Mortgage) or Event of Default under this Mortgage has occurred and is continuing;

 

(B)                                Either such Improvements have been fully restored, or the expenditure of money as may be received from such insurance proceeds will be sufficient to repair, restore or rebuild the Premises, free and clear of all liens, claims and encumbrances, except the lien of this Mortgage and the Permitted Exceptions, or, if such insurance proceeds shall be insufficient to repair, restore and rebuild the Premises, Mortgagor has deposited with Lender such amount of money which, together with the insurance proceeds shall be sufficient to restore, repair and rebuild the Premises; and

 

(C)                                Prior to each disbursement of any such proceeds, Lender shall be furnished with a statement of Lender’s architect (the cost of which shall be borne by Mortgagor), certifying the extent of the repair and restoration completed to the date thereof, and that such repairs, restoration, and rebuilding have been performed to date in conformity with the plans and specifications approved by Lender and with all statutes, regulations or ordinances (including building and zoning ordinances) affecting the Premises; and Lender shall be furnished with appropriate evidence of payment for labor or materials furnished to the Premises, and total or partial lien waivers substantiating such payments.

 

(iii)                                If Mortgagor shall fail to restore, repair or rebuild such Improvements within a time deemed satisfactory by Lender, then Lender, at its option, may (A) commence and perform all necessary acts to restore, repair or rebuild such Improvements for or on behalf of Mortgagor, or (B) declare an Event of Default under this Mortgage.  If insurance proceeds shall exceed the amount necessary to complete the repair, restoration or rebuilding of such Improvements, such excess shall be applied on account of the Indebtedness, irrespective of whether such Indebtedness is then due and payable without payment of any premium or penalty.

 

7.                                       Condemnation .  If all or any part of the Premises are damaged, taken or acquired, either temporarily or permanently, in any condemnation proceeding, or by exercise of the right of eminent domain, the amount of any award or other payment for such taking or damages made in consideration thereof, to the extent of the full amount of the remaining unpaid Indebtedness, is hereby assigned to Lender, who is empowered to collect and receive the same and to give proper receipts therefor in the name of Mortgagor and the same shall be paid forthwith to Lender.  Such award or monies shall be applied on account of the Indebtedness, irrespective of whether such Indebtedness is then due and payable and, at any time from and after the taking Lender may declare the whole of the balance of the Indebtedness to be due and payable.  Notwithstanding the provisions of this Section to the contrary, if any condemnation or taking of less than the entire Premises occurs, such award or monies shall be applied, at the option of Lender and in its sole discretion, either (i) on account of the Indebtedness as provided

 

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above, or (ii) to any necessary restoration or repair of the remaining property, on the terms contained in Section 6(d) hereof.

 

8.                                       Stamp Tax .  If, by the laws of the United States of America, or of any state or political subdivision having jurisdiction over Mortgagor, any tax is due or becomes due in respect of the execution and delivery of this Mortgage, the Note or any of the other Loan Documents, Mortgagor shall pay such tax in the manner required by any such law.  Mortgagor further agrees to reimburse Lender for any sums which Lender may expend by reason of the imposition of any such tax.  Notwithstanding the foregoing, Mortgagor shall not be required to pay any income or franchise taxes of Lender.

 

9.                                       Lease and Rent Assignment .  Mortgagor acknowledges that, concurrently herewith, Mortgagor has executed and delivered to Lender, as additional security for the repayment of the Loan, an Absolute Assignment of Leases and Rents (the Assignment ) pursuant to which Mortgagor has assigned to Lender interests in the leases of the Premises and the rents and income from the Premises.  All of the provisions of the Assignment are hereby incorporated herein as if fully set forth at length in the text of this Mortgage.  Mortgagor agrees to abide by all of the provisions of the Assignment.

 

10.                                Effect of Extensions of Time and Other Changes .  If the payment of the Indebtedness or any part thereof is extended or varied, if any part of any security for the payment of the Indebtedness is released, if the rate of interest charged under the Note is changed or if the time for payment thereof is extended or varied, all persons now or at any time hereafter liable therefor, or interested in the Premises or having an interest in Mortgagor, shall be held to assent to such extension, variation, release or change and their liability and the lien and all of the provisions hereof shall continue in full force, any right of recourse against all such persons being expressly reserved by Lender, notwithstanding such extension, variation, release or change.

 

11.                                Effect of Changes in Laws Regarding Taxation .  If any law is enacted after the date hereof requiring (a) the deduction of any lien on the Premises from the value thereof for the purpose of taxation or (b) the imposition upon Lender of the payment of the whole or any part of the Taxes, charges or liens herein required to be paid by Mortgagor, or (c) a change in the method of taxation of mortgages, deeds of trust or debts secured by mortgages or deeds of trust or Lender’s interest in the Premises, or the manner of collection of taxes, so as to affect this Mortgage or the Indebtedness or the holders thereof, then Mortgagor, upon demand by Lender, shall pay such Taxes or charges, or reimburse Lender therefor; provided, however, that Mortgagor shall not be deemed to be required to pay any income or franchise taxes of Lender.  Notwithstanding the foregoing, if in the opinion of counsel for Lender it is or may be unlawful to require Mortgagor to make such payment or the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then Lender may declare all of the Indebtedness to be immediately due and payable.

 

12.                                Lender’s Performance of Defaulted Acts and Expenses Incurred by Lender .  If an Event of Default under this Mortgage has occurred and is continuing, Lender may, but need not, make any payment or perform any act herein required of Mortgagor in any form and manner deemed expedient by Lender, and may, but need not, make full or partial payments of principal or interest on prior encumbrances, if any, and purchase, discharge,

 

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compromise or settle any tax lien or other prior lien or title or claim thereof, or redeem from any tax sale or forfeiture affecting the Premises or consent to any tax or assessment or cure any default of Mortgagor in any lease of the Premises.  All monies paid for any of the purposes herein authorized and all expenses paid or incurred in connection therewith, including reasonable attorneys’ fees, and any other monies advanced by Lender in regard to any tax referred to in Section 8 hereof or to protect the Premises or the lien hereof, shall be so much additional Indebtedness, and shall become immediately due and payable by Mortgagor to Lender, upon demand, and with interest thereon accruing from the date of such demand until paid at the Default Rate (as defined in the Loan Agreement).  In addition to the foregoing, any costs, expenses and fees, including reasonable attorneys’ fees, incurred by Lender in connection with (a) sustaining the lien of this Mortgage or its priority, (b) protecting or enforcing any of Lender’s rights hereunder, (c) recovering any Indebtedness, (d) any litigation or proceedings affecting the Note, this Mortgage, any of the other Loan Documents or the Premises, including without limitation, bankruptcy and probate proceedings, or (e) preparing for the commencement, defense or participation in any threatened litigation or proceedings affecting the Note, this Mortgage, any of the other Loan Documents or the Premises, shall be so much additional Indebtedness, and shall become immediately due and payable by Mortgagor to Lender, upon demand, and with interest thereon accruing from the date of such demand until paid at the Default Rate.  The interest accruing under this Section shall be immediately due and payable by Mortgagor to Lender, and shall be additional Indebtedness evidenced by the Note and secured by this Mortgage.  Lender’s failure to act shall never be considered as a waiver of any right accruing to Lender on account of any Event of Default under this Mortgage or any of the other Loan Documents.  Should any amount paid out or advanced by Lender hereunder, or pursuant to any agreement executed by Mortgagor in connection with the Loan, be used directly or indirectly to pay off, discharge or satisfy, in whole or in part, any lien or encumbrance upon the Premises or any part thereof, then Lender shall be subrogated to any and all rights, equal or superior titles, liens and equities, owned or claimed by any owner or holder of said outstanding liens, charges and indebtedness, regardless of whether said liens, charges and indebtedness are acquired by assignment or have been released of record by the holder thereof upon payment.

 

13.                                Security Agreement .  Mortgagor and Lender agree that this Mortgage shall constitute a Security Agreement within the meaning of the Code with respect to (a) all sums at any time on deposit for the benefit of Mortgagor or held by Lender (whether deposited by or on behalf of Mortgagor or anyone else) pursuant to any of the provisions of this Mortgage or the other Loan Documents, and (b) any personal property included in the granting clauses of this Mortgage, which personal property may not be deemed to be affixed to the Premises or may not constitute a “fixture” (within the meaning of the Code and which property is hereinafter referred to as Personal Property ), and all replacements of, substitutions for, additions to, and the proceeds thereof, and the supporting obligations (as defined in the Code) (all of said Personal Property and the replacements, substitutions and additions thereto and the proceeds thereof being sometimes hereinafter collectively referred to as Collateral ), and that a security interest in and to the Collateral is hereby granted to Lender, and the Collateral and all of Mortgagor’s right, title and interest therein are hereby assigned to Lender, all to secure payment of the Indebtedness.  All of the provisions contained in this Mortgage pertain and apply to the Collateral as fully and to the same extent as to any other property comprising the Premises; and the following provisions of this Section shall not limit the applicability of any other provision of this Mortgage but shall be in addition thereto:

 

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(a)                                  Mortgagor (being the Debtor as that term is used in the Code) is and will be the true and lawful owner of the Collateral and has rights in and the power to transfer the Collateral, subject to no liens, charges or encumbrances other than the lien of this Mortgage, other liens and encumbrances benefiting Lender and no other party, and liens and encumbrances, if any, expressly permitted by the other Loan Documents.

 

(b)                                  The Collateral is to be used by Mortgagor solely for business purposes.

 

(c)                                   The Collateral will be kept at the Real Estate and, except for Collateral no longer useful in connection with the operation of the Real Estate, provided that prior to the sale or other disposition thereof, such Collateral has been replaced by property of at least equal value and utility and which is subject to the lien of this Mortgage, will not be removed therefrom without the consent of Lender (being the Secured Party as that term is used in the Code).  The Collateral may be affixed to the Real Estate but will not be affixed to any other real estate.

 

(d)                                  The only persons having any interest in the Premises are Mortgagor, Lender and holders of interests, if any, expressly permitted hereby.

 

(e)                                   No Financing Statement (other than Financing Statements showing Lender as the sole secured party, or with respect to liens or encumbrances, if any, expressly permitted hereby) covering any of the Collateral or any proceeds thereof is on file in any public office except pursuant hereto; and Mortgagor, at Mortgagor’s own cost and expense, upon demand, will furnish to Lender such further information and will execute and deliver to Lender such financing statements and other documents in form satisfactory to Lender and will do all such acts as Lender may request at any time or from time to time or as may be necessary or appropriate to establish and maintain a perfected security interest in the Collateral as security for the Indebtedness, subject to no other liens or encumbrances, other than liens or encumbrances benefiting Lender and no other party, and liens and encumbrances (if any) expressly permitted hereby; and Mortgagor will pay the cost of filing or recording such financing statements or other documents, and this instrument, in all public offices wherever filing or recording is deemed by Lender to be desirable.  Mortgagor hereby irrevocably authorizes Lender at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto, without the signature of Mortgagor, that (i) indicate the Collateral (A) is comprised of all assets of Mortgagor or words of similar effect, regardless of whether any particular asset comprising a part of the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed, or (B) as being of an equal or lesser scope or within greater detail as the grant of the security interest set forth herein, and (ii) contain any other information required by the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed regarding the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether Mortgagor is an organization, the type of organization and any organizational identification number issued to Mortgagor, and (B) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of the real property to which the Collateral relates.  Mortgagor agrees to furnish any such information to Lender

 

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promptly upon request.  Mortgagor further ratifies and affirms its authorization for any financing statements and/or amendments thereto, executed and filed by Lender in any jurisdiction prior to the date of this Mortgage.  In addition, Mortgagor shall make appropriate entries on its books and records disclosing Lender’s security interests in the Collateral.

 

(f)                                    Upon and during the continuance of an Event of Default under this Mortgage, Lender shall have the remedies of a secured party under the Code, including, without limitation, the right to take immediate and exclusive possession of the Collateral, or any part thereof, and for that purpose, so far as Mortgagor can give authority therefor, with or without judicial process, may enter (if this can be done without breach of the peace) upon any place which the Collateral or any part thereof may be situated and remove the same therefrom (provided that if the Collateral is affixed to real estate, such removal shall be subject to the conditions stated in the Code); and Lender shall be entitled to hold, maintain, preserve and prepare the Collateral for sale, until disposed of, or may propose to retain the Collateral subject to Mortgagor’s right of redemption in satisfaction of Mortgagor’s obligations, as provided in the Code.  Lender may render the Collateral unusable without removal and may dispose of the Collateral on the Premises.  Lender may require Mortgagor to assemble the Collateral and make it available to Lender for its possession at a place to be designated by Lender which is reasonably convenient to both parties.  Lender will give Mortgagor at least 10 days notice of the time and place of any public sale of the Collateral or of the time after which any private sale or any other intended disposition thereof is made. The requirements of reasonable notice shall be met if such notice is mailed, by certified United States mail or equivalent, postage prepaid, to the address of Mortgagor hereinafter set forth at least 10 days before the time of the sale or disposition.  Lender may buy at any public sale.  Lender may buy at private sale if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations.  Any such sale may be held in conjunction with any foreclosure sale of the Premises.  If Lender so elects, the Premises and the Collateral may be sold as one lot.  The net proceeds realized upon any such disposition, after deduction for the expenses of retaking, holding, preparing for sale, selling and the reasonable attorneys’ fees and legal expenses incurred by Lender, shall be applied against the Indebtedness in such order or manner as Lender shall select.  Lender will account to Mortgagor for any surplus realized on such disposition.

 

(g)                                   The terms and provisions contained in this Section, unless the context otherwise requires, shall have the meanings and be construed as provided in the Code.

 

(h)                                  This Mortgage is intended to be a financing statement filed as a fixture filing pursuant to Section 9-502(c) of the Code, as adopted in the State of Arkansas.  The addresses of Mortgagor (Debtor) and Lender (Secured Party) are hereinbelow set forth.  This Mortgage is to be filed for recording in appropriate public records of the county or counties where the Premises are located and Mortgagor hereby authorizes Lender to file any and all financing statements in the county or counties where the Premises are located, and/or such other jurisdictions as reasonably determined by Lender, in order to perfect the security interests created hereby.  Mortgagor is the record owner of the Premises.

 

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(i)                                      To the extent permitted by applicable law, the security interest created hereby is specifically intended to cover all Leases between Mortgagor or its agents as lessor, and various tenants named therein, as lessee, including all extended terms and all extensions and renewals of the terms thereof, as well as any amendments to or replacement of said Leases, together with all of the right, title and interest of Mortgagor, as lessor thereunder.

 

(j)                                     Mortgagor represents and warrants that:  (i) Mortgagor is the record owner of the Premises; (ii) Mortgagor’s chief executive office is located in the State of Georgia; (iii) Mortgagor’s state of organization is the State of Georgia; (iv) Mortgagor’s exact legal name is as set forth on Page 1 of this Mortgage; and (v) Mortgagor’s organizational identification number, if any, is as stated in the Loan Agreement.

 

(k)                                  Mortgagor hereby agrees that:  (i) where Collateral is in possession of a third party, Mortgagor will join with Lender in notifying the third party of Lender’s interest and obtaining an acknowledgment from the third party that it is holding the Collateral for the benefit of Lender; (ii) Mortgagor will cooperate with Lender in obtaining control with respect to Collateral consisting of:  deposit accounts, investment property, letter of credit rights and electronic chattel paper; and (iii) until the Indebtedness is paid in full, Mortgagor will not change the state where it is located or change its name or form of organization without giving Lender at least 30 days prior written notice in each instance, and executing and delivering, at Mortgagor’s expense, all documentation reasonably required by Lender in connection with perfecting or preserving the perfection of the lien and security interest granted under this Mortgage.

 

14.                                Events of Default; Acceleration .  Each of the following shall constitute an Event of Default under this Mortgage:

 

(a)                                  Mortgagor fails to pay any amount payable to Lender under this Mortgage when any such payment is due in accordance with the terms hereof.

 

(b)                                  Mortgagor fails to perform or observe, or to cause to be performed or observed, any obligation, covenant, term, agreement or provision required to be performed or observed by Mortgagor under Sections 1, 2(h), 2(i), 2(k), 2(l), 3 or 4 of this Mortgage;

 

(c)                                   The occurrence of any Transfer in violation of Section 34(a) of this Mortgage or the provisions of the Loan Agreement referenced therein;

 

(d)                                  Mortgagor fails to perform or observe, or to cause to be performed or observed, any other obligation, covenant, term, agreement or provision required to be performed or observed by Mortgagor under this Mortgage and not covered under clauses (a) and (b) of this Section 14, for a period of thirty (30) days after written notice of default from Lender; provided that if any such failure is susceptible to cure and cannot reasonably be cured within said thirty (30)-day period, then such default shall not constitute an Event of Default so long as within such thirty (30)-day period Mortgagor have commenced efforts to cure such default, diligently pursues efforts to cure the

 

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applicable default, and actually cures such default no later than thirty (30) days after the end of the initial thirty (30)-day period; provided, further, that if a different notice or grace period is specified under any other paragraph of this Section 14 with respect to a particular breach, the specific provision shall control; or

 

(e)                                   The occurrence of an Event of Default under the Loan Agreement, the Note or any of the other Loan Documents.

 

If an Event of Default occurs under this Mortgage, Lender may, at its option, declare the whole of the Indebtedness to be immediately due and payable without further notice to Mortgagor, with interest thereon accruing from the date of such Event of Default until paid at the Default Rate.  Mortgagor agrees that the occurrence of an Event of Default as defined in, and pursuant to any of the respective Loan Documents, which is not cured within applicable grace or curative periods, shall constitute an immediate Event of Default (without need of notice or the expiration of any additional cure period other than as specified in such Loan Documents) under all Loan Documents.

 

15.                                Foreclosure; Expense of Litigation .

 

(a)                                  When all or any part of the Indebtedness shall become due, whether by acceleration or otherwise, Lender shall have the right to foreclose the lien hereof for such Indebtedness or part thereof and/or exercise any right, power or remedy provided (i) in this Mortgage or any of the other Loan Documents in accordance with the applicable laws of the State of Arkansas, or (ii) under Arkansas law including the use of non-judicial statutory foreclosure proceedings.  In the event of a foreclosure sale, Lender is hereby authorized, without the consent of Mortgagor, to assign any and all insurance policies to the purchaser at such sale or to take such other steps as Lender may deem advisable to cause the interest of such purchaser to be protected by any of such insurance policies.

 

(b)                                  In any suit or other proceeding to foreclose this Mortgage or enforce any other remedy of Lender under this Mortgage or the Note, there shall be allowed and included as additional indebtedness in the decree for sale or other judgment or decree all expenditures and expenses which may be actually paid or incurred by or on behalf of Lender for reasonable attorneys’ fees, appraisers’ fees, outlays for documentary and expert evidence, stenographers’ charges, publication costs, and costs (which may be estimated as to items to be expended after entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies, and similar data and assurances with respect to the title as Lender may deem reasonably necessary either to prosecute such suit or to evidence to bidders at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Premises.  All expenditures and expenses of the nature mentioned in this Section and such other expenses and fees as may be incurred in the enforcement of Mortgagor’s obligations hereunder, the protection of said Premises and the maintenance of the interest created by this Mortgage, including the actual and reasonable fees of any attorney employed by Lender in any litigation or proceeding affecting this Mortgage, the Note, or the Premises, including probate and bankruptcy proceedings, or in preparations for the commencement or defense of any proceeding or threatened suit or proceeding shall be immediately due

 

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and payable by Mortgagor, with interest thereon until paid at the Default Rate and shall be secured by this Mortgage.

 

(c)                                   Upon any foreclosure sale, Lender may bid for and purchase the Premises in whole or in parcels and shall be entitled to apply all or any part of any indebtedness or obligation secured hereby as a credit to the purchase price.

 

16.                                Application of Proceeds of Foreclosure Sale .  The proceeds of any foreclosure sale of the Premises shall be distributed a nd applied in accordance with the applicable laws of the State of Arkansas and, unless otherwise specified therein, in such order as Lender may determine in its sole and absolute discretion, subject to any express provisions of the Loan Agreement.

 

17.                                Appointment of Receiver .  Upon or at any time after the filing of a complaint to foreclose this Mortgage, the court in which such complaint is filed shall, upon petition by Lender, appoint a receiver for the Premises in accordance with the applicable laws of the S tate of Arkansas.  Such appointment may be made either before or after sale, without notice, without regard to the solvency or insolvency of Mortgagor at the time of application for such receiver and without regard to the value of the Premises or whether the same shall be then occupied as a homestead or not and Lender hereunder or any other holder of the Note may be appointed as such receiver.  Such receiver shall have power to collect the rents, issues and profits of the Premises (i) during the pendency of such foreclosure suit, (ii) in case of a sale and a deficiency, during the full statutory period of redemption, whether there be redemption or not, and (iii) during any further times when Mortgagor, but for the intervention of such receiver, would be entitled to collect such rents, issues and profits.  Such receiver also shall have all other powers and rights that may be necessary or are usual in such cases for the protection, possession, control, management and operation of the Premises during said period, including, to the extent permitted by law, the right to lease all or any portion of the Premises for a term that extends beyond the time of such receiver’s possession without obtaining prior court approval of such lease.  The court from time to time may authorize the application of the net income received by the receiver in payment of (a) the Indebtedness, or any amount found due or secured by any judgment or decree foreclosing this Mortgage, or any tax, special assessment or other lien which may be or become superior to the lien hereof or of such judgment or decree, provided such application is made prior to foreclosure sale, and (b) any deficiency upon a sale and deficiency.

 

18.                                Lender’s Right of Possession in Case of Default .  At any time after an Event of Default under this Mortgage has occurred and is continuing, Mortgagor shall, upon demand of Lender, surrender to Lender possession of the Premises.  Lender, in its discretion, may, with process of law, enter upon and take and maintain possession of all or any part of the Premises, together with all documents, books, records, papers and accounts relating thereto, and may exclude Mortgagor and its employees, agents or servants therefrom, and Lender may then hold, operate, manage and control the Premises, either personally or by its agents.  Lender shall have full power to use such measures, legal or equitable, as in its discretion may be deemed proper or necessary to enforce the payment or security of the avails, rents, issues, and profits of the Premises, including actions for the recovery of rent, actions in forcible detainer and actions in distress for rent.  Without limiting the generality of the foregoing, but subject to applicable Arkansas law, Lender shall have full power to:

 

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(a)                                  Cancel or terminate any lease or sublease for any cause or on any ground which would entitle Mortgagor to cancel the same;

 

(b)                                  Elect to disaffirm any lease or sublease which is then subordinate to this Mortgage;

 

(c)                                   Extend or modify any then existing leases and to enter into new leases, which extensions, modifications and leases may provide for terms to expire, or for options to lessees to extend or renew terms to expire, beyond the Final Maturity Date and beyond the date of the issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale, it being understood and agreed that any such leases, and the options or other such provisions to be contained therein, shall be binding upon Mortgagor and all persons whose interests in the Premises are subject to this Mortgage and upon the purchaser or purchasers at any foreclosure sale, notwithstanding any redemption from sale, discharge of the Indebtedness, satisfaction of any foreclosure judgment, or issuance of any certificate of sale or deed to any purchaser;

 

(d)                                  Make any repairs, renewals, replacements, alterations, additions, betterments and improvements to the Premises as Lender deems are necessary;

 

(e)                                   Insure and reinsure the Premises and all risks incidental to Lender’s possession, operation and management thereof;

 

(f)                                    Terminate any management agreements, contracts, or agents/managers responsible, for the property management of the Premises, if in the sole discretion of Lender such property management is unsatisfactory in any respect; and

 

(g)                                   Receive all of such avails, rents, issues and profits.

 

19.                                Application of Income Received by Lender .  Lender, in the exercise of the rights and powers hereinabove conferred upon it, shall have full power to use and apply the avails, rents, issues and profits of the Premises to the payment of or on account of the following, in such order as Lender may determine:

 

(a)                                  To the payment of the operating expenses of the Premises, including cost of management and leasing thereof (which shall include compensation to Lender and its agent or agents, if management be delegated to an agent or agents, and shall also include lease commissions and other compensation and expenses of seeking and procuring tenants and entering into leases), established claims for damages, if any, and premiums on insurance hereinabove authorized;

 

(b)                                  To the payment of taxes and special assessments now due or which may hereafter become due on the Premises; and

 

(c)                                   To the payment of any Indebtedness, including any deficiency which may result from any foreclosure sale.

 

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20.                                Compliance with Law .

 

(a)                                  If any provision in this Mortgage shall be inconsistent with any provision of the applicable laws of the State of Arkansas, such laws shall take precedence over the provisions of this Mortgage, but shall not invalidate or render unenforceable any other provision of this Mortgage that can be construed in a manner consistent with such laws.

 

(b)                                  If any provision of this Mortgage shall grant to Lender (including Lender acting as a mortgagee-in-possession) or a receiver appointed pursuant to the provisions of this Mortgage any powers, rights or remedies prior to, upon or following the occurrence of an Event of Default under this Mortgage which are more limited than the powers, rights or remedies that would otherwise be vested in Lender or in such receiver under the applicable laws of the State of Arkansas in the absence of said provision, Lender and such receiver shall be vested with the powers, rights and remedies granted by such laws to the full extent permitted by law.

 

21.                                Rights Cumulative .  Each right, power and remedy herein conferred upon Lender is cumulative and in addition to every other right, power or remedy, express or implied, given now or hereafter existing under any of the Loan Documents or at law or in equity, and each and every right, power and remedy herein set forth or otherwise so existing may be exercised from time to time as often and in such order as may be deemed expedient by Lender, and the exercise or the beginning of the exercise of one right, power or remedy shall not be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy, and no delay or omission of Lender in the exercise of any right, power or remedy accruing hereunder or arising otherwise shall impair any such right, power or remedy, or be construed to be a waiver of any Event of Default under this Mortgage or acquiescence therein.

 

22.                                Lender’s Right of Inspection .  Lender and its representatives shall have the right to inspect the Premises and the books and records with respect thereto as and to the extent provided in the Loan Agreement, and access thereto , subject to the rights of tenants in possession, shall be permitted for that purpose.

 

23.                                Release Upon Payment and Discharge of Mortgagor’s Obligations .  Lender shall release this Mortgage and the lien hereof by proper instrument upon payment and discharge of all Indebtedness, including payment of all reasonable expenses incurred by Lender in connection with the execution of such release.  Mortgagor shall not otherwise be entitled to a release of this Mortgage and the lien hereof, except as may be expressly provided to the contrary in the Loan Agreement.

 

24.                                Notices .  All notices and other communications provided for in this Mortgage ( Notices ) shall be in writing.  The Notice Addresses of the parties for purposes of this Mortgage are as follows:

 

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Mortgagor:

Mountain Top Property Holdings, LLC

 

1145 Hembree Road

 

Roswell, Georgia 30076

 

Attention: Boyd P. Gentry

 

 

With a copy to:

Holt Ney Zatcoff & Wasserman, LLP

 

100 Galleria Parkway, Suite 1800

 

Atlanta, Georgia 30339

 

Attention: Gregory P. Youra

 

 

Lender:

KeyBank National Association

 

Real Estate Capital-Healthcare

 

Mailcode: OH-01-51-0311

 

4910 Tiedeman Road, 3 rd  Floor

 

Brooklyn, Ohio 44144

 

Attention: Amy MacLearie, Closer

 

 

With a copy to:

Bryan Cave LLP

 

One Atlantic Center, Fourteenth Floor

 

1201 West Peachtree Street, NW

 

Atlanta, Georgia 30309-3488

 

Attention: Robert C. Lewinson, Esq.

 

or such other address as a party may designate by notice duly given in accordance with this Section to the other parties.  A Notice to a party shall be effective when delivered to such party’s Notice Address by any means, including, without limitation, personal delivery by the party giving the Notice, delivery by United States regular, certified or registered mail, or delivery by a commercial courier or delivery service.  If the Notice Address of a party includes a facsimile number or electronic mail address, Notice given by facsimile or electronic mail shall be effective when delivered at such facsimile number or email address.  If delivery of a Notice is refused, it shall be deemed to have been delivered at the time of such refusal of delivery.  The party giving a Notice shall have the burden of establishing the fact and date of delivery or refusal of delivery of a Notice.

 

25.                                Waiver of Rights .  Mortgagor hereby covenants and agrees that it will not at any time insist upon or plead, or in any manner claim or take any advantage of, any stay, exemption, extension, homestead, dower, reinstatement or redemption law or any so-called “Moratorium Law” now or at any time hereafter in force providing for the valuation or appraisement of the Premises, or any part thereof, prior to any sale or sales thereof to be made pursuant to any provisions herein contained, or to any decree, judgment or order of any court of competent jurisdiction; or, after such sale or sales, claim or exercise any rights under any statute now or hereafter in force to redeem the property so sold, or any part thereof, or relating to the marshalling thereof, upon foreclosure sale or other enforcement hereof; and without limiting the foregoing:

 

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(a)                                  Mortgagor specifically acknowledges that the transaction to which this Mortgage is a part is a transaction which does not include either agricultural real property or residential real estate and Mortgagor hereby expressly, voluntarily and  knowingly waives any and all rights of appraisement, valuation, stay, extension, homestead, dower, reinstatement and redemption, if any, under any order, judgment or decree of foreclosure of this Mortgage, on its own behalf and on behalf of each and every person, it being the intent hereof that any and all such rights of appraisement, valuation, stay, extension, homestead, dower, reinstatement and redemption of Mortgagor and of all other persons are and shall be deemed to be hereby waived to the full extent permitted by the applicable laws of the State of Arkansas, and Mortgagor specifically waives all redemption powers and rights which otherwise might be available to Mortgagor pursuant to Ark. Code Ann. § 16-66-502 and Ark. Code Ann. § 18-49-106, or that Act No. 153 of the Arkansas General Assembly passed on May 8, 1899; and

 

(b)                                  Mortgagor will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any right, power or remedy herein or otherwise granted or delegated to Lender but will suffer and permit the execution of every such right, power and remedy as though no such law or laws had been made or enacted.

 

26.                                Contests .  Notwithstanding anything to the contrary herein contained, Mortgagor shall have the right to contest by appropriate legal proceedings diligently prosecuted any Taxes imposed or assessed upon the Premises or which may be or become a lien thereon and any mechanics’, materialmen’s or other liens or claims for lien upon the Premises (each, a Contested Lien ), and no Contested Lien shall constitute an Event of Default under this Mortgage, if, but only if:

 

(a)                                  Mortgagor shall forthwith give notice of any Contested Lien to Lender at the time the same shall be asserted;

 

(b)                                  Mortgagor shall either pay under protest or deposit with Lender the full amount (the Lien Amount ) of such Contested Lien, together with such amount as Lender may reasonably estimate as interest or penalties which might arise during the period of contest; provided that in lieu of such payment Mortgagor may furnish to Lender a bond or title indemnity in such amount and form, and issued by a bond or title insuring company, as may be satisfactory to Lender;

 

(c)                                   Mortgagor shall diligently prosecute the contest of any Contested Lien by appropriate legal proceedings having the effect of staying the foreclosure or forfeiture of the Premises, and shall permit Lender to be represented in any such contest and shall pay all expenses incurred, in so doing, including fees and expenses of Lender’s counsel (all of which shall constitute so much additional Indebtedness bearing interest at the Default Rate until paid, and payable upon demand);

 

(d)                                  Mortgagor shall pay each such Contested Lien and all Lien Amounts together with interest and penalties thereon (i) if and to the extent that any such Contested Lien shall be determined adverse to Mortgagor, or (ii) forthwith upon demand by Lender if, in the opinion of Lender, and notwithstanding any such contest, the Premises shall be

 

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in jeopardy or in danger of being forfeited or foreclosed; provided that if Mortgagor shall fail so to do, Lender may, but shall not be required to, pay all such Contested Liens and Lien Amounts and interest and penalties thereon and such other sums as may be necessary in the judgment of Lender to obtain the release and discharge of such liens; and any amount expended by Lender in so doing shall be so much additional Indebtedness bearing interest at the Default Rate until paid, and payable upon demand; and provided further that Lender may in such case use and apply monies deposited as provided in paragraph (b) of this Section and may demand payment upon any bond or title indemnity furnished as aforesaid.

 

27.                                Expenses Relating to Note and Mortgage .

 

(a)                                  Mortgagor will pay all expenses, charges, costs and fees relating to the Loan or necessitated by the terms of the Note, this Mortgage or any of the other Loan Documents, including without limitation, Lender’s reasonable attorneys’ fees actually incurred in connection with the negotiation, documentation, administration, servicing and enforcement of the Note, this Mortgage and the other Loan Documents, all filing, registration and recording fees, all other expenses incident to the execution and acknowledgment of this Mortgage and all federal, state, county and municipal taxes, and other taxes (provided Mortgagor shall not be required to pay any income or franchise taxes of Lender), duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Note and this Mortgage.  Mortgagor recognizes that, during the term of this Mortgage, Lender:

 

(i)                                      May be involved in court or administrative proceedings, including, without restricting the foregoing, foreclosure, probate, bankruptcy, creditors’ arrangements, insolvency, housing authority and pollution control proceedings of any kind, to which Lender shall be a party by reason of the Loan Documents or in which the Loan Documents or the Premises are involved directly or indirectly;

 

(ii)                                   May make preparations following the occurrence of an Event of Default under this Mortgage for the commencement of any suit for the foreclosure hereof, which may or may not be actually commenced;

 

(iii)                                May make preparations following the occurrence of an Event of Default under this Mortgage for, and do work in connection with, Lender’s taking possession of and managing the Premises, which event may or may not actually occur;

 

(iv)                               May make preparations for and commence other private or public actions to remedy an Event of Default under this Mortgage, which other actions may or may not be actually commenced;

 

(v)                                  May enter into negotiations with Mortgagor or any of its agents, employees or attorneys in connection with the existence or curing of any Event of Default under this Mortgage, the sale of the Premises, the assumption of liability for any of the Indebtedness or the transfer of the Premises in lieu of foreclosure; or

 

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(vi)                               May enter into negotiations with Mortgagor or any of its agents, employees or attorneys pertaining to Lender’s approval of actions taken or proposed to be taken by Mortgagor which approval is required by the terms of this Mortgage.

 

(b)                                  All expenses, charges, costs and fees described in this Section shall be so much additional Indebtedness, shall bear interest from the date so incurred until paid at the Default Rate and shall be paid, together with said interest, by Mortgagor forthwith upon demand.

 

28.                                Statement of Indebtedness .  Mortgagor, within seven (7) days after being so requested by Lender, shall furnish a duly acknowledged written statement setting forth the amount of the debt secured by this Mortgage, the date to which interest has been paid and stating either that no offsets or defenses exist against such debt or, if such offsets or defenses are alleged to exist, the nature thereof.

 

29.                                Further Instruments .  Upon request of Lender, Mortgagor shall execute, acknowledge and deliver all such additional instruments and further assurances of title and shall do or cause to be done all such further acts and things as may reasonably be necessary fully to effectuate the intent of this Mortgage and of the other Loan Documents.

 

30.                                Additional Indebtedness Secured .  All persons and entities with any interest in the Premises or about to acquire any such interest should be aware that this Mortgage secures more than the stated principal amount of the Note and interest thereon; this Mortgage secures any and all other amounts which may become due under the Note, any of the other Loan Documents or any other document or instrument evidencing, securing or otherwise affecting the Indebtedness, including, without limitation, any and all amounts expended by Lender to operate, manage or maintain the Premises or to otherwise protect the Premises or the lien of this Mortgage.

 

31.                                Indemnity .  Mortgagor hereby covenants and agrees that no liability shall be asserted or enforced against Lender in the exercise of the rights and powers granted to Lender in this Mortgage, and Mortgagor hereby expressly waives and releases any such liability, except to the extent resulting from the gross negligence or willful misconduct of Lender.  Mortgagor shall indemnify and save Lender harmless from and against any and all liabilities, obligations, losses, damages, claims, costs and expenses, including reasonable attorneys’ fees and court costs actually incurred (collectively, Claims ), of whatever kind or nature which may be imposed on, incurred  by or asserted against Lender at any time by any third party which relate to or arise from:  (a) any suit or proceeding (including probate and bankruptcy proceedings), or the threat thereof, in or to which Lender may or does become party, either as plaintiff or as defendant, by reason of this Mortgage or for the purpose of protecting the lien of this Mortgage; (b) the offer for sale or sale of all or any portion of the Premises; and (c) the ownership, leasing, use, operation or maintenance of the Premises, if such Claims relate to or arise from actions taken prior to the surrender of possession of the Premises to Lender in accordance with the terms of this Mortgage; provided, however, that Mortgagor shall not be obligated to indemnify or hold Lender harmless from and against any Claims directly arising from the gross negligence or willful misconduct of Lender.  All costs provided for herein and paid for by Lender shall be so much additional Indebtedness and shall become immediately due and payable upon demand by

 

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Lender and with interest thereon from the date incurred by Lender until paid at the Default Rate.  The indemnity provided in this Section shall be in addition to (but not in duplication of) any other indemnification provision contained in the Loan Agreement or any other Loan Document.

 

32.                                Subordination of Property Manager’s Lien .  Any property management agreement for the Premises entered into hereafter with a property manager shall contain a provision whereby the property manager agrees that any and all mechanics’ lien rights that the property manager or anyone claiming by, through or under the property manager may have in the Premises shall be subject and subordinate to the lien of this Mortgage and shall provide that Lender may terminate such agreement, without penalty or cost, at any time after the occurrence of an Event of Default under this Mortgage.  Such property management agreement or a short form thereof, at Lender’s request, shall be recorded in the appropriate public records of the county where the Premises are located.  In addition, Mortgagor shall cause the property manager under such agreement to enter into a subordination of the management agreement with Lender, in recordable form, whereby such property manager subordinates present and future lien rights and those of any party claiming by, through or under such property manager to this Mortgage.

 

33.                                Compliance with Environmental Laws .  Concurrently herewith Mortgagor and the Guarantors have executed and delivered to Lender that certain Indemnity Agreement Regarding Hazardous Materials dated as of the date hereof (the Indemnity ) pursuant to which Mortgagor and the Guarantors have indemnified Lender for environmental matters concerning the Premises, as more particularly described therein.  The provisions of the Indemnity are hereby incorporated herein and this Mortgage shall secure the obligations of Mortgagor thereunder.

 

34.                                Miscellaneous .

 

(a)                                  Incorporation of Loan Agreement Provisions Prohibiting Certain Transfers .  The provisions of Sections 12.2 and 12.3 of the Loan Agreement (prohibiting certain Transfers ,” as defined in the Loan Agreement), together with all defined terms used therein, are hereby incorporated into and made a part of this Mortgage, as fully as if set forth herein verbatim.

 

(b)                                  Usury and Truth in Lending .  Notwithstanding the provisions contained in Section 34(d) of this Mortgage to the contrary, Mortgagor acknowledges that the Loan evidenced in the Loan Agreement was solicited, negotiated, closed and funded outside the State of Arkansas, and Mortgagor waives any argument that the laws of the State of Arkansas shall apply for usury purposes.  The Loan is an exempted transaction under the Truth In Lending Act, 15 U.S.C., §1601, et seq.

 

(c)                                   Successors and Assigns .  This Mortgage and all provisions hereof shall be binding upon and enforceable against Mortgagor and its assigns and other successors.  This Mortgage and all provisions hereof shall inure to the benefit of Lender, its successors and assigns and any holder or holders, from time to time, of the Note.

 

(d)                                  Invalidity of Provisions; Governing Law .  In the event that any provision of this Mortgage is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court,

 

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Mortgagor and Lender shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this Mortgage and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect.  Furthermore, a ll agreements between Mortgagor and Lender (including, without limitation, those contained in this Mortgage and the Note) are expressly limited so that in no event whatsoever shall the amount paid or agreed to be paid to the Lender exceed the highest lawful rate of interest permissible under the applicable law.  If, from any circumstances whatsoever, fulfillment of any provision hereof or the Note or any other documents securing the Indebtedness at the time performance of such provision shall be due, shall involve the payment of interest exceeding the highest rate of interest permitted by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to the highest lawful rate of interest permissible under the applicable law; and if for any reason whatsoever Lender shall ever receive as interest an amount which would be deemed unlawful, such interest shall be applied to the payment of the last maturing installment or installments of the principal Indebtedness (whether or not then due and payable) and not to the payment of interest.   Subject to the provisions contained in Section 34(b) of this Mortgage, this Mortgage is to be construed in accordance with and governed by the laws of the State of Arkansas.

 

(e)                                   Municipal Requirements .  Mortgagor shall not by act or omission permit any building or other improvement on premises not subject to the lien of this Mortgage to rely on the Premises or any part thereof or any interest therein to fulfill any municipal or governmental requirement, and Mortgagor hereby assigns to Lender any and all rights to give consent for all or any portion of the Premises or any interest therein to be so used.  Similarly, no building or other improvement on the Premises shall rely on any premises not subject to this Mortgage or any interest therein to fulfill any governmental or municipal requirement.  Any act or omission by Mortgagor which would result in a violation of any of the provisions of this paragraph shall be void.

 

(f)                                    Rights of Tenants .  Lender shall have the right and option to commence a civil action to foreclose this Mortgage and to obtain a decree of foreclosure and sale subject to the rights of any tenant or tenants of the Premises having an interest in the Premises prior to that of Lender.  The failure to join any such tenant or tenants of the Premises as party defendant or defendants in any such civil action or the failure of any decree of foreclosure and sale to foreclose their rights shall not be asserted by Mortgagor as a defense in any civil action instituted to collect the Indebtedness, or any part thereof or any deficiency remaining unpaid after foreclosure and sale of the Premises, any statute or rule of law at any time existing to the contrary notwithstanding.

 

(g)                                   Mortgagee-in-Possession .  Nothing herein contained shall be construed as constituting Lender a mortgagee-in-possession in the absence of the actual taking of possession of the Premises by Lender pursuant to this Mortgage.

 

(h)                                  Relationship of Lender and Mortgagor .  Lender shall in no event be construed for any purpose to be a partner, joint venturer, agent or associate of Mortgagor or of any lessee, operator, concessionaire or licensee of Mortgagor in the conduct of their

 

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respective businesses, and, without limiting the foregoing, Lender shall not be deemed to be such partner, joint venturer, agent or associate on account of Lender becoming a mortgagee-in-possession or exercising any rights pursuant to this Mortgage, any of the other Loan Documents, or otherwise.  The relationship of Mortgagor and Lender hereunder is solely that of debtor/creditor.

 

(i)                                      Time of the Essence .  Time is of the essence of the payment by Mortgagor of all amounts due and owing to Lender under the Note and the other Loan Documents and the performance and observance by Mortgagor of all terms, conditions, obligations and agreements contained in this Mortgage and the other Loan Documents.

 

(j)                                     No Merger .  The parties hereto intend that this Mortgage and the interest hereunder shall not merge in the fee simple title to the Premises, and if Lender acquires any additional or other interest in or to the Premises or the ownership thereof, then, unless a contrary intent is manifested by Lender as evidenced by an express statement to that effect in an appropriate document duly recorded, this Mortgage and the interest hereunder shall not merge in the fee simple title and this Mortgage may be foreclosed as if owned by a stranger to the fee simple title.

 

(k)                                  Complete Agreement; No Reliance; Modifications .  This Mortgage, the Note and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof.  Mortgagor acknowledges that it is executing this Mortgage without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein or in the other Loan Documents.  This Mortgage may not be modified, altered or amended except by an agreement in writing signed by both Mortgagor and Lender.

 

(l)                                      Captions .  The captions and headings of various Sections and paragraphs of this Mortgage and exhibits pertaining hereto are for convenience only and are not to be considered as defining or limiting in any way the scope or intent of the provisions hereof.

 

(m)                              Gender and Number .  Any word herein which is expressed in the masculine or neuter gender shall be deemed to include the masculine, feminine and neuter genders.  Any word herein which is expressed in the singular or plural number shall be deemed, whenever appropriate in the context, to include the singular and the plural.

 

(n)                                  Execution of Counterparts .  This Mortgage 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 Mortgage by facsimile or other electronic transmission shall constitute effective delivery thereof.  An electronic record of this executed Mortgage maintained by Lender shall be deemed to be an original.

 

(o)                                  Construction .  Each party to this Mortgage and legal counsel to each party have participated in the drafting of this Mortgage, and accordingly the general rule

 

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of construction to the effect that any ambiguities in a contract are resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Mortgage.

 

(p)                                  References to Documents .  Unless expressly provided to the contrary or the context otherwise requires, all references in this Mortgage to any other document, instrument or agreement shall be deemed to refer to such document, instrument or agreement as it may be amended, modified, supplemented, renewed, extended or restated from time to time; provided, however, that nothing in this subsection shall operate or be construed to authorize any such amendment, modification, supplement, renewal, extension or restatement that is prohibited or restricted under any other provision of the Loan Documents.

 

35.                                Litigation Provisions.

 

(a)                                  Consent to Jurisdiction .  MORTGAGOR CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CLEVELAND, OHIO, AND OF ANY STATE OR FEDERAL COURT LOCATED OR HAVING JURISDICTION IN THE COUNTY IN WHICH THE PREMISES ARE LOCATED, IN WHICH ANY LEGAL PROCEEDING MAY BE COMMENCED OR PENDING RELATING IN ANY MANNER TO THIS MORTGAGE, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS.

 

(b)                                  Consent to Venue .  MORTGAGOR AGREES THAT ANY LEGAL PROCEEDING RELATING TO THIS MORTGAGE, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT AGAINST MORTGAGOR IN ANY STATE OR FEDERAL COURT LOCATED IN CLEVELAND, OHIO, OR ANY STATE OR FEDERAL COURT LOCATED OR HAVING JURISDICTION IN THE COUNTY IN WHICH THE PREMISES ARE LOCATED.  MORTGAGOR WAIVES ANY OBJECTION TO VENUE IN ANY SUCH COURT AND WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE FROM ANY SUCH COURT.

 

(c)                                   No Proceedings in Other Jurisdictions .  MORTGAGOR AGREES THAT IT WILL NOT COMMENCE ANY LEGAL PROCEEDING AGAINST LENDER RELATING IN ANY MANNER TO THIS MORTGAGE, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS IN ANY COURT OTHER THAN A STATE OR FEDERAL COURT LOCATED IN CLEVELAND, OHIO, OR IF A LEGAL PROCEEDING IS COMMENCED BY LENDER AGAINST MORTGAGOR IN A COURT IN ANOTHER LOCATION, BY WAY OF A COUNTERCLAIM IN SUCH LEGAL PROCEEDING.

 

(d)                                  Waiver of Jury Trial .  MORTGAGOR HEREBY WAIVES TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS MORTGAGE, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS.

 

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36.                                Definitions of Certain Terms .  The following terms shall have the following meanings in this Mortgage:

 

Code :  The Uniform Commercial Code of the State of Arkansas as from time to time in effect; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the security interest in any collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Arkansas, the term “Code” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Mortgage or the other Loan Documents relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

 

Default :  When used in reference to this Mortgage or any other document, or in reference to any provision of or obligation under this Mortgage or any other document, the occurrence of an event or the existence of a condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default under this Mortgage or such other document, as the case may be.

 

Event of Default :  The following: (i) when used in reference to this Mortgage, one or more of the events or occurrences referred to in Section 14 of this Mortgage; and (ii) when used in reference to any other document, a default or event of default under such document that has continued after the giving of any applicable notice and the expiration of any applicable grace or cure periods.

 

37.                                Waiver .  TO THE EXTENT PERMITTED BY LAW, MORTGAGOR HEREBY EXPRESSLY WAIVES AND RELEASES ANY REQUIREMENT OR OBLIGATION THAT LENDER PRESENT EVIDENCE OR OTHERWISE PROCEED BEFORE ANY COURT, CLERK, OR OTHER JUDICIAL OR QUASI-JUDICIAL BODY BEFORE EXERCISE OF THE POWERS OF SALE CONTAINED IN THIS MORTGAGE AND IN THE ARKANSAS CODE.

 

[Remainder of Page Intentionally Left Blank;

Execution on Following Pages]

 

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IN WITNESS WHEREOF , Mortgagor has executed and delivered this Mortgage as of the day and year first above written.

 

 

MOUNTAIN TOP PROPERTY HOLDINGS, LLC,

 

a Georgia limited liability company

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

 

ACKNOWLEDGMENT

 

STATE OF GEORGIA

)

 

)  ss:

COUNTY OF FULTON

)

 

On this day, before me, the undersigned, a Notary Public, duly commissioned, qualified and acting, within and for said County and State, appeared in person the within named Ronald W. Fleming, to me personally well known, who stated that he is the Chief Financial Officer of AdCare Health Systems, Inc., an Ohio corporation and as such officer is authorized to sign on behalf of Mountain Top Property Holdings, LLC, a Georgia limited liability company, and was duly authorized in that capacity to execute the foregoing instrument for and in the name and behalf of said company, and further stated and acknowledged that he had so signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth.

 

IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 29th day of May, 2013.

 

 

/s/ Lucinda Joy Ford

 

Notary Public

 

 

My Commission Expires: Oct. 3, 2014

 

 

 

 

 

 

 

 

 

(S E A L)

 

 

Mountain Top

Signature Page to Mortgage

 

 


Exhibit 10.14

 

SPACE ABOVE THIS LINE FOR RECORDER’S USE ONLY

 

PREPARED BY

AND WHEN RECORDED RETURN TO:

 

F. Donald Nelms, Jr., Esq.
Bryan Cave LLP
One Atlantic Center

Fourteenth Floor

1201 W. Peachtree Street, NW
Atlanta, Georgia 30309-3488

 

ABSOLUTE ASSIGNMENT OF LEASES AND RENTS

 

(Stone County Residential Care Center)

 

THIS ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (hereinafter referred to as this “Assignment” ), is made and entered into as of the 31 st  day of May 2013, by MOUNTAIN TOP PROPERTY HOLDINGS, LLC , a Georgia limited liability company, whose address is whose address is 1145 Hembree Road, Roswell, Georgia 30076 ( “Assignor” ), to KEYBANK NATIONAL ASSOCIATION , a national banking association ( “Assignee” ), whose address is 4910 Tiedeman Road, 3 rd  Floor, Brooklyn, Ohio 44144.

 

W I T N E S S E T H:

 

A.                                     Woodland Hills HC Property Holdings, LLC ( “Woodland Hills PropCo” ), Woodland Hills HC Nursing, LLC (“ Woodland Hills Tenant ”), APH&R Property Holdings, LLC (“ Abington PropCo ”), APH&R Nursing, LLC (“ Abington Tenant ”),  Northridge HC&R Property Holdings, LLC (“ Northridge PropCo ”) and Northridge HC&R Nursing, LLC, (“ Northridge Tenant ”), each a Georgia limited liability company (Woodland Hills PropCo, Woodland Hills Tenant, Abington PropCo, Abington Tenant, Northridge PropCo and Northridge Tenant referred to herein collectively as “ Borrowers ”), and Assignee entered into that certain Secured Loan Agreement dated as of December 28, 2012, as amended by that certain First Amendment to Secured Loan Agreement and Payment Guaranty dated as of even date herewith (the “First Amendment” ; as such loan agreement may be further amended, restated, or otherwise modified from time to time, collectively, the “ Loan Agreement ”), whereby Assignee agreed to make a secured term loan (the “ Loan ”) available to Borrowers in the original principal amount of Sixteen Million Five Hundred Thousand and 00/100 Dollars ($16,500,000.00).  Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the Loan Agreement.

 

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B.                                     In connection with the Loan, Borrowers have executed and delivered, jointly and severally, a promissory note dated as of December 28, 2012 (the Note ) payable to the order of Assignee in the principal amount of the Loan.

 

C.                                     A condition precedent to Assignee’s entering into the First Amendment is the execution and delivery by the Assignor of, among other things, this Assignment.

 

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually agree as follows:

 

1.                                       Definitions .  All capitalized terms which are not defined herein shall have the meanings ascribed thereto in the Loan Agreement.

 

2.                                       Absolute and Present Assignment .  The Assignor hereby bargains, grants, sells, transfers, conveys, sets over and assigns to the Assignee, it successors and assigns, as an Absolute Assignment and not merely one for security, all of the right, title and interest of the Assignor in and to (i) all of the rents, revenues, issues, profits, proceeds, receipts, income, accounts and other receivables arising out of or from the land legally described in Exhibit A attached hereto and made a part hereof and all buildings and other improvements located thereon (said land and improvements being hereinafter referred to collectively as the Premises ), including, without limitation, lease termination fees, purchase option fees and other fees and expenses payable under any lease; (ii) all leases and subleases (collectively, Leases ), now or hereafter existing, of all or any part of the Premises, including but not limited to that certain Facility Lease dated November 30, 2011, between Assignor and Mountain Top ALF, LLC, a Georgia limited liability company together with all guaranties of any of such Leases and all security deposits delivered by tenants thereunder, whether in cash or letter of credit; (iii) all rights and claims for damage against tenants arising out of defaults under the Leases, including rights to termination fees and compensation with respect to rejected Leases pursuant to Section 365(a) of the Federal Bankruptcy Code or any replacement Section thereof; and (iv) all tenant improvements and fixtures located on the Premises.  This Assignment is an absolute perfected and present transfer and assignment of the foregoing interests to the Assignee, and not an assignment for security purposes only, which secures:

 

(a)                                  Payment by the Borrowers when due of (i) the indebtedness evidenced by the Note and any and all renewals, extensions, replacements, amendments, modifications and refinancings thereof; (ii) any and all other Obligations (as defined in the Loan Agreement) that may be due and owing to the Assignee by the Borrowers under or with respect to the Loan Documents (as defined in the Loan Agreement); and (iii) all costs and expenses paid or incurred by the Assignee in enforcing its rights hereunder, including without limitation, court costs and reasonable attorneys’ fees actually incurred; and

 

(b)                                  Observance and performance by the Borrowers of the covenants, conditions, agreements, representations, warranties and other liabilities and obligations of the Borrowers or any other obligor to or benefiting the Assignee which are evidenced or secured by or otherwise provided in the Note, this Assignment or any of the other Loan Documents.

 

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3.                                       Representations and Warranties of Assignor .  The Assignor represents and warrants to the Assignee that:

 

(a)                                  This Assignment, as executed by the Assignor, constitutes the legal and binding obligation of the Assignor enforceable in accordance with its terms and provisions;

 

(b)                                  The Assignor is the lessor under all Leases;

 

(c)                                   There is no other existing assignment of the Assignor’s entire or any part of its interest in or to any of the Leases, or any of the rents, issues, income or profits assigned hereunder, nor has the Assignor entered into any agreement to subordinate any of the Leases or the Assignor’s right to receive any of the rents, issues, income or profits assigned hereunder;

 

(d)                                  The Assignor has not executed any instrument or performed any act which may prevent the Assignee from operating under any of the terms and provisions hereof or which would limit the Assignee in such operation; and

 

(e)                                   There are no defaults by the landlord and, to the Assignor’s knowledge, there are no material defaults by tenants under any Leases.

 

4.                                       Covenants of the Assignor .  The Assignor covenants and agrees that so long as this Assignment shall be in effect:

 

(a)                                  The Assignor shall not enter into any additional Leases, other than Leases which are entered into in the ordinary course of the Assignor’s business with individual patients under patient agreements;

 

(b)                                  The Assignor shall observe and perform all of the covenants, terms, conditions and agreements contained in the Leases to be observed or performed by the lessor thereunder, and the Assignor shall not do or suffer to be done anything to impair the security thereof.  The Assignor shall not (i) release the liability of any tenant under any Lease, (ii) consent to any tenant’s withholding of rent or making monetary advances and off setting the same against future rentals, (iii) consent to any tenant’s claim of a total or partial eviction, (iv) consent to a tenant termination or cancellation of any Lease, except as specifically provided therein, or (v) enter into any oral leases with respect to all or any portion of the Premises;

 

(c)                                   The Assignor shall not collect any of the rents, issues, income or profits assigned hereunder more than 30 days in advance of the time when the same shall become due, except for security or similar deposits;

 

(d)                                  The Assignor shall not make any other assignment of its entire or any part of its interest in or to any or all Leases, or any or all rents, issues, income or profits assigned hereunder, except as specifically permitted by the Loan Documents;

 

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(e)                                   The Assignor shall not modify the terms and provisions of any Lease, nor shall the Assignor give any consent (including, but not limited to, any consent to any assignment of, or subletting under, any Lease, except as expressly permitted thereby) or approval required or permitted by such terms and provisions, or cancel or terminate any Lease, without the Assignee’s prior written consent;

 

(f)                                    The Assignor shall not accept a surrender of any Lease or convey or transfer, or suffer or permit a conveyance or transfer, of the premises demised under any Lease or of any interest in any Lease so as to effect, directly or indirectly, proximately or remotely, a merger of the estates and rights of, or a termination or diminution of the obligations of, any tenant thereunder; any termination fees payable under a Lease for the early termination or surrender thereof shall be paid jointly to the Assignor and the Assignee;

 

(g)                                   The Assignor shall not alter, modify or change the terms of any guaranty of any Lease, or cancel or terminate any such guaranty or do or permit to be done anything which would terminate any such guaranty as a matter of law;

 

(h)                                  The Assignor shall not waive or excuse the obligation to pay rent under any Lease;

 

(i)                                      The Assignor shall, at its sole cost and expense, appear in and defend any and all actions and proceedings arising under, relating to or in any manner connected with any Lease or the obligations, duties or liabilities of the lessor or any tenant or guarantor thereunder, and shall pay all costs and expenses of the Assignee, including court costs and reasonable attorneys’ fees actually incurred, in any such action or proceeding in which the Assignee may appear;

 

(j)                                     The Assignor shall give prompt notice to the Assignee of any notice of any default by the lessor under any Lease received from any tenant or guarantor thereunder;

 

(k)                                  The Assignor shall enforce the observance and performance of each covenant, term, condition and agreement contained in each Lease to be observed and performed by the tenants and guarantors thereunder and shall immediately notify the Assignee of any material breach by the tenant or guarantor under any such Lease;

 

(l)                                      The Assignor shall not permit any of the Leases to become subordinate to any lien or liens other than liens securing the indebtedness secured hereby or liens for general real estate taxes not delinquent;

 

(m)                              The Assignor shall not execute hereafter any Lease unless there shall be included therein a provision providing that the tenant thereunder acknowledges that such Lease has been assigned pursuant to this Assignment and agrees not to look to the Assignee as mortgagee, mortgagee in possession or successor in title to the Premises for accountability for any security deposit required by lessor under such Lease unless such sums have actually been received in cash by the Assignee as security for tenant’s performance under such Lease; and

 

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(n)                                  If any tenant under any Lease is or becomes the subject of any proceeding under the Federal Bankruptcy Code, as amended from time to time, or any other federal, state or local statute which provides for the possible termination or rejection of the Leases assigned hereby, the Assignor covenants and agrees that if any such Lease is so terminated or rejected, no settlement for damages shall be made without the prior written consent of the Assignee, and any check in payment of damages for termination or rejection of any such Lease will be made payable both to the Assignor and the Assignee.  The Assignor hereby assigns any such payment to the Assignee and further covenants and agrees that upon the request of the Assignee, it will duly endorse to the order of the Assignee any such check, the proceeds of which shall be applied in accordance with the provisions of Section 8 below.

 

5.                                       Rights Prior to Default .  Unless or until an Event of Default (as defined in Section 6 hereof) shall occur and be continuing, the Assignor shall have the right and license to collect, at the time (but in no event more than 30 days in advance) provided for the payment thereof, all rents, issues, income and profits assigned hereunder, and to retain, use and enjoy the same.  Upon the occurrence of an Event of Default, the Assignor’s right and license to collect such rents, issues, income and profits shall immediately terminate without further notice thereof to the Assignor.  The Assignee shall have the right to notify the tenants under the Leases of the existence of this Assignment at any time.

 

6.                                       Events of Default .  Each of the following shall constitute an Event of Default under this Assignment:

 

(a)                                  The Assignor fails to pay any amount payable under this Assignment when any such payment is due in accordance with the terms hereof.

 

(b)                                  The Assignor fails to perform or observe, or to cause to be performed or observed, any other obligation, covenant, term, agreement or provision required to be performed or observed by the Assignor under this Assignment; provided, however, that:

 

(i)                                      If such failure can be cured solely by the payment of money, such failure shall not constitute an Event of Default unless it shall continue for a period of five days after written notice to the Assignor;

 

(ii)                                   If such failure cannot be cured solely by the payment of money and does not pose an emergency or dangerous condition or a material threat to the security for the Loan, such failure shall not constitute an Event of Default unless it shall continue for a period of 30 days after written notice to the Assignor; and

 

(iii)                                If a failure described in (ii) above is of such a nature that it cannot reasonably be cured within such 30-day period, and if such failure is susceptible of cure, it shall not constitute an Event of Default if corrective action is instituted by the Assignor within such 30-day period and is diligently pursued and such failure is cured within 60 days after the occurrence of such failure.

 

(c)                                   The occurrence of an Event of Default under the Loan Agreement or any of the other Loan Documents.

 

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7.                                       Rights and Remedies Upon Default .  At any time upon or following the occurrence and during the continuance of any Event of Default, the Assignee, at its option, may exercise any one or more of the following rights and remedies without any obligation to do so, without in any way waiving such Event of Default, without further notice or demand on the Assignor, without regard to the adequacy of the security for the obligations secured hereby, without releasing the Assignor or any guarantor of the Note from any obligation, and with or without bringing any action or proceeding to foreclose the Mortgage or any other lien or security interest granted by the Loan Documents:

 

(a)                                  The Assignee may declare the unpaid balance of the principal sum of the Note, together with all accrued and unpaid interest thereon, immediately due and payable.

 

(b)                                  The Assignee may enter upon and take possession of the Premises, either in person or by agent or by a receiver appointed by a court, and have, hold, manage, lease and operate the same on such terms and for such period of time as the Assignee may deem necessary or proper, with full power to make from time to time all alterations, renovations, repairs or replacements thereto or thereof as may seem proper to the Assignee, to make, enforce, modify and accept the surrender of Leases, to obtain and evict tenants, to fix or modify rents, and to do any other act which the Assignee deems necessary or proper.

 

(c)                                   The Assignee may either with or without taking possession of the Premises, demand, sue for, settle, compromise, collect, and give acquittances for all rents, issues, income and profits of and from the Premises and pursue all remedies for  enforcement of the Leases and all the lessor’s rights therein and thereunder.  This Assignment shall constitute an authorization and direction to the tenants under the Leases to pay all rents and other amounts payable under the Leases to the Assignee, without proof of default hereunder, upon receipt from the Assignee of written notice to thereafter pay all such rents and other amounts to the Assignee and to comply with any notice or demand by the Assignee for observance or performance of any of the covenants, terms, conditions and agreements contained in the Leases to be observed or performed by the tenants thereunder, and the Assignor shall facilitate in all reasonable ways the Assignee’s collection of such rents, issues, income and profits, and upon request will execute written notices to the tenants under the Leases to thereafter pay all such rents and other amounts to the Assignee.

 

(d)                                  The Assignee may make any payment or do any act required herein of the Assignor in such manner and to such extent as the Assignee may deem necessary, and any amount so paid by the Assignee shall become immediately due and payable by the Assignor with interest thereon until paid at the Default Rate and shall be secured by this Assignment.

 

8.                                       Application of Funds .  Except as otherwise provided in the Mortgage or by applicable law, all sums collected and received by the Assignee out of the rents, issues, income and profits of the Premises following the occurrence of any one or more Events of Default shall be applied in such order as the Assignee shall elect in its sole and absolute discretion.

 

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9.                                       Limitation of the Assignee’s Liability .  The Assignee shall not be liable for any loss sustained by the Assignor resulting from the Assignee’s failure to let the Premises or from any other act or omission of the Assignee in managing, operating or maintaining the Premises following the occurrence of an Event of Default.  The Assignee shall not be obligated to observe, perform or discharge, nor does the Assignee hereby undertake to observe, perform or discharge any covenant, term, condition or agreement contained in any Lease to be observed or performed by the lessor thereunder, or any obligation, duty or liability of the Assignor under or by reason of this Assignment.  The Assignor shall and does hereby agree to indemnify, defend (using counsel satisfactory to the Assignee) and hold the Assignee harmless from and against any and all liability, loss or damage which the Assignee may incur under any Lease or under or by reason of this Assignment and of and from any and all claims and demands whatsoever which may be asserted against the Assignee by reason of any alleged obligation or undertaking on the Assignee’s part to observe or perform any of the covenants, terms, conditions and agreements contained in any Lease; provided, however, in no event shall the Assignor be liable for any liability, loss or damage which the Assignee incurs as a result of the Assignee’s gross negligence or willful misconduct.  Should the Assignee incur any such liability, loss or damage under any Lease or under or by reason of this Assignment, or in the defense of any such claim or demand, the amount thereof, including costs, expenses and reasonable attorneys’ fees actually incurred, shall become immediately due and payable by the Assignor with interest thereon at the Default Rate and shall be secured by this Assignment.  The indemnity provided in this Section shall be in addition to (but not in duplication of) any other indemnification provision contained in the Loan Agreement or any other Loan Document.  This Assignment shall not operate to place responsibility upon the Assignee for the care, control, management or repair of the Premises or for the carrying out of any of the covenants, terms, conditions and agreements contained in any Lease, nor shall it operate to make the Assignee responsible or liable for any waste committed upon the Premises by any tenant, occupant or other party, or for any dangerous or defective condition of the Premises, or for any negligence in the management, upkeep, repair or control of the Premises resulting in loss or injury or death to any tenant, occupant, licensee, employee or stranger.  Nothing set forth herein or in the Mortgage, and no exercise by the Assignee of any of the rights set forth herein or in the Mortgage shall constitute or be construed as constituting the Assignee a “mortgagee in possession” of the Premises, in the absence of the taking of actual possession of the Premises by the Assignee pursuant to the provisions hereof or of the Mortgage.

 

10.                                No Waiver .  Nothing contained in this Assignment and no act done or omitted to be done by the Assignee pursuant to the rights and powers granted to it hereunder shall be deemed to be a waiver by the Assignee of its rights and remedies under any of the Loan Documents.  This Assignment is made and accepted without prejudice to any of the rights and remedies of the Assignee under the terms and provisions of such instruments, and the Assignee may exercise any of its rights and remedies under the terms and provisions of such instruments either prior to, simultaneously with, or subsequent to any action taken by the Assignee hereunder.  The Assignee may take or release any other security for the performance of the obligations secured hereby, may release any party primarily or secondarily liable therefor, and may apply any other security held by it for the satisfaction of the obligations secured hereby without prejudice to any of the Assignee’s rights and powers hereunder.

 

11.                                Further Assurances .  The Assignor shall execute or cause to be executed such additional instruments (including, but not limited to, general or specific assignments of such

 

7



 

Leases as the Assignee may designate) and shall do or cause to be done such further acts, as the Assignee may request, in order to permit the Assignee to perfect, protect, preserve and maintain the assignment made to the Assignee by this Assignment.

 

12.                                Security Deposits .  The Assignor acknowledges that the Assignee has not received for its own account any security deposited by any tenant pursuant to the terms of the Leases and that the Assignee assumes no responsibility or liability for any security so deposited.

 

13.                                Compliance with Law of State .

 

(a)                                  If any provision in this Assignment shall be inconsistent with any provision of the applicable laws of the State in which the Premises are located, such laws shall take precedence over the provisions of this Assignment, but shall not invalidate or render unenforceable any other provision of this Assignment that can be construed in a manner consistent with such laws.

 

(b)                                  If any provision of this Assignment shall grant to the Assignee any powers, rights or remedies prior to, upon or following the occurrence of an Event of Default which are more limited than the powers, rights or remedies that would otherwise be vested in the Assignee under applicable laws of the State in which the Premises are located in the absence of said provision, the Assignee shall be vested with the powers, rights and remedies granted by such laws to the full extent permitted by law.

 

14.                                Severability .  If any provision of this Assignment is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, the Assignee and the Assignor shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this Assignment and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect.

 

15.                                Incorporation of Sections 12.2 and 12.3 of Loan Agreement .  The provisions of Sections 12.2 and 12.3 of the Loan Agreement are hereby incorporated into and made a part of this Assignment.

 

16.                                Successors and Assigns .  This Assignment is binding upon the Assignor and its legal representatives, successors and assigns, and the rights, powers and remedies of the Assignee under this Assignment shall inure to the benefit of the Assignee and its successors and assigns.

 

17.                                Prior Agreements; No Reliance; Modifications .  This Assignment shall represent the entire, integrated agreement between the parties hereto relating to the subject matter of this Assignment, and shall supersede all prior negotiations, representations or agreements pertaining thereto, either oral or written.  The Assignor acknowledges it is executing this Assignment without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein.  This Assignment and any provision hereof shall not be modified, amended, waived or discharged in any manner other than by a written amendment executed by all parties to this Assignment.

 

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18.                                Duration .  This Assignment shall become null and void at such time as the Assignor shall have paid the principal sum of the Note, together with all interest thereon, and shall have fully paid and performed all of the other Obligations secured hereby and by the other Loan Documents.  The recording of a satisfaction of the Mortgage by the Assignee shall terminate this Assignment.

 

19.                                Governing Law .  This Assignment shall be governed by and construed in accordance with the laws of the State of Arkansas.

 

20.                                Notices .  All notices, demands, requests and other correspondence which are required or permitted to be given hereunder shall be deemed sufficiently given when delivered or mailed in the manner and to the addresses of the Assignor and the Assignee, as the case may be, as specified in the Mortgage.

 

21.                                Captions .  The captions and headings of various Sections of this Assignment and exhibits pertaining hereto are for convenience only and are not to be considered as defining or limiting in any way the scope or intent of the provisions hereof.

 

22.                                Gender and Number .  Any word herein which is expressed in the masculine or neuter gender shall be deemed to include the masculine, feminine and neuter genders.  Any word herein which is expressed in the singular or plural number shall be deemed, whenever appropriate in the context, to include the singular and the plural.

 

23.                                Execution of Counterparts .  This Assignment 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 Assignment by facsimile or other electronic transmission shall constitute effective delivery thereof.  An electronic record of this executed Assignment maintained by the Assignee shall be deemed to be an original.

 

24.                                Construction .  Each party to this Assignment and legal counsel to each party have participated in the drafting of this Assignment, 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 Assignment.

 

25.                                Litigations Provisions .

 

(a)                                  Consent to Jurisdiction THE ASSIGNOR CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CLEVELAND, OHIO, AND OF ANY STATE OR FEDERAL COURT LOCATED OR HAVING JURISDICTION IN THE COUNTY IN WHICH THE PREMISES ARE LOCATED, IN WHICH ANY LEGAL PROCEEDING MAY BE COMMENCED OR PENDING RELATING IN ANY MANNER TO THIS ASSIGNMENT, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS.

 

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(b)                                  Consent to Venue THE ASSIGNOR AGREES THAT ANY LEGAL PROCEEDING RELATING TO THIS ASSIGNMENT, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT AGAINST THE ASSIGNOR IN ANY STATE OR FEDERAL COURT LOCATED IN CLEVELAND, OHIO, OR ANY STATE OR FEDERAL COURT LOCATED OR HAVING JURISDICTION IN THE COUNTY IN WHICH THE PREMISES ARE LOCATED.  THE ASSIGNOR WAIVES ANY OBJECTION TO VENUE IN ANY SUCH COURT AND WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE FROM ANY SUCH COURT.

 

(c)                                   No Proceedings in Other Jurisdictions THE ASSIGNOR AGREES THAT IT WILL NOT COMMENCE ANY LEGAL PROCEEDING AGAINST THE ASSIGNEE RELATING IN ANY MANNER TO THIS ASSIGNMENT, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS IN ANY COURT OTHER THAN A STATE OR FEDERAL COURT LOCATED IN CLEVELAND, OHIO, OR IF A LEGAL PROCEEDING IS COMMENCED BY THE ASSIGNEE AGAINST THE ASSIGNOR IN A COURT IN ANOTHER LOCATION, BY WAY OF A COUNTERCLAIM IN SUCH LEGAL PROCEEDING.

 

(d)                                  Waiver of Jury Trial THE ASSIGNOR HEREBY WAIVES TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS ASSIGNMENT, THE LOAN OR ANY OF THE OTHER LOAN DOCUMENTS.

 

26,                                References to Documents .  Unless expressly provided to the contrary or the context otherwise requires, all references in this Assignment to any other document, instrument or agreement shall be deemed to refer to such document, instrument or agreement as it may be amended, modified, supplemented, renewed, extended or restated from time to time; provided, however, that nothing in this Section shall operate or be construed to authorize any such amendment, modification, supplement, renewal, extension or restatement that is prohibited or restricted under any other provision of the Loan Documents.

 

[EXECUTION CONTAINED ON THE FOLLOWING PAGE]

 

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IN WITNESS WHEREOF , Assignor has executed and delivered this Assignment as of the day and year first above written.

 

 

ASSIGNOR:

 

 

 

MOUNTAIN TOP PROPERTY HOLDINGS, LLC , a Georgia limited liability company

 

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

 

Name:

Ronald W. Fleming

 

 

Title:

Chief Financial Officer of AdCare Health Systems, Inc.

 

 

STATE OF GEORGIA

)

 

) ss:

COUNTY OF FULTON

)

 

On this day, before me, the undersigned, a Notary Public, duly commissioned, qualified and acting, within and for said County and State, appeared in person the within named Ronald W. Fleming, to me personally well known, who stated that he is the Chief Financial Officer of AdCare Health Systems, Inc., an Ohio corporation and as such officer is authorized to sign on behalf of Mountain Top Property Holdings, LLC, a Georgia limited liability company, and was duly authorized in that capacity to execute the foregoing instrument for and in the name and behalf of said company, and further stated and acknowledged that he had so signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth.

 

IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 29 th  day of May, 2013.

 

 

/s/ Lucinda Joy Ford

 

Notary Public

 

 

My Commission Expires: Oct. 3, 2014

 

 

 

 

 

 

 

 

(S E A L)

 

 


Exhibit 10.15

 

PLEDGE AND SECURITY AGREEMENT

 

This PLEDGE AND SECURITY AGREEMENT (this Agreement ) is made this 31 st  day of May, 2013, between ADCARE HEALTH SYSTEMS, INC. , an Ohio corporation (“ Grantor ”), and KEYBANK NATIONAL ASSOCIATION, a national banking association, as lender (“ Lender ”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Secured Loan Agreement dated as of December 28, 2012, as amended by that certain First Amendment to Secured Loan Agreement and Payment Guaranty dated as of even date herewith (the First Amendment ; as such loan agreement may be further amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, collectively, the “ Loan Agreement ”) among Lender, Woodland Hills HC Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, APH&R Property Holdings, LLC, Woodland Hills HC Nursing, LLC, Northridge HC&R Nursing, LLC, and APH&R Nursing, LLC (collectively, the “ Borrower ”), Lender has made, and is willing to make, certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof, and

 

WHEREAS, in order to induce Lender to enter into the First Amendment, Grantor has agreed to grant a continuing security interest in and to the Collateral (as hereinafter defined) in order to secure the prompt and complete payment, observance and performance of (a) the obligations of Grantor arising from this Agreement and that certain Payment Guaranty from Grantor in favor of Lender dated as of December 28, 2012 (as may be amended, restated, supplemented or otherwise modified from time to time (the “ Guaranty ”) (including, without limitation, any interest, fees or expenses that accrue after the filing of an insolvency proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any insolvency proceeding), plus (b) the “Obligations” as defined in the Loan Agreement, plus (c) reasonable attorneys fees actually incurred and expenses if the obligations represented thereunder are collected by law, through an attorney-at-law, or under advice therefrom (clauses (a), (b) and (c) being hereinafter referred to as the “ Secured Obligations ”), by the granting of the security interests contemplated by this Agreement, and

 

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Defined Terms . All capitalized terms used herein (including, without limitation, in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Loan Agreement.  In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

 



 

(a)                                  Event of Default ” as used in this Agreement means an “Event of Default as defined in the Loan Agreement.

 

(b)                                  Investment Related Property ” means investment property (as that term is defined in the UCC) owned by Grantor with respect to the Collateral.

 

(c)                                   UCC ” shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Ohio provided, that to the extent that the UCC is used to define any term herein and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Ohio the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

 

2.                                       Grant of Security .  Grantor hereby unconditionally grants, assigns and pledges to Lender, a continuing security interest (hereinafter referred to as the “ Security Interest ”), in Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the “ Collateral ”):

 

(a)                                  that certain Secured Promissory Note dated as of December 28, 2012, as amended, by CHP Acquisition Company, LLC (“ CHP ”) in favor of Grantor, including all liens, security agreements, leases, pledge agreements and other contracts securing or otherwise relating to the foregoing (including, but not limited to, the lien and security interest created by that certain Pledge and Security Agreement dated as of December 28, 2012 by CHP in favor of Grantor);

 

(b)                                  all of the proceeds of any of the foregoing, money, or other tangible or intangible property resulting from the sale, or other disposition of any of the foregoing, the portion thereof or interest therein, and the proceeds thereof, (the “ Proceeds ”).

 

3.                                       Security for Obligations .  This Agreement and the Security Interest created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantor, to Lender, but for the fact that they are unenforceable or not allowable due to the existence of any insolvency proceeding involving Grantor.

 

4.                                       Grantor Remains Liable .  Anything herein to the contrary notwithstanding, (a) Grantor shall remain liable under and in accordance with the contracts and agreements included in the Collateral to those parties to whom Grantor has contracted, to perform all of the duties and obligations of Grantor thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Lender of any of the rights hereunder shall not release Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c)

 

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Lender shall not have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder; provided, however, that if following an Event of Default Lender becomes the owner of the Collateral, Lender shall thenceforth be responsible for complying with such duties as may arise thereafter as are to be performed by virtue of owning such Collateral.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Loan Agreement, or other Loan Documents, Grantor shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of its business, subject to and upon the terms hereof and of the Loan Agreement and the other Loan Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that so long as no Event of Default then exists and notwithstanding anything to the contrary contained in this Agreement, the Loan Agreement or any other Loan Document, Grantor may receive (and make request for if not timely paid) and retain all fees, distributions, returns of capital, member loan repayments and other payments payable to Grantor with respect to the Collateral.  Following the occurrence of an Event of Default Lender shall notify Grantor of Lender’s exercise of remedies pursuant to Section 12 hereof.

 

5.                                       Representations and Warranties .  Grantor hereby represents and warrants as follows:

 

(a)                                  The exact legal name of Grantor is set forth on the signature page of this Agreement.

 

(b)                                  This Agreement creates a valid security interest in the Collateral of Grantor, to the extent a security interest therein can be created under the UCC, securing the payment of the Secured Obligations.  Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the UCC, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of the financing statement listing Grantor as a debtor, and Lender, as secured party, in the office of the Secretary of State of Ohio (“ Ohio SOS ”).  Upon the making of such filing, Lender shall have a first priority perfected security interest in the Collateral of Grantor to the extent such security interest can be perfected by the filing of a financing statement.

 

(c)                                   All actions necessary or desirable to create, perfect, establish the first priority of, or otherwise protect, Lender’s liens in the Collateral, and the proceeds thereof, have been duly taken, (A) upon the execution and delivery of this Agreement; (B) upon the taking of possession by Lender of any certificates constituting the Collateral, to the extent the Collateral is represented by certificates, together with undated powers endorsed in blank by Grantor; (C) upon the execution and delivery of any allonges to any notes constituting the Collateral; and (D) upon the filing of the financing statement in the Ohio SOS with respect to the Collateral that is not represented by certificates; and (iv) if and to the extent that any of the Collateral is represented by certificates, Grantor has delivered to and deposited with Lender all certificates representing the Collateral, and undated powers endorsed in blank with respect to such certificates.

 

3



 

(d)                                  Other than as expressly set forth in the Loan Agreement, no consent, approval, authorization, or other order or other action by, and no notice to or filing with, any governmental authority or any other Person is required (i) for the grant of a Security Interest by Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by Grantor, or (ii) for the exercise by Lender of the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally.

 

6.                                       Covenants .  Grantor, covenants and agrees with Lender that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 17 hereof:

 

(a)                                  Possession of Collateral .  In the event that any Collateral, including proceeds, is evidenced by or consists of Investment Related Property, and if and to the extent that perfection or priority of Lender’s Security Interest is dependent on or enhanced by possession, Grantor, immediately upon the request of Lender and in accordance with Section 8 hereof, shall execute such other documents as shall be requested by Lender or, if applicable, endorse and deliver physical possession of such Investment Related Property to Lender, together with such undated powers endorsed in blank as shall be requested by Lender;

 

(b)                                  Transfers and Other Liens .  So long as this Agreement remains in effect, Grantor shall not (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, negative pledge, charge, restriction or other security interest of any kind upon any of the Collateral whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, (iii) create or permit to exist any lien  or encumbrance upon or with respect to any of the Collateral of Grantor except for Permitted Exceptions, or (iv) transfer any of the Collateral or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute Lender’s consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Loan Documents.

 

7.                                       Relation to Loan Agreement .  In the event of any conflict between any provision in this Agreement and a provision in the Loan Agreement, such provision of the Loan Agreement shall control.

 

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8.                                       Further Assurances .

 

(a)                                  Grantor agrees that from time to time, at its own expense, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Lender may reasonably request, in order to perfect and protect any Security Interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

 

(b)                                  Grantor authorizes the filing of such financing or continuation statements, or amendments thereto, and Grantor will execute and deliver to Lender such other instruments or notices, as may be necessary or as Lender may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.

 

(c)                                   Grantor also hereby ratifies its authorization for Lender to have filed in any jurisdiction any financing statements filed prior to the date hereof.

 

(d)                                  Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Lender, subject to Grantor’s rights under Section 9-509(d)(2) of the UCC.

 

9.                                       Lender Appointed Attorney-in-Fact .  Grantor hereby irrevocably appoints Lender its attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under the Loan Agreement, to take any action and to execute any instrument which Lender may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:  to file any claims or take any action or institute any proceedings which Lender may deem necessary or desirable for the collection of any of the Collateral of Grantor or otherwise to enforce the rights of Lender with respect to any of the Collateral.

 

To the extent permitted by law, Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated.

 

10.                                Lender May Perform .  If Grantor fails to perform any agreement contained herein, Lender may itself perform, or cause performance of, such agreement, and the reasonable expenses of Lender incurred in connection therewith shall be payable, by Grantor.

 

11.                                Lender’s Duties .  The powers conferred on Lender hereunder are solely to protect Lender’s interest in the Collateral, and shall not impose any duty upon Lender to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Lender accords its own property.

 

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12.                                Remedies .  Upon the occurrence and during the continuance of an Event of Default:

 

(a)                                  Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the UCC or any other applicable law.  Without limiting the generality of the foregoing, Grantor expressly agrees that, in any such event, Lender without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC or any other applicable law), may take immediate possession of all or any portion of the Collateral and without notice except as specified below, sell the Collateral or any part thereof in one or more components at public or private sale, at any of Lender’s offices or elsewhere, for cash, on credit, and upon such other terms as Lender may deem commercially reasonable.  Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the UCC.  Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

(b)                                  Any cash held by Lender as Collateral and all cash proceeds received by Lender in respect of any sale of, collection from or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Loan Agreement.  In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, Grantor shall remain liable for any such deficiency.

 

(c)                                   Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that if an Event of Default shall occur, if and to the extent that either of the following remedies applies to the Collateral under applicable law, Lender shall have the right to an immediate writ of possession without notice of a hearing, the right to the appointment of a receiver for the Collateral, and Grantor hereby consents to such rights and such appointment and hereby waives any objection Grantor may have thereto or the right to have a bond or other security posted by Lender.

 

13.                                Remedies Cumulative .  Each right, power, and remedy of Lender as provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Lender, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Lender of any or all such other rights, powers, or remedies.

 

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14.                                Indemnity and Expenses .

 

(a)                                  Grantor agrees to indemnify Lender from and against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement) or any other Loan Document to which Grantor is a party, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction.  This provision shall survive the termination of this Agreement and the Loan Agreement and the repayment of the Secured Obligations.

 

(b)                                  Grantor shall, upon demand, pay to Lender all expenses which Lender may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the other Loan Documents, (iii) the exercise or enforcement of any of the rights of Lender hereunder or (iv) the failure by Grantor to perform or observe any of the provisions hereof.

 

15.                                Merger, Amendments; Etc .   THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of any provision of this Agreement, and no consent to any departure by Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Lender and Grantor.

 

16.                                Addresses for Notices .  All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Lender at its address specified in the Loan Agreement, and to Grantor at the address specified in the Loan Agreement for Borrower or, as to any party, at such other address as shall be designated by such party in a written notice to the other party, all of which to be given in accordance with a method for giving notice as prescribed in the Loan Agreement.

 

17.                                Continuing Security Interest: Assignments under Loan Agreement .   This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the Obligations have been paid in full in cash in accordance with the provisions of the Loan Agreement, (b) be binding upon Grantor, and its successors and assigns, and (c) inure to the benefit of, and be enforceable by, Lender, and its successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), Lender may, in accordance with the provisions of the Loan Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Loan Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lender herein or otherwise.  Upon payment in full in cash of the Obligations in accordance with the provisions of the Loan Agreement and the expiration or termination of the Loan, the Security Interest granted

 

7



 

hereby shall automatically terminate without further action or documentation required and this Agreement all rights to the Collateral shall revert to Grantor or any other Person entitled thereto.  At such time, Lender will authorize the filing of appropriate termination statements to terminate such Security Interests.  No transfer or renewal, extension, assignment, or termination of this Agreement or of the Loan Agreement, any other Loan Document, or any other instrument or document executed and delivered by Grantor to Lender nor any additional Loans or other loans made by Lender to Borrower, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantor, by Lender, nor any other act of Lender shall release Grantor from any obligation, except a release or discharge executed in writing by Lender in accordance with the provisions of the Loan Agreement.  Lender shall not by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Lender and then only to the extent therein set forth.  A waiver by Lender of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Lender would otherwise have had on any other occasion.

 

18.                                GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE .

 

THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF OHIO AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).  GRANTOR AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF OHIO OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON GRANTOR BY MAIL AT THE ADDRESS SPECIFIED IN §16 HEREIN.  GRANTOR HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

 

19.                                Miscellaneous .

 

(a)                                  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.

 

(b)                                  Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the

 

8



 

remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.

 

(c)                                   Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof.

 

(d)                                  The pronouns used herein shall include, when appropriate, either gender or both singular and plural, and the grammatical construction of sentences shall conform thereto.

 

[EXECUTION ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through their duly authorized officers under seal, as of the day and year first above written.

 

GRANTOR:

ADCARE HEALTH SYSTEMS, INC., an Ohio corporation

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer

 

 

 

 

[CORPORATE SEAL]

 

[Signatures continued on following page]

 

Schedule 1

 

ADCARE  PLEDGE & SECURITY AGREEMENT

 



 

LENDER:

KEYBANK NATIONAL ASSOCIATION, as Lender

 

 

 

 

 

By:

/s/ Amy L. MacLearie

 

Name:

Amy L. MacLearie

 

Title:

AVP — Senior Closing Officer

 

 

 

 

[BANK SEAL]

 

Schedule 2

 

ADCARE PLEDGE & SECURITY AGREEMENT

 


Exhibit 10.16

 

SEPARATION AND RELEASE AGREEMENT

 

This Separation and Release Agreement (the “Agreement”) is entered into between AdCare Health Systems, Inc. (the “Company” or “AdCare”) and Martin D. Brew (“Employee” or “Brew”) (the Company and Employee will be collectively referred to hereinafter as the “Parties” and individually as a “Party”).

 

WHEREAS, Employee was employed by the Company as its Chief Financial Officer until April 16, 2013;

 

WHEREAS, the Company allowed Employee to resign as Senior Vice President and Chief Financial Officer and all other corporate officer positions at the Company and its subsidiaries while remaining employed with the Company for a limited period of time, and Employee did resign from such positions effective April 15, 2013, and the Company accepted such resignation in lieu of terminating Employee for cause; and the Employee and the Company have reached agreement on the timing and other terms and conditions of the Employee’s resignation of his current positions with the Company and its subsidiaries;

 

WHEREAS, Employee and the Company have agreed that Employee will remain employed by the Company, for a limited period of time, as Vice President, to assist the Company in its transition of his duties and responsibilities to a new Chief Financial Officer (the “Transition Period”), and that Employee’s employment with the Company will terminate no earlier than June 4, 2013 (except as provided in Paragraph 3) and no later than November 30, 2013, but in the Company’s sole discretion as to the precise date (the date after June 4, 2013 and before November 30, 2013 as of which the Company gives Employee notice that the termination of his employment will be effective is referred to herein as the “Termination Date”) unless earlier terminated for Cause or Employee’s death;

 

WHEREAS, the Parties seek to fully and finally settle all existing claims, whether or not now known, arising out of Employee’s employment and termination of employment, on the terms set forth herein; and,

 

NOW THEREFORE, in consideration of Employee’s continued employment with the Company through at least June 4, 2013 (except as provided in Paragraph 3), and the severance payments and additional compensation described below, the Parties agree as follows:

 

1.                               Duties During Transition Period . During the Transition Period, Employee shall report to the Company’s Chief Executive Officer. The Employee shall devote such time, attention and energy to the business of the Company and performance of those duties assigned to him by the Chief Executive Officer as are necessary to properly perform such duties. The Company reserves the right to change the Employee’s position, duties, and the person to whom the Employee reports during the Transition Period, but any such change shall not effect any other provision of this Agreement. The Employee will be expected to carry out his duties, and to comply with all terms and conditions regarding the nature and manner of carrying out his duties as may be established from time to time by the Company and/or as set forth in the Company’s Employee Handbook or Manual. Employee may perform his duties and responsibilities from a remote location and will not be required to maintain specific office hours at either the Company’s Roswell or Buckhead facilities during the Transition Period. Employee will record

 

1



 

all time spent performing services for the Company during the Transition Period and such time records will be submitted to the Company on a weekly basis. Employee will receive additional compensation of $120 per hour over and above his salary for the performance of such services during the Transition Period. Employee may take a vacation during the Transition Period in accord with the Company’s vacation policy if properly noticed.

 

2.                                      Compensation During Transition Period . From June 1, 2013 through the Termination Date, Employee shall be paid a salary of $20,833.33 per month, payable in bi-weekly installments on the date of the Company’s regular pay periods. Should the Termination Date occur mid-month, Employee shall be entitled only to the pro rata portion of his salary for those days worked in the month through and including the Termination Date. The Company shall reimburse any business expenses incurred by the Employee through the Termination Date that are eligible for reimbursement under Company policies, but have not yet been reimbursed, provided that the Employee submits those expenses with all required documentation and substantiation, within thirty (30) days following his Termination Date.

 

3.                                       Termination of Employment During Transition Period . From April 16, 2013 through and including June 4, 2013, Employee’s employment with the Company may only be terminated for “Cause,” meaning the Employee’s fraud, dishonesty or willful misconduct in his performance of his duties hereunder, or the Employee’s conviction for a crime of moral turpitude, or a material breach by Employee of this Agreement. From June 4, 2013, through and including November 30, 2013, the Company may terminate Employee’s employment in its sole discretion at any time, for any reason or no reason, and Employee’s employment with the Company during this period will be considered “at will.” The Termination Date for purposes of calculation of the start date of the severance payments set forth in Paragraph 5 of this Agreement shall be the date (not earlier than June 4, 2013 or later than November 30, 2013) as of which the Company gives Employee notice that the termination of his employment will be effective and as of which the Employee has a termination of employment that constitute a “separation from service” within the meaning of Section 409A of the Internal Revenue Code. To the extent practicable, the Company will provide Employee two weeks’ prior notice before the Termination Date.

 

4.                                       Stock Options and Benefits During Transition Period . The Company and Employee acknowledge that Employee is a participant in the AdCare Health Systems, Inc. 2011 Stock Incentive Plan (“Stock Plan”) and that Employee and Company entered into certain agreements related to the Stock Plan: AdCare Health Systems, Inc. Incentive Stock Option Agreement Under the 2011 Stock Incentive Plan dated June 3, 2011; the AdCare Health Systems, Inc. Incentive Stock Option Agreement Under the 2011 Stock Incentive Plan dated March 16, 2012; and the AdCare Health Systems, Inc. Non-Statutory Stock Option Agreement Under the 2011 Stock Incentive Plan dated March 16, 2011 (collectively, the “Stock Option Agreements”). The Company and Employee acknowledge and agree that subject to the provisions of Section 7 of each of the Stock Option Agreements, Employee may exercise any options which vest as of the Termination Date under the Stock Plan and the Stock Option Agreements at any time within 30 days of the Termination Date. Employee further agrees that, notwithstanding anything to the contrary in the Stock Plan or any Stock Option Agreement, Employee may not exercise any options granted thereunder until the first Trading Day (as hereinafter defined) which occurs immediately after the first date on which the Company has filed with the Securities and Exchange Commission both of (a) the Company’s Annual Report on

 

2



 

Form 10-K for the year ended December 31, 2012 and (b) the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Option Exercise Date”). The Company further agrees that it will cause the Termination Date to be no more than 30 days prior to the Option Exercise Date. In addition, because he will no longer be regularly scheduled to work on a full-time basis, Employee understands and acknowledges that during the Transition Period his continuing eligibility for any and all other Company benefits shall be determined based upon his less than full-time status. Consequently, Employee may be entitled to lesser or even no such benefits during the Transition Period with such determinations based upon the applicable provisions of each benefit program. For purposes of this Agreement, “Trading Day” means a day on which the NYSE MKT LLC is open and available for trading of equity securities.

 

5.                                       Severance Pay . If the Company receives the Release attached hereto as Exhibit A (the “Release”), executed by Employee, upon the Termination Date and the seven (7)-day period within which Employee may revoke Employee’s acceptance of the Release, as explained in the Release has expired (and provided Employee has not exercised such right of revocation), and if Employee assists the Company during the Transition Period, and has not died or been terminated for “Cause,” the Company, beginning the first pay period after the Termination Date, shall pay to Employee the gross amount of Twenty Thousand Eight Hundred Thirty-Three Dollars and Thirty-Three Cents ($20,833.33) per month through the month of November 2013 and $2,688.17 for the period from December 1, 2013 through and including December 4, 2013(the “Severance Pay”), less applicable taxes and other lawful withholdings, which shall be payable in accordance with the Company’s normal payroll schedule and practices, in equal bi-weekly installments (except if the Termination Date occurs on a date other than the first of the month, Employee will receive only a pro rata amount of severance pay equal to the percentage of the month remaining after the Termination Date). Notwithstanding the foregoing, if the seven (7) day revocation period for the Release expires after the first pay date after the Termination Date, the first payment shall be made on the day after the expiration of the revocation period.

 

6.                                       Consideration . Employee acknowledges that the consideration set forth herein exceeds that to which Employee would otherwise be entitled. Irrespective of whether Employee signs this Agreement, Employee will be paid all compensation earned through the Termination Date and will retain any rights Employee may otherwise have to medical, dental, and vision benefits continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act or other applicable law (which rights will be explained in greater detail in a separate notice provided to Employee).

 

7.                                       Waiver and Release . For valuable consideration from the Company, receipt of which is hereby acknowledged, Employee waives, releases, and forever discharges the Company and its current and former parents, subsidiaries, divisions, affiliates, shareholders, officers, directors, attorneys, agents, employees, successors, and assigns (collectively referred to as the “Company Releasees”) from any and all rights, causes of action, claims or demands, whether express or implied, known or unknown, that arise on or before the date that Employee executes this Agreement, which Employee has or may have against the Company and/or the Company Releasees, including, but not limited to, any rights, causes of action, claims, or demands relating to or arising out of the following:

 

(a)                                 anti-discrimination, anti-harassment, and anti-retaliation laws, such as the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, and Executive

 

3



 

Order 11141, which prohibit employment discrimination based on age; Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Equal Pay Act, and Executive Order 11246, which prohibit discrimination based on race, color, national origin, religion, or sex; the Genetic Information Nondiscrimination Act, which prohibits discrimination on the basis of genetic information; the Americans With Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discrimination based on disability; and any other federal, state, or local laws prohibiting employment or wage discrimination;

 

(b)                                 other employment laws, such as the Worker Adjustment and Retraining Notification Act, which requires that advance notice be given of certain workforce reductions; the Employee Retirement Income Security Act of 1974, which, among other things, protects employee benefits; the Family and Medical Leave Act, which requires employers to provide leaves of absence under certain circumstances; state laws which regulate wage and hour matters, including all forms of compensation, vacation pay, sick pay, compensatory time, overtime, commissions, bonuses, and meal and break periods; state family, medical, and military leave laws, which require employers to provide leaves of absence under certain circumstances; the Sarbanes Oxley Act; and any other federal, state, or local laws relating to employment; and

 

(c)                                   tort, contract, and quasi-contract claims, such as claims for wrongful discharge, physical or personal injury, intentional or negligent infliction of emotional distress, fraud, fraud in the inducement, negligent misrepresentation, defamation, invasion of privacy, interference with contract or with prospective economic advantage, breach of express or implied contract, unjust enrichment, promissory estoppel, breach of covenants of good faith and fair dealing, negligent hiring, negligent supervision, negligent retention, and similar or related claims;

 

(d)                                  the Employment Agreement between AdCare and Employee with an effective date of July 1, 2012 (the “Employment Agreement”); and,

 

(e)                                   all remedies of any type, including, but not limited to, damages and injunctive relief, in any action that may be brought on Employee’s behalf against the Company and/or the Company Releasees by any government agency or other entity or person.

 

Employee understands that Employee is releasing claims about which Employee may not know anything at the time Employee executes this Agreement. Employee acknowledges that it is Employee’s intent to release such unknown claims, even though Employee recognizes that someday Employee might learn new facts relating to Employee’s employment or learn that some or all of the facts Employee currently believes to be true are untrue, and even though Employee might then regret having signed this Agreement. Nevertheless, Employee acknowledges Employee’s awareness of that risk and agrees that this Agreement shall remain effective in all respects in any such case. Employee expressly waives all rights Employee might have under any laws intended to protect Employee from waiving unknown claims.

 

8.                                      Excluded Claims . Notwithstanding anything to the contrary, the waiver and release contained in this Agreement shall exclude any rights or claims that (a) may arise after the date on which Employee executes this Agreement; (b) cannot be released under applicable law (such as worker’s compensation and unemployment compensation claims); (c) arise under this Agreement; or, (d) arise under the Stock Plan or Stock Option Agreements. In addition, the Parties agree that this Agreement shall not adversely affect, alter, or extinguish any vested right

 

4



 

that Employee may have with respect to any pension or other retirement benefits to which Employee is or will be entitled by virtue of Employee’s employment with the Company, and nothing in this Agreement shall prohibit Employee from enforcing such rights. Moreover, nothing in this Agreement shall prevent or preclude Employee from challenging in good faith the breach or validity of this Agreement, nor does it impose any conditions precedent, penalties, or costs for doing so, unless specifically authorized by applicable law. Also excluded from the release and waiver contained in this Agreement are any rights of indemnification and advancement of expenses that the Employee has pursuant to the Articles of Incorporation, as amended, the Code of Regulations, or applicable law. The Company agrees that the Employee’s rights in respect to indemnification and advancement of expenses shall be governed by the Articles of Incorporation and the Code of Regulations of the Company as currently in effect.

 

9.                                      No Other Claims . Except to the extent previously disclosed by Employee in writing to the Company, Employee represents and warrants that Employee has (a) filed no claims, lawsuits, charges, grievances, or causes of action of any kind against the Company and/or the Company Releasees and, to the best of Employee’s knowledge, Employee possesses no claims (including Fair Labor Standards Act [“FLSA”] and worker’s compensation claims); (b) received any and all compensation (including overtime compensation), meal periods, and rest periods to which Employee may have been entitled, and Employee is not currently aware of any facts or circumstances constituting a violation by the Company and/or the Company Releasees of the FLSA or other applicable wage, hour, meal period, and/or rest period laws; and (c) not suffered any work-related injury or illness within the twelve (12) months preceding Employee’s execution of this Agreement, and Employee is not currently aware of any facts or circumstances that would give rise to a worker’s compensation claim against the Company and/or the Company Releasees.

 

10.                                Further Releases Upon Termination Date . Employee agrees that as a condition to his right to receive the Severance Pay, and in consideration of the Severance Pay, he shall be required to enter into the Release attached hereto as Exhibit “A” on the Termination Date.

 

11.                               Wage Deduction Orders . Employee represents and warrants that Employee is not subject to any wage garnishment or deduction orders that would require payment to a third party of any portion of the Severance Pay. Any exceptions to the representation and warranty contained in this Paragraph must be described in writing and attached to the executed copy of this Agreement that Employee submits to the Company. Such disclosure shall not disqualify Employee from receiving Separation Pay under this Agreement; provided, however, that the amount of Severance Pay described in Paragraph 5 shall be reduced in accordance with any such wage garnishment or deduction order as required by applicable law.

 

12.                                Duty to Cooperate . Employee agrees that with at least ten days prior notice from the Company, where reasonably possible, after the Termination Date and for a period of twelve months thereafter, Employee will remain reasonably available to the Company as needed to consult with the Company and to assist in the smooth transition of Employee’s duties to one or more other employees of the Company. Employee will be paid $120.00 per hour and reimbursed his reasonable expenses for any consultation sought by the Company after the Termination Date, which may include Employee’s cooperation and assistance in the defense of the Company’s interests in pending or threatened litigation and any other administrative and regulatory proceedings which currently exist or which may arise in the future and involve the conduct of the

 

5



 

Company’s business activities during the period of Employee’s employment with the Company. Employee shall not, however, be paid any compensation for testifying in any deposition, arbitration, trial or administrative proceeding. Employee’s obligations under this Paragraph with respect to the defense of the Company’s interests shall survive the Termination Date and the termination of this Agreement.

 

13.                               Non-Disparagement . Employee will refrain from making negative or disparaging remarks about the Company or the Company Releasees. Employee will not provide information or issue statements regarding the Company or the Company Releasees, or take any other action, that would cause the Company or the Company Releasees embarrassment or humiliation or otherwise cause or contribute to them being held in disrepute. Nothing in this Agreement shall be deemed to preclude Employee from providing truthful testimony or information pursuant to subpoena, court order, or similar legal process, or from providing truthful information to government or regulatory agencies.

 

14.                                Representations Regarding Disclosure Of Concerns . Employee represents and warrants that he is unaware of any conduct of the Company or its directors, officers or employees that would violate any state or federal law. Moreover, Employee represents and warrants that he has previously disclosed all items of concern with respect to the financial accounting practices of the Company, occurring during his tenure as the Company’s CFO, to the independent counsel for the Audit Committee of the Company’s Board of Directors.

 

15.                                Waiver of Future Employment With the Company . Employee agrees not to apply for employment, or seek reinstatement, with the Company (or any Company Releasee), and further agrees that the Company (and Company Releasees) has no obligation to hire or rehire Employee at any time after the Termination Date. Employee forever releases, waives, and relinquishes any right or claim to be hired by, or to reinstatement with, the Company (or any Company Releasee) after the Termination Date. Employee agrees that this Agreement is a lawful, non-discriminatory, and non-retaliatory basis upon which the Company (or any Company Releasee) may refuse to hire or rehire Employee.

 

16.                                Non-Admission of Liability . The Parties agree that nothing contained in this Agreement is to be construed as an admission of liability, fault, or improper action on the part of either of the Parties.

 

17.                                Return of Company Property . Employee represents and warrants that Employee, upon the Termination Date, will return all property belonging to the Company, including, but not limited to, all keys, access cards, office equipment, computers, cellular telephones, notebooks, documents, records, files, written materials, electronic information, credit cards bearing the Company’s name, and other Company property (originals or copies in whatever form) in Employee’s possession or under Employee’s control, with the exception of this Agreement and compensation and benefits-related documents concerning Employee upon the Termination Date.

 

18.                               Confidentiality . Employee represents and warrants that Employee has not communicated any aspect of the terms or substance of any negotiations leading up to this Agreement (the “Separation Negotiations”) to anyone other than Employee’s immediate family, Employee’s attorneys, and/or Employee’s financial advisor. Employee agrees that Employee will keep the terms and substance of the separation negotiations and this Agreement confidential,

 

6



 

and that Employee will not disclose such information to anyone outside of Employee’s immediate family, Employee’s attorneys, and/or Employee’s financial advisor, except as may be required by law. If Employee advises anyone in Employee’s immediate family and/or Employee’s financial advisor about the separation negotiations or this Agreement, Employee agrees to advise that person of the confidentiality of the Separation Negotiations and this Agreement and to instruct that person not to disclose the terms, conditions, or substance of them to anyone. If Employee is asked about the Separation Negotiations or this Agreement, Employee agrees to limit any response to the following statement only: “The matter has been resolved.”

 

19.                               Consultation With Legal Counsel . The Company hereby advises Employee to consult with an attorney prior to signing this Agreement.

 

20.                                Review and Revocation Periods . Employee acknowledges that Employee has been given at least twenty-one (21) days to consider this Agreement from the date that it was first given to Employee. Employee agrees that changes in the terms of this Agreement, whether material or immaterial, do not restart the running of the twenty-one (21)-day consideration period. Employee shall have seven (7) days from the date that Employee executes the Agreement to revoke Employee’s acceptance of the Agreement by delivering written notice of revocation within the seven (7)-day period to the following Company contact:

 

Boyd Gentry

Chief Executive Officer

AdCare Health Systems, Inc.

Two Buckhead Plaza

3050 Peachtree Road NW

Atlanta, GA 30305

 

If Employee does not revoke acceptance, this Agreement will become effective and irrevocable by Employee on the eighth day after Employee has executed it.

 

21.                               Choice of Law . This Agreement is made and entered into in Georgia and, to the extent the interpretation of this Agreement is not governed by applicable federal law, shall be interpreted and enforced under and shall be governed by the laws of that state.

 

22.                                Severability . Should any provision of this Agreement be held to be illegal, void or unenforceable, such provision shall be of no force and effect. The illegality or unenforceability of any such provision, however, shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement.

 

23.                                Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

 

24.                                Binding Effect . This Agreement shall be binding upon and inure to the benefit of Employee, the Company, and the Company Releasees, and their respective representatives, predecessors, heirs, successors, and assigns.

 

25.                                Entire Agreement . This Agreement contains the complete understanding between the Parties as to the subject matter contained herein, and no other promises or agreements shall

 

7



 

be binding unless signed by both an authorized representative of the Company and Employee. In signing this Agreement, the Parties are not relying on any fact, statement, or assumption not set forth in this Agreement. As of April 15, 2013, the Employment Agreement is terminated and the Company has no liability thereunder, provided, however, that Section 6 of the Employment Agreement shall survive its termination in accordance with its terms.

 

26.                                Recitals . The recitals set forth at the beginning of this Agreement are incorporated into the provisions of this Agreement.

 

27.                                Representation and Warranty of Understanding . By signing below, Employee represents and warrants that Employee: (a) has carefully read and understands the terms of this Agreement; (b) is entering into the Agreement knowingly, voluntarily and of Employee’s own free will; (c) understands its terms and significance and intends to abide by its provisions without exception; (d) has not made any false statements or representations in connection with this Agreement; and (e) has not transferred or assigned to any person or entity not a party to this Agreement any claim or right released hereunder, and Employee agrees to indemnify the Company and hold it harmless against any claim (including claims for attorneys fees or costs actually incurred, regardless of whether litigation has commenced) based on or arising out of any alleged assignment or transfer of a claim by Employee.

 

 

Agreed to this 31 day of May, 2013.

 

 

 

 

 

/s/ Martin Brew

 

MARTIN P. BREW

 

 

 

 

 

5/31/13

 

DATE

 

 

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

BY:

/s/ Boyd P. Gentry

 

ITS:

President & CEO

 

DATE:

5/31/13

 

 

8


Exhibit 10.17

 

EXECUTION VERSION

 

SECOND AMENDMENT TO SECURED LOAN AGREEMENT

AND PAYMENT GUARANTY

 

This SECOND AMENDMENT TO SECURED LOAN AGREEMENT AND PAYMENT GUARANTY (this “ Amendment ”), made this 27th day of June, 2013, by and among WOODLAND HILLS HC PROPERTY HOLDINGS, LLC, NORTHRIDGE HC&R PROPERTY HOLDINGS, LLC, APH&R PROPERTY HOLDINGS, LLC, WOODLAND HILLS HC NURSING, LLC, NORTHRIDGE HC&R NURSING, LLC, and APH&R NURSING, LLC, each a Georgia limited liability company (each a “ Borrower ,” and together, the “ Borrowers ”), ADCARE HEALTH SYSTEMS, INC., an Ohio corporation, ADCARE PROPERTY HOLDINGS, LLC, an Ohio limited liability company, and ADCARE OPERATIONS, LLC, a Georgia limited liability company (each a “ Guarantor ”, and together, the “ Guarantors ”), and KEYBANK NATIONAL ASSOCIATION, a national banking association, its successors and assigns (“ Lender ”).

 

W I T N E S S E T H:

 

WHEREAS, Borrowers entered into that certain Secured Loan Agreement dated as of December 28, 2012, as amended by that First Amendment to Secured Loan Agreement and Payment Guaranty dated as of May 31, 2013 (as so amended, the “ Loan Agreement ”), pursuant to which Lender made a $16,500,000 term loan to Borrowers (the “ Loan ”); and

 

WHEREAS, all capitalized terms used herein have the meanings ascribed thereto in the Loan Agreement unless otherwise provided herein; and

 

WHEREAS, the Obligations of Borrowers are guaranteed by the Guarantors pursuant to the Guaranties; and

 

WHEREAS, Loan Parties have requested certain waivers and that certain terms of the Loan Agreement and the Parent Guaranty be modified and amended as hereinafter set forth; and

 

WHEREAS, Lender has agreed to such waivers, modifications and amendments as set forth herein, subject to the terms and conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Amendment hereby agree as follows:

 

1.                                       Waivers. Lender acknowledges that (a) Parent has advised that it will fail to meet the Total EBITDAR to AdCare Fixed Charges ratio of .85 to 1.0 for the fiscal quarter ending June 30, 2013 as required pursuant to Subparagraph 6(c)(i) of the Parent Guaranty as in effect prior to the effectiveness of this Amendment; and (b) Borrowers have advised that they will fail to comply with §10.1(w) of the Loan Agreement by permitting the Implied Debt Service Coverage for the Projects to be less than 1.0 to 1.0 for the fiscal quarter ending June 30, 2013 (the events described in clauses (a) and (b), collectively, the “ Events ”). Lender waives any Default or Event of Default that may exist solely as a result of the Events described in clauses (a) and (b) only.

 



 

2.                                       Amendment to Section 9.4 of the Loan Agreement . Section 9.4 of the Loan Agreement, Required Repairs, Replacements, Renovations and Other Work, is hereby amended by deleting the date “June 28, 2013” found in clause (a) of such Section and substituting therefor the date “July 31, 2013”.

 

3.                                       Amendment to Subparagraph 6(c) of the Parent Guaranty . The language of Subparagraph 6(c)(i) of the Parent Guaranty is deleted in its entirety and the following is substituted in lieu thereof:

 

“(c)(i) Guarantor shall not permit the ratio of AdCare Total EBITDAR (as hereinafter defined) to AdCare Fixed Charges (as hereinafter defined), in each case tested as of the end of each fiscal quarter, to be less than (A) 1.1 to 1.0 on a trailing one (1) quarter basis for the test period ending September 30, 2013, (B) 1.15 to 1.0 on a trailing one (1) quarter basis for the test period ending December 31, 2013, and (C) 1.15 to 1.0 on a trailing two (2) quarter basis for the test period ending March 31, 2014 and thereafter.”

 

4.                                       Acknowledgement Regarding CHP Note . The parties acknowledge that CHP Note was prepaid at a discount and that $2,000,000 of proceeds of prepayment was deposited in the Cash Collateral Account.

 

5.                                       No Other Amendments, Waivers . The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided or permitted herein, operate as an amendment or waiver of any right, power or remedy of Lender under the Loan Agreement, the Parent Guaranty or any of the other Loan Documents, nor constitute an amendment or waiver of any provision of the Loan Agreement, the Parent Guaranty or any of the other Loan Documents. Except for the amendments expressly set forth above, the text of the Loan Agreement, the Parent Guaranty and all other Loan Documents shall remain unchanged and in full force and effect, and Borrowers and Guarantors hereby ratify and confirm their respective obligations thereunder, as herein modified and amended. This Amendment shall not constitute a course of dealing with Lender at variance with the Loan Agreement, the Parent Guaranty or the other Loan Documents such as to require further notice by Lender to require strict compliance with the terms of the Loan Agreement, the Parent Guaranty and the other Loan Documents in the future.

 

6.                                       Conditions of Effectiveness . This Amendment shall become effective as of the date hereof when, and only when, the following conditions have been met to the satisfaction of Lender:

 

(a)                                  Counterparts of this Amendment duly executed by each Borrower and each Guarantor have been received by Lender;

 

(b)                                  The representations and warranties made pursuant to Section 5 of this Amendment shall be true and correct; and

 

(c)                                   The Loan Parties have paid all reasonable and documented expenses incurred by Lender in connection with the execution and delivery of this Amendment, together

 

2



 

with reasonable fees and actually incurred expenses of Lender’s counsel with respect to this Amendment and other post-closing matters.

 

7.                                      Representations and Warranties . Each of the Loan Parties represents and warrants as follows:

 

(a)                                  The execution, delivery and performance by each Borrower and each Guarantor of this Amendment are within each such party’s legal powers, have been duly authorized by all necessary shareholder, partner or member action and do not contravene (i) any such Borrower’s or any such Guarantor’s organizational documents, respectively, or (ii) any law or contractual restriction binding on or affecting such Person;

 

(b)                                  No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body, except for those already obtained or made, is required for the due execution, delivery and performance by any Borrower or any Guarantor of this Amendment;

 

(c)                                   This Amendment constitutes the legal, valid and binding obligations of each such party, enforceable against such Person in accordance with their respective terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws affecting enforcement of creditor’s rights generally and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefore may be brought;

 

(d)                                  All of the representations and warranties of the Loan Parties in the Loan Documents are true and correct in all material respects as of the date hereof (or if such representations and warranties by their terms relate solely to an earlier date, then as of such earlier date); and

 

(e)                                   No Default or Event of Default is existing and none would result, in each case upon this Amendment becoming effective and after giving effect hereto.

 

8.                                       Reaffirmation of Guaranties . By execution of this Amendment, each Guarantor reaffirms and restates its guaranty of the Obligations pursuant to its Guaranty and agrees that its obligations thereunder are not released, diminished, impaired or reduced or otherwise adversely affected by this Amendment, except as expressly provided herein with respect to the Parent Guaranty.

 

9.                                       Release of Claims . As further consideration to induce the Lender to execute, deliver and perform this Amendment, each Borrower and each Guarantor hereby represents and warrants that there are no claims, causes of action, suits, debts, obligations, liabilities, defenses, counterclaims, or demands of any kind, character or nature whatsoever, fixed or contingent, which such Borrower or such Guarantor may have, or claim to have, against the Lender in connection with the Loan, the Loan Agreement and the other Loan Documents, and each Borrower and each Guarantor hereby releases, acquits, and forever discharges the Lender, and each and every past and present subsidiary, affiliate, stockholder, officer, director, agent, servant, employee, representative,

 

3



 

and attorney of the Lender (collectively, the “ Released Parties ”), from any and all claims, causes of action, suits, debts, liens, obligations, liabilities, demands, losses, costs and expenses (including attorneys’ fees) of any kind, character, or nature whatsoever, known or unknown, fixed or contingent, which such Borrower or such Guarantor may have or claim to have now against each of such Released Parties from the beginning of time until and through the First Amendment Effective Date.

 

10.                                Reference to and Effect on the Loan Documents . Upon the effectiveness of this Amendment, on and after the date hereof: (a) each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to the “Loan Agreement,” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended and modified hereby, and (b) each reference in the Parent Guaranty to “this Guaranty,” “hereunder,” “hereof” or words of like import referring to the Parent Guaranty, and each reference in the other Loan Documents to the “Parent Guaranty,” “thereunder,” “thereof” or words of like import referring to the Parent Guaranty, shall mean and be a reference to the Parent Guaranty as amended and modified hereby.

 

11.                                Costs, Expenses and Taxes . Borrowers agree to pay on demand all reasonable out-of-pocket expenses of Lender actually incurred in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of Lender’s counsel with respect thereto and with respect to advising Lender as to its rights and responsibilities hereunder and thereunder.

 

12.                                Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the conflict of laws principles thereof.

 

13.                                Loan Document . This Amendment shall be deemed to be a Loan Document for all purposes.

 

14.                                Counterparts . This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile or other electronic transmission shall be as effective as delivery of a manually executed counterpart hereof.

 

[The remainder of this page is intentionally left blank]

 

4



 

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the date first set forth above.

 

BORROWERS:

WOODLAND HILLS HC PROPERTY

 

HOLDINGS, LLC

 

NORTHRIDGE HC&R PROPERTY

 

HOLDINGS, LLC

 

APH&R PROPERTY HOLDINGS, LLC

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

 

 

 

 

WOODLAND HILLS HC NURSING, LLC

 

NORTHRIDGE HC&R NURSING, LLC

 

APH&R NURSING, LLC

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

Signature Page to Second Amendment To Secured Loan Agreement and Payment Guaranty

 



 

[Execution of Second Amendment to Secured Loan Agreement

and Payment Guaranty Continued]

 

 

GUARANTORS:

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer

 

 

 

 

 

ADCARE OPERATIONS, LLC

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

 

 

 

 

ADCARE PROPERTY HOLDINGS, LLC

 

 

 

 

 

By:

/s/ Ronald W. Fleming

 

Name:

Ronald W. Fleming

 

Title:

Chief Financial Officer of AdCare Health

 

 

Systems, Inc.

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

Signature Page to Second Amendment To Secured Loan Agreement and Payment Guaranty

 



 

[Execution of Second Amendment to Secured Loan Agreement

and Payment Guaranty Continued]

 

LENDER:

KEYBANK NATIONAL ASSOCIATION

 

 

 

By:  

/s/ Eric Hafertepen

 

 

Name:

ERIC HAFERTEPEN

 

 

Title:

VICE PRESIDENT

 

Signature Page to Second Amendment To Secured Loan Agreement and Payment Guaranty

 


Exhibit 10.18

 

15780226

06-26-13

 

THIRD MODIFICATION AGREEMENT

 

THIS THIRD MODIFICATION AGREEMENT dated as of June 26, 2013 (this Agreement ), is entered into by and among LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC , a Georgia limited liability company (the Borrower ), ADCARE HEALTH SYSTEMS, INC. , an Ohio 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 the Lender heretofore entered into the following documents (collectively, the 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, 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, 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 Note A and Note C described below, replaced the Original Note. Note B was released 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 Note A and Note B, replaced the Original Note. Note C was released pursuant to the Second Modification.

 

(v)                                  Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of April 1, 2012, by 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. 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. Mortgage 3 was released pursuant to the Second Modification.

 

(viii)                         Absolute Assignment of Rents and Leases dated as of April 1, 2012, by 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. 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. 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, 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. Northridge, Woodland, the Northridge Operator and the Woodland Operator were 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. The Northridge Operator and the Woodland Operator were released from their respective obligations under the Guaranty pursuant to the Second Modification.

 

B.                                     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 and

 

2



 

the Lender, recorded in the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on June 22, 2012, as Document No. 2012038003, and (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.

 

C.                                     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.

 

D.                                     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)                                  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 .                                           Change in Minimum Fixed Charge Coverage Ratio of Operator . Notwithstanding anything to the contrary contained in the Loan Agreement, Section 7.15 of the Loan Agreement shall not apply with respect to the fiscal quarter ended March 31, 2013. Section 7.15 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective for the fiscal quarter ended June 30, 2013 and for each fiscal quarter thereafter, with the existing Section 7.15 of the Loan Agreement to continue to be effective for fiscal quarters ended prior to June 30, 2013 (with the exception of the fiscal quarter ended March 31, 2013, as provided in the first sentence of this Section):

 

7.15                         Minimum Fixed Charge Coverage Ratio of Operator . It is a condition of this Agreement and the Loan that as of the end of each period set forth below, the ratio of —

 

3



 

(i)                                      the amount of the EBITDAR/Fully Adjusted for the Operator for such period, to

 

(ii)                                   the sum of the amounts of the following for the Operator for such period: (A) Rental Expense, plus (B) Interest Charges, plus (C) Distributions, other than any amounts which were treated as an expense for accounting purposes,

 

shall be not less than 1.05 to 1.00. The periods referred to above are as follows:

 

Minimum Fixed Charge Coverage Ratio Period

 

Fiscal quarter ending on June 30, 2013

 

Two fiscal quarters ending on September 30, 2013

 

Three fiscal quarters ending on March 31, 2014

 

Four fiscal quarters ending on June 30, 2014, and on the last day of each fiscal quarter thereafter

 

Section 3 .                                           Limited Waiver of Fixed Charge Coverage Ratio of Operator . The Lender hereby waives compliance with the requirements of Section 7.15 of the Loan Agreement with respect to the fiscal quarter ended December 31, 2012. This is a one-time waiver, and the Lender does not waive compliance with the requirements of Section 7.15 of the Loan Agreement for any fiscal quarter other than the fiscal quarter ended December 31, 2012.

 

Section 4 .                                           Change in Minimum EBITDAR of Operator . Section 7.16 of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective for the calendar month February, 2013, and subsequent calendar months, with the existing Section 7.16 of the Loan Agreement to continue to be effective for calendar months prior to February, 2013 (subject to the limited waiver provided for in Section 5 of this Agreement):

 

7.16                         Minimum EBITDAR of Operator .

 

(a)                                  It is a condition of this Agreement and the Loan that the EBITDAR/Management Fee Adjusted for Operator for each calendar month set forth in the table below, shall be not less than the amount set forth opposite such month in the table below:

 

 

 

Minimum EBITDAR

 

Calendar Months

 

for Operator

 

February, 2013

 

$

15,000

 

March, 2013

 

$

15,000

 

April, 2013

 

$

75,000

 

 

4



 

(b)                                  Until such time as paragraph (c) of this Section becomes effective, it is a condition of this Agreement and the Loan that the EBITDAR/Fully Adjusted for Operator for each calendar month commencing with the calendar month ended May 31, 2013, shall be not less than the amount set forth opposite such month in the table below:

 

May, 2013

 

$

100,000

 

June and July, 2013

 

$

150,000

 

August, 2013 and Each Calendar

 

 

 

Month Thereafter

 

$

160,000

 

 

(c)                                   Effective for the first fiscal quarter ending after the EBITDAR/Fully Adjusted for Operator has been not less than $160,000 for each of six consecutive calendar months, as shown in monthly financial statements of Operator and compliance certificates furnished to Lender as provided in Section 7.4 of this Agreement, it is a condition of this Agreement and the Loan that the EBITDAR/Fully Adjusted for Operator for each fiscal quarter shall be not less than $480,000.

 

Section 5 .                                           Limited Waiver of Minimum EBITDAR of Operator . The Lender hereby waives compliance with the requirements of Section 7.16(a) of the Loan Agreement with respect to the calendar months ended December, 2012 and January, 2013. This is a one-time waiver, and the Lender does not waive compliance with the requirements of Section 7.16(a) of the Loan Agreement for any calendar month before the calendar month ended December 31, 2012 or after the calendar month ended January 31, 2013.

 

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 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)                                  Borrower is a limited liability company 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.

 

(b)                                  AdCare is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, 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.

 

5



 

(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.

 

6



 

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.

 

7



 

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, 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.

 

[SIGNATURE PAGE(S) AND EXHIBIT(S), 
IF ANY, FOLLOW THIS PAGE]

 

8



 

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

 

 

 

LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC

 

 

 

 

 

By

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

 

 

By

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, President and

 

 

Chief Executive Officer

 

 

 

 

 

 

 

LITTLE ROCK HC&R NURSING, LLC

 

 

 

 

 

 

 

By

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

THE PRIVATEBANK AND TRUST COMPANY

 

 

 

 

 

 

 

By

 

 

 

Amy K. Hallberg, Managing Director

 

- AdCare Little Rock Owner Loan Third Modification Agreement -

- Signature Page 1 -

 



 

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

 

 

 

LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC

 

 

 

 

 

By

 

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

 

 

By

 

 

 

Boyd P. Gentry, President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

LITTLE ROCK HC&R NURSING, LLC

 

 

 

 

 

 

 

By

 

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

THE PRIVATEBANK AND TRUST COMPANY

 

 

 

 

 

 

 

By

/s/ Amy K. Hallberg

 

 

Amy K. Hallberg, Managing Director

 

- AdCare Little Rock Owner Loan Third Modification Agreement -

- Signature Page 1 -

 


Exhibit 10.19

 

JOINDER AGREEMENT, SECOND AMENDMENT

and

SUPPLEMENT TO CREDIT AGREEMENT

 

THIS JOINDER AGREEMENT, SECOND AMENDMENT AND SUPPLEMENT TO CREDIT AGREEMENT (this “ Agreement ”) dated June 28, 2013, is made by and among NW 61 ST  NURSING, LLC , a Georgia limited liability company (“ Existing Borrower ”), GEORGETOWN HC&R NURSING, LLC , a Georgia limited liability company (“ Georgetown ”), SUMTER N&R, LLC , a Georgia limited liability company (“ Sumter ”; Georgetown and Sumter are hereinafter referred to collectively as “ New Borrowers ” and each individually as “ New Borrower ”); New Borrowers and Existing Borrower are hereinafter referred to collectively as “ Borrowers ” and each individually as a “ Borrower ”), and GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (“ Lender ”).  Each capitalized term used herein, unless otherwise defined herein, shall have the meaning ascribed to such term in that certain Credit Agreement dated May 30, 2013 (as at any time amended, restated, supplemented or otherwise modified, the “ Credit Agreement ”), among Existing Borrower and Lender.  Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Credit Agreement.  The terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.  All references to any Person shall mean and include the successors and permitted assigns of such Person.  All references to any of the Loan Documents shall include any and all amendments or modifications thereto and any and all restatements, extensions or renewals thereof.  Wherever the phrase “including” shall appear in this Agreement, such word shall be understood to mean “including, without limitation.”

 

Borrowers have requested that Lender join New Borrowers to the Credit Agreement and extend credit to New Borrowers as Borrowers under the Credit Agreement.  New Borrowers are executing this Agreement to become parties to the Credit Agreement in order to induce Lender to continue to extend credit under the Credit Agreement and as consideration for the Revolving Loans previously made.

 

Accordingly, and for Ten Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by the parties hereto, Lender and Borrowers agree as follows:

 

1.                                       Joinder of New Borrowers .   In accordance with the Credit Agreement, New Borrowers by their signature below become Borrowers under the Credit Agreement with the same force and effect as if originally named therein as Borrowers, and New Borrowers hereby agree to all the terms and provisions of the Credit Agreement applicable to them as Borrowers thereunder.  Each reference to a “Borrower” in the Credit Agreement shall be deemed to include New Borrowers.  The Credit Agreement is hereby incorporated herein by reference.

 

2.                                       Amendments to Credit Agreement The Credit Agreement is hereby amended as follows:

 

(a)                                  By deleting the first sentence of Section 2.01(b)  of the Credit Agreement and by substituting in lieu thereof the following:

 

(b)                                  On June 28, 2013, Borrowers shall execute and deliver a promissory note to Lender in the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000) (as may be amended, modified or replaced from time to time, the “ Revolving Note ”).

 



 

(b)                                  By deleting Section 2.09 of the Credit Agreement and by substituting in lieu thereof the following:

 

2.09                         Commitment Fee .  Lender has fully earned a non-refundable commitment fee (“ Commitment Fee ”) equal to Fifteen Thousand Dollars ($15,000), which Commitment Fee shall be paid by Borrowers to Lender (i) in an installment of $10,000, paid concurrently with the funding of the initial Loans hereunder, and (ii) in an installment of $5,000, paid on June 28, 2013.

 

(c)                                   By deleting Section 6.07(a)(xi)  of the Credit Agreement and by substituting in lieu thereof the following:

 

(xi)                               on or before July 31, 2013, ADK’s Form 10-K (as filed with the Securities and Exchange Commission); and

 

(d)                                  By deleting Section 8.01(w)  of the Credit Agreement and by substituting in lieu thereof the following:

 

(w)                                CHOW .  The CHOW with respect to (i) each Healthcare Facility of NW 61 st  Nursing, LLC, Georgetown HC&R, LLC and Sumter N&R, LLC shall not have been unconditionally and in writing approved by each of the appropriate Governmental Authorities, intermediaries or other designated agents with respect to each such Borrower and each such Healthcare Facility on or before July 31, 2013; or

 

(e)                                   By deleting the definitions of “Collateral Assignment of Transition Services Agreement”, “Minimum Balance”, “Transferor” and “Transition Services Agreement” set forth in Annex I to the Credit Agreement and by substituting in lieu thereof the following:

 

Collateral Assignment of Transition Services Agreement ” means, collectively, (i) the Collateral Assignment of Operations Transfer Agreement of even date herewith between NW 61 st  Nursing, LLC and Lender, (ii) the Collateral Assignment of Operations Transfer Agreement dated June 28, 2013, between Georgetown HC&R, LLC and Lender, and (iii) the Collateral Assignment of Operations Transfer Agreement dated June 28, 2013, between Sumter N&R, LLC and Lender.

 

Minimum Balance ” means $1,000,000.

 

Transferor ” means, as applicable, any or all of Receiver Care, LLC, Sumter Valley Nursing and Rehab Center, LLC, and Georgetown Healthcare & Rehabilitation Center, Inc.

 

Transition Services Agreement ” means, as applicable, any or all of (i) the Operations Transfer Agreement entered into as of January 1, 2013, among NW 61st Nursing, LLC, Transferor, and AdCare Oklahoma Management, L.L.C., (ii) the Operations Transfer Agreement entered into as of July 26, 2012, between Georgetown HC&R, LLC, and Transferor, and (iii) the Operations Transfer Agreement entered into as of April 27, 2012, between Sumter N&R, LLC, and Transferor.

 

3.                                       Consent to Georgetown and Sumter Guaranties . Borrowers have requested that Lender consent to (a) the guaranty by Georgetown of certain indebtedness of Georgetown HC&R Property Holdings, LLC (“ Georgetown Holdings ”), and (b) the guaranty by Sumter of certain indebtedness of Sumter Valley Property Holdings, LLC (“ Sumter Holdings ”), notwithstanding the fact that such guaranties are prohibited by Sections 7.05 and 7.12 of the Credit Agreement.  Upon satisfaction

 

2



 

of all conditions precedent to the effectiveness of this Agreement as set forth in Section 6   hereof, Lender hereby:

 

(a)                                  consents, effective December 31, 2012, to the guaranty by Georgetown of certain indebtedness of Georgetown Holdings owing to Metro City Bank pursuant to a certain promissory note dated December 31, 2012, by Georgetown Holdings and Sumter Holdings in favor of Metro City Bank  in the principal sum of $6,950,000 (the “ Georgetown/Sumter Holdings Note ”), in each case in the form presented to Lender prior to the date hereof; provided , that such guaranty and the actions taken by Georgetown in connection therewith do not at any time otherwise violate the terms of the Credit Agreement, including, without limitation, Section 7.02 thereof; and

 

(b)                                  consents, effective December 31, 2012, to the guaranty by Sumter of certain indebtedness of Sumter Holdings owing to Metro City Bank pursuant to the Georgetown/Sumter Holdings Note, in each case in the form presented to Lender prior to the date hereof; provided , that such guaranty and the actions taken by Sumter in connection therewith do not at any time otherwise violate the terms of the Credit Agreement, including, without limitation, Section 7.02 thereof.

 

3.                                       Acknowledgments of New Borrowers .   New Borrowers acknowledge that they have requested Lender to extend financial accommodations to Borrowers on a combined basis in accordance with the provisions of the Credit Agreement, as hereby amended.  In accordance with the terms of Article 10 of the Credit Agreement, New Borrowers acknowledge and agree that they shall be jointly and severally liable for any and all Revolving Loans and other Obligations heretofore or hereafter made by Lender to any Borrower and for all interest, fees and other charges payable in connection therewith.  New Borrowers hereby appoint and designate NW 61 st  Nursing, LLC as, and NW 61 st  Nursing, LLC shall continue to act under the Credit Agreement as, the Borrower Representative of New Borrowers and each other Borrower for all purposes, including requesting borrowings and receiving accounts statements and other notices and communications to Borrowers (or any of them) from Lender. Each Loan made by Lender under the Credit Agreement or any of the other Loan Documents shall be disbursed in accordance with the Credit Agreement.

 

4.                                       Security Interest .   To secure the prompt payment and performance to Lender of all of the Obligations, New Borrowers hereby grant to Lender a continuing security interest in, and a right to set off against, any and all right, title and interest of New Borrowers in and to all of the following, whether now owned or existing or owned, acquired or arising hereafter:

 

(a) all Accounts; (b) all Payment Intangibles; (c) all Instruments, Chattel Paper (including Electronic Chattel Paper), Documents, Letter-of-Credit Rights, Supporting Obligations and Commercial Tort Claims set forth on Schedule 5.23 to the Credit Agreement, in each case to the extent arising out of, relating to or given in exchange for or settlement of or to evidence the obligation to pay any Account or Payment Intangible; (d) all General Intangibles (including contract rights and trademarks, copyrights, patents and other intellectual property) that arise out of or relate to any Account or Payment Intangible or from which any Account or Payment Intangible arises; (e) all remedies, guarantees and collateral evidencing, securing or otherwise relating to or associated with any Account or Payment Intangible, including all rights of enforcement and collection; (f) all Commercial Lockboxes, Governmental Lockboxes, Collection Accounts and other Deposit Accounts into which Collections or other proceeds of Collateral or Advances are deposited, and all checks or Instruments from time to time representing or evidencing the same; (g) all cash, currency and other monies at any time in the possession or under the control of Lender or a bailee of Lender; (h) all books and records evidencing or relating

 

3



 

to or associated with any of the foregoing; (i) all information and data compiled or derived with respect to any of the foregoing (other than any such information and data subject to legal restrictions of patient confidentiality); and (j) all Collections, Accessions, receipts and Proceeds derived from any of the foregoing.

 

5.                                       Representations and Warranties .   New Borrowers represent and warrant to Lender that each New Borrower is a wholly owned Subsidiary of AdCare Operations, LLC.  New Borrowers represent and warrant to Lender that New Borrowers are engaged in the same business as the other Borrowers as part of a joint and common enterprise; that this Agreement has been duly authorized, executed and delivered by New Borrowers and constitutes a legal, valid and binding obligation of New Borrowers, enforceable against them in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity); and that the Schedules attached hereto contain true, accurate and complete information with respect to New Borrowers and the matters covered therein and such Schedules shall be deemed to supplement and be a part of the Schedules to the Credit Agreement.  In addition, New Borrowers represent and warrant to Lender that no Event of Default or Unmatured Event of Default exists on the date hereof; that the execution, delivery and performance of this Agreement have been duly authorized by all requisite company action on the part of Borrowers and this Agreement has been duly executed and delivered by Borrowers; and that all of the representations and warranties made by Borrowers in the Credit Agreement are true and correct on and as of the date hereof.

 

6.                                       Conditions Precedent The effectiveness of this Agreement is subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a)                                  No Event of Default or Unmatured Event of Default shall exist;

 

(b)                                  Lender shall have received from Borrowers a duly executed counterpart of this Agreement;

 

(c)                                   Lender shall have received from Borrowers a duly executed Amended and Restated Revolving Note in the maximum principal amount of $1,500,000;

 

(d)                                  Lender shall have received, reviewed and found acceptable in all respects all organizational documents for each New Borrower, including certified resolutions, a copy of the Articles of Organization for each New Borrower certified by such New Borrower’s state of formation, a copy of each New Borrower’s Operating Agreement, a good standing certificate of each New Borrower certified by such New Borrower’s state of formation, and a good standing certificate of each New Borrower certified by each other state in which such New Borrower is qualified to transact business;

 

(e)                                   Lender shall have received from New Borrowers authorization to file UCC-1 financing statements and any other appropriate documentation to perfect or continue the perfection of Lender’s liens with respect to the assets of New Borrowers and Lender shall have received confirmation from each appropriate jurisdiction that such financing statements have been filed in the appropriate records;

 

(f)                                    Lender shall have completed its due diligence to ensure that Lender’s security interests and liens are or will be first priority liens on the assets of New Borrowers and that there are no other liens on such assets other than those that are acceptable to Lender in its sole

 

4



 

discretion, and in connection therewith shall have obtained such intercreditor and subordination agreements (if any) as may be deemed necessary by Lender, in form and substance satisfactory to Lender;

 

(g)                                   Lender shall have received from New Borrowers evidence of New Borrowers’ liability, property and casualty insurance coverage and insurance binders and lender’s loss payable endorsements with respect thereto naming Lender as certificate holder, lender’s loss payee and additional insured, as applicable;

 

(h)                                  Lender shall have received from New Borrowers such other documents, instruments and agreements (including, without limitation, Depository Agreements in respect of the Government Lockbox) as Lender may require in its sole discretion in form and substance satisfactory to Lender;

 

(i)                                      New Borrowers shall have delivered to Lender such financial, business and other information with respect to New Borrowers as Lender may have requested;

 

(j)                                     There shall not have occurred any material adverse change in the operations or financial condition of Borrowers or Guarantors;

 

(k)                                  Lender shall have received an opinion letter from Borrowers’ and Guarantors’ legal counsel with respect to such matters as Lender may request;

 

(l)                                      Lender shall have received payment in immediately available funds of the outstanding installment of the Commitment Fee;

 

(m)                              New Borrowers shall have signed and delivered to Lender notices, in the form of Exhibit 4.02(d)  to the Credit Agreement, directing the Obligors to make payment to the Government Lockbox; and

 

(n)                                  Lender shall have completed its due diligence with respect to New Borrowers and the Properties of New Borrowers, the results of which shall be satisfactory to Lender.

 

7.                                       Ratification and Reaffirmation Each Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of such Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

8.                                       Additional Covenants .   To induce Lender to enter into this Agreement, Borrowers covenant and agree that, within thirty (30) days after the later of (i) the date that the Centers for Medicare & Medicaid Services has made the electronic funds transfers ( EFTs ”) available to a Borrower in connection with the CHOW process, or (ii) the date of this Agreement, Borrowers shall deliver to the Centers for Medicare & Medicaid Services (and provide evidence to Lender of the delivery thereof) a completed copy of Form CMS-588, together with all other documentation necessary to cause the Centers for Medicare & Medicaid Services to direct EFTs to the Government Lockbox.

 

9.                                       Acknowledgments of All Borrowers Each Borrower acknowledges and stipulates that the Credit Agreement and the other Loan Documents executed by Borrowers are legal, valid and binding obligations of Borrowers that are enforceable against Borrowers in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by

 

5



 

Borrowers); and the security interests and liens granted by Borrowers in favor of Lender are duly perfected, first priority security interests and liens.

 

10.                                No Novation, etc.   Except as otherwise expressly provided in this Agreement, nothing herein shall be deemed to amend or modify any provision of the Credit Agreement or any of the other Loan Documents, each of which shall remain in full force and effect.  This Agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Credit Agreement as herein modified shall continue in full force and effect.

 

11.                                Severability .   In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

 

12.                                Expenses of Lender .   In consideration of Lender’s willingness to enter into this Agreement, Borrowers agree to reimburse Lender for Lender’s reasonable out-of-pocket expenses in connection with this Agreement, including, without limitation, the fees, disbursements and other charges of counsel for Lender.

 

13.                                Entire Agreement .   This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written.  Each of the Schedules attached hereto is incorporated into this Agreement and by this reference made a part hereof.

 

14.                                Counterparts; Electronic Signatures .   This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  Any manually-executed signature page hereto delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

15.                                Effectiveness; Governing Law .   This Agreement shall be effective when accepted by Lender (Borrowers hereby waiving notice of such acceptance) and thereupon shall be deemed a contract made in Pennsylvania, and shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without regard to the conflict of laws principles thereof.

 

16.                                Successors and Assigns .   This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, executors, successors and assigns.

 

17.                                Section Titles .   Section titles and references used in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

18.                                Manager’s Certification of Existing Borrower .   By his execution and delivery of this Agreement, Boyd P. Gentry hereby certifies that: (a) the Unanimous Consent of the Sole Member and the Managers (the “ Consent ”) of NW 61 st  Nursing, LLC dated as of May 30, 2013 remains in full force and effect; (b) pursuant to the Consent, the Managers or designees of Existing Borrower are authorized and empowered (either alone or in conjunction with any one or more of the other Managers of Existing Borrower) to take, from time to time, all or any part of the following actions on or in behalf of Existing

 

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Borrower, as applicable:  (i) to make, execute and deliver to Lender this Agreement and all other agreements, documents and instruments contemplated by or referred to herein or executed by Existing Borrower in connection herewith; and (ii) to carry out, modify, amend or terminate any arrangements or agreements at any time existing between Lender and Existing Borrower, as applicable; (d) any arrangements, agreements, security agreements, or other instruments or documents referred to or executed pursuant to this Agreement by Boyd P. Gentry, Christopher F. Brogdon or any other Manager of Existing Borrower, by Ronald W. Fleming as Chief Financial Officer of Existing Borrower, or by the Chief Executive Officer of ADK (currently, Boyd P. Gentry), Chief Financial Officer of ADK (currently, Ronald W. Fleming) or an employee of Existing Borrower acting pursuant to delegation of authority, may be attested by such person and may contain such terms and provisions as such person shall, in his or her sole discretion, determine; (e) the Chief Executive Officer of ADK is a designee of Existing Borrower who is authorized and empowered (either alone or in conjunction with any one or more of the Managers or Chief Financial Officer of Existing Borrower) to take any action on behalf of Existing Borrower in conjunction with the Credit Agreement and this Agreement; (f) the Chief Financial Officer of ADK (currently, Ronald W. Fleming) is a designee of Existing Borrower who is authorized and empowered to borrow money from time to time under the revolving line of credit per the terms of the Credit Agreement and this Agreement, to endorse the name of any Borrower to any checks, drafts and other instruments or orders for the payment of money, payable to any Borrower or its order for the purpose of depositing the same in any account or accounts of Lender with any bank, banker, or trust company or any of the branches of any said bank, and to deal with any and all checks, drafts, and other instruments or orders (including but not limited to preparation of Borrowing Base Certificate documentation) for the payment of money and the proceeds thereof as the property of Lender; and (g) set forth below is the name and signature of the current Chief Financial Officer of ADK, Ronald W. Fleming, one designated representative and Chief Financial Officer of Existing Borrower, who is authorized to sign all Credit Agreements, security agreements, instruments, assignments, pledges, mortgages, security deeds, trust deeds and other documents among Lender and Existing Borrower:

 

Ronald W. Fleming

 

Chief Financial Officer of ADK and Existing Borrower

 

/s/ Ronald W. Fleming

 

 

 

 

19.          Release of Claims .  To induce Lender to enter into this Agreement, each Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrowers now have or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise.  Each Borrower represents and warrants to Lender that none of them have transferred or assigned to any Person any claim that any of them has ever had or claimed to have against Lender.

 

20.          Waiver of Jury Trial .  The parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Agreement.

 

[Signatures commence on following page.]

 

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IN WITNESS WHEREOF, Borrowers and Lender have duly executed this Agreement under seal as of the date and year first above written.

 

NEW BORROWERS:

 

 

 

Address for notices to New Borrowers:

GEORGETOWN HC&R NURSING, LLC

1145 Hembree Road

 

Roswell, Georgia 30076

 

Attn:

Manager

By:

/s/ Boyd P. Gentry

Fax:

(404) 842-1899

 

Boyd P. Gentry , Manager

 

 

 

 

 

SUMTER N&R, LLC

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 

[Signatures continued on following page.]

 

Joinder Agreement, Second Amendment and Supplement to Credit Agreement (AdCare - Northwest)

 



 

For purposes of the Manager’s Certification of Existing Borrower in Section 18 above:

 

 

 

 

 

/s/ Boyd P. Gentry                                      

(SEAL)

 

Boyd P. Gentry

 

 

 

 

 

 

EXISTING BORROWER:

 

 

 

NW 61 ST  NURSING, LLC

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 

[Signatures continued on following page.]

 

Joinder Agreement, Second Amendment and Supplement to Credit Agreement (AdCare - Northwest)

 



 

LENDER:

GEMINO HEALTHCARE FINANCE, LLC

 

 

 

 

 

By:

/s/ Jeffrey M. Joslin

 

 

Jeffrey M. Joslin , Senior Portfolio Manager

 

[Consent and Reaffirmation of Guarantor appears on next page]

 

Joinder Agreement, Second Amendment and Supplement to Credit Agreement (AdCare - Northwest)

 



 

CONSENT AND REAFFIRMATION

 

The undersigned guarantor of the Obligations of Borrowers at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing Joinder Agreement, Second Amendment and Supplement to Credit Agreement; (ii) consents to Borrowers’ execution and delivery thereof and of the other documents, instruments or agreements Borrowers agree to execute and deliver pursuant thereto; (iii) agrees to be bound thereby; and (iv) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect.

 

IN WITNESS WHEREOF, the undersigned has caused its duly authorized officers to execute this Consent and Reaffirmation on and as of the date of such Joinder Agreement, Second Amendment and Supplement to Credit Agreement.

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , President and Chief Executive Officer

 

Joinder Agreement, Second Amendment and Supplement to Credit Agreement (AdCare - Northwest)

 


Exhibit 10.20

 

AMENDED AND RESTATED REVOLVING NOTE

 

$1,500,000.00

Date: June 28, 2013

 

FOR VALUE RECEIVED, the undersigned (the “ Borrowers ”), hereby promise to pay to GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (the “ Lender ”), or its successors or assigns, the principal amount of each Revolving Loan from time to time made in accordance with the provisions of the Credit Agreement dated May 30, 2013 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “ Credit Agreement ” the terms defined therein being used herein as therein defined), among the Borrowers and Lender.

 

The Borrowers promise to pay interest on the unpaid principal amount of each Revolving Loan from the date of such Revolving Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Credit Agreement.  All payments of principal and interest shall be made to the Lender in Dollars in immediately available funds.  If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement.

 

This Amended and Restated Revolving Note (this “ Revolving Note ”) is one of the Revolving Notes referred to in the Credit Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein.  This Revolving Note is secured by the Collateral.  Upon the occurrence and during the continuation of one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Revolving Note shall become, or may be declared to be, immediately due and payable all as provided in the Credit Agreement.  Revolving Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business.  The Lender may also attach schedules to this Revolving Note and endorse thereon the date, amount and maturity of its Revolving Loans and payments with respect thereto.

 

The Borrowers, for themselves, their successors and assigns, hereby waive diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Revolving Note.

 

This Revolving Note is an amendment and restatement of that certain Revolving Note issued by certain of the Borrowers in favor of Lender on May 30, 2013, in the maximum principal amount of $1,000,000 (the “ Prior Note ”).  This Revolving Note is not intended nor shall it be construed to be a novation or an accord and satisfaction of the indebtedness evidenced by the Prior Note.

 

THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.

 



 

[Remainder of Page Intentionally Left Blank;

Signatures Appear on the Following Page.]

 

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SIGNATURE PAGE TO AMENDED AND RESTATED REVOLVING NOTE

 

 

 

NW 61 ST  NURSING, LLC

 

GEORGETOWN HC&R NURSING, LLC

 

SUMTER N&R, LLC

 

 

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 


Exhibit 10.21

 

MANAGEMENT FEE SUBORDINATION AGREEMENT

 

Dated:  June 28, 2013

 

To:                              Gemino Healthcare Finance, LLC

One International Plaza

Suite 220

Philadelphia, PA  19113

 

To induce GEMINO HEALTHCARE FINANCE, LLC , a Delaware limited liability company (together with its successors and assigns, “ Lender ”), to make loans and extend credit from time to time for the benefit of GEORGETOWN HC&R NURSING, LLC , a Georgia limited liability company (“ Georgetown ”) and SUMTER N&R, LLC , a Georgia limited liability company (“ Sumter ”; Georgetown and Sumter, together with their respective successors and permitted assigns, are collectively referred to herein as the “ Companies ” ) pursuant to the terms of that certain Credit Agreement dated May 30, 2013, among the Companies and certain affiliates of the Companies, such other Persons joined thereto as a Borrower from time (such affiliates and other Persons are hereinafter referred to, together with the Companies, as “ Borrower ”) and Lender (as amended, restated, supplemented or replaced from time to time, the “Credit Agreement”), ADCARE ADMINISTRATIVE SERVICES, LLC , a Georgia limited liability company (together with its successors and assigns, the “ Undersigned ”), hereby agrees as follows:

 

1.                                       The payment of any and all Subordinated Debt is expressly subordinated to the  Senior Debt to the extent and in the manner set forth in this Management Fee Subordination Agreement (this “ Subordination Agreement ”).  The term “ Subordinated Debt ” means the obligations owing by Borrower to the Undersigned pursuant to the terms and conditions of (i) that certain Administrative Support Agreement dated as of January 1, 2013 by and between Georgetown and the Undersigned, and (ii) that certain Administrative Support Agreement dated as of January 1, 2013 by and between Sumter and the Undersigned (the foregoing agreements being referred to collectively herein as the “ Management Agreement ”).  Neither the Undersigned nor Borrower shall amend or modify the Management Agreement in any manner adverse to Lender without the prior written consent of Lender.  The term “ Senior Debt ” means any and all Obligations of Borrower to Lender under, in connection with, or in any way related to (including debtor-in-possession financing), the Credit Agreement (including, without limitation, any interest accruing thereon after maturity or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding).  Capitalized terms not defined herein shall have the meaning set forth in the Credit Agreement.

 



 

2.                                       As long as no Event of Default or Unmatured Event of Default has occurred and is continuing, and if no Event of Default or Unmatured Event of Default would result from the making of any such payments, the Companies may pay and the Undersigned may accept the fees payable by the Companies to the Undersigned pursuant to the Management Agreement (the “ Management Fees ”).  Notwithstanding the foregoing, upon the occurrence of an Event of Default or an Unmatured Event of Default, The Companies shall not make and the Undersigned shall not receive any of the Management Fees without Lender’s prior written consent.

 

3.                                       Any payments on the Subordinated Debt received by the Undersigned, other than as expressly permitted in Section 2 above, shall be held in trust for Lender and the Undersigned will forthwith turn over any such payments in the form received, properly endorsed, to Lender to be applied to the Senior Debt as determined by Lender.

 

4.                                       The Undersigned agrees that it will not make any assertion or claim in any action, suit or proceeding of any nature whatsoever in any way challenging the priority, validity or effectiveness of the liens and security interests granted to Lender under and in connection with the Credit Agreement, or any amendment, extension, replacement thereof or related agreement, instrument or document between Lender and Borrower.

 

5.                                       At no time will the Undersigned commence any action or proceeding against any Borrower to recover all or any part of the Subordinated Debt not paid when due and shall not join with any creditor, in bringing any proceeding against any Borrower under any liquidation, conservatorship, bankruptcy, reorganization, rearrangement, or other insolvency law now or hereafter existing, unless and until the Senior Debt shall be Paid in Full.  The term “ Paid in Full ” means the indefeasible payment in full in cash of all Senior Debt and the irrevocable termination of all commitments to lend or otherwise extend credit under the Credit Agreement.  Subject to the foregoing, the Undersigned may accelerate the amount of the Subordinated Debt upon the occurrence of (i) the acceleration of the Senior Debt; and (ii) the filing of a petition under the United States Bankruptcy Code by any Company.

 

6.                                       In the event of any liquidation, conservatorship, bankruptcy, reorganization, rearrangement, or other insolvency proceeding of any Company, the Undersigned will, at Lender’s request, file any claims, proofs of claim, or other instruments of similar character necessary to enforce the obligations of Company in respect of the Subordinated Debt and will hold in trust for Lender and pay over to Lender in the same form received, to be applied on the Senior Debt as determined by Lender, any and all money, dividends or other assets received in any such proceedings on account of the Subordinated Debt, unless and until the Senior Debt shall be Paid in Full, including, without limitation, interest owing to Lender after the commencement of a bankruptcy proceeding at the rate specified in the Credit Agreement, whether or not such interest is an allowable claim in any such proceeding.  Lender may, as attorney-in-fact for the Undersigned, take such action on behalf of the Undersigned, and the Undersigned hereby appoints Lender as attorney-in-fact for the Undersigned to demand, sue for, collect, and receive any and all such money, dividends or other assets and give acquittance therefore and to file any claim, proof of claim or other instrument of similar character and to take such other proceedings in Lender’s name or in the name of the Undersigned, as Lender may deem necessary or advisable for the enforcement of this Subordination Agreement.  The Undersigned will execute and deliver to Lender such other and

 

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further powers of attorney or other instruments as Lender reasonably may request in order to accomplish the foregoing.

 

7.                                       Lender may at any time and from time to time, without the consent of or notice to the Undersigned, without incurring responsibility to the Undersigned and without impairing or releasing any of Lender’s rights, or any of the obligations of the Undersigned hereunder:

 

(a)                                  Change the amount, manner, place or terms of payment or change or extend the time of payment of or renew or alter the Senior Debt, or any part thereof, or amend, supplement or replace the Credit Agreement and/or any notes executed in connection therewith in any manner or enter into or amend, supplement or replace in any manner any other agreement relating to the Senior Debt;

 

(b)                                  Sell, exchange, release or otherwise deal with all or any part of any property at any time pledged or mortgaged by any party to secure or securing the Senior Debt or any part thereof;

 

(c)                                   Release anyone liable in any manner for the payment or collection of the Senior Debt;

 

(d)                                  Exercise or refrain from exercising any rights against any Borrower or others (including the Undersigned); and

 

(e)                                   Apply sums paid by any party to the Senior Debt in any order or manner as determined by Lender.

 

8.                                       The Undersigned shall advise each future assignee of all or any part of the Subordinated Debt that the Subordinated Debt is subordinated to the Senior Debt in the manner and to the extent provided herein.  The Undersigned represents that no part of the Subordinated Debt or any instrument evidencing the same has been transferred or assigned, and the Undersigned will not transfer or assign, except to Lender, any part of the Subordinated Debt while any Senior Debt remains outstanding, unless such transfer or assignment is made expressly subject to this Subordination Agreement.  Upon Lender’s request, the Undersigned will place on the Management Agreement a legend in such form as Lender may determine to the effect that the indebtedness evidenced thereby is subordinated and subject to the prior payment in full of all Senior Debt pursuant to this Subordination Agreement, as well as deliver all such instruments to Lender.

 

9.                                       This Subordination Agreement contains the entire agreement between the parties regarding the subject matter hereof and may be amended, supplemented or modified only by written instrument executed by Lender and the Undersigned.

 

10.                                The Undersigned represents and warrants that neither the execution or delivery of this Subordination Agreement nor fulfillment of nor compliance with the terms and provisions hereof will conflict with, or result in a breach of the terms, conditions, or provisions of or constitute a default under any agreement or instrument to which the Undersigned or any of the Undersigned’s assets is now subject.

 

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11.                                Any notice of acceptance of this Subordination Agreement is hereby waived.

 

12.                                This Subordination Agreement may be assigned by Lender in whole or in part in connection with any assignment or transfer of any portion of the Senior Debt.

 

13.                                This Subordination Agreement shall be binding upon the Undersigned, and the Undersigned’s successors, representatives and assigns.

 

14.                                Except as provided in Section 2 above, each Borrower agrees that it will not make any payment on any of the Management Fees or take any other action in contravention of the provisions of this Subordination Agreement.

 

15.                                GOVERNING LAW .  THIS SUBORDINATION AGREEMENT, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS SUBORDINATION AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS, AND SHALL BE CONSTRUED WITHOUT THE AID OF ANY CANON, CUSTOM OR RULE OF LAW REQUIRING CONSTRUCTION AGAINST THE DRAFTSMAN.

 

16.                                CONSENT TO JURISDICTION .  THE UNDERSIGNED, EACH BORROWER AND LENDER HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE JURISDICTION OF, AND VENUE IN, ANY STATE OR FEDERAL COURT LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING.  EACH BORROWER AND THE UNDERSIGNED WAIVE ANY OBJECTION TO IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT OR COURTS AND ALL RIGHTS TO TRANSFER FOR ANY REASON.  THE UNDERSIGNED AND EACH BORROWER IRREVOCABLY AGREE TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE APPROPRIATE PARTY SET FORTH HEREIN.

 

17.                                WAIVER OF JURY TRIAL .  THE UNDERSIGNED, EACH BORROWER AND LENDER HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE.

 

[Remainder of Page Intentionally Left Blank;

Signatures Appear on the Following Pages.]

 

4



 

Signature Page to Management Fee Subordination Agreement

 

Dated as of the date first written above.

 

 

 

UNDERSIGNED:

ADCARE ADMINISTRATIVE SERVICES, LLC

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 

Address for Notices :

145 Hembree Road

Roswell, Georgia 30076

Attn:                     Manager

Fax No.:  (404) 842-1899

 



 

Signature Page to Management Fee Subordination Agreement

 

Intending to be legally bound, each of the following consents and agrees to the terms of this Subordination Agreement as of the date first above written:

 

 

BORROWER:

NW 61st NURSING, LLC

 

GEORGETOWN HC&R NURSING, LLC

 

SUMTER N&R, LLC

 

 

 

By:

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry , Manager

 

 

Address for notices to Borrower:

145 Hembree Road

Roswell, Georgia 30076

Attn:                     Manager

Fax No.:  (404) 842-1899

 



 

Signature Page to Management Fee Subordination Agreement

 

Agreed to and Acknowledged:

 

 

 

LENDER:

GEMINO HEALTHCARE FINANCE, LLC

 

 

 

 

 

By:

/s/ Jeffrey M. Joslin

 

 

Jeffrey M. Joslin , Senior Portfolio Manager

 

Address for notices to Lender:

 

Gemino Healthcare Finance, LLC

1 International Plaza, Suite 220

Philadelphia, Pennsylvania 19113

Attn:  Thomas Schneider

Fax:  (610) 870-5401

 


Exhibit 10.22

 

SUBLEASE TERMINATION AGREEMENT

 

THIS SUBLEASE TERMINATION AGREEMENT (the “ Agreement ”) is made and entered into effective as of June 30, 2013 (the “ Effective Date ”), by and between ADK GEORGIA, LLC, a Georgia limited liability Company (“ Sublessor ”) and ADK OCEANSIDE OPERATOR, LLC, a Georgia limited liability company (“ Sublessee ”).

 

WITNESSETH:

 

WHEREAS , pursuant to that certain Lease (“Master Lease”) dated August 1, 2010, Sublessor leased from William M. Foster (“Lessor”) the premises described and defined in the Master Lease as the Property (the “Property”);

 

WHEREAS , Sublessee subleased that portion of the Property located at 7 Rosewood Avenue, Tybee Island, Georgia consisting of 85 licensed beds (the “Premises”) pursuant to that certain Sublease Agreement and Lessor’s Consent dated as of April 10, 2010 (the “Sublease”);and

 

WHEREAS , Sublessor and Sublessee desire to terminate the Sublease in accordance with the terms of this Agreement.

 

NOW, THEREFORE , in consideration of the covenants, promises, undertakings, and releases herein, the receipt, adequacy, and sufficiency of such consideration being expressly acknowledged, Lessor and Lessee hereby agree as follows:

 

1.                                       The foregoing recital of facts is hereby made a part of this Agreement to the same extent as if fully set forth herein.  All capitalized terms not otherwise defined shall have the meanings ascribed to them above.

 

2.                                       The Sublease shall terminate, without further action or notice, on the Effective Date at 11:59 p.m.  Each party’s duties and obligations to the other under the Sublease shall terminate as of 11:59 p.m. on the Effective Date.

 

3.                                       This Agreement shall be governed by and interpreted under the laws of the State of Georgia.

 

{Signatures on Following Page}

 



 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and sealed as of the date stated on the first page of this Agreement.

 

 

 

SUBLESSOR:

 

 

 

ADK GEORGIA, LLC,

 

a Georgia limited liability company

 

 

 

By:

/s/ Boyd P. Gentry

 

Name:

Boyd Gentry

 

Title:

C.E.O.

 

 

 

SUBLESSEE:

 

 

 

ADK OCEANSIDE OPERATOR, LLC,

 

a Georgia limited liability company

 

 

 

By:

/s/ Boyd P. Gentry

 

Name:

Boyd Gentry

 

Title:

C.E.O.

 

2


Exhibit 10.23

 

SUBLEASE TERMINATION AGREEMENT

 

THIS SUBLEASE TERMINATION AGREEMENT (the “ Agreement ”) is made and entered into effective as of June 30, 2013 (the “ Effective Date ”), by and between ADK GEORGIA, LLC, a Georgia limited liability Company (“ Sublessor ”) and ADK SAVANNAH BEACH OPERATOR, LLC, a Georgia limited liability company (“ Sublessee ”).

 

WITNESSETH:

 

WHEREAS , pursuant to that certain Lease (“Master Lease”) dated August 1, 2010, Sublessor leased from William M. Foster (“Lessor”) the premises described and defined in the Master Lease as the Property (the “Property”);

 

WHEREAS , Sublessee subleased that portion of the Property located at 26 Van Horne Street, Tybee Island, Georgia consisting of 50 licensed beds (the “Premises”) pursuant to that certain Sublease Agreement and Lessor’s Consent dated as of April 10, 2010 (the “Sublease”);and

 

WHEREAS , Sublessor and Sublessee desire to terminate the Sublease in accordance with the terms of this Agreement.

 

NOW, THEREFORE , in consideration of the covenants, promises, undertakings, and releases herein, the receipt, adequacy, and sufficiency of such consideration being expressly acknowledged, Lessor and Lessee hereby agree as follows:

 

1.             The foregoing recital of facts is hereby made a part of this Agreement to the same extent as if fully set forth herein.  All capitalized terms not otherwise defined shall have the meanings ascribed to them above.

 

2.             The Sublease shall terminate, without further action or notice, on the Effective Date at 11:59 p.m.  Each party’s duties and obligations to the other under the Sublease shall terminate as of 11:59 p.m. on the Effective Date.

 

3.             This Agreement shall be governed by and interpreted under the laws of the State of Georgia.

 

{Signatures on Following Page}

 



 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and sealed as of the date stated on the first page of this Agreement.

 

 

 

SUBLESSOR:

 

 

 

ADK GEORGIA, LLC,

 

a Georgia limited liability company

 

 

 

By:

/s/ Boyd P. Gentry

 

Name:

Boyd Gentry

 

Title:

C.E.O.

 

 

 

SUBLESSEE:

 

 

 

ADK SAVANNAH BEACH OPERATOR, LLC,

 

a Georgia limited liability company

 

 

 

By:

/s/ Boyd P. Gentry

 

Name:

Boyd Gentry

 

Title:

C.E.O.

 

2


Exhibit 10.24

 

SUBLEASE AGREEMENT

 

THIS SUBLEASE AGREEMENT (this “Sublease”) is made and entered into as of 11:59 p.m. on June 30, 2013 by and between ADK GEORGIA, LLC , a Georgia limited liability company (“Lessee”) and TYBEE NH, LLC , a Georgia limited liability company  (“Tybee NH”).

 

WITNESSETH:

 

WHEREAS , pursuant to that certain Lease (“Master Lease”) dated August 1, 2010, Lessee leased from William M. Foster (“Lessor”) the premises described and defined in the Master Lease as the Property (the “Property”);

 

WHEREAS , Tybee NH is a Georgia limited liability company whose issued and outstanding membership interests are owned by Robert Lancaster; and

 

WHEREAS , Tybee NH desires to sublease that portion of the Property located at 7 Rosewood Avenue, Tybee Island, Georgia consisting of 85 licensed beds (the “Premises”) on the terms and conditions set forth herein.

 

NOW, THEREFORE , for and in consideration of Ten Dollars and no/100 ($10.00), and the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration paid by each party to the other, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Premises .  Lessee does hereby lease to Tybee NH, and Tybee NH does hereby lease from Lessee, for the term and upon the conditions hereinafter provided, the Premises.

 

2.                                       Terms and Conditions .  The term of this Sub-sublease shall be for the same term as the Master Lease.  This Sub-sublease is subject to the Master Lease and all of the terms, covenants, and conditions in the Master Lease are applicable to this Sub-sublease with the same force and effect as if Lessee were the lessor under the Master Lease and Tybee NH were the lessee thereunder.

 

3.                                       Rent.    During the term of this Sub-sublease, Tybee NH shall pay to Lessee, rent in the amount of $30,952.00 per month subject to rent increases and other charges relating to the Premises payable by Lessee under the Master Lease.

 

4.                                       Remedies .  In the event (i) Tybee NH 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, Lessee shall have the right to terminate this Sublease immediately.  The remedy described in the preceding sentence shall be in addition to all other remedies available at law or in equity.

 



 

5.                                       Representations and Warranties .  Lessee hereby makes the following representations and warranties, each of which is material:  (a) the Master Lease and Sublease are in full force and effect; (b) Lessee has no knowledge of any event having occurred that authorizes the termination of the Master Lease and/or the Sublease; and (c) Lessee has no knowledge of any default under the Master Lease and/or the Sublease, nor has Lessee received any notice of default from Lessor or Lessee.

 

6.                                       Governing Law and Venue .  This Sublease is made pursuant to, and shall be construed and enforced in accordance with, the laws in force in the State of Georgia, and any dispute arising hereunder shall be brought in the courts of Chatham County, Georgia.

 

7.                                       Entire Agreement .  The parties hereby understand and agree that this Sublease contains the entire agreement between the parties and cannot be changed or modified except by a written instrument subsequently executed by the parties hereto.

 

{Signatures on Following Page}

 

2



 

IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be duly executed and delivered as of the day and year first written above.

 

 

SUBLESSEE :

LESSEE:

 

 

 

 

TYBEE NH, LLC ,

ADK GEORGIA, LLC ,

a Georgia limited liability company

a Georgia limited liability company

 

 

 

 

By:

/s/ Robert Lancaster

 

By:

/s/ Boyd P. Gentry

 

Robert Lancaster, Manager

 

Name:

Boyd Gentry

 

Title:

C.E.O.

 

3


Exhibit 10.25

 

SUBLEASE AGREEMENT

 

THIS SUBLEASE AGREEMENT (this “Sublease”) is made and entered into as of 11:59 p.m. on June 30, 2013 by and between ADK GEORGIA, LLC , a Georgia limited liability company (“Lessee”) and TYBEE NH, LLC , a Georgia limited liability company  (“Tybee NH”).

 

WITNESSETH:

 

WHEREAS , pursuant to that certain Lease (“Master Lease”) dated August 1, 2010, Lessee leased from William M. Foster (“Lessor”) the premises described and defined in the Master Lease as the Property (the “Property”);

 

WHEREAS , Tybee NH is a Georgia limited liability company whose issued and outstanding membership interests are owned by Robert Lancaster; and

 

WHEREAS , Tybee NH desires to sublease that portion of the Property located at 26 Van Horne Street, Tybee Island, Georgia consisting of 50 licensed beds (the “Premises”) on the terms and conditions set forth herein.

 

NOW, THEREFORE , for and in consideration of Ten Dollars and no/100 ($10.00), and the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration paid by each party to the other, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1.             Premises .  Lessee does hereby lease to Tybee NH, and Tybee NH does hereby lease from Lessee, for the term and upon the conditions hereinafter provided, the Premises.

 

2.             Terms and Conditions .  The term of this Sub-sublease shall be for the same term as the Master Lease.  This Sub-sublease is subject to the Master Lease and all of the terms, covenants, and conditions in the Master Lease are applicable to this Sub-sublease with the same force and effect as if Lessee were the lessor under the Master Lease and Tybee NH were the lessee thereunder.

 

3.             Rent.   During the term of this Sub-sublease, Tybee NH shall pay to Lessee, rent in the amount of $18,207.00 per month subject to rent increases and other charges relating to the Premises payable by Lessee under the Master Lease.

 

4.             Remedies .  In the event (i) Tybee NH 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, Lessee shall have the right to terminate this Sublease immediately.  The remedy described in the preceding sentence shall be in addition to all other remedies available at law or in equity.

 



 

5.             Representations and Warranties .  Lessee hereby makes the following representations and warranties, each of which is material:  (a) the Master Lease and Sublease are in full force and effect; (b) Lessee has no knowledge of any event having occurred that authorizes the termination of the Master Lease and/or the Sublease; and (c) Lessee has no knowledge of any default under the Master Lease and/or the Sublease, nor has Lessee received any notice of default from Lessor or Lessee.

 

6.             Governing Law and Venue .  This Sublease is made pursuant to, and shall be construed and enforced in accordance with, the laws in force in the State of Georgia, and any dispute arising hereunder shall be brought in the courts of Chatham County, Georgia.

 

7.             Entire Agreement .  The parties hereby understand and agree that this Sublease contains the entire agreement between the parties and cannot be changed or modified except by a written instrument subsequently executed by the parties hereto.

 

{Signatures on Following Page}

 

2



 

IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be duly executed and delivered as of the day and year first written above.

 

 

SUBLESSEE :

LESSEE:

 

 

 

 

TYBEE NH, LLC ,

ADK GEORGIA, LLC ,

a Georgia limited liability company

a Georgia limited liability company

 

 

 

 

By:

/s/ Robert Lancaster

 

By:

/s/ Boyd P. Gentry

 

Robert Lancaster, Manager

 

Name:

Boyd Gentry

 

Title:

C.E.O.

 

3


Exhibit 31.1

 

CERTIFICATIONS

 

I, Boyd P. Gentry, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q 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 15 d-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.

 

Date: July 26, 2013

By

/s/ BOYD P. GENTRY

 

 

Chief Executive Officer

 

1


Exhibit 31.2

 

CERTIFICATIONS

 

I, Ronald W. Fleming, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q 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 15 d-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.

 

Date: July 26, 2013

By

/s/ RONALD W. FLEMING

 

 

Chief Financial Officer

 

1


Exhibit 32.1

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADDED BY
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 period ended March 31, 2013, as filed with the Securities and Exchange Commission (the “Report”), I, Boyd P. Gentry, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as added by § 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.               The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.               To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

 

 

Date: July 26, 2013

By:

/s/ BOYD P. GENTRY

 

 

Boyd P. Gentry,

 

 

Chief Executive Officer

 

1


Exhibit 32.2

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADDED BY
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 period ended March 31, 2013, as filed with the Securities and Exchange Commission (the “Report”), I, Ronald W. Fleming, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as added by § 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.               The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.               To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

 

 

Date: July 26, 2013

By:

/s/ RONALD W. FLEMING

 

 

Ronald W. Fleming,

 

 

Chief Financial Officer

 

1