UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ |
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
☐ |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number 001-33135
Regional Health Properties, Inc.
(Exact name of registrant as specified in its charter)
Georgia |
81-5166048 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
454 Satellite Boulevard NW, Suite 100, Suwanee, GA |
30024-7191 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number including area code (678) 869-5116
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
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Name of each exchange on which registered |
Common Stock, no par value |
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NYSE American |
10.875% Series A Cumulative Redeemable
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NYSE American |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
Non-accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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☒ |
Emerging growth company |
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☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of Regional Health Properties, Inc.’s common stock held by non-affiliates as of June 30, 2017, the last business day of Regional Health Properties Inc.’s most recently completed second fiscal quarter, was $19,083,752. The number of shares of Regional Health Properties, Inc., common stock, no par value, outstanding as of March 17, 2018, was 19,813,499.
Regional Health Properties, Inc.
Form 10-K
Table of Contents
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Page Number |
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3 |
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18 |
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40 |
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41 |
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43 |
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45 |
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45 |
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47 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
48 |
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61 |
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62 |
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Changes In and Disagreements With Accountants on Accounting and Financial Disclosure |
107 |
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107 |
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108 |
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109 |
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112 |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
119 |
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Certain Relationships and Related Transactions, and Director Independence |
121 |
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124 |
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125 |
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169 |
1
Special Note Regarding Fo rward Looking Statements
Certain statements in this Annual Report on Form 10-K (this “Annual Report”) contain “forward-looking” information as that term is defined by the Private Securities Litigation Reform Act of 1995. Any statements that do not relate to historical or current facts or matters are forward-looking statements. Examples of forward-looking statements include all statements regarding our expected future financial position, results of operations, cash flows, liquidity, financing and refinancing plans, strategic and business plans, projected expenses and capital expenditures, competitive position, growth and acquisition opportunities, and compliance with, and changes in, governmental regulations. You can identify some of the forward-looking statements by the use of forward-looking words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “may” and other similar expressions, although not all forward-looking statements contain these identifying words.
Our actual results may differ materially from those projected or contemplated by our forward-looking statements as a result of various factors, including, among others, the following:
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Our ability to achieve the benefits that we expected to achieve from our transition to a healthcare property holding and leasing company (the “Transition”), including increased cash flow, reduced general and administrative expenses, and a lower cost of capital; |
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The impact of liabilities associated with our legacy business of owning and operating healthcare properties, including pending and potential professional and general liability claims; |
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Our dependence on the operating success of our tenants and their ability to meet their obligations to us; |
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The effect of increasing healthcare regulation and enforcement on our tenants, and the dependence of our tenants on reimbursement from governmental and other third-party payors; |
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The impact of litigation and rising insurance costs on the business of our tenants; |
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The effect of our tenants declaring bankruptcy or becoming insolvent; |
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The ability and willingness of our tenants to renew their leases with us upon expiration, and our ability to reposition our properties on the same or better terms in the event of nonrenewal or if we otherwise need to replace an existing tenant; |
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The significant amount of our indebtedness, our ability to service our indebtedness, covenants in our debt agreements that may restrict our ability to pay dividends or incur additional indebtedness, and our ability to refinance our indebtedness on favorable terms; |
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Our ability to raise capital through equity and debt financings, and the cost of such capital; |
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The availability of, and our ability to identify, suitable acquisition opportunities, and our ability to complete such acquisitions and lease the respective properties on favorable terms; and |
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Other risks inherent in the real estate business, including uninsured or underinsured losses affecting our properties, the possibility of environmental compliance costs and liabilities, and the illiquidity of real estate investments. |
We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors that may materially affect the outcome of our forward-looking statements and our future business and operating results, including those made in Part I, Item IA, “Risk Factors” in this Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (“SEC”), including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. We caution you that any forward-looking statements made in this Annual Report are not guarantees of future performance, events or results, and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We do not intend, and we undertake no obligation, to update any forward-looking information to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events, unless required by law to do so.
2
Overview
Regional Health Properties, Inc. (“Regional Health” or “Regional”), through its subsidiaries (together, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing such facilities to third-party tenants, which operate the facilities. As of December 31, 2017, the Company owned, leased, or managed for third parties 30 facilities primarily in the Southeast. The Company’s facilities provide a range of healthcare and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, the Company acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. (“AdCare”). AdCare completed its initial public offering in November 2006. Initially based in Ohio, AdCare expanded its portfolio through a series of strategic acquisitions to include properties in a number of other states, primarily in the Southeast. In 2012, AdCare relocated its executive offices and accounting operations to Georgia, and AdCare changed its state of incorporation from Ohio to Georgia on December 12, 2013.
Historically, AdCare’s business was focused primarily on owning and operating skilled nursing facilities and managing such facilities for unaffiliated owners with whom AdCare had management contracts. In July 2014, the board of directors approved and commenced a strategic plan to transition AdCare from an operator of healthcare facilities to a healthcare property holding and leasing company (the “Transition”). To effect the Transition, AdCare and its subsidiaries: (i) leased to third-party operators all of the healthcare properties which they own and previously operated; (ii) subleased to third-party operators all of the healthcare properties which they lease (but do not own) and previously operated; and (iii) retained a management agreement to manage two skilled nursing facilities and one independent living facility for third parties. The Transition was completed in December 2015, and, as a result of the Transition, our business has many of the characteristics of a real estate investment trust (“REIT”) and is focused on the ownership, acquisition and leasing of healthcare properties.
On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, a Georgia corporation and a then wholly owned subsidiary of AdCare formed for the purposes of the Merger, with Regional Health continuing as the surviving corporation in the Merger.
As a consequence of the Merger:
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• |
the outstanding shares of AdCare’s common stock, no par value per share (the “AdCare common stock”), converted, on a one-for-one basis, into the same number of shares of Regional Health’s common stock, no par value per share (the “RHE common stock”); |
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the outstanding shares of AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “AdCare Series A Preferred Stock”) converted, on a one-for-one basis, into the same number of shares of Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “RHE Series A Preferred Stock”); |
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the board of directors (the “AdCare Board”) and executive officers of AdCare immediately prior to the Merger are the board of directors (the “RHE Board”) and executive officers, respectively, of Regional Health immediately following the Merger, and each director and executive officer continued his directorship or employment, as the case may be, with Regional Health under the same terms as his directorship or employment with AdCare immediately following the Merger; |
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Regional Health assumed all of AdCare’s equity incentive compensation plans, and all rights to acquire shares of AdCare common stock under any AdCare equity incentive compensation plan converted into rights to acquire RHE common stock pursuant to the terms of the equity incentive compensation plans and other related documents, if any; |
3
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Regional Health became the successor issuer to AdCare and succeeded to the assets and continued the business and assumed the obligations of AdCare; |
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the RHE common stock and RHE Series A Preferred Stock commenced trading on the NYSE American LLC (“NYSE American”) immediately following the Merger; |
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the rights of the holders of RHE common stock and RHE Series A Preferred Stock are governed by the amended and restated articles of incorporation of RHE (the “RHE Charter”) and the amended and restated bylaws of RHE (the “RHE Bylaws”). The RHE Charter is substantially equivalent to AdCare’s articles of incorporation, as amended (the “AdCare Charter”), except that the RHE Charter includes ownership and transfer restrictions related to the RHE common stock. The RHE Bylaws are substantially equivalent to the bylaws of AdCare, as amended (the “AdCare Bylaws”); |
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there was no change in the assets we hold or in the business we conduct; and |
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there is no fundamental change to our current operational strategy. |
As a result of the Merger, the RHE Charter contains ownership and transfer restrictions with respect to the common stock. These ownership and transfer restrictions will better position the Company to comply with certain U.S. federal income tax rules applicable to REITs under the Internal Revenue Code of 1986, as amended (the “Code”) to the extent such rules relate to the common stock. The RHE Board continues to analyze and consider: (i) whether and, if so, when, the Company could satisfy the requirements to qualify as a REIT under the Code; (ii) the structural and operational complexities which would need to be addressed before the Company could qualify as a REIT, including the disposition of certain assets or the termination of certain operations which may not be REIT compliant; and (iii) if the Company were to qualify as a REIT, whether electing REIT status would be in the best interests of the Company and its shareholders in light of various factors, including our significant consolidated federal net operating loss carryforwards. There is no assurance that the Company will qualify as a REIT in future taxable years or, if it were to so qualify, that the RHE Board would determine that electing REIT status would be in the best interests of the Company and its shareholders.
When used in this Annual Report, unless otherwise specifically stated or the context otherwise requires, the terms:
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“Board” refers to the AdCare Board with respect to the period prior to the Merger and to the RHE Board with respect to the period after the Merger; |
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“Company”, “we”, “our” and “us” refer to AdCare and its subsidiaries with respect to the period prior to the Merger and to Regional Health and its subsidiaries with respect to the period after the Merger; |
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“common stock” refers to the AdCare common stock with respect to the period prior to the Merger and to the RHE common stock with respect to the period after the Merger; |
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“Series A Preferred Stock” refers to the AdCare Series A Preferred Stock with respect to the period prior to the Merger and to the RHE Series A Preferred Stock with respect to the period after the Merger; and |
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“Charter” refers to the AdCare Charter with respect to the period prior to the Merger and to the RHE Charter with respect to the period after the Merger. |
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“Bylaws” refers to the AdCare Bylaws with respect to the period prior to the Merger and to the RHE Bylaws with respect to the period after the Merger. |
Our principal executive offices are located at 454 Satellite Boulevard NW, Suite 100, Suwanee, GA 30024, and our telephone number is (678) 869-5116. We maintain a website at www.regionalhealthproperties.com . The contents of our website are not incorporated by reference herein or in any of our filings with the SEC.
Portfolio of Healthcare Investments
The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.
4
As of December 31, 2017, the Company owns, leases, or manages 30 facilities, which are located primarily in the Southeast. Of the 30 facilities, the Company: (i) leased 14 owned and subleased 11 leased skilled nursing facilities to third-party tenants; (ii) leased two owned assisted living facilities to third-party tenants; and (iii) managed on behalf of third-party owners two skilled nursing facilities and one independent living facility (see Note 7- Leases to our audited consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report.
The following table provides summary information regarding the number of facilities and related operational beds/units by state and property type as of December 31, 2017:
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Managed for |
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Owned |
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Leased |
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Third-Parties |
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Total |
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Facilities |
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Beds/Units |
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Facilities |
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Beds/Units |
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Facilities |
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Beds/Units |
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Facilities |
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Beds/Units |
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State |
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Alabama |
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3 |
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410 |
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|
|
— |
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|
|
— |
|
|
|
— |
|
|
|
— |
|
|
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3 |
|
|
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410 |
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Georgia |
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4 |
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463 |
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10 |
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1,168 |
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— |
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— |
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14 |
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1,631 |
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North Carolina |
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1 |
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106 |
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— |
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— |
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— |
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— |
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|
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1 |
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|
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106 |
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Ohio |
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4 |
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279 |
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1 |
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94 |
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3 |
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|
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332 |
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8 |
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705 |
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Oklahoma |
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2 |
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197 |
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— |
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— |
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— |
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— |
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2 |
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197 |
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South Carolina |
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2 |
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180 |
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— |
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— |
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— |
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— |
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2 |
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180 |
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Total |
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16 |
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1,635 |
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11 |
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1,262 |
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3 |
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332 |
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30 |
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3,229 |
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Facility Type |
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Skilled Nursing |
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14 |
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1,449 |
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11 |
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1,262 |
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2 |
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249 |
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27 |
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2,960 |
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Assisted Living |
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2 |
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186 |
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— |
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— |
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— |
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— |
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2 |
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186 |
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Independent Living |
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— |
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— |
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— |
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— |
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1 |
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83 |
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1 |
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83 |
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Total |
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16 |
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1,635 |
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11 |
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1,262 |
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3 |
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332 |
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30 |
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3,229 |
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The following table provides summary information regarding the number of facilities and related operational beds/units by operator affiliation as of December 31, 2017:
Operator Affiliation |
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Number of Facilities (1) |
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Beds / Units |
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C.R. Management |
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8 |
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936 |
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Beacon Health Management |
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7 |
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585 |
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Wellington Health Services |
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4 |
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641 |
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Peach Health Group |
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3 |
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252 |
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Symmetry Healthcare |
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3 |
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286 |
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Southwest LTC |
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2 |
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197 |
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Subtotal |
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27 |
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2,897 |
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Regional Health Managed |
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3 |
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332 |
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Total |
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30 |
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3,229 |
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(1) |
Represents the number of facilities which are leased or subleased to separate tenants, of which each tenant is an affiliate of the entity named in the table above. For a more detailed discussion, see Note 7 – Leases to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data”, and “Portfolio of Healthcare Investments” in Part I, Item 1., “Business”, of this Annual Report. |
5
Acquisitions, Dispositions, and Leasing Transactions
Acquisitions . On March 8, 2017, the Company executed a purchase and sale agreement (the “Meadowood Purchase Agreement”) with Meadowood Retirement Village, LLC and Meadowood Properties, LLC to acquire an assisted living and memory care community with 106 operational beds in Glencoe, Alabama (the “Meadowood Facility”) for $5.5 million cash. In addition, on March 21, 2017, the Company executed a long-term, triple net operating lease with an affiliate of C.R. Management (the “Meadowood Operator”) to lease the Meadowood Facility upon purchase. Lease terms include: (i) a 13-year initial term with one five-year renewal option; (ii) base rent of $37,500 per month; (iii) a rental escalator of 2.0% per annum in the initial term and 2.5% per annum in the renewal term; (iv) a cross renewal provision, whereby the Meadowood Operator may exercise the lease renewal for the Meadowood Facility if its affiliate exercises the lease renewal option for Coosa Valley Health Care, a 124-bed skilled nursing facility located in Gadsden, Alabama (the “Coosa Valley Facility”); and (v) a security deposit equal to one month of base rent. The Company completed the purchase of the Meadowood Facility on May 1, 2017 pursuant to the Meadowood Purchase Agreement, at which time the lease commenced and operations of the Meadowood Facility transferred to the Meadowood Operator. On May 1, 2017, in connection with the Meadowood Purchase Agreement, the Company entered into a loan agreement (the ‘Meadowood Credit Facility”) with the Exchange Bank of Alabama, which provides for a $4.1 million principal amount secured credit facility maturing on May 1, 2022. Interest on the Meadowood Credit Facility accrues on the principal balance thereof at 4.5% per annum. The Meadowood Credit Facility is secured by the Meadowood Facility.
Dispositions . On February 3, 2016, the Company terminated the separate lease agreements for nine facilities (the “Arkansas Facilities”) with affiliates of Aria Health Group, LLC (“Aria”) collectively (the “Aria Subleases”) and entered into leases with affiliates of Skyline Health Care LLC (“Skyline”), pursuant to a Master Lease Agreement, dated February 5, 2016 (the “Skyline Lease”), which commenced on April 1, 2016. On October 6, 2016, the Company sold the Arkansas Facilities to Little Ark Realty Holdings, LLC, an affiliate of Skyline. The aggregate sales price of the Arkansas Facilities was $55 million, which consisted of cash consideration of $52.0 million and a promissory note maturing March 31, 2022 with a principal amount of $3 million. The Company realized net proceeds of approximately $20.0 million (excluding the promissory note) after repayment of certain mortgage indebtedness with respect to the Arkansas Facilities.
The Arkansas Facilities consist of:
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River Valley Health and Rehabilitation Center, a 129-bed skilled nursing facility located in Fort Smith, Arkansas; |
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Heritage Park Nursing Center, a 110-bed skilled nursing facility located in Rogers, Arkansas; |
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Homestead Manor Nursing Home, a 104-bed skilled nursing facility located in Stamps, Arkansas; |
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Stone County Nursing and Rehabilitation Center, a 97-bed skilled nursing facility located in Mountain View, Arkansas; |
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Stone County Residential Care Center, a 32-bed assisted living facility located in Mountain View, Arkansas; |
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Northridge Health Care, a 140-bed skilled nursing facility located in North Little Rock, Arkansas; |
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Little Rock Health & Rehabilitation, a 154-bed skilled nursing facility located in Little Rock, Arkansas; |
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Woodland Hills Health & Rehabilitation, a 140-bed skilled nursing facility located in Little Rock, Arkansas; and |
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Cumberland Health & Rehabilitation Center, a 120-bed skilled nursing facility located in Little Rock, Arkansas. |
Bed numbers above refer to the number of licensed beds.
On June 18, 2016, the Company, entered into a new master sublease agreement (the “Peach Health Sublease”) with affiliates (collectively, “Peach Health Sublessee”) of Peach Health Group, LLC (“Peach Health”), providing that Peach Health Sublessee would take possession of the facilities (the “Peach Facilities”) subleased to affiliates of New Beginnings Care, LLC (“New Beginnings”). The Peach Facilities are comprised of: (i) an 85-bed skilled nursing facility located in Tybee Island, Georgia (the “Oceanside Facility”); (ii) a 50-bed skilled nursing facility located in Tybee Island, Georgia (the “Savannah Beach Facility”); and (iii) a 131-bed skilled nursing facility located in Jeffersonville, Georgia (the “Jeffersonville Facility”). The Peach Health Sublease became effective for the Jeffersonville Facility, on June 18, 2016 and for the Savannah Beach and Oceanside Facilities on July, 13, 2016.
6
Leasing Transactions . As of the date of this Annual Report, the Company has leased or subleased, as applicable, the following facilities to tenants:
Facility Name |
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State |
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Owned / Leased |
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Transaction Type |
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Commencement Date |
2015 |
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College Park |
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GA |
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Owned |
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Lease |
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4/1/2015 |
LaGrange |
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GA |
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Leased |
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Sublease |
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4/1/2015 |
Sumter Valley |
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SC |
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Owned |
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Lease |
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4/1/2015 |
Georgetown |
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SC |
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Owned |
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Lease |
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4/1/2015 |
Powder Springs |
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GA |
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Leased |
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Sublease |
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4/1/2015 |
Tara |
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GA |
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Leased |
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Sublease |
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4/1/2015 |
Heritage Park |
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AR |
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Owned |
|
Lease |
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5/1/2015 |
Homestead Manor |
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AR |
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Owned |
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Lease |
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5/1/2015 |
Stone County SNF |
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AR |
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Owned |
|
Lease |
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5/1/2015 |
Stone County ALF |
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AR |
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Owned |
|
Lease |
|
5/1/2015 |
Northridge |
|
AR |
|
Owned |
|
Lease |
|
5/1/2015 |
West Markham |
|
AR |
|
Owned |
|
Lease |
|
5/1/2015 |
Woodland Hills |
|
AR |
|
Owned |
|
Lease |
|
5/1/2015 |
Cumberland |
|
AR |
|
Owned |
|
Lease |
|
5/1/2015 |
Mountain Trace |
|
NC |
|
Owned |
|
Lease |
|
6/1/2015 |
Glenvue |
|
GA |
|
Owned |
|
Lease |
|
7/1/2015 |
Hearth & Care of Greenfield |
|
OH |
|
Owned |
|
Lease |
|
8/1/2015 |
The Pavilion Care Center |
|
OH |
|
Owned |
|
Lease |
|
8/1/2015 |
Eaglewood ALF |
|
OH |
|
Owned |
|
Lease |
|
8/1/2015 |
Eaglewood Care Center |
|
OH |
|
Owned |
|
Lease |
|
8/1/2015 |
Covington Care Center |
|
OH |
|
Leased |
|
Sublease |
|
8/1/2015 |
Bonterra |
|
GA |
|
Leased |
|
Sublease |
|
9/1/2015 |
Parkview |
|
GA |
|
Leased |
|
Sublease |
|
9/1/2015 |
Autumn Breeze |
|
GA |
|
Owned |
|
Lease |
|
9/30/2015 |
River Valley |
|
AR |
|
Owned |
|
Lease |
|
11/1/2015 |
Quail Creek |
|
OK |
|
Owned |
|
Lease |
|
12/31/2015 |
Northwest |
|
OK |
|
Owned |
|
Lease |
|
12/31/2015 |
2016 |
|
|
|
|
|
|
|
|
Cumberland (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Heritage Park (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Homestead Manor (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Northridge (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
River Valley (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Stone County SNF (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Stone County ALF (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
West Markham (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Woodland Hills (1) |
|
AR |
|
Owned |
|
Lease |
|
4/1/2016 |
Jeffersonville (2) |
|
GA |
|
Leased |
|
Sublease |
|
6/18/2016 |
Oceanside (2) |
|
GA |
|
Leased |
|
Sublease |
|
7/13/2016 |
Savannah Beach (2) |
|
GA |
|
Leased |
|
Sublease |
|
7/13/2016 |
2017 |
|
|
|
|
|
|
|
|
Meadowood (3) |
|
AL |
|
Owned |
|
Lease |
|
5/1/2017 |
(1) |
On February 3, 2016, the Company terminated the leases with Aria and entered into leases with affiliates of Skyline, which commenced on April 1, 2016. On October 6, 2016, the Company sold the Arkansas Facilities to Little Ark Realty Holdings, LLC, an affiliate of Skyline. |
(2) |
On June 18, 2016, a subsidiary of the Company entered into the Peach Health Sublease with Peach Health Sublessee of Peach Health, providing that Peach Health Sublessee would take possession of the facilities (the “Peach Facilities”) subleased to affiliates of New Beginnings. The Peach Facilities are comprised of the Oceanside Facility, the Savannah Beach Facility and the Jeffersonville Facility. The Peach Health Sublease became effective for the Jeffersonville Facility on June 18, 2016 and for the Savannah Beach and Oceanside Facilities on July 13, 2016. |
(3) |
On May 1, 2017, a new lease agreement to operate the Meadowood Facility commenced between a subsidiary of the Company and a subsidiary of C.R Management. Lease terms include: (i) a 13-year initial term with one five-year renewal option; (ii) base rent of $37,500 per month; (iii) a rental escalator of 2.0% per annum in the initial term and 2.5% per annum in the renewal term; (iv) a cross renewal provision with the Coosa Valley Facility; and (v) a security deposit equal to one month of base rent. |
7
The skilled nursing segment of the long-term care industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population, increasing life expectancies and the trend toward shifting of patient care to lower cost settings. The growth of the senior population in the United States continues to increase healthcare costs, often faster than the available funding from government-sponsored healthcare programs. In response, federal and state governments have adopted cost containment measures that encourage the treatment of patients in more cost effective settings, such as skilled nursing facilities, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient rehabilitation facilities and other post-acute care settings. As a result, skilled nursing facilities are generally serving a larger population of higher acuity patients than in the past.
The skilled nursing industry is large, highly fragmented, and characterized predominantly by numerous local and regional providers. Based on a decrease in the number of skilled nursing facilities over the past few years, we expect that the supply and demand balance in the skilled nursing industry will continue to improve. We also anticipate that, as life expectancy continues to increase in the United States, the overall demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is primarily individuals age 75 and older. According to the 2010 U.S. Census, there were over 40 million people in the United States in 2010 that are over 65 years old. The 2010 U.S. Census estimates this group is one of the fastest growing segments of the United States population and is expected to more than double between 2000 and 2030.
We believe the skilled nursing industry has been and will continue to be impacted by several other trends. The use of long-term care insurance is increasing among seniors as a means of planning for the costs of skilled nursing care services. In addition, as a result of increased mobility in society, reduction of average family size, and the increased number of two-wage earner couples, more seniors are looking for alternatives outside their own family for their care.
Competitive Strengths
We believe we possess the following competitive strengths:
Long-Term, Triple-Net Lease Structure. All of our real estate properties are leased under triple-net operating leases with initial terms generally ranging from ten to fifteen years pursuant to which the tenants are responsible for all facility maintenance, insurance and taxes, and utilities. As of December 31, 2017, the leases had an average remaining initial term of approximately 10 years. In addition, the average rent escalator is approximately 2.5%. We also typically receive additional security under these leases in the form of security deposits from the lessee and guarantees from the parent or other related entities of the lessee.
Tenant Diversification. Our 30 properties (including the three facilities that are managed by us) are operated by a total of 30 separate tenants, with each of our tenants being affiliated with one of six local or regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our operators operate (through a group of affiliated tenants) between two and eight of our facilities, with our most significant operators, C.R Management and Beacon Health Management, each operating eight and seven facilities, or 27% and 23% of the total number of our facilities, respectively. We believe that our tenant diversification should limit the effect of any operator’s financial or operating performance decline on our overall performance.
Geographically Diverse Property Portfolio . Our portfolio of 30 properties, comprising 3,229 beds/units, is diversified across six states. Our properties in any one state did not account for more than 51% of our total beds/units as of December 31, 2017. Properties in our largest state, Georgia, are geographically dispersed throughout the state. We believe this geographic diversification will limit the effect of a decline in any one regional market on our overall performance.
Business Strategy
Our business strategy primarily is focused on investing capital in our current portfolio and growing our portfolio through the acquisition of skilled nursing and other healthcare facilities. More specifically, we seek to:
Focus on Senior Housing Segment. We intend to continue to focus our investment program on senior housing, primarily the skilled nursing facility segment of the long-term care continuum. We have historically been focused on
8
senior housing, and senior management has operating and financial experience and a significant number of relationships in the long-term care industry. In addition, we believe investing in the sector best meets our investing criteria.
Invest Capital in Our Current Portfolio. We intend to continue to support our operators by providing capital to them for a variety of purposes, including facility modernization and potentially replacing or renovating facilities in our portfolio that may have become less competitive. We expect to structure these investments as either lease amendments that produce additional rent or as loans that are repaid by operators during the applicable lease term. We believe such projects will provide an attractive return on capital and improve the underlying performance of facility operations.
Provide Capital to Underserved Operators. We believe that there is a significant opportunity to be a capital source to long-term care operators through the acquisition and leasing of healthcare properties that are consistent with our investment and financing strategy, but that, due to size and other considerations, are not a focus for large healthcare REITs. We seek primarily small to mid-size acquisition transactions with a focus on individual facilities with existing operators, as well as small groups of facilities and larger portfolios. In addition to pursuing acquisitions using triple-net lease structures, we may pursue other forms of investment, including mortgage loans and joint ventures.
Identify Talented Operators. As a result of our management team’s operating experience, network of relationships and industry insight, we have been able and expect to continue to be able to identify qualified tenants. We seek tenants who possess local market knowledge, demonstrate hands-on management, have proven track records and focus on patient care.
Monitor Investments. We monitor our real estate investments through, among other things: (i) reviewing and evaluating tenant financial statements to assess operational and financial trends and performance; (ii) reviewing the state surveys, occupancy rates and patient payor mix of our facilities; (iii) verifying the payments of property and other taxes and insurance with respect to our facilities; and (iv) conducting periodic physical inspections of our facilities. For tenants or facilities that do not meet performance expectations, we may seek to work with our tenants to ensure our mutual success or seek to re-lease facilities to stronger operators.
Resolve Legacy Professional and General Liability Claims. As a result of the Transition (which was completed in December 2015), the Company no longer operates skilled nursing facilities. The Company, however, continues to be subject to certain pending professional and general liability actions with respect to the time it operated skilled nursing facilities, including claims that the services the Company provided while an operator resulted in the injury or death of patients and claims related to professional and general negligence, employment, staffing requirements and commercial matters. Management is committed to resolving pending claims. See Part I, Item 3, “Legal Proceedings” in this Annual Report.
Competition
We generally compete for real property investments with publicly traded, private and non-listed healthcare REITs, real estate partnerships, healthcare providers, healthcare lenders and other investors, including developers, banks, insurance companies, pension funds, government-sponsored entities and private equity firms, some of whom may have greater financial resources and lower costs of capital than we do. Increased competition challenges our ability to identify and successfully capitalize on opportunities that meet our investment criteria, which is affected by, among other factors, the availability of suitable acquisition or investment targets, our ability to negotiate acceptable transaction terms and our access to and cost of capital.
Our ability to generate rental revenues from our properties also depends on the competition faced by our tenants. Our tenants compete on a local and regional basis with other healthcare operating companies that provide comparable services. Our tenants compete to attract and retain patients and residents based on scope and quality of care, reputation and financial condition, price, location and physical appearance of the properties, services offered qualified personnel, physician referrals and family preferences. The ability of our tenants to compete successfully could be affected by private, federal and state reimbursement programs and other laws and regulations.
9
Revenue Sources and Recognition
Triple-Net Leased Properties. The Company’s triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities will be recognized only upon cash collection, and any accumulated straight-line rent receivable will be reversed in the period in which the Company first deems rent collection no longer reasonably assured.
Management Fee and Other Revenue. The Company recognizes management fee revenues received as services are provided. Further, the Company recognizes income from lease inducement receivables and interest income from loans and investments, using the effective interest method when collectability is reasonably assured. We apply the effective interest method on a loan-by-loan basis.
Allowances. The Company assesses the collectability of our rent receivables, including straight-line rent receivables. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates.
Accounts receivable, net totaled $0.9 million at December 31, 2017 compared with $2.4 million at December 31, 2016, of which $0.0 million and $0.9 million, respectively, related to patient care receivables from our legacy operations.
At December 31, 2017, we allowed for approximately $2.6 million on approximately $2.6 million of gross patient care related receivables. We continually evaluate the adequacy of our bad debt reserves based on aging of older balances, payment terms and historical collection trends after facility operations transfer to third-party operators. We continue to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts. Any changes in patient care receivable allowances are recognized as a component of discontinued operations.
Government Regulation
Healthcare Regulation . Our tenants are typically subject to extensive and complex federal, state and local laws and regulations relating to quality of care, licensure and certain certificate of need requirements ("CON"), government reimbursement, fraud and abuse practices, qualifications of personnel, adequacy of plant and equipment, data privacy and security, and other laws and regulations governing the operation of healthcare facilities. We expect that the healthcare industry will, in general, continue to face increased regulation and pressure in these areas. The applicable rules are wide-ranging and can subject our tenants to civil, criminal, and administrative sanctions, including: the possible loss of accreditation or license; denial of reimbursement; imposition of fines; suspension, decertification, or exclusion from federal and state healthcare programs; or facility closure. Changes in laws or regulations, reimbursement policies, enforcement activity and regulatory non-compliance by tenants, operators and managers can all have a significant effect on their operations and financial condition, which in turn may adversely impact us, as detailed below and set forth under “Risk Factors” in this Annual Report.
10
Although the properties within our portfolio may be subject to varying levels of governmental scrutiny, we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste and abuse, including, but not limited to, the Federal Anti-Kickback Statute, the Federal Stark Law, the Federal False Claims Act, and comparable state counterparts, as well as cost control, healthcare management and provision of services, among others. We also expect that efforts by third-party payors, such as the federal Medicare program, state Medicaid programs and private insurance carriers (including health maintenance organizations and other health plans), to impose greater discounts and more stringent cost controls upon tenants (through changes in reimbursement rates and methodologies, discounted fee structures, the assumption by healthcare providers of all or a portion of the financial risk or otherwise) will intensify and continue. A significant expansion of applicable federal, state or local laws and regulations, existing or future healthcare reform measures, new interpretations of existing laws and regulations, changes in enforcement priorities, or significant limits on the scope of services reimbursed or reductions in reimbursement rates could have a material adverse effect on certain of our tenants’ liquidity, financial condition and results of operations and, in turn, their ability to satisfy their contractual obligations, including making rental payments under and otherwise complying with the terms of our leases.
Licensure, Certification and CONs. In general, the operators of our skilled nursing facilities must be licensed and periodically certified through various regulatory agencies that determine compliance with federal, state and local laws to participate in the Medicare and Medicaid programs. Legal requirements pertaining to such licensure and certification relate to the quality of medical care provided by the operator, qualifications of the tenant’s administrative personnel and clinical staff, adequacy of the physical plant and equipment and continuing compliance with applicable laws and regulations. A loss of licensure or certification could adversely affect a skilled nursing facility’s ability to receive payments from the Medicare and Medicaid programs, which, in turn, could adversely affect its ability to satisfy its obligations to us.
In addition, many of our skilled nursing facilities are subject to state CON laws that require governmental approval prior to the development or expansion of healthcare facilities and services. The approval process in these states generally requires a facility to demonstrate the need for additional or expanded healthcare facilities or services. CONs, where applicable, are also sometimes necessary for changes in ownership or control of licensed facilities, addition of beds, and investment in major capital equipment, introduction of new services or termination of services previously approved through the CON process. CON laws and regulations may restrict a tenant’s ability to expand our properties and grow its business in certain circumstances, which could have an adverse effect on the tenant’s revenues and, in turn, its ability to make rental payments under and otherwise comply with the terms of our leases. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a particular facility to a new operator. If we have to replace a property operator who is excluded from participating in a federal or state healthcare program (as discussed below), our ability to replace the operator may be affected by a particular state’s CON laws, regulations, and applicable guidance governing changes in provider control.
Compared to skilled nursing facilities, seniors housing communities (other than those that receive Medicaid payments) do not receive significant funding from governmental healthcare programs and are subject to relatively few, if any, federal regulations. Instead, to the extent they are regulated, such regulation consists primarily of state and local laws governing licensure, provision of services, staffing requirements and other operational matters, which vary greatly from one jurisdiction to another. Although recent growth in the U.S. seniors housing industry has attracted the attention of various federal agencies that believe more federal regulation of these properties is necessary, Congress thus far has deferred to state regulation of seniors housing communities. However, as a result of this growth and increased federal scrutiny, some states have revised and strengthened their regulation of seniors housing communities, and more states are expected to do the same in the future.
11
Fraud and Abuse Enforcement, Other Related Laws, Initiatives, and Considerations. Long-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments) are subject to federal, state, and local laws, regulations, and applicable guidance that govern the operations and financial and other arrangements that may be entered into by healthcare providers. Certain of these laws prohibit direct or indirect payments of any kind for the purpose of inducing or encouraging the referral of patients for medical products or services reimbursable by government healthcare programs. Other laws require providers to furnish only medically necessary services and submit to the government valid and accurate statements for each service. Still other laws require providers to comply with a variety of safety, health and other requirements relating to the condition of the licensed property and the quality of care provided. Sanctions for violations of these laws, regulations, and other applicable guidance may include, but are not limited to, criminal and/or civil penalties and fines, loss of licensure, immediate termination of government payments, and exclusion from any government healthcare program. In certain circumstances, violation of these rules (such as those prohibiting abusive and fraudulent behavior) with respect to one property may subject other facilities under common control or ownership to sanctions, including exclusion from participation in the Medicare and Medicaid programs, as well as other government healthcare programs. In the ordinary course of its business, a property operator is regularly subjected to inquiries, investigations, and audits by the federal and state agencies that oversee these laws and regulations.
Long-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments) are also subject to the Federal Anti-Kickback Statute, which generally prohibits persons from offering, providing, soliciting, or receiving remuneration to induce either the referral of an individual or the furnishing of a good or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Long-term/post-acute care facilities are also subject to the Federal Ethics in Patient Referral Act of 1989, commonly referred to as the Stark Law. The Stark Law generally prohibits the submission of claims to Medicare for payment if the claim results from a physician referral for certain designated services and the physician has a financial relationship with the health service provider that does not qualify under one of the exceptions for a financial relationship under the Stark Law. Similar prohibitions on physician self-referrals and submission of claims apply to state Medicaid programs. Further, long-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments) are subject to substantial financial penalties under the Civil Monetary Penalties Act and the Federal False Claims Act and, in particular, actions under the Federal False Claims Act’s “whistleblower” provisions. Private enforcement of healthcare fraud has increased due in large part to amendments to the Federal False Claims Act that encourage private individuals to sue on behalf of the government. These whistleblower suits brought by private individuals, known as qui tam actions, may be filed by almost anyone, including present and former patients, nurses and other employees, and competitors. Significantly, if a claim is successfully adjudicated, the Federal False Claims Act provides for treble damages and a civil penalty of up to $22,363 per claim.
Prosecutions, investigations, or whistleblower actions could have a material adverse effect on a property operator’s liquidity, financial condition, and operations, which could adversely affect the ability of the operator to meet its financial obligations to us. Finally, various state false claim act and anti-kickback laws may also apply to each property operator. Violation of any of the foregoing statutes can result in criminal and/or civil penalties that could have a material adverse effect on the ability of an operator to meet its financial obligations to us.
Other legislative developments, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), have greatly expanded the definition of healthcare fraud and related offenses and broadened its scope to include private healthcare plans in addition to government payors. Congress also has greatly increased funding for the Department of Justice, Federal Bureau of Investigation and The Office of the Inspector General ("OIG") to audit, investigate and prosecute suspected healthcare fraud. Moreover, a significant portion of the billions in healthcare fraud recoveries over the past several years has also been returned to government agencies to further fund their fraud investigation and prosecution efforts.
12
Additionally, other HIPAA provisions and regulations provide for communication of health information through standard electronic transaction formats and for the privacy and security of health information. In order to comply with the regulations, healthcare providers often must undertake significant operational and technical implementation efforts. Operators also may face significant financial exposure if they fail to maintain the privacy and security of medical records and other personal health information about individuals. The Health Information Technology for Economic and Clinical Health (“HITECH”) Act, passed in February 2009, strengthened the Department of Health and Human Services ("HHS") Secretary’s authority to impose civil money penalties for HIPAA violations occurring after February 18, 2009. HITECH directs the HHS Secretary to provide for periodic audits to ensure covered entities and their business associates (as that term is defined under HIPAA) comply with the applicable HITECH requirements, increasing the likelihood that a HIPAA violation will result in an enforcement action. The U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (“CMS”) issued an interim Final Rule which conformed HIPAA enforcement regulations to HITECH, increasing the maximum penalty for multiple violations of a single requirement or prohibition to $1.5 million. Higher penalties may accrue for violations of multiple requirements or prohibitions. Additionally, on January 17, 2013, CMS released an omnibus final rule, which expands the applicability of HIPAA and HITECH and strengthens the government’s ability to enforce these laws. The final rule broadens the definition of “business associate” and provides for civil money penalty liability against covered entities and business associates for the acts of their agents regardless of whether a business associate agreement is in place. This rule also modified the standard for when a breach of unsecured personally identifiable health information must be reported. Some covered entities have entered into settlement agreements with HHS for allegedly failing to adopt policies and procedures sufficient to implement the breach notification provisions in the HITECH Act. Additionally, the final rule adopts certain changes to the HIPAA enforcement regulations to incorporate the increased and tiered civil monetary penalty structure provided by HITECH, and makes business associates of covered entities directly liable under HIPAA for compliance with certain of the HIPAA privacy standards and HIPAA security standards. HIPAA violations are also potentially subject to criminal penalties.
There has been an increased federal and state HIPAA privacy and security enforcement effort and we expect this trend to continue. Under HITECH, state attorneys general have the right to prosecute HIPAA violations committed against residents of their states. Several such actions have already been brought against both covered entities and a business associate, and continued enforcement actions are likely to occur in the future. In addition, HITECH mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities and business associates. It also tasks HHS with establishing a methodology whereby individuals who are harmed by HIPAA violations may receive a percentage of the civil monetary penalty fine or monetary settlement paid by the violator.
In addition to HIPAA, numerous other state and federal laws govern the collection, dissemination, use, access to and confidentiality of individually identifiable health information. In addition, some states are considering new laws and regulations that further protect the confidentiality, privacy or security of medical records or other types of medical or personal information. These laws may be similar to or even more stringent than the federal provisions and are not preempted by HIPAA. Not only may some of these state laws impose fines and penalties upon violators, but some afford private rights of action to individuals who believe their personal information has been misused.
Also with respect to HIPAA, in September, 2015, OIG issued two reports calling for better privacy oversight of covered entities by the CMS Office for Civil Rights (“OCR”). The first report, titled “OCR Should Strengthen its Oversight of Covered Entities’ Compliance with the HIPAA Privacy Standards,” found that OCR’s oversight is primarily reactive, as OCR has not fully implemented the required audit program to proactively assess possible noncompliance from covered entities. OIG recommended, among other things, that OCR fully implement a permanent audit program and develop a policy requiring OCR staff to check whether covered entities had previously been investigated for noncompliance. The second report, titled “OCR Should Strengthen its Follow-up of Breaches of Patient Information Reported by Covered Entities,” found that (1) OCR did not record corrective action information for 23% of closed “large-breach” cases in which it made determinations of noncompliance, and (2) OCR did not record “small-breach” information in its case-tracking system, which limits its ability to track and identify covered entities with multiple small breaches. OIG recommended, among other things, that OCR enter small-breach information into its case-tracking system and maintain complete documentation of corrective actions taken. OCR agreed with OIG’s recommendations in both reports. If followed, these reports and recommendations may impact our tenants.
13
More recently with respect to HIPAA, OCR announced on March 21, 2016, that it has begun a new phase of audits of covered entities and their business associates. OCR stated that it will review policies and procedures adopted and employed by covered entities and their business associates to meet selected standards and implementation specifications of the HIPAA Privacy, Security, and Breach Notification Rules.
Congress has significantly increased funding to the governmental agencies charged with enforcing the healthcare fraud and abuse laws to facilitate increased audits, investigations and prosecutions of providers suspected of healthcare fraud. As a result, government investigations and enforcement actions brought against healthcare providers have increased significantly in recent years and are expected to continue. A violation of federal or state anti-fraud and abuse laws or regulations, or other related laws or regulations discussed above, by a tenant of our properties could have a material adverse effect on the tenant’s liquidity, financial condition or results of operations, which could adversely affect its ability to satisfy its contractual obligations, including making rental payments under and otherwise complying with the terms of our leases.
Government Reimbursement
The majority of skilled nursing facilities’ (“SNF”) reimbursement is through Medicare and Medicaid. These programs are often their largest source of funding. Senior housing communities generally do not receive funding from Medicare or Medicaid, but their ability to retain their residents is impacted by policy decisions and initiatives established by the administrators of Medicare and Medicaid. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Healthcare Reform Law”). The passage of the Healthcare Reform Law allowed formerly uninsured Americans to acquire coverage and utilize additional healthcare services. In addition, the Healthcare Reform Law gave the CMS new authorities to implement Medicaid waiver and pilot programs that impact healthcare and long term custodial care reimbursement by Medicare and Medicaid. These activities promote “aging in place”, allowing senior citizens to stay longer in seniors housing communities, and diverting or delaying their admission into SNFs. The potential risks that accompany these regulatory and market changes are discussed below.
|
• |
Enabled by the Medicare Modernization Act (2003) and subsequent laws, Medicare and Medicaid have implemented pilot programs (officially termed demonstrations or models) to “divert” elderly from SNFs and promote “aging in place” in “the least restrictive environment.” Several states have implemented Home and Community-based Medicaid waiver programs that increase the support services available to senior citizens in senior housing, lengthening the time that many seniors can live outside of a SNF. These Medicaid waiver programs are subject to re-approval and pilots are time-limited. Roll-back or expiration of these programs could have an adverse effect on the senior housing market. |
|
• |
Changes in certification and participation requirements of the Medicare and Medicaid programs have restricted, and are likely to continue to restrict further, eligibility for reimbursement under those programs. On July 16, 2015, CMS issued a proposed rule that, for the first time in nearly 25 years, would comprehensively update the SNF requirements for participation under Medicare and Medicaid. Among other things, the proposed rule addresses requirements relating to quality of care and quality of life, facility responsibilities and staffing considerations, resident assessments, and compliance and ethics programs. We cannot accurately predict the effect the final rule will have on our tenants’ business once it is promulgated. Failure to obtain and maintain Medicare and Medicaid certification by our tenants would result in denial of Medicare and Medicaid payments which would likely result in a significant loss of revenue. In addition, private payors, including managed care payors, increasingly are demanding that providers accept discounted payments resulting in lost revenue for specific patients. Efforts to impose reduced payments, greater discounts and more stringent cost controls by government and other payors are expected to continue. Any reforms that significantly limit rates of reimbursement under the Medicare and Medicaid programs could have a material adverse effect on our tenants’ profitability and cash flows which, in turn, could adversely affect their ability to satisfy their obligations to us. We are unable to predict what reform proposals or reimbursement limitations will be adopted in the future or the effect such changes will have on our tenants’ operations. No assurance can be given that such reforms will not have a material adverse effect on our tenants or on their ability to fulfill their obligations to us. |
14
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The CMS is currently in the midst of transitioning Medicare from a traditional fee for service reimbursement model to capitated, value-based, and bundled payment approaches in which the government pays a set amount for each beneficiary for a defined period of time, based on that person’s underlying medical needs, rather than the actual services provided. The result is increasing use of management tools to oversee individual providers and coordinate their services. This puts downward pressure on the number and expense of services provided. Roughly eight million Medicare beneficiaries now receive care via Accountable Care Organizations, and Medicare Advantage health plans now provide care for roughly seventeen million Medicare beneficiaries. The continued trend toward capitated, value-based, and bundled payment approaches has the potential to diminish the market for certain healthcare providers. In addition, on April 1, 2014, the Protecting Access to Medicare Act of 2014 was enacted, which implements value-based purchasing for SNFs. Beginning in fiscal year 2019, 2% of SNF payments will be withheld and approximately 50% to 70% of the amount withheld will be paid to SNFs through value-based payments. SNFs began reporting the claims-based 30-Day All-Cause Readmission Measure on October 1, 2015 and began reporting a resource use measure on October 1, 2016. Both measures are publicly available. |
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In October 2015, the U.S. Government Accountability Office (“GAO”) released a report recommending that CMS continue to improve data and oversight of nursing home quality measures. The GAO found that although CMS collects several types of data that give some insight into the quality of nursing homes, the data could provide a clearer picture of nursing home quality if some underlying problems with the data ( i.e. , the use of self-reported data and non-standardized survey methodologies) are corrected. The GAO recommended, among other things, that CMS implement a clear plan for ongoing auditing of self-reported data and establish a process for monitoring oversight modifications to better assess their effects. According to the GAO, timely completion of these actions is particularly important because Medicare payments to nursing homes will be dependent on quality data, through the implementation of the value based purchasing program, starting in fiscal year 2019. HHS agreed with the GAO’s recommendations, and to the extent such recommendations are implemented, they could impact our operators and tenants. |
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Medicare reimburses nursing centers under a fixed payment methodology named the Skilled Nursing Facility Prospective Payment System (“SNF PPS”). SNF PPS is an acuity based classification system that uses nursing and therapy indexes adjusted by geographical wage indexes to calculate per diem rates for each Medicare patient. Payment rates are updated annually and are generally increased or decreased each October when the federal fiscal year begins. On July 29, 2016, CMS released its final rule outlining the fiscal year 2017 Medicare payments for SNFs, which began October 1, 2016. The 2017 final rule provided for an approximate 2.4% rate update. This estimated increase consisted of a 2.7% market basket increase, reduced by a 0.3% multi-factor productivity required by the Healthcare Reform Law. CMS estimated the update would increase overall payments to SNFs in fiscal year 2017 by $920 million compared to fiscal year 2016 levels. |
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In January 2016, the Medicare Payment Advisory Commission finalized its recommendations, among other things advising Congress to eliminate market basket updates for SNFs for fiscal years 2017 and 2018 and directing the Secretary of HHS to revise the SNF prospective payment system. The OIG has increased focus in recent years on billing practices by SNFs. In September 2015, OIG issued a report calling for reevaluation of the Medicare payment system for SNFs. In particular, OIG found that Medicare payments for therapy greatly exceeded SNFs’ costs for therapy, and that, under the current payment system, SNFs increasingly billed for the highest level of therapy even though key beneficiary characteristics remained largely the same. OIG determined that its findings demonstrated the need for CMS to reevaluate the Medicare SNF payment system, concluding that payment reform could save Medicare billions of dollars and encourage SNFs to provide services that are better aligned with beneficiaries’ care needs. OIG issued (1) its findings regarding the fiscal year 2015 Top Management and Performance Challenges Facing HHS and (2) the FY 2016 OIG Work Plan. Both cited SNF billing as an area that creates incentives for providers to bill more expensive care instead of the appropriate levels of care, requiring ongoing government monitoring and auditing for compliance. The OIG formulates a formal work plan each year for nursing centers. The OIG’s most recent work plan indicates that among other things, the OIG’s investigative and review focus in 2018 for nursing facilities will include analysis of resident diagnosis to address issues with quality of care reporting and investigation of abuse or neglect within the facilities. If followed, these reports and recommendations may impact our tenants. We cannot predict the likelihood, scope or outcome of any such investigations on our tenants if these recommendations are implemented. |
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On April 27, 2016, CMS added six new quality measures to its consumer-based Nursing Home Compare website. These quality measures include the rate of rehospitalization, emergency room use, community discharge, and improvements in function, independently worsened and antianxiety or hypnotic medication among nursing home residents. CMS incorporates all of these measures into the calculation of the Nursing Home Five-Star Quality Ratings. |
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On July 29, 2016, CMS issued its final rule laying out the performance standards relating to preventable hospital readmissions from SNFs. The final rule includes the SNF 30-day All Cause Readmission Measure, which assesses the risk-standardized rates of all-cause, all conditions, unplanned inpatient readmissions for Medicare fee-for-service patients of SNFs within 30 days of discharge from admission to an inpatient prospective payment system (IPPS) hospital, critical access hospital (CAH), or psychiatric hospital. The final rule includes the SNF 30-Day Potentially Preventable Readmission Measure as the SNF all condition risk adjusted potentially preventable hospital readmission measure. This measure assesses the facility-level risk-standardized rate of unplanned, potentially preventable hospital readmissions for SNF patients within 30 days of discharge from a prior admission to an IPPS hospital, CAH, or psychiatric hospital. Hospital readmissions include readmissions to a short-stay acute-care hospital or CAH, with a diagnosis considered to be unplanned and potentially preventable. |
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On July 31, 2017, CMS released its final rule outlining fiscal year 2018 Medicare payment rates and quality programs for SNFs. The policies in the final rule continue to shift Medicare payments from volume to value. CMS projects that aggregate payments to SNFs will increase by a net 1.0% for fiscal year 2018. This estimated increase reflected a 1.0% market basket increase required under Healthcare Reform Law. This final rule also further defines the SNFs’ Quality Reporting Program and clarifies the Value-Based Purchasing Program to establish performance standards, baseline and performance periods, performance scoring methodology and feedback reports. CMS projects that the update will increase overall payments to SNFs in fiscal year 2018 by $370 million compared to fiscal year 2017 levels. The effect of the 2018 PPS rate update on our tenants’ revenues will be dependent upon their census and the mix of patients at the various PPS pay rates. In addition, we cannot predict how future changes may impact reimbursement rates under the SNF PPS system. |
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On February 8, 2018, President Trump signed into law the Bipartisan Budget Act of 2018 (The “BBA”) extending the reduction in Medicare provider payments commonly called the “sequestration.” This automatic payment reduction remains at 2% and applies to all Medicare physician claims and certain other claims, including physician-administered medications, submitted after April 1, 2013. Scheduled to expire in 2025, the BBA extended the sequestration through 2027. |
We are neither an ongoing participant in, nor a direct recipient of, any reimbursement under these programs with respect to our facilities. However, a significant portion of the revenue of the healthcare operators to which we lease and sublease properties is derived from governmentally-funded reimbursement programs, and any adverse change in such programs could negatively impact an operator’s ability to meet its obligations to us.
Environmental Regulation
As an owner of real property, we are subject to various federal, state and local laws and regulations regarding environmental, health and safety matters.
These laws and regulations address, among other things, asbestos, polychlorinated biphenyls, fuel oil management, wastewater discharges, air emissions, radioactive materials, medical wastes, and hazardous wastes, and, in certain cases, the costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. Although we do not currently operate or manage our properties, we may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of our current and former properties from which there is or has been an actual or threatened release of a regulated material and any other affected properties, regardless of whether we knew of or caused the release. Such costs typically are not limited by law or regulation and could exceed the property’s value. In addition, we may be liable for certain other costs, such as governmental fines and injuries to persons, property or natural resources, as a result of any such actual or threatened release.
Under the terms of our leases, we generally have a right to indemnification by the tenants of our properties for any contamination caused by them. However, we cannot be assured that our tenants will have the financial capability or willingness to satisfy their respective indemnification obligations to us, and any failure, inability or unwillingness to do so may require us to satisfy the underlying environmental claims. In general, we have also agreed to indemnify our tenants against any environmental claims (including penalties and clean-up costs) resulting from any condition arising in, on or under, or relating to, our properties at any time before the applicable lease commencement date.
We did not make any material capital expenditures in connection with environmental, health, and safety laws, ordinances and regulations in 2016 or 2017.
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As of December 31, 2017, we had 16 employees of which 12 were full-time employees (excluding facility-level employees related to the Company's management services agreement for three facilities in Ohio).
The following are certain risk factors that could affect our business, operations and financial condition. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. This section does not describe all risks applicable to our business, and we intend it only as a summary of certain material factors. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of the common stock and the Series A Preferred Stock could decline.
Risks Related to Our Business
If we are unable to resolve our professional and general liability actions on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operation.
The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to former patients. Although the Company settles cases from time to time if settlement is advantageous to the Company, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable and there is risk in the Company's strategy of aggressively defending these cases. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s financial condition.
The Company is a defendant in 37 professional and general liability actions commenced on behalf of former patients. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing while patients of facilities operated by the Company. Of these 37 actions, the Company reached a settlement in principle with respect to 25 of such actions as discussed under Part I, Item 3., “Legal Proceedings.” Of the remaining 12 actions not subject to the settlement in principle, two of such actions are covered by insurance, except that any award of punitive damages would be excluded from such coverage.
The Company has self-insured against professional and general liability claims since it discontinued its healthcare operations in connection with its Transition. The Company has established a self-insurance reserve with respect to the pending actions included within “Accrued expenses and other” in the Company’s consolidated balance sheets, of $5.1 million and $6.9 million at December 31, 2017, and December 31, 2016, respectively. Additionally, at December 31, 2017, $0.2 million was reserved in “Other liabilities” and $0.5 million in “Accounts payable” in the Company’s consolidated balance sheet. See Note 15 - Commitments and Contingencies to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data.” Also see “Critical Accounting Policies - Self Insurance Reserve” and “Liquidity and Capital Resources - Cash Requirements” in Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgement, unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve primarily reflects the Company’s estimate of settlement amounts for the pending actions, as appropriate, and legal costs of settling or litigating the pending actions, as applicable.
Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. The amount of the self-insurance reserve may increase, perhaps by a material amount, in any given period, particularly if the Company determines that it has probable exposure in one or more actions. If we are unable to resolve the pending actions on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operations. We have a history of operating losses and may incur losses in the future.
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Our leases with tenants comprise our rental revenue and any failure, inability or unwillingness by these tenants to satisfy their obligations under our agreements could have a material adverse effect on us.
Our business depends upon our tenants meeting their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate and other taxes and maintain and repair the leased properties. We cannot assure you that these tenants will have sufficient assets, income and access to financing to enable them to satisfy their respective obligations to us, and any failure, inability or unwillingness by these tenants to do so could have a material adverse effect on us. In addition, any failure by these tenants to effectively conduct their operations or to maintain and improve our properties could adversely affect their business reputation and their ability to attract and retain patients and residents in our properties, which could have a material adverse effect on us. Our tenants have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses, and we cannot assure you that our tenants will have sufficient assets, income, access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations.
We depend on affiliates of C.R Management and Beacon Health Management for a significant portion of our revenues and any inability or unwillingness by such entities to satisfy their obligations to us could have a material adverse effect on us.
Our 27 properties (excluding the three facilities that are managed by us) are operated by a total of 27 separate tenants, with each of our tenants being affiliated with one of six local or regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our operators operate (through a group of affiliated tenants) between two and eight of our facilities, with our most significant operators, C.R Management and Beacon Health Management, each operating (through a group of affiliated tenants) eight and seven facilities, respectively. We, therefore depend, on tenants who are affiliated with C.R Management and Beacon Health Management for a significant portion of our revenues. We cannot assure you that the tenants affiliated with C.R Management and Beacon Health Management will have sufficient assets, income and access to financing to enable them to make rental payments to us or to otherwise satisfy their obligations under the applicable leases and subleases, and any inability or unwillingness by such tenants to do so could have a material adverse effect on us.
A prolonged economic slowdown could adversely impact the results of operations of our tenants, which could impair their ability to meet their obligations to us.
We believe the risks associated with our investments will be more acute during periods of economic slowdown or recession (such as the most recent recession) due to the adverse impact caused by various factors, including inflation, deflation, increased unemployment, volatile energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, a distressed real estate market, market volatility and weakened business and consumer confidence. This difficult operating environment caused by an economic slowdown or recession could have an adverse impact on the ability of our tenants to maintain occupancy rates, which could harm their financial condition. Any sustained period of increased payment delinquencies, foreclosures or losses by our tenants could adversely affect our income from investments in our portfolio.
Increased competition, as well as increased operating costs, could result in lower revenues for some of our tenants and may affect their ability to meet their obligations to us.
The long-term care industry is highly competitive, and we expect that it will become more competitive in the future. Our tenants are competing with numerous other companies providing similar healthcare services or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. Our tenants compete on a number of different levels, including the quality of care provided, reputation, the physical appearance of a facility, price, the range of services offered, family preference, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location and the size and demographics of the population in the surrounding areas. We cannot be certain that the tenants of all of our facilities will be able to achieve occupancy and rate levels that will enable them to meet all of their obligations to us. Our tenants may encounter increased competition in the future that could limit their ability to attract patients or residents or expand their businesses and, therefore, affect their ability to make their lease payments.
In addition, the market for qualified nurses, healthcare professionals and other key personnel is highly competitive, and our tenants may experience difficulties in attracting and retaining qualified personnel. Increases in labor costs due to higher wages and greater benefits required to attract and retain qualified healthcare personnel incurred by our tenants could affect their ability to meet their obligations to us. This situation could be particularly acute in certain states that have enacted legislation establishing minimum staffing requirements.
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Disasters and other adverse events may seriously harm our business.
Our facilities and our business may suffer harm as a result of natural or man-made disasters such as storms, earthquakes, hurricanes, tornadoes, floods, fires, terrorist attacks and other conditions. The impact, or impending threat, of such events may require that our tenants evacuate one or more facilities, which could be costly and would involve risks, including potentially fatal risks, for their patients. The impact of disasters and similar events is inherently uncertain. Such events could harm our tenants’ patients and employees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation and financial performance, or otherwise cause our tenants’ businesses to suffer in ways that we currently cannot predict.
A severe cold and flu season, epidemics, or any other widespread illnesses could adversely affect the occupancy of our tenants’ facilities.
Our and our tenants’ revenues are dependent upon occupancy. It is impossible to predict the severity of the cold and flu season or the occurrence of epidemics or any other widespread illnesses. The occupancy of our skilled nursing and assisted living facilities could significantly decrease in the event of a severe cold and flu season, an epidemic, or any other widespread illness. Such a decrease could affect the operating income of our tenants and the ability of our tenants to make payments to us.
The bankruptcy, insolvency or financial deterioration of our tenants could limit or delay our ability to collect unpaid rents or require us to find new tenants.
We are exposed to the risk that a distressed tenant may not be able to meet its obligations to us or other third parties. This risk is heightened during a period of economic or political instability. We are also exposed to increased risk in situations where we lease multiple properties to a single tenant (or affiliated tenants) under a master lease, as a tenant failure or default could reduce or eliminate rental revenue from multiple properties. If tenants are unable to comply with the terms of their leases, then we may be forced to modify the leases in ways that are unfavorable to us. Alternatively, the failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third-party managers to operate the property or sell the property. There is no assurance that we would be able to lease a property on substantially equivalent or better terms than the prior lease, or at all, find another qualified tenant, successfully reposition the property for other uses or sell the property on terms that are favorable to us. It may be more difficult to find a replacement tenant for a healthcare property than it would be to find a replacement tenant for a general commercial property due to the specialized nature of the business. Even if we are able to find a suitable replacement tenant for a property, transfers of operations of skilled nursing facilities and assisted living facilities are subject to regulatory approvals not required for transfers of other types of commercial operations, which may affect our ability to successfully transition a property.
If any lease expires or is terminated, then we could be responsible for all of the operating expenses for that property until it is leased again or sold. If a significant number of our properties are unleased, then our operating expenses could increase significantly. Any significant increase in our operating costs may have a material adverse effect on our business, financial condition and results of operations, and our ability to pay dividends to our shareholders. Furthermore, to the extent we operate such property for an indeterminate amount of time, we would be subject to the various risks our tenants assume as operators and potentially fail to qualify as a REIT in any given year.
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Although each of our lease agreements typically provides us with, or will provide us with, the right to terminate, evict a tenant, foreclose on our collateral, demand immediate payment and exercise other remedies upon the bankruptcy or insolvency of a tenant, the law relating to bankruptcy as codified and enacted as Title 11 of the United States Code (the "Bankruptcy Code") would limit or, at a minimum, delay our ability to collect unpaid pre-bankruptcy rents and to pursue other remedies against a bankrupt tenant. A bankruptcy filing by one of our tenants would typically prevent us from collecting unpaid pre-bankruptcy rents or evicting the tenant absent approval of the bankruptcy court. The Bankruptcy Code provides a tenant with the option to assume or reject an unexpired lease within certain specified periods of time. Generally, a lessee is required to pay all rent that becomes payable between the date of its bankruptcy filing and the date of the assumption or rejection of the lease (although such payments will likely be delayed as a result of the bankruptcy filing). Any tenant that chooses to assume its lease with us must cure all monetary defaults existing under the lease (including payment of unpaid pre-bankruptcy rents) and provide adequate assurance of its ability to perform its future obligations under the lease. Any tenant that opts to reject its lease with us would face a claim by us for unpaid and future rents payable under the lease, but such claim would be subject to a statutory “cap” and would generally result in a recovery substantially less than the face value of such claim. Although the tenant’s rejection of the lease would permit us to recover possession of the leased facility, we would likely face losses, costs and delays associated with re-leasing the facility to a new tenant.
Several other factors could impact our rights under leases with bankrupt tenants. First, the tenant could seek to assign its lease with us to a third party. The Bankruptcy Code generally disregards anti-assignment provisions in leases to permit the assignment of unexpired leases to third parties (provided all monetary defaults under the lease are cured and the third party can demonstrate its ability to perform its obligations under the lease). Second, in instances in which we have entered into a master lease agreement with a tenant that operates more than one facility, the bankruptcy court could determine that the master lease was comprised of separate, divisible leases (each of which could be separately assumed or rejected), rather than a single, integrated lease (which would have to be assumed or rejected in its entirety). Finally, the bankruptcy court could recharacterize our lease agreement as a disguised financing arrangement, which could require us to receive bankruptcy court approval to foreclose or pursue other remedies with respect to the facility.
In 2016, New Beginnings and its affiliates (including a former tenant of the Company), who operated the Oceanside Facility, the Savannah Beach Facility and the Jeffersonville Facility, filed petitions to reorganize their finances under the Bankruptcy Code. We give no assurance that our current tenants will not undergo bankruptcy, insolvency or financial deterioration that could have a material adverse effect our business, financial condition and results of operations.
If we must replace any of our tenants, we might be unable to rent the properties on as favorable terms, or at all, and we could be subject to delays, limitations and expenses, which could have a material adverse effect on us.
We cannot predict whether our tenants will renew existing leases beyond their current term. If any of our triple-net leases are not renewed, we would attempt to rent those properties to another tenant. In addition, following expiration of a lease term or if we exercise our right to replace a tenant in default, rental payments on the related properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant. We also might not be successful in identifying suitable replacements or entering into leases or other arrangements with new tenants on a timely basis or on terms as favorable to us as our current leases, if at all, and we may be required to fund certain expenses and obligations (e.g., real estate and bed taxes, and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, our properties while they are being repositioned. In addition, we may incur certain obligations and liabilities, including obligations to indemnify the replacement tenant, which could have a material adverse effect on us.
In the event of non-renewal or a tenant default, our ability to reposition our properties with a suitable replacement tenant could be significantly delayed or limited by state licensing, receivership, CON or other laws, as well as by the Medicare and Medicaid change-of-ownership rules, and we could incur substantial additional expenses in connection with any licensing, receivership or change-of-ownership proceedings. Our ability to locate and attract suitable replacement tenants also could be impaired by the specialized healthcare uses or contractual restrictions on use of the properties, and we may be forced to spend substantial amounts to adapt the properties to other uses. Any such delays, limitations and expenses could adversely impact our ability to collect rent, obtain possession of leased properties or otherwise exercise remedies for tenant default and could have a material adverse effect on us.
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Moreover, in connection with certain of our properties, we have entered into intercreditor agreements with the tenants’ lenders or tri-party agreements with our lenders. Our ability to exercise remedies under the applicable leases or to reposition the applicable properties may be significantly delayed or limited by the terms of the intercreditor agreement or tri-party agreement. Any such delay or limit on our rights and remedies could adversely affect our ability to mitigate our losses and could have a material adverse effect on us.
Our tenants may be subject to significant legal actions that could result in their increased operating costs and substantial uninsured liabilities, which may affect their ability to meet their obligations to us.
As is typical in the long term care industry, our tenants may be subject to claims for damages relating to the services that they provide. We give no assurance that the insurance coverage maintained by our tenants will cover all claims made against them or continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages may not, in certain cases, be available to operators due to state law prohibitions or limitations of availability. As a result, our tenants doing business in these states may be liable for punitive damage awards that are either not covered by their insurance or are in excess of their insurance policy limits.
We also believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. The OIG, the enforcement arm of the Medicare and Medicaid programs, formulates a formal work plan each year for nursing centers. The OIG’s most recent work plan indicates that, among other things, the OIG’s investigative and review focus in 2017 for nursing facilities will include complaint investigations by state agencies, unreported incidents of potential abuse and neglect, reimbursement, background checks, compliance with prospective payment requirements, and potentially avoidable hospitalizations. We cannot predict the likelihood, scope or outcome of any such investigations and reviews with respect to our facilities or our tenants. Insurance is not available to our tenants to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action, then such tenant could be exposed to substantial additional liabilities. Such liabilities could adversely affect a tenant’s ability to meet its obligations to us.
In addition, we may, in some circumstances, be named as a defendant in litigation involving the services provided by our tenants. Although we generally have no involvement in the services provided by our tenants, and our standard lease agreements generally require (or will require) our tenants to indemnify us and carry insurance to cover us in certain cases, a significant judgment against us in such litigation could exceed our and our tenants’ insurance coverage, which would require us to make payments to cover any such judgment.
Our tenants may be sued under a federal whistleblower statute.
Our tenants who engage in business with the federal government may be sued under a federal whistleblower statute designed to combat fraud and abuse in the healthcare industry. See “Governmental Regulation-Healthcare Regulation” in Part I, Item 1, “Business” in this Annual Report. These lawsuits can involve significant monetary damages and award bounties to private plaintiffs who successfully bring these suits. If any of these lawsuits were brought against our tenants, such suits combined with increased operating costs and substantial uninsured liabilities could have a material adverse effect on our tenants’ liquidity, financial condition and results of operations and on their ability to satisfy their obligations under our leases, which, in turn, could have a material adverse effect on us.
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The amount and scope of insurance coverage provided by policies maintained by our tenants may not adequately insure against losses.
We maintain or require in our leases that our tenants maintain all applicable lines of insurance on our properties and their operations. Although we regularly review the amount and scope of insurance maintained by our tenants and believe the coverage provided to be customary for similarly situated companies in our industry, we cannot assure you that our tenants will continue to be able to maintain adequate levels of insurance. We also cannot assure you that our tenants will maintain the required coverages, that we will continue to require the same levels of insurance under our leases, that such insurance will be available at a reasonable cost in the future or that the policies maintained will fully cover all losses on our properties upon the occurrence of a catastrophic event, nor can we make any guaranty as to the future financial viability of the insurers that underwrite the policies maintained by our tenants.
For various reasons, including to reduce and manage costs, many healthcare companies utilize different organizational and corporate structures coupled with captive programs that may provide less insurance coverage than a traditional insurance policy. Companies that insure any part of their general and professional liability risks through their own captive limited purpose entities generally estimate the future cost of general and professional liability through actuarial studies that rely primarily on historical data. However, due to the rise in the number and severity of professional claims against healthcare providers, these actuarial studies may underestimate the future cost of claims, and reserves for future claims may not be adequate to cover the actual cost of those claims. As a result, the tenants of our properties who self-insure could incur large funded and unfunded general and professional liability expenses, which could materially adversely affect their liquidity, financial condition and results of operations and, in turn, their ability to satisfy their obligations to us. If tenants of our properties decide to implement a captive or self-insurance program, any large funded and unfunded general and professional liability expenses incurred could have a material adverse effect on us.
Should an uninsured loss or a loss in excess of insured limits occur, we could incur substantial liability or lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenues from the property. Following the occurrence of such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. We cannot assure you that material uninsured losses, or losses in excess of insurance proceeds, will not occur in the future.
Failure by our tenants to comply with various local, state and federal government regulations may adversely impact their ability to make lease payments to us.
Healthcare operators are subject to numerous federal, state and local laws and regulations, including those described below, that are subject to frequent and substantial changes (sometimes applied retroactively) resulting from new legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. Although we cannot accurately predict the ultimate timing or effect of these changes, such changes could have a material effect on our tenants’ costs of doing business and on the amount of reimbursement by both government and other third-party payors. The failure of any of our tenants to comply with these laws, requirements and regulations could adversely affect its ability to meet its obligations to us.
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Healthcare Reform . The Healthcare Reform Law, which was signed into law in March 2010, represents the most comprehensive change to healthcare benefits since the inception of the Medicare program in 1965 and affects reimbursement for governmental programs, private insurance and employee welfare benefit plans in various ways. Among other things, the Healthcare Reform Law expands Medicaid eligibility, requires most individuals to have health insurance, establishes new regulations for health plans, creates health insurance exchanges, and modifies certain payment systems to encourage more cost-effective care and a reduction of inefficiencies and waste, including through new tools to address fraud and abuse. We cannot accurately predict the impact of the Healthcare Reform Law on our tenants or their ability to meet their obligations to us. |
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Reimbursement; Medicare and Medicaid . A significant portion of the revenue of the healthcare operators to which we lease, or will lease, properties is, or will be, derived from governmentally-funded reimbursement programs, primarily Medicare and Medicaid. Failure to maintain certification in these programs would result in a loss of funding from such programs and could negatively impact an operator’s ability to meet its obligations to us. |
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Licensing and Certification . Healthcare operators are subject to various federal, state and local licensing and certification laws and regulations, including laws and regulations under Medicare and Medicaid requiring operators to comply with extensive standards governing operations. Many of our properties may require a license, registration, and/or CON to operate. State and local laws also may regulate the expansion , including the addition of new beds or services or acquisition of medical equipment, and the construction or renovation of health care facilities, by requiring a CON or other similar approval from a state agency. Governmental agencies administering these laws and regulations regularly inspect facilities and investigate complaints. Failure to obtain any required licensure, certification, or CON, the loss or suspension of any required licensure, certification, or CON, or any violations or deficiencies with respect to relevant operating standards may require a facility to cease operations or result in ineligibility for reimbursement until the necessary licenses, certifications, or CON are obtained or reinstated or until any such violations or deficiencies are cured. In such event, our revenues from these facilities could be reduced or eliminated for an extended period of time or permanently. |
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Fraud and Abuse Laws and Regulations . There are various federal and state civil and criminal laws and regulations governing a wide array of healthcare provider referrals, relationships and arrangements, including laws and regulations prohibiting fraud by healthcare providers. In addition, the Stark Law broadly defines the scope of prohibited physician referrals under federal health care programs to providers with which they have ownership or other financial arrangements. Many states have adopted, or are considering, legislative proposals similar to these laws, some of which extend beyond federal health care programs, to prohibit the payment or receipt of remuneration for the referral of patients and physician referrals regardless of the source of the payment for the care. Many of these complex laws raise issues that have not been clearly interpreted by the relevant governmental authorities and courts. We cannot assure you that governmental officials charged with responsibility for enforcing the provisions of these laws and regulations will not assert that one or more of our arrangements are in violation of the provisions of such laws and regulations. In addition, federal and state governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers. The violation of any of these laws or regulations by any of our tenants may result in the imposition of fines or other penalties, including exclusion from Medicare, Medicaid and all other federal and state healthcare programs. Such fines or penalties could jeopardize a tenant’s ability to make lease payments to us or to continue operating its facility. |
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Privacy Laws . Healthcare operators are subject to federal, state and local laws and regulations designed to protect the privacy and security of patient health information. These laws and regulations require operators to expend the requisite resources to protect and secure patient health information, including the funding of costs associated with technology upgrades. Operators found in violation of these laws may face large penalties. In addition, compliance with an operator’s notification requirements in the event of a breach of unsecured protected health information could cause reputational harm to an operator’s business. Such penalties and damaged reputation could adversely affect a tenant’s ability to meet its obligations to us. |
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Other Laws . Other federal, state and local laws and regulations affect how our tenants conduct their business. We cannot accurately predict the effect that the costs of complying with these laws may have on the revenues of our tenants and, thus, their ability to meet their obligations to us. |
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Legislative and Regulatory Developments . Each year, legislative and regulatory proposals are introduced at the federal, state and local levels that, if adopted, would result in major changes to the healthcare system in addition to those described herein. We cannot accurately predict whether any proposals will be adopted and, if adopted, what effect (if any) these proposals would have on our tenants or our business. |
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Our tenants may be adversely affected by healthcare regulation and enforcement.
Regulation of the long-term healthcare industry generally has intensified over time both in the number and type of regulations and in the efforts to enforce those regulations. This is particularly true for large for-profit, multi-facility providers. Federal, state and local laws and regulations affecting the healthcare industry include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights, fraudulent or abusive behavior, data privacy and security, and financial and other arrangements that may be entered into by healthcare providers. In addition, changes in enforcement policies by federal and state governments have resulted in an increase in the number of inspections, citations of regulatory deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and even criminal penalties. We are unable to predict the scope of future federal, state and local regulations and legislation, including the Medicare and Medicaid statutes and regulations, or the intensity of enforcement efforts with respect to such regulations and legislation, and any changes in the regulatory framework could have a material adverse effect on our tenants, operators and managers, which, in turn, could have a material adverse effect on us.
If our tenants fail to comply with the extensive laws, regulations and other requirements applicable to their businesses and the operation of our properties, they could become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant changes to their operations. Our tenants also could face increased costs related to healthcare regulation, such as the Healthcare Reform Law, or be forced to expend considerable resources in responding to an investigation or other enforcement action under applicable laws or regulations. In such event, the results of operations and financial condition of our tenants and the results of operations of our properties operated or managed by those entities could be adversely affected, which, in turn, could have a material adverse effect on us.
The impact of healthcare reform legislation on our tenants cannot be accurately predicted.
The health care industry in the United States is subject to fundamental changes due to ongoing health care reform efforts and related political, economic and regulatory influences. Notably, the Healthcare Reform Law resulted in expanded health care coverage to millions of previously uninsured people beginning in 2014 and has resulted in significant changes to the U.S. health care system. To help fund this expansion, the Healthcare Reform Law outlines certain reductions in Medicare reimbursements for various health care providers, including skilled nursing facilities, as well as certain other changes to Medicare payment methodologies.
Several provisions of the Healthcare Reform Law affect Medicare payments to skilled nursing facilities, including provisions changing Medicare payment methodology and implementing value-based purchasing and payment bundling. Although we cannot accurately predict how all of these provisions may be implemented, or the effect any such implementation would have on our tenants or our business, the Healthcare Reform Law could result in decreases in payments to our tenants, increase our tenants’ costs or otherwise adversely affect the financial condition of our tenants, thereby negatively impacting their ability to meet their obligations to us.
The Healthcare Reform Law also requires skilled nursing facilities to have a compliance and ethics program that is effective in preventing and detecting criminal, civil and administrative violations and in promoting quality of care. If our tenants fall short in their compliance and ethics programs and quality assurance and performance improvement programs, then their reputations and ability to attract residents could be adversely affected.
This comprehensive health care legislation has resulted and will continue to result in extensive rulemaking by regulatory authorities, and also may be altered or amended. It is difficult to predict the full impact of the Healthcare Reform Law due to the complexity of the law and implementing regulations, as well our inability to foresee how CMS and other participants in the health care industry will respond to the choices available to them under the law. We also cannot accurately predict whether any new or pending legislative proposals will be adopted or, if adopted, what effect, if any, these proposals would have on our tenants’ business. Similarly, while we can anticipate that some of the rulemaking that will be promulgated by regulatory authorities will affect our tenants and the manner in which they are reimbursed by the federal health care programs, we cannot accurately predict today the impact of those regulations on their business and therefore on our business. The provisions of the legislation and other regulations implementing the provisions of the Healthcare Reform Law may increase our tenants’ costs or otherwise adversely affect the financial condition of our tenants, thereby negatively impacting their ability to meet their obligations to us.
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Other legislative changes have been proposed and adopted since the Healthcare Reform Law was enacted that also may impact our business. For instance, on April 1, 2014, President Obama signed the Protecting Access to Medicare Act of 2014, which, among other things, requires CMS to measure, track, and publish readmission rates of skilled nursing facilities by 2017 and implement a value-based purchasing program for skilled nursing facilities (the “SNF VBP Program”) by October 1, 2018. The SNF VBP Program will increase Medicare reimbursement rates for skilled nursing facilities that achieve certain levels of quality performance measures to be developed by CMS, relative to other facilities. The value-based payments authorized by the SNF VBP Program will be funded by reducing Medicare payment for all skilled nursing facilities by 2% and redistributing up to 70% of those funds to high-performing skilled nursing facilities. If Medicare reimbursement provided to our tenants is reduced under the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.
Our tenants depend on reimbursement from governmental and other third-party payors, and reimbursement rates from such payors may be reduced.
Changes in the reimbursement rate or methods of payment from third-party payors, including the Medicare and Medicaid programs, or the implementation of other measures to reduce reimbursements for services provided by our tenants could result in a substantial reduction in the revenues and operating margins of our tenants. Significant limits on the scopes of services reimbursed and on reimbursement rates could have a material adverse effect on the results of operations and financial condition of our tenants, which could cause their revenues to decline and could negatively impact their ability to meet their obligations to us.
Additionally, net revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable, additional documentation is necessary or certain services were not covered or were not medically necessary. New legislative and regulatory proposals could impose further limitations on government and private payments to healthcare providers. In some cases, states have enacted or are considering enacting measures designed to reduce Medicaid expenditures and to make changes to private healthcare insurance. No assurance is given that adequate third-party payor reimbursement levels will continue to be available for the services provided by our tenants.
The Healthcare Reform Law provides those states that expand their Medicaid coverage to otherwise eligible state residents with incomes at or below 138% of the federal poverty level with an increased federal medical assistance percentage, that became effective January 1, 2014, if certain conditions are met. On June 28, 2012, the United States Supreme Court upheld the individual mandate of the Healthcare Reform Laws but partially invalidated the expansion of Medicaid. The ruling on Medicaid expansion allows states to elect not to participate in the expansion-and to forego funding for the Medicaid expansion-without losing their existing Medicaid funding. Given that the federal government substantially funds the Medicaid expansion, it is unclear how many states will ultimately pursue this option, although, as of early 2018, roughly three-fifths of the states have expanded Medicaid coverage. The participation by states in the Medicaid expansion could have the dual effect of increasing our tenants’ revenues, through new patients, but further straining state budgets and their ability to pay our tenants. While the federal government paid for approximately 100% of those additional costs from 2014 through 2016, states have been responsible for part of those additional costs since 2017. In light of this, at least one state that has passed legislation to allow the state to expand its Medicaid coverage has included sunset provisions in the legislation that require that the expanded benefits be reduced or eliminated if the federal government’s funding for the program is decreased or eliminated, permitting the state to re-visit the issue once it begins to share financial responsibility for the expansion. With increasingly strained budgets, it is unclear how states that do not include such sunset provisions will pay their share of these additional Medicaid costs and what other health care expenditures could be reduced as a result. A significant reduction in other health care related spending by states to pay for increased Medicaid costs could affect our tenants’ revenue streams.
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Furthermore, the Supreme Court’s decision upholding the constitutionality of the individual healthcare mandate while striking down the provisions linking federal funding of state Medicaid programs with a federally mandated expansion of those programs has contributed to the uncertainty regarding the impact that the law will have on healthcare delivery systems over the next decade. We can expect that federal authorities will continue to implement the law, but because of the Supreme Court’s mixed ruling, the implementation will take longer than originally expected, with a commensurate increase in the period of uncertainty regarding the long-term financial impact on the delivery of and payment for healthcare.
A repeal of the Healthcare Reform Law, in whole or in part, may have unforeseen consequences.
It is possible that legislation will be introduced and passed by the Republican-controlled Congress repealing the Healthcare Reform Law in whole or in part and signed into law by President Trump, consistent with statements made by him during his presidential campaign indicating his intention to do so. In the absence of legislation repealing the Healthcare Reform Law, President Trump issued an executive order on October 12, 2017 directing federal agencies to reevaluate regulations and guidance associated with the Healthcare Reform Law. The effects of this executive order are unknown and it is possible that additional executive orders related to the Healthcare Reform Law may be issued. Because of the continued uncertainty about the implementation of the Healthcare Reform Law, including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certainty the likely impact of the Healthcare Reform Law or its repeal on our tenants and, thus, their ability to meet their obligations to us. We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislative or policy changes or implementations affecting additional fundamental changes in the healthcare delivery system. We cannot provide assurances as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislative or policy changes on our tenants and, thus, their ability to meet their obligations to us.
Government budget deficits could lead to a reduction in Medicare and Medicaid reimbursement.
Many states are focusing on the reduction of expenditures under their Medicaid programs, which may result in a reduction in reimbursement rates for our tenants. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants under both the Medicare and Medicaid programs. Reductions in Medicare and Medicaid reimbursement to our tenants could reduce the cash flow of our tenants and their ability to make rent payments to us. The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes. Because the Healthcare Reform Law allows states to increase the number of people who are eligible for Medicaid and simplifies enrollment in this program, Medicaid enrollment may significantly increase in the future. Since our tenants’ profit margins with respect to Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement and an increase in the number of Medicaid patients could place some tenants in financial distress, which, in turn, could adversely affect us. If funding for Medicare or Medicaid is reduced, then it could have a material adverse effect on our tenants’ results of operations and financial condition, which could adversely affect their ability to meet their obligations to us.
Changes in the reimbursement rates or methods of payment from third-party payors, including insurance companies and the Medicare and Medicaid programs, could have a material adverse effect on our tenants.
Our tenants rely on reimbursement from third-party payors, including the Medicare (both traditional Medicare and "managed" Medicare/Medicare Advantage) and Medicaid programs, for substantially all of their revenues. Federal and state legislators and regulators have adopted or proposed various cost-containment measures that would limit payments to healthcare providers, and budget crises and financial shortfalls have caused states to implement or consider Medicaid rate freezes or cuts. Private third-party payors also have continued their efforts to control healthcare costs. We cannot assure you that our tenants who currently depend on governmental or private payor reimbursement will be adequately reimbursed for the services they provide. Significant limits by governmental and private third-party payors on the scope of services reimbursed or on reimbursement rates and fees, whether from statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, court decisions, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries or carriers, government funding restrictions (at a program level or with respect to specific facilities) and interruption or delays in payments due to any ongoing government investigations and audits at such property, or private payor efforts, could have a material adverse effect on the liquidity, financial condition and results of operations of certain of our tenants, which could affect adversely their ability to comply with the terms of our leases and have a material adverse effect on us.
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Unforeseen costs associated with the acquisition of new healthcare properties could reduce our profitability.
Our business strategy contemplates future acquisitions that may not prove to be successful. For example, we might encounter unanticipated difficulties and expenditures relating to our acquired healthcare properties, including contingent liabilities, or our newly acquired healthcare properties might require significant management attention that would otherwise be devoted to our ongoing business. Such costs may negatively affect our results of operations.
Our real estate investments are relatively illiquid.
Real estate investments are relatively illiquid and generally cannot be sold quickly. In addition, all of our owned healthcare properties serve as collateral for our secured debt obligations and may not be readily sold. Additional factors that are specific to our industry also tend to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. For example, all of our healthcare properties are “special purpose” properties that cannot be readily converted into general residential, retail or office use. In addition, transfers of operations of skilled nursing facilities, assisted living facilities and other healthcare facilities are subject to regulatory approvals not required for transfers of other types of commercial operations and other types of real estate. Thus, if the operation of any of our healthcare properties becomes unprofitable due to competition, age of improvements or other factors such that a tenant becomes unable to meet its obligations to us, then the liquidation value of the property may be substantially less, particularly relative to the amount owing on any related mortgage loan, than would be the case if the property were readily adaptable to other uses. Furthermore, the receipt of liquidation proceeds or the replacement of a tenant that has defaulted on its lease could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the property or the replacement of the tenant with a new tenant licensed to manage the facility. In addition, certain significant expenditures associated with real estate investment, such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, our revenues would be adversely affected.
As an owner with respect to real property, we may be exposed to possible environmental liabilities.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real property, such as us, may be liable in certain circumstances for the costs of investigation, removal or remediation of, or related releases of, certain hazardous or toxic substances at, under or disposed of in connection with such property, as well as certain other potential costs relating to hazardous or toxic substances, including government fines and damages for injuries to persons and adjacent property. Such laws often impose liability regardless of the owner’s knowledge of, or responsibility for, the presence or disposal of such substances. As a result, liability may be imposed on the owner in connection with the activities of an operator of the property.
The cost of any required investigation, remediation, removal, fines or personal or property damages and the owner’s liability therefor could exceed the value of the property and the assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect an operator’s ability to attract additional patients or residents and our ability to sell or rent such property or to borrow using such property as collateral which, in turn, could negatively impact our revenues.
The industry in which we operate is highly competitive.
Our business is highly competitive, and we expect that it may become more competitive in the future. We compete for healthcare facility investments with other healthcare investors, many of which have greater resources and lower costs of capital than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our investment criteria. If we cannot identify and purchase a sufficient number of healthcare facilities at favorable prices, or if we are unable to finance such acquisitions on commercially favorable terms, our business, results of operations and financial condition may be materially adversely affected. In addition, if our cost of capital should increase relative to the cost of capital of our competitors, the spread that we realize on our investments may decline if competitive pressures limit or prevent us from charging higher lease rates.
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The geographic concentration of our facilities could leave us vulnerable to an economic downturn or adverse regulatory changes in those areas.
Our properties are located in six states, with concentrations in Georgia and Ohio. As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We are dependent on our management team, and our future success depends largely upon the management experience, skill, and contacts of our management and the loss of any of our key management team could harm our business. If we lose the services of any or all of our management team, we may not be able to replace them with similarly qualified personnel, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
During 2017, the Company experienced the departure of certain key management personnel. As a result, the Company must now focus time and resources on recruiting new members for its executive management team. Changes in the Company's executive management team may be disruptive to, or cause uncertainty in, the Company's business, and any additional changes to the executive management team could have a negative impact on the Company's ability to manage and grow its business effectively. Any such disruption or uncertainty or difficulty in efficiently and effectively filling key roles could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our directors and officers substantially control all major decisions.
Our directors and officers beneficially own a significant number of shares of our outstanding common stock. Therefore, our directors and officers will be able to influence major corporate actions required to be voted on by shareholders, such as the election of directors, the amendment of our charter documents and the approval of significant corporate transactions such as mergers, reorganizations, sales of substantially all of our assets and liquidation. Furthermore, our directors will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and incur indebtedness. This control may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in their best interests.
Risks Related to Potential REIT Election
As previously discussed, the Board is in the process of evaluating the feasibility of the Company in the future qualifying for and electing status as a REIT under the Code. If the Board determines for any future taxable year, after further consideration and evaluation, that the Company qualifies as a REIT under the Code and that electing status as a REIT under the Code would be in the best interests of the Company and its shareholders, then there would be certain risks we would face if we subsequently elected REIT status, including the risks set forth below under this “- Risks Related to REIT Election” section. The applicability of these risks assumes that: (i) we would qualify in a future taxable year as a REIT under the Code; (ii) the Board determines that electing status as a REIT under the Code is in the best interests of the Company and its shareholders; and (iii) we subsequently elect status as a REIT under the Code.
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Complying with the REIT requirements may cause us to liquidate assets or hinder our ability to pursue otherwise attractive asset acquisition opportunities.
To qualify as a REIT for federal income tax purposes, we would need to continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our shareholders. For example, to qualify as a REIT, we would need to ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by any taxable REIT subsidiary (“TRS”)) generally could not include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) could consist of the securities of any one issuer, and no more than 20% of the value of our total assets could be represented by securities of one or more TRSs. If we were to elect as a REIT under the Code and subsequently we fail to comply with these requirements at the end of any calendar quarter, then we would need to correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we could be required to liquidate assets.
In addition to the asset tests set forth above, to qualify and be subject to tax as a REIT, we would generally be required, after the utilization of any available federal net operating loss carryforwards, to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) each year to our shareholders. If we were to elect as a REIT under the Code, any determination as to the timing or amount of future dividends would be based on a number of factors, including investment opportunities and the availability of our existing federal net operating loss carryforwards. If we were to elect as a REIT under the Code, and to the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income (after the application of available federal net operating loss carryforwards, if any), we would be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we would be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders for a calendar year is less than a minimum amount specified under the Code. These distribution requirements could hinder our ability to pursue otherwise attractive asset acquisition opportunities. Furthermore, if we were to elect as a REIT under the Code, our ability to compete for acquisition opportunities in domestic markets may be adversely affected if we were to need, or require, the target company to comply with certain REIT requirements. These actions could have the effect of reducing our income, amounts available for distribution to our shareholders and amounts available for making payments on our indebtedness.
Qualifying as a REIT involves highly technical and complex provisions of the Code. If we were to elect as a REIT under the Code, and we fail to qualify as a REIT or fail to remain qualified as a REIT, to the extent we have REIT taxable income and have utilized our federal net operating loss carryforwards, we would be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our potential REIT qualification. Our qualification as a REIT would depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we have not and will not obtain independent appraisals.
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If we were to qualify and elect as a REIT under the Code for a future taxable year, and subsequently we fail to qualify as a REIT in any taxable year, to the extent we have taxable income and have utilized our federal net operating loss carryforwards, we would be subject to U.S. federal income tax on our taxable income at regular corporate rates, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our stock. Unless we were entitled to relief under certain provisions of the Code, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT (after having elected as a REIT under the Code). If we were to fail to qualify for taxation as a REIT after having elected as a REIT under the Code, we may be required to borrow additional funds or liquidate assets to pay any additional tax liability and, therefore, funds available for investment and making payments on our indebtedness would be reduced.
We may be required to borrow funds, sell assets, or raise equity to satisfy REIT distribution requirements.
If we were to elect as a REIT under the Code, from time to time thereafter we might generate REIT taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we were to not have other funds available in those situations, we would need to borrow funds, sell assets or raise equity, even if the then-prevailing market conditions are not favorable for these borrowings, sales or offerings, to enable us to satisfy the REIT distribution requirement and to avoid U.S. federal corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs and our leverage or require us to distribute amounts that would otherwise be invested in future acquisitions or stock repurchases. Thus, if we were to elect as a REIT under the Code: (i) continued compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our stock; and (ii) continued compliance with the REIT distribution requirements may increase the financing we would need to fund capital expenditures, future growth, or expansion initiatives, which would increase our total leverage.
Covenants specified in the instruments governing our indebtedness may limit our ability to make required REIT distributions.
If we were to elect as a REIT under the Code, restrictive loan covenants in the instruments governing our indebtedness may prevent us from satisfying REIT distribution requirements and, after such election, we could fail to qualify for taxation as a REIT. If these covenant limitations were not to jeopardize our qualification for taxation as a REIT but nevertheless were to prevent us from distributing 100% of our REIT taxable income, then we would be subject to U.S. federal corporate income tax, and potentially the nondeductible 4% excise tax, on the undistributed amounts.
Our payment of cash distributions in the future is not guaranteed and the amount of any future cash distributions may fluctuate, which could adversely affect the value of our stock.
REITs are required to distribute annually at least 90% of their REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gain). We had approximately $66.8 million in federal net operating loss carryforwards as of December 31, 2017. If we were to elect as a REIT under the Code, we would be able to use, at our discretion, these federal net operating loss carryforwards to offset our REIT taxable income, and thus the required distributions to shareholders may be reduced or eliminated until such time as our federal net operating loss carryforwards have been fully utilized. However, pursuant to the recently enacted Tax Reform Act referenced below, our ability to offset any federal net operating losses arising from our taxable years beginning after December 31, 2017, against any future REIT taxable income would be limited.
If we were to elect as a REIT under the Code, the amount of future distributions would be determined, from time to time, by the Board to balance our goal of increasing shareholder value and retaining sufficient cash to implement our current capital allocation policy, which includes portfolio improvement and potentially stock repurchases (when we believe our stock price is below its intrinsic value. If we were to elect as a REIT under the Code, the actual timing and amount of distributions would be as determined and declared by the Board and would depend on, among other factors, our federal net operating loss carryforwards, our financial condition, earnings, debt covenants and other possible uses of such funds.
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Furthermore, we may only pay dividends on our capital stock if we have funds legally available to pay dividends and such payment is not restricted or prohibited by Georgia law, the terms of shares of our capital stock with higher priority with respect to dividends and the terms of any other documents governing our indebtedness. See “–Risks Related to Our Stock – There are no assurances of our ability to pay dividends in the future .”
Certain of our business activities may be subject to corporate level income tax, which would reduce our cash flows, and would have potential deferred and contingent tax liabilities.
If we were to elect as a REIT under the Code: (i) we may be subject to certain federal, state, and local taxes on our income and assets, taxes on any undistributed income and state, local income, franchise, property and transfer taxes; (ii) we could, in certain circumstances, be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT; and (iii) we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s length basis. Any of these taxes would decrease our earnings and our available cash.
If we were to elect as a REIT under the Code, any TRS assets and operations we may have would continue to be subject, as applicable, to federal and state corporate income taxes in the jurisdictions in which those assets and operations are located, which taxes would decrease our earnings and our available cash. If we were to elect as a REIT under the Code, we would also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21%) on the gain recognized from a sale of assets occurring during the initial five-year period of time for which we are a REIT, up to the amount of the built-in gain that existed on January 1 of the year for which we elect as a REIT under the Code, which would be based on the fair market value of those assets in excess of our tax basis in those assets as of such date. Gain from a sale of an asset occurring after the specified period ends would not be subject to this corporate level tax.
Use of any TRSs we may have may cause us to fail to qualify as a REIT.
If we were to elect as a REIT under the Code, the net income of any TRSs we may have would not be required to be distributed to us, and such undistributed TRS income would generally not subject to our REIT distribution requirements. However, if we were to elect as a REIT under the Code and if the accumulation of cash or reinvestment of significant earnings in any TRSs we may have would cause the fair market value of our securities in those entities, taken together with other non-qualifying assets, to represent more than 25% of the fair market value of our assets, or causes the fair market value of such TRS securities alone to represent more than 20% of the value of our total assets, in each case, as determined for REIT asset testing purposes, we would, absent timely responsive action, fail to qualify as a REIT.
Legislative or other actions affecting REITs could have a negative effect on us.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, U.S. Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification.
In addition, recently enacted tax reform legislation (the “Tax Reform Act”) has resulted in fundamental changes to the Code. Among the numerous changes included in the Tax Reform Act is a deduction of 20% of ordinary REIT dividends for individual taxpayers for taxable years beginning on or after January 1, 2018 through 2025. The impact of the Tax Reform Act on an investment in our shares, and our ability to qualify for and elect REIT status in any future year and the desirability thereof, is uncertain. We cannot assure you that the Tax Reform Act or any such other changes will not adversely affect the taxation of our shareholders. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the impact of the Tax Reform Act on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.
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We do not have any experience operating as a REIT, which may adversely affect our financial condition, results of operations, cash flow, per share trading price of our stock and ability to satisfy debt service obligations.
We have not actually operated as a REIT previously, and we do not currently qualify as a REIT under the Code. If we were to qualify and elect as a REIT under the Code in a future taxable year: (i) our pre-REIT operating experience may not be sufficient to enable us to operate successfully as a REIT; and (ii) we will be required to implement substantial control systems and procedures in order to maintain REIT status. As a result, we may incur additional legal, accounting and other expenses that we have not previously incurred, which could be significant, and our management and other personnel may need to devote additional time to comply with these rules and regulations and controls required for continued compliance with the Code. Therefore, if we were to qualify and elect as a REIT under the Code in a future taxable year, our historical combined consolidated financial statements may not be indicative of our future costs and performance as a REIT. If our performance is adversely affected, then it could affect our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations.
The current market price of the common stock may not be indicative of the market price of common stock if we were to elect as a REIT under the Code.
The current market price of the common stock may not be indicative of how the market will value the common stock if we elect as a REIT under the Code in a future taxable year, because of the change in our organization from a taxable C corporation to a REIT. The stock price of REIT securities have historically been affected by changes in market interest rates as investors evaluate the annual yield from distributions on the entity’s common stock as compared to yields on other financial instruments. In addition, if we elect as a REIT under the Code in a future taxable year, the market price of common stock in the future may be potentially affected by the economic and market perception of REIT securities.
Generally, ordinary dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable to U.S. shareholders that are individuals, trusts and estates is currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates applicable to qualified dividends. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our stock if we were to elect as a REIT under the Code. However, under the recently enacted Tax Reform Act as referenced above, commencing with taxable years beginning on or after January 1, 2018 and continuing through 2025, individual taxpayers may be entitled to claim a deduction in determining their taxable income of 20% of ordinary REIT dividends (dividends other than capital gain dividends and dividends attributable to certain qualified dividend income received by us), which temporarily reduces the effective tax rate on such dividends.
Risks Related to Our Capital Structure
We have substantial indebtedness, which may have a material adverse effect on our business and financial condition.
As of December 31, 2017, we had approximately $73.1 million in indebtedness, including current maturities of debt. We may also obtain additional short-term and long-term debt to meet future capital needs, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative consequences to our business. For example, it could:
|
• |
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; |
|
• |
require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availability of cash flow for dividends and other general corporate purposes; |
33
|
• |
require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility; |
|
• |
make it more difficult for us to satisfy our financial obligations; |
|
• |
expose us to increases in interest rates for our variable rate debt; |
|
• |
limit our ability to borrow additional funds on favorable terms, or at all, for working capital, debt service requirements, expansion of our business or other general corporate purposes; |
|
• |
limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms, or at all; |
|
• |
limit our flexibility in planning for, or reacting to, changes in our business and our industry; |
|
• |
limit our ability to make acquisitions or take advantage of business opportunities as they arise; |
|
• |
place us at a competitive disadvantage compared with our competitors that have less debt; and |
|
• |
limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity. |
In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our debt agreements. If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding indebtedness.
We may not have sufficient liquidity to meet our capital needs.
For the year ended and as of December 31, 2017, we had a net loss of $1.0 million and negative working capital of $14.8 million. At December 31, 2017, we had $1.8 million in cash and cash equivalents, as well as restricted cash of $3.5 million, and $73.1 million in indebtedness, including current maturities of $8.1 million.
We continue to undertake measures to grow our operations and streamline our operations and cost infrastructure by (i) increasing future lease revenue through acquisitions and investments in existing properties; (ii) modifying the terms of existing leases; (iii) refinancing or repaying debt to reduce interest costs and mandatory principal repayments; and (iv) reducing general and administrative expenses.
Management anticipates both access to and receipt of several sources of liquidity, including cash from operations and cash on hand. We have routine ongoing discussions with existing and potential new lenders to refinance current debt on a longer-term basis and, in recent periods, have refinanced short-term acquisition-related debt with traditional long-term mortgage notes, some of which have been executed under government guaranteed lending programs.
In order to satisfy the Company’s capital needs, the Company seeks to: (i) refinance debt where possible to obtain more favorable terms; (ii) raise capital through the issuance of debt securities and convertible securities; and (iii) increase operating cash flows through acquisitions. The Company anticipates that these actions, if successful, will provide the opportunity to maintain its liquidity, thereby permitting the Company to better meet its operating and financing obligations. However, there is no guarantee that such actions will be successful.
34
We rely on external sources of capital to fund our capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future investments necessary to grow our business or meet maturing debt commitments.
We rely on external sources of capital, including private or public offerings of debt or equity, the assumption of secured indebtedness, or mortgage financing on a portion of our owned portfolio. If we are unable to obtain needed capital at all or only on unfavorable terms from these sources, we might not be able to make the investments needed to grow our business or to meet our obligations and commitments as they mature. Our access to capital depends upon a number of factors over which we have little or no control, including the performance of the national and global economies generally; competition in the healthcare industry; issues facing the healthcare industry, including regulations and government reimbursement policies; our tenants’ operating costs; the market’s perception of our growth potential; the market value of our properties; our current and potential future earnings and cash dividends; on its common stock and preferred stock, if any; and the market price of the shares of our capital stock. We may not be in a position to take advantage of future investment opportunities if we are unable to access capital markets on a timely basis or are only able to obtain financing on unfavorable terms.
In particular, we are subject to risks associated with debt financing, which could negatively impact our business and limit our ability to pay dividends to our shareholders and to repay maturing indebtedness. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, our cash flow may not be sufficient to repay our maturing indebtedness. Furthermore, if we have to pay higher interest rates in connection with a refinancing, the interest expense relating to that refinanced indebtedness would increase, which could reduce our profitability. Moreover, additional debt financing increases the amount of our leverage. The degree of leverage could have important consequences to our shareholders, including affecting our ability to obtain additional financing in the future, and making us more vulnerable to a downturn in our results of operations or the economy in general.
Our ability to raise capital through equity sales is dependent, in part, on the market price of our stock, and our failure to meet market expectations with respect to our business could negatively impact the market price of our stock and availability of equity capital.
As with other publicly-traded companies, the availability of equity capital will depend, in part, on the market price of our stock, which, in turn, will depend upon various market conditions and other factors that may change from time to time, including:
|
• |
the extent of investor interest; |
|
• |
our financial performance and that of our tenants; |
|
• |
general stock and bond market conditions; and |
|
• |
other factors such as governmental regulatory action. |
Covenants in the agreements evidencing our indebtedness limit our operational flexibility, and a covenant breach could materially adversely affect our operations.
The terms of our credit agreements and other agreements evidencing our indebtedness require us to comply with a number of financial and other covenants which may limit management’s discretion by restricting our ability to, among other things, incur additional debt, and create liens. Any additional financing we may obtain could contain similar or more restrictive covenants. Our continued ability to incur indebtedness and conduct our operations is subject to compliance with these financial and other covenants. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness in addition to any other indebtedness cross-defaulted against such instruments. Any such breach could materially adversely affect our business, results of operations and financial condition.
35
Our assets may be subject to impairment charges.
We periodically, but not less than annually, evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that a significant impairment has occurred, then we are required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
We may change our investment strategies and policies and capital structure.
The Board, without the approval of our shareholders, may alter our investment strategies and policies if it determines that a change is in our shareholders’ best interests. The methods of implementing our investment strategies and policies may vary as new investments and financing techniques are developed.
Economic conditions and turbulence in the credit markets may create challenges in securing indebtedness or refinancing our existing indebtedness.
Depressed economic conditions, the availability and cost of credit, turmoil in the mortgage market and depressed real estate markets have in the past contributed, and will in the future contribute, to increased volatility and diminished expectations for real estate markets and the economy as a whole. Significant market disruption and volatility could impact our ability to secure indebtedness or refinance our existing indebtedness.
We are subject to possible conflicts of interest; we have engaged in, and may in the future engage in, transactions with parties that may be considered related parties.
From time to time, we have engaged in various transactions with related parties including Christopher Brogdon, a former director and owner of greater than 5% of our outstanding common stock. See Part III, Item 13, “C ertain Relationships and Related Transactions, and Director Independence” in this Annual Report.
Although we do not believe the potential conflicts have adversely affected, or will adversely affect, our business, others may disagree with this position and litigation could ensue in the future. Our relationships with Mr. Brogdon and other related parties may give rise to litigation, or other issues which could result in substantial costs to us, and a diversion of our resources and management's attention, whether or not any allegations made are substantiated.
Risks Related to the Ownership and Transfer Restrictions
The ownership and transfer restrictions contained in the Charter may prevent or restrict you from acquiring or transferring shares of the common stock.
As a result of the Merger, the Charter contains provisions restricting the ownership and transfer of the common stock. These ownership and transfer restrictions include that, subject to the exceptions, waivers and the constructive ownership rules described in the Charter, no person (including any “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) may beneficially own, or be deemed to constructively own by virtue of the ownership attribution provisions of the Code, in excess of 9.9% (by value or number of shares, whichever is more restrictive) of the outstanding common stock. The Charter also prohibits, among other things, any person from beneficially or constructively owning shares of common stock to the extent that such ownership would cause the Company to fail to qualify as a REIT by reason of being “closely held” under the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or that would cause the Company to otherwise fail to qualify as a REIT. Furthermore, any transfer, acquisition or other event or transaction that would result in common stock being beneficially owned by less than 100 persons (determined without reference to any rules of attribution) will be void ab initio, and the intended transferee shall acquire no rights in such common stock.
These ownership and transfer restrictions could have the effect of delaying, deferring or preventing a transaction or a change in control of us that might involve a premium price for our capital stock or otherwise be in the best interests of our shareholders.
36
The price of our stock has fluctuated, and a number of factors may cause the price of our stock to decline.
The market price of our stock has fluctuated and may fluctuate significantly in the future, depending upon many factors, many of which are beyond our control. These factors include:
|
• |
actual or anticipated fluctuations in our operating results; |
|
• |
changes in our financial condition, performance and prospects; |
|
• |
changes in general economic and market conditions and other external factors; |
|
• |
the market price of securities issued by other companies in our industry; |
|
• |
announcements by us or our competitors of significant acquisitions, dispositions, strategic partnerships or other transactions; |
|
• |
press releases or negative publicity relating to us or our competitors or relating to trends in healthcare; |
|
• |
government action or regulation, including changes in federal, state and local healthcare regulations to which our tenants are subject; |
|
• |
changes in financial estimates, our ability to meet those estimates, or recommendations by securities analysts with respect to us or our competitors; and |
|
• |
future sales of the common stock, our Series A Preferred Stock or another series of our preferred stock, or debt securities. |
In addition, the market price of the Series A Preferred Stock also depends upon:
|
• |
prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock; |
|
• |
trading prices of preferred equity securities issued by other companies in our industry; and |
|
• |
the annual yield from distributions on the Series A Preferred Stock as compared to yields on other financial instruments. |
Furthermore, the stock market in recent years has experienced sweeping price and volume fluctuations that often have been unrelated to the operating performance of affected companies. These market fluctuations may also cause the price of our stock to decline.
In the event of fluctuations in the price of our stock, shareholders may be unable to resell shares of our stock at or above the price at which they purchased such shares. Additionally, due to fluctuations in the price of our stock, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance.
Our common stock ranks junior to our Series A Preferred Stock with respect to dividends and amounts payable in the event of our liquidation.
Our common stock ranks junior to our Series A Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated accrued dividends have been paid or set aside for payment on all outstanding shares of our Series A Preferred Stock for all past dividend periods, no dividends may be declared or paid, or set aside for payment on, our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of our Series A Preferred Stock the applicable liquidation preference plus all accumulated accrued and unpaid dividends.
We suspended dividend payments with respect to our Series A Preferred Stock for the fourth quarter 2017 and the first quarter 2018 dividend periods. We plan to revisit the dividend payment policy with respect to our Series A Preferred Stock in the second quarter of 2018. See Part II, Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of this Annual Report. As a result, the value of your investment in our common stock may suffer if sufficient funds are not available to first satisfy our obligations to the holders of our Series A Preferred Stock in the event of our liquidation.
37
There are no assurances of our ability to pay dividends in the future.
We are a holding company, and we have no significant operations. We rely primarily on dividends and other distributions from our subsidiaries to us so we may, among other things, pay dividends on our capital stock, if and to the extent declared by the Board. The ability of our subsidiaries to pay dividends and make other distributions to us depends on their earnings and may be restricted in the future by the terms of certain agreements governing their indebtedness. If our subsidiaries are in default under such agreements, then they may not pay dividends or make other distributions to us.
In addition, we may only pay dividends on our capital stock if we have funds legally available to pay dividends and such payment is not restricted or prohibited by law, the terms of any shares with higher priority with respect to dividends or any documents governing our indebtedness. We are restricted by Georgia law from paying dividends on our capital stock if we are not able to pay our debts as they become due in the normal course of business or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy preferential rights upon dissolution. In addition, no dividends may be declared or paid on our common stock unless all accumulated accrued and unpaid dividends on our Series A Preferred Stock have been, or contemporaneously are, declared and paid, or declared and a sum sufficient for the payment thereof is set apart for payments, for all past dividend periods. In addition, future debt, contractual covenants or arrangements that we or our subsidiaries enter into may restrict or prevent future dividend payments.
As such, we could become unable, on a temporary or permanent basis, to pay dividends on our stock, including our common stock and our Series A Preferred Stock. The payment of any future dividends on our stock will be at the discretion of the Board and will depend, among other things, on the earnings and results of operations of our subsidiaries, their ability to pay dividends and make other distributions to us under agreements governing their indebtedness, our financial condition and capital requirements, any debt service requirements and any other factors the Board deems relevant.
We suspended dividend payments with respect to our Series A Preferred Stock for the fourth quarter 2017 and the first quarter 2018 dividend periods. We plan to revisit the dividend payment policy with respect to our Series A Preferred Stock in the second quarter of 2018. See Part II, Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of this Annual Report. As a result of this dividend suspension, no dividends may be declared or paid on the common stock until all accumulated accrued and unpaid dividends on our Series A Preferred Stock have been, or contemporaneously are, declared and paid, or declared and a sum sufficient for the payment thereof is set apart for payment, for all past dividend periods.
The costs of being publicly owned may strain our resources and impact our business, financial condition, results of operations and prospects.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls for financial reporting. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.
These requirements may place a strain on our systems and resources and have required us, and may in the future require us, to hire additional accounting and financial resources with appropriate public company experience and technical accounting knowledge. In addition, failure to maintain such internal controls could result in us being unable to provide timely and reliable financial information which could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or cause us to be late in the filing of required reports or financial results. Any of the foregoing events could have a materially adverse effect on our business, financial condition, results of operations and prospects.
38
Provisions in Georgia law and our charter documents may delay or prevent a change in control or management that shareholders may consider desirable.
Various provisions of the Georgia Business Corporation Code (the “GBCC”) and the Charter and Bylaws may inhibit changes in control not approved by the Board and may have the effect of depriving our investors of an opportunity to receive a premium over the prevailing market price of the common stock and other securities in the event of an attempted hostile takeover. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors and take other corporate actions. As a result, the existence of these provisions may adversely affect the market price of the common stock and other securities. These provisions include:
|
• |
the ownership and transfer restrictions contained in the Charter with respect to the common stock; |
|
• |
a requirement that special meetings of shareholders be called by the Board, the Chairman, the President, or the holders of shares with voting power of at least 25%; |
|
• |
advance notice requirements for shareholder proposals and nominations; |
|
• |
a requirement that directors may only be removed for cause and then only by an affirmative vote of at least a majority of all votes entitled to be cast in the election of such directors; |
|
• |
a prohibition of shareholder action without a meeting by less than unanimous written consent; |
|
• |
availability of “blank check” preferred stock; and |
|
• |
a charter “constituency” clause authorizing (but not requiring) our directors to consider, in discharging their duties as directors, the effects of the Company’s actions on other interests and persons in addition to our shareholders. |
In addition, the Company has elected in the Bylaws to be subject to the “fair price” and “business combination” provisions of the GBCC. The business combination provisions generally restrict us from engaging in certain business combination transactions with any “interested shareholder” (as defined in the GBCC) for a period of five years after the date of the transaction in which the person became an interested shareholder unless certain designated conditions are met. The fair price provisions generally restricts us from entering into certain business combinations with an interested shareholder unless the transaction is unanimously approved by the continuing directors who must constitute at least three members of the Board at the time of such approval; or the transaction is recommended by at least two-thirds of the continuing directors and approved by a majority of the shareholders excluding the interested shareholder.
The Board can use these and other provisions to prevent, delay or discourage a change in control of the Company or a change in our management. Any such delay or prevention of a change in control or management could deter potential acquirers or prevent the completion of a takeover transaction pursuant to which our shareholders could receive a substantial premium over the current market price of the common stock and other securities, which in turn may limit the price investors might be willing to pay for such securities.
Risks Related to the Delisting of Our Securities
If we fail to meet all applicable continued listing requirements of the NYSE American and the NYSE American determines to delist the common stock and Series A Preferred Stock, the delisting could adversely affect the market liquidity of such securities, impair the value of your investment, adversely affect our ability to raise needed funds and subject us to additional trading restrictions and regulations.
On April 18, 2016, the Company received notice from NYSE Regulation, Inc. (“NYSE Regulation”) that it was not in compliance with certain NYSE American continued listing standards relating to stockholders’ equity. Specifically, the Company was not in compliance with Section 1003(a)(i) (requiring stockholders’ equity of $2.0 million or more if an issuer has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years), Section 1003(a)(ii) (requiring stockholders’ equity of $4.0 million or more if an issuer has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years) and Section 1003(a)(iii) (requiring stockholders’ equity of $6.0 million or more if an issuer has reported losses from continuing operations and/or net losses in its five most recent fiscal years) of the NYSE American Company Guide, (the “Company Guide”) and (collectively, the “Continued Listing Standards”) because the Company had reported a stockholders’ deficit of $23.8 million as of December 31, 2015 and net losses for the last five fiscal years.
39
As a result, the Company became subject to the procedures and requirements of Section 1009 of the Company Guide and was required to submit a plan (a “Compliance Plan”) by May 18, 2016 describing the actions the Company had taken or would take to regain compliance with the Stockholders’ Continued Listing Standards during the period ending October 18, 2017. The Company submitted a Compliance Plan by the May 18, 2016 deadline and was notified on June 2, 2016 that the NYSE Regulation had accepted the Compliance Plan.
In furtherance of the Compliance Plan, on September 29, 2017 AdCare completed the Merger, to ensure the effective adoption of certain charter provisions restricting the ownership and transfer of the common stock. Such ownership and transfer restrictions, among other things, permit the Company, under applicable accounting guidance, to classify the Company’s Series A Preferred Stock as permanent equity on the Company’s consolidated balance sheet, which positioned the Company to regain compliance with the Continued Listing Standards.
On October 18, 2017, the Company received notification (the “Notice”) that the Company had regained compliance with the Continued Listing Standards.
Going forward, the Company will be subject to NYSE Regulation’s normal continued listing monitoring. In addition, in the event that the Company is again determined to be noncompliant with any of the continued listing standards of the NYSE American within twelve (12) months of the Notice, NYSE Regulation will examine the relationship between the Company’s previous noncompliance with the Stockholders’ Equity Continued Listing Standards and such new event of noncompliance in accordance with Section 1009(h) of the Company Guide. In connection with such new event of noncompliance, NYSE Regulation may, among other things, truncate the compliance procedures described in Stockholders’ Equity Continued Listing Standards or initiate immediate delisting proceedings.
If the common stock and Series A Preferred Stock are delisted from the NYSE American, such securities may trade in the over-the-counter market. If our securities were to trade on the over-the-counter market, selling the common stock and Series A Preferred Stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and any security analysts’ coverage of us may be reduced. In addition, in the event the common stock and Series A Preferred Stock are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in such securities, further limiting the liquidity of the common stock and Series A Preferred Stock. These factors could result in lower prices and larger spreads in the bid and ask prices for our securities. Such delisting from the NYSE American and continued or further declines in our share price could also greatly impair our ability to raise additional necessary capital through equity or debt financing and could significantly increase the ownership dilution to shareholders caused by our issuing equity in financing or other transactions. Any such limitations on our ability to raise debt and equity capital could prevent us from making future investments and satisfying maturing debt commitments.
In addition, if the Company fails for 180 or more consecutive days to maintain a listing of the Series A Preferred Stock on a national exchange, then: (i) the annual dividend rate on the Series A Preferred Stock will be increased from 10.875% per annum to 12.875% per annum on the 181st day; and (ii) the holders of the Series A Preferred Stock will be entitled to vote for the election of two additional directors to serve on the Board. Such increased dividend rate and voting rights will continue for so long as the Series A Preferred Stock is not listed on a national exchange.
Item 1B. Unresolved Staff Comments
Disclosure pursuant to Item 1B of Form 10-K is not required to be provided by smaller reporting companies.
40
Operating Facilities
The following table provides summary information regarding our facilities leased and subleased to third parties as of December 31, 2017:
Facility Name |
|
Beds/Units |
|
|
Structure |
|
Operator Affiliation (a) |
|
Alabama |
|
|
|
|
|
|
|
|
Attalla Health Care |
|
|
182 |
|
|
Owned |
|
C.R. Management |
Coosa Valley Health Care |
|
|
122 |
|
|
Owned |
|
C.R. Management |
Meadowood |
|
|
106 |
|
|
Owned |
|
C.R. Management |
Subtotal (3) |
|
|
410 |
|
|
|
|
|
Georgia |
|
|
|
|
|
|
|
|
Autumn Breeze |
|
|
108 |
|
|
Owned |
|
C.R. Management |
Bonterra |
|
|
115 |
|
|
Leased |
|
Wellington Health Services |
College Park |
|
|
95 |
|
|
Owned |
|
C.R. Management |
Glenvue H&R |
|
|
134 |
|
|
Owned |
|
C.R. Management |
Jeffersonville |
|
|
117 |
|
|
Leased |
|
Peach Health Group |
LaGrange |
|
|
137 |
|
|
Leased |
|
C.R. Management |
Lumber City |
|
|
86 |
|
|
Leased |
|
Beacon Health Management |
Oceanside |
|
|
85 |
|
|
Leased |
|
Peach Health Group |
Parkview Manor/Legacy |
|
|
184 |
|
|
Leased |
|
Wellington Health Services |
Powder Springs |
|
|
208 |
|
|
Leased |
|
Wellington Health Services |
Savannah Beach |
|
|
50 |
|
|
Leased |
|
Peach Health Group |
Southland Healthcare |
|
|
126 |
|
|
Owned |
|
Beacon Health Management |
Tara |
|
|
134 |
|
|
Leased |
|
Wellington Health Services |
Thomasville N&R |
|
|
52 |
|
|
Leased |
|
C.R. Management |
Subtotal (14) |
|
|
1,631 |
|
|
|
|
|
North Carolina |
|
|
|
|
|
|
|
|
Mountain Trace Rehab |
|
|
106 |
|
|
Owned |
|
Symmetry Healthcare |
Subtotal (1) |
|
|
106 |
|
|
|
|
|
Ohio |
|
|
|
|
|
|
|
|
Covington Care |
|
|
94 |
|
|
Leased |
|
Beacon Health Management |
Eaglewood ALF |
|
|
80 |
|
|
Owned |
|
Beacon Health Management |
Eaglewood Care Center |
|
|
99 |
|
|
Owned |
|
Beacon Health Management |
H&C of Greenfield |
|
|
50 |
|
|
Owned |
|
Beacon Health Management |
Koester Pavilion |
|
|
150 |
|
|
Managed |
|
N/A |
Spring Meade Health Center |
|
|
99 |
|
|
Managed |
|
N/A |
Spring Meade Residence |
|
|
83 |
|
|
Managed |
|
N/A |
The Pavilion Care Center |
|
|
50 |
|
|
Owned |
|
Beacon Health Management |
Subtotal (8) |
|
|
705 |
|
|
|
|
|
Oklahoma |
|
|
|
|
|
|
|
|
NW Nursing Center |
|
|
88 |
|
|
Owned |
|
Southwest LTC |
Quail Creek |
|
|
109 |
|
|
Owned |
|
Southwest LTC |
Subtotal (2) |
|
|
197 |
|
|
|
|
|
South Carolina |
|
|
|
|
|
|
|
|
Georgetown Health |
|
|
84 |
|
|
Owned |
|
Symmetry Healthcare |
Sumter Valley Nursing |
|
|
96 |
|
|
Owned |
|
Symmetry Healthcare |
Subtotal (2) |
|
|
180 |
|
|
|
|
|
Total - All Facilities (30) |
|
|
3,229 |
|
|
|
|
|
(a) |
Indicates the operator with which the tenant of the facility is affiliated. |
41
Our leases and subleases are generally on an individual facility basis with tenants that are separate legal entities affiliated with the above operators. See “ Portfolio of Healthcare Investments” in Part I, Item 1, “Business”, in this Annual Report.
All facilities are skilled nursing facilities except for Eaglewood ALF and the Meadowood Facility, which are assisted living facilities, and Spring Meade Residence, which is an independent living facility. Bed/units numbers refer to the number of operational beds.
For a detailed description of the Company's operating leases, please see Note 7 - Leases to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
For a detailed description of the Company's related mortgages payable for owned facilities, see Note 9 - Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Portfolio Occupancy Rates
The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:
|
|
For the Three Months Ended |
|
|||||||||||||
Operating Metric (1) |
|
March 31, 2017 |
|
|
June 30, 2017 |
|
|
September 30, 2017 |
|
|
December 31, 2017 |
|
||||
Occupancy (%) (2) |
|
|
82.6 |
% |
|
|
83.1 |
% |
|
|
81.8 |
% |
|
|
80.0 |
% |
(1) |
Excludes the three Peach Facilities, due to decertification, which were operated by affiliates of New Beginnings prior to their bankruptcy and are currently operated by affiliates of Peach Health and the Meadowood Facility, which was acquired on May 1, 2017, for all periods presented. Occupancy (%) for the Savannah Beach Facility, the one facility among the Peach Facilities which was not decertified by CMS and which has 50 operational beds, for the three months ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017 was 86.6%, 82.0% , 84.9% and 88.5%, respectively. |
(2) |
Occupancy percentages are based on operational beds. The number of operational beds is reported to us by our tenants and represents the number of available beds that can be occupied by patients. The number of operational beds is always less than or equal to the number of licensed beds with respect to any particular facility. |
Lease Expiration
The following table provides summary information regarding our lease expirations for the years shown:
|
|
|
|
|
|
Operational Beds |
|
|
Annual Lease Revenue (1) |
|
||||||||||
|
|
Number of Facilities |
|
|
Amount |
|
|
Percent (%) |
|
|
Amount ($) '000's |
|
|
Percent (%) |
|
|||||
2018 - 2023 |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
2024 |
|
|
1 |
|
|
|
126 |
|
|
|
4.3 |
% |
|
|
965 |
|
|
|
4.0 |
% |
2025 |
|
|
12 |
|
|
|
1,206 |
|
|
|
41.7 |
% |
|
|
9,671 |
|
|
|
40.2 |
% |
2026 |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
|
|
0.0 |
% |
2027 |
|
|
8 |
|
|
|
869 |
|
|
|
30.0 |
% |
|
|
8,265 |
|
|
|
34.4 |
% |
2028 |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
|
|
0.0 |
% |
Thereafter |
|
|
6 |
|
|
|
696 |
|
|
|
24.0 |
% |
|
|
5,130 |
|
|
|
21.4 |
% |
Total |
|
|
27 |
|
|
|
2,897 |
|
|
|
100.0 |
% |
|
|
24,031 |
|
|
|
100.0 |
% |
(1) |
Straight-line rent. |
42
Our corporate office is located in Suwanee, Georgia. We lease approximately 3,000 square feet of office space in the Suwanee, Georgia area with a term through June 2017 and sublease approximately 3,100 square feet of office space in the Atlanta, Georgia area with a term through September 2020, which we no longer occupy. The Atlanta office space has been subleased through the end of the lease term.
The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to former patients. Although the Company settles cases from time to time if settlement is advantageous to the Company, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable and there is risk in the Company's strategy of aggressively defending these cases. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s financial condition. Although arising in the ordinary course of the Company's business, certain of these matters are described below under "Professional and General Liability Claims."
Ohio Attorney General Action. On October 27, 2016, the Ohio Attorney General (the "OAG") filed in the Court of Common Pleas, Franklin County, Ohio a complaint against The Pavilion Care Center, LLC, and Hearth & Home of Greenfield, LLC (each a subsidiary of the Company), and certain other parties (including parties for which the Company provides or provided management services). The lawsuit alleges that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleges that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG seeks, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million. The Company responded to such letter in July 2014 denying the allegations and did not receive any response from the OAG until the above referenced lawsuit was filed. The Company filed an answer to the complaint on January 27, 2017 in which it denied the allegations. Although there is no assurance as to the ultimate outcome of this matter or its impact on the Company’s business or its financial condition, the Company believes it has meritorious defenses and intends to vigorously defend the claim.
Aria Avoidance Claim. On March 28, 2018, the Chapter 7 bankruptcy trustee in the Aria bankruptcy proceeding, together with an unsecured creditor, filed in the United States Bankruptcy Court for the Eastern District of Arkansas an avoidance claim, in the amount of $4.7 million, against the Company with respect to recovering funds the Company received from Highlands Arkansas Holdings, LLC, an affiliate of Aria (“HAH”) and nine affiliates of HAH (Highland of Stamps, LLC; Highlands of Rogers Dixieland, LLC; Highlands of North Little Rock John Ashley, LLC; Highlands of Mountain View SNF, LLC; Highlands of Mountain View RCF, LLC; Highlands of Little Rock West Markham, LLC; Highlands of Little Rock South Cumberland, LLC; Highlands of Little Rock Riley, LLC; and Highlands of Fort Smith, LLC, prior to the bankruptcy filings. The Company believes that this action is defensible and intends to defend through final judgement. There is no guarantee that the Company will prevail in the avoidance action that has be filed against it See Note 7 – Leases and 15 - Commitments and Contingencies to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data.”
Professional and General Liability Claims . As of April 2, 2018 , the Company is a defendant in 37 professional and general liability actions commenced on behalf of former patients. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing while patients of facilities operated by the Company. Twenty-five of these actions were filed in the State of Arkansas by the same plaintiff attorney who represented the plaintiffs in a purported class action
43
lawsuit against the Company previously disclosed as the Amy Cleveland Class Action, which settled in December 2015, and such twenty-five actions are subject to a settlement in principle as discussed below. Of the remaining 12 actions not subject to the settlement in principle: (i) two of such actions are covered by insurance, except that any award of punitive damages would be excluded from such coverage; and (ii) three of such actions relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator and which are subject to such operators’ indemnification obligations in favor of the Company . These remaining 12 actions are in various stages of discovery, and the Company intends to vigorously defend such actions, where economically favorable to the Company.
On March 12, 2018, the Company entered into a separate mediation settlement agreement with respect to each of the twenty-five actions filed in the State of Arkansas, relating to the settlement in principle of each such action, subject to the satisfaction of certain specified conditions. Each mediation settlement agreement provides for payment by the Company of a specified settlement amount, which settlement amount with respect to each action has been deposited into the mediator’s trust account. The settlement of each action must be individually approved by the probate court, and the settlement of one action is not conditioned upon receipt of the probate court’s approval with respect the settlement of any other action. Upon the probate court approving, with respect to a particular action, the settlement and an executed settlement and release agreement, the settlement amount with respect to such action will be disbursed to the plaintiff’s counsel. Under the settlement and release agreement with respect to a particular action, the Company will be released from any and all claims arising out of the applicable plaintiff’s care while the plaintiff was a resident of one of the Company’s facilities.
In connection with a dispute between the Company and its former commercial liability insurance provider regarding, among other things, the Company’s insurance coverage with respect to the twenty-five actions filed in the State of Arkansas, the former insurer and the Company entered into a settlement agreement (the “Coverage Settlement Agreement”), providing for, among other things, a settlement payment by the former insurer with respect to such actions (the “Insurance Settlement Amount”), a customary release of claims by the former insurer and the Company, and agreement that the former insurer has exhausted the limits of the insurance policies issued by the former insurer to the Company. See Note 15 - Commitments and Contingencies to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data.”
Assuming, and subject to, the approval by the probate court of the settlement of each of the twenty-five actions filed in the State of Arkansas and related matters, and the satisfaction of the other conditions with respect thereto, the Company will pay, net of the Insurance Settlement Amount, an aggregate of approximately $2.4 million in settlement of such actions. The Company gives no assurance that probate court approval of the settlement of such actions will be obtained or the other conditions to such settlements satisfied, or that such actions will be settled on the terms described in this Annual Report or at all.
In addition, during the quarter ended March 31, 2018, the Company, settled for an aggregate total of $670,000, four previously disclosed professional and general liability actions which were pending as of the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017. These four actions are excluded from the 37 professional and general liability actions pending at April 2 , 2018, as discussed above.
The Company has self-insured against professional and general liability claims since it discontinued its healthcare operations in connection with its Transition. The Company has established a self-insurance reserve with respect to the pending actions included within “Accrued expenses and other” in the Company’s consolidated balance sheets, of $5.1 million (which includes the $2.4 million settlement amount discussed above) and $6.9 million at December 31, 2017, and December 31, 2016, respectively. Additionally, at December 31, 2017, $0.2 million was reserved in “Other liabilities” and $0.5 million in “Accounts payable” in the Company’s consolidated balance sheet. See Note 15 - Commitments and Contingencies to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data.” Also see “Critical Accounting Policies - Self Insurance Reserve” and “Professional and General Liability” in Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
44
The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgement unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve primarily reflects the Company’s estimate of settlement amounts for the pending actions, as appropriate, and legal costs of settling or litigating the pending actions, as applicable. See "Risks Related to Our Business - If we are unable to resolve our professional and general liability claims on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operation ” in Part I, Item 1.A, “Risk Factors.”
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant's Common Equity
The common stock is listed for trading on the NYSE American under the symbol "RHE." The high and low sales prices of the common stock and cash dividends declared during the quarters listed below were as follows:
|
|
|
|
Sales Price |
|
|
Cash Dividends |
|
||||||
|
|
|
|
High |
|
|
Low |
|
|
Declared |
|
|||
2017 |
|
First Quarter |
|
$ |
1.74 |
|
|
$ |
1.11 |
|
|
$ |
— |
|
|
|
Second Quarter |
|
$ |
1.29 |
|
|
$ |
0.90 |
|
|
$ |
— |
|
|
|
Third Quarter |
|
$ |
1.14 |
|
|
$ |
0.85 |
|
|
$ |
— |
|
|
|
Fourth Quarter |
|
$ |
1.10 |
|
|
$ |
0.16 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
First Quarter |
|
$ |
2.70 |
|
|
$ |
1.85 |
|
|
$ |
— |
|
|
|
Second Quarter |
|
$ |
2.50 |
|
|
$ |
1.71 |
|
|
$ |
— |
|
|
|
Third Quarter |
|
$ |
2.60 |
|
|
$ |
1.65 |
|
|
$ |
— |
|
|
|
Fourth Quarter |
|
$ |
2.20 |
|
|
$ |
1.38 |
|
|
$ |
— |
|
Based on information supplied from our transfer agent, there were approximately 127 shareholders of record of the common stock as of March 28, 2018.
We are a holding company, and we have no significant operations. We rely primarily on dividends and other distributions from our subsidiaries to us so we may, among other things, pay dividends on the common stock, and the Series A Preferred Stock, if and to the extent declared by the Board. The ability of our subsidiaries to pay dividends and make other distributions to us depends on their earnings and may be restricted by the terms of certain agreements governing their indebtedness. If our subsidiaries are in default under such agreements, then they may not pay dividends or make other distributions to us.
45
In addition, we may only pay dividends on the common stock and the Series A Preferred Stock if we have funds legally available to pay dividends and such payment is not restricted or prohibited by law, the terms of any shares with higher priority with respect to dividends or any documents governing our indebtedness. We are restricted by Georgia law from paying dividends on the common stock and the Series A Preferred Stock if we are not able to pay our debts as they become due in the normal course of business or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy preferential rights of shareholders whose preferential rights are superior to those receiving the dividend. In addition, no dividends may be declared or paid on the common stock unless full cumulative dividends on the Series A Preferred Stock have been, or contemporaneously are, declared and paid, or declared and a sum sufficient for the payment thereof is set apart for payments, for all past dividend periods. In addition, future debt, contractual covenants or arrangements we or our subsidiaries enter into may restrict or prevent future dividend payments.
The Board suspended dividend payments with respect to the Series A Preferred Stock for the fourth quarter 2017 and the first quarter 2018 dividend periods. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock in the second quarter of 2018. See Part II, Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of this Annual Report. As a result of this dividend suspension, no dividends may be declared or paid on the common stock until all accumulated accrued and unpaid dividends on the Series A Preferred Stock have been, or contemporaneously are, declared and paid, or declared and a sum sufficient for the payment thereof is set apart for payment, for all past dividend periods. See Note 12- Common and Preferred Stock to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Equity Compensation Plan Information
The following table sets forth additional information as of December 31, 2017, with respect to shares of the common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our shareholders and plans or arrangements not submitted to the shareholders for approval. The information includes the number of shares covered by and the weighted average exercise price of, outstanding options, warrants, and the number of shares remaining available for future grants, excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights.
Plan Category |
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants |
|
|
Weighted-Average Exercise Price of Outstanding Options, Warrants |
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
|
|||
Equity compensation plans approved by security holders (1) |
|
|
180,725 |
|
|
$ |
3.98 |
|
|
|
723,530 |
|
Equity compensation plans not approved by security holders (2) |
|
|
1,018,967 |
|
|
$ |
3.79 |
|
|
|
— |
|
Total |
|
|
1,199,692 |
|
|
$ |
3.82 |
|
|
|
723,530 |
|
(1) |
Represents options issued pursuant to the Company’s 2011 Stock Incentive Plan which was approved by our shareholders. |
(2) |
Represents warrants issued outside of our shareholder approved plan as described below. The warrants listed below contain certain anti-dilution adjustments and, therefore, were adjusted for stock dividends in October 2010, October 2011, and October 2012, if and as applicable. The share numbers and exercise prices below reflect all such applicable adjustments. |
|
• |
On December 19, 2011, we issued to David Rubenstein, as inducement to become our Chief Operating Officer, ten-year warrants, which as of December 31, 2017, represent the right to purchase an aggregate 174,993 shares of common stock at exercises prices per share ranging from $3.93 to $4.58, and may be exercised for cash or on a cashless exercise basis. All such warrants are fully vested. |
46
|
• |
On May 15, 2013, we issued to Ronald W. Fleming, as an inducement to become our then Chief Financial Officer, a ten-year warrant, which as of December 31, 2017, represents the right to purchase 23,333 shares of common stock at an exercise price of $5.90, and may be exercised for cash or on a cashless exercise basis. Such warrant is fully vested. |
|
• |
On November 26, 2013, we issued to an investor relations firm, as partial consideration for providing certain investor relations services to the Company, a ten-year warrant to purchase 10,000 shares of common stock at an exercise price per share of $3.96. Such warrant is fully vested. |
|
• |
On March 28, 2014, we issued to the placement agents in the Company’s offering of subordinated convertible promissory notes issued in 2014, as partial compensation for serving as placement agents in such offering, five-year warrants to purchase an aggregate of 48,889 shares of common stock at an exercise price per share of $4.50. Such warrants are fully vested. |
|
• |
On October 10, 2014, we issued to William McBride III, as an inducement to become our Chief Executive Officer, a ten-year warrant to purchase 300,000 shares of common stock (of which 100,000 shares were forfeited on April 17, 2017 upon his separation from the Company, at an exercise price per share of $4.49. The balance of such warrant is fully vested and may be exercised for cash or on a cashless basis. |
|
• |
On July 1, 2014, David Tenwick (a director of the Company) sold to Park City Capital Offshore Master, Ltd., an affiliate of Michael J. Fox (a director of the Company): (i) fully vested and unexercised warrants to purchase 109,473 shares of common stock for a total sale price of $211,283; and (ii) fully vested and unexercised warrants to purchase 109,473 shares of common stock for a total sale price of $117,136. These warrants have an exercise price of $2.57 and $3.43 per share respectively and they expire on November 20, 2019 and were originally issued to Mr. Tenwick in 2007 as compensation for his services. |
|
• |
On February 20, 2015, Mr. Tenwick sold to Park City Capital Offshore Master, Ltd., an affiliate of Mr. Fox, fully vested and unexercised warrants to purchase 109,472 shares of common stock for a total sale price of $281,343. These warrants have an exercise price of $1.93 per share, expire on November 20, 2019 and were originally issued to Mr. Tenwick in 2007 as compensation for his services. |
|
• |
On April 1, 2015, we issued to Allan J. Rimland, as an incentive to become our then President and Chief Financial Officer, a ten-year warrant to purchase 275,000 shares of common stock (of which 91,666 shares were forfeited on October 17, 2017 upon his resignation from the Company, at an exercise price per share equal to $4.25. The balance of such warrant is fully vested and may be exercised for cash or on a cashless exercise basis. |
Issuer Purchases of Equity Securities
During the three months ended December 31, 2017 there were no open-market repurchases of the common stock or the Series A Preferred Stock.
For further information, see Note 12 - Common and Preferred Stock to our audited consolidated financial statements in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Item 6. Selected Financial Data
Disclosure pursuant to Item 6 of Form 10-K is not required to be provided by smaller reporting companies.
47
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants. As of December 31, 2017, the Company owned, leased, or managed for third parties 30 facilities primarily in the Southeast. On October 6, 2016, the Company completed the sale of the nine Arkansas Facilities.
The operators of the Company’s facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
The following table provides summary information regarding the number of facilities and related operational beds/units as of December 31, 2017:
|
|
Owned |
|
|
Leased |
|
|
Managed for Third Parties |
|
|
Total |
|
||||||||||||||||||||
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
||||||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama |
|
|
3 |
|
|
|
410 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
410 |
|
Georgia |
|
|
4 |
|
|
|
463 |
|
|
|
10 |
|
|
|
1,168 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
1,631 |
|
North Carolina |
|
|
1 |
|
|
|
106 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
106 |
|
Ohio |
|
|
4 |
|
|
|
279 |
|
|
|
1 |
|
|
|
94 |
|
|
|
3 |
|
|
|
332 |
|
|
|
8 |
|
|
|
705 |
|
Oklahoma |
|
|
2 |
|
|
|
197 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
197 |
|
South Carolina |
|
|
2 |
|
|
|
180 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
180 |
|
Total |
|
|
16 |
|
|
|
1,635 |
|
|
|
11 |
|
|
|
1,262 |
|
|
|
3 |
|
|
|
332 |
|
|
|
30 |
|
|
|
3,229 |
|
Facility Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled Nursing |
|
|
14 |
|
|
|
1,449 |
|
|
|
11 |
|
|
|
1,262 |
|
|
|
2 |
|
|
|
249 |
|
|
|
27 |
|
|
|
2,960 |
|
Assisted Living |
|
|
2 |
|
|
|
186 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
186 |
|
Independent Living |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
83 |
|
|
|
1 |
|
|
|
83 |
|
Total |
|
|
16 |
|
|
|
1,635 |
|
|
|
11 |
|
|
|
1,262 |
|
|
|
3 |
|
|
|
332 |
|
|
|
30 |
|
|
|
3,229 |
|
The following table provides summary information regarding the number of facilities and related operational beds/units by operator affiliation as of December 31, 2017:
Operator Affiliation |
|
Number of Facilities (1) |
|
|
Beds / Units |
|
||
C.R. Management |
|
|
8 |
|
|
|
936 |
|
Beacon Health Management |
|
|
7 |
|
|
|
585 |
|
Wellington Health Services |
|
|
4 |
|
|
|
641 |
|
Peach Health |
|
|
3 |
|
|
|
252 |
|
Symmetry Healthcare |
|
|
3 |
|
|
|
286 |
|
Southwest LTC |
|
|
2 |
|
|
|
197 |
|
Subtotal |
|
|
27 |
|
|
|
2,897 |
|
Regional Health Managed |
|
|
3 |
|
|
|
332 |
|
Total |
|
|
30 |
|
|
|
3,229 |
|
(1) |
Represents the number of facilities which are leased or subleased to separate tenants, which tenants are affiliates of the entity named in the table above. See “ Portfolio of Healthcare Investments” in Part I, Item 1, “Business” in this Annual Report. |
48
On March 8, 2017, the Company executed the Meadowood Purchase Agreement with Meadowood Retirement Village, LLC and Meadowood Properties, LLC to acquire the Meadowood Facility for $5.5 million cash. In addition, on March 21, 2017, the Company executed a long-term, triple net operating lease with the Meadowood Operator to lease the facility upon purchase. Lease terms include: (i) a 13-year initial term with one five-year renewal option; (ii) base rent of $37,500 per month; (iii) a rental escalator of 2.0% per annum in the initial term and 2.5% per annum in the renewal term; (iv) a cross renewal provision, whereby the Meadowood Operator may exercise the lease renewal for the Meadowood Facility if its affiliate exercises the lease renewal option for the Coosa Valley Facility; and (v) a security deposit equal to one month of base rent. The Company completed the purchase of the Meadowood Facility on May 1, 2017 pursuant to the Meadowood Purchase Agreement, at which time the lease commenced and operations of the Meadowood Facility transferred to the Meadowood Operator.
Divestitures
For information regarding the Company's divestitures, please refer to Note 11 - Discontinued Operations , to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
The following table summarizes the activity of discontinued operations for the years ended December 31, 2017 and 2016:
|
|
For the year ended December 31, |
|
|||||
(Amounts in 000’s) |
|
2017 |
|
|
2016 |
|
||
Cost of services and other |
|
$ |
1,657 |
|
|
$ |
13,387 |
|
Interest expense, net |
|
$ |
22 |
|
|
$ |
41 |
|
Net loss |
|
$ |
(1,679 |
) |
|
$ |
(13,428 |
) |
Critical Accounting Policies
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("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. On an ongoing basis we review our judgments and estimates, including, but not limited to, those related to doubtful accounts, income taxes, stock compensation, intangible assets and loss contingencies. We base our estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change. We believe that the following represents our critical accounting policies.
Revenue Recognition and Allowances
Triple-Net Leased Properties. The Company's triple-net leases provide for periodic and determinable increases in rent. We recognize rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities will be recognized only upon cash collection, and any accumulated straight-line rent receivable will be reversed in the period in which the Company deems rent collection no longer probable. Rent revenues for the Arkansas Facilities previously leased by us and two facilities in Georgia are recorded on a cash basis. (See Note 11 - Discontinued Operations to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report)
Management Fee Revenues and Other Revenues. The Company recognizes management fee revenues as services are provided. Further, the Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. We apply the effective interest method on a loan-by-loan basis.
49
Allowances. The Company assesses the collectability of our rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates.
At December 31, 2017, we allowed for approximately $2.6 million on approximately $2.6 million of gross patient care related receivables. Allowance for patient care receivables are estimated based on an aged-bucket method as well as additional analyses of remaining balances incorporating different payor types. Any changes in patient care receivable allowances are recognized as a component of discontinued operations.
Asset Impairment
We review the carrying value of long-lived assets that are held and used in our operations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operations to which the assets relate, utilizing management’s best estimate, assumptions, and projections at the time. If the carrying value is determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset. We estimate the fair value of assets based on the estimated future discounted cash flows of the asset. Management has evaluated its long-lived assets and identified no material asset impairment during the years ended December 31, 2017 and 2016.
We test indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is subject to annual testing for impairment. In addition, goodwill is tested for impairment if events occur or circumstances change that would reduce the fair value of a facility below its carrying amount. We perform annual testing for impairment during the fourth quarter of each year (see Note 6 - Intangible Assets and Goodwill to our audited consolidated financial statements in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report).
Our asset impairment analysis is consistent with the fair value measurements described in the Accounting Standards Codification ("ASC") Topic 820, " Fair Value Measurements and Disclosures" . During the year ended December 31, 2016, we recognized an approximately $21,000 impairment charge on an office building located in Roswell, Georgia. (See Note 11 - Discontinued Operations to our audited consolidated financial statements in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report) . The impairment charges represent the difference between fair values and the carrying amount.
Self-Insurance Reserve
The Company has self-insured against professional and general liability claims since it discontinued its healthcare operations in connection with the Transition. Professional and general liability actions generally seek unspecified compensatory and punitive damages for former patients of the Company who were allegedly injured due to professional negligence or understaffing. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (v) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses
50
anticipated to be incurred in such settlement, as applicable; and (vi) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgement unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company's estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions.
Stock-Based Compensation
We follow the provisions of ASC Topic 718, " Compensation - Stock Compensation" , which requires the measurement and recognition of compensation expense for all share-based payment awards either modified or granted to employees, non-employees, and directors based upon estimated fair values. The Black-Scholes-Merton option-pricing model was used to determine the fair value of each option and warrant granted. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. We use projected volatility rates, which are based upon historical volatility rates, trended into future years. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our options.
Income Taxes
As required by ASC Topic 740, " Income Taxes”, we established deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates in effect when such temporary differences are expected to reverse. When necessary, we record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized. At December 31, 2017, the Company has a valuation allowance of approximately $17.6 million. In future periods, we will continue to assess the need for and adequacy of the remaining valuation allowance. ASC 740 provides information and procedures for financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns.
On December 22, 2017, tax legislation commonly known as The Tax Cuts and Jobs Act (the “Tax Reform”) was enacted. Among other changes, the Tax Reform reduces the US federal corporate tax rate from 35% to 21% beginning in 2018. The Company has remeasured certain deferred tax assets and liabilities as of the enactment date of the Tax Reform based on the rates at which they are expected to reverse in the future, which is generally 21%. The amount recorded related to the remeasurement of our deferred tax balance was $9.5 million, which was offset by a reduction in the valuation allowance. The Company also recorded an income tax benefit of approximately $0.2 million related to the use of our naked credit (a deferred tax liability for an indefinite-lived asset) as a source of income to release a portion of our valuation allowance.
In determining the need for a valuation allowance, the annual income tax rate, or the need for and magnitude of liabilities for uncertain tax positions, we make certain estimates and assumptions. These estimates and assumptions are based on, among other things, knowledge of operations, markets, historical trends and likely future changes and, when appropriate, the opinions of advisors with knowledge and expertise in certain fields. Due to certain risks associated with our estimates and assumptions, actual results could differ.
In October 2014, the Georgia Department of Revenue initiated an examination of our Georgia income tax returns and net worth returns for the 2010, 2011, 2012, and 2013 tax years, which was closed during 2016, with no adjustments required to the filed tax returns.
We are not currently under examination by any other major income tax jurisdiction.
51
Recently Issued Accounting Pronouncements
The information required by this Item is provided in Note 1 - Summary of Significant Accounting Policies to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Results of Operations
Year Ended December 31, 2017 and 2016
The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our audited consolidated financial statements and the notes thereto, which are included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
|
|
Year Ended December 31, |
|
|
Increase (Decrease) |
|
||||||||||
(Amounts in 000's) |
|
2017 |
|
|
2016 |
|
|
Amount |
|
|
Percent |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
23,690 |
|
|
$ |
26,287 |
|
|
$ |
(2,597 |
) |
|
|
(9.9 |
)% |
Management fee and other revenues |
|
|
1,458 |
|
|
|
1,314 |
|
|
|
144 |
|
|
|
11.0 |
% |
Total revenues |
|
|
25,148 |
|
|
|
27,601 |
|
|
|
(2,453 |
) |
|
|
(8.9 |
)% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility rent expense |
|
|
8,683 |
|
|
|
8,694 |
|
|
|
(11 |
) |
|
|
(0.1 |
)% |
Depreciation and amortization |
|
|
4,868 |
|
|
|
5,296 |
|
|
|
(428 |
) |
|
|
(8.1 |
)% |
General and administrative expenses |
|
|
4,488 |
|
|
|
7,714 |
|
|
|
(3,226 |
) |
|
|
(41.8 |
)% |
Other operating expenses |
|
|
1,971 |
|
|
|
1,378 |
|
|
|
593 |
|
|
|
43.0 |
% |
Total expenses |
|
|
20,010 |
|
|
|
23,082 |
|
|
|
(3,072 |
) |
|
|
(13.3 |
)% |
Income from operations |
|
|
5,138 |
|
|
|
4,519 |
|
|
|
619 |
|
|
|
13.7 |
% |
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
4,095 |
|
|
|
7,149 |
|
|
|
(3,054 |
) |
|
|
(42.7 |
)% |
Loss on extinguishment of debt |
|
|
63 |
|
|
|
245 |
|
|
|
(182 |
) |
|
|
(74.3 |
)% |
Gain on disposal of assets |
|
|
— |
|
|
|
(8,750 |
) |
|
|
8,750 |
|
|
NM |
|
|
Other expense |
|
|
474 |
|
|
|
72 |
|
|
|
402 |
|
|
NM |
|
|
Total other (income) expense, net |
|
|
4,632 |
|
|
|
(1,284 |
) |
|
|
5,916 |
|
|
NM |
|
|
Income from continuing operations before income taxes |
|
|
506 |
|
|
|
5,803 |
|
|
|
(5,297 |
) |
|
NM |
|
|
Income tax benefit |
|
|
(188 |
) |
|
|
(163 |
) |
|
|
(25 |
) |
|
|
15.3 |
% |
Income from continuing operations |
|
|
694 |
|
|
|
5,966 |
|
|
|
(5,272 |
) |
|
|
(88.4 |
)% |
Loss from discontinued operations, net of tax |
|
|
(1,679 |
) |
|
|
(13,428 |
) |
|
|
11,749 |
|
|
|
(87.5 |
)% |
Net loss |
|
$ |
(985 |
) |
|
$ |
(7,462 |
) |
|
$ |
6,477 |
|
|
|
(86.8 |
)% |
Year Ended December 31, 2017 Compared with Year Ended December 31, 2016 :
Rental Revenues —Total rental revenue decreased by $2.6 million, or 9.9%, to $23.7 million for the year ended December 31, 2017, compared with $26.3 million for the year ended December 31, 2016. The decrease reflects lower rent due to the sale of the Arkansas Facilities on October 6, 2016, partially off-set by lease revenue from the Meadowood Facility (acquired on May 1, 2017) and the Peach Facilities. The Company recognizes all rental revenues on a straight line rent accrual basis except with respect to the Oceanside Facility and the Jeffersonville Facility under the Peach Health Sublease prior to recertification (which were recertified by CMS, in February 2017 and December 2016, respectively), the Aria Subleases (which were terminated for non-payment of rent) and the Skyline Lease (which terminated upon sale of the Arkansas Facilities), for which rental revenue is recognized based on cash amount owed, and the sublease with affiliates of New Beginnings (which terminated in connection with the bankruptcy of such entities), for which rental revenue is recognized when cash is received.
52
Management Fee and Other Revenues —Management fee and other revenues increased by $0.1 million, or 11.0%, to $1.4 million for the twelve months ended December 31, 2017, compared with $1.3 million for the same period in 2016, due to a $0.1 million increase from seller note receivables.
Facility Rent Expense —Facility rent was $8.7 million for the twelve months ended December 31, 2017, and $8.7 million for the same period in 2016. Rent expense year over year is comparable due to the completion of the Transition, see Note 7 - Leases , to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Depreciation and Amortization —Depreciation and amortization decreased by $0.4 million or 8.1%, to $4.9 million for the year ended December 31, 2017, compared with $5.3 million for the year ended December 31, 2016. The decrease is primarily due to the sale of the Arkansas Facilities on October 6, 2016, that were classified as held for sale beginning May 2016, with the subsequent cessation of depreciation expense partially off-set by depreciation on the Meadowood Facility acquired on May 1, 2017 and leasehold improvements on the Peach Facilities.
General and Administrative —General and administrative costs decreased by $3.2 million or 41.8%, to $4.5 million for the year ended December 31, 2017, compared with $7.7 million for the year ended December 31, 2016. The net decrease is due to a continued reduction in overhead and specifically the following: (i) a decrease in salaries, wages and employee benefits expense of approximately $1.3 million, (ii) a decrease in stock-based compensation expense of approximately $0.9 million and (iii) a decrease in legal, contract services, IT, insurance and other expenses of approximately $1.0 million.
Other Operating Expenses —Other operating expense increased by $0.6 million or 43.0%, to $2.0 million for the year ended December 31, 2017, compared with $1.4 million for the year ended December 31, 2016. The increase is primarily due to (i) a provision of $0.6 million for a short-term loan to Highlands Arkansas Holdings, LLC, an affiliate of Aria, and (ii) an approximately $0.3 million investigation expense related to an internal investigation with respect to the circumstances surrounding the inaccurate representation of the educational credentials of William McBride, III, the Company’s then Chief Executive Officer and Chairman of the Board, in the current year period, and (iii) an accrual of $0.3 million related to the settlement with Mr. McBride offset by, (x) $0.4 million in non-recurring prior year property and bed tax expenses, and (y) the release of $0.2 million workers compensation accrual in the prior year.
Interest Expense, net —Interest expense, net decreased by approximately $3.0 million or 42.7%, to $4.1 million for the year ended December 31, 2017, compared with $7.1 million for the year ended December 31, 2016. The decrease is mainly due to the repayment of $34.8 million of debt principal, and hence cessation of interest of approximately $2.2 million, in connection with the Arkansas Facilities and the sale thereof in October 2016 and $6.7 million principal repayment of the Company’s 10% convertible subordinated notes due April 30, 2017 pursuant a tender offer on January 10, 2017 and the remaining $1.0 million principal amount of such notes on April 30, 2017, and hence cessation of interest of approximately $0.8 million, partially offset by $4.1 million in new financing for the Meadowood Facility, and hence approximately $0.1 million of additional interest and reclassification of $0.2 million of interest income to revenue in the prior year, see Note 9 - Notes Payable and Other Debt to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data.”
Loss on Debt Extinguishment —Loss on extinguishment of debt decreased by $0.2 million or 74.3%, to approximately $0.1 million for the year ended December 31, 2017, compared with approximately $0.2 million for the year ended December 31, 2016. The decrease was due to a prepayment penalty incurred on March 20, 2017, when mortgage indebtedness related to the Coosa Valley Facility, and Attalla Health Care, a 182-bed skilled nursing facility located in Attalla, Alabama, was reduced by $0.7 million and $0.8 million, respectively through the application of restricted cash held as collateral against such indebtedness, see Note 9 - Notes Payable and Other Debt to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data.”
Gain on Disposal of Assets —Gain on disposal of assets was $8.8 million for the year ended December 31, 2016, due to the sale of the Arkansas Facilities, see Note 10 – Acquisitions and Dispositions to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data.”
53
Other Expense —Other expense increased by $0.4 million to $0.5 million for the year ended December 31, 2017, compared with $0.1 million for the year ended December 31, 2016. The increase is primarily due to legal expenses related to the Merger
Loss from Discontinued Operations —The loss from discontinued operations decreased by $11.8 million or 87.5% to $1.7 million for the twelve months ended December 31, 2017, compared with a loss of $13.4 million for the same period in 2016. The decrease is primarily due to lower professional and general legal and bad debt expense. Current period expenses comprise approximately $0.6 million for professional and general legal expenses and settlements or estimated litigation expenses, net of approximately $2.8 million insurance contributions for recently settled cases, the remaining $1.1 million is related to legal expenses, collection activities and other miscellaneous items.
Liquidity and Capital Resources
The Company continues to undertake measures to grow its operations and to streamline its cost infrastructure by: (i) increasing future lease revenue through acquisitions and investments in existing properties; (ii) modifying the terms of existing leases; (iii) refinancing or repaying debt to reduce interest costs and mandatory principal repayments; and (iv) reducing general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing. At December 31, 2017, the Company had $1.8 million in cash and cash equivalents. During the twelve months ended December 31, 2017, the Company generated positive cash flow from continuing operations of approximately $6.0 million and anticipates continued positive cash flow from operations in the future. The Board of Directors (“Board”) has suspended dividend payments with respect to the Series A Preferred Stock for the fourth quarter 2017 and the first quarter 2018 dividend periods. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock in the second quarter of 2018. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs. If and when the Company resumes payment of the dividend on the Series A Preferred Stock, the Company expects that it will satisfy the dividend requirements (including accrued dividends), if and when declared, from internally generated cash flows. See Note 12- Common and Preferred Stock to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
As of December 31, 2017, the Company had total current liabilities of $19.5 million and total current assets of $4.7 million, which includes approximately $1.8 million of cash and cash equivalents, thus resulting in a working capital deficit of approximately $14.8 million. Included in current liabilities at December 31, 2017 is the $8.1 million current portion of its $73.1 million in indebtedness. The current portion of such indebtedness is comprised of: (i) $4.3 million mortgage indebtedness under the Company’s credit facility with Housing & Healthcare Funding, LLC (the “Quail Creek Credit Facility”); (ii) convertible debt of $1.5 million; and (iii) other debt of approximately $2.3 million, which includes senior debt and bond and mortgage indebtedness. The Company anticipates net principal repayments of approximately $3.8 million during the next twelve-month period, which includes $1.5 million of convertible debt (which was repaid in February 2018), approximately $0.5 million of payments on other non-routine debt, $1.7 million of routine debt service amortization, and a $0.1 million payment of other debt. Management is in discussions to obtain an additional extension of the Quail Creek Credit Facility to at least April 30, 2019. Management believes the extension of the maturity of the Quail Creek Credit Facility is probable of being executed as the Company has successfully extended the maturity date of this facility in the past, and the facility is secured by a first mortgage on the real property and improvements constituting the Nursing & Rehabilitation Center located in Oklahoma City, Oklahoma (the “Quail Creek Facility”). See Note 9— Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
54
Subsequent to year end, on February 15, 2018, the Company entered into a debt refinancing with Pinecone Realty Partners II, LLC (“Pinecone Credit Facility”), with an aggregate principal amount of $16.25 million, which refinanced existing mortgage debt in an aggregate amount of $8.7 million on three skilled nursing properties, and provided additional surplus cash flow of $6.3 million which is available to fund general corporate needs (see Note 19 – Subsequent Events ). The surplus cash flow from the Pinecone Credit Facility was used to deposit $2.4 million of cash into escrow to fund self-insurance reserves for professional and general liability claims with respect to 25 professional and general liability actions (included within current liabilities), and to fund repayment of $1.5 million in convertible debt. The remaining $2.4 million in surplus cash proceeds from the Pinecone Credit Facility refinancing will be used for general corporate purposes. See Note 19 – Subsequent Events to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Given the available capital from the Pinecone Credit Facility, management’s plans to extend the due date of the Quail Creek Credit Facility, combined with current funds on hand, and expected future cash flow from operations, management believes that the Company will be able to meet its obligations as they become due in the ordinary course of business for a period of 12 months following the date these financial statements are issued. Management's belief assumes, that the Company will continue to be successful in implementing its business strategy and achieving forecasted results and that there will be no material adverse developments in its business, liquidity or capital requirements.
The following table presents selected data from our consolidated statement of cash flows for the periods presented:
|
|
Year Ended December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Net cash provided by operating activities—continuing operations |
|
$ |
5,995 |
|
|
$ |
1,598 |
|
Net cash (used in) operating activities—discontinued operations |
|
|
(850 |
) |
|
|
(5,007 |
) |
Net cash (used in) provided by investing activities—continuing operations |
|
|
(342 |
) |
|
|
24,133 |
|
Net cash (used in) financing activities—continuing operations |
|
|
(16,372 |
) |
|
|
(8,001 |
) |
Net cash (used in) financing activities—discontinued operations |
|
|
(658 |
) |
|
|
(1,398 |
) |
Net Change in Cash and cash equivalents |
|
|
(12,227 |
) |
|
|
11,325 |
|
Cash and cash equivalents at beginning of period |
|
|
14,045 |
|
|
|
2,720 |
|
Cash and cash equivalents at end of period |
|
$ |
1,818 |
|
|
$ |
14,045 |
|
Year Ended December 31, 2017
Net cash provided by operating activities—continuing operations for the year ended December 31, 2017, was approximately $6.0 million consisting primarily of our income from continuing operations less changes in working capital, and other noncash charges (primarily depreciation and amortization, lease expense in excess of cash paid, share-based compensation, and amortization of debt discounts and related deferred financing costs less lease revenue in excess of cash received) all primarily the result of routine operating activity.
Net cash used in operating activities—discontinued operations for the year months ended December 31, 2017 was approximately $0.9 million. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and is net of approximately $1.3 million of collections on patient care receivables.
Net cash used in investing activities—continuing operations for the year ended December 31, 2017, was approximately $0.3 million. This is the result of a net decrease in restricted cash deposits of approximately $1.9 million offset by (i) $1.4 million for the acquisition of the Meadowood Facility transaction consisting of a $5.5 million purchase price offset by the associated $4.1 million financing and (ii) capital expenditures of approximately $0.8 million on building improvements notably, for the Oceanside Facility to assist the Peach Health Sublessee in connection with recertification efforts and the purchase of land adjacent to our facility located in Georgetown, South Carolina.
55
Net cash used in financing activities—continuing operations was approximately $16.4 million for the year ended December 31, 2017. This is primarily the result of the repayment of $7.7 million of convertible debt, the repayment of $3.8 million of other existing debt obligations, $0.2 million in payments to repurchase shares of our common stock and $5.7 million to pay dividends on the Series A Preferred Stock partially off-set by net proceeds of $1.0 million from issuances of shares of the Series A Preferred Stock.
Net cash used in financing activities—discontinued operations for the year ended December 31, 2017 was approximately $0.7 million payments for Medicaid and vendor notes.
Year Ended December 31, 2016
Net cash provided by operating activities—continuing operations for the year ended December 31, 2016, was approximately $1.6 million consisting primarily of income from continuing operations less changes in working capital, and other noncash charges (primarily a gain on the disposal of assets, rent revenue in excess of cash received, depreciation and amortization, share-based compensation, rent expense in excess of cash paid and amortization of debt discounts and related deferred financing costs) all primarily the result of routine operating activity.
Net cash used in operating activities—discontinued operations was approximately $5.0 million for the year ended December 31, 2016 as we continued to settle legacy vendor liabilities.
Net cash provided by investing activities—continuing operations for the year ended December 31, 2016, was approximately $24.1 million. This was the result of net proceeds of $55.0 million received for the sale of the Arkansas Facilities on October 6, 2016 less (i) $3.0 million of such consideration to be paid to the Company under a promissory note executed by an affiliate of Skyline, (ii) $35.2 million accounted for as a net cashless transfer of assets for debt liabilities, (iii) proceeds from the sale of office buildings and other assets of $1.5 million and (iv) a net release in restricted cash deposits of approximately $7.2 million, approximately $5.8 million of which was related to the repayment of debt with respect to the Arkansas Facilities. The remaining $1.5 million of disbursements was for capital expenditures related to the recertification efforts of two facilities in Georgia and other capital expenditures.
Net cash used in financing activities—continuing operations was approximately $8.0 million for the year ended December 31, 2016. This is primarily the result of repayment of $51.0 million of debt, which includes: (i) $35.2 million related to the repayment of debt in connection with the sale of the Arkansas Facilities, accounted for as a net cashless transfer of assets for debt liabilities; (ii) $10.0 million for a United States Housing and Urban Development (“HUD”) refinancing of debt with respect to the Company’s skilled nursing facility in Sumter, South Carolina; and the Company’s skilled nursing facility in Georgetown, South Carolina; and (iii) other debt repayments of approximately $5.8 million, including the repayment of debt with respect to the Company’s skilled nursing facility in College Park, Georgia (the “College Park Facility”) and an office building in Georgia. Other disbursements include payments of dividends on the Series A Preferred Stock in the amount of $7.3 million partially offset by proceeds from refinancing of existing debt obligations of $9.8 million as well as proceeds of $6.8 million from issuances of Series A Preferred Stock.
Net cash used in financing activities - discontinued operations was approximately $1.4 million due to the repayment of vendor notes related to patient care-related accounts payable.
56
Notes payable and other debt consists of the following:
|
|
December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Senior debt—guaranteed by HUD |
|
$ |
33,685 |
|
|
$ |
34,473 |
|
Senior debt—guaranteed by USDA (a) |
|
|
20,320 |
|
|
|
22,518 |
|
Senior debt—guaranteed by SBA (b) |
|
|
2,210 |
|
|
|
2,319 |
|
Senior debt—bonds |
|
|
7,055 |
|
|
|
7,145 |
|
Senior debt—other mortgage indebtedness |
|
|
9,486 |
|
|
|
5,639 |
|
Other debt |
|
|
1,050 |
|
|
|
1,063 |
|
Convertible debt |
|
|
1,500 |
|
|
|
9,200 |
|
Subtotal |
|
|
75,306 |
|
|
|
82,357 |
|
Deferred financing costs, net |
|
|
(2,027 |
) |
|
|
(2,196 |
) |
Unamortized discounts on bonds |
|
|
(177 |
) |
|
|
(191 |
) |
Total debt |
|
|
73,102 |
|
|
|
79,970 |
|
Less: current portion of debt |
|
|
8,090 |
|
|
|
13,154 |
|
Notes payable and other debt, net of current portion |
|
$ |
65,012 |
|
|
$ |
66,816 |
|
(a) |
U.S. Department of Agriculture (“USDA”) |
(b) |
U.S. Small Business Administration (“SBA”) |
For a detailed description of each of the Company's debt financings, see Note 9 - Notes Payable and Other Debt to our audited consolidated financial statements in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Scheduled Maturities
The schedule below summarizes the scheduled gross maturities as of December 31, 2017 for each of the next five years and thereafter.
|
|
Amounts in (000's) |
|
|
2018 |
|
$ |
8,121 |
|
2019 |
|
|
2,640 |
|
2020 |
|
|
2,942 |
|
2021 |
|
|
2,100 |
|
2022 |
|
|
5,525 |
|
Thereafter |
|
|
53,978 |
|
Subtotal |
|
|
75,306 |
|
Less: unamortized discounts |
|
|
(177 |
) |
Less: deferred financing costs (1) |
|
|
(2,027 |
) |
Total notes payable and other debt |
|
$ |
73,102 |
|
(1) |
Approximately $0.03 million of deferred financing is recorded in "Current portion of convertible debt, net" on the Company’s consolidated balance sheets. |
57
As of December 31, 2017, the Company has approximately 25 credit related instruments 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 other levels (i.e., facility, multiple facilities or a combination of subsidiaries comprising less than the Company's consolidated financial measurements).The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries of the Company; and (ii) financial covenants measured against third-party operator performance. Covenants are based on annual or quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods 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 Company’s credit-related instruments were all in financial and non-financial compliance as of December 31, 2017.
Included in several of the Company’s loan agreements are administrative covenants requiring that a set of audited financial statements be provided to the guarantor within 90 days of the end of each fiscal year (the “Administrative Covenants”). For the year ended December 31, 2017 the Company was in compliance with all such Administrative Covenants.
Receivables
Our operations could be adversely affected if we experience significant delays in receipt of rental income from our operators. Our future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash and accounts receivable) and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on our liquidity.
Accounts receivable totaled $0.9 million at December 31, 2017 compared with $2.4 million at December 31, 2016, of which $0.0 million and $0.9 million, respectively, related to patient care receivables from our legacy operations.
The allowance for bad debt was $2.6 million and $7.5 million at December 31, 2017 and 2016, respectively. We continually evaluate the adequacy of our bad debt reserves based on aging of older balances, payment terms and historical collection trends after facility operations transfer to third-party operators. We continue to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts.
Off-Balance Sheet Arrangements
Letters of Credit
The Company had $0.4 million of outstanding letters of credit (under the Company's revolving credit facility with CIBC, formerly the PrivateBank) at December 31, 2016, used primarily for surety bonds, which the Company cancelled when no longer required under such credit facility. Such letters of credit were fully cash collateralized, the cash was returned to the Company during the year ended December 31, 2017.
Guarantee
On April 6, 2017, the Company guaranteed Peach Health Sublessee’s $2.5 million revolving working capital loan from a third party lender (the “Peach Working Capital Facility”), subsequently capped at $1.75 million which matures April 5, 2020. Borrowings under the Peach Working Capital Facility are based on a percentage of a borrowing base of eligible accounts receivable. Eligible accounts, net of an allowance for amounts outstanding after 120 days, excluding applicable credits and further reduced for a liquidity factor specific to the payor type, comprise Medicare, Medicaid and commercial accounts only and exclude co-insurance and self-pay. The Peach Working Capital Facility is subject to certain burn-off provisions (i.e., the Company’s obligations under such guaranty cease after the later of 18 months or achievement of a certain financial ratio’s by Peach Health Sublessee).
58
The Company leases a total of eleven skilled nursing facilities under non-cancelable leases, most of which have rent escalation clauses and provisions for payments of real estate taxes, insurance and maintenance costs; each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party operators. The Company also leases certain office space located in Atlanta and Suwanee, Georgia.
Future minimum lease payments for each of the next five years ending December 31 are as follows:
|
|
(Amounts in 000's) |
|
|
2018 |
|
$ |
8,331 |
|
2019 |
|
|
8,492 |
|
2020 |
|
|
8,671 |
|
2021 |
|
|
8,830 |
|
2022 |
|
|
9,026 |
|
Thereafter |
|
|
37,430 |
|
Total |
|
$ |
80,780 |
|
For a further description of the Company's operating leases, see Note 7 - Leases to our audited consolidated financial statements in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Leased and Subleased Facilities to Third-Party Operators
In connection with the Company's transition to a self-managed real estate investment company, twenty-seven facilities (sixteen owned by us and eleven leased to us) are leased or subleased on a triple net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all liabilities of the property in respect to insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable.
Future minimum lease receivables for each of the next five years ending December 31 are as follows:
|
|
(Amounts in 000's) |
|
|
2018 |
|
$ |
22,281 |
|
2019 |
|
|
22,764 |
|
2020 |
|
|
23,299 |
|
2021 |
|
|
23,886 |
|
2022 |
|
|
24,488 |
|
Thereafter |
|
|
112,325 |
|
Total |
|
$ |
229,043 |
|
59
The following is a summary of the Company's leases and subleases to third-parties which comprise the future minimum lease receivables of the Company. Each lease or sublease is structured as a "triple-net" lease. For those facilities subleased by the Company to a third-party operator, the renewal option in the sublease agreement is dependent on the Company’s renewal of its lease agreement.
|
|
|
|
Initial Lease Term |
|
|
|
|
||
|
|
|
|
Commencement |
|
Expiration |
|
2018 Cash |
|
|
Facility Name |
|
Operator Affiliation (1) |
|
Date |
|
Date |
|
Annual Rent |
|
|
|
|
|
|
|
|
|
|
(Thousands) |
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
Eaglewood ALF |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
764 |
|
Eaglewood Care Center |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
764 |
|
H&C of Greenfield |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
382 |
|
Southland Healthcare |
|
Beacon Health Management |
|
11/1/2014 |
|
10/31/2024 |
|
|
938 |
|
The Pavilion Care Center |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
382 |
|
Attalla Health Care |
|
C.R. Management |
|
12/1/2014 |
|
8/31/2030 |
|
|
1,153 |
|
Autumn Breeze |
|
C.R. Management |
|
9/30/2015 |
|
9/30/2025 |
|
|
867 |
|
College Park |
|
C.R. Management |
|
4/1/2015 |
|
3/31/2025 |
|
|
633 |
|
Coosa Valley Health Care |
|
C.R. Management |
|
12/1/2014 |
|
8/31/2030 |
|
|
955 |
|
Glenvue H&R |
|
C.R. Management |
|
7/1/2015 |
|
6/30/2025 |
|
|
1,228 |
|
Meadowood |
|
C.R. Management |
|
5/1/2017 |
|
8/31/2030 |
|
|
456 |
|
NW Nursing Center |
|
Southwest LTC |
|
12/31/2015 |
|
11/30/2025 |
|
|
372 |
|
Quail Creek |
|
Southwest LTC |
|
12/31/2015 |
|
11/30/2025 |
|
|
768 |
|
Georgetown Health |
|
Symmetry Healthcare |
|
4/1/2015 |
|
3/31/2030 |
|
|
338 |
|
Mountain Trace Rehab |
|
Symmetry Healthcare |
|
6/1/2015 |
|
5/31/2030 |
|
|
742 |
|
Sumter Valley Nursing |
|
Symmetry Healthcare |
|
4/1/2015 |
|
3/31/2030 |
|
|
836 |
|
Subtotal Owned Facilities (16) |
|
|
|
|
|
|
|
$ |
11,578 |
|
Leased |
|
|
|
|
|
|
|
|
|
|
Covington Care |
|
Beacon Health Management |
|
8/1/2015 |
|
4/30/2025 |
|
$ |
818 |
|
Lumber City |
|
Beacon Health Management |
|
11/1/2014 |
|
8/31/2027 |
|
|
894 |
|
LaGrange |
|
C.R. Management |
|
4/1/2015 |
|
8/31/2027 |
|
|
1,074 |
|
Thomasville N&R |
|
C.R. Management |
|
7/1/2014 |
|
8/31/2027 |
|
|
345 |
|
Jeffersonville |
|
Peach Health |
|
6/18/2016 |
|
8/31/2027 |
|
|
665 |
|
Oceanside |
|
Peach Health |
|
7/13/2016 |
|
8/31/2027 |
|
|
451 |
|
Savannah Beach |
|
Peach Health |
|
7/13/2016 |
|
8/31/2027 |
|
|
263 |
|
Bonterra |
|
Wellington Health Services |
|
9/1/2015 |
|
8/31/2025 |
|
|
1,091 |
|
Parkview Manor/Legacy |
|
Wellington Health Services |
|
9/1/2015 |
|
8/31/2025 |
|
|
1,091 |
|
Powder Springs |
|
Wellington Health Services |
|
4/1/2015 |
|
8/31/2027 |
|
|
2,160 |
|
Tara |
|
Wellington Health Services |
|
4/1/2015 |
|
8/31/2027 |
|
|
1,851 |
|
Subtotal Leased Facilities (11) |
|
|
|
|
|
|
|
$ |
10,703 |
|
Total (27) |
|
|
|
|
|
|
|
$ |
22,281 |
|
(1) |
Represents the number of facilities which are leased or subleased to separate tenants, which tenants are affiliates of the entity named in the table above. See “ Portfolio of Healthcare Investments” in Part I, Item 1, “Business” in this Annual Report. |
All facilities are skilled nursing facilities except for Eaglewood ALF and Meadowood, which are assisted living facilities. All facilities have renewal provisions of one term of five years except facilities (Mountain Trace, Quail Creek, NW Nursing, Sumter Valley, and Georgetown) which have two renewal terms with each being five years. The leases also contain standard rent escalations that range from 2% to 3% annually.
60
The Company previously subleased the Arkansas Facilities to affiliates of Aria pursuant to the Aria Subleases. Eight of the Aria Subleases commenced on May 1, 2015 and one such sublease commenced on November 1, 2015. Effective February 3, 2016, each of the Aria Subleases was terminated due to the failure to pay rent pursuant to the terms of such sublease. Subsequently, on February 5, 2016, the Company entered into the Skyline Lease, with Skyline to lease the Arkansas Facilities commencing April 1, 2016. On October 6, 2016, the Company completed the sale of the Arkansas Facilities to an affiliate of Skyline (see Note 10 – Acquisitions and Dispositions to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
On January 22, 2016, New Beginnings filed petitions to reorganize its finances under the Bankruptcy Code. New Beginnings operated the Oceanside Facility, the Savannah Beach Facility and the Jeffersonville Facility pursuant to a master lease dated November 3, 2015, with the Company. The Jeffersonville Facility was decertified by CMS in February 2016 for deficiencies related to its operations and maintenance of the facility. From January 1, 2016 until June 4, 2016, New Beginnings paid de minimis rent for the Oceanside and Savannah Beach Facilities and did not pay rent for the Jeffersonville Facility.
On June 18, 2016, ADK Georgia, LLC, a wholly-owned subsidiary of the Company (“ADK Georgia”), entered the Peach Health Sublease with Peach Health Sublessee, providing that Peach Health Sublessee would take possession of the Peach Facilities subleased by ADK Georgia to affiliates of New Beginnings and operate them as a subtenant.
The Peach Health Sublease became effective for the Jeffersonville Facility, on June 18, 2016 and for the Savannah Beach and Oceanside Facilities on July, 13, 2016, the date on which ADK Georgia accepted possession of the facilities from New Beginnings. The Peach Health Sublease contains de minimis and discounted rent provisions in relation to recertification timing. On December 20, 2016 and February 7, 2017, the Jeffersonville and Oceanside Facilities, respectively, were recertified by CMS and received new Medicare/Medicaid provider contracts. For further information, see Note 7 - Leases to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
On February 16, 2017, an affiliate of C.R Management irrevocably extended the term of its lease of the College Park Facility for an additional five years through March 31, 2025.
For a detailed description of each of the Company's leases, see Note 7 - Leases to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
Professional and General Liability
The Company is a defendant in 37 professional and general liability actions commenced on behalf of former patients. These actions seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died while patients of facilities operated by the Company. Twenty-five of these actions are subject to a settlement in principle in aggregate of approximately $2.4 million, net of related insurance proceeds, as discussed under Note 19 – Subsequent Events to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses and other”, “Accounts payable” and “Other liabilities” in the Company’s consolidated balance sheets, in the aggregate amount of $5.8 million and $6.9 million at December 31, 2017, and December 31, 2016, respectively. The Company believes that most of the professional and general liability are defensible and intends to defend them through final judgement unless settlement is more advantageous to the Company. Accordingly, the $5.8 million self-insurance reserve accrual primarily reflects the Company’s estimate of settlement amounts for the pending actions, as appropriate and legal costs of settling or litigating the pending actions, as applicable. These amounts are expected to be paid over time as the legal proceedings progress. The duration of such legal proceedings could be greater than one year subsequent to the year ended December 31, 2017; however management cannot reliably estimate the exact timing of payments. The Company expects to finance litigation, settlements and potential indemnity costs through cash on hand, former insurer insurance settlement proceeds and surplus cash flow from the Pinecone Credit Facility. See Note 19 Subsequent Events to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in this Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure pursuant to Item 7A. of Form 10-K is not required to be reported by smaller reporting companies.
61
Item 8. Financial Stateme nts and Supplementary Data
62
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Regional Health Properties, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Regional Health Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Atlanta, Georgia
April 16, 2018
63
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
(Amounts in 000's)
See accompanying notes to consolidated financial statements
64
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's, except per share data)
|
|
Year Ended December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Revenues: |
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
23,690 |
|
|
$ |
26,287 |
|
Management fee and other revenues |
|
|
1,458 |
|
|
|
1,314 |
|
Total revenues |
|
|
25,148 |
|
|
|
27,601 |
|
Expenses: |
|
|
|
|
|
|
|
|
Facility rent expense |
|
|
8,683 |
|
|
|
8,694 |
|
Depreciation and amortization |
|
|
4,868 |
|
|
|
5,296 |
|
General and administrative expenses |
|
|
4,488 |
|
|
|
7,714 |
|
Other operating expenses |
|
|
1,971 |
|
|
|
1,378 |
|
Total expenses |
|
|
20,010 |
|
|
|
23,082 |
|
Income from operations |
|
|
5,138 |
|
|
|
4,519 |
|
Other (income) expense: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
4,095 |
|
|
|
7,149 |
|
Loss on extinguishment of debt |
|
|
63 |
|
|
|
245 |
|
Gain on disposal of assets |
|
|
— |
|
|
|
(8,750 |
) |
Other expense |
|
|
474 |
|
|
|
72 |
|
Total other expense (income), net |
|
|
4,632 |
|
|
|
(1,284 |
) |
Income from continuing operations before income taxes |
|
|
506 |
|
|
|
5,803 |
|
Income tax benefit |
|
|
(188 |
) |
|
|
(163 |
) |
Income from continuing operations |
|
|
694 |
|
|
|
5,966 |
|
Loss from discontinued operations, net of tax |
|
|
(1,679 |
) |
|
|
(13,428 |
) |
Net loss attributable to Regional Health Properties, Inc. |
|
|
(985 |
) |
|
|
(7,462 |
) |
Preferred stock dividends - declared |
|
|
(5,702 |
) |
|
|
(7,335 |
) |
Preferred stock dividends - undeclared |
|
|
(1,912 |
) |
|
|
— |
|
Net loss attributable to Regional Health Properties, Inc. common stockholders |
|
$ |
(8,599 |
) |
|
$ |
(14,797 |
) |
Net loss per share of common stock attributable to Regional Health Properties, Inc. |
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
Continuing Operations, after current period undeclared dividend |
|
$ |
(0.35 |
) |
|
$ |
(0.07 |
) |
Discontinued Operations |
|
|
(0.08 |
) |
|
|
(0.67 |
) |
|
|
$ |
(0.43 |
) |
|
$ |
(0.74 |
) |
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
19,767 |
|
|
|
19,892 |
|
See accompanying notes to consolidated financial statements
65
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in 000's)
|
|
Shares of Common Stock |
|
|
Shares of Preferred Stock |
|
|
Common Stock and Additional Paid-in Capital |
|
|
Preferred Stock (a) |
|
|
Accumulated Deficit |
|
|
Total |
|
||||||
Balance, December 31, 2015 |
|
|
19,861 |
|
|
|
— |
|
|
$ |
60,958 |
|
|
|
— |
|
|
$ |
(84,793 |
) |
|
$ |
(23,835 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,133 |
|
|
|
— |
|
|
|
— |
|
|
|
1,133 |
|
Exercises of options and warrants |
|
|
59 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of restricted stock, net of forfeitures |
|
|
290 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock repurchase program |
|
|
(283 |
) |
|
|
— |
|
|
|
(523 |
) |
|
|
— |
|
|
|
— |
|
|
|
(523 |
) |
Forfeiture of unvested restricted stock |
|
|
— |
|
|
|
— |
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
|
75 |
|
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,335 |
) |
|
|
(7,335 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,462 |
) |
|
|
(7,462 |
) |
Balance, December 31, 2016 |
|
|
19,927 |
|
|
|
— |
|
|
$ |
61,643 |
|
|
$ |
— |
|
|
$ |
(99,590 |
) |
|
$ |
(37,947 |
) |
Reclassification of preferred stock (a) |
|
|
— |
|
|
|
2,812 |
|
|
|
|
|
|
|
62,423 |
|
|
|
— |
|
|
|
62,423 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
267 |
|
|
|
— |
|
|
|
— |
|
|
|
267 |
|
Issuance of restricted stock, net of forfeitures |
|
|
(112 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock repurchase program |
|
|
(118 |
) |
|
|
— |
|
|
|
(186 |
) |
|
|
— |
|
|
|
— |
|
|
|
(186 |
) |
Preferred stock dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,702 |
) |
|
|
(5,702 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(985 |
) |
|
|
(985 |
) |
Balance, December 31, 2017 |
|
|
19,697 |
|
|
|
2,812 |
|
|
$ |
61,724 |
|
|
$ |
62,423 |
|
|
$ |
(106,277 |
) |
|
$ |
17,870 |
|
(a) |
Reclassification of the Regional Health Properties, Inc.'s Series A Preferred Stock as permanent equity, as a result of the ownership and transfer restrictions with respect to the common stock implemented in connection with the merger described in Note. 1. |
See accompanying notes to consolidated financial statements
66
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
|
|
Year Ended December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(985 |
) |
|
$ |
(7,462 |
) |
Loss from discontinued operations, net of tax |
|
|
1,679 |
|
|
|
13,428 |
|
Income from continuing operations |
|
|
694 |
|
|
|
5,966 |
|
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,868 |
|
|
|
5,296 |
|
Stock-based compensation expense |
|
|
267 |
|
|
|
1,133 |
|
Forfeiture (remeasurement) of liability based restricted stock |
|
|
— |
|
|
|
75 |
|
Rent expense in excess of cash paid |
|
|
578 |
|
|
|
896 |
|
Rent revenue in excess of cash received |
|
|
(2,670 |
) |
|
|
(2,498 |
) |
Amortization of deferred financing costs |
|
|
338 |
|
|
|
1,046 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
(185 |
) |
Deferred tax expense |
|
|
(188 |
) |
|
|
(163 |
) |
Gain on disposal of assets |
|
|
— |
|
|
|
(8,750 |
) |
Bad debt expense |
|
|
886 |
|
|
|
215 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
182 |
|
|
|
(545 |
) |
Prepaid expenses and other |
|
|
207 |
|
|
|
672 |
|
Accounts payable, and accrued expenses and other |
|
|
665 |
|
|
|
(1,361 |
) |
Other liabilities |
|
|
168 |
|
|
|
(199 |
) |
Net cash provided by operating activities—continuing operations |
|
|
5,995 |
|
|
|
1,598 |
|
Net cash used in operating activities—discontinued operations |
|
|
(850 |
) |
|
|
(5,007 |
) |
Net cash provided by (used in) operating activities |
|
|
5,145 |
|
|
|
(3,409 |
) |
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Change in restricted cash and investments |
|
|
1,879 |
|
|
|
7,263 |
|
Purchase of real estate, net |
|
|
(1,375 |
) |
|
|
— |
|
Proceeds from sale of property and equipment |
|
|
— |
|
|
|
18,370 |
|
Purchase of property and equipment |
|
|
(846 |
) |
|
|
(1,500 |
) |
Net cash (used in) provided by investing activities—continuing operations |
|
|
(342 |
) |
|
|
24,133 |
|
Net cash provided by investing activities—discontinued operations |
|
|
— |
|
|
|
— |
|
Net cash (used in) provided by investing activities |
|
|
(342 |
) |
|
|
24,133 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
— |
|
|
|
9,809 |
|
Repayment on notes payable |
|
|
(3,609 |
) |
|
|
(16,284 |
) |
Repayment on bonds payable |
|
|
(90 |
) |
|
|
(85 |
) |
Repayment on convertible debt |
|
|
(7,700 |
) |
|
|
— |
|
Debt issuance costs |
|
|
(62 |
) |
|
|
(315 |
) |
Proceeds from preferred stock issuances, net |
|
|
977 |
|
|
|
6,780 |
|
Repurchase of common stock |
|
|
(186 |
) |
|
|
(523 |
) |
Repurchase of preferred stock |
|
|
— |
|
|
|
(48 |
) |
Dividends on preferred stock |
|
|
(5,702 |
) |
|
|
(7,335 |
) |
Net cash used in financing activities—continuing operations |
|
|
(16,372 |
) |
|
|
(8,001 |
) |
Net cash used in financing activities—discontinued operations |
|
|
(658 |
) |
|
|
(1,398 |
) |
Net cash used in financing activities |
|
|
(17,030 |
) |
|
|
(9,399 |
) |
Net change in cash and cash equivalents |
|
|
(12,227 |
) |
|
|
11,325 |
|
Cash and cash equivalents at beginning of period |
|
|
14,045 |
|
|
|
2,720 |
|
Cash and cash equivalents at end of period |
|
$ |
1,818 |
|
|
$ |
14,045 |
|
See accompanying notes to consolidated financial statements
67
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's) REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
|
|
Year Ended December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
3,781 |
|
|
$ |
6,126 |
|
Income taxes |
|
$ |
29 |
|
|
$ |
— |
|
Supplemental Disclosure of Non-Cash Activities: |
|
|
|
|
|
|
|
|
Issuance of seller note |
|
$ |
— |
|
|
$ |
3,000 |
|
Repayment on notes payable - sale of Arkansas Facilities |
|
$ |
— |
|
|
$ |
35,176 |
|
Settlement agreements in excess of cash paid |
|
$ |
264 |
|
|
$ |
— |
|
Surrender of security deposit |
|
$ |
500 |
|
|
$ |
— |
|
Non-cash proceeds from financing of South Carolina Medicaid audit repayment |
|
$ |
385 |
|
|
$ |
— |
|
Issuance of vendor-financed insurance |
|
$ |
198 |
|
|
$ |
— |
|
Non-cash real estate purchase financing |
|
$ |
4,125 |
|
|
$ |
— |
|
Gain on extinguishment of exit fee note |
|
$ |
— |
|
|
$ |
185 |
|
Cashless exercise of warrants |
|
$ |
— |
|
|
$ |
135 |
|
|
|
|
|
|
|
|
|
|
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Regional Health Properties, Inc. (“Regional Health”), through its subsidiaries (together, the “Company”) is a self-managed real estate investment company that invests primarily in real estate purposed for long-term healthcare and senior living. Our business primarily consists of leasing and subleasing such facilities to third-party tenants, which operate the facilities. As of December 31, 2017, the Company owned, leased, or managed for third parties 30 facilities primarily in the Southeast. The operators of the Company's facilities provide a range of health care services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, the company acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. (“AdCare”). AdCare completed its initial public offering in November 2006. Initially based in Ohio, AdCare expanded its portfolio through a series of strategic acquisitions to include properties in a number of other states, primarily in the Southeast. In 2012, AdCare relocated its executive offices and accounting operations to Georgia, and AdCare changed its state of incorporation from Ohio to Georgia on December 12, 2013.
Historically, AdCare’s business focused on owning and operating skilled nursing and assisted living facilities. The company also managed facilities on behalf of unaffiliated owners pursuant to management contracts. In July 2014, AdCare’s board of directors (the “AdCare Board”) approved a strategic plan to transition (the “Transition”) the company to a healthcare property holding and leasing company through a series of leasing and subleasing transactions. As of December 31, 2015, AdCare and its subsidiaries completed the Transition through: (i) leasing to third-party operators all the healthcare properties which they owned and previously operated; (ii) subleasing to third-party operators all the healthcare properties which they leased (but did not own) and previously operated; and (iii) continuing the one remaining management agreement to manage two skilled nursing facilities and one independent living facility for a third-party. As a result of the Transition, the Company now has many of the characteristics of a real estate investment trust (“REIT”) and is now focused on the ownership, acquisition and leasing of healthcare related properties.
On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, a Georgia corporation and then wholly owned subsidiary of AdCare formed for the purposes of the Merger, with Regional Health continuing as the surviving corporation in the Merger. As a consequence of the Merger:
|
• |
the outstanding shares of AdCare’s common stock, no par value per share (the “AdCare common stock”), converted, on a one for one basis, into the same number of shares of Regional Health’s common stock, no par value per share (the “RHE common stock”); |
|
• |
the outstanding shares of AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “AdCare Series A Preferred Stock”) converted, on a one for one basis, into the same number of shares of Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “RHE Series A Preferred Stock”); |
|
• |
the AdCare Board and executive officers of AdCare immediately prior to the Merger became the board of directors (the “RHE Board”) and executive officers, respectively, of Regional Health immediately following the Merger, and each director and executive officer continued his directorship or employment, as the case may be, with Regional Health under the same terms as his directorship or employment with AdCare immediately following the Merger; |
|
• |
Regional Health assumed all of AdCare’s equity incentive compensation plans, and all rights to acquire shares of AdCare common stock under any AdCare equity incentive compensation plan converted into rights to acquire RHE common stock pursuant to the terms of the equity incentive compensation plans and other related documents, if any; |
69
|
• |
Regional Health became the successor issuer to AdCare and succeeded to the assets and continued the business and assumed the obligations of AdCare; |
|
• |
the RHE common stock and the RHE Series A Preferred Stock commenced trading on the NYSE American LLC (“NYSE American”) immediately following the Merger; |
|
• |
the rights of the holders of RHE common stock and RHE Series A Preferred Stock are governed by the amended and restated articles of incorporation of RHE (the “RHE Charter”) and the amended and restated bylaws of RHE (the “RHE Bylaws”). The RHE Charter is substantially equivalent to AdCare’s articles of incorporation, as amended (the “AdCare Charter”), except that the RHE Charter includes ownership and transfer restrictions related to the RHE common stock. The RHE Bylaws are substantially equivalent to the bylaws of AdCare, as amended; |
|
• |
there was no change in the assets held by or in the business conducted by the Company; and |
|
• |
there is no fundamental change to the Company’s current operational strategy. |
When used in these notes to the consolidated financial statements, unless otherwise specifically stated or the context otherwise requires, the terms:
|
• |
“Board” or “Board of Directors” refers to the AdCare Board with respect to the period prior to the Merger and to the RHE Board with respect to the period after the Merger; |
|
• |
“Company refers to AdCare and its subsidiaries with respect to the period prior to the Merger and to Regional Health and its subsidiaries with respect to the period after the Merger; |
|
• |
“common stock” refers to the AdCare common stock with respect to the period prior to the Merger and to the RHE common stock with respect to the period after the Merger; |
|
• |
“Series A Preferred Stock” refers to the AdCare Series A Preferred Stock with respect to the period prior to the Merger and to the RHE Series A Preferred Stock with respect to the period after the Merger; and |
|
• |
“Charter” refers to the AdCare Charter with respect to the period prior to the Merger and to the RHE Charter with respect to the period after the Merger. |
As of December 31, 2017, the Company owns, leases, or manages 30 facilities primarily in the Southeast. Of the 30 facilities, the Company: (i) leased 14 owned and subleased 11 leased skilled nursing facilities to third-party tenants; (ii) leased two owned assisted living facilities to third-party tenants; and (iii) managed on behalf of third-party owners two skilled nursing facilities and one independent living facility (see Note 7 - Leases for a full description of the Company's leases). The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee ( i.e ., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the properties including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual escalation clauses.
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles ("GAAP") in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC").
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported results of operations during the reporting period. Significant estimates include the self-insurance reserve for professional and general liability, allowance for doubtful accounts, contractual allowances for Medicaid, Medicare, and managed care reimbursements, deferred tax valuation allowance, fair value of employee and nonemployee share-based awards, fair value estimation methods used to determine the assigned fair value of assets and liabilities acquired in acquisitions, valuation of goodwill and other long-lived assets, and cash flow projections. Actual results could differ materially from those estimates.
70
The consolidated financial statements include the Company's majority owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated through consolidation.
Arrangements with other business enterprises are evaluated, and those in which Regional Health is determined to have controlling financial interest are consolidated. Guidance is provided by FASB ASC Topic 810-10, " Consolidation—Overall", which includes consolidation of business enterprises to which the usual condition of consolidation (ownership of a majority voting interest) does not apply. This guidance includes controlling financial interests that may be achieved through arrangements that do not involve voting interests. In absences of clear control through voting interests, a company's exposure (variable interest) to the economic risks and potential rewards from the variable interest entity's (“VIE”) assets and activities are the best evidence of control. If an enterprise holds the power to direct and right to receive benefits of an entity, it would be considered the primary beneficiary. The primary beneficiary is required to consolidate the assets, liabilities and results of operations of the VIE in its financial statements.
The Company has evaluated and concluded that as of December 31, 2017, the Company has no relationship with a VIE in which it is the primary beneficiary required to consolidate the entity.
Reclassifications
Certain reclassifications have been made to the 2016 financial information to conform to the 2017 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. Reclassifications were made to the consolidated statements of operations for the year ended December 31, 2016 to conform the presentation of interest revenue from notes receivable for both periods presented.
Cash, Cash Equivalents, and Restricted Cash and Investments
The Company considers all unrestricted short-term investments with original maturities less than three months, which are readily convertible into cash, to be cash equivalents. Certain cash, cash equivalents and investment amounts are restricted for specific purposes such as mortgage escrow requirements; reserves for capital expenditures on United States Housing and Urban Development ("HUD") insured facilities and collateral for other debt obligations.
Revenue Recognition and Allowances
Triple-Net Leased Properties. The Company's triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities will be recognized only upon cash collection, and any accumulated straight-line rent receivable will be reversed in the period in which the Company deems rent collection no longer probable. Rent revenues for the nine facilities in Arkansas previously leased by us (the “Arkansas Facilities”) and two facilities in Georgia are recorded on a cash basis.
Management Fee Revenues and Other Revenues. The Company recognizes management fee revenues as services are provided. Further, the Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
71
Allowances. The Company assesses the collectability of our rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that may not be recovered. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates.
Accounts receivable, net totaled $0.9 million at December 31, 2017 compared with $2.4 million at December 31, 2016, of which $0.0 million and $0.9 million, respectively, related to patient care receivables from our legacy operations. At December 31, 2017, the Company allowed for approximately $2.6 million on approximately $2.6 million of gross patient care related receivables primarily from our operations before completion of the Transition. Allowance for patient care receivables are estimated based on an aged-bucket method as well as additional analyses of remaining balances incorporating different payor types. Any changes in patient care receivable allowances are recognized as a component of discontinued operations.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, restricted investments, accounts receivable and straight-line rent receivables. Cash and cash equivalents, restricted cash and restricted investments are held with various financial institutions. From time to time, these balances exceed the federally insured limits. These balances are maintained with high quality financial institutions which management believes limits the risk.
Accounts receivable are recorded at net realizable value. The Company performs ongoing evaluations of its tenants and significant third-party payors with which it contracts, and generally does not require collateral. The Company maintains an allowance for doubtful accounts which management believes is sufficient to cover potential losses. Delinquent accounts receivable are charged against the allowance for doubtful accounts once collection has been determined to be unlikely. Accounts receivable are considered past due and placed on delinquent status based upon contractual terms as well as how frequently payments are received, on an individual account basis.
Property and Equipment
Property and equipment are stated at cost. Expenditures for major improvements are capitalized. Depreciation commences when the assets are placed in service. Maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded. Depreciation is recorded on a straight-line basis over the estimated useful lives of the respective assets. Property and equipment also includes bed license intangibles for states other than Ohio (where the building and bed license are deemed complimentary assets) and are amortized over the life of the building. The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment in the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or capital lease. As of December 31, 2017, all of the Company's leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
72
Intangible Assets and Goodwill
Intangible assets consist of finite lived and indefinite lived intangibles. The Company's finite lived intangibles include lease rights and certain certificate of need ("CON") and bed licenses that are not separable from the associated buildings. Finite lived intangibles are amortized over their estimated useful lives. For the Company's lease related intangibles, the estimated useful life is based on the terms of the underlying facility leases averaging approximately ten years. For the Company's CON/bed licenses that are not separable from the buildings, the estimated useful life is based on the building life when acquired with an average estimated useful life of approximately 32 years. The Company evaluates the recoverability of the finite lived intangibles whenever an impairment indicator is present.
The Company's indefinite lived intangibles consist primarily of values assigned to CON/bed licenses that are separable from the buildings. The Company does not amortize goodwill or indefinite lived intangibles. On an annual basis, the Company evaluates the recoverability of the indefinite lived intangibles and goodwill by performing an impairment test. The Company performs its annual test for impairment during the fourth quarter of each year. For the year ended December 31, 2017 the test results indicated no impairment necessary.
Deferred Financing Costs
The Company records deferred financing costs associated with debt obligations as direct reduction from the carrying amount of the debt liability. Costs are amortized over the term of the related debt using the straight-line method and are reflected as interest expense. The straight-line method yields results substantially similar to those that would be produced under the effective interest rate method.
Income Taxes and Uncertain Tax Positions
Deferred tax assets or liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that included the enactment date. Deferred tax assets are also recognized for the future tax benefits from net operating loss and other carry forwards. Valuation allowances are recorded for deferred tax assets when the recoverability of such assets is not deemed more likely than not.
On December 22, 2017, tax legislation commonly known as The Tax Cuts and Jobs Act (the “Tax Reform”) was enacted. Among other changes the Tax Reform reduces the US federal corporate tax rate from 35% to 21% beginning in 2018.
The Company has remeasured certain deferred tax assets and liabilities as of the enactment date of the Tax Reform based on the rates at which they are expected to reverse in the future, which is generally 21%. The amount recorded related to the remeasurement of our deferred tax balance was $9.5 million, which was offset by a reduction in the valuation allowance. The Company also recorded an income tax benefit of approximately $0.2 million related to the use of our naked credit (a deferred tax liability for an indefinite-lived asset) as a source of income to release a portion of our valuation allowance.
Judgment is required in evaluating uncertain tax positions. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is measured to determine the amount of benefit to recognize in the financial statements. The Company classifies unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets. The Company is subject to income taxes in the U.S. and numerous state and local jurisdictions. In general, the Company's tax returns filed for the 2014 through 2017 tax years are still subject to potential examination by taxing authorities.
The Company is not currently under examination by any major income tax jurisdiction.
73
The Company follows the provisions of ASC topic 718 “ Compensation - Stock Compensation ”, which requires the use of the fair-value based method to determine compensation for all arrangements under which employees, non-employees, and others receive shares of stock or equity instruments (options, warrants or restricted shares). All awards are amortized on a straight-line basis over their vesting terms.
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 of a measurement 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, 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.
Self-Insurance
The Company was self-insured for employee medical claims (in all states except for Oklahoma, where the Company participated in the Oklahoma state subsidy program) and had a large deductible workers' compensation plan (in all states except for Ohio, where workers' compensation is covered under a premium-only policy provided by the Ohio Bureau of Workers' Compensation). Additionally, the Company maintains insurance programs, including commercial general liability, property, casualty, directors' and officers' liability, crime and employment practices liability.
In July 2014, the Board approved and commenced the Transition. In 2015, the insurance programs described above changed in order to address the different needs of the Company as a result of the Transition. The Company's workers compensation plan transitioned from a high deductible to a guaranteed cost program in February 2015. As of December 31, 2017, claims incurred but not reported or unsettled claims for the legacy self-insured employee medical plan and the large deductible workers' compensation plan are recognized as a liability in the consolidated financial statements.
Professional liability insurance was provided to facilities operations up until the date of transfer. Claims which were associated with prior operations of the Company but not reported as of the transition date were self-insured.
The Company has self-insured against professional and general liability claims since it discontinued its healthcare operations in connection with the Transition. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company's estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 8 - Accrued Expenses and Other .
74
Classification of the Series A Preferred Stock as Permanent Equity
As a result of the Merger the common stock is subject to the ownership and transfer restrictions set forth in the RHE Charter. These restrictions permit classification of the Series A Preferred Stock as permanent equity. Prior to the Merger, the common stock was not subject to similar restrictions, and the Series A Preferred Stock was classified outside of permanent equity. As of the Merger date, the Series A Preferred Stock was classified as permanent equity. See Note 12 – Common and Preferred Stock .
Recently Adopted Accounting Standards
Except for rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws, FASB ASC is the sole source of authoritative GAAP literature applicable to the Company. The Company has reviewed the FASB accounting pronouncements and Accounting Standards Updates (“ ASU ”) interpretations that have effectiveness dates during the periods reported and in future periods.
On April 1, 2017, the Company adopted ASU 2017-01 , Clarifying the Definition of a Business, which narrows the FASB definition of a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset or a business. ASU 2017-01 states that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquired asset is not a business. If this initial test is not met, an acquired asset cannot be considered a business unless it includes an input and a substantive process that together significantly contribute to the ability to create output. The primary differences between business combinations and asset acquisitions include recognition of goodwill at the acquisition date and expense recognition for transaction costs as incurred. The Company is applying ASU 2017-01 prospectively for acquisitions after April 1, 2017. Regardless of whether an acquisition is considered a business combination or an asset acquisition, the Company records the cost of the businesses (or assets) acquired as tangible and intangible assets and liabilities based upon their estimated fair values as of the acquisition date. Intangibles primarily include CONs but could include value of in-place leases and acquired lease contracts. For an asset acquisition, the cost of the acquisition is allocated to the assets and liabilities acquired on a relative fair value basis and no goodwill is recognized. The Company estimates the fair value of assets in accordance with FASB ASC 820 . The fair value is estimated under market conditions observed at the time of the measurement date and depreciated over the remaining life of the assets.
In March 2016, the FASB issued ASU 2016-09, with the intention to simplify aspects of the accounting for share-based payment transactions, including income tax impacts, classification on the statement of cash flows, and forfeitures. ASU 2016-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The various amendments within the standard require different approaches to adoption, on a retrospective, modified retrospective or prospective basis. The Company adopted the various amendments in its consolidated financial statements for the three month period ending March 31, 2017 with an effective date of January 1, 2017. The Company has elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. The adoption of ASU 2016-09 did not have a material effect on the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15 , which provides guidance regarding an entity’s ability to continue as a going concern, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new standard, there was minimal guidance in GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The adoption of ASU 2014-15 did not have a material effect on the Company’s consolidated financial statements.
75
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires a company to recognize revenue when the company transfers control of promised goods and services to the customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods or services. A company is also required to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to the standards, which are intended to promote a more consistent interpretation and application of the principles outlined in the standard.
Companies are permitted to adopt the standard using a retrospective transition method (i.e., restate all prior periods presented) or a cumulative effect method (i.e., recognize the cumulative effect of initially applying the guidance at the date of initial application with no restatement of prior periods). However, both methods allow companies to elect certain practical expedients on transition that will help to simplify how a company restates its contracts. The Company currently anticipates adopting the standard using the cumulative effect method.
The new standard is effective for the Company for annual periods in fiscal years beginning after December 15, 2018. All companies are permitted to early adopt the standard beginning January 1, 2017. The Company will implement the provisions of ASU 2014-09 as of January 1, 2018.
The Company does not expect the standard to have a material effect on the consolidated financial statements, other than for the additional disclosures required by the standard. While the Company’s management fee revenue is subject to the provisions of ASC 606, the pattern and timing of recognition of income under the new standard will be consistent with the current accounting model. The new standard does not apply to rental revenue.
The new guidance will not affect the total revenue or operating earnings recognized for such contract. The Company does not expect the effects of adoption for such contract to be material to the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, which provides revised accounting guidance related to the accounting for and reporting of financial instruments. This guidance significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, a comprehensive new standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance, ASC 840, Leases . ASU 2016-02 creates a new Topic, ASC 842, Leases . This new topic retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13 , which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.
76
In August 2016, the FASB issued ASU 2016-15 , which eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be applied prospectively as of the earliest date practicable. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18 , which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. Therefore, amounts generally described as restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted using a retrospective transition method to each period presented. The Company is currently evaluating the impact of adopting ASU 2016-09 on its consolidated financial statements.
Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted by the impact of the assumed issuance of convertible shares and the weighted-average number of shares of common stock outstanding (which includes potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive). Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. Potentially dilutive securities from convertible promissory notes are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance. For 2017 and 2016, potentially dilutive securities of 1.6 million and 4.4 million, respectively, were excluded from the diluted loss per share calculation because including them would have been anti-dilutive in both periods.
The following table provides a reconciliation of net loss for continuing and discontinued operations and the number of shares used in the computation of both basic and diluted earnings per share:
|
|
Year Ended December 31, |
|
|||||||||||||||||||||
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
(Amounts in 000's, except per share data) |
|
Income (loss) |
|
|
Shares (2) |
|
|
Per Share |
|
|
Income (loss) |
|
|
Shares (2) |
|
|
Per Share |
|
||||||
Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
694 |
|
|
|
|
|
|
|
|
|
|
$ |
5,966 |
|
|
|
|
|
|
|
|
|
Preferred stock dividends, declared |
|
|
(5,702 |
) |
|
|
|
|
|
|
|
|
|
|
(7,335 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividends, undeclared (1) |
|
|
(1,912 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Basic and diluted loss from continuing operations |
|
$ |
(6,920 |
) |
|
|
19,767 |
|
|
$ |
(0.35 |
) |
|
$ |
(1,369 |
) |
|
|
19,892 |
|
|
$ |
(0.07 |
) |
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(1,679 |
) |
|
|
|
|
|
|
|
|
|
$ |
(13,428 |
) |
|
|
|
|
|
|
|
|
Basic and Diluted Loss from discontinued operations, net of tax |
|
$ |
(1,679 |
) |
|
|
19,767 |
|
|
$ |
(0.08 |
) |
|
$ |
(13,428 |
) |
|
|
19,892 |
|
|
$ |
(0.67 |
) |
Net Loss Attributable to Regional Health Properties, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net loss attributable to Regional Health Properties, Inc. common stockholders |
|
$ |
(8,599 |
) |
|
|
19,767 |
|
|
$ |
(0.43 |
) |
|
$ |
(14,797 |
) |
|
|
19,892 |
|
|
$ |
(0.74 |
) |
(1) |
The Board suspended dividend payments with respect to our Series A Preferred Stock for the fourth quarter 2018. |
77
(2) |
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: |
|
|
December 31, |
|
|||||
(Amounts in 000’s) |
|
2017 |
|
|
2016 |
|
||
Stock options |
|
|
181 |
|
|
|
355 |
|
Common stock warrants - employee |
|
|
582 |
|
|
|
1,450 |
|
Common stock warrants - nonemployee |
|
|
437 |
|
|
|
437 |
|
Shares issuable upon conversion of convertible debt |
|
|
353 |
|
|
|
2,165 |
|
Total shares |
|
|
1,553 |
|
|
|
4,407 |
|
NOTE 3. LIQUIDITY
The Company continues to undertake measures to grow its operations and to streamline its cost infrastructure by: (i) increasing future lease revenue through acquisitions and investments in existing properties; (ii) modifying the terms of existing leases; (iii) refinancing or repaying debt to reduce interest costs and mandatory principal repayments; and (iv) reducing general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing. At December 31, 2017, the Company had $1.8 million in cash and cash equivalents. During the twelve months ended December 31, 2017, the Company generated positive cash flow from continuing operations of $6.0 million and anticipates continued positive cash flow from operations in the future. The Board has suspended dividend payments with respect to the Series A Preferred Stock for the fourth quarter 2017 and the first quarter 2018 dividend periods. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock in the second quarter of 2018. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs.
As of December 31, 2017, the Company had total current liabilities of $19.5 million and total current assets of $4.7 million, which includes approximately $1.8 million of cash and cash equivalents, thus resulting in a working capital deficit of approximately $14.8 million. Included in current liabilities at December 31, 2017 is the $8.1 million current portion of its $73.1 million in indebtedness. The current portion of such indebtedness is comprised of: (i) $4.3 million mortgage indebtedness under the Company’s credit facility with Housing & Healthcare Funding, LLC (the “Quail Creek Credit Facility”); (ii) convertible debt of $1.5 million; and (iii) other debt of approximately $2.3 million, which includes senior debt and bond and mortgage indebtedness. The Company anticipates net principal repayments of approximately $3.8 million during the next twelve-month period, which includes $1.5 million of convertible debt (which was repaid in February 2018), approximately $0.5 million of payments on other non-routine debt, $1.7 million of routine debt service amortization, and a $0.1 million payment of other debt. Management is in discussions to obtain an additional extension of the Quail Creek Credit Facility to at least April 30, 2019. Management believes the extension of the maturity of the Quail Creek Credit Facility is probable of being executed as the Company has successfully extended the maturity date of this facility in the past, and the facility is secured by a first mortgage on the real property and improvements constituting the Nursing & Rehabilitation Center located in Oklahoma City, Oklahoma (the “Quail Creek Facility”), (see Note 9— Notes Payable and Other Debt ).
Subsequent to year end, on February 15, 2018, the Company entered into a debt refinancing with Pinecone Realty Partners II, LLC (“Pinecone Credit Facility”), with an aggregate principal amount of $16.25 million, which refinanced existing mortgage debt in an aggregate amount of $8.7 million on three skilled nursing properties, and provided additional surplus cash flow of $6.3 million which is available to fund general corporate needs (see Note 19 – Subsequent Events ). The surplus cash flow from the Pinecone Credit Facility was used to deposit $2.4 million of cash into escrow to fund self-insurance reserves for professional and general liability claims with respect to 25 professional and general liability actions (included within current liabilities), and to fund repayment of $1.5 million in convertible debt. The remaining $2.4 million in surplus cash proceeds from the Pinecone Credit Facility refinancing will be used for general corporate purposes.
78
Given the available capital from the Pinecone Credit Facility, management’s plans to extend the due date of the Quail Creek Credit Facility, combined with current funds on hand, and expected future cash flow from operations, management believes that the Company will be able to meet its obligations as they become due in the ordinary course of business for a period of 12 months following the date these financial statements are issued. Management's belief assumes, that the Company will continue to be successful in implementing its business strategy and achieving forecasted results and that there will be no material adverse developments in its business, liquidity or capital requirements.
NOTE 4. RESTRICTED CASH AND INVESTMENTS
The following presents the Company's various restricted cash, escrow deposits and investments:
|
|
December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Cash collateral |
|
$ |
63 |
|
|
$ |
260 |
|
Replacement reserves |
|
|
260 |
|
|
|
811 |
|
Escrow deposits |
|
|
637 |
|
|
|
529 |
|
Total current portion |
|
|
960 |
|
|
|
1,600 |
|
Restricted investments for debt obligations |
|
|
2,176 |
|
|
|
2,274 |
|
HUD and other replacement reserves |
|
|
405 |
|
|
|
1,590 |
|
Total noncurrent portion |
|
|
2,581 |
|
|
|
3,864 |
|
Total restricted cash and investments |
|
$ |
3,541 |
|
|
$ |
5,464 |
|
Cash collateral — In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such loan agreements.
Replacement reserves —Cash reserves set aside for non-critical building repairs to be completed within the next 12 months, pursuant to loan agreements.
Escrow deposits —In connection with financing secured through our lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted investments for debt obligations —In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.
HUD and other replacement reserves —The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets.
NOTE 5. PROPERTY AND EQUIPMENT
The following table sets forth the Company’s property and equipment:
|
|
Estimated Useful |
|
December 31, |
|
|||||
(Amounts in 000's) |
|
Lives (Years) |
|
2017 |
|
|
2016 |
|
||
Buildings and improvements |
|
5 - 40 |
|
$ |
89,665 |
|
|
$ |
84,108 |
|
Equipment and computer related |
|
2 - 10 |
|
|
10,893 |
|
|
|
12,286 |
|
Land |
|
— |
|
|
4,248 |
|
|
|
3,988 |
|
Construction in process |
|
— |
|
|
49 |
|
|
|
602 |
|
|
|
|
|
|
104,855 |
|
|
|
100,984 |
|
Less: accumulated depreciation and amortization |
|
|
|
|
(23,642 |
) |
|
|
(21,816 |
) |
Property and equipment, net |
|
|
|
$ |
81,213 |
|
|
$ |
79,168 |
|
79
During the twelve months ended December 31, 2017, and the twelve months ended December 31, 2016, the Company recorded no impairments in property and equipment. During the twelve months ended December 31, 2016, the Company recognized approximately $21.0 thousand impairment for an office located in Roswell, Georgia as part of the sale from amounts previously recorded in assets of disposal group held for sale (see Note 11 - Discontinued Operations ).
On October 6, 2016, the Company completed the sale of the Arkansas Facilities, together with substantially all of the fixtures, equipment, furniture and other assets relating to such facilities (see Note 11 - Discontinued Operations ).
On May 1, 2017, the Company completed the acquisition of an assisted living and memory care community with 106 operational beds in Glencoe, Alabama (the “Meadowood Facility”) (see Note 10 – Acquisitions and Dispositions) .
The following table summarizes total depreciation and amortization for the twelve months ended December 31, 2017 and 2016:
|
|
December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Depreciation |
|
$ |
3,318 |
|
|
$ |
3,784 |
|
Amortization |
|
|
1,550 |
|
|
|
1,512 |
|
Total depreciation and amortization |
|
$ |
4,868 |
|
|
$ |
5,296 |
|
NOTE 6. INTANGIBLE ASSETS AND GOODWILL
Intangible assets consist of the following:
(Amounts in 000's) |
|
Bed Licenses (included in property and equipment) |
|
|
Bed Licenses— Separable |
|
|
Lease Rights |
|
|
Total |
|
||||
Balances, January 1, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
$ |
35,690 |
|
|
$ |
2,471 |
|
|
$ |
6,881 |
|
|
$ |
45,042 |
|
Accumulated amortization |
|
|
(4,760 |
) |
|
|
— |
|
|
|
(3,461 |
) |
|
|
(8,221 |
) |
Net carrying amount |
|
$ |
30,930 |
|
|
$ |
2,471 |
|
|
$ |
3,420 |
|
|
$ |
36,821 |
|
Dispositions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
(12,879 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,879 |
) |
Accumulated amortization |
|
|
2,123 |
|
|
|
— |
|
|
|
— |
|
|
|
2,123 |
|
Amortization expense |
|
|
(846 |
) |
|
|
— |
|
|
|
(666 |
) |
|
|
(1,512 |
) |
Balances, December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
22,811 |
|
|
|
2,471 |
|
|
|
6,881 |
|
|
|
32,163 |
|
Accumulated amortization |
|
|
(3,483 |
) |
|
|
— |
|
|
|
(4,127 |
) |
|
|
(7,610 |
) |
Net carrying amount |
|
|
19,328 |
|
|
|
2,471 |
|
|
|
2,754 |
|
|
|
24,553 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
— |
|
|
|
— |
|
|
|
300 |
|
|
|
300 |
|
Amortization expense |
|
|
(683 |
) |
|
|
— |
|
|
|
(867 |
) |
|
|
(1,550 |
) |
Balances, December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
$ |
22,811 |
|
|
$ |
2,471 |
|
|
$ |
7,181 |
|
|
$ |
32,463 |
|
Accumulated amortization |
|
|
(4,166 |
) |
|
|
— |
|
|
|
(4,994 |
) |
|
|
(9,160 |
) |
Net carrying amount |
|
$ |
18,645 |
|
|
$ |
2,471 |
|
|
$ |
2,187 |
|
|
$ |
23,303 |
|
Amortization expense for bed licenses is included in property and equipment depreciation and amortization expense (see Note 5 - Property and Equipment ).
80
Estimated amortization expense for all finite-lived intangibles for each of the future years ending December 31 is as follows:
Amounts in (000's) |
|
Bed Licenses |
|
|
Lease Rights |
|
||
2018 |
|
$ |
683 |
|
|
|
767 |
|
2019 |
|
|
683 |
|
|
|
667 |
|
2020 |
|
|
683 |
|
|
|
482 |
|
2021 |
|
|
683 |
|
|
|
203 |
|
2022 |
|
|
683 |
|
|
|
68 |
|
Thereafter |
|
|
15,230 |
|
|
|
— |
|
Total |
|
$ |
18,645 |
|
|
$ |
2,187 |
|
The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016.
|
|
(Amounts in 000's) |
|
|
Balances, January 1, 2016 |
|
|
|
|
Goodwill |
|
$ |
5,023 |
|
Accumulated impairment losses |
|
|
(840 |
) |
Total |
|
$ |
4,183 |
|
Disposals |
|
|
(2,078 |
) |
Net change during year |
|
|
(2,078 |
) |
Balances, December 31, 2016 |
|
|
|
|
Goodwill |
|
$ |
2,945 |
|
Accumulated impairment losses |
|
|
(840 |
) |
Total |
|
$ |
2,105 |
|
Balances, December 31, 2017 |
|
|
|
|
Goodwill |
|
$ |
2,945 |
|
Accumulated impairment losses |
|
|
(840 |
) |
Total |
|
$ |
2,105 |
|
On October 6, 2016, the Company completed the sale of the Arkansas Facilities and disposed of $2.1 million of goodwill (see Note 10 – Acquisitions and Dispositions).
NOTE 7. LEASES
Operating Leases
The Company leases a total of eleven skilled nursing facilities from unaffiliated owners under non-cancelable leases, most of which have rent escalation clauses and provisions for payments of real estate taxes, insurance and maintenance costs; each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in Atlanta and Suwanee, Georgia. The Atlanta office space is subleased to a third-party entity.
Foster Prime Lease. Eight of the Company's skilled nursing facilities (collectively, the "Georgia Facilities") are leased under a single master indivisible arrangement (as amended), with a lease termination date of August 31, 2027, (the "Prime Lease"). Under the Prime Lease, a default related to an individual facility may cause a default of the entire Prime Lease. The Company is responsible for the cost of maintaining the Georgia Facilities. On August 14, 2015 the lessor consented to the Company’s sublease of the Georgia Facilities to a third-party tenant. Commencing on July 1, 2016 annual rent increases at 2.0% annually for the remainder of the lease term.
81
On January 1, 2016 the Company released to the lessor one month of pre-paid rent in the amount of $398,000 and on January 1, 2017 the Company released to lessor the security deposit paid under the Prime Lease in the amount of $500,000. Commencing January 1, 2017, annual rent was increased by an additional $104,000, without annual increases, payable in four equal quarterly instalments of $26,000 for the remainder of the seven year lease extension granted on August 15, 2015. The Prime lease represents approximately 68% of our annual minimum lease payments.
Bonterra/Parkview Master Lease. Two of the Company's facilities are leased under a single indivisible agreement (the "Bonterra/Parkview Master Lease"). Under the Bonterra/Parkview Master Lease, a default related to an individual facility may cause a default of the entire Bonterra/Parkview Master Lease. On September 1, 2015, the Bonterra/Parkview Master Lease was amended, whereby the parties agreed to: (i) extend its initial term by three years, resulting in a new lease termination date of August 31, 2025; (ii) provide consent to the sublease of the two facilities to a third-party operator; and (iii) extend the optional renewal terms to two separate twelve-year renewal periods. In consideration for the amended terms, among other things, the Company agreed to a monthly increase in base rent equal to 37.5% of the difference between the base rent owed by the Company under the Bonterra/Parkview Master Lease and the base rent owed to the Company by the new sublease operator. The Bonterra/Parkview Master Lease represents approximately 24% of our annual minimum lease payments.
Covington Prime Lease. One of the Company's facilities is leased under an agreement dated August 26, 2002, as subsequently amended (the "Covington Prime Lease"), by and between the Company and Covington Realty, LLC. On August 1, 2015, the Covington Prime Lease was amended, whereby the parties agreed to: (i) provide consent to the sublease of the facility to a third-party operator; (ii) extend the term of the lease to expire on April 30, 2025; and (iii) set the annual base rent, effective May 1, 2015 and continuing throughout the lease term, equal to 102% of the immediately preceding lease year's base rent. The Covington Prime Lease represents approximately 8% of our annual minimum lease payments.
Future Minimum Lease Payments
Future minimum lease payments for each of the next five years ending December 31 are as follows:
|
|
(Amounts in 000's) |
|
|
2018 |
|
$ |
8,331 |
|
2019 |
|
|
8,492 |
|
2020 |
|
|
8,671 |
|
2021 |
|
|
8,830 |
|
2022 |
|
|
9,026 |
|
Thereafter |
|
|
37,430 |
|
Total |
|
$ |
80,780 |
|
Leased and Subleased Facilities to Third-Party Operators
In connection with the Company's transition to a self-managed real estate investment company, 27 facilities (16 owned by us and 11 leased to us) are leased or subleased on a triple net basis, meaning that the lessee (i.e., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable.
82
Arkansas Leases and Facilities . Until February 3, 2016, the Company subleased the Arkansas Facilities to affiliates of Aria Health Group, LLC (“Aria”) pursuant to separate sublease agreements (the “Aria Subleases”). Effective February 3, 2016, the Company terminated each Aria Sublease due to the applicable Aria affiliate’s failure to pay rent pursuant to the terms of such sublease. From February 5, 2016 to October 6, 2016, of the Company leased the Arkansas Facilities to Skyline Healthcare LLC (“Skyline”), pursuant to a Master Lease Agreement, dated February 5, 2016 (the “Skyline Lease”). The term of the Skyline Lease commenced on April 1, 2016. In connection with the Skyline Lease, Skyline entered into an Option Agreement, dated February 5, 2016, with Joseph Schwartz, the manager of Skyline, pursuant to which Mr. Schwartz, or an entity designated by Mr. Schwartz (the “Purchaser”), had an exclusive and irrevocable option to purchase the Arkansas Facilities at a purchase price of $55.0 million, consisting of cash consideration in the amount of $52.0 million and a promissory note with a principal amount of $3.0 million. The Company completed the sale of the Arkansas Facilities to the Purchaser on October 6, 2016 (see Note 10 – Acquisitions and Dispositions ).
Beacon. On August 1, 2015, the Company made a short-term loan to certain affiliates of Beacon Health Management, LLC (collectively, the "Beacon Affiliates") and, in connection therewith, Beacon Affiliates executed a promissory note maturing on May 31, 2016 in the amount $0.6 million (the "Beacon Note"), as amended, in favor of the Company. Interest accrued on the unpaid principal balance of the note at a rate of 18% per annum. As of June 30, 2016, $0.6 million outstanding principal and all accumulated interest on the Beacon Note was paid in full.
On August 1, 2015, the Company entered into a lease inducement fee agreement with certain Beacon Affiliates, pursuant to which the Company paid a fee of $0.6 million as a lease inducement for certain Beacon Affiliates (collectively “Beacon Sublessee”) to enter into sublease agreements and to commence such subleases and transfer operations thereunder (the “Beacon Lease Inducement”). As of December 31, 2017 the balance of the Beacon Lease Inducement was approximately $0.5 million.
Peach Health. On June 18, 2016, the Company entered into a master sublease agreement (the “Peach Health Sublease”) with affiliates (collectively, “Peach Health Sublessee”) of Peach Health Group, LLC (“Peach Health”), providing that Peach Health Sublessee would take possession of and operate the three facilities located in Georgia (the “Peach Facilities”) as subtenant. The Peach Facilities are comprised of: (i) an 85-bed skilled nursing facility located in Tybee Island, Georgia (the “Oceanside Facility”); (ii) a 50-bed skilled nursing facility located in Tybee Island, Georgia (the “Savannah Beach Facility”); and (iii) a 131-bed skilled nursing facility located in Jeffersonville, Georgia (the “Jeffersonville Facility”). The Jeffersonville Facility and the Oceanside Facility were previously decertified by the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (“CMS”) in February and May 2016, respectively, for deficiencies related to the operations and maintenance of the facility while operated by the previous sublessee. The Jeffersonville Facility and the Oceanside Facility were recertified by CMS as of December 20, 2016 and February 7, 2017, respectively (the “Peach Recertified Facilities”), which are the rent commencement dates for such facilities.
The Peach Health Sublease became effective for the Jeffersonville Facility on June 18, 2016, and for the Savannah Beach Facility and the Oceanside Facility on July 13, 2016 (the date on which the Company accepted possession of the facilities from the previous sublessee). The Peach Health Sublease is structured as a triple net lease, except that the Company assumed responsibility for the cost of certain deferred maintenance at the Savannah Beach Facility and capital improvements that were necessary for the Oceanside Facility and the Jeffersonville Facility in connection with recertification by CMS. As of December 31, 2017, the Company has invested approximately $1.3 million in connection with recertification capital expenditures at Peach Recertified Facilities. Rent for the Savannah Beach Facility, the Oceanside Facility and the Jeffersonville Facility is $0.3 million, $0.4 million and $0.6 million per annum, respectively; provided, however, that rent was only $1 per month for the Peach Recertified Facilities until the respective rent commencement dates. In addition, for the Peach Recertified Facilities, Peach Health Sublessee is entitled to three months of $1 per month rent following the respective rent commencement dates and, following such three-month period, five months of rent discounted by 50%. The annual rent for each of the Peach Facilities will escalate at a rate of 3% each year pursuant to the Peach Health Sublease, and the term of the Peach Health Sublease for all three Peach Facilities expires on August 31, 2027. On March 30, 2018 the Company and Peach Health Sublessee entered into an amendment to the Peach Health Sublease. The amendment provides for: (i) additional four and six month periods of base rent of $37,080 and $54,590, discounted by 50%, which rate shall continue through March 1, 2018, for the Oceanside Facility and the Jeffersonville Facility, respectively and (ii) beginning April 1, 2018 provides for additional rent payment amounts of $2,500 and $3,400 per month for the Oceanside
83
Facility and the Jeffersonville Facility, respectively. The additional rent for each of the Peach Facilities will escalate at a rate of 3% each year on April 1 st of each remaining year of the term, and any extension thereof. The Peach Health Sublease term for all three Peach Facilities expires on August 31, 2027.
In connection with the Peach Health Sublease, the Company extended a line of credit to Peach Health Sublessee for up to $1.0 million for operations at the Peach Facilities (the “Peach Line”); with interest accruing on the unpaid balance under the Peach Line at a starting interest rate of 13.5%, increasing by 1% per annum. The entire principal amount due under the Peach Line, together with all accrued and unpaid interest thereunder, was due one year from the date of the first disbursement. The Peach Line was secured by a first priority security interest in Peach Health Sublessee’s assets and accounts receivable.
On April 6, 2017, the Company modified certain terms of the Peach Line in connection with Peach Health Sublessee securing a $2.5 million revolving working capital loan from a third party lender (the “Peach Working Capital Facility”), subsequently capped at $1.75 million which matures April 5, 2020. The Peach Working Capital Facility is secured by the eligible accounts receivable, and all the collections on the eligible accounts receivable are remitted to a lockbox controlled by the lender. The modifications of the Peach Line include (as so amended, the “Peach Note”): (i) reducing the loan balance to $0.8 million and restricting further borrowings; (ii) extending the maturity of the loan to October 1, 2020 and adding a six month extension option by Peach Health Sublessee, assuming certain conditions precedent are met at the time of the exercise of the option; (iii) increasing the interest rate from 13.5% per annum by 1% per annum; and (iv) establishing a four year amortization schedule. Payment of principal and interest under the Peach Note shall be governed by certain financial covenants limiting distributions under the Peach Working Capital Facility. Furthermore, the Company guaranteed Peach Health Sublessee’s borrowings under the Peach Working Capital Facility subject to certain burn-off provisions (i.e., the Company’s obligations under such guaranty cease after the later of 18 months or achievement of a certain financial ratio by Peach Health Sublessee). The Company is obligated to pay the outstanding balance on the Peach Working Capital Facility (after application of all eligible accounts receivable collections by the lender) if Peach Health Sublessee fails to comply with the Peach Working Capital Facility obligations and covenants. Fair value of the liability using the expected present value approach is immaterial.
At December 31, 2017, there was a $0.9 million outstanding balance on the Peach Note.
Future Minimum Lease Receivables
Future minimum lease receivables for each of the next five years ending December 31 are as follows:
|
|
(Amounts in 000's) (a) |
|
|
2018 |
|
$ |
22,281 |
|
2019 |
|
|
22,764 |
|
2020 |
|
|
23,299 |
|
2021 |
|
|
23,886 |
|
2022 |
|
|
24,488 |
|
Thereafter |
|
|
112,325 |
|
Total |
|
$ |
229,043 |
|
(a) |
Recertification of the Jeffersonville Facility and Oceanside Facility occurred on December 20, 2016 and February 7, 2017, respectively. |
84
The following is a summary of the Company's leases to third-parties and which comprise the future minimum lease receivables of the Company. The terms of each lease are structured as "triple-net" leases. Each lease contains specific rent escalation amounts ranging from 2.0% to 3.0% annually. Further, each lease has one or more renewal options. For those facilities subleased by the Company, the renewal option in the sublease agreement is dependent on the Company's renewal of its lease agreement.
|
|
|
|
Initial Lease Term |
|
|
|
|
||
|
|
|
|
Commencement |
|
Expiration |
|
2018 Cash |
|
|
Facility Name |
|
Operator Affiliation (1) |
|
Date |
|
Date |
|
Annual Rent |
|
|
|
|
|
|
|
|
|
|
(Thousands) |
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
Eaglewood ALF |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
$ |
764 |
|
Eaglewood Care Center |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
764 |
|
H&C of Greenfield |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
382 |
|
Southland Healthcare |
|
Beacon Health Management |
|
11/1/2014 |
|
10/31/2024 |
|
|
938 |
|
The Pavilion Care Center |
|
Beacon Health Management |
|
8/1/2015 |
|
7/31/2025 |
|
|
382 |
|
Attalla Health Care |
|
C.R. Management |
|
12/1/2014 |
|
8/31/2030 |
|
|
1,153 |
|
Autumn Breeze |
|
C.R. Management |
|
9/30/2015 |
|
9/30/2025 |
|
|
867 |
|
College Park |
|
C.R. Management |
|
4/1/2015 |
|
3/31/2025 |
|
|
633 |
|
Coosa Valley Health Care |
|
C.R. Management |
|
12/1/2014 |
|
8/31/2030 |
|
|
955 |
|
Glenvue H&R |
|
C.R. Management |
|
7/1/2015 |
|
6/30/2025 |
|
|
1,228 |
|
Meadowood |
|
C.R. Management |
|
5/1/2017 |
|
8/31/2030 |
|
|
456 |
|
NW Nursing Center |
|
Southwest LTC |
|
12/31/2015 |
|
11/30/2025 |
|
|
372 |
|
Quail Creek |
|
Southwest LTC |
|
12/31/2015 |
|
11/30/2025 |
|
|
768 |
|
Georgetown Health |
|
Symmetry Healthcare |
|
4/1/2015 |
|
3/31/2030 |
|
|
338 |
|
Mountain Trace Rehab |
|
Symmetry Healthcare |
|
6/1/2015 |
|
5/31/2030 |
|
|
742 |
|
Sumter Valley Nursing |
|
Symmetry Healthcare |
|
4/1/2015 |
|
3/31/2030 |
|
|
836 |
|
Subtotal Owned Facilities (16) |
|
|
|
|
|
|
|
$ |
11,578 |
|
Leased |
|
|
|
|
|
|
|
|
|
|
Covington Care |
|
Beacon Health Management |
|
8/1/2015 |
|
4/30/2025 |
|
$ |
818 |
|
Lumber City |
|
Beacon Health Management |
|
11/1/2014 |
|
8/31/2027 |
|
|
894 |
|
LaGrange |
|
C.R. Management |
|
4/1/2015 |
|
8/31/2027 |
|
|
1,074 |
|
Thomasville N&R |
|
C.R. Management |
|
7/1/2014 |
|
8/31/2027 |
|
|
345 |
|
Jeffersonville |
|
Peach Health |
|
6/18/2016 |
|
8/31/2027 |
|
|
665 |
|
Oceanside |
|
Peach Health |
|
7/13/2016 |
|
8/31/2027 |
|
|
451 |
|
Savannah Beach |
|
Peach Health |
|
7/13/2016 |
|
8/31/2027 |
|
|
263 |
|
Bonterra |
|
Wellington Health Services |
|
9/1/2015 |
|
8/31/2025 |
|
|
1,091 |
|
Parkview Manor/Legacy |
|
Wellington Health Services |
|
9/1/2015 |
|
8/31/2025 |
|
|
1,091 |
|
Powder Springs |
|
Wellington Health Services |
|
4/1/2015 |
|
8/31/2027 |
|
|
2,160 |
|
Tara |
|
Wellington Health Services |
|
4/1/2015 |
|
8/31/2027 |
|
|
1,851 |
|
Subtotal Leased Facilities (11) |
|
|
|
|
|
|
|
$ |
10,703 |
|
Total (27) |
|
|
|
|
|
|
|
$ |
22,281 |
|
(1) |
Represents the number of facilities which are leased or subleased to separate tenants, which tenants are affiliates of the entity named in the table above. |
Our leases and subleases are by facility with tenants that are separate legal entities affiliated with the above operators. All facilities are skilled nursing facilities except for Eaglewood ALF and Meadowood which are assisted living facilities. All facilities have renewal provisions of one term of five years except facilities (Mountain Trace, Quail Creek, NW Nursing, Sumter Valley, and Georgetown) which have two renewal terms with each being five years. The leases also contain standard rent escalations that range from 2.0% to 3.0% annually.
85
NOTE 8. ACCRUED EXPENSES AND OTHER
Accrued expenses consist of the following:
|
|
December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Accrued employee benefits and payroll related |
|
$ |
290 |
|
|
$ |
442 |
|
Real estate and other taxes |
|
|
423 |
|
|
|
557 |
|
Self-insured reserve (1) |
|
|
5,077 |
|
|
|
6,924 |
|
Accrued interest |
|
|
260 |
|
|
|
251 |
|
Accrued preferred dividend |
|
|
0 |
|
|
|
— |
|
Other accrued expenses |
|
|
972 |
|
|
|
903 |
|
Total |
|
$ |
7,022 |
|
|
$ |
9,077 |
|
(1) |
The Company self-insures against professional and general liability cases and uses a third party administrator and outside counsel to manage and defend the claims. Additionally $0.2 million is accrued in “Other liabilities” in the Company’s consolidated balance sheets for amounts due in excess of twelve months (see Note 15 - Commitments and Contingencies ). |
NOTE 9. NOTES PAYABLE AND OTHER DEBT
Notes payable and other debt consists of the following:
|
|
December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Senior debt—guaranteed by HUD |
|
|
33,685 |
|
|
|
34,473 |
|
Senior debt—guaranteed by USDA (a) |
|
|
20,320 |
|
|
|
22,518 |
|
Senior debt—guaranteed by SBA (b) |
|
|
2,210 |
|
|
|
2,319 |
|
Senior debt—bonds |
|
|
7,055 |
|
|
|
7,145 |
|
Senior debt—other mortgage indebtedness |
|
|
9,486 |
|
|
|
5,639 |
|
Other debt |
|
|
1,050 |
|
|
|
1,063 |
|
Convertible debt |
|
|
1,500 |
|
|
|
9,200 |
|
Sub Total |
|
|
75,306 |
|
|
|
82,357 |
|
Deferred financing costs |
|
|
(2,027 |
) |
|
|
(2,196 |
) |
Unamortized discounts on bonds |
|
|
(177 |
) |
|
|
(191 |
) |
Total |
|
|
73,102 |
|
|
|
79,970 |
|
Less current portion |
|
|
8,090 |
|
|
|
13,154 |
|
Notes payable and other debt, net of current portion |
|
$ |
65,012 |
|
|
$ |
66,816 |
|
(a) |
U.S. Department of Agriculture (“USDA”) |
(b) |
U.S. Small Business Administration (“SBA”) |
86
The following is a detailed listing of the debt facilities that comprise each of the above categories:
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
Lender |
|
Maturity |
|
Interest Rate (a) |
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
|||||
Senior debt - guaranteed by HUD (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
The Pavilion Care Center |
|
Red Mortgage |
|
12/01/2027 |
|
Fixed |
|
|
4.16 |
% |
|
$ |
1,329 |
|
|
$ |
1,434 |
|
Hearth and Care of Greenfield |
|
Red Mortgage |
|
08/01/2038 |
|
Fixed |
|
|
4.20 |
% |
|
|
2,127 |
|
|
|
2,191 |
|
Woodland Manor |
|
Midland State Bank |
|
10/01/2044 |
|
Fixed |
|
|
3.75 |
% |
|
|
5,334 |
|
|
|
5,447 |
|
Glenvue |
|
Midland State Bank |
|
10/01/2044 |
|
Fixed |
|
|
3.75 |
% |
|
|
8,283 |
|
|
|
8,457 |
|
Autumn Breeze |
|
KeyBank |
|
01/01/2045 |
|
Fixed |
|
|
3.65 |
% |
|
|
7,199 |
|
|
|
7,352 |
|
Georgetown (c) |
|
Midland State Bank |
|
10/01/2046 |
|
Fixed |
|
|
2.98 |
% |
|
|
3,644 |
|
|
|
3,723 |
|
Sumter Valley (d) |
|
Key Bank |
|
01/01/2047 |
|
Fixed |
|
|
3.70 |
% |
|
|
5,769 |
|
|
|
5,869 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
33,685 |
|
|
$ |
34,473 |
|
Senior debt - guaranteed by USDA (e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Attalla (f) |
|
Metro City |
|
09/30/2035 |
|
Prime + 1.50% |
|
|
5.50 |
% |
|
$ |
6,169 |
|
|
$ |
7,189 |
|
Coosa |
|
Metro City |
|
09/30/2035 |
|
Prime + 1.50% |
|
|
5.50 |
% |
|
|
5,562 |
|
|
|
6,483 |
|
Mountain Trace |
|
Community B&T |
|
01/24/2036 |
|
Prime + 1.75% |
|
|
5.75 |
% |
|
|
4,260 |
|
|
|
4,384 |
|
Southland |
|
Bank of Atlanta |
|
07/27/2036 |
|
Prime + 1.50% |
|
|
6.00 |
% |
|
|
4,329 |
|
|
|
4,462 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
20,320 |
|
|
$ |
22,518 |
|
Senior debt - guaranteed by SBA (g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
College Park (f) |
|
CDC |
|
10/01/2031 |
|
Fixed |
|
|
2.81 |
% |
|
$ |
1,523 |
|
|
$ |
1,611 |
|
Southland |
|
Bank of Atlanta |
|
07/27/2036 |
|
Prime + 2.25% |
|
|
5.75 |
% |
|
|
687 |
|
|
|
708 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,210 |
|
|
$ |
2,319 |
|
(a) |
Represents interest rates as of December 31, 2017 as adjusted for applicable interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs which range from 0.08% to 0.53% per annum. |
(b) |
For the seven skilled nursing facilities, the Company has term loans insured 100% by HUD with financial institutions. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into loans, the facilities entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. |
(c) |
On September 29, 2016, the Company closed a HUD-guaranteed financing in the amount of $3.7 million, maturing in 2046 and bearing an interest rate of 2.98% (interest rate excludes annual mortgage insurance premiums), which refinanced approximately $3.1 million in debt previously owed to the PrivateBank with respect to the Company’s skilled nursing facility in Georgetown, South Carolina. |
(d) |
On December 14, 2016, the Company refinanced the debt with respect to the Company’s skilled nursing facility located in Sumter, South Carolina with $5.9 million of new mortgage debt maturing in 2047 and bearing an interest rate of 3.70% (interest rate excludes annual mortgage insurance premiums). The HUD-guaranteed mortgage refinances $5.9 million of short term debt that bore an interest rate of 4.71% at September 30, 2016. |
87
(f) |
On February 15, 2018, the Company refinanced such loans (see Note 19 – Subsequent Events) . |
(g) |
For each of the two facilities, the Company has a term loan with a financial institution, which is insured 75% by the SBA. The notes mature at various dates starting in 2031 through 2036. |
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
Lender |
|
Maturity |
|
Interest Rate (a) |
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
|||||
Senior debt - bonds (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Eaglewood Bonds Series A |
|
City of Springfield, Ohio |
|
05/01/2042 |
|
Fixed |
|
|
7.65 |
% |
|
$ |
6,610 |
|
|
$ |
6,610 |
|
Eaglewood Bonds Series B |
|
City of Springfield, Ohio |
|
05/01/2021 |
|
Fixed |
|
|
8.50 |
% |
|
|
445 |
|
|
|
535 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
7,055 |
|
|
$ |
7,145 |
|
(a) |
Represents interest rates as of December 31, 2017 as adjusted for applicable interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of approximately 0.26% per annum. |
(b) |
In April 2012, a wholly-owned subsidiary of the Company entered into a loan agreement with the City of Springfield, Ohio pursuant to which City of Springfield lent to such subsidiary the proceeds from the sale of City of Springfield's Series 2012 Bonds. The Series 2012 Bonds consist of $6.6 million in Series 2012A First Mortgage Revenue Bonds and $0.6 million in Taxable Series 2012B First Mortgage Revenue Bonds. The bonds are secured by the Company's assisted living facility located in Springfield, Ohio known as Eaglewood Village and guaranteed by Regional Health. There is an original issue discount of $0.3 million related to this loan. |
(a) |
Represents interest rates as of December 31, 2017 as adjusted for applicable interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs which range from 0.0% to 1.09% per annum. |
(b) |
On September 19, 2016, the Company obtained an option to extend the maturity date of the Quail Creek Credit Facility to September 2018. On February 28, 2018 the Company extended the maturity date to April 30, 2018 and retains the option to further extend the maturity to September 2018. The loan is secured by: (i) a first mortgage on the real property and improvements constituting the Quail Creek Facility; (ii) a first priority interest on all furnishing, fixtures and equipment associated with the Quail Creek Facility; and (iii) an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Quail Creek Facility. |
(c) |
On February 15, 2018, the Company refinanced this loan (see Note 19 – Subsequent Events) . |
(d) |
On May 1, 2017, in connection with the Company’s acquisition of the Meadowood Facility, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Meadowood Credit Facility”) with the Exchange Bank of Alabama, which provides for a $4.1 million principal amount secured credit facility maturing on May 1, 2022. The Meadowood Credit Facility is secured by the Meadowood Facility. |
88
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender |
|
Maturity |
|
Interest Rate |
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
|||||
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Insurance Funding |
|
02/28/2018 |
|
Fixed |
|
|
4.24 |
% |
|
$ |
20 |
|
|
$ |
20 |
|
KeyBank |
|
08/02/2019 |
|
Fixed |
|
|
0.00 |
% |
|
|
495 |
|
|
|
496 |
|
McBride Note (a) |
|
09/30/2019 |
|
Fixed |
|
|
4.00 |
% |
|
|
264 |
|
|
|
— |
|
Pharmacy Care of Arkansas |
|
02/08/2018 |
|
Fixed |
|
|
2.00 |
% |
|
|
42 |
|
|
|
547 |
|
South Carolina Department of Health & Human Services (b) |
|
02/24/2019 |
|
Fixed |
|
|
5.75 |
% |
|
|
229 |
|
|
|
— |
|
Total |
|
|
|
|
|
|
|
|
|
$ |
1,050 |
|
|
$ |
1,063 |
|
(a) |
The Company executed an unsecured promissory note in favor of William McBride III, the Company’s former Chairman and Chief Executive Officer, pursuant to a settlement agreement dated September 26, 2017, between Mr. McBride and the Company, see Note 18 Related Party Transactions “McBride Matters. |
(b) |
On February 21, 2017, the South Carolina Department of Health and Human Services (“SCHHS”) issued fiscal year 2013 Medicaid audit reports for two facilities operated by the Company during 2013. In its fiscal year 2013 Medicaid audit reports, SCHHS determined that the Company owed an aggregate $0.4 million related to patient-care related payments made by SCHHS during 2013. Repayment of the $0.4 million began on March 24, 2017 in the form of a two-year note bearing interest of 5.75% per annum. |
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
Conversion price |
|
|
Maturity |
|
Interest Rate (a) |
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
||||||
Convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued July 2012 (b) |
|
$ |
4.25 |
|
|
04/30/2018 |
|
Fixed |
|
|
14.00 |
% |
|
$ |
1,500 |
|
|
$ |
1,500 |
|
Issued March 2015 (c) |
|
$ |
4.25 |
|
|
04/30/2017 |
|
Fixed |
|
|
10.00 |
% |
|
|
— |
|
|
|
7,700 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,500 |
|
|
$ |
9,200 |
|
(a) |
Represents interest rates as of December 31, 2017. The rates exclude amortization of deferred financing costs which approximate 2.48% per annum. |
(b) |
On February 15, 2018, the Company repaid the outstanding principal balance of $1.5 million together with all accrued and unpaid interest, under the Company’s convertible promissory notes issued in July 2012 and all related obligations thereunder were extinguished at that time. (see Note 19 - Subsequent Events) . |
(c) |
On December 8, 2016, the Company announced a tender offer (the “Tender Offer”) for any and all of the Company’s 10% convertible subordinated notes due April 30, 2017 (the “2015 Notes”) at a cash purchase price equal to $1,000 per $1,000 principal amount of the 2015 Notes purchased, plus accrued and unpaid interest to, but not including, the payment date. The Tender Offer expired on January 9, 2017, and $6.7 million in aggregate principal amount of the 2015 Notes were tendered and paid on January 10, 2017. On April 30, 2017, the remaining $1.0 million in aggregate principal amount of the 2015 Notes outstanding was repaid plus accrued and unpaid interest in accordance with the terms of such notes, and all related obligations owed under the 2015 Notes were extinguished at that time. |
89
The schedule below summarizes the scheduled gross maturities as of December 31, 2017 for each of the next five years and thereafter.
|
|
Amounts in (000's) |
|
|
2018 |
|
$ |
8,121 |
|
2019 |
|
|
2,640 |
|
2020 |
|
|
2,942 |
|
2021 |
|
|
2,100 |
|
2022 |
|
|
5,525 |
|
Thereafter |
|
|
53,978 |
|
Subtotal |
|
|
75,306 |
|
Less: unamortized discounts |
|
|
(177 |
) |
Less: deferred financing costs (1) |
|
|
(2,027 |
) |
Total notes and other debt |
|
$ |
73,102 |
|
(1) |
Approximately $0.03 million of deferred financing is recorded in "Current portion of convertible debt, net" on the Company’s consolidated balance sheets. |
Letters of Credit
As of December 31, 2017 the Company has no outstanding letters of credit. There was $0.4 million of outstanding letters of credit (under the Company's then revolving credit facility with the PrivateBank) at December 31, 2016, used primarily for surety bonds, which the Company cancelled when no longer required. Such letters of credit were fully cash collateralized, and the cash was returned to the Company during the year ended December 31, 2017.
Indebtedness repaid from Proceeds of 2016 Sale of the Arkansas Facilities
On October 6, 2016, the Company completed the sale of the Arkansas Facilities and repaid the following debt:
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
(Amounts in 000’s) |
|
Lender |
|
Maturity |
|
Interest Rate |
|
|
Amount* |
|
||||
Sale of Arkansas Facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homestead |
|
Square 1 |
|
10/14/2036 |
|
Prime + 1.00% |
|
|
5.75 |
% |
|
$ |
3,241 |
|
Stone County |
|
CDC |
|
07/01/2032 |
|
Fixed |
|
|
2.42 |
% |
|
|
1,076 |
|
Northridge |
|
PrivateBank |
|
09/01/2016 |
|
LIBOR + 4.25% |
|
|
5.50 |
% |
|
|
3,627 |
|
Woodland Hills |
|
PrivateBank |
|
09/01/2016 |
|
LIBOR + 4.25% |
|
|
5.50 |
% |
|
|
3,050 |
|
Abington/Cumberland |
|
PrivateBank |
|
09/01/2016 |
|
LIBOR + 4.25% |
|
|
5.50 |
% |
|
|
3,455 |
|
Heritage Park |
|
PrivateBank |
|
09/01/2016 |
|
LIBOR + 3.50% |
|
|
6.00 |
% |
|
|
2,853 |
|
River Valley |
|
PrivateBank |
|
09/01/2016 |
|
LIBOR + 3.50% |
|
|
6.00 |
% |
|
|
3,472 |
|
Little Rock/West Markham |
|
PrivateBank |
|
12/31/2016 |
|
LIBOR + 4.00% |
|
|
6.00 |
% |
|
|
9,788 |
|
Stone County |
|
Metro City |
|
06/08/2022 |
|
Prime + 2.25% |
|
|
6.25 |
% |
|
|
1,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,228 |
|
Other indebtdness re-paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
College Park |
|
Bank of Las Vegas |
|
05/01/2031 |
|
Prime + 2.00% |
|
|
6.25 |
% |
|
|
2,384 |
|
Reliant Rehabilitation |
|
Reliant Rehabilitation |
|
11/15/2016 |
|
Fixed |
|
|
7.00 |
% |
|
|
193 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
34,805 |
|
* |
Excludes pre-payment penalties |
90
NOTE 10. ACQUISITIONS AND DISPOSITIONS
Acquisitions of Assets
On March 8, 2017, the Company acquired the Meadowood Facility for $5.5 million cash from Meadowood Retirement Village, LLC. In addition, on March 21, 2017, the Company executed a long-term, triple net operating lease with an affiliate of C.R. Management (the “Meadowood Operator”) to lease the Meadowood Facility upon purchase. Lease terms include: (i) a 13-year initial term with one five-year renewal option; (ii) base rent of $37,500 per month; (iii) a rental escalator of 2.0% per annum in the initial term and 2.5% per annum in the renewal term; (iv) a cross renewal provision, whereby the Meadowood Operator may exercise the lease renewal for the Meadowood Facility if its affiliate exercises the lease renewal option for Coosa Valley Health Care, a 124-bed skilled nursing facility located in Gadsden, Alabama; and (v) a security deposit equal to one month of base rent. The Company completed the purchase of the Meadowood Facility on May 1, 2017, at which time the lease commenced and operations of the Meadowood Facility transferred to the Meadowood Operator. The Company made no acquisitions during the year ended December 31, 2016 .
The following table sets forth purchase price allocation of the Meadowood Facility:
(Amounts in 000's) |
|
Estimated Useful Lives (Years) |
|
May 1, 2017 |
|
|
Buildings and improvements |
|
15 - 32 |
|
$ |
4,700 |
|
Equipment and computer related |
|
10 |
|
|
400 |
|
Land |
|
— |
|
|
100 |
|
Property and equipment, net |
|
|
|
|
5,200 |
|
Intangible assets - lease rights |
|
1 |
|
|
300 |
|
Total purchase price |
|
|
|
$ |
5,500 |
|
On May 1, 2017, in connection with the purchase of the Meadowood Facility, a wholly-owned subsidiary of the Company entered into the Meadowood Credit Facility with the Exchange Bank of Alabama, see Note. 9 - Notes Payable and Other Debt.
Sale of Arkansas Facilities. On October 6, 2016, the Company completed the sale of the Arkansas Facilities, together with substantially all of the fixtures, equipment, furniture and other assets relating to such facilities, to the Purchaser, pursuant the Purchase Agreement, as subsequently amended. The Arkansas Facilities consist of:
|
• |
River Valley Health and Rehabilitation Center, a 129-bed skilled nursing facility located in Fort Smith, Arkansas; |
|
• |
Heritage Park Nursing Center, a 110-bed skilled nursing facility located in Rogers, Arkansas; |
|
• |
Homestead Manor Nursing Home, a 104-bed skilled nursing facility located in Stamps, Arkansas; |
|
• |
Stone County Nursing and Rehabilitation Center, a 97-bed skilled nursing facility located in Mountain View, Arkansas; |
|
• |
Stone County Residential Care Center, a 32-bed assisted living facility located in Mountain View, Arkansas; |
|
• |
Northridge Health Care, a 140-bed skilled nursing facility located in North Little Rock, Arkansas; |
|
• |
Little Rock Health & Rehabilitation, a 154-bed skilled nursing facility located in Little Rock, Arkansas; |
|
• |
Woodland Hills Health & Rehabilitation, a 140-bed skilled nursing facility located in Little Rock, Arkansas; and |
|
• |
Cumberland Health & Rehabilitation Center, a 120-bed skilled nursing facility located in Little Rock, Arkansas. |
91
Prior to the closing of the sale of the Arkansas Facilities (the “Closing”), the Company leased the Arkansas Facilities to affiliates of Skyline pursuant to the Skyline Lease. For further information, see Note 7 - Leases .
The sale of the Arkansas Facilities contributed approximately $0.9 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the period ended December 31, 2016.
The aggregate purchase price paid to the Company for the Arkansas Facilities was $55.0 million, which purchase price consisted of: (i) a non-refundable deposit of $1.8 million; (ii) cash consideration of $50.2 million paid at the Closing; and (iii) a promissory note executed by an affiliate of Skyline (the “Borrower”), in favor of the Company with a principal amount of $3.0 million (“the Skyline Note”). The principal amount of the Skyline Note, together with all accrued and unpaid interest, is due and payable on March 31, 2022 (the “Maturity Date”). The Borrower is required to make payments of interest only commencing on October 30, 2016 and on the last day of each month thereafter until the Maturity Date. The Skyline Note provides that simple interest shall accrue on the unpaid balance of the Skyline Note at rate of ten percent (10%) per annum. Such interest rate will increase by two percent (2%) on each anniversary date of the Skyline Note beginning in year three if such note is still outstanding at that time. The Skyline Note is subordinated to a revolving credit facility and term loan totaling $51.6 million and it is guaranteed by Joseph Schwartz and Roselyn Schwartz (collectively, the “Guarantors”), pursuant to a Guaranty Agreement, dated September 30, 2016, executed by the Guarantors in favor of the Company.
Office Buildings. On February 9, 2016, the Company sold an office building in Arkansas for $0.3 million. The office space was unencumbered. On April 25, 2016, the Company completed the sale of an owned office building located in Roswell, Georgia for $0.7 million. Debt obligations on the transaction exceeded proceeds by $0.2 million. On July 28, 2016, the Company completed the sale of one of its unencumbered office buildings located in Roswell, Georgia for $0.2 million.
NOTE 11. DISCONTINUED OPERATIONS
Disposition of Facility Operations
Historically, the Company’s business has focused primarily on owning and operating skilled nursing facilities and managing such facilities for unaffiliated owners with whom the Company has management contracts. In July 2014, the Board approved and commenced the Transition, pursuant to which the Company: (i) leased to third-party operators all of the healthcare properties which the Company owns and previously operated; (ii) subleased to third-party operators all of the healthcare properties which the Company leases (but does not own) and previously operated; and (iii) retained a management agreement to manage two skilled nursing facilities and one independent living facility for third parties. The Transition was completed in December 2015.
For the discontinued operations, cost of services, primarily accruals for professional and general liability claims and bad debt expense prior to the commencement of leasing are classified in the activities below.
The following table summarizes the activity of discontinued operations for the years ended December 31, 2017 and 2016:
|
|
Year Ending December 31, |
|
|||||
(Amounts in 000’s) |
|
2017 |
|
|
2016 |
|
||
Cost of services |
|
|
1,657 |
|
|
|
13,387 |
|
Interest expense, net |
|
|
22 |
|
|
|
41 |
|
Net loss |
|
$ |
(1,679 |
) |
|
$ |
(13,428 |
) |
92
NOTE 12. COMMON AND PREFERRED STOCK
Preferred Stock
The liquidation preference of the Series A Preferred Stock is $25.00 per share. 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 no voting rights but have limited voting rights under certain circumstances. The Company is required to redeem the Series A Preferred Stock following a "Change of Control," as defined in the Charter. 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.
Prior to the Merger, the Company was required to classify the Series A Preferred Stock as temporary equity due to the change-in-control redemption provision contained in the Charter 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 of the Series A Preferred Stock. 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.
As a result of the Merger, the rights of the holders of the common stock and Series A Preferred Stock are now governed by the RHE Charter and the RHE Bylaws. The RHE Charter contains ownership and transfer restrictions with respect to the common stock which, among other things, prohibit any person (as defined in the RHE Charter) from beneficially or constructively owning, or being deemed to beneficially or constructively own by virtue of the attribution provisions of the Internal Revenue Code of 1986, as amended, more than 9.9%, by value or number of shares, whichever is more restrictive, of the outstanding shares of common stock. As such, a change of control redemption can no longer be triggered outside of the Company’s control, thus permitting the Series A Preferred Stock to be classified as permanent equity. As a result, the Company reclassified the Series A Preferred Stock from temporary equity to permanent equity on a prospective basis as of September 29, 2017, the effective date of the Merger, in accordance with applicable accounting guidance.
93
The following table summarizes the shares of Series A Preferred Stock activity for the Company and net proceeds received and expenses from issuance and repurchases of Series A Preferred Stock for the years ended December 31, 2017 and 2016:
|
|
Shares Issued & Outstanding |
|
|
Net Proceeds from Issuance (in 000's) |
|
||
Balances, January 1, 2016 |
|
|
2,426,930 |
|
|
$ |
54,714 |
|
ATM Issuance of Preferred Stock for the three months ended: (1) |
|
|
|
|
|
|
|
|
March 31, 2016 |
|
|
186,905 |
|
|
|
3,677 |
|
June 30, 2016 |
|
|
43,204 |
|
|
|
870 |
|
September 30, 2016 |
|
|
106,796 |
|
|
|
2,233 |
|
December 31, 2016 |
|
|
— |
|
|
|
— |
|
Repurchases of Preferred Stock for the three months ended: |
|
|
|
|
|
|
|
|
December 31, 2016 (2) |
|
|
(2,300 |
) |
|
|
(48 |
) |
Balances, December 31, 2016 |
|
|
2,761,535 |
|
|
$ |
61,446 |
|
ATM Issuance of Preferred Stock for the three months ended: (3) |
|
|
|
|
|
|
|
|
March 31, 2017 |
|
|
— |
|
|
|
— |
|
June 30, 2017 |
|
|
50,000 |
|
|
|
977 |
|
September 30, 2017 |
|
|
— |
|
|
|
— |
|
December 31, 2017 |
|
|
— |
|
|
|
— |
|
Balances, December 31, 2017 |
|
|
2,811,535 |
|
|
$ |
62,423 |
|
(1) |
For the year ended December 31, 2016, the Company sold 336,905 shares of Series A Preferred Stock under its “at-the-market” offering program (the “ATM”) at an average sale price of $20.06 per share. In connection therewith, the Company received net proceeds of approximately $6.8 million, after payment of sales commissions and discounts and all other expenses incurred by the Company. |
(2) |
On November 17, 2016, the Company bought 2,300 shares of Series A Preferred Stock pursuant to the November 2016 Repurchase Program (as defined below) at an average sale price of $20.97 per share, excluding commissions. In connection therewith, the Company's net disbursement was approximately $48 thousand after payment of sales commissions. |
(3) |
For the year ended December 31, 2017, the Company sold 50,000 shares of the Series A Preferred Stock under an at market issuance sales agreement, at an average price of $21.80 per share, exclusive of commissions and related fees. In connection therewith, the Company received net proceeds of approximately $1.0 million. On August 2, 2017, the Company terminated the at market issuance sales agreement and discontinued sales under the ATM. |
94
The following table summarizes the common stock and preferred stock dividends in arrears or paid by the Company for the years ended December 31, 2017 and 2016:
|
|
Date paid / Arrears date |
|
Dividends Paid (in 000's) |
|
|
Dividends Per Share |
|
|
Dividend Arrears (in 000's) |
|
|||
Preferred Stock Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2016 |
|
$ |
1,777 |
|
|
$ |
0.68 |
|
|
$ |
— |
|
|
|
6/30/2016 |
|
|
1,801 |
|
|
|
0.68 |
|
|
|
— |
|
|
|
9/30/2016 |
|
|
1,879 |
|
|
|
0.68 |
|
|
|
— |
|
|
|
12/31/2016 |
|
|
1,878 |
|
|
|
0.68 |
|
|
|
— |
|
For the year ended December 31, 2016 |
|
|
|
$ |
7,335 |
|
|
$ |
2.72 |
|
|
$ |
— |
|
|
|
3/31/2017 |
|
$ |
1,878 |
|
|
$ |
0.68 |
|
|
$ |
— |
|
|
|
6/30/2017 |
|
|
1,912 |
|
|
|
0.68 |
|
|
|
— |
|
|
|
9/30/2017 |
|
|
1,912 |
|
|
|
0.68 |
|
|
|
— |
|
|
|
12/31/2017 |
|
|
— |
|
|
|
0.68 |
|
|
|
1,912 |
|
For the year ended December 31, 2017 |
|
|
|
$ |
5,702 |
|
|
$ |
2.72 |
|
|
$ |
— |
|
* |
There were no dividends paid on the common stock during the twelve months ended December 31, 2017 and during the twelve months ended December 31, 2016. On March 7, 2018, the Board determined to continue the suspension of the dividend payment with respect to the Series A Preferred Stock for the first quarter 2018 dividend period. Such dividend suspension does not trigger a default under the Company’s outstanding indebtedness. |
As of December 31, 2017, as a result of the suspension of the dividend payment on the Series A Preferred Stock for the fourth quarter 2017 dividend period, the Company had $1.9 million of undeclared preferred stock dividends in arrears. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at an annual rate equal to 10.875% of the $25.00 per share stated liquidation preference of the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share. Dividends on the Series A Preferred Stock are payable quarterly in arrears, on March 31, June 30, September 30, and December 31, of each year, although the Board has suspended dividend payments for the fourth quarter 2017 and first quarter 2018 dividend periods. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. If the Company fails to pay cash dividends on the outstanding Series A Preferred Stock in full for any four consecutive or non-consecutive dividends periods, then the annual dividend rate on the Series A Preferred Stock will be increased to 12.875%, commencing on the first day after the missed fourth quarterly payment and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board.
95
In November 2016, the Board approved two share repurchase programs (collectively, the "November 2016 Repurchase Program"), pursuant to which the Company was authorized to repurchase up to 1.0 million shares of the common stock and 100,000 shares of the Series A Preferred Stock during a twelve-month period. The November 2016 Repurchase Program succeeded the repurchase program announced on November 12, 2015 (the “November 2015 Repurchase Program”), which terminated in accordance with its terms. Share repurchases under the November 2016 Repurchase Program could be made from time to time through open market transactions, block trades or privately negotiated transactions and were subject to market conditions, as well as corporate, regulatory and other considerations. The Company could suspend or continue the November 2016 Repurchase Program at any time and had no obligation to repurchase any amount of the common stock or the Series A Preferred Stock under such program. The November 2016 Repurchase Program was suspended in February 2017.
November 2016 Repurchase Program - In the twelve months ended December 31, 2016, the Company repurchased (i) 133,316 shares of common stock at an average purchase price of approximately $1.54 per share, exclusive of commissions and related fees for a net disbursement of approximately $0.3 million, and (ii) 2,300 shares of Series A Preferred stock at an average purchase price of approximately $20.97 per share, exclusive of commissions and related fees for a net disbursement of approximately $48,000.
In the twelve months ended December 31, 2017, the Company repurchased 118,199 shares of the common stock pursuant to the November 2016 Repurchase Program for $0.2 million at an average price of $1.54 per share, exclusive of commissions and related fees and made no repurchases of the Series A Preferred Stock.
November 2015 Repurchase Program - In the twelve months ended December 31, 2016, the Company repurchased 150,000 shares of common stock at an average purchase price of approximately $2.05 per share, exclusive of commissions and related fees, for a net disbursement of approximately $0.2 million. Pursuant to the November 2015 Repurchase Program, the Company was authorized to repurchase up to 500,000 shares of the common stock during a twelve-month period. The November 2015 Repurchase Program expired in accordance with its terms upon completion of such twelve-month period on November 12, 2016.
NOTE 13. STOCK BASED COMPENSATION
The following table summarizes employee and nonemployee stock based compensation for the years ended December 31, 2017 and 2016:
|
|
Year Ending December 31, |
|
|||||
Amounts in (000's) |
|
2017 |
|
|
2016 |
|
||
Employee compensation: |
|
|
|
|
|
|
|
|
Stock options |
|
$ |
— |
|
|
$ |
112 |
|
Warrants |
|
|
(15 |
) |
|
|
278 |
|
Restricted stock |
|
|
— |
|
|
|
628 |
|
Total employee stock-based compensation (income) expense |
|
$ |
(15 |
) |
|
$ |
1,018 |
|
Non-employee compensation: |
|
|
|
|
|
|
|
|
Stock options |
|
$ |
47 |
|
|
$ |
50 |
|
Warrants |
|
|
— |
|
|
|
— |
|
Restricted stock |
|
|
235 |
|
|
|
65 |
|
Total non-employee stock-based compensation expense |
|
$ |
282 |
|
|
$ |
115 |
|
Total stock-based compensation expense |
|
$ |
267 |
|
|
$ |
1,133 |
|
96
The assumptions used in calculating the fair value of employee stock options and warrants granted for the year ended December 31, 2017, using the Black-Scholes-Merton option-pricing model, is set forth in the following table: No employee stock options or warrants were issued for the year ended December 31, 2017.
|
|
Year Ended December 31, |
|
|
|
|
2016 |
|
|
Dividend Yield |
|
|
— |
% |
Expected Volatility |
|
|
40.9 |
% |
Risk-Free Interest Rate |
|
|
1.43 |
% |
Expected Term (in years) |
|
|
5.0 |
|
No stock-based compensation awards were granted to non-employees for the year ended December 31, 2017 or for the year ended December 31, 2016.
Common Stock Options
The Company has one stock option plan:
|
• |
The 2011 Stock Incentive Plan (the “2011 Plan”), which expires March 28, 2021 and provides for a maximum of 2,027,393 shares of common stock to be issued. |
The 2011 Plan permits the granting of incentive or nonqualified stock options. The 2011 Plan also permits the granting of restricted stock. The 2011 Plan is administered by the Board, which has the authority to determine to whom awards will be made, the amounts of the awards, and the other terms and conditions of the awards. The number of securities remaining available for future issuance under the 2011 Plan as of December 31, 2017 is 723,530.
The following summarizes the Company's employee and non-employee stock option activity for the years ended December 31, 2017 and 2016:
|
|
Number of Options (000's) |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contract Life (in years) |
|
|
Aggregate Intrinsic Value (000's) (a) |
|
||||
Outstanding at December 31, 2015 |
|
|
267 |
|
|
$ |
3.96 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
141 |
|
|
$ |
2.07 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(8 |
) |
|
$ |
4.06 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(45 |
) |
|
$ |
3.86 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
|
|
355 |
|
|
$ |
3.21 |
|
|
|
5.6 |
|
|
$ |
— |
|
Vested at December 31, 2016 |
|
|
320 |
|
|
$ |
3.14 |
|
|
|
5.3 |
|
|
$ |
— |
|
Vested or Expected to Vest at December 31, 2016 (b) |
|
|
355 |
|
|
$ |
3.21 |
|
|
|
5.6 |
|
|
$ |
— |
|
Outstanding at December 31, 2016 |
|
|
355 |
|
|
$ |
3.21 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(174 |
) |
|
$ |
2.42 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017 |
|
|
181 |
|
|
$ |
3.98 |
|
|
|
6.4 |
|
|
$ |
— |
|
Vested at December 31, 2017 |
|
|
181 |
|
|
$ |
3.98 |
|
|
|
6.4 |
|
|
$ |
— |
|
(a) |
Represents the aggregate gain on exercise for vested in-the-money options. |
No stock options were granted during the year ended December 31, 2017. The weighted average grant date fair value of common stock options granted during the year ended December 31, 2016 was $2.07. At December 31, 2017, the Company has no unrecognized compensation expense related to options.
97
The following summary information reflects stock options outstanding, vested and related details as of December 31, 2017:
|
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
||||||||||||||
Exercise Price |
|
Number Outstanding (000's) |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Weighted Average Exercise Price |
|
|
Vested and Exercisable (000's) |
|
|
Weighted Average Exercise Price |
|
|||||
$1.31 - $3.99 |
|
|
115 |
|
|
|
6.7 |
|
|
$ |
3.90 |
|
|
|
115 |
|
|
$ |
3.90 |
|
$4.00 - $4.30 |
|
|
66 |
|
|
|
5.7 |
|
|
$ |
4.11 |
|
|
|
66 |
|
|
$ |
4.11 |
|
Total |
|
|
181 |
|
|
|
6.4 |
|
|
$ |
3.98 |
|
|
|
181 |
|
|
$ |
3.98 |
|
Common Stock Warrants
The Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee of the Board. The Board administers the granting of warrants, determines the persons to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards.
The following summarizes the Company's employee and non-employee common stock warrant activity for the years ended December 31, 2017 and 2016:
|
|
Number of Warrants (000's) |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contract Life (in years) |
|
|
Aggregate Intrinsic Value (000's) (a) |
|
||||
Outstanding at December 31, 2015 |
|
|
2,051 |
|
|
$ |
3.46 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(109 |
) |
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(55 |
) |
|
$ |
4.08 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
|
|
1,887 |
|
|
$ |
3.58 |
|
|
|
4.1 |
|
|
$ |
11 |
|
Vested at December 31, 2016 |
|
|
1,604 |
|
|
$ |
3.44 |
|
|
|
3.3 |
|
|
$ |
11 |
|
Vested or Expected to Vest at December 31, 2016 (b) |
|
|
1,867 |
|
|
$ |
3.57 |
|
|
|
4.0 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
|
|
1,887 |
|
|
$ |
3.58 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(192 |
) |
|
$ |
4.38 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(676 |
) |
|
$ |
3.03 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017 |
|
|
1,019 |
|
|
$ |
3.79 |
|
|
|
4.7 |
|
|
$ |
— |
|
Vested at December 31, 2017 |
|
|
1,019 |
|
|
$ |
3.79 |
|
|
|
4.7 |
|
|
$ |
— |
|
(a) |
Represents the aggregate gain on exercise for vested in-the-money warrants. |
No warrants were granted during the years ended December 31, 2017 and December 31, 2016. The Company has no unrecognized compensation expense related to common stock warrants as of December 31, 2017. The total intrinsic value of common stock warrants exercised during the year ended December 31, 2016 was $0.1 million.
98
The following summary information reflects warrants outstanding, vested and related details as of December 31, 2017:
|
|
Warrants Outstanding |
|
|
Warrants Exercisable |
|
||||||||||||||
Exercise Price |
|
Number Outstanding (000's) |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Weighted Average Exercise Price |
|
|
Vested and Exercisable (000's) |
|
|
Weighted Average Exercise Price |
|
|||||
$1.93- $1.99 |
|
|
110 |
|
|
|
1.9 |
|
|
$ |
1.93 |
|
|
|
110 |
|
|
$ |
1.93 |
|
$2.00 - $2.99 |
|
|
110 |
|
|
|
1.9 |
|
|
$ |
2.57 |
|
|
|
110 |
|
|
$ |
2.57 |
|
$3.00 - $3.99 |
|
|
274 |
|
|
|
3.4 |
|
|
$ |
3.71 |
|
|
|
274 |
|
|
$ |
3.71 |
|
$4.00 - $4.99 |
|
|
502 |
|
|
|
6.5 |
|
|
$ |
4.42 |
|
|
|
502 |
|
|
$ |
4.42 |
|
$5.00 - $5.90 |
|
|
23 |
|
|
|
5.4 |
|
|
$ |
5.90 |
|
|
|
23 |
|
|
$ |
5.90 |
|
Total |
|
|
1,019 |
|
|
|
4.7 |
|
|
$ |
3.79 |
|
|
|
1,019 |
|
|
$ |
3.79 |
|
Restricted Stock
The following summarizes the Company's restricted stock activity for the year ended December 31, 2017 and 2016:
|
|
Number of Shares (000's) |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2015 |
|
|
294 |
|
|
$ |
4.19 |
|
Granted |
|
|
305 |
|
|
$ |
1.93 |
|
Vested |
|
|
(183 |
) |
|
$ |
3.52 |
|
Forfeited |
|
|
(12 |
) |
|
$ |
2.49 |
|
Unvested at December 31, 2016 |
|
|
404 |
|
|
$ |
2.84 |
|
Granted |
|
|
23 |
|
|
$ |
1.07 |
|
Vested |
|
|
(140 |
) |
|
$ |
2.80 |
|
Forfeited |
|
|
(135 |
) |
|
$ |
3.70 |
|
Unvested at December 31, 2017 |
|
|
152 |
|
|
$ |
1.83 |
|
The weighted average grant date fair value of restricted stock awards granted during the years ended December 31, 2017 and 2016 was $1.07 and $1.93, respectively. The Company has approximately $0.2 million of unrecognized compensation expense related to unvested restricted stock awards as of December 31, 2017. Assuming no pre-vesting forfeitures, this expense will be recognized as a charge to earnings over a weighted-average remaining service period of 1.49 years.
NOTE 14. VARIABLE INTEREST ENTITIES
The Company has a loan receivable with Peach Health Sublessee, a loan receivable with an affiliate of Aria and a lease inducement with Beacon Sublessee. These agreements create a variable interest in these entities that may absorb some or all of the expected losses of the entities. The Company does not consolidate the operating activities of the Peach Health Sublessee, the affiliate of Aria or the Beacon Sublessee as the Company does not have the power to direct the activities that most significantly impact the entities’ economic performance. See Note 7 – Leases and Note 15 – Commitments and Contingencies.
99
NOTE 15. 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. In February and May 2016, CMS decertified the Jeffersonville Facility and the Oceanside Facility respectively, meaning that the facilities were not able to accept Medicare or Medicaid patients. On December 20, 2016 and on February 7, 2017, the Jeffersonville Facility and Oceanside Facility, respectively were recertified by CMS and received a new Medicare/Medicaid provider contract.
The Company believes that it is in compliance in all material respects with all applicable laws and regulations.
Legal Matters
The Company is party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to the residents of the Company's facilities and claims related to employment, staffing requirements and commercial matters. Although the Company intends to vigorously defend itself in these matters, there is no assurance that the outcomes of these matters will not have a material adverse effect on the Company's business, results of operations and financial condition.
The Company previously operated, and the Company's tenants now operate, in an industry that is extremely regulated. As such, in the ordinary course of business, the Company's tenants are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, the Company believes that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company, for the Company's prior operations, or the Company's tenants, whether currently asserted or arising in the future, could have a material adverse effect on the Company's business, results of operations and financial condition.
Ohio Attorney General Action. On October 27, 2016, the Ohio Attorney General (the “OAG”) filed in the Court of Common Pleas, Franklin County, Ohio a complaint against The Pavilion Care Center, LLC, Hearth & Home of Greenfield, LLC (each a subsidiary of the Company), and certain other parties (including parties for which the Company provides or provided management services). The lawsuit alleges that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleges that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG is seeking, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million. The Company responded to such letter in July 2014 denying the allegations and heard nothing more from the OAG until the above referenced lawsuit was filed. The Company filed an answer to the complaint on January 27, 2017 in which it denied the allegations. An order granting a motion to stay this proceeding was granted in the Court of Common Pleas, Franklin County, Ohio on July 12, 2017. Although there is no assurance as to the ultimate outcome of this matter or its impact on the Company’s business or its financial condition, the Company believes it has meritorious defenses and intends to vigorously defend the claim.
100
Professional and General Liability Claims . The Company was a defendant in a purported class action lawsuit captioned Amy Cleveland et. al. v. APHR&R Nursing, LLC et. al. filed on March 4, 2015 with the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit (the “Amy Cleveland Class Action”). On December 16, 2015, the Company's insurance carrier reached a settlement with each of the individual plaintiffs on behalf of the Company and all other defendants pursuant to which separate payments are to be made by the Company's carrier to the plaintiffs. The individual settlements are contingent on approval by the probate courts having jurisdiction over the deceased plaintiffs' respective estates, if applicable. As of June 30, 2016, all of the individual settlement agreements had been approved and the settlement consideration paid to the plaintiffs.
As of April 2, 2018, the Company is a defendant in 37 professional and general liability actions commenced on behalf of former patients. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing while patients of facilities operated by the Company. Twenty-five of these actions were filed in the State of Arkansas by the same plaintiff attorney who represented the plaintiffs in a purported class action lawsuit against the Company previously disclosed as the Amy Cleveland Class Action, which settled in December 2015, and such actions are subject to a settlement in principle as discussed below. Of the remaining 12 actions not subject to the settlement in principle, two of such the pending actions are covered by insurance, except that any award of punitive damages would be excluded from such coverage.
On March 12, 2018, the Company entered into a separate mediation settlement agreement with respect to each of the twenty-five actions filed in the state of Arkansas, relating to the settlement in principle of each such action, subject to probate court approval and the satisfaction of certain specified conditions, for an aggregate settlement amount with respect to all such actions of $5.2 million In connection with a dispute between the Company and its former commercial liability insurance insurer regarding, among other things, the Company’s insurance coverage with respect to the twenty-five actions filed in the State of Arkansas, the former insurer and the Company entered into a settlement agreement, providing for, among other things, a settlement payment by the former insurer with respect to such actions, a customary release of claims by the former insurer and the Company, and agreement that the former insurer has exhausted the limits of the insurance policies issued by the former insurer to the Company.
Accordingly the Company reduced the professional and general liability reserve by approximately $2.8 million for the year ended December 31, 2017, for the settlement with the former commercial liability insurer. The remaining 12 actions not subject to the agreement in principle are in various stages of discovery, and the Company intends to vigorously defend such actions, where economically favorable to the Company. For further information see Note 19 – Subsequent events.
The Company has self-insured against professional and general liability actions since it discontinued its healthcare operations in connection with the Transition. The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses and other” in the Company’s audited consolidated balance sheets of $5.1 million and $6.9 million at December 31, 2017, and December 31, 2016, respectively. Additionally as at December 31, 2017, $0.2 million was reserved for settlement amounts in “Other liabilities” and $0.5 million in “Accounts payable” in the Company’s audited consolidated balance sheets.
The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated.
In evaluating the adequacy of the self-insurance reserve in connection with the preparation of the Company’s financial statements for the year ended December 31, 2017, the Company also considered: (i) the change in the number of pending actions since December 31, 2016; (ii) the outcome of initial mediation sessions and the status of settlement negotiations; and (iii) defense counsel’s evaluation of estimated legal costs and other expenses if the pending actions were to be litigated to final judgment.
101
The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgement unless settlement is more advantageous to the Company. The self-insurance reserve primarily reflects the Company's estimate of settlement amounts for the pending actions, as appropriate, and legal costs of settling or litigating the pending actions, as applicable. See Note 19 - Subsequent Events .
Aria Bankruptcy Proceeding . On May 31, 2016, Highlands Arkansas Holdings, LLC, an affiliate of Aria (“HAH”) and nine affiliates of HAH (collectively with HAH, the “Debtors”), filed petitions in the United States Bankruptcy Court for the District of Delaware for relief under Chapter 7. Following venue transfer from the Delaware court, these cases are pending in the United States Bankruptcy Court for the Eastern District of Arkansas.
On July 17, 2015, the Company made a short-term loan to HAH, for working capital purposes, and, in connection therewith, HAH executed a promissory note (the “HAH Note”) in favor of the Company. Since July 17, 2015, the HAH Note has been amended from time to time and currently has an outstanding principal amount of $1.0 million and matured on December 31, 2015. On October 6, 2015, HAH and the Company entered into a security agreement, whereby HAH granted the Company a security interest in all accounts arising from the business of HAH and the Aria Sublessees, and all rights to payment from patients, residents, private insurers and others arising from the business of HAH and the Aria Sublessees (including any proceeds thereof), as security for payment of the HAH Note, as amended, and certain rent and security deposit obligations of the Aria Sublessees under Aria Subleases.
On April 21, 2017, the Company moved for relief from the automatic stay seeking release of its collateral, the Debtors’ accounts and their proceeds, which the trustee has represented as a total of approximately $0.8 million. The Company’s motion was opposed by the Chapter 7 trustee and another creditor, in May 2017. In its objection, the Chapter 7 trustee asserts that the Company is not entitled to any of the $0.8 million with respect to the HAH Note. Discovery with respect to the motion is ongoing and the matter is currently not on the calendar. In addition to opposing the Company’s claim to the $0.8 million, the Chapter 7 trustee has also indicated he was investigating avoidance claims against the Company with respect to funds the Company received from the Debtors prior to the bankruptcy filings. On March 28, 2018, such avoidance case was filed, requesting relief in an amount of $4.7 million. For the year ended December 31, 2017 the Company has charged approximately $0.6 million to bad debt expense on the HAH Note. The Company believes it acted in good faith and as it is the only secured creditor believes that the remaining balance on the HAH note is collectible. There is no guarantee that the bankruptcy court will approve repayment of the HAH Note to the Company or that the Company will prevail in the avoidance action that has been filed against it.
NOTE 16. INCOME TAXES
The provision for income taxes attributable to continuing operations for the years ended December 31, 2017 and 2016 are presented below:
|
|
Year Ended December 31, |
|
|||||
(Amounts in 000's) |
|
2017 |
|
|
2016 |
|
||
Current Tax Expense: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
— |
|
|
$ |
— |
|
Deferred Tax benefit: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
(188 |
) |
|
$ |
(163 |
) |
|
|
$ |
(188 |
) |
|
$ |
(163 |
) |
Total income tax benefit |
|
$ |
(188 |
) |
|
$ |
(163 |
) |
102
The income tax expense applicable to continuing and discontinued operations is presented below:
|
|
Year Ended December 31, |
|
|||||
(Amounts in 000's) |
|
2017 |
|
|
2016 |
|
||
Income tax benefit on continuing operations |
|
$ |
(188 |
) |
|
$ |
(163 |
) |
Income tax (benefit) expense on discontinued operations |
|
|
— |
|
|
|
— |
|
Total income tax benefit |
|
$ |
(188 |
) |
|
$ |
(163 |
) |
At December 31, 2017 and 2016, the tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
|
|
Year Ended December 31, |
|
|||||
(Amounts in 000's) |
|
2017 |
|
|
2016 |
|
||
Net deferred tax asset (liability): |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
1,905 |
|
|
$ |
4,475 |
|
Accrued expenses |
|
|
2,130 |
|
|
|
3,374 |
|
Net operating loss carry forwards |
|
|
16,040 |
|
|
|
21,624 |
|
Property, equipment & intangibles |
|
|
(2,927 |
) |
|
|
(4,004 |
) |
Stock based compensation |
|
|
196 |
|
|
|
268 |
|
Convertible debt adjustments |
|
|
218 |
|
|
|
261 |
|
Total deferred tax assets |
|
|
17,562 |
|
|
|
25,998 |
|
Valuation allowance |
|
|
(17,600 |
) |
|
|
(26,224 |
) |
Net deferred tax liability |
|
$ |
(38 |
) |
|
$ |
(226 |
) |
The items accounting for the differences between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:
|
|
Year Ended December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Federal income tax at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
State and local taxes |
|
|
5.5 |
% |
|
|
(0.4 |
)% |
Nondeductible expenses |
|
|
(29.5 |
)% |
|
|
(20.6 |
)% |
Change in valuation allowance |
|
|
128.2 |
% |
|
|
(11.7 |
)% |
Tax Reform Impact |
|
|
(140.9 |
)% |
|
|
— |
% |
Other |
|
|
5.5 |
% |
|
|
(0.1 |
)% |
Effective tax rate |
|
|
2.8 |
% |
|
|
1.2 |
% |
As of December 31, 2017, the Company had consolidated federal net operating loss ("NOL") carry forwards of $66.8 million. These NOLs begin to expire in 2018 through 2037 and currently are offset by a full valuation allowance. As of December 31, 2017, the Company had consolidated state NOL carry forwards of $43.8 million. These NOLs begin to expire in 2018 through 2037 and currently are offset by a full valuation allowance.
Given the Company's historical net operating losses, a full valuation allowance has been established on the Company's net deferred tax assets. The Company has generated additional deferred tax liabilities related to its tax amortization of certain acquired indefinite lived intangible assets because these assets are not amortized for book purposes. The tax amortization in current and future years gives rise to a deferred tax liability which will only reverse at the time of ultimate sale or book impairment. Due to the uncertain timing of this reversal, the temporary differences associated with indefinite lived intangibles cannot be considered a source of future taxable income for purposes of determining a valuation allowance. As such, the deferred tax liability cannot be used to support an equal amount of the deferred tax asset related to the NOL carry forward. This resulted in recognizing deferred federal and state tax expense of $0.2 million and $0.2 million for the years ended December 31, 2017 and 2016, respectively, and a deferred tax liability of $0.04 million and $0.2 million for the years ended December 31, 2017 and 2016, respectively.
103
On December 22, 2017 the Tax Reform was enacted. Among other changes the Tax Reform reduces the US federal corporate tax rate from 35% to 21% beginning in 2018.
The Company has remeasured certain deferred tax assets and liabilities as of the enactment date of the Tax Reform based on the rates at which they are expected to reverse in the future, which is generally 21%. The amount recorded related to the remeasurement of our deferred tax balance was $9.5 million, which was offset by a reduction in the valuation allowance. The Company also recorded an income tax benefit of approximately $0.2 million related to the use of our naked credit as a source of income to release a portion of our valuation allowance.
The Company files federal, state and local income tax returns in the U.S. The Company is no longer subject to U.S. federal or State of Georgia tax examinations for years prior to fiscal 2014 and fiscal 2013, respectively. The Company is generally no longer subject to income tax examinations for years prior to fiscal 2013.
N OTE 17. BENEFIT PLANS
The Company sponsors a 401(k) plan, which provides retirement benefits to eligible employees. All employees are eligible once they reach age 21 years and complete one year of eligible service. The Company's plan allows eligible employees to contribute up to 20% of their eligible compensation, subject to applicable annual Code limits. The Company provides 50% matching on employee contributions, up to 2% of the employee's salary. Total matching contributions during the years ended December 31, 2017 and 2016 were approximately $6 thousand and $2 thousand, respectively.
NOTE 18. RELATED PARTY TRANSACTIONS
Park City Capital
On March 31, 2015, the Company accepted a Subscription Agreement from Park City Capital Offshore Master, Ltd. (“Park City Offshore”), an affiliate of Michael J. Fox, for a 2015 Note with an aggregate principal amount of $1,000,000 and, in connection therewith, issued such note to Park City Capital Offshore on April 30, 2015. The 2015 Note was offered to Park City Offshore on the same terms and conditions as all other investors in the offering. In January 2017, the Company repurchased the $1,000,000 2015 Note held by Park City Offshore pursuant to the terms of the Tender Offer for any and all of the outstanding 2015 Notes. For a description of the Tender Offer, see Note 9 – Notes Payable and Other Debt . Mr. Fox is a an affiliate of Park City Offshore, a director of the Company since October 2013, Lead Independent Director since April 1, 2015 and a beneficial owner of greater than 5% of the outstanding common stock.
McBride Matters
On September 26, 2017, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”), with William McBride III, our former Chief Executive Officer and director, pursuant to which, among other things, and in lieu of any other rights or obligations under Mr. McBride’s employment agreement: (i) the Company agreed to pay Mr. McBride $60,000 in cash for wage claims; (ii) the Company issued to Mr. McBride an Unsecured Negotiable Promissory Note with an original principal amount of $300,000 (the “McBride Note”); (iii) Mr. McBride released the Company from all claims and liabilities, including those arising out of his employment, and his employment agreement, with the Company and his separation therefrom (but excluding claims to enforce the provisions of the Settlement Agreement, the McBride Note and the indemnification provisions under his employment agreement); (iv) the Company released Mr. McBride from all claims and liabilities arising out of his employment, and his employment agreement, with the Company and his separation therefrom (excluding (a) claims for intentional tortious conduct, fraud or arising out criminal misconduct other than in connection with such separation (provided such claims were not known to, or reasonably discoverable by the Company), and (b) claims to enforce the provisions of the Settlement Agreement and the restrictive covenants under the employment agreement); and (v) from after the effective date of the Settlement Agreement, the termination of Mr. McBride’s employment shall be deemed a resignation by Mr. McBride.
104
The McBride Note accrues interest at an annual rate of 4.0% and principal and interest is payable in 24 equal monthly installments of $13,027.42, which payments commenced on October 31, 2017 and shall end on September 30, 2019. Upon the existence and continuation of an Event of Default (as defined in the McBride Note), interest accrues at a default rate of eighteen percent 18.0% per annum, see Note 9 – Notes Payable and Other Debt .
Other than the items discussed above, there are no other material undisclosed related party transactions.
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.
New Financing
On February 15, 2018 (the “Closing Date”), the Company entered into the Pinecone Credit Facility with Pinecone Realty Partners II, LLC, as lender (“Pinecone”). The Company borrowed an aggregate principal amount of $16.25 million. The Pinecone Credit Facility refinanced existing mortgage debt in an aggregate amount of $8.7 million on three skilled nursing properties, as shown in the table below (the “Facilities”).
Facility |
|
Prior Lender |
|
Prior Balance |
|
|
Refinanced Balance |
|
||
Attalla |
|
Metro City |
|
$ |
6,137 |
|
|
$ |
8,250 |
|
College Park |
|
CDC |
|
|
1,492 |
|
|
|
2,500 |
|
Northwest |
|
First Commercial |
|
|
1,115 |
|
|
|
2,000 |
|
|
|
Sub Total |
|
$ |
8,744 |
|
|
$ |
12,750 |
|
AdCare Property Holdings |
|
|
|
|
— |
|
|
|
3,500 |
|
|
|
Total |
|
$ |
8,744 |
|
|
$ |
16,250 |
|
The maturity date of the Pinecone Credit Facility is August 15, 2020 and bears interest at a fixed rate equal to 10% per annum for the first three months after the Closing Date and at a fixed rate equal to 12.5% per annum thereafter, subject to adjustment upon an event of default and specified regulatory events. The Pinecone Credit Facility is secured by, among other things, first priority liens on the Facilities and all tangible and intangible assets of the borrowers owning the Facilities, including all rent payments received from the operators thereof. Beginning March 1, 2018, the first payment date, accrued and unpaid interest on the outstanding principal amount of the Pinecone Credit Facility is payable in consecutive monthly installments. The entire unpaid principal amount of the Pinecone Credit Facility is due on the maturity date, together with all accrued and unpaid interest and a finance fee equal to 3% of the original principal amount.
The Pinecone Credit Facility is subject to customary operating and financial covenants and regulatory conditions for each of the Facilities, which could result in additional monthly interest charges during any non-compliance and cure period. The Pinecone Credit Facility is prepayable in full beginning on the date that is thirteen months after the Closing Date, subject to the payment of a specified finance fee and, with respect to any prepayment made between March 15, 2019 and September 15, 2019, a prepayment premium equal to 1% of the principal amount being repaid. A specified early termination fee is payable in the event any amount is prepaid (in whole or in part) or is accelerated on or before the first anniversary of the Closing Date.
The Pinecone Credit Facility and the related documentation provide for customary events of default. Upon the occurrence of certain events of default, Pinecone may declare the entire unpaid principal balance under the Pinecone Credit Facility, together with all accrued interest and other amounts payable, immediately due and payable.
Repayment of Convertible Debt
On February 15, 2018, the Company repaid to Cantone Asset Management, LLC the outstanding principal balance of $1.5 million, together with accrued interest thereon, on the convertible debt issued in July 2012, with a maturity date of April 30, 2018.
105
Extension of Quail Creek Credit Facility
On September 19, 2016, the Company obtained an option to extend the maturity date of the Quail Creek Credit Facility from September 2017 to September 2018. On February 28, 2018, the Company extended the maturity date of such credit facility to April 30, 2018, retaining the option to extend to September 2018. There is no assurance that the Company will be able to refinance or further extend the maturity date of the Quail Creek Credit Facility on terms that are favorable to the Company or at all.
Dividend Payment Suspension
On March 7, 2018, the Board determined to continue suspension of the payment of the dividend payment with respect to Series A Preferred Stock for the first quarter of 2018 dividend period. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock in the second quarter of 2018. Such dividend suspension does not trigger a default under the Company’s outstanding indebtedness.
Professional and General Liability Actions Subject to Mediation Settlement Agreements
As previously disclosed, the Company is a defendant in, among other actions, twenty-five professional and general liability actions commenced on behalf of former patients of the Company filed in the State of Arkansas by the same plaintiff attorney who represented the plaintiffs in the Amy Cleveland Class Action which settled in December 2015.
On March 12, 2018, the Company entered into a separate mediation settlement agreement with respect to each of the twenty-five actions filed in the State of Arkansas relating to the settlement in principle of such actions, subject to the satisfaction of certain specified conditions. Each mediation settlement agreement provides for payment by the Company of a specified settlement amount, which settlement amount with respect to each action has been deposited into the mediator’s trust account. The aggregate settlement amount, for all such twenty-five before related insurance proceeds is $5.2 million. The settlement of each such action must be individually approved by the probate court, and the settlement of one action is not conditioned upon receipt of the probate court’s approval with respect the settlement of any other action. Upon the probate court approving, with respect to a particular action, the settlement and an executed settlement and release agreement, the settlement amount with respect to such action will be disbursed to the plaintiff’s counsel. Under the settlement and release agreement with respect to a particular action, the Company will be released from any and all claims arising out of the applicable plaintiff’s care while the plaintiff was a resident of one of the Company’s facilities.
In connection with a dispute between the Company and the Company’s former commercial liability insurance provider regarding, among other things, the Company’s insurance coverage with respect to the twenty-five actions filed in the State of Arkansas, the former insurer filed a complaint in May 2016 against the Company seeking, among other things, a determination that the former insurer had properly exhausted the limits of liability of certain of the Company’s insurance policies issued by the former insurer, and the Company subsequently filed a counterclaim against the former insurer regarding such matters (collectively, the “Coverage Litigation”). On March 12, 2018, the former insurer and the Company entered into a settlement agreement (the “Coverage Settlement Agreement”), providing for, among other things, a settlement payment by the former insurer in the amount of approximately $2.8 million, (the “Insurance Settlement Amount”), the dismissal with prejudice of the Coverage Litigation, a customary release of claims by the former insurer and the Company, and agreement that that the former insurer has exhausted the policies’ respective limits of liability and has no further obligations under the policies. Pursuant to the Coverage Settlement Agreement: (i) on March 16, 2018, the former insurer deposited the Insurance Settlement Amount into the trust account of the mediator with respect to the twenty-five actions; and (ii) on March 20, 2018, the former insurer and the Company caused the Coverage Litigation, including the counterclaim, to be dismissed with prejudice.
Assuming, and subject to, the approval by the probate court of the settlement of each of the twenty-five actions filed in the State of Arkansas and related matters, and the satisfaction of the other conditions with respect thereto, the Company will pay, net of the Insurance Settlement Amount, an aggregate of approximately $2.4 million in settlement of such actions. The Company gives no assurance that probate court approval of the settlement of such actions will be obtained or the other conditions to such settlements satisfied, or that such actions will be settled on the terms described herein or at all.
106
Other Professional and General Liability Settlements
In the first quarter of 2018, the Company settled four professional and general liability actions (other than those subject to mediation settlement agreements as discussed in “-Professional and General Liability Actions Subject to Mediation Settlement Agreements” above) for the total of $670,000. A majority of the settlements include payment terms greater than one year.
Notification of Potential Employer Shared Responsibility Payment
On April 2, 2018, the Company received notification from the Internal Revenue Service (“IRS”), on Letter 226-J, that the Company may be liable for an Employer Shared Responsibility Payment (“ESRP”) in the amount of $2.9 million for the year ended December 31, 2015. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential coverage (“MEC”) to at least 70% of full-time employees (and their dependents) or did offer MEC to at least 70% of full time-employees (and their dependents), which did not meet the affordable or minimum value criteria and had one or more employees who claimed the Employee Premium Tax Credit (“PTC”) pursuant to the Affordable Care Act (the “ACA”). The IRS determines which employers receive Letter 226-J and the amount of the proposed ESRP from information that the employers complete on their information returns (IRS Forms 1094-C and 1095-C ) and from the income tax returns of their employees. The letter indicated, none of our employees claimed the PTC. The Company has 30 days from receipt of the notification to respond and provide information to the IRS that the Company disagrees with the assessment. The Company engaged third party providers to assist the Company with complying with the provisions of the ACA for the year ended December 31, 2015 to ensure the Company offered plans that would not require ESRP. On April 10, 2018 the Company responded to the IRS with appropriate documentation to prove the Company has no ESRP liability, and is awaiting formal confirmation that the IRS is in agreement with the Company’s findings.
Aria Avoidance Claim
On March 28, 2018, the Chapter 7 bankruptcy trustee in the Aria bankruptcy proceeding, together with an unsecured creditor, filed in the United States Bankruptcy Court for the Eastern District of Arkansas an avoidance claim, in the amount of $4.7 million, against the Company with respect to recovering funds the Company received from the Debtors in the bankruptcy proceeding prior to the bankruptcy filings. The Company believes that it acted in good faith, that this action lacks merit and intends to vigorously defend through final judgement. There is no guarantee that the Company will prevail in the avoidance action that has been filed against it
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 as amended (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 interim Chief Executive Officer and interim 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.
107
Our management, with the participation of our interim Chief Executive Officer and interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period (the “Evaluation Date”) covered by this Annual Report on Form 10-K (the "Annual Report"). Based on such evaluation, our interim Chief Executive Officer and interim Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this evaluation, management used the framework and criteria set forth in the report entitled Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The COSO framework summarizes each of the components of a company's internal control system, including: (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring. Based on this evaluation, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management's report in this Annual Report.
Changes in Internal Control over Financial Reporting
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 fourth fiscal quarter of 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
108
Our website address is www.regionalhealthproperties.com. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports from the investor relations section of our website. These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. These reports are also available through the SEC's website at www.sec.gov .
The charters for the Board's Compensation Committee, the Audit Committee and the Nominating and Corporate Governance Committee are available in the corporate governance subsection of the investor relations section of our website, www.regionalhealthproperties.com, and are also available in print upon written request to the Corporate Secretary, Regional Health Properties, Inc., 454 Satellite Boulevard NW, Suite 100, Suwanee, GA 30024.
Item 10. Directors, Executive Officers and Corporate Governance
Current Executive Officers and Directors
The following table sets forth certain information with respect to our executive officers and directors.
Name |
|
Age |
|
|
Position |
|
Brent Morrison |
|
|
42 |
|
|
Interim Chief Executive Officer, Interim President and Director |
E. Clinton Cain |
|
|
37 |
|
|
Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer |
Michael J. Fox |
|
|
40 |
|
|
Director |
Kenneth W. Taylor |
|
|
57 |
|
|
Director |
David A. Tenwick |
|
|
80 |
|
|
Director |
Directors are elected at each of the Company’s Annual Meeting of Shareholders to serve until the Company’s next Annual Meeting of Shareholders. The terms of the Company’s current directors expire at the Company’s 2018 Annual Meeting of Shareholders. Executive officers serve at the discretion of the Board, subject to applicable employment agreements or other agreements. (See Part III, Item 11, "Executive Compensation Agreements – Compensation Arrangements With Current Officers").
Biographical information with respect to each of our current executive officers and directors is set forth below.
Brent Morrison. Mr. Morrison has served as the Company’s Interim Chief Executive Officer and Interim President since October 18, 2017 and as a director since October 2014. Mr. Morrison is currently the Managing Director of Zuma Capital Management LLC, a position he has held since 2012. Prior thereto, Mr. Morrison was a Research Analyst for Wells Fargo Advisors from 2012 to 2013, the Senior Research Analyst at the Strome Group, a private investment firm, from 2009 to 2012, a Research Analyst at Clocktower Capital, LLC, a global long/short equity hedge fund based in Beverly Hills, California, from 2007 to 2009 and a Vice President of Wilshire Associates, a financial consulting firm, from 1999 to 2007. Mr. Morrison also served on the board of directors of iPass Inc., which provides global enterprises and telecommunications carriers with cloud-based mobility management and Wi-Fi connectivity services, from May 2015 to June 2016. Mr. Morrison’s expertise and background in the financial and equity markets provide experience that the Board considers valuable.
E. Clinton Cain. Mr. Cain has served as the Company's Interim Chief Financial Officer since October 18, 2017, and as the Company’s Senior Vice President, Chief Accounting Officer and Controller since February 4, 2016. Mr. Cain previously served as Vice President of Finance at the Company beginning September 2014, before which time he worked as a Senior Financial Analyst at the Company beginning in June 2011. Prior to joining the Company, Mr. Cain worked as an audit associate at Habif, Arogeti & Wynne, LLP, in Atlanta, Georgia, and Huber, Erickson, and Bowman, LLC, in Salt Lake City, Utah, both certified public accounting firms. Mr. Cain's tenure with the Company and technical accounting background provide experience that the Board considers valuable.
109
Michael J. Fox. Mr. Fox has served as a director since October 2013 and Lead Independent Director since April 2015. Mr. Fox is the Chief Executive Officer of Park City Capital, LLC (“Park City”), a value-oriented investment management firm he founded in June 2008. From 2000 to 2008, Mr. Fox worked at J.P. Morgan in New York, most recently as Vice President and Senior Business Services Analyst. As J.P. Morgan’s Senior Business Services Analyst, Mr. Fox headed the firm’s Business Services equity research group from 2005 to 2008. From 2000 to 2005, Mr. Fox was a member of J.P. Morgan’s Leisure equity research group which was consistently recognized by Institutional Investor’s All America Research Team. Mr. Fox also serves on the board of directors of Resonant Inc. Mr. Fox’s expertise and background in the financial and equity markets and his involvement in researching the commercial real estate industry provide experience that the Board considers valuable.
Kenneth W. Taylor . Mr. Taylor has served as a director since February 2018. Mr. Taylor is the Chief Operations Officer and Chief Financial Officer for Cellairis, a leading supplier of mobile device accessories and repair services through 500 domestic and international franchisee operated company-leased stores since June 2012. Previously, Mr. Taylor served as Chief Operation Officer and Chief Financial Officer, for Anisa International, Inc., a leading manufacturer of cosmetic brushes, from 2009 to 2012, as Chief Financial Officer for InComm Holdings, Inc., a leading supplier of prepaid and gift cards products and networks, from 2004 to 2009, as Chief Financial Officer for The Edge Flooring, a private equity-backed flooring startup manufacturer, from 2003 to 2004, Chief Financial Officer for Numerex Corporation , a leading supplier of IoT products and gateways, from 2002 to 2003, as Chief Financial Officer for Rodenstock NA, Inc., a startup ophthalmic lens manufacturer, from 2001 to 2002, as Corporate Controller for Scientific Games Corporation, a leading supplier of products and services to the global lottery industry, from 1987 to 2000. Since 2010, Mr. Taylor has also served as a director for Thanks Again, LLC, a leading supplier of loyalty and consumer engagement services to global airports. Mr. Taylor’s business and principal financial officer experience provide experience that the Board considers valuable.
David A. Tenwick. Mr. Tenwick is our founder and has served as a director since our organization was founded in August 1991. Mr. Tenwick also served as Chairman of the Board from our founding until March 2015 and as the Company’s Interim Chief Executive Officer and President from June 1, 2014 to November 1, 2014. Prior to our founding, Mr. Tenwick was an independent business consultant from 1982 to 1990. In this capacity, he has served as a director and an officer of several businesses, including Douglass Financial Corporation, a surety company, and AmeriCare Health & Retirement, Inc., a long-term care management company. From 1967 until 1982, Mr. Tenwick was a director and an officer of Nucorp Energy, Inc., a company which he co-founded. Nucorp Energy was a public company that invested in oil and gas properties and commercial and residential real estate. Prior to founding Nucorp Energy, Mr. Tenwick was an enforcement attorney for the SEC. Mr. Tenwick is a member of the Ohio State Bar Association and was a founding member of the Ohio Assisted Living Association, an association that promotes high quality assisted living throughout the State of Ohio. Mr. Tenwick’s tenure with the Company and legal and business background provide experience that the Board considers valuable.
Arrangements with Directors Regarding Election/Appointment
Michael J. Fox. On October 1, 2013, we entered into a letter agreement (the “Fox Agreement”) with Park City and Mr. Fox pursuant to which the Board appointed Mr. Fox as a director of the Company effective October 23, 2013.
Pursuant to the Fox Agreement, for so long as Mr. Fox serves on the Board as a nominee of the Board, Park City shall take such action as may be required so that all of the capital stock of the Company which is entitled to vote generally in the election of directors (the “Voting Securities”) and is beneficially owned by Park City, or any person who, within the meaning of Rule 12b-2 under the Exchange Act, is “controlling,” “controlled by” or “under common control with” Park City (the “Park City Group”), is voted in favor of each of the Board’s nominees to the Board at any and all meetings of our shareholders or at any adjournment or postponement thereof or in any other circumstance in connection with which a vote, consent or other approval of holders of Voting Securities is sought with respect to the election of any nominee to the Board.
110
In addition, for so long as Mr. Fox serves on the Board as a nominee of the Board, Park City will not do or agree or commit to do (or encourage any other person to do or agree or commit to do) and will not permit any member of the Park City Group or any affiliate or associate thereof to do or agree or commit to do (or encourage any other person to do or agree or commit to do) any of the following:
|
(i) |
solicit proxies or written consents of shareholders with respect to any Voting Securities, or make, or in any way participate in, any solicitation of any proxy to vote any Voting Securities (other than as conducted by us), or become a participant in any election contest with respect to us; |
|
(ii) |
seek to call, or request the call of, a special meeting of shareholders or seek to make, or make, any shareholder proposal at any meeting of shareholders that has not first been approved in writing by the Board; |
|
(iii) |
make any request or seek to obtain, in any fashion that would require public disclosure by us, Park City or their respective affiliates, any waiver or amendment of any provision of the Fox Agreement or take any action restricted thereby; and |
|
(iv) |
except as permitted by the Fox Agreement, make or cause to be made any statement or announcement that constitutes an ad hominem attack on us or our officers or directors in any document or report filed with or furnished to the SEC or any other governmental agency or in any press release or other publicly available format. |
Furthermore, pursuant to the Fox Agreement, for so long as Mr. Fox serves on the Board as a nominee of the Board, Mr. Fox agrees to comply with all applicable policies and guidelines of the Company and, consistent with his fiduciary duties and his obligations of confidentiality as a member of the Board, to refrain from communicating to anyone any nonpublic information about us that he learns in his capacity as a member of the Board (which agreement shall remain in effect after Mr. Fox leaves the Board). Notwithstanding the foregoing, Mr. Fox may communicate such information to any member of the Park City Group who agrees to be bound by the same confidentiality restrictions applicable to Mr. Fox, provided that Mr. Fox shall be liable for any breach of such confidentiality by any such member. In addition, Mr. Fox has confirmed that each of the other members of the Park City Group has agreed not to trade in any of our securities while in possession of any nonpublic material information about us if and to the extent doing so would be in violation of applicable law or, without the prior written approval of the Board, to trade in any of our securities during any blackout period imposed by us.
Audit Committee of the Board of Directors
The Company has a separately designated Audit Committee which was established in accordance with Section 3(e)(58)(A) of the Exchange Act. The Audit Committee has the responsibility of reviewing our financial statements, evaluating internal accounting controls, reviewing reports of regulatory authorities and determining that all audits and examinations required by law are performed. The Audit Committee also approves the appointment of the independent registered public accounting firm for the next fiscal year, approves the services to be provided by such firm and the fees for such services, reviews and approves the audit plans, reviews and reports upon various matters affecting the independence of the independent registered public accounting firm and reviews with it the results of the audit and management's responses.
The Audit Committee was established in 1995, and its charter was adopted in December 2005. The current members of the Audit Committee are Messrs. Fox, Taylor and Tenwick. Each of Messrs. Fox, Taylor and Tenwick is considered "independent," as independence for Audit Committee members is defined in the applicable rules of the NYSE America listing standards and the rules of the SEC. The Board has designated Mr. Taylor as Chairman of the Audit Committee and has determined that Mr. Taylor is an "audit committee financial expert" as defined by Item 407 of Regulation S-K of the Exchange Act.
111
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and directors and persons who beneficially own more than 10% of our common stock (the "Reporting Persons") to file initial reports of ownership and reports of changes in ownership with the SEC. Reporting Persons are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company and written representations from the executive officers and directors, the Company believes that the Reporting Persons complied with all Section 16(a) filing requirements since January 1, 2017, except that Mr. Fox filed a late report on Form 4 with respect to the disposition of the convertible promissory note issued to his affiliate by the Company in 2015 and Mr. Taylor filed a late report on Form 3 with respect to his appointment as a director.
Code of Ethics
We have adopted a written code of conduct, our Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees of the Company (including our principal executive officer, principal financial officer, principal accounting officer or controller, and any person performing similar functions). Our Code of Business Conduct and Ethics is available in the corporate governance subsection of the investor relations page of our website, www.regionalhealthproperties.com , and is also available in print upon written request to our Corporate Secretary, Regional Health Properties, Inc., 454 Satellite Boulevard NW, Suite 100, Suwanee, Georgia 30024.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the compensation awarded to, paid to or earned by or accrued our principal executive officer and our other most highly compensated executive officers whose total compensation exceeded $100,000 for the years ended December 31, 2017 and December 31, 2016 (collectively, our “named executive officers”):
Name and Principal Position |
|
Year |
|
|
Salary ($) |
|
|
Bonus ($) |
|
|
Stock Awards ($) (1) |
|
|
All Other Compensation ($) |
|
|
Total ($) |
|
||||||
William McBride III, |
|
2017 |
|
|
|
118,653 |
|
|
|
— |
|
|
|
— |
|
|
|
379,974 |
|
(2) |
|
498,627 |
|
|
Former Chairman and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Chief Executive Officer |
|
2016 |
|
|
|
300,000 |
|
|
|
— |
|
|
|
— |
|
|
|
104,000 |
|
(3) |
|
404,000 |
|
|
(former principal executive officer)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan J. Rimland |
|
2017 |
|
|
|
223,877 |
|
|
|
— |
|
|
|
— |
|
|
|
97,293 |
|
(4) |
|
321,170 |
|
|
Former Chief Executive Officer, Former President, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Chief Financial Officer and |
|
2016 |
|
|
|
250,000 |
|
|
|
— |
|
|
|
— |
|
|
|
169,141 |
|
(5) |
|
419,141 |
|
|
Former Corporate Secretary (former principal financial officer)** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent Morrison |
|
2017 |
|
|
|
— |
|
|
|
— |
|
|
|
37,500 |
|
(6) |
|
56,747 |
|
(7) |
|
94,247 |
|
|
Interim Chief Executive Officer, Interim President and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
(principal executive officer)*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Clinton Cain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim Chief Financial Officer, Senior Vice President and |
|
2017 |
|
|
|
120,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120,000 |
|
|
Chief Accounting Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(principal accounting officer)**** |
|
2016 |
|
|
|
120,000 |
|
|
|
11,500 |
|
|
|
— |
|
|
|
— |
|
|
|
131,500 |
|
* |
Mr. McBride served as the Company’s Chairman and Chief Executive Officer (and principal executive officer) from October 2014 and until he separated from the Company on April 17, 2017. Mr. Rimland commenced serving as the Company’s Chief Executive Officer (and principal executive officer) upon such separation. |
** |
Mr. Rimland served as the Company’s Chief Financial Officer (and principal financial officer) from April 2015, and as the Company’s Chief Executive Officer (and principal executive officer) from Mr. McBride’s separation, until Mr. Rimland resigned effective October 17, 2017. |
112
**** |
Mr. Cain commenced serving as the Company’s Interim Chief Financial Officer (and principal financial officer) on October 18, 2017. |
(1) |
The amounts set forth above reflect the full aggregate grant date fair value of the awards Note 13 - Stock Based Compensation to our audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” for a description of the assumptions used to determine fair value). |
(2) |
Represents: (i) $360,000, pursuant to a Settlement Agreement and Mutual Release entered into between the Company and Mr. McBride on September 26, 2017, $300,000 of which is payable over a 24-month period commencing October 31, 2017 pursuant to the terms of an Unsecured Negotiable Promissory Note; and (ii) certain business-related and commuting expenses reimbursed by the Company of approximately $19,974. See Part III, Item 11, “Executive Compensation – Compensation Arrangements with Former Officers.” |
(3) |
Represents: payments in the amount of $104,000 to Mr. McBride in respect of the taxes owed by Mr. McBride related to the vesting of 50,000 shares of common stock on October 10, 2016 under a restricted stock award of 150,000 shares of common stock granted on October 10, 2014. Pursuant to Mr. McBride’s employment agreement, the Company agreed to pay all taxes owed in connection with such grants. |
(4) |
Represents: (i) certain business-related and commuting expenses reimbursed by the Company of approximately $46,949; (ii) an accrual in the amount of $48,365 to Mr. Rimland in respect of the taxes owed by Mr. Rimland related the vesting of 41,666 shares of common stock on April 1, 2016, under a restricted stock award of 125,000 shares of common stock granted April 1, 2015 and (iii) payments in the amount of $1,979 with respect to the Company’s matching on the 401(k) plan. Pursuant to Mr. Rimland’s employment agreement, the Company agreed to pay all taxes owed in connection with his restricted stock grants. |
(5) |
Represents: (i) certain business-related and commuting expenses reimbursed by the Company of approximately $69,557 and (ii) payments in the amount of $99,584 to Mr. Rimland in respect of the taxes owed by Mr. Rimland related the vesting of 41,666 shares of common stock on April 1, 2017 under a restricted stock award of 125,000 shares of common stock granted April 1, 2015. Pursuant to Mr. Rimland’s employment agreement, the Company agreed to pay all taxes owed in connection with such grants. |
(6) |
Represents compensation paid to Mr. Morrison as a non-employee director for the year ended December 31, 2017, in the form of: (i) a restricted stock grant of 36,232 shares of common stock, with respect to 2016 compensation, that has a grant price of $2.07 per share which vests as to one-third of the shares on January 1, 2017, January 1, 2018 and January 1, 2019 and (ii) a restricted stock grant of 24,510 shares of common stock with a grant price of $1.53 per share which vests as to one-third of the shares on January 1, 2018, January 1, 2019 and January 1, 2020. |
(7) |
Represents: (i) fees paid to Mr. Morrison as a non-employee director for the year ended December 31, 2017 of $38,500; (ii) $10,747 reimbursed for travel and other out-of-pocket expenses in connection with his duties as Interim Chief Executive Officer and Interim President; and (iii) $7,500 paid for his services as interim Chief Executive Officer and Interim President. |
Compensation Arrangements – With Current Officers
Mr. Morrison . Mr. Morrison, a director of the Company since October 2014, commenced serving as the Company’s Interim Chief Executive Officer and Interim President (and principal executive officer) on October 18, 2017.
On November 17, 2017, the Board and the Compensation Committee of the Board determined that Mr. Morrison is entitled to receive, as compensation for his service as Interim Chief Executive Officer and Interim President, a cash payment in the amount of $15,000 per month, without withholdings, payable on a date to be determined by Mr. Morrison, as well as reimbursement for reasonable travel and other out-of-pocket expenses incurred by Mr. Morrison in connection with the performance of his duties as Interim Chief Executive Officer and Interim President.
113
E. Clinton Cain. Mr. Cain commenced serving as the Company’s Interim Chief Executive Officer and Senior Vice President on October 18, 2017, upon Mr. Rimland’s resignation effective October 17, 2017. On February 4, 2016 the Board appointed Mr. Cain as the Company's Senior Vice President, Chief Accounting Officer and Controller. On February 8, 2016, the Company and Mr. Cain agreed that, if Mr. Cain’s employment is terminated without cause, then Mr. Cain is entitled to twelve (12) months of severance pay comprised of salary continuation. For this purpose, “cause” is defined as due to negligence or misconduct in the performance of Mr. Cain’s material duties that directly results in an economic loss to the Company.
The Compensation Committee has not yet made any determination regarding compensation for Mr. Cain in respect of this service as Interim Chief Financial Officer.
In connection with Mr. Cain’s employment and in respect of performance during the year ended December 31, 2015 prior to becoming an executive officer, the Company granted to Mr. Cain on January 1, 2016 a restricted stock award of 7,792 shares of common stock with a grant price of $2.49 per share, which vests with respect to one-third of such shares on January 1, 2017, January 1, 2018 and January 1, 2019.
Agreements with Former Officers
William McBride, III . Mr. McBride served as the Company’s Chief Executive Officer from October 10, 2014 until he separated from the Company on April 17, 2017, pursuant to an employment agreement between the Company and Mr. McBride, effective October 10, 2014, and amended on March 25, 2015. Pursuant to the employment agreement, as amended, the Company employed Mr. McBride as its Chief Executive Officer on the following terms: (i) the Company paid to Mr. McBride an annual base salary of $300,000, subject to increase by the Compensation Committee of the Board; (ii) Mr. McBride was eligible to earn an annual bonus based on achievement of performance goals established by the Compensation Committee of the Board of up to 100% of his base salary; and (iii) the Company provided Mr. McBride with such other benefits as other senior executives of the Company receive. The employment agreement had an initial term of three years and was, subject to automatic consecutive renewal terms of one year unless notice of non-renewal was provided pursuant to the employment agreement.
In connection with Mr. McBride’s employment, the Company granted to Mr. McBride: (i) on October 10, 2014, 150,000 shares of restricted common stock, which vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date; (ii) on January 1, 2015, 50,000 shares of restricted common stock, which vest as to one-third of the shares on October 10, 2015, October 10, 2016 and October 10, 2017; and (iii) on October 10, 2014, a ten-year warrant to purchase 300,000 shares of common stock, with an exercise price of $4.49, which vests as to one-third of the shares on each of the three subsequent anniversaries of the grant date; (iv) a restricted stock award of 28,986 shares of common stock with a grant price of $2.07 per share, which vested immediately on the grant date of January 27, 2016; and (v) a five-year option to purchase 77,186 shares of common stock with an exercise price of $2.07 per share, which vested immediately on the grant date of January 27, 2016. The awards of restricted common stock were granted under the 2011 Stock Incentive Plan of AdCare Health Systems, Inc. (the "2011 Plan"). Under the employment agreement, the Company paid to Mr. McBride an additional bonus during each applicable year to reimburse him for any state and federal income tax liability he incurred as a result of the vesting of his restricted stock awards (whether by the passage of time or upon acceleration of vesting), which bonus amount was “grossed up” to compensate Mr. McBride for the additional tax liability of such bonus.
Under Mr. McBride’s employment agreement:
|
• |
if Mr. McBride were terminated for cause, then he would receive any accrued but unpaid salary through his termination date; |
|
• |
if Mr. McBride were to terminate his employment without good reason, then he would receive any accrued but unpaid salary through his termination date and any earned but unpaid bonus amounts with respect to the preceding completed fiscal year; and |
114
Under Mr. McBride’s employment agreement, if Mr. McBride were terminated due to his death or disability, Mr. McBride (or his estate or beneficiaries, as the case may be) would receive a lump sum severance payment equal to all accrued and unpaid salary through the date of termination plus a pro-rata bonus payment amount calculated as the product of any bonus Mr. McBride would have earned for the fiscal year times a fraction representing the portion of the year he was employed prior to such termination.
For purposes of the employment agreement: (i) a termination is deemed for “cause,” only if it is based upon conviction of (or pleading guilty or nolo contendere to) a felony, material disloyalty to the Company, or Mr. McBride having engaged in unethical or illegal behavior which is of a public nature and results in material damage to the Company; (ii) “good reason” means a material diminution in Mr. McBride’s authority or responsibilities, a material change in the geographic location at which Mr. McBride must regularly perform the services to be performed by him, any other action or inaction that constitutes a material breach by the Company of the employment agreement, or, subject to certain notice and cure provisions, the failure by the Company to continue in effect any material benefit plan in which Mr. McBride participates and such failure occurs during the period commencing three months prior to a change of control (as defined in the agreement) and ending one year after a change of control; and (iii) a “change of control termination” means that, during the three months prior, or within one year after, a change of control, Mr. McBride is terminated without cause or he terminates his employment for good reason.
On April 17, 2017, Mr. McBride separated from the Company and ceased serving as its Chief Executive Officer and a director, and ceased serving in all other positions he held with the Company and its subsidiaries. In connection with such separation, all unvested portions of the warrant and restricted stock awards issued to him under his employment agreement were forfeited. On September 26, 2017, Mr. McBride and the Company entered into a Settlement Agreement and Mutual Release, effective October 4, 2017 (the “Settlement Agreement”), pursuant to which, among other things, and in lieu of any other rights or obligations under Mr. McBride’s employment agreement:
(i) |
the Company paid to Mr. McBride $60,000 in cash; |
(ii) |
the Company issued to Mr. McBride an Unsecured Negotiable Promissory Note with an original principal amount of $300,000 (the “McBride Note”); |
(iii) |
Mr. McBride released the Company from all claims and liabilities, including those arising out of his employment, and his employment agreement, with the Company and his separation therefrom (but excluding claims to enforce the provisions of the Settlement Agreement, the McBride Note and the indemnification provisions under his employment agreement); |
(iv) |
the Company released Mr. McBride from all claims and liabilities arising out of his employment, and his employment agreement, with the Company and his separation therefrom (excluding (a) claims for intentional tortious conduct, fraud or arising out criminal misconduct other than in connection with such separation (provided such claims were not known to, or reasonably discoverable by the Company), and (b) claims to enforce the provisions of the Settlement Agreement and the restrictive covenants under the employment agreement); and |
(v) |
from after the effective date of the Settlement Agreement, the termination of Mr. McBride’s employment shall be deemed a resignation by Mr. McBride. |
115
The McBride Note accrues interest at an annual rate of four percent (4%) and principal interest in payable in 24 monthly instalments of $13,072.42 , which payments commenced on October 31, 2017 and shall end on September 30, 2019. Upon the existence an continuation of an Event of Default (as defined in the McBride Note), interest accrues at a default rate of (18%) per annum .
Allan J. Rimland. Mr. Rimland resigned from the Company effective October 17, 2017, after serving as its Chief Executive Officer since April 17, 2017, its Chief Financial Officer and President since April 1, 2015, and a director since October 14, 2015. Mr. Rimland served as the Company’s President and Chief Financial Officer under an employment agreement between the Company and Mr. Rimland, effective April 1, 2015, pursuant to which: (i) the Company paid to Mr. Rimland an annual base salary of $250,000, subject to increase by the Compensation Committee; (ii) Mr. Rimland was eligible to earn an annual bonus based on achievement of performance goals established by the Compensation Committee of the Board of up to 100% of his base salary; and (iii) the Company provided Mr. Rimland with such other benefits as other senior executives of the Company receive. The employment agreement, the Company had an initial term of three years and was, subject to automatic consecutive renewal terms of one year unless notice of non-renewal was provided pursuant to the employment agreement.
In connection with Mr. Rimland’s employment, the Company granted to Mr. Rimland on April 1, 2015: (i) 125,000 shares of restricted common stock, which vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date; and (ii) a ten-year warrant to purchase 275,000 shares of common stock with an exercise price of $4.25, which vests as to one-third of the shares on each of the three subsequent anniversaries of the grant date; (iii) a restricted stock award of 24,155 shares of common stock with a grant price of $2.07 per share, which vested immediately on the grant date of January 27, 2016; and (iv) a five-year option to purchase 64,321 shares of common stock with an exercise price of $2.07 per share, which vested immediately on the grant date of January 27, 2016. The award of restricted stock was granted under the 2011 Plan. Under the employment agreement, the Company also paid to Mr. Rimland an additional bonus during each applicable year to reimburse him for any state and federal income tax liability he incurred as a result of the vesting of restricted stock awards (whether by the passage of time or upon acceleration of vesting), which bonus amount shall be “grossed up” to compensate Mr. Rimland for the additional tax liability of such bonus.
Under Mr. Rimland’s employment agreement:
|
• |
if Mr. Rimland were terminated for cause, then he would receive any accrued and unpaid salary through his termination date. |
|
• |
if Mr. Rimland terminates his employment without good reason, any accrued and unpaid salary through his termination date and any earned but unpaid bonus amounts with respect to the preceding completed fiscal year; and |
|
• |
if (i) Mr. Rimland were terminated without cause;(ii) Mr. Rimland were to terminated his employment with good reason; (iii) Mr. Rimland were terminated in a change of control termination; or (iv) the Company declines to renew the employment agreement after its initial term or any subsequent term, then: (a) Mr. Rimland would receive a lump sum amount equal to two times his then-current base salary; (b) the restricted stock award and the warrant would automatically accelerate so as to be fully vested as of his termination date; and (c) Mr. Rimland would be reimbursed for monthly premiums paid by him under the Consolidated Omnibus Budget Reconciliation Act of 1985 for up to 18 months. |
Under Mr. Rimland’s employment agreement, if Mr. Rimland were terminated due to his death or disability, Mr. Rimland (or his estate or beneficiaries, as the case may be) would receive a lump sum severance payment equal to any accrued and unpaid salary through the date of termination plus a pro-rata bonus payment amount calculated as the product of any bonus Mr. Rimland would have earned for the fiscal year times a fraction representing the portion of the year he was employed prior to such termination.
116
For purposes of the employment agreement: (i) a termination is deemed for “cause,” only if it is based upon conviction of (or pleading guilty or nolo contendere to) a felony, material disloyalty to the Company, or Mr. Rimland having engaged in unethical or illegal behavior which is of a public nature and results in material damage to the Company; (ii) “good reason” means a material diminution in Mr. Rimland’s authority or responsibilities, a material change in the geographic location at which Mr. Rimland must regularly perform the services to be performed by him, any other action or inaction that constitutes a material breach by the Company of the employment agreement, or, subject to certain notice and cure provisions, the failure by the Company to continue in effect any material benefit plan in which Mr. Rimland participates and such failure occurs during the period commencing three months prior to a change of control (as defined in the agreement) and ending one year after a change of control; and (iii) a “change of control termination” means that, during the three months prior, or within one year after, a change of control, Mr. Rimland is terminated without cause or he terminates his employment for good reason.
Effective October 17, 2017, Mr. Rimland resigned from the Company without good reason and all unvested portions of the restricted stock award issued to him under his employment agreement became forfeited.
Retirement Programs
Our retirement programs are designed to facilitate the retirement of employees, including our named executive officers, who have performed for us over the long term. We currently maintain a 401(k) plan with a match of 50% of the first 2% of an employee’s contribution as well as non-qualified employee stock purchase program. The terms of these plans are essentially the same for all employees. Our named executive officers participate in the plans on the same basis as all other employees. We do not provide our named executive officers any special retirement benefits.
Outstanding Equity Awards at Fiscal Year-End Table
The Outstanding Equity Awards at Fiscal Year-End table below sets forth information regarding the outstanding equity awards held by our named executive officers as of December 31, 2017:
|
|
OPTION AWARDS |
|
STOCK AWARDS |
|
||||||||||||||||||||
Name and Principal Position |
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
|
Number of Securities Underlying Unexercised Options (#)— Unexercisable |
|
|
|
|
Option Exercise Price |
|
|
Option Expiration Date |
|
|
Equity Incentive Plan Award: Total Number of Unearned Shares, Units or Other Rights that have Not Vested |
|
|
Equity Incentive Plan Award: Market or Payout Value of Unearned Shares, Units or Other Rights that have Not Vested |
|
|||||
William McBride III, Former Chairman and |
|
|
200,000 |
|
|
|
— |
|
|
|
|
$ |
4.49 |
|
|
10/10/2024 |
|
|
|
— |
|
|
$ |
— |
|
Former Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(former principal executive officer)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan J. Rimland, Former Chief Executive Officer, |
|
|
183,333 |
|
|
|
— |
|
|
|
|
$ |
4.25 |
|
|
4/1/2025 |
|
|
|
— |
|
|
$ |
— |
|
Former President, Former Chief Financial Officer and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Corporate Secretary (former principal financial officer)** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent Morrison, Interim Chief Executive Officer, |
|
|
51,865 |
|
|
|
— |
|
|
|
|
$ |
3.90 |
|
|
12/17/2024 |
|
|
|
48,665 |
|
(1) |
$ |
8,273 |
|
Interim President and Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Clinton Cain, Interim Chief Financial Officer, |
|
|
4,500 |
|
|
|
— |
|
|
|
|
$ |
4.30 |
|
|
4/17/2023 |
|
|
|
2,597 |
|
(2) |
$ |
441 |
|
Senior Vice President and Chief Accounting Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(principal financial officer and principal accounting officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Mr. McBride served as the Company’s Chief Executive Officer (and principal executive officer) from October 2014 and until his separation from the Company on April 17, 2017. Mr. Rimland commenced serving as the Company’s Chief Executive Officer (and principal executive officer) upon such separation. See Part III, Item 11, “Executive Compensation - Agreements With Former Officers - William McBride, III.” |
117
(1) |
Restricted shares vest on the following schedule: 8,170 shares on January 1, 2018, 12,077 shares on January 27, 2018, 8,170 shares on January 1, 2019, 12,078 shares on January 27, 2019 and 8,170 shares on January 1, 2020. |
(2) |
Restricted shares vest on the following schedule: 2,597 shares on December 31, 2018. |
Director Compensation
Director Compensation and Reimbursement Arrangements
The Compensation Committee has not yet made any determination with respect to the Company’s director compensation plan for the year ending December 31, 2018.
On December 16, 2016, the Board and the Compensation Committee approved the Company’s director compensation plan for the year ending December 31, 2017. Pursuant to this plan, 2017 director fees for non-employee directors were set at $75,000, payable as follows: (i) $37,500 payable in cash; and (ii) $37,500 payable in restricted stock granted pursuant to the 2011 Plan. In accordance with this plan, the Company paid the cash portion of the 2017 director fees in January 2017 and granted to each of Messrs. Fox, Morrison, Tenwick and Knaup, on December 16, 2016, a restricted stock award of 24,510 shares of common stock, which vests as to one-third of the shares on each of January 1, 2018, January 1, 2019 and January 1, 2020. The Company granted to Mr. Szames 23,364 shares of restricted common stock on May, 1 2017, which would have vested as to one-third of the underlying shares on January 1 of each of 2018, 2019 and 2020 (however such award was forfeit upon the expiration of his term as director on December 20, 2017), and on June 1, 2017 paid $25,000 in cash to Mr. Szames. The restricted stock award and cash payment represented prorated director compensation in respect of Mr. Szames’s service on the Board for the remaining portion of 2017.
In addition, each director also received, or will receive, a payment of $1,000 in cash for each in-person Board meeting attended during the year ended December 31, 2017 and ending December 31, 2018. Non-employee directors are also reimbursed for travel and other out-of-pocket expenses in connection with their duties as directors.
Director Compensation Table
The following table sets forth information regarding compensation paid to our non-employee directors for the year ended December 31, 2017. Directors who are employed by us do not receive any compensation for their activities related to serving on the Board:
Name |
|
Fees earned or paid in cash $ |
|
|
Stock awards (1) $ |
|
|
|
All other compensation (3) $ |
|
|
Total $ |
|
||||
Michael J. Fox |
|
|
38,500 |
|
|
|
37,500 |
|
(2) |
|
|
— |
|
|
|
76,000 |
|
Tom Knaup* |
|
|
38,500 |
|
|
|
37,500 |
|
(2) |
|
|
— |
|
|
|
76,000 |
|
David A. Tenwick |
|
|
38,500 |
|
|
|
37,500 |
|
(2) |
|
|
2,756 |
|
|
|
78,756 |
|
Brian Szames** |
|
|
25,000 |
|
|
|
37,500 |
|
(2) |
|
|
1,389 |
|
|
|
63,889 |
|
118
See Part III, Item 11., “Executive Compensation – Summary Compensation Table” for a description of the compensation arrangements for Brent Morrison a director of the Company and Interim Chief Executive Officer and Interim President effective October 18, 2017 upon the resignation of Mr. Rimland .
* |
Mr. Knaup, ceased serving as a director upon the expiration of his term as a director at the Company’s 2017 Annual Meeting of Shareholders held on December 20, 2017. |
** |
Effective December 20, 2017, all stock awards for Mr. Szames were forfeited due to the expiration of his term as a director at the Company’s 2017 Annual Meeting of Shareholders held on December 20, 2017. |
(1) |
The amounts set forth reflect the full aggregate grant date fair value of the awards. See Note 13 – Stock Based Compensation to our audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” in this Annual Report for a description of the assumptions used to determine fair value. |
(2) |
Represents a restricted stock grant of 24,510 shares of common stock with a grant price of $1.53 per share which vests as to one-third of the shares on January 1, 2018, January 1, 2019 and January 1, 2020. |
(3) |
The amounts set forth reflect amounts reimbursed for travel and other out-of-pocket expenses in connection with their duties as directors. |
The number of outstanding exercisable and unexercisable options and warrants, and the number of unvested shares of restricted stock held by each of our non-employee directors as of December 31, 2017 are shown below:
|
|
As of December 31, 2017 |
|
|||||||||
|
|
Number of Shares Subject to Outstanding Options or Warrants |
|
|
Number of Shares of Unvested |
|
||||||
Director |
|
Exercisable |
|
|
Unexercisable |
|
|
Restricted Stock |
|
|||
Michael J. Fox (1) |
|
|
73,532 |
|
|
|
— |
|
|
|
48,665 |
|
Tom Knaup |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Brian Szames (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
David A. Tenwick |
|
|
27,778 |
|
|
|
— |
|
|
|
48,665 |
|
1) |
Excludes 328,418 shares subject to outstanding, exercisable warrants purchased by an affiliate of Mr. Fox unrelated to equity compensation. |
2) |
Stock awards for Mr. Szames were forfeited due to the expiration of his term as a director at the Company’s 2017 Annual Meeting of Shareholders held on December 20, 2017. |
Purpose of the Compensation Committee of the Board of Directors
The Compensation Committee advises the Board with respect to the compensation of each senior executive and each member of the Board. The Compensation Committee is also charged with the oversight of compensation plans and practices for all employees of the Company. The Compensation Committee relies upon data made available for the purpose of providing information on organizations of similar or larger scale engaged in similar activities. The purpose of the Compensation Committee's activity is to assure that the Company's resources are used appropriately to recruit and maintain competent and talented executives and employees able to operate and grow the Company successfully.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For information regarding securities authorized for issuance under equity compensation plans, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
119
Beneficial Ownership of Common Stock
The following table furnishes information, as of March 24, 2018, as to shares of the common stock beneficially owned by: (i) each person or entity known to us to be the beneficial owner of more than 5% of the common stock, (ii) each of our directors and our named executive officers identified in Part III, Item 11., "Executive Compensation - Summary Compensation Table"; and (iii) our directors and executive officers as a group. As of March 24, 2018, there were 19,878,908 shares of common stock outstanding.
Name of Beneficial Owner (1) |
|
Number of Shares of Common Stock Beneficially Owned (2) |
|
|
|
Percent of Outstanding Common Stock (3) |
|
||
5% Beneficial Owners (Excluding Directors and Named Executive Officers): |
|
|
|
|
|
|
|
|
|
Park City Capital, LLC (4) |
|
|
1,078,418 |
|
(7) |
|
|
5.4 |
% |
Christopher Brogdon (5) |
|
|
1,024,670 |
|
(8) |
|
|
5.2 |
% |
Connie B. Brogdon (6) |
|
|
1,024,670 |
|
(9) |
|
|
5.2 |
% |
Directors and Named Executive Officers: |
|
|
|
|
|
|
|
|
|
Michael J. Fox |
|
|
1,212,692 |
|
(10) |
|
|
6.0 |
% |
David A. Tenwick |
|
|
526,428 |
|
(11) |
|
|
2.6 |
% |
Brent Morrison |
|
|
112,607 |
|
(12) |
|
* |
|
|
E. Clinton Cain**** |
|
|
12,292 |
|
(13) |
|
* |
|
|
Kenneth Taylor |
|
|
— |
|
|
|
* |
|
|
All Directors and Executive Officers as a Group: |
|
|
1,864,019 |
|
|
|
|
9.0 |
% |
William McBride, III** |
|
|
413,477 |
|
(14) |
|
|
2.1 |
% |
Allan J. Rimland*** |
|
|
321,521 |
|
(15) |
|
|
1.6 |
% |
All Former Executive Officers as a Group: |
|
|
734,998 |
|
|
|
|
3.5 |
% |
* |
Less than one percent. |
** |
Mr. McBride served as the Company’s Chairman and Chief Executive Officer (and principal executive officer) from October 2014 and until he separated from the Company on April 17, 2017. Mr. Rimland commenced serving as the Company’s Chief Executive Officer (and principal executive officer) upon such separation. |
*** |
Mr. Rimland served as the Company’s Chief Financial Officer (and principal financial officer) from April 2015, and as the Company’s Chief Executive Officer (and principal executive officer) from Mr. McBride’s separation, until Mr. Rimland resigned effective October 17, 2017. Mr. Morrison, a director of the Company, commenced serving as the Company’s Interim Chief Executive Officer (and principal executive officer) on October 18, 2017. |
**** |
Mr. Cain commenced serving as the Company’s Interim Chief Financial Officer (and principal financial officer) on October 18, 2017. |
(1) |
The address for each of our directors and executive officers is c/o Regional Health Properties, Inc., 454 Satellite Boulevard NW, Suite 100, Suwanee, Georgia 30024. |
(2) |
Except as otherwise specified, each individual has sole and direct beneficial voting and dispositive power with respect to shares of the common stock indicated. |
(3) |
Percentage is calculated based on 19,878,908 shares of common stock outstanding as of March 24, 2018. |
(4) |
The address for Park City is 200 Crescent Court, Suite 1575, Dallas, Texas 75201. |
(5) |
The address for Mr. Brogdon is 88 West Paces Ferry Road N.W., Atlanta, Georgia 30305. |
(6) |
The address for Ms. Brogdon is 88 West Paces Ferry Road N.W., Atlanta, Georgia 30305. |
120
(8) |
Includes: (i) 240,527 shares of common stock held directly by Mr. Brogdon; and (ii) 784,143 shares of common stock held by Connie B. Brogdon (his spouse). Share information is based on a Form 4 filed with the SEC on December 17, 2014 and other information known to the Company. |
(9) |
Includes: (i) 240,527 shares of common stock held directly by Mr. Brogdon (her spouse); and (ii) 784,143 shares of common stock held by Ms. Brogdon. Share information is based on a Form 4 filed with the SEC on December 2, 2014 and other information known to the Company. |
(10) |
The information set forth in this table regarding Michael J. Fox is based on a Schedule 13 D/A filed with the SEC on April 4, 2017 and other information known to the Company. Includes: (i) 60,742 shares of common stock held directly by Mr. Fox; (ii) 750,000 shares of common stock held by affiliates of Mr. Fox; (iii) options to purchase 21,667 shares of common stock held directly by Mr. Fox at an exercise price of $4.06 per share; (iv) options to purchase 51,865 shares of common stock held directly by Mr. Fox at an exercise price of $3.90 per share; (v) a warrant to purchase 109,473 shares of common stock held by an affiliate of Mr. Fox at an exercise price of $2.57 per share; (vi) a warrant to purchase 109,473 shares of common stock held by an affiliate of Mr. Fox at an exercise price of $3.43 per share; and (vii) a warrant to purchase 109,472 shares of common stock held by an affiliate of Mr. Fox at an exercise price of $1.93 per share. See Part III, Item 10, “Directors, Executive Officers and Corporate Governance - Arrangements with Directors Regarding Election/Appointment - Michael J. Fox.” |
(11) |
Includes: (i) 498,650 shares of common stock held by Mr. Tenwick; and (ii) options to purchase 27,778 shares of common stock at an exercise price of $4.06 per share. |
(12) |
Includes: (i) 60,742 shares of common stock held by Mr. Morrison; and (ii) options to purchase 51,865 shares of common stock held by Mr. Morrison at an exercise price of $3.90 per share. |
(13) |
Includes: (i) 7,792 shares of common stock held by Mr. Cain; and (ii) options to purchase 4,500 shares of common stock held by Mr. Cain at an exercise price of $4.30 per share. |
(14) |
Includes: (i) 213,477 shares of common stock held by Mr. McBride; and (ii) warrants to purchase 200,000 shares of common stock at an exercise price of $4.49 per share. |
(15) |
Includes: (i) 138,188 shares of common stock held by Mr. Rimland; and (ii) warrants to purchase 183,333 shares of common stock at an exercise price of $4.25 per share. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
Riverchase . On April 9, 2010, Riverchase Village ADK, LLC (“Riverchase”), then a wholly owned subsidiary of the Company, entered into a purchase agreement with a third party to acquire the assets of Riverchase Village, a 105-bed assisted living facility located in Hoover, Alabama. On June 22, 2010, the Company assigned to Christopher F. Brogdon (a then director of the Company, beneficial owner of more than 5% of the common stock and the Company’s former Chief Acquisition Officer) 100% of the membership interests in Riverchase (the “Assignment”). On June 25, 2010, Riverchase, then owned by Mr. Brogdon, completed the acquisition of the Riverchase Village facility. Riverchase financed the purchase of the Riverchase Village facility by borrowing from the Medical Clinic Board of the City of Hoover, Alabama the proceeds from the issuance of certain bonds with an aggregate principal amount of $6.3 million (the “Riverchase Bonds”). As part of the financing, AdCare guaranteed Riverchase’s obligations under the Riverchase Bonds.
121
On November 20, 2015, Riverchase sold the Riverchase Village facility to Omega Communities, LLC for a purchase price of $6.9 million. In connection with such sale, the Riverchase Bonds were repaid in full, and AdCare was released from its guaranty of Riverchase’s obligations thereunder.
Letter Agreement with Brogdon . On March 3, 2014, the Company and certain of its subsidiaries entered into a letter agreement (the “Letter Agreement”) with Mr. Brogdon and entities controlled by him, pursuant to which, among other things: (i) the parties agreed to terminate the management agreements between subsidiaries of the Company and the Brogdon entities under which the Company subsidiaries managed eight skilled nursing facilities located in Oklahoma owned by the Brogdon entities; and (ii) Mr. Brogdon executed a promissory note in favor of the Company in principal amount of $523,663, which represented amounts owed by the Brogdon entities pursuant to the management agreements and owed by GL Nursing, LLC (an entity controlled by Mr. Brogdon) to the Company in connection with the Company’s assignment to GL Nursing, LLC in May 2012 of the Company’s rights to acquire a skilled nursing facility located in Lonoke, Arkansas. The promissory note was originally payable in five equal monthly installments commencing on September 1, 2014 and ending on December 31, 2014, and did not bear interest. The promissory note provided that, upon sale of the Riverchase Village facility, the Company would receive the sales proceeds in accordance with a schedule set forth in the promissory note.
On May 15, 2014, the Company and certain of its subsidiaries entered into an amendment to the Letter Agreement (the “Letter Agreement First Amendment”), pursuant to which the Company paid $92,323 (the “Tax Payment”) to the appropriate governmental authorities of Jefferson County, Alabama, such amount representing outstanding real property taxes due on the Riverchase Village facility. The Company determined that it was in its best interests to make the Tax Payment in order to preserve the Company’s interest in the sale of the Riverchase Village facility. The parties also agreed to amend and restate the promissory note issued by Mr. Brogdon in favor of the Company to reflect a new principal amount of $615,986, which amount represents the original principal amount of the note plus the Tax Payment. Prior to the sale of the Riverchase Village facility in November 2015, the Company made a payment in the amount of $85,000 (the “Principal Obligation”) on behalf of Riverchase with respect to its obligations under the Riverchase Bonds. On October 10, 2014, Riverchase issued a promissory note in favor of the Company in the principal amount of $177,323, which represented the amount of Tax Payment plus the Principal Obligation. The note does not bear interest and was due upon the closing of the sale of the Riverchase Village facility.
On October 10, 2014, the Company and certain of its subsidiaries entered into a second amendment to the Letter Agreement, as amended (the “Letter Agreement Second Amendment”), with Mr. Brogdon and entities controlled by Mr. Brogdon, pursuant to which, among other things: (i) the Company reduced the principal amount of the promissory note issued by Mr. Brogdon by the amount equal to $92,323 (which represents the amount of the Tax Payment) plus $255,000 (which represents an offset of amounts owed by the Company to Mr. Brogdon under his consulting agreement with the Company, which terminated in November 2015); and (ii) the parties agreed that the net sales proceeds from the sale of the Riverchase Village facility would be distributed so that any net sales proceeds shall first be paid to the Company to satisfy the $177,323 outstanding under the note issued by Riverchase to the Company.
On March 25, 2015, the Company and certain of its subsidiaries entered into a third amendment to the Letter Agreement (the “Letter Agreement Third Amendment”), with Mr. Brogdon and entities controlled by him, pursuant to which Riverchase and the Company agreed to amend the promissory note issued by Riverchase to the Company to: (i) increase the principal amount due under the promissory note issued by Riverchase to the Company by any additional real property tax payments made by the Company with respect to the Riverchase Village facility and (ii) to state that such promissory note would not bear interest. The Letter Agreement Third Amendment amended the Letter Agreement, among other things, to provide a schedule for the payment to the Company of the net sales proceeds resulting from a sale of the Riverchase Village facility. The Letter Agreement Third Amendment required that the net sales proceeds from such sale be distributed to the Company as follows: (i) an amount sufficient to satisfy all amounts due and owing under the promissory note issued by Riverchase to the Company; (ii) one-half of the then remaining net sales proceeds; (iii) an amount sufficient to satisfy the amounts due and owing under the promissory note issued by Mr. Brogdon to the Company; and (iv) the then remaining balance of net sales proceeds. In connection with the Letter Agreement Third Amendment, the Company and Mr. Brogdon amended the promissory note issued by Mr. Brogdon to the Company to provide that principal balance plus any accrued interest under the promissory note shall be due and payable on the earlier of: (a) December 31, 2015; or (b) the closing of the sale of the Riverchase Village facility.
122
On November 10, 2016, the Company and Mr. Brogdon further amended the promissory note issued by Mr. Brogdon to the Company to extend its maturity date to December 31, 2017. As a condition to such amendment, Winter Haven Homes, Inc. (“Winter Haven”), an entity owned and controlled by Mr. Brogdon, has agreed to waive payment of certain charges otherwise due and owing from the Company to Winter Haven from January 1, 2016 to July 31,2016.
As of December 31, 2017, principal due and payable under the promissory note: (i) issued by Mr. Brogdon to the Company was $268,663; and (ii) issued by Riverchase to the Company was $95,000.
Personal Guarantor on Loan Agreements . Mr. Brogdon serves as personal guarantor on certain loan agreements entered into by the Company prior to 2015. At December 31, 2017 and December 31, 2016, the total outstanding principal owed under such loan agreements was approximately $11.8 million and $15.3 million, respectively.
Park City Capital . In January 2017, the Company repurchased the $1,000,000 promissory note held by Park City Offshore pursuant to the terms of the Company’s previously announced cash tender offer for any and all of the outstanding promissory notes of the same series. For a description of the tender offer, see Note 9 – Notes Payable and Other Debt to our audited consolidated financial statements in Part II, Item 8, “Financial Statements and Supplemental Data” in this Annual Report.
Mr. Fox is a an affiliate of Park City Offshore, a director of the Company since October 2013, Lead Independent
Director since April 1, 2015 and a beneficial owner of greater than 5% of the outstanding common stock. For a description of the arrangements between the Company and Mr. Fox regarding his service as a director, see Part III, Item 10.,“Directors Executive Officers and Corporate Governance - Arrangements With Directors Regarding Appointment / Election.”
Doucet Asset Management, LLC . On June 10, 2014 and on subsequent dates, Doucet Capital, LLC, Doucet Asset Management, LLC, Christopher L. Doucet and Suzette A. Doucet (together the “Doucet Group”) jointly filed with the SEC a Schedule 13D reporting beneficial ownership of greater than 5% of the common stock.
In January 2017, the Company repurchased the notes in aggregate principal amount of $250,000 held by Mr. and Ms. Doucet pursuant to the terms of the Company’s previously announced cash tender offer for any and all of the outstanding promissory notes of the same series. For a description of the tender offer, see Note 9 – Notes Payable and Other Debt to our audited consolidated financial statements in Part II, Item 8, “Financial Statements and Supplemental Data” in this Annual Report.
On January 19, 2017, Doucet Capital, LLC, Doucet Asset Management, LLC and Mr. and Ms. Doucet jointly filed with the SEC a Schedule 13D reporting beneficial ownership of less than 5% of the common stock as a result of the convertible notes repurchased by the Company pursuant to such tender offer.
William McBride, III . For a description of certain transactions with Mr. McBride, our former Chairman and Chief Executive Officer, see Part III, Item 11., “Executive Compensation - Arrangements With Former Officers - William McBride, III.”
Approval of Related Party Transactions
Each of the foregoing transactions was approved by the independent members of the Board without the related party having input with respect to the discussion of such approval. In addition, the Board believes that each of the foregoing transactions was necessary for the Company's business and is on terms no less favorable to the Company than could be obtained from independent third parties. The Company’s policy requiring that independent directors approve any related party transaction is not evidenced by writing but has been the Company’s consistent practice.
123
On January 1, the Board consisted of the following directors: Mr. McBride (separated from the Company on April, 2017), Mr. Rimland (resigned effective October 17, 2017), Mr. Knaup (term as a director expired on December 20, 2017 at the Company’s 2017 Annual Meeting of Shareholders), and Messrs. Morrison and Tenwick. Mr. Szames was appointed to the Board on May 1, 2017 (and his term as a director expired on December 20, 2017 at the Company’s 2017 Annual Meeting of Shareholders), and Mr. Taylor was appointed to the Board on February 1, 2018.
The NYSE American listing standards for smaller reporting companies require that at least 50% of the members of a listed company’s Board qualify as “independent,” as defined under NYSE American rules and as affirmatively determined by the company’s Board. After review of all the relevant transactions and relationships between each director (and his family members) and the Company, senior management and our independent registered public accounting firm, the Board affirmatively determined that at all times during the year ended December 31, 2017, and through the date of filing this Annual Report, the following directors (while serving as such) were independent within the meaning of applicable NYSE American rules: Messrs. Fox, Knaup, Tenwick, Morrison and Szames, except Mr. Morrison ceased being independent upon his appointment as Interim Chief Executive Officer on October 18, 2017. In addition, in connection with his appointment to the Board in February 2018, the Board affirmatively determined that Mr. Taylor is independent within the meaning of applicable NYSE American rules.
For purposes of determining the independence of Mr. Fox, the Board considered: (i) the participation by an affiliate of Mr. Fox in the private placement of a promissory note in 2015 and the Company’s tender offer for such note in January 2017; and (ii) the Fox Agreement. See “- Related Party Transactions - Park City Capital” above.
Item 14. Principal Accountant Fees and Services
Fees
Pursuant to appointment by the Audit Committee, KPMG LLP ("KPMG") has audited the financial statements of the Company and its subsidiaries for the years ended December 31, 2017 and 2016.
The following table sets forth the aggregate fees that KPMG billed to the Company for the years ended December 31, 2017 and 2016, respectively. All of the fees were approved by the Audit Committee in accordance with its policies and procedures.
|
|
Year Ended December 31, |
|
|||||
(Amounts in 000's) |
|
2017 |
|
|
2016 |
|
||
Audit fees (total) (1) |
|
$ |
385 |
|
|
$ |
350 |
|
Audit-related fees (total) (2) |
|
|
85 |
|
|
|
70 |
|
Tax fees |
|
|
— |
|
|
|
— |
|
All other fees |
|
|
— |
|
|
|
— |
|
Total fees |
|
$ |
470 |
|
|
$ |
420 |
|
(1) |
Audit fees include fees associated with professional services rendered by KPMG for the audit of the Company's annual financial statements and review of financial statements included in the Company's quarterly reports on Form 10-Q. |
(2) |
Audit related fees include fees for additional services related to acquisitions, registration statements and other regulatory filings. |
Pre-Approval Policy
The Audit Committee is required to pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Audit Committee prior to completion of the audit. The Audit Committee pre-approved all of the non-audit services provided by our independent registered public accounting firm in 2016 and 2015.
124
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements. The following financial statements of Regional Health Properties, Inc. and its Subsidiaries are included in Part II, Item 8 of this Annual Report.
|
(i) |
Consolidated Balance Sheets—December 31, 2017 and 2016; |
|
(ii) |
Consolidated Statements of Operations—Years ended December 31, 2017 and 2016; |
|
(iii) |
Consolidated Statements of Stockholders' Equity—Years ended December 31, 2017 and 2016; |
|
(iv) |
Consolidated Statements of Cash Flows—Years ended December 31, 2017 and 2016; and |
|
(v) |
Notes to Consolidated Financial Statements. |
(a)(2) Financial Statement Schedules. Financial statement schedules are omitted because they are not required, are not material, are not applicable, or the required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits. A list of the Exhibits required by Item 601 of Regulation S-K to be filed as a part of this Annual Report is shown on the "Exhibit Index" filed herewith and incorporated herein by this reference.
In reviewing the agreements included as exhibits to this Annual Report, investors are reminded that they are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about Regional or the other parties to the agreements. Some of the agreements 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 the 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 you or other investors, and |
|
• |
Were made only as of the date of the applicable agreement or such other date or dates may be specified in the agreement and are subject to more recent developments. |
Accordingly, the representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about us may be found elsewhere in this Annual Report and our other public filings with the SEC, which are available without charge on our website at www.regionalhealthproperties.com .
125
Exhibit No. |
|
Description |
|
Method of Filing |
2.1 |
|
|
Incorporated by reference to Exhibit 10.160 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
2.2 |
|
|
Incorporated by reference to Exhibit 2.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
2.3 |
|
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
2.4 |
|
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed March 15, 2012 |
|
2.5 |
|
|
Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed March 15, 2012 |
|
2.6 |
|
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed April 9, 2012 |
|
2.7 |
|
|
Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed April 23, 2012 |
|
2.8 |
|
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 |
|
2.9 |
|
|
Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 |
|
2.10 |
|
|
Incorporated by reference to Exhibit 2.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
2.11 |
|
|
Incorporated by reference to Exhibit 2.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
2.12 |
|
|
Incorporated by reference to Exhibit 2.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
2.13 |
|
|
Incorporated by reference to Exhibit 2.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
126
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed August 15, 2012 |
||
2.15 |
|
|
Incorporated by reference to Exhibit 2.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
2.16 |
|
|
Incorporated by reference to Exhibit 2.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
2.17 |
|
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed October 1, 2012 |
|
2.18 |
|
|
Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed October 1, 2012 |
|
2.19 |
|
|
Incorporated by reference to Exhibit 2.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
2.20 |
|
|
Incorporated by reference to Exhibit 2.26 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
2.21 |
|
|
Incorporated by reference to Exhibit 2.30 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
2.22 |
|
|
Incorporated by reference to Exhibit 2.31 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
2.23 |
|
|
Incorporated by reference to Exhibit 2.32 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
2.24 |
|
|
Incorporated by reference to Exhibit 2.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
127
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 2.1 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016 |
||
2.26 |
|
|
Incorporated by reference to Exhibit 2.2 of the Registrant’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 |
|
2.27 |
|
|
Incorporated by reference to Exhibit 2.3 of the Registrant’s Current Report on Form 8-K filed on October 11, 2016 |
|
2.28 |
|
|
Incorporated by reference to Exhibit 2.4 of the Registrant’s Current Report on Form 8-K filed on October 11, 2016 |
|
2.29 |
|
|
Incorporated by reference to Exhibit 2.3 to the AdCare Health Systems, Inc., Current Report on Form 8-K filed October 26, 2016. |
|
2.30 |
Incorporated by reference to Exhibit 2.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 |
|||
2.31 |
Incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on July 11, 2017 |
128
Exhibit No. |
|
Description |
|
Method of Filing |
|
Amended and Restated Bylaws of Regional Health Properties, Inc., effective September 21, 2017 |
|
Incorporated by reference to Exhibit 3.3 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
|
3.2 |
|
|
Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
|
3.3 |
|
|
Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
|
4.1 |
|
Form of Common Stock Certificate of Regional Health Properties, Inc . |
|
Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
4.2 |
|
Description of Regional Health Properties, Inc. Capital Stock |
|
Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
4.3* |
|
|
Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 |
|
4.4* |
|
|
Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 |
|
4.5* |
|
|
Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 |
|
4.6* |
|
|
Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 |
|
4.7 |
|
Form of Subordinated Convertible Note, issued April 29, 2011, by AdCare Health Systems, Inc. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Form S-3 (File No. 333-175541) |
4.8* |
|
|
Incorporated by reference to Exhibit 10.158 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
4.9* |
|
|
Incorporated by reference to Exhibit 4.3 to the Registrant’s Form S-3 (File No. 333-175541) |
|
4.10 |
|
|
Incorporated by reference to Exhibit 4.5 to the Registrant’s Form S-3 (File No. 333-175541) |
|
4.11 |
|
|
Incorporated by reference to Exhibit 10.2 to the Registrant’s Form S-3 (File No. 333-175541) |
|
4.12 |
|
|
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed July 5, 2012 |
129
Exhibit No. |
|
Description |
|
Method of Filing |
|
Form of 8% Subordinated Convertible Note Due 2015 issued by AdCare Health Systems, Inc. |
|
Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed July 5, 2012 |
|
4.14 |
|
|
Incorporated by reference to Exhibit 4.3 to the Registrant’s Form S-3 (File No. 333-175541) |
|
4.15 |
|
Form of Subordinated Convertible Note, issued March 31, 2011, by AdCare Health Systems, Inc. |
|
Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed April 6, 2011 |
4.16 |
|
|
Incorporated by reference to Exhibit 4.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
4.17 |
|
|
Incorporated by reference to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
4.18 |
|
|
Incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
4.19 |
|
|
Incorporated by reference to Exhibit 4.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
4.20 |
|
|
Incorporated by reference to Exhibit 4.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
4.21* |
|
|
Incorporated by reference to Exhibit 4.23 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
4.22 |
|
|
Incorporated by reference to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 |
|
4.23 |
|
|
Incorporated by reference to Exhibit 4.23 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 |
|
4.24 |
|
|
Incorporated by reference to Exhibit 4.3 of the Registrant's Quarterly Report on Form 10-Q for the three months ended March 31, 2014
|
|
4.25 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant's annual report on form 10-KSB as amended March 31, 2008 |
|
4.26 |
|
|
Incorporated by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
130
Exhibit No. |
|
Description |
|
Method of Filing |
|
Form of 10% Convertible Subordinated Notes Due April 30, 2017 |
|
Incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
4.28 |
|
Form of 10% Convertible Subordinated Notes Due April 30, 2017 (Affiliate Form) |
|
Incorporated by reference to Exhibit 4.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
4.29* |
|
|
Incorporated by reference to Exhibit 4.17 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 14, 2017 |
|
4.30 |
|
|
Incorporated by reference to Exhibit 4.16 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 14, 2017 |
|
10.1* |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Form 8-K filed September 8, 2008 |
|
10.2 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant's annual report on form 10-KSB as amended March 31, 2008 |
|
10.3 |
|
|
Incorporated by reference to Exhibit 10.31 of the Registrant’s annual report on form 10-K filed March 31, 2009 |
|
10.4 |
|
|
Incorporated by reference to Exhibits 10.1 and 10.2 of the Registrant’s Form 8-K filed October 6, 2010 |
|
10.5 |
|
|
Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed May 5, 2011 |
|
10.6 |
|
|
Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed June 6, 2011 |
|
10.7 |
|
Form of Promissory Note, issued by Mount Trace Nursing ADK, LLC |
|
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 16, 2011 |
10.8 |
|
Amendment, dated June 22, 2011, between Hearth & Home of Ohio, Inc. and Christopher F. Brogdon |
|
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed June 22, 2011 |
10.9 |
|
Guaranty, dated May 26, 2011, made by Christopher F. Brogdon |
|
Incorporated by reference to Exhibit 10.34 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
10.10 |
|
|
Incorporated by reference to Exhibit 10.35 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
|
10.11 |
|
Commercial Guaranty, dated May 25, 2011,made by Christopher F. Brogdon |
|
Incorporated by reference to Exhibit 10.39 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
131
Exhibit No. |
|
Description |
|
Method of Filing |
|
Commercial Guaranty, dated May 25, 2011, made by Connie B. Brogdon |
|
Incorporated by reference to Exhibit 10.40 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
|
10.13 |
|
|
Incorporated by reference to Exhibit 10.41 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
|
10.14 |
|
|
Incorporated by reference to Exhibit 10.42 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
|
10.15 |
|
|
Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 |
|
10.16 |
|
|
Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.17 |
|
|
Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.18 |
|
|
Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.19 |
|
|
Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.20 |
|
|
Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.21 |
|
|
Incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.22 |
|
|
Incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.23 |
|
|
Incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.24 |
|
|
Incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
132
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
||
10.26 |
|
|
Incorporated by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.27 |
|
Guaranty, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the USDA Loan |
|
Incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
10.28 |
|
Guaranty, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan |
|
Incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
10.29 |
|
|
Incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.30 |
|
|
Incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.31 |
|
|
Incorporated by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.32 |
|
|
Incorporated by reference to Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.33 |
|
|
Incorporated by reference to Exhibit 10.19 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.34 |
|
|
Incorporated by reference to Exhibit 10.20 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
|
10.35 |
|
|
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.36 |
|
|
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.37 |
|
|
Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.38 |
|
|
Incorporated by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.39 |
|
|
Incorporated by reference to Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
133
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
||
10.41 |
|
|
Incorporated by reference to Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.42 |
|
|
Incorporated by reference to Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.43 |
|
|
Incorporated by reference to Exhibit 99.9 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.44 |
|
|
Incorporated by reference to Exhibit 99.10 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.45 |
|
|
Incorporated by reference to Exhibit 99.11 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.46 |
|
|
Incorporated by reference to Exhibit 99.12 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.47 |
|
|
Incorporated by reference to Exhibit 99.13 to the Registrant’s Current Report on Form 8-K filed September 7, 2011 |
|
10.48 |
|
|
Incorporated by reference to Exhibit 10.43 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
|
10.49 |
|
|
Incorporated by reference to Exhibit 10.44 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
|
10.50 |
|
|
Incorporated by reference to Exhibit 10.45 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
134
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.46 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
||
10.52 |
|
|
Incorporated by reference to Exhibit 10.47 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
|
10.53 |
|
|
Incorporated by reference to Exhibit 10.48 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
|
10.54 |
|
|
Incorporated by reference to Exhibit 10.49 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 |
|
10.55 |
|
|
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 6, 2011 |
|
10.56 |
|
|
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed October 6, 2011 |
|
10.57 |
|
|
Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed October 6, 2011 |
|
10.58 |
|
|
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 20, 2011 |
|
10.59 |
|
|
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed October 20, 2011 |
|
10.60 |
|
|
Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed October 20, 2011 |
|
10.61 |
|
|
Incorporated by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed October 20, 2011 |
135
Exhibit No. |
|
Description |
|
Method of Filing |
|
Guaranty, dated October 14, 2011, issued by AdCare Health Systems, Inc. in favor of Square 1 Bank |
|
Incorporated by reference to Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed October 20, 2011 |
|
10.63 |
|
|
Incorporated by reference to Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed October 20, 2011 |
|
10.64 |
|
|
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.65 |
|
|
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.66 |
|
|
Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.67 |
|
|
Incorporated by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.68 |
|
|
Incorporated by reference to Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.69 |
|
|
Incorporated by reference to Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.70 |
|
|
Incorporated by reference to Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed December 6, 2011 |
|
10.71 |
|
|
Incorporated by reference to Exhibit 10.141 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.72 |
|
|
Incorporated by reference to Exhibit 10.142 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.73 |
|
|
Incorporated by reference to Exhibit 10.143 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
136
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.144 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
||
10.75 |
|
|
Incorporated by reference to Exhibit 10.145 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.76 |
|
|
Incorporated by reference to Exhibit 10.146 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.77 |
|
|
Incorporated by reference to Exhibit 10.147 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.78 |
|
|
Incorporated by reference to Exhibit 10.148 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.79 |
|
|
Incorporated by reference to Exhibit 10.149 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.80 |
|
|
Incorporated by reference to Exhibit 10.150 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.81 |
|
|
Incorporated by reference to Exhibit 10.151 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.82 |
|
|
Incorporated by reference to Exhibit 10.152 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.83 |
|
|
Incorporated by reference to Exhibit 10.153 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.84 |
|
|
Incorporated by reference to Exhibit 10.154 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
|
10.85 |
|
Lease Agreement, dated August 1, 2010, between William M. Foster and ADK Georgia, LLC |
|
Incorporated by reference to Exhibit 10.155 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
10.86 |
|
First Amendment to Lease, dated August 31, 2010, between William M. Foster and ADK Georgia, LLC |
|
Incorporated by reference to Exhibit 10.156 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
137
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.159 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 |
||
10.88 |
|
|
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed March 15, 2012 |
|
10.89 |
|
|
Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.90 |
|
|
Incorporated by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.91 |
|
|
Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.92 |
|
|
Incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.93 |
|
|
Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.94 |
|
|
Incorporated by reference to Exhibit 10.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.95 |
|
|
Incorporated by reference to Exhibit 10.13 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.96 |
|
|
Incorporated by reference to Exhibit 10.14 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
138
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.15 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
||
10.98 |
|
|
Incorporated by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.99 |
|
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.100 |
|
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.101 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.102 |
|
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.103 |
|
|
Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 |
|
10.104 |
|
|
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed July 5, 2012 |
|
10.105 |
|
|
Incorporated by reference to Exhibit 10.37 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.106 |
|
|
Incorporated by reference to Exhibit 10.37 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.107 |
|
|
Incorporated by reference to Exhibit 10.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.108 |
|
|
Incorporated by reference to Exhibit 10.13 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
139
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.14 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
||
10.110 |
|
|
Incorporated by reference to Exhibit 10.15 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.111 |
|
|
Incorporated by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.112 |
|
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.113 |
|
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.114 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.115 |
|
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.116 |
|
|
Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.117 |
|
|
Incorporated by reference to Exhibit 10.22 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.118 |
|
|
Incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.119 |
|
|
Incorporated by reference to Exhibit 10.24 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
140
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.25 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
||
10.121 |
|
|
Incorporated by reference to Exhibit 10.26 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.122 |
|
|
Incorporated by reference to Exhibit 10.27 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.123 |
|
|
Incorporated by reference to Exhibit 10.30 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.124 |
|
|
Incorporated by reference to Exhibit 10.31 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 |
|
10.125 |
|
Loan Agreement, dated June 8, 2012, by and between Mt. V Property Holdings, LLC and Metro City Bank |
|
Incorporated by reference to Exhibit 10.14 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
10.126 |
|
|
Incorporated by reference to Exhibit 10.15 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.127 |
|
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.128 |
|
Guaranty, dated June 8, 2012, made by AdCare Health Systems, Inc. in favor of Metro City Bank |
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
10.129 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.130 |
|
Loan Agreement, dated June 8, 2012, by and between Mt. V Property Holdings, LLC and Metro City Bank |
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
10.131 |
|
|
Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
141
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.22 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
||
10.133 |
|
|
Incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.134 |
|
Guaranty, dated June 8, 2012, made by AdCare Health Systems, Inc. in favor of Metro City Bank |
|
Incorporated by reference to Exhibit 10.24 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
10.135 |
|
|
Incorporated by reference to Exhibit 10.40 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.136 |
|
|
Incorporated by reference to Exhibit 10.41 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.137 |
|
|
Incorporated by reference to Exhibit 10.43 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.138 |
|
|
Incorporated by reference to Exhibit 10.47 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 |
|
10.139 |
|
Sublease Agreement, dated December 1, 2012, between ADK Georgia, LLC and Jeff Co. Nursing, LLC |
|
Incorporated by reference to Exhibit 10.245 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
10.140 |
|
|
Incorporated by reference to Exhibit 10.248 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.141 |
|
|
Incorporated by reference to Exhibit 10.252 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.142 |
|
|
Incorporated by reference to Exhibit 10.262 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.143 |
|
|
Incorporated by reference to Exhibit 10.263 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
142
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.264 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
||
10.145 |
|
|
Incorporated by reference to Exhibit 10.265 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.146 |
|
|
Incorporated by reference to Exhibit 10.266 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.147 |
|
|
Incorporated by reference to Exhibit 10.267 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.148 |
|
|
Incorporated by reference to Exhibit 10.268 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.149 |
|
|
Incorporated by reference to Exhibit 10.269 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.150 |
|
|
Incorporated by reference to Exhibit 10.270 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.151 |
|
|
Incorporated by reference to Exhibit 10.271 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.152 |
|
|
Incorporated by reference to Exhibit 10.272 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.153 |
|
|
Incorporated by reference to Exhibit 10.273 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.154 |
|
|
Incorporated by reference to Exhibit 10.274 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.155 |
|
|
Incorporated by reference to Exhibit 10.275 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
143
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.276 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
||
10.157 |
|
|
Incorporated by reference to Exhibit 10.277 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.158 |
|
|
Incorporated by reference to Exhibit 10.278 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.159* |
|
|
Incorporated by reference to Exhibit 10.279 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.160 |
|
|
Incorporated by reference to Exhibit 10.280 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.161 |
|
|
Incorporated by reference to Exhibit 10.281 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.162 |
|
|
Incorporated by reference to Exhibit 10.282 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.163 |
|
|
Incorporated by reference to Exhibit 10.283 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.164 |
|
|
Incorporated by reference to Exhibit 10.284 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.165 |
|
|
Incorporated by reference to Exhibit 10.285 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.166 |
|
|
Incorporated by reference to Exhibit 10.286 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.167 |
|
|
Incorporated by reference to Exhibit 10.287 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
144
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.288 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
||
10.169 |
|
|
Incorporated by reference to Exhibit 10.289 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.170 |
|
|
Incorporated by reference to Exhibit 10.292 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.171 |
|
|
Incorporated by reference to Exhibit 10.293 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.172 |
|
|
Incorporated by reference to Exhibit 10.294 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
|
10.173 |
|
|
Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.174 |
|
|
Incorporated by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.175 |
|
|
Incorporated by reference to Exhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.176 |
|
|
Incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.177 |
|
|
Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.178 |
|
|
Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.179 |
|
|
Incorporated by reference to Exhibit 10.12 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
145
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.13 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
||
10.181 |
|
|
Incorporated by reference to Exhibit 10.14 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.182 |
|
|
Incorporated by reference to Exhibit 10.15 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.183 |
|
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.184 |
|
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.185 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.186 |
|
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.187 |
|
|
Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.188 |
|
Sublease Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and Tybee NH, LLC |
|
Incorporated by reference to Exhibit 10.24 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
10.189 |
|
Sublease Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and Tybee NH, LLC |
|
Incorporated by reference to Exhibit 10.25 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
10.190 |
|
|
Incorporated by reference to Exhibit 10.30 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 |
146
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.31 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 |
||
10.192 |
|
|
Incorporated by reference to Exhibit 10.32 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 |
|
10.193 |
|
|
Incorporated by reference to Exhibit 10.33 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 |
|
10.194 |
|
|
Incorporated by reference to Exhibit 10.34 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 |
|
10.195 |
|
|
Incorporated by reference to Exhibit 10.35 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 |
|
10.196 |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on October 18, 2013 |
|
10.197 |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on December 31, 2013 |
|
10.198* |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on February 14, 2014 |
|
10.199 |
|
|
Incorporated by reference to Exhibit 10.330 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
|
10.200 |
|
|
Incorporated by reference to Exhibit 10.331 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
147
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.332 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
||
10.202 |
|
Note, dated February 28, 2014, by and among AdCare Health Systems, Inc. and Christopher F. Brogdon |
|
Incorporated by reference to Exhibit 10.334 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
10.203 |
|
|
Incorporated by reference to Exhibit 10.335 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
|
10.204 |
|
|
Incorporated by reference to Exhibit 10.336 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
|
|
10.205 |
|
|
Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014 |
|
10.206 |
|
|
Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014 |
|
10.207 |
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on May 21, 2014 |
148
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on July 29, 2014 |
||
10.209 |
|
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.210 |
|
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.211 |
|
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.212 |
|
|
Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.213 |
|
|
Incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.214 |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on October 17, 2014 |
149
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on October 17, 2014 |
||
10.216* |
|
|
Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K filed on October 17, 2014 |
|
10.217 |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on December 22, 2014 |
|
10.218 |
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on December 22, 2014 |
|
10.219 |
|
|
Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K filed on December 22, 2014 |
|
10.220 |
|
|
Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K filed on December 22, 2014 |
|
10.221 |
|
|
Incorporated by reference to Exhibit 10.359 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.222 |
|
|
Incorporated by reference to Exhibit 10.360 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.223 |
|
|
Incorporated by reference to Exhibit 10.361 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.224 |
|
|
Incorporated by reference to Exhibit 10.362 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
150
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.363 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
||
10.226 |
|
|
Incorporated by reference to Exhibit 10.364 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.227 |
|
|
Incorporated by reference to Exhibit 10.365 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.228 |
|
|
Incorporated by reference to Exhibit 10.366 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.229 |
|
|
Incorporated by reference to Exhibit 10.367 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.230 |
|
|
Incorporated by reference to Exhibit 10.368 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.231 |
|
|
Incorporated by reference to Exhibit 10.369 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.232 |
|
|
Incorporated by reference to Exhibit 10.370 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.233 |
|
|
Incorporated by reference to Exhibit 10.371 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.234 |
|
|
Incorporated by reference to Exhibit 10.372 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.235 |
|
|
Incorporated by reference to Exhibit 10.373 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.240 |
|
|
Incorporated by reference to Exhibit 10.374 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
151
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.375 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
||
10.250 |
|
|
Incorporated by reference to Exhibit 10.376 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.260 |
|
|
Incorporated by reference to Exhibit 10.377 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.264 |
|
|
Incorporated by reference to Exhibit 10.378 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.265 |
|
|
Incorporated by reference to Exhibit 10.379 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.266 |
|
|
Incorporated by reference to Exhibit 10.380 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.267 |
|
|
Incorporated by reference to Exhibit 10.381 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.268 |
|
|
Incorporated by reference to Exhibit 10.382 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.269 |
|
|
Incorporated by reference to Exhibit 10.383 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.270 |
|
|
Incorporated by reference to Exhibit 10.384 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.271 |
|
|
Incorporated by reference to Exhibit 10.385 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.272 |
|
|
Incorporated by reference to Exhibit 10.386 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
152
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.387 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
||
10.274 |
|
|
Incorporated by reference to Exhibit 10.388 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.275 |
|
|
Incorporated by reference to Exhibit 10.389 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.276 |
|
|
Incorporated by reference to Exhibit 10.390 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.277 |
|
|
Incorporated by reference to Exhibit 10.391 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.278 |
|
|
Incorporated by reference to Exhibit 10.392 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.279 |
|
|
Incorporated by reference to Exhibit 10.393 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.280 |
|
|
Incorporated by reference to Exhibit 10.394 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.281 |
|
|
Incorporated by reference to Exhibit 10.395 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.282* |
|
|
Incorporated by reference to Exhibit 10.396 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
153
Exhibit No. |
|
Description |
|
Method of Filing |
|
Employment Agreement between AdCare Health Systems, Inc. and Allan J. Rimland, dated March 25, 2015 |
|
Incorporated by reference to Exhibit 10.397 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.284 |
|
|
Incorporated by reference to Exhibit 10.398 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.285 |
|
|
Incorporated by reference to Exhibit 10.399 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.286 |
|
|
Incorporated by reference to Exhibit 10.400 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.287 |
|
|
Incorporated by reference to Exhibit 10.401 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.288 |
|
|
Incorporated by reference to Exhibit 10.24 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.289 |
|
|
Incorporated by reference to Exhibit 10.25 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.290 |
|
|
Incorporated by reference to Exhibit 10.26 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.291 |
|
|
Incorporated by reference to Exhibit 10.27 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
|
10.292 |
|
|
Incorporated by reference to Exhibit 10.28 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 |
154
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.408 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
||
10.294 |
|
|
Incorporated by reference to Exhibit 10.409 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.295 |
|
|
Incorporated by reference to Exhibit 10.410 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.296 |
|
|
Incorporated by reference to Exhibit 10.411 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.297 |
|
|
Incorporated by reference to Exhibit 10.412 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.298 |
|
|
Incorporated by reference to Exhibit 10.413 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.299 |
|
Sublease Agreement, dated July 1, 2014 by and between ADK Georgia, LLC, and C.R. of Thomasville, LLC |
|
Incorporated by reference to Exhibit 10.414 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
10.300 |
|
|
Incorporated by reference to Exhibit 10.415 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.301 |
|
|
Incorporated by reference to Exhibit 10.416 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.302 |
|
|
Incorporated by reference to Exhibit 10.417 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 |
|
10.303 |
|
|
Incorporated by reference to Exhibit 99.12 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.304 |
|
|
Incorporated by reference to Exhibit 99.13 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.305 |
|
|
Incorporated by reference to Exhibit 99.14 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
155
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 99.15 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
||
10.307 |
|
|
Incorporated by reference to Exhibit 99.16 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.308 |
|
|
Incorporated by reference to Exhibit 99.17 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.309 |
|
|
Incorporated by reference to Exhibit 99.18 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.310 |
|
|
Incorporated by reference to Exhibit 99.19 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.311 |
|
|
Incorporated by reference to Exhibit 99.20 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.312 |
|
|
Incorporated by reference to Exhibit 99.21 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.313 |
|
|
Incorporated by reference to Exhibit 99.22 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.314 |
|
|
Incorporated by reference to Exhibit 99.23 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.315 |
|
|
Incorporated by reference to Exhibit 99.24 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.316 |
|
|
Incorporated by reference to Exhibit 99.25 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
156
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 99.26 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
||
10.318 |
|
|
Incorporated by reference to Exhibit 99.27 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.319 |
|
|
Incorporated by reference to Exhibit 99.28 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.320 |
|
|
Incorporated by reference to Exhibit 99.29 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.321 |
|
|
Incorporated by reference to Exhibit 99.30 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.322 |
|
|
Incorporated by reference to Exhibit 99.31 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.323 |
|
|
Incorporated by reference to Exhibit 99.32 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.324 |
|
|
Incorporated by reference to Exhibit 99.33 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.325 |
|
|
Incorporated by reference to Exhibit 99.34 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.326 |
|
|
Incorporated by reference to Exhibit 99.35 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.327 |
|
|
Incorporated by reference to Exhibit 10.25 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.328 |
|
|
Incorporated by reference to Exhibit 10.26 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
157
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 10.27 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
||
10.330 |
|
|
Incorporated by reference to Exhibit 10.28 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.331 |
|
|
Incorporated by reference to Exhibit 10.29 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.332 |
|
|
Incorporated by reference to Exhibit 10.30 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.333 |
|
|
Incorporated by reference to Exhibit 10.31 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.334 |
|
|
Incorporated by reference to Exhibit 10.32 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.335 |
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on April 7, 2015 |
|
10.336 |
|
Sublease Agreement, dated April 1, 2015, by and between ADK Georgia, LLC and C.R. of Lagrange, LLC |
|
Incorporated by reference to Exhibit 99.10 of the Registrant's Current Report on Form 8-K filed on April 7, 2015 |
158
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 99.36 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
||
10.338 |
|
|
Incorporated by reference to Exhibit 99.37 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.339 |
|
|
Incorporated by reference to Exhibit 99.38 of the Registrant's Current Report on Form 8-K filed on May 6, 2015 |
|
10.340 |
|
|
Incorporated by reference to Exhibit 10.83 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.341 |
|
|
Incorporated by reference to Exhibit 10.84 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.342 |
|
|
Incorporated by reference to Exhibit 10.85 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.343 |
|
|
Incorporated by reference to Exhibit 10.86 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 |
|
10.344 |
|
|
Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on April 13, 2015 |
|
10.345 |
|
|
Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 |
|
10.346 |
|
|
Incorporated by reference to Exhibit 10.7 of the Registrant's Current Report on Form 8-K filed on June 5, 2015 |
|
10.347 |
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on July 7, 2015 |
|
10.348 |
|
|
Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on June 2, 2015 |
|
10.349 |
|
|
Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on July 22, 2015 |
159
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
Incorporated by reference to Exhibit 1.2 of the Registrant's Current Report on Form 8-K filed on July 22, 2015 |
||
10.351 |
|
|
Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on August 5, 2015 |
|
10.352 |
|
Sublease Agreement, dated August 1, 2015, by and between Eaglewood Village, LLC and EW ALF, LLC. |
|
Incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 8-K filed on August 5, 2015 |
10.353 |
|
Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and HC SNF, LLC. |
|
Incorporated by reference to Exhibit 99.4 of the Registrant's Current Report on Form 8-K filed on August 5, 2015 |
10.354 |
|
Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and PV SNF, LLC. |
|
Incorporated by reference to Exhibit 99.5 of the Registrant's Current Report on Form 8-K filed on August 5, 2015 |
10.355 |
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Incorporated by reference to Exhibit 99.6 of the Registrant's Current Report on Form 8-K filed on August 5, 2015 |
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10.356 |
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Incorporated by reference to Exhibit 99.7 of the Registrant's Current Report on Form 8-K filed on August 5, 2015 |
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10.357 |
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Incorporated by reference to Exhibit 10.100 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.358 |
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Incorporated by reference to Exhibit 10.101 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.359 |
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Incorporated by reference to Exhibit 10.102 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.360 |
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Incorporated by reference to Exhibit 10.103 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
160
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.104 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.362 |
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Incorporated by reference to Exhibit 10.105 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.363 |
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Incorporated by reference to Exhibit 10.106 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.364 |
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Incorporated by reference to Exhibit 10.107 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.365 |
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Incorporated by reference to Exhibit 10.108 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.366 |
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Incorporated by reference to Exhibit 10.109 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 |
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10.367 |
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Incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K filed on August 18, 2015 |
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10.368 |
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Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on August 18, 2015 |
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10.369 |
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Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on October 6, 2015 |
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10.370 |
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Incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 8-K filed on November 3, 2015 |
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10.371 |
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Incorporated by reference to Exhibit 10.114 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.372 |
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Incorporated by reference to Exhibit 10.115 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
161
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.116 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.374 |
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Incorporated by reference to Exhibit 10.117 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.375 |
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Incorporated by reference to Exhibit 10.118 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.376 |
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Incorporated by reference to Exhibit 10.119 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.377 |
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Incorporated by reference to Exhibit 10.120 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.378 |
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Incorporated by reference to Exhibit 10.121 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.379 |
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Incorporated by reference to Exhibit 99.6 of the Registrant's Current Report on Form 8-K filed on November 3, 2015 |
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10.380 |
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Incorporated by reference to Exhibit 10.123 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.381 |
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Incorporated by reference to Exhibit 10.124 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.382 |
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Incorporated by reference to Exhibit 10.125 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.383 |
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Incorporated by reference to Exhibit 10.126 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.384 |
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Incorporated by reference to Exhibit 10.127 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
162
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.128 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.386 |
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Incorporated by reference to Exhibit 10.129 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.387 |
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Incorporated by reference to Exhibit 10.130 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.388 |
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Incorporated by reference to Exhibit 10.131 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.389 |
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Incorporated by reference to Exhibit 10.132 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.390 |
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Incorporated by reference to Exhibit 10.133 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.391 |
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Incorporated by reference to Exhibit 10.134 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.392 |
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Incorporated by reference to Exhibit 10.135 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.393 |
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Incorporated by reference to Exhibit 10.136 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.394 |
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Incorporated by reference to Exhibit 10.137 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
163
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.138 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.396 |
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Incorporated by reference to Exhibit 10.139 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.397 |
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Incorporated by reference to Exhibit 10.140 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.398 |
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Incorporated by reference to Exhibit 10.141 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.399 |
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Incorporated by reference to Exhibit 10.142 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.400 |
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Incorporated by reference to Exhibit 10.143 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 |
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10.401 |
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Incorporated by reference to Exhibit 10.462 of the AdCare Health Systems, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 |
164
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.463 of the AdCare Health Systems, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 |
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10.403 |
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Incorporated by reference to Exhibit 10.4 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 |
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10.404 |
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Incorporated by reference to Exhibit 10.5 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 |
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10.405 |
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Incorporated by reference to Exhibit 10.6 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 |
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10.406 |
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Incorporated by reference to Exhibit 99.1 of the AdCare Health Systems, Inc. Current Report on Form 8-K filed on October 11, 2016 |
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10.407 |
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Incorporated by reference to Exhibit 99.2 of the AdCare Health Systems, Inc. Current Report on Form 8-K filed on October 11, 2016 |
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10.408 |
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Incorporated by reference to Exhibit 99.3 of the AdCare Health Systems, Inc. Current Report on Form 8-K filed on October 11, 2016 |
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10.409 |
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Incorporated by reference to Exhibit 10.8 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 |
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10.410 |
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Incorporated by reference to Exhibit 10.8 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 |
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10.411 |
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Incorporated by reference to item 1.01 of the AdCare Health Systems, Inc.. Current Report on Form 8-K filed December 19, 2016. |
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10.412 |
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Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 |
165
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 |
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10.414 |
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Incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 |
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10.415 |
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Incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 |
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10.416 |
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Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on May 26, 2017 |
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10.417 |
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Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 |
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10.418 |
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Incorporated by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 |
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10.419 |
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Incorporated by reference to Exhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 |
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10.420 |
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Incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 |
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10.421 |
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Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 |
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10.422 |
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Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 |
166
Exhibit No. |
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Description |
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Method of Filing |
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Incorporated by reference to Exhibit 10.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 |
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10.424 |
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Filed herewith |
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10.425 |
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Filed herewith |
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10.426 |
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Filed herewith |
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10.427 |
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Filed herewith |
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10.428 |
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Filed herewith |
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10.429 |
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Filed herewith |
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10.430 |
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Filed herewith |
167
Exhibit No. |
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Description |
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Method of Filing |
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Filed herewith |
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21.1 |
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Filed herewith |
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23.1 |
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Filed herewith |
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31.1 |
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Certification of PFO pursuant to Section 302 of the Sarbanes-Oxley Act |
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Filed herewith |
31.2 |
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Certification of PFO pursuant to Section 302 of the Sarbanes-Oxley Act |
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Filed herewith |
32.1 |
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Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act |
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Filed herewith |
32.2 |
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Certification of PFO pursuant to Section 906 of the Sarbanes-Oxley Act |
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Filed herewith |
101.INS |
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XBRL Instance Document |
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Filed herewith |
101.SCH |
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XBRL Taxonomy Extension Schema |
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Filed herewith |
101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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Filed herewith |
101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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Filed herewith |
101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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Filed herewith |
101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
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Filed herewith |
* |
Identifies a management contract or compensatory plan or arrangement. |
168
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Regional Health Properties, Inc. |
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by: |
/s/ BRENT MORRISON |
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Brent Morrison |
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Interim Chief Executive Officer and Interim President |
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April 16, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE |
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TITLE |
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DATE |
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/s/ BRENT MORRISON |
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Brent Morrison |
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Director, Interim Chief Executive Officer, and Interim President (Principal Executive Officer) |
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April 16, 2018 |
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/s/ E. CLINTON CAIN |
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E. Clinton Cain |
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Interim Financial Officer, Senior Vice President and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) |
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April 16, 2018 |
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/s/ MICHAEL J. FOX |
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Michael J. Fox |
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Director |
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April 16, 2018 |
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/s/ DAVID A. TENWICK |
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David A. Tenwick |
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Director |
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April 16, 2018 |
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/s/ KENNETH W. TAYLOR |
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Kenneth W. Taylor |
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Director |
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April 16, 2018 |
169
Exhibit 10.424
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (the “ Guaranty ”) is made as of February 15, 2018 by REGIONAL HEALTH PROPERTIES, INC. , a Georgia corporation, as guarantor (the “ RHP Guarantor ”), ADCARE PROPERTY HOLDINGS, LLC , a Georgia limited liability company, as guarantor (the “ AdCare Guarantor ”), and HEARTH & HOME OF OHIO, INC. , a Georgia limited liability company, as guarantor (the “ HHO Guarantor ”; in such capacity as guarantors, the RHP Guarantor, the AdCare Guarantor and the HHO Guarantor are collectively referred to herein as “ Guarantors ” and each as a “ Guarantor ”) to and for the benefit of PINECONE REALTY PARTNERS, II, LLC , a Delaware limited liability company (together with its successors and assigns, “ Lender ”).
W I T N E S S E T H:
A. Lender has agreed to make loans, advances and other extensions of credit to CP Property Holdings, LLC, a Georgia limited liability company, as borrower (the “ CP Borrower ”), Northwest Property Holdings, LLC, a Georgia limited liability company, as borrower (the “ Northwest Borrower ”), Attalla Nursing ADK, LLC, a Georgia limited liability company, as borrower (the “ Attalla Borrower ”), and AdCare Property Holdings, LLC, a Georgia limited liability company, as borrower (the “ AdCare Borrower ”; in such capacity as borrowers, the CP Borrower, the Northwest Borrower, the Attalla Borrower and the AdCare Borrower are collectively referred to herein as “Borrowers” and, each as a “ Borrower ”), pursuant to that certain Loan Agreement, dated of even date herewith, by and among Borrowers, Regional Health Properties, Inc., Guarantors and Lender (the “ Loan Agreement ”). All capitalized terms used but not otherwise defined in this Guaranty shall have the meanings provided to such terms in the Loan Agreement.
B. Each Guarantor is a member of, or the owner of a direct or indirect equity interest in, the Borrower whose obligations it will guarantee hereunder and, as such, has and will derive direct pecuniary and other substantial benefits from the making of the loans, advances and other extensions of credit to such Borrower by Lender.
C. In consideration of such benefits, each Guarantor has agreed to guarantee the payment and performance of such Borrower's Obligations to Lender in accordance with the terms, conditions and limitations set forth herein.
D. This Guaranty is given as a condition to such loans, advances and other extensions of credit and is intended to provide security for the payment and performance of the Obligations owing by Borrowers to Lender.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and intending to be legally bound, Guarantor agrees as follows:
1. Guaranty.
(a) Guaranty of Obligations of the CP Borrower . The RHP Guarantor and the AdCare Guarantor hereby jointly and severally, absolutely, unconditionally and irrevocably guarantee to Lender (i) the full and prompt payment of the Loan made to the CP Borrower pursuant to the Loan Agreement and all other sums owed by the CP Borrower under the Loan Agreement and the other Loan Documents and (ii) the full and prompt performance by the CP Borrower of its other Obligations under the Loan Agreement and the other Loan Documents, in each case, whether now in existence or hereafter arising, and including any such Obligations incurred after the commencement of any proceeding under any Debtor Relief Law (including any interest accruing under any Loan Document after the filing of a petition with respect to the CP Borrower under any Debtor Relief Law, whether or not allowed or allowable as a claim in the related proceeding), as and when the same shall become due and payable, whether at maturity, by acceleration or otherwise, or otherwise be required to be performed. This is a guaranty of payment and performance and not merely of collection.
(b) Guaranty of Obligations of the Northwest Borrower . The RI-IP Guarantor and the AdCare Guarantor hereby jointly and severally, absolutely, unconditionally and irrevocably guarantee to Lender (i) the full and prompt payment of the Loan made to the Northwest Borrower pursuant to the Loan Agreement and all other sums owed by the Northwest Borrower under the Loan Agreement and the other Loan Documents and (ii) the full and prompt performance by the Northwest Borrower of its other Obligations under the Loan Agreement and the other Loan Documents, in each case, whether now in existence or hereafter arising, and including any such Obligations incurred after the commencement of any proceeding under any Debtor Relief Law (including any interest accruing under any Loan Document after the filing of a petition with respect to the Northwest Borrower under any Debtor Relief Law, whether or not allowed or allowable as a claim in the related proceeding), as and when the same shall become due and payable, whether at maturity by acceleration or otherwise, or otherwise be required to be performed. This is a guaranty of payment and performance and not merely of collection.
(c) Guaranty of Obligations of the Attalla Borrower . The RHP Guarantor and the HHO Guarantor hereby jointly and severally, absolutely, unconditionally and irrevocably guarantee to Lender (i) the full and prompt payment of the Loan made to the Attalla Borrower pursuant to the Loan Agreement and all other sums owed by the Attalla Borrower under the Loan Agreement and the other Loan Documents and (ii) the full and prompt performance by the Attalla Borrower of its other Obligations under the Loan Agreement and the other Loan Documents, in each case, whether now in existence or hereafter arising, and including any such Obligations incurred after the commencement of any proceeding under any Debtor Relief Law (including any interest accruing under any Loan Document after the filing of a petition with respect to the Attalla Borrower under any Debtor Relief Law, whether or not allowed or allowable as a claim in the related proceeding), as and when the same shall become due and payable, whether at maturity, by acceleration or otherwise, or otherwise be required to be performed. This is a guaranty of payment and performance and not merely of collection.
(d) Guaranty of Obligations of the AdCare Borrower . The RHP Guarantor hereby absolutely, unconditionally and irrevocably guarantees to Lender (i) the full and prompt payment of the Loan made to the AdCare Borrower pursuant to the Loan Agreement and all other sums owed by the AdCare Borrower under the Loan Agreement and the other Loan Documents and (ii) the full and prompt performance by the AdCare Borrower of its other Obligations under the Loan Agreement and the other Loan Documents, in each case, whether now in existence or hereafter arising, and including any such Obligations incurred after the commencement of any proceeding under any Debtor Relief Law (including any interest accruing under any Loan Document after the filing of a petition with respect to the AdCare Borrower under any Debtor Relief Law, whether or not allowed or allowable as a claim in the related proceeding), as and when the same shall become due and payable, whether at maturity, by acceleration or otherwise, or otherwise be required to be performed. This is a guaranty of payment and performance and not merely of collection.
Notwithstanding anything contained herein to the contrary, for so long as that certain Limited Guaranty and Security Agreement dated December 14, 2016 by the RHP Guarantor, as successor in interest to AdCare Health Systems, Inc., in favor of KeyBank National Association (the “ KeyBank Guaranty ”) shall be in effect, any payment made to Lender by the RHP Guarantor as a result of this Guaranty shall not be made from funds distributed to the RHP Guarantor from Mt. Kenn Property Holdings, LLC, KB HUD Master Tenant 2014, LLC, or Sumter Valley Holdings, LLC, either directly or indirectly, within one hundred eighty (180) days of such distribution; provided, however, that after one hundred eighty (180) following the making of such distribution to the RHP Guarantor, such funds shall be considered released from the KeyBank Guaranty and shall be available as a source of funds for payment of this Guaranty.
3. Continuing Nature. This Guaranty shall be continuing and shall not be discharged, impaired or affected by (i) the power or authority or lack thereof of any Borrower to incur or contract for any Obligations or to execute, acknowledge or deliver any document, agreement or other instrument evidencing, securing or otherwise executed in connection with any Obligations; (ii) the regularity or irregularity, validity or invalidity, or enforceability or unenforceability of any Obligations; (iii) any defenses or counterclaims whatsoever that any Borrower may or might have to the payment or performance of any Obligations or to the assertion of a default under any document, agreement or other instrument evidencing, securing or otherwise executed in connection with any Obligations including, but not limited to, lack of consideration, statute of frauds, infancy, breach of warranty, lender liability, usury, fraud and statute of limitations; (iv) the existence or non-existence of any Borrower as a legal entity; (v) the transfer by any Borrower of all or any part of the property securing any Obligations; (vi) any right of setoff,
2
counterclaim or defense (other than the payment and performance of any Obligations in full) that a Guarantor may or might have to its respective undertakings, liabilities and obligations under this Guaranty, each and every such defense being hereby waived by each Guarantor; or (vii) the inability of Lender to claim any amount of interest, fees, costs, or charges from any Borrower pursuant to Section 506(b) of the Bankruptcy Code.
4. Guarantors' Agreement to Pay. Each Guarantor further agrees, as the principal obligor and not as a guarantor or surety only, to pay to Lender, on demand, all costs and expenses (including court costs and reasonable legal expenses) incurred or expended by Lender in connection with the enforcement of this Guaranty against such Guarantor.
5. Obligations Absolute. The obligations of Guarantors hereunder shall remain in full force and effect without regard to, and shall not be affected or impaired by the following, any of which may be taken without the consent of, or notice to, any Guarantor, nor shall any of the following give Guarantors any recourse or right of action against Lender:
(a) Any express or implied amendment, modification, renewal, addition, supplement, extension (including extensions beyond the original term) or acceleration of or to any of the Loan Documents;
(b) Any exercise or non-exercise by Lender of any right or privilege under this Guaranty or any of the Loan Documents;
(c) Any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to any Borrower, any Guarantor or any other guarantor (which term shall include any other party at any time directly or contingently liable for any Borrower's obligations under the Loan Documents) or any affiliate of any Borrower or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding, whether or not any Guarantor shall have had notice or knowledge of any of the foregoing;
(d) Any release or discharge of any Borrower from its liability under any of the Loan Documents or any release or discharge of any endorser or guarantor or of any other party at any time directly or contingently liable for the Obligations;
(e) Any subordination, compromise, release (by operation of law or otherwise), discharge, compound, collection, or liquidation of any Property or other collateral described in any of the Loan Documents or otherwise in any manner, or any substitution with respect thereto;
(f) Any assignment or other transfer of this Guaranty in whole or in part or of any of the Loan Documents;
(g) Any acceptance of partial performance of the Obligations;
(h) Any consent to the transfer of any Property or any portion thereof or any other collateral described in the Loan Documents or otherwise; and
(i) Any bid or purchase at any sale of any Property or any other collateral described in the Loan Documents or otherwise.
6. Waivers.
Each Guarantor unconditionally waives any defense to the enforcement of this Guaranty, including:
(a) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty;
3
(b) Any right to require Lender to proceed against any Borrower or any guarantor at any time or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy whatsoever at any time;
(c) The defense of any statute of limitations affecting the liability of any
Guarantor hereunder or the liability of any Borrower, or any guarantor under the Loan Documents, or the enforcement hereof, to the extent permitted by law;
(d) Any defense arising by reason of any invalidity or unenforceability of (or any limitation of liability in) any of the Loan Documents or any disability of any Borrower or any guarantor or of any manner in which Lender has exercised its rights and remedies under the Loan Documents, or by any cessation from any cause whatsoever of the liability of any Borrower or any guarantor;
(e) Without limitation on clause (d) above, any defense based upon any lack of authority of the officers, directors, partners or agents acting or purporting to act on behalf of any Borrower or any principal of any Borrower or any defect in the formation of any Borrower or any principal of any Borrower;
(f) Any defense based upon the application by any Borrower of the proceeds of the Loan for purposes other than the purposes represented by such Borrower to Lender or intended or understood by Lender or any Guarantor;
(g) Any defense based upon an election of remedies by Lender, including any election to proceed by judicial or nonjudicial foreclosure of any security, whether real property or personal property security, or by deed in lieu thereof, and whether or not every aspect of any foreclosure sale is commercially reasonable, or any election of remedies, including remedies relating to real property or personal property security, which destroys or otherwise impairs the subrogation rights of any Guarantor or the rights of any Guarantor to proceed against any Borrower or any guarantor for reimbursement, or both;
(h) Any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other aspects more burdensome than that of a principal;
(i) Any defense based upon Lender's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 11ll(b)(2) of the Federal Bankruptcy Code or any successor statute;
(j) Any defense based upon any borrowing or any grant of a security interest under Section 364 of the Federal Bankruptcy Code;
(k) Any duty of Lender to advise any Guarantor of any information known to Lender regarding the financial condition of any Borrower and all other circumstances affecting any Borrower's ability to perform its obligations to Lender, it being agreed that each Guarantor assumes the responsibility for being and keeping informed regarding such condition or any such circumstances; and
(l) Any right of subrogation, reimbursement, exoneration, contribution or indemnity, or any right to enforce any remedy which Lender now has or may hereafter have against Borrower or any benefit of, or any right to participate in, any security now or hereafter held by Lender.
7. Subrogation. Each Guarantor understands that the exercise by Lender of certain rights and remedies may affect or eliminate such Guarantor's right of subrogation against any Borrower or any guarantor and that such Guarantor may therefore incur partially or totally nonreimbursable liability hereunder. Nevertheless, each Guarantor hereby authorizes and empowers Lender, its successors, endorsees and assigns, to exercise in its or their sole discretion, any rights and remedies, or any combination thereof, which may then be available, it being the purpose and intent of each Guarantor that the obligations hereunder shall be absolute, continuing, independent and unconditional under any and all circumstances. Notwithstanding any other provision of this Guaranty to the
4
contrary, until all Obligations have been repaid and the Mortgages have been released or reconveyed, each Guarantor hereby waives and releases, to the fullest extent permitted by law, any claim or other rights which such Guarantor may now have or hereafter acquire against any Borrower or any other guarantor of all or any of the obligations of such Guarantor hereunder that arise from the existence or performance of such Guarantor's obligations under this Guaranty or any of the other Loan Documents, including any right of subrogation, reimbursement, exoneration, contribution or indemnification, any right to participate in any claim or remedy of Lender against any Borrower or any collateral which Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, including the right to take or receive from any Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim or other rights.
8. Additional Waivers. No Guarantor shall be released or discharged, either in whole or in part, by Lender's failure or delay to (i) perfect or continue the perfection of any lien or security interest in any collateral which secures the obligations of any Borrower, any Guarantor or any other guarantor, or (ii) protect the property covered by such lien or security interest.
9. Subordination. Without limitation on the waivers and releases contained herein:
(a) Each Guarantor subordinates all present and future indebtedness owing by any Borrower to such Guarantor to the obligations at any time owing by such Borrower to Lender under the Loan Documents. Each Guarantor assigns all such indebtedness to Lender as security for this Guaranty.
(b) Each Guarantor agrees to make no claim on such indebtedness until all obligations of any Borrower under the Loan Documents have been fully discharged.
(c) Each Guarantor further agrees not to assign all or any part of such indebtedness without the prior written consent of Lender, which consent may be granted or withheld by Lender in its sole and absolute discretion. If Lender so requests, (i) all instruments evidencing such indebtedness shall be duly endorsed and delivered to Lender, (ii) all security for such indebtedness shall be duly assigned and delivered to Lender, (iii) such indebtedness shall be enforced, collected and held by such Guarantor as trustee for Lender and shall be paid over to Lender on account of the Loan but without reducing or affecting in any manner the liability of such Guarantor under the other provisions of this Guaranty, and (iv) such Guarantor shall execute, file and record such documents and instruments and take such other action as Lender deems necessary or appropriate to perfect, preserve and enforce Lender's rights in and to such indebtedness and any security therefor. If any Guarantor fails to take any such action, Lender, as attorney in fact for such Guarantor, is hereby authorized to do so in the name of such Guarantor. The foregoing power of attorney is coupled with an interest and cannot be revoked.
10. Proceedings on Default. Upon the failure of any Borrower to promptly and completely make any required payment and performance of its Obligations, Lender may, at its option: (a) proceed directly and at once without notice of such default, against the Guarantor who has guaranteed such Obligations to collect and recover the full amount of the liability hereunder, or any portion thereof, without proceeding against such Borrower or any other person, or endorser, surety or guarantor, or foreclosing upon, selling, or otherwise disposing of, or enforcing, or collecting or applying any property, real or personal, Lender may then have as security for such Obligations, and without enforcing or proceeding under any other guaranty; (b) sell the real and personal property Lender may then have as security for such Obligations under the power of sale contained in any mortgage deed, security agreement or similar instrument pursuant to which such property is held or to which such property is subject or sell such property through judicial foreclosure, as Lender may elect, notice of any such election being expressly waived by such Guarantor, and proceed against such Guarantor for an amount equal to the difference between the net proceeds of such sale to Lender and the amount of such Obligations then due and owing. Nothing herein shall prohibit Lender from exercising its rights against any Guarantor, any other guarantor, endorser, or surety, the security, if any, for the Obligations, and any Borrower simultaneously, jointly and/or severally.
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11. Representations. Each Guarantor represents and warrants to Lender that: this Guaranty does not violate the provisions of any document, agreement or other instrument by which such Guarantor is bound; no consent or authorization is required as a condition to the execution of this Guaranty; the financial statements and other financial information provided by such Guarantor to Lender are true and correct in all respects and represent assets owned solely by such Guarantor in its name and such assets are not owned, held or subject to a claim, by any other person or entity; such Guarantor is fully aware of the financial condition of Borrower; such Guarantor delivers this Guaranty based solely upon such Guarantor's own independent investigation and understanding of the transaction of which this Guaranty is a part and in no part upon any representation or statement of Lender with respect thereto; such Guarantor is in a position to and hereby assumes full responsibility for obtaining any additional information concerning any Borrower's financial condition or business operations as such Guarantor may deem material to its obligations hereunder and such Guarantor is not relying upon, nor expecting Lender to furnish such Guarantor with, any information in Lender's possession concerning any Borrower's financial condition or business operations. Each Guarantor acknowledges and agrees that it hereby knowingly accepts the full range of risk encompassed within a contract of “continuing guaranty”, which risk includes, without limitation, the possibility that any Borrower will incur or contract for additional indebtedness for which such Guarantor will be liable hereunder.
12. Independent, Separate and Unsecured Obligations. The obligations of each Guarantor hereunder shall be absolute and unconditional and are independent of the obligations of any Borrower or of any other person, endorser, surety or guarantor; and, in the event of any default hereunder, a separate action or actions may be brought and prosecuted against any Guarantor whether or not such Guarantor is the alter ego of a Borrower and whether or not a Borrower is joined therein or a separate action or actions are brought against such Borrower. Lender's rights hereunder shall not be exhausted until all of the Obligations have been fully paid and performed. Except as otherwise provided in this Guaranty, this Guaranty is not secured and shall not be deemed to be secured by any security instrument, unless such security instrument expressly recites that it secures this Guaranty.
13. Bankruptcy.
(a) All of the Obligations shall, at the option of Lender, forthwith become due and payable if there shall be filed by or against any Borrower or any Guarantor a petition in bankruptcy or for insolvency proceedings or for reorganization, dissolution or liquidation, or for appointment of a receiver or trustee, or if any Borrower or any Guarantor makes an assignment for the benefit of creditors. This Guaranty shall remain in full force and effect, without abatement, until the Obligations have been paid or performed in full and all other obligations guaranteed hereunder have been performed to the satisfaction of Lender, it being expressly understood and agreed to by each Guarantor that this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Obligations is rescinded, invalidated, declared to be fraudulent or preferential, set aside or must otherwise be restored or returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower all as though such payment had not been made, to such Borrower or a trustee, receiver or any other party. Each Guarantor understands and agrees that in the event Lender is required to so return all or any portion of a payment received from any Borrower, such Guarantor shall be required to pay Lender for such amount.
(b) So long as any of the obligations guaranteed hereunder shall be owing to Lender, no Guarantor shall, without the prior written consent of Lender, commence or join with any other party in commencing any bankruptcy, reorganization or insolvency proceedings of or against any Borrower. Each Guarantor understands and acknowledges that by virtue of this Guaranty, it has specifically assumed any and all risks of a bankruptcy or reorganization case or proceeding with respect to any Borrower. As an example and not in any way of limitation, a subsequent modification of the Obligations in any reorganization case concerning any Borrower shall not affect the obligation of a Guarantor to pay and perform such Borrower's Obligations in accordance with its original terms. In any bankruptcy or other proceeding in which the filing of claims is required by law, each Guarantor shall file all claims which such Guarantor may have against such Borrower or relating to any indebtedness of such Borrower to such Guarantor and shall assign to Lender all rights of such Guarantor thereunder. If a Guarantor does not file any such claim, Lender, as attorney in fact for such Guarantor, is hereby authorized to do so in the name of such Guarantor or, in Lender's discretion, to assign the claim to a nominee and to cause proof of claim to be filed in the name of Lender's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. Lender or its nominee shall have the right, in its reasonable discretion, to accept or reject any plan proposed in such proceeding and to take any other action which a party filing a claim is entitled to do. In all such cases, whether in
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administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Lender the amount payable on such claim and, to the full extent necessary for that purpose, each Guarantor hereby assigns to Lender all of such Guarantor's rights to any such payments or distributions; provided, however, such Guarantor's obligations hereunder shall not be satisfied except to the extent that Lender receives cash by reason of any such payment or distribution. If Lender receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guaranty. Notwithstanding anything to the contrary herein, the liability of each Guarantor hereunder shall be reinstated and revised, and the rights of Lender shall continue, with respect to any amount at any time paid by or on behalf of any Borrower on account of the Loan Documents which Lender shall restore or return by reason of the bankruptcy, insolvency or reorganization of such Borrower or for any other reasons, all as though such amount had not been paid.
14. Unenforceability of Obligations Against Borrower. If for any reason any Borrower has no legal existence or is under no legal obligation to discharge any of its Obligations, or if any of the Obligations have become irrecoverable from any Borrower by operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor who has guaranteed such Obligations to the same extent as if such Guarantor at all times had been the principal obligor on all such Obligations. In the event that acceleration of the time for payment of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of any Borrower or for any other reason, all such amounts otherwise subject to acceleration under the terms of any document, agreement or other instrument evidencing, securing or otherwise executed in connection with any of the Obligations shall be immediately due and payable by the Guarantor who guaranteed such Obligations.
15. Payments. Each Guarantor covenants and agrees that any payments by such Guarantor of the Obligations will be paid strictly in accordance with their respective terms regardless of any law, regulation or order now or hereinafter in effect in any jurisdiction affecting any of such terms of the rights of Lender with respect thereto. Without limiting the generality of the foregoing, each Guarantor's obligations hereunder with respect to any Obligation shall not be discharged by a payment in a currency other than Dollars or at a place other than the place specified or designated by Lender for the payment of the Obligations.
16. Taxes. All payments hereunder shall be made without any counterclaim of setoff, free and clear of, and without reduction by reason of, any taxes, levies, imposts, charges and withholdings, restrictions or conditions of any nature (other than on the income of Lender) (“Taxes”), which are now or may hereafter be imposed, levied or assessed by any country, political subdivision or taxing authority, all of which will be for the account of and paid by each Guarantor hereunder. If for any reason, any such reduction is made or any Taxes are paid by Lender, each Guarantor will pay to Lender the additional amounts as may be necessary to ensure that it receives the same net amount that it would have received had no reduction been made of Taxes paid.
17. (Intentionally Omitted)
18. Further Assurances. Each Guarantor agrees that it will promptly provide to Lender information relating to the financial condition of such Guarantor from time to time as Lender may reasonably request, including but not being limited to, the provision of financial statements and tax returns on an annual basis and all reports that its Subsidiaries are entitled to under their respective leases with Operators.
19. Successors and Assigns. This Guaranty shall be binding upon Guarantors and their respective heirs, executors, personal representatives, successors and assigns, and shall inure to the benefit of and be enforceable by Lender and its successors, transferees and assigns.
20. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by any Guarantor therefrom shall be effective unless the same shall be in writing and signed by Lender. No failure on the part of Lender to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise of any other right.
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21. Notices. All notices, consents, approvals and requests required or permitted under this Guaranty or any other Loan Document (a “Notice”) shall be given in writing and shall be effective for all purposes if either hand delivered with receipt acknowledged, or by a nationally recognized overnight delivery service (such as Federal Express), or by certified or registered United States mail, return receipt requested, postage prepaid, or, with respect to routine or administrative notices (but specifically excluding notices of Default, Events of Default or acceleration of the Obligations) by electronic mail, in each case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party):
If to Lender:
Pinecone Realty Partners Il, LLC
315 S. Beverly Drive, Suite 404
Beverly Hills, CA 90212
With a copy to:
McGuireW00ds LLP
Gateway Plaza
800 East Canal Street
Richmond, Virginia 23219
Attn: Nancy R. Little, Esq.
If to Guarantors:
454 Satellite Boulevard, Suite 100
Suwannee, Georgia 30024
A Notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of overnight delivery, upon the first attempted delivery on a Business Day; or, in the case of electronic mail, at the time of delivery.
22. (Intentionally Omitted).
23. Amendments and Modifications. The provisions of this Guaranty shall extend and be applicable to all renewals, amendments, extensions and modifications of the Obligations and the documents, agreements and other instruments evidencing, securing or otherwise executed in connection with the Obligations, and all references to the Obligations and such documents, agreements or instruments shall be deemed to include any renewal, extension, amendment or modification thereof.
24. Assignment. Lender may, upon written notice to Guarantors, assign or otherwise transfer any document, agreement or other instrument held by it evidencing, securing or otherwise executed in connection with the Obligations, or sell participations in any interest therein to any other Person or entity, and such other person or entity shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all rights in respect thereof granted to Lender herein. Each Guarantor acknowledges that it may not assign any of its rights or delegate any of its duties under this Guaranty.
25. Governing Law; Venue, etc.
(a) THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH GUARANTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS GUARANTY AND THE OTHER LOAN DOCUMENTS, AND THIS GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR ANY GUARANTOR ARISING OUT OF OR RELATING To THIS GUARANTY SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK COUNTY, NEW YORK AND EACH GUARANTOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT TN ANY SUIT, ACTION OR PROCEEDING.
(c) Guarantors expressly acknowledge and agree that the provisions of this Section 25 are reasonable and made for the express benefit of Lender.
26. Trial by Jury. EACH GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EITHER PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 26 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.
27. No Oral Modifications or Waivers. This Guaranty shall not be modified nor any of its provisions waived except by a writing signed by the party against whom such modification or waiver is sought to be enforced.
28. Termination of Agreement. Upon the satisfaction in full of all amounts owing under the Loan Agreement and all other Obligations, this Guaranty shall terminate without further action by Lender; provided , however , that this Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Guarantor for liquidation or reorganization, should any Guarantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Guarantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to Applicable Laws, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. Upon termination of this Guaranty, Lender will execute and deliver to Guarantors any releases, termination statements or similar instruments of reconveyance as any Guarantor may reasonably request. All such instruments and documents shall be prepared by such Guarantor and filed or recorded by such Guarantor, at such Guarantor's sole expense, and Lender shall not have any duty, obligation or liability with respect thereto.
29. Severability. Any provision of this Guaranty or of any related instrument or document executed pursuant hereto 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 or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Laws, each Guarantor hereby waives any provision of law which renders any provision hereof or thereof prohibited or unenforceable in any respect.
30. Headings. The section headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose.
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31. Counterparts. This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Guaranty by telecopier, facsimile machine, portable document format (“PDF') or other electronic means shall be as effective as delivery of a manually executed counterpart of this Guaranty. The effectiveness of any such documents and signatures shall, subject to Applicable Laws, have the same force and effect as manually signed originals and shall be binding on Guarantorss and Lender. Lender may also require that any such documents and signatures be confirmed by a manually signed original thereof; provided , however , that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature. No party may raise the use of a telecopier, facsimile machine, PDF or other electronic means, or the fact that any signature was transmitted through the use of a telecopier, facsimile machine, PDF or other electronic means, as a defense to the enforcement of this Guaranty.
[remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first set forth above.
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GUARANTORS: |
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REGIONAL HEALTH PROPERTIES, INC. , |
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a Georgia corporation |
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By: |
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/s/ Brent Morrison |
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Name: |
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Brent Morrison |
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Title: |
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Chief Executive Officer |
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ADCARE PROPERTY HOLDINGS, LLC , |
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a Georgia limited liability company |
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By: |
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/s/ Brent Morrison |
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Name: |
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Brent Morrison |
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Title: |
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Manager |
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HEARTH & HOME OF OHIO, INC., |
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a Georgia corporation |
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By: |
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/s/ Brent Morrison |
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Name: |
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Brent Morrison |
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Title: |
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President |
Signature Page - Guaranty
Exhibit 10 .425
_______________________________________________________________
LOAN AGREEMENT
Dated as of February 15, 2018
among
CP PROPERTY HOLDINGS, LLC
,
NORTHWEST PROPERTY HOLDINGS, LLC
and
ATTALLA NURSING ADK, LLC
as Borrowers,
HEARTH & HOME OF OHIO, INC. ,
as Guarantor,
ADCARE PROPERTY HOLDINGS, LLC ,
as Guarantor and Borrower,
REGIONAL HEALTH PROPERTIES, INC. ,
as Guarantor,
and
PINECONE REALTY PARTNERS II, LLC,
as Lender
Page
ARTICLE I.DEFINITIONS; PRINCIPLES OF CONSTRUCTION |
1 |
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1.1 |
Specific Definitions |
1 |
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1.2 |
Other Interpretive Provisions |
23 |
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1.3 |
Accounting Terms. |
23 |
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1.4 |
Rounding |
24 |
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1.5 |
Times of Day |
24 |
ARTICLE II.GENERAL LOAN TERMS |
24 |
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2.1 |
The Loans |
24 |
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2.2 |
Interest; Monthly Payments. |
25 |
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2.3 |
Loan Repayment |
27 |
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2.4 |
Application of Proceeds |
27 |
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2.5 |
Optional Prepayment |
27 |
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2.6 |
Intentionally Omitted. |
27 |
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2.7 |
Intentionally Omitted. |
27 |
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2.8 |
Evidence of Indebtedness |
27 |
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2.9 |
Intentionally Omitted. |
28 |
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2.10 |
Fees. |
28 |
ARTICLE III.INTENTIONALLY OMITTED. |
29 |
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ARTICLE IV.COLLATERAL AND GUARANTY. |
29 |
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4.1 |
Grant of Liens and Security Interests in Collateral |
29 |
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4.2 |
Title Insurance, Surveys, etc |
30 |
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4.3 |
Representations and Covenants Regarding Mortgage Collateral. |
30 |
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4.4 |
Guaranty |
30 |
ARTICLE V.CONDITIONS TO CLOSING. |
31 |
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5.1 |
Closing |
31 |
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5.2 |
Conditions of the Loans |
31 |
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5.3 |
Post-Closing Conditions |
33 |
ARTICLE VI.REPRESENTATIONS AND WARRANTIES. |
33 |
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6.1 |
Organization |
33 |
Table of Contents
(continued)
Page
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6.2 |
Authorization; Enforceability |
33 |
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6.3 |
No Conflicts |
33 |
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6.4 |
Litigation |
33 |
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6.5 |
No Defaults |
34 |
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6.6 |
Restrictive Agreement |
34 |
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6.7 |
Title |
34 |
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6.8 |
No Bankruptcy Filing |
35 |
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6.9 |
Solvency |
35 |
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6.10 |
Full and Accurate Disclosure |
35 |
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6.11 |
Tax Filings |
35 |
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6.12 |
No Plan Assets |
35 |
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6.13 |
Compliance |
36 |
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6.14 |
Contracts |
36 |
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6.15 |
Federal Reserve Regulations; Investment Company Act |
36 |
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6.16 |
Easements; Utilities and Public Access |
36 |
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6.17 |
Physical Condition |
36 |
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6.18 |
Fraudulent Transfer |
37 |
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6.19 |
Ownership of RHP Parties |
37 |
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6.20 |
Intercompany Indebtedness |
37 |
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6.21 |
Compliance with Environmental Laws |
37 |
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6.22 |
Hazardous Materials |
37 |
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6.23 |
Employee Matters |
38 |
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6.24 |
Intellectual Property |
38 |
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6.25 |
Healthcare Authorizations |
38 |
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6.26 |
HIPAA/HITECH Compliance |
38 |
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6.27 |
Reimbursement; Third-Party Payors |
39 |
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6.28 |
Other Healthcare Regulatory Matters |
39 |
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6.29 |
Compliance with Healthcare Laws. |
39 |
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6.30 |
Intentionally Omitted. |
41 |
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6.31 |
Name; Principal Place of Business |
41 |
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-ii- |
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99305209_1
Table of Contents
(continued)
Page
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6.32 |
Federal Employer Identification Number |
41 |
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6.33 |
Material Contracts and Affiliate Agreements |
41 |
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6.34 |
Licensed Beds |
41 |
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6.35 |
Survival |
41 |
ARTICLE VII.AFFIRMATIVE COVENANTS |
42 |
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7.1 |
Payment of Obligations, Indebtedness, Etc |
42 |
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7.2 |
Preservation of Existence, Etc |
42 |
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7.3 |
Maintenance of Properties |
42 |
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7.4 |
Access to Healthcare Facilities |
42 |
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7.5 |
Compliance With Laws |
42 |
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7.6 |
Books and Records |
43 |
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7.7 |
Inspection Rights; Field Audits |
43 |
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7.8 |
Intentionally Omitted |
43 |
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7.9 |
Landlord and Warehouse Agreements |
43 |
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7.10 |
Licenses |
43 |
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7.11 |
Healthcare Operations. |
44 |
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7.12 |
Operating Lease |
45 |
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7.13 |
Further Assurances |
45 |
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7.14 |
Insurance; Casualty; Condemnation. |
46 |
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7.15 |
Environmental Matters. |
49 |
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7.16 |
Security Interests |
51 |
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7.17 |
Expenses |
52 |
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7.18 |
Indemnity |
52 |
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7.19 |
Patriot Act Compliance. |
53 |
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7.20 |
Title to the Real Property |
53 |
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7.21 |
Right of First Refusal |
54 |
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7.22 |
Notice of Condemnation |
54 |
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7.23 |
Use of Proceeds |
55 |
ARTICLE VIII.NEGATIVE COVENANTS. |
55 |
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8.1 |
Liens |
55 |
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-iii- |
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99305209_1
Table of Contents
(continued)
Page
|
-iv- |
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99305209_1
Table of Contents
(continued)
Page
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8.32 |
Capital Expenditures |
60 |
ARTICLE IX.COVENANTS OF RHP GUARANTOR. |
61 |
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9.1 |
Fixed Charge Coverage Ratio |
60 |
|
9.2 |
Minimum Liquidity |
60 |
|
9.3 |
Leverage |
60 |
|
9.4 |
Minimum Occupancy |
60 |
ARTICLE X.NOTICES AND REPORTING. |
61 |
||
|
10.1 |
Notices |
61 |
|
10.2 |
Notice of Litigation and Other Matters |
61 |
|
10.3 |
Financial Statements, Compliance Certificates and Projections |
63 |
|
10.4 |
Other Reports. |
64 |
|
10.5 |
Accuracy of Information |
64 |
|
10.6 |
Protected Health Information |
64 |
ARTICLE XI.DEFAULTS AND REMEDIES. |
65 |
||
|
11.1 |
Events of Default |
65 |
|
11.2 |
Remedies. |
68 |
|
11.3 |
Application of Payments After Event of Default or
|
69 |
|
11.4 |
Rights to Appoint Receiver |
70 |
|
11.5 |
Assistance and Cooperation |
71 |
|
11.6 |
License |
71 |
|
11.7 |
Injunctive Relief |
71 |
ARTICLE XII.PARTICIPATIONS AND ASSIGNMENTS. |
71 |
||
|
12.1 |
Sale of Loans |
71 |
ARTICLE XIII.EFFECTIVE DATE AND TERMINATION. |
72 |
||
|
13.1 |
Effective Date and Termination |
72 |
|
13.2 |
Effect of Termination |
72 |
|
13.3 |
Survival |
72 |
ARTICLE XIV.MISCELLANEOUS. |
72 |
||
|
14.1 |
Intentionally Omitted. |
72 |
|
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|
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Table of Contents
(continued)
Page
|
14.2 |
Intentionally Omitted. |
72 |
|
14.3 |
Lender’s Discretion |
72 |
|
14.4 |
Governing Law |
73 |
|
14.5 |
Modification, Waiver in Writing, No Deemed Consent |
74 |
|
14.6 |
Waiver of Trial by Jury |
74 |
|
14.7 |
Waiver of Consequential Damages, Etc |
74 |
|
14.8 |
Headings/Exhibits |
74 |
|
14.9 |
Severability |
75 |
|
14.10 |
Preferences |
75 |
|
14.11 |
Waiver of Notice |
75 |
|
14.12 |
Remedies of Credit Parties |
75 |
|
14.13 |
Prior Agreements |
75 |
|
14.14 |
Offsets, Counterclaims and Defenses |
76 |
|
14.15 |
No Usury |
76 |
|
14.16 |
Conflict; Construction of Documents |
76 |
|
14.17 |
No Third Party Beneficiaries |
76 |
|
14.18 |
Assignment |
77 |
|
14.19 |
Set-Off |
77 |
|
14.20 |
Counterparts |
77 |
|
14.21 |
Intentionally Omitted. |
77 |
|
14.22 |
Intentionally Omitted. |
77 |
|
14.23 |
Release of Claims |
78 |
|
14.24 |
Acting Through Agents |
78 |
|
-vi- |
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99305209_1
THIS LOAN AGREEMENT is dated as of February 15, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, this “ Agreement ”) by and among CP PROPERTY HOLDINGS, LLC , a Georgia limited liability company, as borrower (the “ CP Borrower ”), NORTHWEST PROPERTY HOLDINGS, LLC , a Georgia limited liability company, as borrower (the “ Northwest Borrower ”), ATTALLA NURSING ADK , a Georgia limited liability company, as borrower (the “ Attalla Borrower ”), and ADCARE PROPERTY HOLDINGS, LLC , a Georgia limited liability company, as borrower and guarantor (“ AdCare Holdco ”; the CP Borrower, the Northwest Borrower, the Attalla Borrower and AdCare Holdco are collectively referred to herein as “ Borrowers ” and each as a “ Borrower ”); HEARTH & HOME OF OHIO, INC. , a Georgia corporation, as guarantor (the “ HHO Guarantor ”), REGIONAL HEALTH PROPERTIES, INC. a Georgia corporation, as guarantor (the “ RHP Guarantor ”; the HHO Guarantor, AdCare Holdco and the RHP Guarantor are collectively referred to herein as “ Guarantors ” and each as a “ Guarantor ”); and PINECONE REALTY PARTNERS II, LLC , a Delaware limited liability company, as Lender (together with its successors and assigns, the “ Lender ”).
ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
1.1 Specific Definitions . The following terms have the meanings set forth below:
Account : any and all “accounts” (as that term is defined in the UCC) of any Borrower, whether now existing or hereafter arising.
Account Debtor : any Person obligated on any Account owing to any Borrower.
ACH : the Automated Clearing House or any successor reasonably acceptable to Lender.
AdCare Holdco : the meaning set forth in the preamble to this Agreement.
Affiliate : as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.
Agreement : the meaning set forth in the preamble to this Agreement.
Applicable Law : all Laws applicable to any RHP Party or other Person, or any conduct, transaction, agreement or matter in question, including all applicable statutory law, common law and equitable principles, and all provisions of constitutions, treaties, statutes, rules, regulations, orders and decrees of Governmental Authorities.
Asset Disposition : a sale, lease, license, consignment, transfer, spin-off, split-off or other disposition of any property or assets of any RHP Party or any affiliate of any RHP Party, including a disposition in connection with a sale-leaseback transaction or synthetic lease.
Attalla Borrower : the meaning set forth in the preamble to this Agreement.
Authorized Officer : an officer of each Credit Party authorized to bind each respective Credit Party. Any document delivered hereunder that is signed by an Authorized Officer of a Credit Party shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of such Credit Party and such Authorized Officer shall be conclusively presumed to have acted on behalf of such Credit Party.
Available Beds: the number of all beds available at the Healthcare Facilities, which number is two thousand eight hundred ninety-seven (2,897) as of the Closing Date; provided that, for the purposes of any calculations to be made pursuant to the terms of this Agreement, such number shall not be increased or decreased without the prior written consent of Lender.
Award : the meaning set forth in Section 7.14(d)(ii) .
Bankruptcy Code : Title 11 of the United States Code entitled “Bankruptcy”, as now or hereinafter in effect, or any successor statute.
Blocked Person : any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) with which Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list or is named as a “listed person” or “listed entity” on other lists made under any Anti-Terrorism Law.
Borrower or Borrowers : the meaning set forth in the preamble to this Agreement.
Business Day : any day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required to close by law or executive order.
Capital Expenditures : for any period, the aggregate of all expenditures (including that portion of Capitalized Lease Obligations attributable to that period) made in respect of the purchase, construction or other acquisition of fixed or capital assets, determined in accordance with GAAP.
Capital Lease : any lease of property (whether real, personal or mixed) which, in conformity with GAAP, is accounted for as a capital lease or a Capital Expenditure.
Capitalized Lease Obligations : any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, consistently applied.
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Cash Equivalents : (i) obligations issued or guaranteed by the United States of America or any agency thereof, (ii) commercial paper with maturities of not more than 180 days and a published rating of not less than A-1 or P-1 (or the equivalent rating) by a Rating Agency, (iii) certificates of time deposit and bankers” acceptances having maturities of not more than 180 days and repurchase agreements backed by United States government securities, in each case of a commercial bank if (A) such bank has a combined capital and surplus of at least $500,000,000, or (B) such bank’s debt obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating) by a Rating Agency, and (iv) U.S. money market funds that invest solely in obligations issued or guaranteed by the United States of America or an agency thereof.
Casualty : the meaning set forth in Section 7.14(c)(i) .
Casualty/Condemnation Account : the Subaccount in which any Borrower shall deposit all Proceeds or Awards due to any Casualty or Condemnation for Lender.
Casualty Loss : the meaning set forth in Section 10.2(k) .
Casualty Proceeds : (a) payments or other proceeds from an insurance carrier with respect to any loss, casualty or damage to Collateral, and (b) payments received on account of any condemnation or other governmental taking of any of the Collateral.
CCP : the meaning set forth in Section 6.28 .
Change of Control : with respect to each Credit Party, the result caused by the occurrence of any event or series of events which results in (i) a majority of the members of the board of directors or other equivalent governing body ceased to be composed of individuals (a) who were members of that board or equivalent governing body on the Closing Date, (b) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (a) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (c) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (a) and (b) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body, or (ii) the pledge, hypothecation, encumbrance or transfer of any interest in such Credit Party (directly or indirectly, beneficially, legally or otherwise) other than RHP Guarantor, unless approved in writing by Lender in its sole and absolute discretion.
Citation : any operational or physical plant deficiency with respect to any Healthcare Facility of which any RHP Party or Operator is notified in writing by any Governmental Authority or Government Reimbursement Program having regulatory or other oversight of such Healthcare Facility or the operations of such RHP Party or Operator at such Healthcare Facility, and with respect to which the potential penalty for such deficiency is a loss of licensure, decertification of such Healthcare Facility from participation in any Government Reimbursement Program, the appointment of a temporary manager for such Healthcare Facility, the denial of payment for new admissions to such Healthcare Facility, the initiation of state monitoring of such Healthcare Facility, or the closure of such Healthcare Facility.
Closing : the meaning set forth in Section 5.1 .
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Closing Date : the meaning set forth in Section 5.1 .
CMS : the Centers for Medicare & Medicaid Services or any Governmental Authority succeeding to any of its principal functions.
Code : the Internal Revenue Code of 1986, as amended and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.
Collateral : the meaning set forth in Section 4.1(b) .
Collateral Documents : all Mortgages, agreements, instruments and documents now or hereafter executed and delivered in connection with this Agreement pursuant to which Liens are granted or purported to be granted to Lender in Collateral securing all or part of the Obligations each in form and substance satisfactory to Lender, including the Guaranty, the Mortgages, the Pledge Agreement, the Tenant Estoppels, the SNDAs and all UCC financing statements.
Compliance Certificate : a certificate executed by each Credit Party with respect to the compliance by such Credit Party with the terms, conditions and covenants set forth in this Agreement as of the date of such certificate, which certificate shall be substantially in the form of Exhibit A .
CON : any certificate of need or similar license which determines that there is a need for a healthcare facility at a particular location or within a certain geographic region.
Condemnation : the meaning set forth in Section 7.14(d)(i) .
Consolidated EBITDAR : for any period, Consolidated Net Income for such period plus, without duplication, to the extent deducted in determining Consolidated Net Income, the sum of (a) Consolidated Interest Expense for such period, plus, (b) expense for income taxes paid or accrued for such period, plus, (c) all amounts attributable to the amount of the provision for depreciation and amortization, plus, (d) the amount of other non-cash charges (other than the write-down of current assets), plus, (e) extraordinary losses (as determined in accordance with GAAP) not in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) unless approved in writing by Lender, plus, (f) Consolidated Rent Expense for such period, minus, to the extent included in Consolidated Net Income for such period, extraordinary gains for such period (as determined in accordance with GAAP), all calculated for the RHP Parties on a Consolidated Basis.
Consolidated Fixed Charges: for any period, the sum of (a) Consolidated Total Debt Service for such period, (b) Consolidated Rent Expense for such period.
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Consolidated Interest Expense : for any period, the sum of (a) total interest expense (including attributable to Capital Lease Obligations in accordance with GAAP) for such period, plus (b) for such period, fees with respect to all outstanding Indebtedness including capitalized interest, but excluding commissions, discounts and other fees owed with respect to letters of credit and bankers’ acceptance financing, all calculated for the RHP Parties on a Consolidated Basis.
Consolidated Net Income : for any period, the net income (or loss) calculated for the RHP Parties on a Consolidated Basis.
Consolidated Rent Expense: for any period, the total rent expense (or comparable entry) recorded by the RHP Parties on a Consolidated Basis.
Consolidated Total Assets: as of the date of determination, the total amount of all assets of the RHP Parties on a Consolidated Basis as of the last day of the period for which the RHP Guarantor’s most recent financial statements were delivered prior to such date of determination.
Consolidated Total Debt Service : for any period, the sum of (a) all payments of regularly scheduled amortization of principal made or required to be made (other than at maturity) for such period in respect of Consolidated Total Indebtedness, plus (b) Consolidated Interest Expense for such period, all calculated for the RHP Parties on a Consolidated Basis.
Consolidated Total Indebtedness : as of any date of determination, the sum of the aggregate principal amount of all Indebtedness (including Capitalized Lease Obligations) of the RHP Parties on a Consolidated Basis.
Consumer Price Index : the meaning set forth in Section 7.14(a)(xi) .
Contingent Obligation : as to any Person, any (a) obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.
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Contractual Obligation : as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
Control : with respect to any Person, either (i) ownership directly or indirectly of more than 50% of all Equity Interests in such Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise.
Coosa Loan: the meaning set forth in Section 7.21 .
CP Borrower : the meaning set forth in the preamble to this Agreement.
Credit Parties : Borrowers and Guarantors, collectively.
Credit Party : any of the Credit Parties, individually.
Debtor Relief Laws : 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 : the occurrence of any event under any Loan Document which, with the giving of notice or passage of time, or both, would be an Event of Default.
Default Rate : at any time, a rate per annum equal to the lesser of (i) the maximum rate permitted by Applicable Law, or (ii) the per annum effective rate of interest otherwise applicable at such time to the Loans plus an additional five percent (5%).
Derivative Obligations : every obligation of a Person under any forward contract, futures contract, exchange contract, swap, option or other financing agreement or arrangement (including caps, floors, collars and similar agreement), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices.
Distributions : any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any RHP Party, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, repurchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest or on account of any return of capital to any RHP Party’s stockholders, partners or members (or the equivalent Person thereof).
Documents : any and all “documents” (as that term is defined in the UCC), whether now existing or hereafter arising.
Dollars and $ : lawful money of the United States.
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Early Termination Fee: with respect to the repayment or prepayment (or acceleration, expressly including acceleration as a result of an Event of Default pursuant to Section 11.1(f)), of any Loan on or before the first anniversary of the Closing Date, an amount equal to (a) the amount of Principal being repaid or prepaid (or the amount of Principal so accelerated) times (b) the Remaining Days divided by 360 times (c) the Interest Rate .
Environmental Laws : any and all Laws pertaining to the environment, natural resources, pollution, health (including any environmental clean-up 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 cleanup that apply to any Credit Party or otherwise in connection with the Property and relate to Hazardous Materials, 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 Occupational Safety and Health Act (29 U.S.C. § 651 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 and judicial interpretations thereof.
Environmental Notice : a notice (whether written or oral) from any Governmental Authority or other Person of any possible material noncompliance with, investigation of a possible material violation of, litigation relating to, or potential fine or liability under any Environmental Law, or with respect to any material Environmental Release, environmental pollution or hazardous materials, including any complaint, summons, citation, order, claim, demand or request for correction, remediation or otherwise.
Environmental Release : a release as defined in or under any Environmental Law.
Equipment : all equipment of any Person, including all machinery, equipment, rolling stock, furnishings and fixtures, leasehold improvements, and all additions, substitutions and replacements thereof, wherever located, together with all attachments, components, parts, and accessories installed thereon or affixed thereto and all Proceeds of any of the foregoing.
Equity Interests : with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in, including membership interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in, including membership interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in, including membership interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting or preferred or common, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
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ERISA : the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
ERISA Affiliate : all members of a controlled group of corporations and all trades and business (whether or not incorporated) under common control and all other entities which, together with each RHP Party, are treated as a single employer under any or all of Section 414(b), (c), (m) or (o) of the Code.
Event of Default : the meaning set forth in Section 11.1 .
Expenses : (i) any and all costs, fees and expenses of Lender in connection with the analysis, negotiation, preparation, execution, administration, delivery and termination of this Agreement, the other Loan Documents and the documents and instruments referred to herein and therein, and any amendment, amendment and restatement, supplement, waiver or consent relating hereto or thereto, whether or not any such amendment, amendment and restatement, supplement, waiver or consent is executed or becomes effective, (ii) any and all costs, fees and expenses of Lender in connection with the enforcement of Lender’s rights hereunder, or the collection of any payments owing from, the Credit Parties under this Agreement and/or the other Loan Documents or the protection, preservation or defense of the rights of Lender hereunder and under the other Loan Documents, and (iii) any and all costs, fees and expenses of Lender in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement and other Loan Documents in the nature of a “work-out” or of any Insolvency Proceedings, or otherwise, and including with respect to clauses (i), (ii) and (iii) above, any lien, litigation and other search costs, the fees, expenses and disbursements of legal counsel for Lender, including the charges of internal legal counsel, any fees or expenses incurred by Lender under Section 7.7 for which any Credit Party are obligated thereunder, and charges of any expert, appraiser, auditor or other consultant to Lender.
Extraordinary Receipt: any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance, indemnity payments, purchase price adjustments and Net Proceeds of any Asset Disposition or of any Refinancing Indebtedness.
Finance Fee : the meaning set forth in Section 2.10(b) .
First Priority : with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject other than Permitted Liens.
Fiscal Quarter : the fiscal period of the Credit Parties ending on March 31, June 30, September 30 and December 31 in each Fiscal Year.
Fiscal Year : the fiscal year of Credit Parties ending on December 31 in each calendar year.
Fitch : the meaning set forth in the definition of Rating Agency .
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Fixed Charge Coverage Ratio : for any period, the ratio of (i) Consolidated EBITDAR for such period to (ii) Consolidated Total Debt Service, plus Consolidated Rent Expense.
GAAP : generally accepted accounting principles in the United States of America as of the date of the applicable financial report.
Government Account Debtor : an Account Debtor that is a Government Reimbursement Program.
Government Lists : (i) the Specially Designated Nationals and Blocked Persons lists maintained by Office of Foreign Assets Control (“ OFAC ”), (ii) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Lender notified any RHP Party in writing is now included in “Governmental Lists”, or (iii) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other Governmental Authority or pursuant to any Executive Order of the President of the United States of America that Lender notified any RHP Party in writing is now included in “Governmental Lists”.
Government Reimbursement Program : (i) Medicare, (ii) Medicaid, (iii) TRICARE, (iv) the Federal Employees Health Benefit Program under 5 U.S.C. §§ 8902 et seq. or the Civilian Health and Medical Program of the Uniformed Services under 10 U.S.C. §§ 1079 and 1086, or (v) any agent, administrator, intermediary or carrier for any of the foregoing.
Governmental Authority : any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) now or hereafter in existence.
Governmental Authorization : any permit, license, registration, authorization, certificate, accreditation, plan, directive, consent order or consent decree of or from, or notice to, any Governmental Authority.
GSE: the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Housing Administration (FHA), or any successor thereto, including any successor Governmental Authority.
Guarantor or Guarantors : the meaning set forth in the preamble to this Agreement, and shall also include each other Person, if any, who on or after the Closing Date guarantees the payment and performance of the Obligations.
Guaranty : the meaning set forth in Section 4.1.
Hazardous Materials : any and all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
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Healthcare Authorizations : any and all Governmental Authorizations and permits, licenses, authorizations, certificates, certificates of need, accreditations and plans of third-party accreditation agencies (such as the Joint Commission) and Non-Government Payors (a) necessary to enable any RHP Party to engage in the Healthcare Services, participate in and receive payment under Government Reimbursement Programs and plans of Non-Government Payors or otherwise continue to conduct its business as it is conducted on the Closing Date or (b) required under any Law relating to any Government Reimbursement Program or Law applicable to HMOs, PPOs, healthcare-related insurance companies, or Persons engaged in the Healthcare Services or (ii) issued or required under Healthcare Laws applicable to the ownership of a Healthcare Facility.
Healthcare Facility : each facility owned or leased by any RHP Party from which any Operator or other Person furnishes goods or services, and includes any business location of any Person which is subject to any Healthcare Authorization.
Healthcare Facilities : each Healthcare Facility, collectively.
Healthcare Laws : any and all Laws relating to the possession, control, warehousing, marketing, sale and distribution of pharmaceuticals, the operation of medical or senior housing facilities (such as nursing homes, skilled nursing facilities, clinics, assisted living facilities, independent living facilities, mental health facilities, memory care facilities, rehabilitation hospitals, intermediate care facilities and adult care facilities), patient healthcare, patient healthcare information, patient abuse, the quality and adequacy of medical care, rate setting, equipment, personnel, operating policies, fee splitting, including (a) all federal and state fraud and abuse Laws, including the federal Anti-Kickback Statute (42 U.S.C. §1320a-7b(6)), the Stark Law (42 U.S.C. §1395nn), the civil False Claims Act (31 U.S.C. §3729 et seq.), the federal health care program exclusion provisions (42 U.S.C. §1320a‑7) and the Civil Monetary Penalties Act (42 U.S.C. §1320a‑7a), (b) HIPAA/HITECH, (c) Medicare, (d) Medicaid, (e) quality of medical care and accreditation standards and requirements of all applicable state Laws or regulatory bodies, (f) all laws, policies, procedures, requirements and regulations pursuant to which Healthcare Authorizations are issued, (g) all HUD regulatory agreements and other HUD regulations, restrictions, requirements, policies, guidelines, manual provisions and administrative guidance, and (h) any and all other applicable healthcare laws, regulations, restrictions, requirements, policies, guidelines, manual provisions and administrative guidance, each of (a) through (h) as may be amended from time to time.
Healthcare Services : providing or arranging to provide or administering, managing or monitoring healthcare services, long-term care or any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto.
HHO Guarantor : the meaning set forth in the preamble to this Agreement.
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HIPAA/HITECH : individually or collectively, the Health Insurance Portability and Accountability Act of 1996, commonly referred to as “HIPAA”, and the Health Information Technology for Economic and Clinical Health Act, commonly referred to as “HITECH”, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto, and any and all rules or regulations promulgated from time to time thereunder.
HIPAA/HITECH Compliance Date : the meaning set forth in Section 6.26 .
HIPAA/HITECH Compliance Plan : the meaning set forth in Section 6.26 .
HIPAA/HITECH Compliant : the meaning set forth in Section 6.26 .
HUD: the United States Department of Housing and Urban Development and any successor thereto.
Improvements : means all buildings, structures and fixtures of every kind and nature situated upon the Real Property, including any Healthcare Facility operated on such Real Property.
Indebtedness : without duplication, (a) all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several, and whether or not a reserve has been established therefor, including reserves required by GAAP for self-insured retention in respect of professional and/or general liability claims) of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capitalized Lease Obligations of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person, (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker’s acceptances issued for the account of such Person, (f) all Derivative Obligations of such Person, (g) all Contingent Obligations, (h) all liabilities of any partnership or joint venture of which such Person is a general partner or joint venturer, and (i) all obligations of such Person to make any payment in connection with any warrants or any other Equity Interests including any put, purchase, redemption, retirement, defeasance or mandatory dividends, of such Person or any Affiliate thereof.
Indemnified Liabilities : the meaning set forth in Section 7.18 .
Indemnified Party : the meaning set forth in Section 7.18 .
Initial Rate : the meaning set forth in Section 2.2(a) .
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Insolvency Proceeding : with respect to any Person, (a) a case, action or proceeding with respect to such Person: (i) before any court or any other Governmental Authority under any Debtor Relief Law, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Person or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person’s creditors generally or any substantial portion of its creditors; undertaken under any Law.
Insurance Premiums : all insurance premiums and other similar charges in connection with the insurance required to be carried by each RHP Party pursuant to this Agreement or the other Loan Documents.
Insured Casualty : the meaning set forth in Section 7.14(c)(ii) .
Insured Condemnation : the meaning set forth in Section 7.14(d)(ii) .
Intellectual Property : all intellectual and similar property of a Person, including inventions, designs, patents, patent applications, copyrights, trademarks, service marks, trade names, trade secrets, confidential or proprietary information, customer lists, know-how, software and databases; all embodiments or fixations thereof and all related documentation, registrations and franchises; all books and records describing or used in connection with the foregoing; and all licenses or other rights to use any of the foregoing.
Interest Rate : the meaning set forth in Section 2.2(a) .
Inventory : any and all “inventory” (as that term is defined in the UCC) of any Person, whether now existing or hereafter arising.
Investment : 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 the properties and assets or Equity Interests or other securities of another Person, including the acquisition, operation, management or lease of any healthcare facility other than the Healthcare Facilities owned by any RHP Party as of the Closing Date, (b) a loan, advance or capital contribution to, assumption of debt of, or purchase or other acquisition of any other debt or Equity Interests in, another Person, including any partnership, membership or joint venture interest in such other Person and any arrangement pursuant to which the investor provides a Contingent Obligation for such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit.
IRS : the United States Internal Revenue Service, or any Governmental Authority succeeding to any of its principal functions.
Joint Commission : the Joint Commission for Accreditation of Healthcare Organizations or other similar agency .
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Laws : collectively, all international, foreign, federal, state and local statutes, laws (including common law), treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents, authorities, rulings, decrees, judgments, writs, injunctions, orders, awards or opinions, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, in each case whether or not having the force of law.
Leases : all leases, subleases, sub-subleases, licenses, usufructs and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, any Healthcare Facility (including any Property), including any guarantees, extensions, renewals, modifications or amendments thereof and all additional remainders, reversions and other rights and estates appurtenant thereunder, including leases of real property entered into by the RHP Parties with third party lessors and including the Operating Leases.
Legal Requirements : statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting any RHP Party, any Loan Document or all or part of the Healthcare Facility or the construction, ownership, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instrument, either of record or known to any RHP Party, at any time in force affecting all or part of any Healthcare Facility.
Lender : the meaning set forth in the introductory paragraph hereto.
Lender Affiliate : with respect to Lender, any Person which, directly or indirectly, is in Control of, is Controlled by, or is under common Control with Lender.
License : any license or agreement under which any RHP Party is authorized to use Intellectual Property in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of property, the operation of any Healthcare Facility or any other conduct of its business.
Licensor : any Person from whom any RHP Party obtains the right to use any Intellectual Property.
Lien : any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
Loan or Loans : the meaning set forth in Section 2.1 of this Agreement.
Loan Amount : the Loan Amount for each Borrower’s Loan shall be the applicable Principal Amount shown opposite such Borrower’s name in the table set forth in Section 2.1 .
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Loan Commitment : Lender’s commitment to make the Loans under this Agreement.
Loan Documents : this Agreement, all Collateral Documents, the Notes, the Guaranty, the Pledge Agreement, the RHP Guarantor Note, the Tenant Estoppels, the SNDAs and all other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Lender or any Lender in connection with the Loans or the transactions contemplated by this Agreement, as each of the foregoing may be (and each of the foregoing defined terms shall refer to such documents as they may be) amended, restated, replaced, severed, split, supplemented or otherwise modified from time to time.
Material Adverse Effect : (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of any Healthcare Facility, any RHP Parties, on the value of any material Collateral, on the enforceability of any Loan Documents, or on the validity or priority of Lender’s Liens on any material Collateral; (b) a material impairment of the ability of any Credit Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Credit Party of any Loan Document to which it is a party.
Material Contract : the Leases (including Operating Leases) and any other contract or other arrangement, whether written or oral, to which any RHP Party or any Operator is a party (other than the Loan Documents) (a) that is deemed to be a material contract under any securities law applicable to any RHP Party, (b) for which breach, termination, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect, (c) that relates to other Indebtedness, or (d) that provides for or relates to the operation of any Healthcare Facility.
Medicaid : 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.
Medicare : 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 Liquidity : as of any date, the sum of the following for the RHP Parties on a Consolidated Basis as of such date: (a) unrestricted cash on hand, plus (b) unrestricted Cash Equivalents.
Minor Casualty : the meaning set forth in Section 7.14(c)(ii) .
Minor Condemnation : the meaning set forth in Section 7.14(d)(ii) .
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Moody’s : the meaning set forth in the definition of Rating Agency .
Mortgage : each of, and Mortgages shall mean the collective reference to, each Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing and each Deed to Secure Debt, Assignment of Rents and Leases, Security Agreement and Fixture Filing, as applicable, executed by any Mortgagor on or about the Closing Date in favor of Lender, by which such Mortgagor has granted to Lender, as security for repayment of the Loan made to such Mortgagor and such Mortgagor’s other Obligations, a Lien upon the Real Property of such Mortgagor, as the same may be amended, restated or supplemented from time to time.
Mortgage Collateral : the meaning set forth in Section 4.1(a).
Mortgagor: each of the CP Borrower, the Northwest Borrower and the Attalla Borrower.
Net Proceeds : with respect to an Asset Disposition or any Refinancing Indebtedness, proceeds (including, when received, any deferred or escrowed payments) received by any RHP Party in cash from such disposition, net of (a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and sales commissions; (b) amounts applied to repayment of Indebtedness secured by a Permitted Lien senior to Lender’s Liens on Collateral sold; (c) transfer or similar taxes; and (d) reserves for indemnities, until such reserves are no longer needed.
New Facility : the meaning set forth in Section 7.21 .
Non-Government Account Debtor : an Account Debtor that is not a Government Reimbursement Program.
Non-Government Payors : any Third-Party Payors other than the Government Reimbursement Programs.
Northwest Borrower : the meaning set forth in the preamble to this Agreement.
Number of Available Beds: for any period, the product of (a) the Available Beds for such period times (b) the number of days for such period.
Number of Resident Days: for any period, the number of days Available Beds were occupied.
Notice : the meaning set forth in Section 10.1 .
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Obligations : any and all existing and future debts, liabilities and obligations of every kind or nature at any time owing by any Credit Party to Lender or any Lender Affiliate, whether under this Agreement or any other Loan Document, whether joint or several, related or unrelated, primary or secondary, matured or contingent, due or to become due (including debts, liabilities and obligations obtained by assignment), and whether principal, interest, fees, indemnification obligations hereunder or Expenses (specifically including interest accruing after the commencement of any bankruptcy, insolvency or similar proceeding with respect to any Credit Party, whether or not a claim for such post-commencement interest is allowed), including debts, liabilities and obligations in respect of the Loans and any extensions, modifications, substitutions, increases and renewals thereof; the payment of all amounts advanced by Lender or any Lender Affiliate to preserve, protect and enforce rights hereunder and in the Collateral; and all Expenses incurred by Lender or any Lender Affiliate.
Occupancy: as of the applicable Occupancy Test Period, the ratio of the average Number of Resident Days to the average Number of Available Bed Days.
Occupancy Test Period: a period ending on the last day of each Fiscal Quarter and comprised of the three (3) most recent calendar months then ended (taken as one accounting period).
OFAC : the meaning set forth in the definition of Government Lists .
Ongoing Rate : the meaning set forth in Section 2.2(a) .
Operating Lease : any Lease of or relating to any Healthcare Facility by or from any RHP Party to an Operator, any ancillary documents pertaining thereto (including any operations transfer agreement or similar agreement governing transfer of the operations for any Healthcare Facility to Operator) and all amendments to and extensions of any of the foregoing, all in a form approved by Lender in writing.
Operator : (a) each Person that is properly licensed to operate a Healthcare Facility under all applicable Healthcare Laws and is named as an Operator for such Healthcare Facility on Schedule 2 hereto and (b) any Person with whom any RHP Party or any Person under clause (a), above, has contracted for management, administration or operation of a Healthcare Facility.
Operators : each Operator, collectively.
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Organization Documents : (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive 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 or limited liability company 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.
Patriot Act : the meaning set forth in Section 7.19(a) .
Patriot Act Offense : any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (a) the criminal laws against terrorism; (b) the criminal laws against money laundering, (c) the Bank Secrecy Act, as amended, (d) the Money Laundering Control Act of 1986, as amended, or the (e) Patriot Act. “Patriot Act Offense” also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense.
Payment Date : the meaning set forth in Section 2.3(a).
PBGC : the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to any of its principal functions.
PDF : the meaning set forth in Section 14.21 .
Permitted Asset Disposition : as long as no Event of Default exists, an Asset Disposition that is (a) a sale of Inventory in the ordinary course of business; (b) a disposition of Equipment or any other Personalty that, in the aggregate during any 12 month period, has a fair market or book value (whichever is more) of $100,000 or less; (c) a disposition of Inventory that is obsolete, unmerchantable or otherwise unsalable in the ordinary course of business; or (d) approved in writing by Lender.
Permitted Contingent Obligations : (a) endorsements of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (b) Contingent Obligations incurred in the ordinary course of business with respect to surety, appeal or performance bonds or other similar obligations; provided, that, the aggregate amount of all such obligations in clauses (a) and (b) above shall not exceed, at any one time, One Hundred Thousand Dollars ($100,000.00).
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Permitted Distributions : Distributions by (a) any RHP Party in cash, provided that (i) prior to and after giving effect to such Distribution, no Default or Event of Default exists, (ii) prior to and after giving effect to such Distribution, the Credit Parties demonstrate to the satisfaction of Lender that they are in compliance on a pro forma basis with all covenants set forth in the Loan Documents, and (iii) not less than ten (10) days prior written notice of such Distribution is provided to Lender before such Distribution is made, and (b) any RHP Party (other than the RHP Guarantor) of cash received by or paid to such RHP Party in the ordinary course of business and, for the avoidance of doubt, not received by such RHP Party as an Extraordinary Receipt.
Permitted Encumbrances : (i) the Liens created by the Loan Documents, (ii) all Liens and other matters disclosed in the Title Insurance Policy, (iii) Liens, if any, for taxes or other charges not yet due and payable and not delinquent, (iv) any workers’, mechanics’ or other similar Liens on the Property provided that any such Lien is bonded or discharged within thirty (30) days after any Credit Party first receives notice of such Lien and (v) such other title and survey exceptions as Lender approves in writing in Lender’s discretion.
Permitted Indebtedness : (a) Indebtedness to Lender in connection with the Loans or otherwise pursuant to the Loan Documents; (b) unsecured trade payables incurred in the ordinary course of a RHP Party’s business and which do not remain unpaid more than sixty (60) days after the due date thereof; (c) purchase money Indebtedness (including Capitalized Lease Obligations) hereafter incurred by any RHP Party’s to finance the purchase of fixed assets; provided that, (i) such Indebtedness outstanding in the aggregate at any time in any Fiscal Year shall not exceed One Hundred Thousand Dollars ($100,000.00) and, (ii) such Indebtedness shall not exceed the purchase price of the assets funded; (d) Indebtedness existing on the Closing Date that is identified and described under the heading “Permitted Indebtedness” on Schedule 1 hereto; (e) Refinancing Indebtedness; (f) Subordinated Indebtedness and (g) Indebtedness attributable to accrued and unpaid dividends on any Equity Interests in the RHP Guarantor.
Permitted Investments : With respect to any RHP Party, (a) Investments existing on the Closing Date that are disclosed under the heading “Permitted Investments” on Schedule 1 hereto, (b) Cash Equivalents, and (c) any loans permitted under Section 8.5 of this Agreement.
Permitted Liens : With respect to any RHP Party, (a) Liens securing taxes, assessments or governmental charges or levies not delinquent; (b) Liens incurred or deposits made in the ordinary course of business by any RHP Party in connection with workers’ compensation, unemployment insurance, social security and other like laws; (c) Liens on fixed assets securing purchase money Indebtedness permitted under the definition of Permitted Indebtedness ; provided that, (i) such Lien attached to such assets concurrently, or within twenty (20) days of the acquisition thereof, and only to the assets so acquired, and (ii) a description of the asset acquired is furnished to Lender; and (d) Liens existing on the Closing Date and disclosed under the heading “Permitted Liens” on Schedule 1 hereto; (e) Liens in favor of Lender securing the Obligations; and (f) Liens securing Refinancing Indebtedness.
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Person : any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, Governmental Authority, any other person or entity, and any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.
Personalty : the meaning set forth in Section 4.1(a ).
Plan : (i) an employee benefit or other plan established or maintained by any RHP Party or any ERISA Affiliate or any such Plan or to which any RHP Party or any ERISA Affiliate makes or is obligated to make contributions and (ii) which is subject to Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code.
Pledge Agreement : the Pledge Agreement executed by AdCare Holdco on the Closing Date for the benefit of Lender, by which AdCare Holdco has pledged to Lender, as security for repayment of the Loan made to AdCare Holdco and AdCare Holdco’s other Obligations, its Equity Interests in certain Subsidiaries of AdCare Holdco and its interest in the RHP Guarantor Note, as the same may be amended, restated or supplemented from time to time.
Pledged Collateral : the meaning set forth in Section 4.1(b).
Policies : all policies of insurance.
Prepayment Premium : with respect to any repayment or prepayment of Principal of any Loan (or acceleration of such Loan, expressly including acceleration as a result of an Event of Default pursuant to Section 11.1(f)), an amount equal to (a) the amount of Principal being repaid or prepaid (or the amount of Principal so accelerated) times (b) one percent (1%).
Principal : the meaning set forth in Section 2.1 .
Proceeds : the meaning set forth in Section 7.14(c)(ii) .
Promissory Note : any of those certain notes in the form of Exhibit B attached hereto, delivered by each Borrower to Lender to evidence Lender’s Loan made to such Borrower pursuant to this Agreement.
Property : the Real Property and the related Personalty owned by any Borrower and encumbered by a Mortgage; together with all rights pertaining to such Real Property and Personalty, and all other collateral for the Loan secured thereby as more particularly described in such Mortgage.
Qualified Carrier : the meaning set forth in Section 7.14(a)(xi) .
Rating Agency : each of Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“ S&P ”), Moody’s Investors Service, Inc. (“ Moody’s ”), and Fitch, Inc., a division of Fitch Ratings Ltd. (“ Fitch ”) or any other nationally-recognized statistical rating organization to the extent any of the foregoing have been engaged by Lender or its designee in connection with or in anticipation of any Secondary Market Transaction.
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Real Property : each parcel of land and the Improvements thereon owned by any Mortgagor and located at the locations described on Schedule 12 .
Refinancing Indebtedness : Indebtedness incurred by an RHP Party as a borrower (but not as a guarantor) after the Closing Date to refinance existing Indebtedness of such RHP Party that is secured by a first lien on a Healthcare Facility owned by such RHP Party; provided that (a) such Indebtedness is refinanced with a GSE or HUD-insured loan with a lender providing long-term, fixed rate loans, and (b) Lender’s prior written consent shall be required for any such refinancing that generates Net Proceeds, and provided further , that the foregoing shall not be construed to mean or permit a guarantee by any RHP Party of any refinancing of Indebtedness or any other Contingent Obligation of any RHP Party with respect to any such refinancing.
Remaining Days : with respect to any Loan, the number of days remaining from the date of any repayment or prepayment of Principal of such Loan (or the termination or acceleration of the Loan, expressly including acceleration as a result of an Event of Default pursuant to Section 11.1(f)) to the date that is thirteen (13) months after the Closing Date.
Rents : all rents, rent equivalents, moneys payable as damages (including payments by reason of the rejection of a Lease in a Bankruptcy Proceeding) or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of any Mortgagor or any of its agents or employees from any and all sources arising from or attributable to any Property, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of such Property or rendering of services by any Mortgagor or any of its agents or employees and proceeds, if any, from business interruption or other loss of income insurance.
Required Insurance : insurance required to be maintained on all properties and assets of each RHP Party pursuant to the terms and conditions of this Agreement.
Restoration : the meaning set forth in Section 7.14(e)(i) .
Restrictive Agreement : an agreement (other than a Loan Document) that conditions or restricts the right of any RHP Party to incur or repay Indebtedness, to grant Liens on any assets, to declare or make Distributions or to modify, extend or renew any agreement evidencing Indebtedness.
RHP Guarantor : the meaning set forth in the preamble to this Agreement.
RHP Guarantor Note: that certain note in the form of Exhibit C attached hereto, executed by the RHP Guarantor to AdCare Holdco to evidence AdCare Holdco’s loan made to the RHP Guarantor in the original principal amount of $3,500,000.00, as the same may be amended, restated and supplemented from time to time.
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RHP Parties : the RHP Guarantor, the other Credit Parties, and all of their respective Subsidiaries, collectively.
RHP Parties on a Consolidated Basis : the consolidation in accordance with GAAP of the accounts or other items of the RHP Guarantor and its Subsidiaries.
RHP Party : any of the RHP Parties.
Royalties : all royalties, fees, expense reimbursements and other amounts payable by any RHP Party under a License.
S&P : the meaning set forth in the definition of Rating Agency .
Scheduled Maturity Date : August 15, 2020.
SEC: the United States Securities and Exchange Commission and any successor thereto.
Significant Casualty : the meaning set forth in Section 7.14(c)(ii) .
Significant Condemnation : the meaning set forth in Section 7.14(d)(ii) .
SNDA : each of those certain Subordination, Non-Disturbance and Attornment Agreements, executed by a Mortgagor, Lender and the applicable Operator party thereto.
SNDAs: each SNDA, collectively.
Solvent : with respect to any Person on a particular date, that on such date: (a) the fair value of the assets of such Person (including guarantees and credit enhancements for the benefit of the Person) is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair market value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, including contingent liabilities, and other commitments as they mature in the normal course of business, and (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature.
Subordinated Indebtedness : Indebtedness of RHP Guarantor incurred after the Closing Date that is expressly subordinated to the Obligations (and all liabilities of RHP Guarantor to Lender and all rights of Lender with respect thereto) and to all existing or future unsecured Indebtedness of RHP Guarantor (including any and all guaranties and deficiency claims by or against RHP Guarantor) in a manner satisfactory to Lender, and which Indebtedness contains terms, including payment terms, satisfactory to Lender.
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Subsidiary : of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests 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 any RHP Party.
Taxes : any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by Lender’s or any Lender’s net income or receipts.
Tenant Estoppel : that each tenant estoppel certificate, executed by any RHP Party that owns or leases a Healthcare Facility and its Operator in favor of the Lender. Tenant Estoppels : each Tenant Estoppel, collectively.
Terrorism Premium Cap : the meaning set forth in Section 7.14(a)(xi) .
Test Period : a period ending on the last day of each calendar month and comprised of the twelve (12) most recent calendar months then ended (taken as one accounting period), or such other period as specified in this Agreement.
Third-Party Payor : Government Reimbursement Programs, Blue Cross and/or Blue Shield, private insurers, managed care plans and any other Person or entity which presently or in the future reimburses providers for Healthcare Services.
Third-Party Payor Programs : all payment and reimbursement programs, sponsored by a Third-Party Payor, in which any RHP Party or Operator, as applicable, participates.
Title Insurance Policy : the ALTA mortgagee title insurance policy or policies in the form acceptable to Lender issued with respect to each Real Property and insuring the Lien of each Mortgage.
TRICARE : the program administered pursuant to 10 U.S.C. Section 1071 et seq. ), Sections 1320a‑7 and 1320a‑7a of Title 42 of the United States Code and the regulations promulgated pursuant to such statutes.
UCC : the Uniform Commercial Code as in effect from time to time in the applicable jurisdiction or jurisdictions.
U.S. Person : any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
Welfare Plan : an employee welfare benefit plan, as defined in Section 3(1) of ERISA.
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1.2 Other Interpretive Provisions . With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “ include ,” “ includes ” and “ including ” shall be deemed to be followed by the phrase “without limitation.” The word “ will ” shall be construed to have the same meaning and effect as the word “ shall .” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document and any Loan Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, extended, supplemented or otherwise modified in writing from time to time (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “ herein ,” “ hereof ,” “ hereto ” and “ hereunder ,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such Law and any reference to any Law or regulation shall, unless otherwise specified, refer to such Law or regulation as amended, modified or supplemented from time to time, and (vi) unless otherwise specified, the words “ asset ” and “ property ” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word “ from ” means “ from and including ;” the words “ to ” and “ until ” each mean “ to but excluding ;” and the word “ through ” means “ to and including .”
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
(d) There will be no presumption against any party (or its counsel) on the ground that such party (or its counsel) was responsible for preparing this Agreement, any other Loan Document or any part thereof.
(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, except as otherwise specifically prescribed herein.
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(b) Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and any credit Party or Lender shall so request, Lender and such Credit Party shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of Lender); provided that , until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) such Credit Party shall provide to Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
1.4 Rounding . Any financial ratios required to be maintained by a Credit Party pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.5 Times of Day . Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
ARTICLE II. GENERAL LOAN TERMS
2.1 The Loans . On the Closing Date, the Lender agrees to make each of the following loans (each, a “ Loan ” and, collectively, the “Loans” ) to the Borrower, and in the original principal amount (the “ Principal ”), indicated below:
Borrower |
Principal Amount |
CP Borrower |
$2,500,000.00 |
Northwest Borrower |
$2,000,000.00 |
Attalla Borrower |
$8,250,000.00 |
AdCare Holdco |
$3,500,000.00 |
Each Loan shall mature on the Scheduled Maturity Date. Lender has advanced the entire Principal amount of each Loan to the applicable Borrower on the date hereof in accordance with each Borrower’s written instructions. Each Borrower acknowledges receipt of its Loan, the proceeds of which are being and shall be used for: (a) payment of fees and Expenses incurred in connection with this Agreement; (b) with respect to each Mortgagor, refinancing or termination on the Closing Date of first and second lien mortgages securing Indebtedness of such Mortgagor; (c) with respect to AdCare Holdco, funding of the RHP Guarantor Note and (d) general corporate purposes. No amount repaid in respect of any Loan may be reborrowed.
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2.2 Interest; Monthly Payments .
(a) Interest Rate . Each Loan shall bear interest at a fixed rate per annum equal to: (i) ten percent (10%) per annum (the “ Initial Rate ” )from and after the Closing Date until the date that is three (3) months thereafter and (ii) twelve and one-half percent (12.5%) per annum (the “Ongoing Rate” ) from and after the date that is three (3) months after the Closing Date (the applicable interest rate pursuant to clause (i) or (ii) being referred to hereinafter as the “ Interest Rate ”); provided, however, that, in the event (x) of any denial of payment for new admissions with respect to any Healthcare Facility (as a result of Medicare or Medicaid survey deficiencies or state monitoring or for any other reason) or (y) any Governmental Authority ceases to permit new residents or tenants to be admitted to any Healthcare Facility, the Interest Rate shall be increased by one percent (1%) per annum commencing thirty (30) days after receipt of notice by any Credit Party from Lender, any Governmental Authority or any Operator if a plan of correction has not been filed with the applicable Governmental Authority and shall be increased by an additional one percent (1%) per annum each month thereafter until a plan of correction has been filed with the applicable Governmental Authority. One (1) day after the date that payments have been reinstated and admissions are permitted, the Interest Rate shall revert to the Interest Rate provided in clause (i) or (ii) of this Section 2.2(a), as applicable. The provisions of this Section 2.2(a) shall not derogate the Credit Parties obligation to file a plan of correction pursuant to Section 7.11(j). Interest on the Loans shall be paid in arrears on the first (1st) day of each month and on the maturity of the Loans, whether by acceleration or otherwise.
(b) Default Rate .
(i) After the occurrence and during the continuance of an Event of Default hereunder, the per annum effective rate of interest applicable to all Loans shall be increased to the Default Rate. All such increases may be applied retroactively to the date of the occurrence of the Event of Default. Each Borrower agrees that the Default Rate payable to Lender is a reasonable estimate of the Lender’s damages and is not a penalty. Each Borrower also acknowledges that (i) its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing its Loan, that, during the time that any monthly installment or payment under this Note is delinquent, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender’s ability to meet its other obligations and to take advantage of other investment opportunities and that it is extremely difficult and impractical to determine any such additional costs and expenses; and (ii) during the time that any monthly installment or other payment due under such Borrower’s Note is delinquent, Lender’s risk of nonpayment of such Note will be materially increased and Lender is entitled to be compensated for such increased risk. Each Borrower further agrees that the increase in the rate of interest payable under its Note to the Default Rate represents a fair and reasonable estimate (taking into account all circumstances existing on the date hereof) of the additional costs and expenses Lender will incur by reason of Borrower’s delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan.
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(ii) All contractual rates of interest chargeable on outstanding Principal under each Loan shall continue to accrue and be paid even after Default, an Event of Default, maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.
(c) Computation of Interest and Related Fees . All computations of interest and fees under the Loan Documents shall be made on the basis of a year of 360 days, as the case may be, and calculated for actual days elapsed. The date of funding of each Loan shall be included in the calculation of interest while the date of payment of each Loan shall be excluded from the calculation of interest.
(d) Payments Generally . All payments to be made by any Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or set-off. Except as otherwise expressly provided herein, all payments by any Borrower hereunder shall be made in Dollars immediately available to Lender, on behalf of Lender, by 11:00 a.m. on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrowers. All payments received by Lender after 11:00 a.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by any Borrower shall become due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(e) Intentionally Omitted .
(f) Taxes . Any and all payments by any Borrower hereunder and under the other Loan Documents shall be made free and clear of and without deduction for any and all present or future Taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on Lender’s income, and franchise taxes imposed on Lender by the law or regulation of any Governmental Authority (all such non-excluded Taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to in this Section 2.2(f) as “ Applicable Taxes ”). If any Borrower shall be required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder, the following shall apply: (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.2(f) , Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with Applicable Law. Payments pursuant to this Section 2.2(f) shall be made within ten (10) days after the date Lender makes written demand therefor. After prior notice to Lender, any Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application of any Taxes or other charges, provided that (i) no Default or Event of Default has occurred and is continuing, (ii) such proceeding shall suspend the collection of the Taxes or such other charges, (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which such Borrower is subject and shall not constitute a default thereunder, (iv) no part of or interest in the Property will be in danger of being sold, forfeited, terminated, canceled or lost, (v) such Borrower shall have furnished such
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security as may be required in the proceeding, or as may be requested by Lender, to insure the payment of any such Taxes or other charges, together with all interest and penalties thereon, which shall not be less than 125% of the Taxes and other charges being contested, and (vi) such Borrower shall promptly upon final determination thereof pay the amount of such Taxes or other charges, together with all costs, interest and penalties. Lender may pay over any such security or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.
2.3 Loan Repayment . Each Borrower shall repay Principal of and interest on its Loan under this Agreement as follows:
(a) beginning on March 1, 2018 (the “ First Payment Date ”) and on the first day of each calendar month thereafter (each such date, including the First Payment Date, a “ Payment Date ”), all accrued and unpaid interest on the outstanding Principal balance of such Loan calculated at the Interest Rate; and
(b) on the Scheduled Maturity Date, the entire outstanding Principal balance of each Loan, together with accrued and unpaid interest, the Finance Fee and any other amounts due under the Loan Documents.
2.4 Application of Proceeds . Except during the continuance of an Event of Default, all proceeds of repayment of any Loan, including any prepayments of such Loan, shall be applied by Lender as follows in the following order of priority: First , to the Prepayment Premium, the Finance Fee and any other amounts then due and owing under the Loan Documents (including Expenses) with respect to such Loan; Second , accrued and unpaid interest on such Loan at the Interest Rate or Default Rate, if applicable; and Third , to the Principal amount of such Loan. If an Event of Default shall occur and be continuing, all payments received by Lender upon the Loans and the other Obligations and all net proceeds from the enforcement of the Obligations shall be applied as set forth in Section 11.3 .
2.5 Optional Prepayment . From and after the date that is thirteen (13) months after the Closing Date, any Borrower, at its option, may prepay its Loan in full at any time upon at least thirty (30) but not more than sixty (60) days’ advance written notice to Lender, provided that on the date of such prepayment, there shall be due and payable (i) accrued interest on the Principal so prepaid to the date of the next Payment Date, (ii) the Finance Fee and (iii) with respect to any prepayment made on any date during the six (6) month period commencing on March 15, 2019 through and including September 15, 2019, the Prepayment Premium. All Prepayment Premiums hereunder shall be deemed to be earned by Lender upon the funding of the Loans.
2.8 Evidence of Indebtedness . Each Loan made by Lender to a Borrower shall be evidenced by a Promissory Note payable by the applicable Borrower to Lender in the Principal amount of such Loan. Lender may attach schedules to each Promissory Note and endorse thereon the date, amount and maturity of the applicable Loan and payments with respect thereto.
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(a) Commitment Fee . At Closing, each Borrower shall unconditionally pay to Lender, and Lender shall have fully earned, a non-refundable commitment fee (which at the election of Lender in its sole discretion, may take the form of original issue discount) equal to three percent (3%) of the original Principal amount of such Borrower’s Loan (the “ Commitment Fee ”).
(b) Finance Fee . Each Borrower shall pay to Lender on the earliest of (i) the Scheduled Maturity Date, (ii) the date of payment in full of such Borrower’s Loan or (iii) the date of acceleration of the maturity of such Loan (expressly including acceleration as a result of an Event of Default pursuant to Section 11.1(f)), a nonrefundable finance fee equal to three percent (3%) of the original Principal amount of such Borrower’s Loan (the “ Finance Fee ”).
(c) Late Payment Charge . Unless waived by Lender in writing, if any principal, interest or other sum due under any Loan Document is not paid by any Borrower on the date on which it is due, such Borrower shall pay to Lender, upon demand, an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by Applicable Law (the “ Late Payment Charge ”), in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Such amount shall be secured by the Loan Documents.
(d) Prepayment Premium . Upon any repayment or prepayment by any Borrower of any principal of its Loan, including in connection with an acceleration of such Loan (expressly including acceleration as a result of an Event of Default pursuant to Section 11.1(f)), before the Scheduled Maturity Date, such Borrower shall pay to Lender on the date of such repayment or prepayment the Prepayment Premium applicable thereto pursuant to Section 2.5, except if a prepayment is the result of a Casualty or Condemnation.
(e) Early Termination Fee . In the event any Loan is prepaid (in whole or in part) or is accelerated on or before the first anniversary of the Closing Date (except if such prepayment is the result of a Casualty or Condemnation), the Early Termination Fee in respect of such Loan shall be due and payable in full on the date of termination, together with all other Obligations, including all fees and Expenses due from Borrower to Lender.
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(f) Fee Computation; Fees Upon Early Termination. All fees, premiums and charges payable under this Section 2.10 (i) shall be computed on the basis of a year of 360 days and for the actual number of days elapsed in each calculation period, as applicable, and Lender’s determination thereof shall be conclusive and binding in the absence of manifest error; (ii) are a material inducement to Lender to extend credit and make the Loans to Borrowers and to enter into the transactions contemplated by the Loan Documents; (iii) shall be non-refundable and deemed fully earned when due and payable; and (iv) are not a penalty and will not require claim for, or proof of, actual damages. In the event any Loan is prepaid in full or is accelerated (expressly including acceleration as a result of an Event of Default pursuant to Section 11.1(f)), then all fees, premiums and charges payable to Lender pursuant to this Section 2.10 shall be due and payable in full on the date of termination, together with all other Obligations, including all other fees and Expenses due and payable by the applicable Borrower to Lender. All such fees, premiums and charges payable in the event of prepayment or an early termination (by acceleration or otherwise) are payable as liquidated damages and are a reasonable pre-estimate of the losses, costs and expenses that Lender would incur in the event of any prepayment or acceleration of any Loan.
ARTICLE III. INTENTIONALLY OMITTED.
ARTICLE IV. COLLATERAL AND GUARANTY.
4.1 Grant of Liens and Security Interests in Collateral .
(a) Collateral Provided by Mortgagors . As security for the performance and prompt payment in full of the Loan made to it and all its other Obligations, on the Closing Date each Mortgagor shall execute and deliver a Mortgage granting to Lender a First Priority Lien upon the Real Property owned by such Mortgagor and a First Priority Lien in all assets and rights and interests in or to all Equipment and all other personal property of such Mortgagor, whether tangible or intangible (the “ Personalty ”), and assigning to Lender all of such Mortgagor’s interest in Leases and Rents related to such Real Property (the Real Property, the Personalty and the Leases and Rents of each Mortgagor as described in its Mortgage being referred to herein, collectively, as the “ Mortgage Collateral ”). If any Mortgagor shall acquire at any time or times hereafter any fee simple interest in other real property, such Mortgagor agrees promptly to execute and deliver to Lender, as additional security for such Mortgagor’s Obligations, a Mortgage satisfactory in form and substance to Lender covering such real property. Each Mortgage shall be duly recorded (at such Mortgagor’s expense) in each office where such recording is required to constitute a valid First Priority Lien on the Real Property covered thereby.
(b) Collateral Provided by AdCare Holdco . As security for the performance and prompt payment in full of the Loan made to it and all its other Obligations, on the Closing Date AdCare Holdco shall execute and deliver the Pledge Agreement pledging to the Lender (i) AdCare Holdco’s Equity Interests in certain of its Subsidiaries identified in Schedule 4.1(b) attached hereto and (ii) its interest in the RHP Guarantor Note (such Equity Interests, the RHP Guarantor Note and the other collateral described in the Pledge Agreement being collectively referred to herein as the “ Pledged Collateral ”; the Pledged Collateral and the Mortgage Collateral are collectively, referred to herein as the “ Collateral ”).
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4.2 Title Insurance, Surveys, etc . In respect to its Mortgage, each Mortgagor shall deliver to Lender, at such Mortgagor’s expense, a mortgagee title insurance policy issued by a title insurance company satisfactory to Lender, which policy shall be in form and substance satisfactory to Lender and shall insure a valid First Priority Lien in favor of Lender on the Real Property covered thereby, subject only to Permitted Encumbrances and those other exceptions acceptable to Lender. Each Mortgagor shall also deliver to Lender such other usual and customary documents as Lender may request, including with respect to the Real Property described in each Mortgage: ALTA Surveys, appraisals, phase-I environmental reports, flood certifications (and, if applicable, acceptable flood insurance and FEMA form acknowledgements of insurance), zoning reports and such other reports as may be requested by Lender (the consultants retained for such reports, the scope of the reports and the results thereof all being satisfactory to Lender in its discretion) .
4.3 Representations and Covenants Regarding Mortgage Collateral .
(a) Representations and Warranties . Each Mortgagor represents and warrants to Lender that, except for the Permitted Encumbrances, (i) its Mortgage shall create and will at all times constitute a valid, perfected First Priority Lien in all of such Mortgagor’s Mortgage Collateral and (ii) such Mortgagor is, or will be at the time additional Mortgage Collateral is acquired by such Mortgagor, the absolute owner of such additional Mortgage 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 Encumbrances.
(b) Covenants . Each Mortgagor, at its expense, agrees to forever warrant and defend its Mortgage Collateral from any and all claims and demands of any other person, other than holders of Permitted Encumbrances. No Mortgagor shall, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any of its Mortgage Collateral or any of its other property, or permit any Lien to attach thereto (other than Permitted Liens and Permitted Encumbrances), or any levy to be made thereon, or any UCC Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto.
(c) Collateral Records . Each Mortgagor shall execute and deliver promptly to Lender, from time to time, solely for Lender’s convenience in maintaining a record of the Mortgage Collateral, such written statements and schedules as Lender may require designating, identifying or describing the Mortgage Collateral. The failure by any Mortgagor, however, to promptly give Lender such statements or schedules shall not affect, diminish, modify or otherwise limit the Liens on the Collateral granted pursuant to the Collateral Documents.
4.4 Guaranty . On the Closing Date, Guarantors shall execute and deliver a guaranty agreement for the benefit of Lender, pursuant to which (i) the RHP Guarantor and AdCare Holdco shall jointly and severally guarantee the payment of the Loan made to the CP Borrower and all of the CP Borrower’s other Obligations, (ii) the RHP Guarantor and AdCare Holdco shall jointly and severally guarantee the payment of the Loan made to the Northwest Borrower and all of the Northwest Borrower’s other Obligations, (iii) the RHP Guarantor and the HHO Guarantor shall jointly and severally guarantee the payment of the Loan made to the Attalla Borrower and all of the Attalla Borrower’s other Obligations and (iv) the RHP Guarantor shall guarantee the payment of the Loan made to AdCare Holdco and all of AdCare Holdco’s other Obligations (as it may be amended, restated or supplemented from time to time, the “ Guaranty ”).
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ARTICLE V. CONDITIONS TO CLOSING.
5.1 Closing . Subject to the satisfaction of the conditions of this Article 5 , the Loans shall be made available on such date (the “ Closing Date ”) and at such time as may be mutually agreeable to the parties contemporaneously with the execution hereof (“ Closing ”).
5.2 Conditions of the Loans . The obligation of Lender to make the Loans hereunder is subject to satisfaction of the following conditions precedent:
(a) Lender shall have received all of the following, each of which shall be originals, telecopies or other electronic transmissions (followed promptly by originals) unless otherwise specified, each properly executed by an Authorized Officer of the signing Credit Party, each dated as of the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to Lender:
(i) executed counterparts of this Agreement;
(ii) with respect to each Loan, a Promissory Note executed by the applicable Borrower, payable to Lender in the original Principal amount of such Loan;
(iii) with respect to each Loan made to a Mortgagor, the Mortgage executed by such Mortgagor;
(iv) the RHP Guarantor Note executed by RHP Guarantor, payable to AdCare Holdco;
(v) the Pledge Agreement executed by AdCare Holdco;
(vi) the Guaranty executed by the Guarantors;
(vii) all other Collateral Documents and all other Loan Documents required by Lender to be executed on the Closing Date;
(viii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Authorized Officers of each Credit Party as Lender may require evidencing the identity, authority and capacity of each Authorized Officer thereof authorized to act as an Authorized Officer in connection with this Agreement and the other Loan Documents to which such Credit Party is a party;
(ix) such Organization Documents and certifications as Lender may require to evidence that each Credit Party is duly organized or formed, and that each Credit Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification;
(x) a certificate signed by an Authorized Officer of each Credit Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Credit Party and the validity
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against such Credit Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;
(xi) a certificate signed by an Authorized Officer of each Credit Party certifying: (A) that the conditions specified in this Section 5.2 have been satisfied, (B) that there has been no event or circumstance since September 30, 2017 that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, (C) that no event or circumstance has occurred or exists that constitutes a Default or an Event of Default and (D) as to the solvency of such Credit Party as of the Closing Date and after giving effect to the Loans made on the Closing Date;
(xii) evidence that all Required Insurance has been obtained and is in effect; and
(xiii) correct and complete certified copies of the fully executed (i) Operating Lease and (ii) the nursing home licenses of each Operator, together with all applicable amendments thereto, all of which shall be acceptable to Lender in its sole and absolute discretion.
(b) Lender shall have received payment in full of all fees required to be paid under Section 2.10 on or before the Closing Date;
(c) Lender shall have received on or before the Closing Date, lien searches (including UCC, tax lien, and judgment searches) demonstrating the absence of Liens on the Collateral of Borrowers, the other Credit Parties other than Permitted Liens or Liens satisfied as of the Closing Date to the satisfaction of Lender;
(d) Lender shall have received: (i) copies of all filing receipts and acknowledgments issued by the appropriate Governmental Authority to evidence recordation or filing necessary to perfect the Lien of Lender on the Collateral or other satisfactory evidence of such recordation and filing, and (ii) evidence that such Lien constitutes a First Priority Lien in favor of Lender, other than Liens to be satisfied as of the Closing Date to the satisfaction of Lender;
(e) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered under this Agreement or otherwise required by Lender;
(f) The existing obligations of Credit Parties in connection with the creditors set forth on Schedule 5.2 hereto shall be terminated and paid in full at Closing to the satisfaction of Lender, and (ii) all Liens encumbering the Collateral (other than Permitted Liens) shall be terminated and/or released upon such payment to the satisfaction of Lender; and
(g) Lender shall have received such other assurances, certificates, documents, consents or opinions as Lender may require.
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5.3 Post-Closing Conditions . Each Credit Party covenants and agrees to perform, deliver and satisfy each of its post-closing obligations set forth on Schedule 5.3 hereto within the time periods set forth on such Schedule 5.3 .
ARTICLE VI. REPRESENTATIONS AND WARRANTIES.
Each Credit Party represents and warrants to Lender as of the date hereof that, except to the extent (if any) disclosed on Schedule 6 with reference to a specific Section of this Article 6 :
6.1 Organization . Each RHP Party has been duly organized and is validly existing and in good standing under the laws of the state of its formation, with requisite power and authority, and all rights, licenses, permits and authorizations, governmental or otherwise, necessary to own its properties and to transact business in every state in which it is now engaged. Each RHP Party is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, business and operations.
6.2 Authorization; Enforceability . Each Credit Party has taken all necessary action to authorize the execution, delivery and performance of the Loan Documents executed and delivered by it. The Loan Documents to which each Credit Party is a party have been duly executed and delivered by such Credit Party and constitute legal, valid and binding obligations of such Credit Party enforceable against such Credit Party in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity. The Loan Documents are not subject to, and no Credit Party has asserted, any right of rescission, set-off, counterclaim or defense, including the defense of usury. No exercise of any of the terms or conditions of the Loan Documents, or any right thereunder, will render any Loan Document unenforceable.
6.3 No Conflicts . The execution, delivery and performance of the Loan Documents by the Credit Parties and the transactions contemplated thereby will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than pursuant to the Loan Documents) upon any of the properties and assets of any Credit Party pursuant to the terms of, any agreement or instrument to which any Credit Party is a party or by which its property is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over any Credit Party or any of its properties. Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by any Credit Party of the Loan Documents has been obtained and is in full force and effect.
6.4 Litigation . As of the Closing Date, there are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority pending or threatened in writing against any RHP Party or any Healthcare Facility now or formerly owned, leased or operated by any of them, except as set forth on Schedule 6.4 hereto. There are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority now pending or threatened against or affecting any RHP Party or any such Healthcare Facility, which, if adversely determined, might, individually or in the aggregate, have a Material Adverse Effect.
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6.5 No Defaults . As of the Closing Date, after taking into account the transactions contemplated by this Agreement, no Default or Event of Default exists. No RHP Party is in default, and no event or circumstance has occurred or exists that with the passage of time or giving of notice would constitute a default, under any Material Contract or in the payment of any Permitted Indebtedness. There is no basis upon which any party (other than a RHP Party) could terminate a Material Contract prior to its scheduled termination date. No RHP Party is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Material Agreement.
6.6 Restrictive Agreement . No RHP Party is a party to any Restrictive Agreement (other than a Restrictive Agreement entered into in connection with a purchase or lease or the financing (including any HUD-insured financing) of fixed or capital assets, including real property, that prohibits Liens on such fixed or capital assets, including real property) or any other agreement or instrument, or subject to any restriction, which could reasonably be expected to adversely affect any RHP Party, the Collateral or any Healthcare Facility, or any RHP Party’s business, properties, operations or condition, financial or otherwise.
6.7 Title . Each Mortgagor has good, marketable and indefeasible fee simple title to its Property, free and clear of all Liens except the Permitted Encumbrances. Each Mortgage when properly recorded in the appropriate records, together with any UCC Financing Statements required to be filed in connection therewith, will create (i) a valid, perfected First Priority Lien on the applicable Mortgagor’s interest in the applicable Real Property and (ii) valid and perfected First Priority security interests in and to, and perfected collateral assignments of, all applicable Leases (including Operating Leases), Rents and Personalty, all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances. All mortgage, recording, stamp, intangible or other similar taxes required to be paid by such Mortgagor or any other Person under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents have been paid. The Permitted Encumbrances do not materially adversely affect the value, operation or use of any Property, or any Mortgagor’s ability to repay its Loan. No condemnation or other proceeding has been commenced or, to any Mortgagor’s knowledge, is contemplated with respect to all or part of such Mortgagor’s Real Property or for the relocation of roadways providing access to any of such Real Property. There are no claims for payment for work, labor or materials affecting any of the Real Property which are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. There are no outstanding options to purchase or rights of first refusal affecting all or any portion of a Real Property. The plat of survey for each Real Property delivered to Lender do not fail to reflect any material matter affecting such Real Property or the title thereto. All of the Improvements included in determining the appraised value of any Real Property lie wholly within the boundaries and building restriction lines of such Real Property, and no improvement on an adjoining property encroaches upon any Real Property, and no easement or other encumbrance upon any Real Property encroaches upon any of the improvements, except those insured against by the applicable Title Insurance Policy. Each parcel comprising a Real Property is a separate tax lot and is not a portion of any other tax lot that is not a part of such Real Property. There are no pending or proposed special or other assessments for public improvements or otherwise affecting any Real Property, or any contemplated improvements to any Real Property that may result in such special or other assessments.
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6.8 No Bankruptcy Filing . No RHP Party is contemplating the filing of any Insolvency Proceeding, and no Credit Party has any knowledge of (a) any Operator filing any Insolvency Proceeding or (b) any Person contemplating the filing of any such Insolvency Proceeding against any RHP Party or any Operator.
6.9 Solvency . Each Credit Party is Solvent.
6.10 Full and Accurate Disclosure . No statement of fact made by any Credit Party in any Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading. There is no material fact presently known to any Credit Party that has not been disclosed to Lender which adversely affects, or, as far as any Credit Party can foresee, might adversely affect, the Healthcare Facilities or the business, operations or condition (financial or otherwise) of any RHP Party. All financial data, including the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of each RHP Party and the Healthcare Facilities (i) are true, complete and correct in all material respects, (ii) accurately and fairly present the financial condition, results of operations and cash flows of the RHP Parties and the Healthcare Facilities as of the dates stated therein, and (iii) to the extent prepared by an independent certified public accounting firm, have been prepared in accordance with GAAP consistently applied throughout the periods covered, except as disclosed. No RHP Party has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, unrealized or anticipated losses from any unfavorable commitments or any liabilities or obligations not expressly permitted by this Agreement. Since the date of such financial statements, there has been no material adverse change in the financial condition, operations or business of any RHP Party or the Healthcare Facilities from that set forth in said financial statements. Each Credit Party has disclosed to Lender all agreements, instruments and corporate or other restrictions to which any RHP Party is subject, and all other matters known to any of the Credit Parties, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
6.11 Tax Filings . To the extent required, each RHP Party has filed (or has obtained effective extensions for filing) all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by such RHP Party. Each RHP Party believes that its tax returns (if any) properly reflect the income and taxes of such RHP Party for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit.
6.12 No Plan Assets . As of the Closing Date and at all times thereafter (i) no RHP Party is and will not be an “employee benefit plan,” as defined in Section 3(3) of ERISA, (ii) none of the assets of any RHP Party constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101, (iii) no RHP Party is or will be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (iv) transactions by or with RHP Parties are not and will not be subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans. As of the date hereof, neither any RHP Party, nor any member of a “controlled group of corporations” (within the meaning of Section 414 of the Code) maintains, sponsors or contributes to a “defined benefit plan” (within the meaning of Section 3(35) of ERISA) or a “multiemployer pension plan” (within the meaning of Section 3(37)(A) of ERISA).
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6.13 Compliance . Each RHP Party is in compliance with the requirements of all Applicable Laws and all Governmental Authorizations applicable to it or to its properties, except in such instances in which (a) such requirement of Applicable Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted, or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
Contracts . There are no service, maintenance, repair or property management contracts affecting any Property that are not terminable on one month’s notice or less without cause and without penalty or premium, unless approved by Lender in writing. All service, maintenance or repair contracts affecting any Property have been entered into an arms-length in the ordinary course of the applicable Mortgagor’s business and provide for the payment of fees in amounts and upon terms comparable to existing market rates.
6.15 Federal Reserve Regulations; Investment Company Act . No part of the proceeds of the Loans will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose that would be inconsistent with such Regulation U or any other regulation of such Board of Governors, or for any purpose prohibited by Laws or any Loan Document. No RHP Party is (i) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended or (iii) subject to any other Laws which purport to restrict or regulate its ability to borrow money.
6.16 Easements; Utilities and Public Access . All easements, cross easements, licenses, air rights and rights-of-way or other similar property interests (collectively, “ Easements ”), if any, necessary for the full utilization of any Real Property for its intended purposes have been obtained, are described in the applicable Title Insurance Policy and are in full force and effect without default thereunder. Each Real Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service it for its intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Real Property are located in the public right-of-way abutting such Real Property, and all such utilities are connected so as to serve such Real Property without passing over other property absent a valid easement. All roads necessary for the use of each Real Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities.
6.17 Physical Condition . To the knowledge of each Credit Party, each Property, including all improvements, parking facilities, systems, Equipment and other Personalty and landscaping, is in good condition, order and repair in all material respects, and there exists no structural or other material defect or damages to such Property, whether latent or otherwise. No Mortgagor has received notice from any insurance company or bonding company of any defect or inadequacy in its Property, or any part thereof, which would adversely affect its insurability or cause the imposition of extraordinary premiums or charges thereon or any termination of any policy of insurance or bond. No portion of any Real Property is located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. The Improvements have suffered no material casualty or damage which has not been fully repaired and the cost thereof fully paid.
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6.18 Fraudulent Transfer . No Credit Party has entered into its Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and each Credit Party has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the transactions contemplated by the Loan Documents, the fair saleable value of each Credit Party’s assets exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed such Credit Party’s total probable liabilities, including subordinated, unliquidated, disputed or contingent liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Each Credit Party’s assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. No Credit Party intends to, nor does any Credit Party believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of such Credit Party).
6.19 Ownership of RHP Parties . A list of the holders of the Equity Interests of each RHP Party (other than the RHP Guarantor) is set forth in Schedule 6.19 attached hereto and incorporated herein by reference, and no other Person has any rights and/or claim to any issued or unissued Equity Interest of any such RHP Party, except as set forth on said Schedule 6.19 .
6.20 Intercompany Indebtedness. No Indebtedness owed by any RHP Party to another RHP Party or its or their Affiliates is outstanding, except for the RHP Guarantor Note.
6.21 Compliance with Environmental Laws . Each RHP Party’s past or present operations, real estate or other properties and assets, including the Healthcare Facilities, are not subject to any federal, state or local investigation to determine whether any remedial action is needed to address any environmental pollution, Hazardous Material or environmental clean-up. No RHP Party has received any Environmental Notice. No RHP Party has any contingent liability with respect to any Environmental Release, environmental pollution or Hazardous Materials on any real estate now or previously owned, leased or operated by it, including the Healthcare Facilities.
6.22 Hazardous Materials . (i) Neither any Real Property nor any portion thereof is in violation of any Legal Requirement pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up, including under any Environmental Laws; (ii) no Real Property is subject to any private or governmental Lien or judicial or administrative notice or action or inquiry, investigation or claim relating to Hazardous Materials; (iii) to the best of each Credit Party’s knowledge, no Hazardous Materials are or have been (including the period prior to a Mortgagor’s acquisition of its Real Property), discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from such Real Property other than in compliance with all Environmental Laws; (iv) to each Credit Party’s knowledge, and except as disclosed in Schedule 6.22 attached hereto, no Hazardous Materials are present in, on or under any nearby real property which could migrate to or otherwise affect any Real Property; (v) to each Credit Party’s knowledge, after due inquiry, no Toxic Mold is on or about any Real Property which requires remediation; (vi) no underground storage tanks exist on any Real Property and each Real Property has never been used as a landfill; and (vii) there have been no environmental investigations, studies, audits, reviews or other analyses conducted by or on behalf of any Credit Party which have not been provided to Lender.
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6.23 Employee Matters . There are no controversies pending or, to the knowledge of any Credit Party, threatened between any RHP Party and any of its employees, agents or independent contractors, other than employee grievances arising in the ordinary course of business which would not, in the aggregate, have a Material Adverse Effect, and each RHP Party is in compliance with all Laws respecting employment and employment terms, conditions and practices except for such noncompliance which would not have a Material Adverse Effect.
6.24 Intellectual Property . Each Credit Party possesses adequate Intellectual Property to continue to conduct its business as heretofore conducted by it except to the extent that the failure to possess such items would not have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of any Credit Party, threatened, by any Licensor or other Person, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
6.25 Healthcare Authorizations . Each RHP Party, and to each Credit Party’s knowledge, each Operator (a) have, or have made timely application for in accordance with Applicable Laws, all Healthcare Authorizations and other rights from, and have 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, management and operation of the Healthcare Facilities, and (b) have not received a Citation resulting in the denial of payment for new admissions to such Healthcare Facility for a period longer than six (6) months nor any other Citation not involving a denial of payment for new admissions, nor have any knowledge that any Governmental Authority is considering limiting, suspending or revoking any Healthcare Authorization. All of such Healthcare Authorizations are valid and in full force and effect and each RHP Party and, to the knowledge of each Credit Party, each Operator, are in compliance with the terms and conditions of all such Healthcare Authorizations, except where failure to be in such compliance or for a Healthcare Authorization to be valid and in full force and effect would not have a Material Adverse Effect.
6.26 HIPAA/HITECH Compliance . To the extent that and for so long as any RHP Party is a “covered entity” or “business associate” as either such term is defined under HIPAA/HITECH, each RHP Party (a) has undertaken or will promptly undertake or will cause each Operator to take all necessary surveys, audits, inventories, reviews, analyses and/or assessments (including any necessary risk assessments) of all areas of its business and operations required by HIPAA/HITECH and/or that could be adversely affected by the failure of such RHP Party to be HIPAA/HITECH Compliant (as defined below); (b) has developed a detailed plan and time line for becoming HIPAA/HITECH Compliant (a “ HIPAA/HITECH Compliance Plan ”); and (c) has implemented those provisions of such HIPAA/HITECH Compliance Plan in all material respects necessary to ensure that each RHP Party becomes HIPAA/HITECH Compliant. For purposes hereof, “ HIPAA/HITECH Compliant ” shall mean that each RHP Party engaged in the operation of the Healthcare Facilities (x) is or will be in compliance with each of the applicable requirements of the so-called Administrative Simplification provisions of HIPAA, and any applicable requirements of HITECH, on and as of each date that any part thereof, or any final rule or regulation thereunder, becomes effective in accordance with its or their terms, as the case may be (each such date, a “ HIPAA/HITECH Compliance Date ”) and (y) is not and could not reasonably be expected to become, as of any date following any such HIPAA/HITECH Compliance Date, the subject of any civil or criminal penalty, process, claim, action or proceeding, or any administrative or other regulatory review, survey, process or
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proceeding (other than routine surveys or reviews conducted by any Government Reimbursement Program or other accreditation entity) that could result in any of the foregoing or that could reasonably be expected to have a Material Adverse Effect.
6.27 Reimbursement; Third-Party Payors . The Healthcare Facilities and the services provided at such Healthcare Facilities are qualified for participation in the Government Reimbursement Programs, and: (a) the Operators are entitled to reimbursement under the Government Reimbursement Programs for services rendered at such Healthcare Facilities to qualified beneficiaries and complies with the conditions of participation in all Government Reimbursement Programs and related contracts; (b) each Operator is in compliance in all material respects with contracts with Non-Government Account Debtors and is entitled to reimbursement under such contracts; (c) without limitation, there are no conditions not complied with that could jeopardize participation by any Operator in any Government Reimbursement Program or related contracts or otherwise could have a Material Adverse Effect.
6.28 Other Healthcare Regulatory Matters . Each RHP Party and to the Credit Party’s knowledge each Operator has developed and implemented a current and effective corporate health care regulatory compliance program (“ CCP ”). As of the Closing Date, no RHP Party (i) is a party to a corporate integrity agreement, (ii) has any reporting obligations pursuant to a settlement agreement, plan of correction, or other remedial measure entered into with a Governmental Authority, (iii) is currently, or to any RHP Party’s knowledge, has been the subject of any investigation conducted by any Governmental Authority, including an investigation involving compliance with Healthcare Laws, (iv) is or has been a defendant in any qui tam/false claims act litigation and (v) has not been served with or received any written search warrant, subpoena, civil investigative demand or contact letter from any Governmental Authority related to their business operations or any Healthcare Facility owned or operated by them.
6.29 Compliance with Healthcare Laws .
(a) To the extent applicable, each RHP Party has timely filed or caused to be timely filed, all cost reports and other reports of every kind whatsoever required by a Government Reimbursement Program, to have been filed or made with respect to the business operations of each RHP Party. There are no claims, actions or appeals filed, pending or threatened (and no RHP Party has filed any claims or reports which should result in any such claims, actions or appeals) before any Governmental Authority pertaining to any RHP Party’s business operations including any intermediary or carrier, the Provider Reimbursement Review Board or the Administrator of CMS, with respect to any Medicare or Medicaid cost reports or claims filed by any RHP Party, or any disallowance by any Governmental Authority in connection with any audit of such cost reports;
(b) Each RHP Party and, to each Credit Party’s knowledge, each applicable RHP Party and Operator have obtained all necessary accreditations to operate its business as now conducted, and currently is in compliance with all statutory and regulatory requirements applicable to it, except where any such failure could not reasonably be expected to result in a Material Adverse Effect;
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(c) No RHP Party nor to each Credit Party’s knowledge any Operator is currently nor has in the past been subject to: (1) any state or local governmental investigation, inspection or inquiry related to any license or licensure standards applicable to RHP Party; (2) any federal, state, local governmental or private payor civil or criminal investigations, inquiries or audits involving and/or related to any federal, state or private payor healthcare fraud and abuse provisions or contractual prohibitions of healthcare fraud and abuse; or (3) any federal, state or private payor inquiry, investigation, inspection or audit regarding any RHP Party or their activities, including any federal, state or private payor inquiry or investigation of any Person having “ownership, financial or control interest” in any RHP Party (as that term is defined in 42 C.F.R. §420.201 et seq.) involving and/or related to healthcare fraud and abuse, false claims under 31 U.S.C. §§3729-3731 or any similar contractual prohibition, or any qui tam action brought pursuant to 31 U.S.C. § 3729 et seq.;
(d) No director, officer, shareholder, employee or Person with a “direct or indirect ownership interest” (as that phrase is defined in 42 C.F.R. §420.201) in any RHP Party or to its knowledge any Operator: (1) has had a civil monetary penalty assessed against him or her pursuant to 42 U.S.C. §1320a-7a; (2) has been excluded from participation in a Federal Health Care Program (as that term is defined in 42 U.S.C. §1320a-7b); (3) 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, including any of the following categories of offenses: (A) criminal offenses relating to the delivery of an item or service under any Federal Health Care Program (as that term is defined in 42 U.S.C. §1320a-7b) or healthcare benefit program (as that term is defined in 18 U.S.C. §24b); (B) criminal offenses under federal or state law relating to patient neglect or abuse in connection with the delivery of a healthcare item or service; (C) criminal offenses under Laws relating to fraud and abuse, theft, embezzlement, false statements to third parties, money laundering, kickbacks, breach of fiduciary responsibility or other financial misconduct in connection with the delivery of a healthcare item or service or with respect to any act or omission in a program operated by or financed in whole or in part by any federal, state or local governmental agency; (D) Laws relating to the interference with or obstruction of any investigations into any criminal offenses described in (1) through (3) above; or (E) criminal offenses under Applicable Laws relating to the unlawful manufacturing, distribution, prescription or dispensing of a controlled substance; or (4) 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) Each RHP Party is and shall continue to be in compliance with all Applicable Laws relating to its relationships with physicians;
(f) Each RHP Party, and their employees and contractors (other than contracted agencies), in the exercise of their duties on behalf of any RHP Party, is and shall continue to be in compliance with all Laws (including Healthcare Laws) applicable to the Collections on Accounts, any contracts relating thereto or any other Collateral, or otherwise applicable to its business and properties, a violation of which could materially affect its ability to collect on its Accounts or repay the Obligations;
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(g) All Persons providing professional health care services for or on behalf of any RHP Party (either as an employee or independent contractor) are appropriately licensed in every jurisdiction in which they hold themselves out as professional health care providers; and
(h) No Healthcare Authorizations of any RHP Party have been suspended, revoked, limited or denied renewal at any time.
6.31 Name; Principal Place of Business . No Credit Party uses or will use any trade name and has not done and will not do business under any name other than its actual name set forth herein, except for trade names listed on Schedule 6.31 .
6.32 Federal Employer Identification Number . Each Credit Party’s federal employer identification number is listed on Schedule 6.32 .
6.33 Material Contracts and Affiliate Agreements . As of the Closing Date, there are no (a) agreements with Affiliates of any RHP Party and (b) no Material Contracts, in each case, other than those set forth on Schedule 6.33 hereto.
6.34 Licensed Beds . As of the Closing Date, the number of licensed beds authorized for use in each Healthcare Facility is set forth on Schedule 6.34 hereto. No Operator nor any other Person has been granted the right to reduce the number of licensed beds or authorized beds in any Healthcare Facility or the right to apply for approval to move any or all of such beds, and there are not proceedings pending or threatened to reduce the number of licensed beds or authorized beds in any Healthcare Facility, and no Healthcare Facility is operated in a manner that at any time results in the number of beds being used exceeding the number of authorized or licensed beds.
6.35 Survival . All of the representations and warranties in this Article 6 and elsewhere in the Loan Documents (i) shall survive for so long as any of the Obligations remain owing to Lender and (ii) shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.
As used in this Agreement, the phrase “to any Credit Party’s knowledge” or similar phrases, means each Credit Party’s knowledge after due and diligent inquiry. Notwithstanding anything contained herein to the contrary, any representation and warranty in this Agreement by a Borrower shall be limited to matters relating to such Borrower, its Subsidiaries and the business, operations, liabilities, Properties, Healthcare Facilities and other assets of such Borrower and its Subsidiaries.
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ARTICLE VII. AFFIRMATIVE COVENANTS
A. |
General Covenants. So long as any Loan or other Obligations hereunder shall remain unpaid or unsatisfied, each Credit Party covenants and agrees to, and shall cause each of its Subsidiaries and, as applicable, all Operators to: |
7.1 Payment of Obligations, Indebtedness, Etc . Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, sewer use fees, water rates, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by it; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, including payment and discharge of all obligations and liabilities under all Material Contacts, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.
7.2 Preservation of Existence, Etc . (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.
7.3 Maintenance of Properties; Insurance . (a) Maintain, preserve and protect all of its properties (including all Properties and all other Healthcare Facilities owned or leased by it or its Subsidiaries) necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (c) use the standard of care typical in the industry in the operation and maintenance of its or its Subsidiaries’ Healthcare Facilities; and (d) maintain with financially sound and reputable insurance companies, insurance on all of its property (including all Properties and all other Healthcare Facilities owned or leased by it or its Subsidiaries) in at least such amounts and against such risks as are usually insured against in the same general area by companies of similar size and established repute engaged in the same or a similar business (such insurance to name Lender as an additional insured and/or mortgagee and loss payee as required by this Agreement or as Lender in its discretion may request) and will furnish to Lender, upon its request, full information as to the insurance carried.
7.4 Access to Healthcare Facilities . Permit agents, representatives, consultants and employees of Lender to inspect all Healthcare Facilities owned or leased by it or any of its Subsidiaries or any part thereof at reasonable hours upon reasonable advance notice.
7.5 Compliance With Laws . Comply in all material respects with the requirements of all Laws (including Environmental Laws and Healthcare Laws) and obtain, maintain and comply in all material respects with all Governmental Authorizations and Healthcare Authorizations, in each instance, applicable to it or to its business or property, except in such
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instances in which (a) such requirement of Law (including Environmental Laws) is being contested in good faith by appropriate proceedings diligently conducted; (b) the failure to comply with any such Law (including Environmental Laws and Healthcare Laws) could not reasonably be expected to have a Material Adverse Effect; (c) the failure to obtain and maintain any such Governmental Authorization could not reasonably be expected to have a Material Adverse Effect; or (d) the failure to comply with any such Governmental Authorization or Healthcare Authorization could not reasonably be expected to have a Material Adverse Effect.
7.6 Books and Records . (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving its assets and business; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over. Each Borrower shall maintain at all times books and records pertaining to the Collateral in such detail, form and scope as Lender shall require.
7.7 Inspection Rights; Field Audits . Subject to the terms of the applicable Operating Leases, permit representatives and independent contractors of Lender to visit and inspect any of any Healthcare Facilities owned or leased by it or any of its Subsidiaries, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, and to conduct a field examination and audit of the Collateral, all at the expense of such Credit Party or its Subsidiaries and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice; provided , however , that when an Event of Default exists Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Credit Parties or their Subsidiaries at any time during normal business hours and without advance notice.
7.9 Landlord and Warehouse Agreements . Provide Lender with copies of all existing agreements entered into in connection with any Healthcare Facility owned or leased by it or any of its Subsidiaries, and promptly after execution thereof provide Lender with copies of all future agreements, between it and any landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which any Collateral may be kept or that otherwise may possess or handle any Collateral.
7.10 Licenses . Keep each License affecting any of its or its Subsidiaries’ Healthcare Facilities or other material properties and assets in full force and effect; promptly notify Lender of any proposed modification to any such License, or entry into any new License, in each case at least thirty (30) days prior to its proposed modification date; pay all Royalties when due; and notify Lender of any default or breach asserted by any Person to have occurred under any License.
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(a) 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 owned or leased by it or any of its Subsidiaries for its current use, all Healthcare Authorizations necessary under Healthcare Laws (A) to carry on its business as it is conducted on the Closing Date, and (B) if it receives or has applied for reimbursements under any Government Reimbursement Program as part of its business, to continue to receive reimbursement thereunder in substantial compliance with all requirements for participation in, and for the licensure required to provide the services that are reimbursable under, any Government Reimbursement Program, including the Medicare and Medicaid Patient Protection Act of 1987, as the same may be amended, and such other Third-Party Payor programs as to which it receives or has applied for reimbursement as part of its business.
(b) Cause all Healthcare Authorizations and any other agreements necessary for the use and operation of all of its or its Subsidiaries’ Healthcare Facilities or as may be necessary for participation in Third-Party Payor Programs to remain in effect: (i) without reduction (x) in the number of licensed beds or authorized beds for use or (y) in the number of beds actually in use in any such Healthcare Facility, and (ii) without exceeding the number of licensed or authorized beds for use in any such Healthcare Facility.
(c) Following the occurrence and during the continuance of any Event of Default, upon Lender’s request, if permitted by any applicable Legal Requirements, turn over to Lender all resident deposits (and any interest theretofore earned thereon) with respect to the Healthcare Facilities owned or leased by it or any of its Subsidiaries, to be held by Lender subject to the terms of their related agreements.
(d) Provide to Lender upon request, an accurate, complete and current list of all participation agreements with Third-Party Payors with respect to the business of such RHP Party.
(e) Maintain a CCP which includes at least the following components and allows Lender and/or any outside consultants from time to time to review such CCP: (A) standards of conduct and procedures that describe compliance policies regarding Laws with an emphasis on prevention of fraud and abuse; (B) specific officer within high-level personnel identified as having overall responsibility for compliance with such standards and procedures; (C) training and education programs which effectively communicate the compliance standards and procedures to employees and agents, including fraud and abuse Laws and illegal billing practices; (D) auditing and monitoring systems and reasonable steps for achieving compliance with such standards and procedures including publicizing a report system to allow employees and other agents to anonymously report criminal or suspect conduct and potential compliance problems; (E) disciplinary guidelines and consistent enforcement of compliance policies including discipline of individuals responsible for the failure to detect violations of the CCP; and (F) mechanisms to immediately respond to detected violations of the CCP.
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(f) If any Healthcare Facility owned or leased by it or any of its Subsidiaries is currently accredited by Joint Commission, (i) maintain such accreditation in good standing and without limitation or impairment, (ii) promptly submit to Joint Commission a plan of correction for any deficiencies listed on any Joint Commission accreditation survey report, and (iii) cure all such deficiencies within such time frame as is necessary to preserve and maintain in good standing and without limitation or impairment such Joint Commission accreditation.
(g) If required under applicable Healthcare Laws, maintain in full force and effect a valid CON for no less than the number of licensed beds and units in its or its Subsidiaries’ Healthcare Facilities as of the Closing Date.
(h) Maintain any applicable CON free from restrictions or known conflicts which would materially impair the use or operation of each Healthcare Facility owned or leased by it or any of its Subsidiaries for its current use, and shall not permit any CON to become provisional, probationary or restricted in any way.
(i) Provide to Lender satisfactory evidence demonstrating Capital Expenditures by the Operators in an aggregate amount not less than the minimum required by each Operating Lease.
(j) In the case of any denial of payment for new admissions with respect to any Healthcare Facility (as a result of Medicare or Medicaid survey deficiencies or state monitoring or for any other reason) or if any Governmental Authority ceases to permit new residents or tenants to be admitted to any Healthcare Facility, promptly provide to Lender a copy of any plan of correction filed with the applicable Governmental Authority and evidence of the filing thereof.
7.12 Operating Lease . (a) Cause any Healthcare Facility owned or leased by it or any of its Subsidiaries to be operated in accordance with the applicable Operating Lease, (b) diligently perform and observe all of the material terms, covenants and conditions of such Operating Lease on its part to be performed and observed, and (c) promptly enforce the performance and observance of all of the material terms, covenants and conditions required to be performed and/or observed by Operator under such Operating Lease, in each case in a commercially reasonable manner. If any RHP Party shall default in the performance or observance of any term, covenant or condition of an Operating Lease on the its part to be performed or observed that would give rise to a right of termination on the part of any Operator, then, without limiting Lender’s other rights or remedies under this Agreement or the other Loan Documents, and without waiving or releasing any Credit Party from any of its obligations hereunder, under the other Loan Documents or under such Operating Lease, Lender shall have the right, but shall be under no obligation, to pay any sums and to perform any act as may be appropriate to cause the terms, covenants and conditions of such Operating Lease on the part of such Mortgagor to be performed or observed in all material respects.
7.13 Further Assurances . (a) Execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Obligations and/or for the better and more effective carrying out of the intents and
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purposes of the Loan Documents, as Lender may reasonably require from time to time; and (b) upon Lender’s request therefor given from time to time, pay for reports of UCC, federal tax lien, state tax lien, judgment and pending litigation searches with respect to each Credit Party, each such search to be conducted by search firms designated by Lender in each of the locations designated by Lender.
B. |
Covenants as to Real Properties. So long as any Loan or other Obligations hereunder shall remain unpaid or unsatisfied, the Credit Parties covenant and agree as follows: |
7.14 Insurance; Casualty; Condemnation .
(a) Coverage . At its sole cost, for the mutual benefit of Lender, each Mortgagor shall obtain and maintain (or cause each Operator to obtain and maintain) during the term of the Loans the following policies of insurance with respect to its Property the insurance and coverages described on Schedule 7.14 .
(b) Casualty .
(i) Notice; Restoration . If the Property is damaged or destroyed, in whole or in part, by fire or other casualty (a “ Casualty ”), each Mortgagor shall give notice thereof to Lender within one (1) Business Day. Following the occurrence of a Casualty, each Mortgagor, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the Property in accordance with Legal Requirements to be of at least equal value and of substantially the same character as prior to such damage or destruction.
(ii) Settlement of Proceeds . If a Casualty covered by any of the Policies (an “ Insured Casualty ”) occurs where the loss does not exceed $100,000 (a “ Minor Casualty ”), and provided that no Event of Default has occurred and is continuing, then each Mortgagor may settle and adjust any claim relating to such Minor Casualty without the prior consent of Lender; provided such adjustment is carried out in a competent and timely manner, and each Mortgagor is hereby authorized to collect and receive the insurance proceeds (the “ Proceeds ”), with respect to such Minor Casualty. In the event of an Insured Casualty where the loss equals or exceeds $100,000 (a “ Significant Casualty ”), Lender may, in its sole discretion, settle and adjust any claim without the consent of any Mortgagor and agree with the insurer(s) on the amount to be paid on the loss, and the Proceeds shall be due and payable solely to Lender, for the benefit of itself and Lender, and held by Lender in the Casualty/Condemnation Account and disbursed in accordance herewith. If any Mortgagor or any other Credit Party is a payee on any check representing Proceeds with respect to a Significant Casualty, such Credit Party shall immediately endorse, and cause all such third parties to endorse, such check payable to the order of Lender. Each Credit Party hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to endorse such check payable to the order of Lender. The expenses incurred by Lender in the settlement, adjustment and collection of the Proceeds shall become part of the Obligations and shall be reimbursed by each Mortgagor to Lender upon demand.
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(i) Notice; Restoration . Each Mortgagor shall give Lender written Notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting its Property (a “ Condemnation ”) within one (1) Business Day of actual constructive notice thereof, and shall deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, each Mortgagor, regardless of whether an Award is available, shall promptly proceed to restore, repair, replace or rebuild its Property in accordance with Legal Requirements to the extent practicable to be of at least equal value and of substantially the same character (and to have the same utility) as prior to such Condemnation.
(ii) Collection of Award . If a Condemnation covered by any of the Policies (an “ Insured Condemnation ”) occurs where the loss does not exceed $100,000 (a “ Minor Condemnation ”), and provided that no Event of Default has occurred and is continuing, then each Mortgagor has the power to collect, receive and retain any award or payment in respect of such Minor Condemnation. In the event of an Insured Condemnation where the loss equals or exceeds $100,000 (a “ Significant Condemnation ”), Lender is hereby irrevocably appointed as each Mortgagor’s and each other Credit Party’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment in respect of a Significant Condemnation (together with any right to receive and retain any award or payment in respect of a Minor Condemnation, an “ Award ”) and to make any compromise, adjustment or settlement in connection with such Significant Condemnation. Notwithstanding any Condemnation (or any transfer made in lieu of or in anticipation of such Condemnation), the Credit Parties shall continue to pay the Obligations at the time and in the manner provided for in the Loan Documents, and the Obligations shall not be reduced unless and until any Award shall have been actually received and applied by Lender to expenses of collecting the Award and to discharge of the Obligations. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided in each Promissory Note. If any Property or any part thereof is sold, through foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender shall have the right, whether or not a deficiency judgment on a Promissory Note shall be recoverable or shall have been sought, recovered or denied, to receive all or a portion of the Award sufficient to pay the Obligations. The Credit Parties shall cause any Award that is payable to any of them to be paid directly to Lender, for the benefit of itself and Lender. Lender shall hold such Award in the Casualty/Condemnation Account and disburse such Award in accordance with the terms hereof.
(d) Application of Proceeds or Award .
(i) Application to Restoration . If an Insured Casualty or an Insured Condemnation occurs where (a) the loss is a Significant Casualty or a Significant Condemnation, (b) in the reasonable judgment of Lender, the Property can be restored within six months, and prior to six months before the Scheduled Maturity Date and prior
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to the expiration of the rental or business interruption insurance with respect thereto, to the Property’s pre-existing condition and utility as existed immediately prior to such Significant Casualty or Significant Condemnation and to an economic unit not less valuable and not less useful than the same was immediately prior to the Significant Casualty or Significant Condemnation, and after such restoration will adequately secure the Obligations, (c) no Default shall exist and no Event of Default shall have occurred, and (d) the applicable Operating Lease is in full force and effect, all amounts due and owing by the Operators thereunder have been paid current and no “event of default” has occurred and is continuing under and as defined therein, then the Proceeds or the Award, as the case may be (after reimbursement of any expenses incurred by Lender), shall be applied to reimburse the applicable Mortgagor (or to pay contractors or other third parties directly pursuant to Lender’s standard disbursement procedures and requirements) for the cost of restoring, repairing, replacing or rebuilding the Property (the “ Restoration ”), in the manner set forth herein. Mortgagors shall commence and diligently prosecute such Restoration. Notwithstanding the foregoing, in no event shall Lender be obligated to apply the Proceeds or Award to reimburse any Mortgagor for the cost of Restoration unless, in addition to satisfaction of the foregoing conditions, both (1) such Mortgagor shall pay (and if required by Lender, such Mortgagor shall deposit with Lender in advance) all costs of such Restoration in excess of the net amount of the Proceeds or the Award made available pursuant to the terms hereof; and (2) Lender shall have received evidence satisfactory to it that during the period of the Restoration, the Rents will be at least equal to the sum of the operating expenses and other reserve payments required hereunder, as determined by Lender.
(ii) Application to the Obligations . Except as provided in Section 7.14(e)(iii) , any Proceeds and/or Award in connection with a Significant Casualty or Significant Condemnation, as applicable, may, at the option of Lender in its discretion, be applied to the payment of (a) accrued but unpaid interest on the Promissory Notes, (b) the unpaid Principal and (c) other charges due under the Promissory Notes and/or any of the other Loan Documents, or applied to reimburse Mortgagors for the cost of any Restoration, in the manner set forth in Section 7.14(e)(iii) . Any such prepayment of the Loans shall be subject to the Finance Fee, but shall otherwise be without any Prepayment Premium, unless an Event of Default has occurred and is continuing at the time the Proceeds are received from the insurance company or the Award is received from the condemning authority, as the case may be, in which event the applicable Borrower shall pay to Lender, for the benefit of itself and Lender, an additional amount equal to the Prepayment Premium, if any, that may be required with respect to the amount of the Proceeds or Award applied to the unpaid Principal.
(iii) Procedure for Application to Restoration . If any Mortgagor is entitled to reimbursement out of the Proceeds or an Award in connection with a Significant Casualty or Significant Condemnation, as applicable, held by Lender, such Proceeds or Award shall be disbursed from time to time from the Casualty/Condemnation Account upon Lender being furnished with (a) evidence satisfactory to Lender of the estimated cost of completion of the Restoration, (b) a fixed price or guaranteed maximum cost construction contract for Restoration satisfactory to Lender, (c) prior to the commencement of Restoration, all immediately available funds in addition to the
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Proceeds or Award that in Lender’s judgment are required to complete the proposed Restoration, (d) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey, permits, approvals, licenses and such other documents and items as Lender may require and approve in Lender’s discretion, and (e) all plans and specifications for such Restoration, such plans and specifications to be approved by Lender prior to commencement of any work. Lender may, at each Mortgagor’s expense, retain a consultant to review and approve all requests for disbursements, which approval shall also be a condition precedent to any disbursement. No payments made in the aggregate prior to the final completion of the Restoration shall exceed ninety percent (90%) of the value of the work performed from time to time; funds other than the Proceeds or Award shall be disbursed prior to disbursement of such Proceeds or Award; and at all times, the undisbursed balance of such Proceeds or Award remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of any Mortgagor for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the Restoration, free and clear of all Liens or claims for Lien. Provided no Default or Event of Default then exists, any surplus that remains out of the Proceeds held by Lender after payment of such costs of Restoration shall be paid to the Mortgagor. Any surplus that remains out of the Award received by Lender after payment of such costs of Restoration shall, in the discretion of Lender, be retained by Lender and applied to payment of the Mortgagor’s Obligations or returned to the Mortgagor.
(a) Hazardous Materials . So long as any Mortgagor owns or is in possession of any Real Property, such Mortgagor shall, and shall cause Operators to (i) keep the Real Property free from Hazardous Materials and in compliance with all Environmental Laws, (ii) promptly notify Lender if such Mortgagor shall become aware that (A) any Hazardous Material is on or near the Real Property, (B) the Real Property is in violation of any Environmental Laws or (C) any condition on or near the Real Property shall pose a threat to the health, safety or welfare of humans and (iii) remove such Hazardous Materials and/or cure such violations and/or remove such threats, as applicable, as required by any Environmental Law (or as shall be required by Lender in the case of removal which is not required by Environmental Laws, but in response to the opinion of a licensed hydrogeologist, licensed environmental engineer or other qualified environmental consulting firm engaged by Lender (“ Lender’s Consultant ”)), promptly after such Mortgagor becomes aware of same, at such Mortgagor’s sole expense. Nothing herein shall prevent such Mortgagor from recovering such expenses from any other party that may be liable for such removal or cure.
(b) Environmental Monitoring .
(i) Mortgagors shall give prompt written notice to Lender of (i) any proceeding or inquiry by any party (including any Governmental Authority) with respect to the presence of any Hazardous Material on, under, from or about any portion of the Real Property, (ii) all claims made or threatened by any third party (including any Governmental Authority) against such Mortgagor or the Real Property (or any portion
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thereof) or any party occupying the Real Property relating to any loss or injury resulting from any Hazardous Material, and (iii) such Mortgagor’s discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Real Property (or any portion thereof) that could cause the Real Property (or any portion thereof) to be subject to any investigation or cleanup pursuant to any Environmental Law. Upon becoming aware of the presence of mold or fungus at the Real Property (or any portion thereof), such Mortgagor shall (i) promptly undertake an investigation to identify the source(s) of such mold or fungus and shall develop and implement an appropriate remediation plan to eliminate the presence of any Toxic Mold and the source of moisture causing such Toxic Mold, (ii) perform or cause to be performed all acts reasonably necessary for the remediation of any Toxic Mold (including taking any action necessary to clean and disinfect any portions of the Real Property affected by Toxic Mold, including providing any necessary moisture control systems or otherwise eliminating the sources of such moisture at the Real Property), and (iii) provide evidence satisfactory to Lender of the foregoing. Such Mortgagor shall permit Lender to join and participate in, as a party if it so elects, any legal or administrative proceedings or other actions initiated with respect to the Real Property in connection with any Environmental Law or Hazardous Material, and such Mortgagor shall pay all reasonable attorneys’ fees and disbursements incurred by Lender in connection therewith.
(ii) Upon Lender’s request, at any time and from time to time, any Mortgagor shall provide an inspection or audit of its Real Property pursuant to a scope of work approved by Lender. Such inspection shall be prepared by a licensed hydrogeologist, licensed environmental engineer or qualified environmental consulting firm approved by Lender assessing the presence or absence of Hazardous Materials on, in or near the any Real Property. Such inspections and audit may include soil borings and ground water monitoring. If such Mortgagor fails to provide any such inspection or audit within thirty (30) days after such request, Lender may order same, and such Mortgagor hereby grants to Lender and its employees, agents, consultants and contractors access to its Real Property and a license to undertake such inspection or audit.
(iii) If any environmental site assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for any Hazardous Material, whether such Hazardous Material existed prior to the ownership of any Real Property by any Mortgagor, or presently exists or is reasonably suspected of existing, such Mortgagor shall cause such operations and maintenance plan in form and substance satisfactory to Lender to be prepared and implemented at its expense upon request of Lender, and with respect to any Toxic Mold, such Mortgagor shall take all action necessary to clean and disinfect any portions of the Improvements affected by Toxic Mold in or about the Improvements, including providing any necessary moisture control systems or otherwise eliminating the sources of such moisture at the Real Property. If any investigation, site monitoring, containment, cleanup, removal, restoration or other work of any kind is reasonably necessary under an applicable Environmental Law (“ Remedial Work ”), such Mortgagor shall commence all such Remedial Work within thirty (30) days after written demand by Lender and thereafter diligently prosecute to completion all such Remedial Work within such period of time as may be required under Applicable Law. All Remedial Work shall be
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performed by licensed contractors approved in advance by Lender and under the supervision of a consulting engineer approved by Lender. All costs of such Remedial Work shall be paid by such Mortgagor, including Lender’s reasonable attorneys’ fees and disbursements incurred in connection with the monitoring or review of such Remedial Work. If such Mortgagor does not timely commence and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to) cause such Remedial Work to be performed at such Mortgagor’s expense. Notwithstanding the foregoing, such Mortgagor shall not be required to commence such Remedial Work within the above specified time period: (x) if prevented from doing so by any Governmental Authority, (y) if commencing such Remedial Work within such time period would result in such Mortgagor or such Remedial Work violating any Environmental Law, or (z) if such Mortgagor, at its expense and after prior written notice to Lender, is contesting by appropriate legal, administrative or other proceedings, conducted in good faith and with due diligence, the need to perform Remedial Work. Such Mortgagor shall have the right to contest the need to perform such Remedial Work, provided that, (1) such Mortgagor is permitted by the applicable Environmental Laws to delay performance of the Remedial Work pending such proceedings, (2) neither the Real Property nor any part thereof or interest therein will be sold, forfeited or lost if such Mortgagor fails to promptly perform the Remedial Work being contested, and if such Mortgagor fails to prevail in contest, such Mortgagor would thereafter have the opportunity to perform such Remedial Work, (3) Lender would not, by virtue of such permitted contest, be exposed to any risk of any civil liability for which such Mortgagor has not furnished additional security as provided in clause (4) below, or to any risk of criminal liability, and neither the Real Property nor any interest therein would be subject to the imposition of any Lien for which such Mortgagor has not furnished additional security as provided in clause (4) below, as a result of the failure to perform such Remedial Work and (4) such Mortgagor shall have furnished to Lender additional security in respect of the Remedial Work being contested and the loss or damage that may result from such Mortgagor’s failure to prevail in such contest in such amount as may be requested by Lender but in no event less than one hundred twenty-five percent (125%) of the cost of such Remedial Work as estimated by Lender or Lender’s Consultant and any loss or damage that may result from such Mortgagor’s failure to prevail in such contest.
(iv) No Mortgagor shall install or permit to be installed on its Real Property any underground storage tank.
7.16 Security Interests . Each Credit Party shall (a) defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein, (b) comply with the requirements of all Applicable Laws in order to grant to Lender, for the benefit of itself and Lender, valid and perfected First Priority security interests in the Collateral, with perfection, in the case of any investment property, deposit account or letter of credit, being effected by giving Lender control of such investment property or deposit account or letter of credit, rather than by the filing of a UCC financing statement with respect to such investment property, and (c) do whatever Lender may reasonably request, from time to time, to effect the purposes of this Agreement and the other Loan Documents, including filing notices of liens, UCC financing statements, fixture filings and amendments, renewals and continuations thereof;
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cooperating with Lender’s representatives; keeping stock records; and, paying claims which might, if unpaid, become a Lien on the Collateral. Lender is hereby authorized by each Mortgagor and each other Credit Party to file any UCC financing statements covering the Collateral whether or not such Mortgagor’s or such other Credit Party’s signature appear thereon.
7.17 Expenses . Each Credit Party shall reimburse Lender (or any Lender, as applicable) upon receipt of notice for all Expenses. Any Expenses due and payable by any Credit Party hereunder which are not paid within five (5) days after demand shall accrue interest at the Default Rate and may be paid by Lender, in its sole discretion, pursuant to Section 2.2(e) . The obligations and liabilities of the Credit Parties under this Section shall survive the payment in full of the Obligations and the termination of this Agreement and the exercise by Lender or any Lender of any of its rights or remedies under the Loan Documents.
7.18 Indemnity . Each Credit Party shall defend, indemnify and hold harmless Lender, each Lender, each Lender Affiliate and their respective successors and assigns, including the directors, officers, partners, members, shareholders, participants, employees, professionals and agents of any of the foregoing sand each other Person, if any, who Controls Lender or any Lender or any of the foregoing (each, an “ Indemnified Party ”), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for an Indemnified Party in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender or such Lender shall be designated a party thereto, court costs and costs of appeal at all appellate levels, investigation and laboratory fees, consultant fees and litigation expenses), that may be imposed on, incurred by, or asserted against any Indemnified Party (collectively, the “ Indemnified Liabilities ”) in any manner, relating to or arising out of or by reason of the Loans, including: (i) any breach by any Credit Party of its obligations under, or any misrepresentation by any Credit Party contained in, any Loan Document; (ii) the use or intended use of the proceeds of the Loans; (iii) any information provided by or on behalf of any Credit Party, or contained in any documentation approved by any Credit Party; (iv) the existence of any Lien in any of the Collateral except for Permitted Liens and Permitted Encumbrances; (v) any Environmental Release or the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Materials on, from or affecting the Collateral or any Healthcare Facility; (vi) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Environmental Release or Hazardous Materials; (vii) any lawsuit brought or threatened, settlement reached, or government order relating to such Environmental Release or Hazardous Materials or any violation of Healthcare Laws; and (viii) any violation of the Environmental Laws which is based upon or in any way related to such Environmental Release or Hazardous Material or any violation of any Environmental Laws or Healthcare Laws, including the reasonable fees and disbursements of legal counsel for Lender, including the reasonable charges of internal legal counsel, the reasonable fees and disbursements of environmental engineers and consultants, investigation and laboratory fees, response and remediation costs, court costs and litigation expenses ; provided , however, that no Credit Party shall have any obligation to any Indemnified Party hereunder to the extent that it is finally judicially determined that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of such Indemnified Party. Any amounts payable to any Indemnified Party by reason of the application of this Section shall be
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payable on demand and shall bear interest at the Default Rate from the date loss or damage is sustained by any Indemnified Party until paid. The obligations and liabilities of each Credit Party under this Section shall survive the repayment of the Obligations, the termination of this Agreement and the exercise by Lender or any Lender of any of its rights or remedies under the Loan Documents in any of the Collateral or otherwise.
(a) Each Credit Party shall comply with the Patriot Act (as defined below) and all applicable requirements of governmental authorities having jurisdiction over each Credit Party and the Collateral, including those relating to money laundering and terrorism. Lender shall have the right to audit each Credit Party’s compliance with the Patriot Act and all applicable requirements of any Governmental Authority having jurisdiction over any such Credit Party and the Collateral, including those relating to money laundering and terrorism. In the event that any Credit Party fails to comply with the Patriot Act or any such requirements of any such Governmental Authority, then Lender may, at its option, cause such Credit Party to comply therewith and any and all reasonable costs and expenses incurred by Lender in connection therewith shall be added to the Obligations, shall be secured by the Collateral and the other Loan Documents and shall be immediately due and payable. For purposes hereof, the term “ Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as the same may be amended from time to time, and corresponding provisions of future laws.
(b) No Credit Party nor any officer, director, shareholder or partner in any Credit Party or member of such partner nor any owner of a direct or indirect interest in any Credit Party (a) is listed on any Government Lists, (b) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC or in any enabling legislation or other Presidential Executive Orders in respect thereof, (c) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense, or (d) is currently under investigation by any Governmental Authority for alleged criminal activity.
(c) Each RHP Party is in compliance with (a) the Trading with the Enemy Act ( 12 U.S.C. § 95a et seq ), and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (b) other federal or state laws relating to “know your customer” and anti-money laundering rules and regulations. No part of the proceeds of any Loan will be used directly or indirectly for any payments to any government official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977.
7.20 Title to the Real Property; Assignment of Real Property Leases; Subordination . Each Mortgagor will warrant and defend the title to its Real Property, and the validity and priority of all Liens granted or otherwise given to Lender, for the benefit of itself and Lender, under the Loan Documents, subject only to Permitted Liens and Permitted
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Encumbrances, against the claims of all Persons. Each Mortgagor hereby assigns to Lender, for the benefit of itself and Lender, all rents and profits under any and all Leases (including the Operating Leases) of its Real Property. At any time on notice from Lender, each Mortgagor shall submit to Lender for examination all such Leases and on the demand of Lender, shall execute and deliver a separate instrument collaterally assigning any or all such Leases, or the rents and profits thereof, in form satisfactory to Lender. Lender shall have the right, by the execution of suitable written instruments from time to time, to subordinate any Mortgage, and the rights of Lender thereunder, to any Lease or Leases from time to time in force with reference to the Property, and, on the execution of any such instrument, such Mortgage shall be subordinate to the Lease for which such subordination is applicable with the same force and effect as if such Lease had been executed and delivered, and a notice thereof recorded to the extent required to give notice to third persons, prior to the execution, delivery and recording of such Mortgage. Nothing contained in this Section is intended, nor shall it be deemed, to constitute consent by Lender to a subordination of the lien of any Mortgage
7.21 Right of First Refusal. If at any time any Credit Party or any of its or their Affiliates wishes to acquire any new facility (any such facility, a “New Facility” ) for use as a Healthcare Facility (including any nursing home, skilled nursing facility, clinic, assisted living facility, independent living facility, mental health facility, memory care facility, rehabilitation hospital, intermediate care facility and/or adult care facility), the RHP Guarantor shall immediately notify Lender in writing, and Lender shall have the exclusive option, by written notice to the RHP Guarantor given within thirty (30) calendar days after Lender’s receipt of such written notice, to provide first mortgage financing for the acquisition of such facility on terms substantially similar to the terms of the Loans as set forth in the Loan Documents. In addition, Lender shall have the exclusive option to provide first mortgage financing on terms substantially similar to the terms of the Loans as set forth in the Loan Documents to refinance the existing first mortgage loan secured by the Healthcare Facility owned by Coosa Nursing ADK, LLC, known as Coosa Valley Health Care (the “ Coosa Loan ”), from and after the later of: (a) the first anniversary of the Closing Date and (b) the earlier of the date on which either (i) fifty percent (50%) of the aggregate original Principal amount of the Loans has been repaid or (ii) fifty percent (50%) of the number of Loans made as of the Closing Date have been repaid. If Lender exercises its option to refinance the Coosa Loan, the Finance Fee will be one-half (½) the amount (based on the calculations set forth in Section 2.10) that otherwise would be payable in connection with such refinancing. If Lender provides financing for any New Facility or refinances the Coosa Loan, the Interest Rate (whether the Initial Rate or the Ongoing Rate) applicable to any such financing or refinancing shall be twelve and one-half percent (12.5%) per annum. The provisions of this Section shall survive the payment in full of the Obligations and termination of this Agreement for a period of three (3) months.
7.22 Notice of Condemnation . Any relevant Mortgagor, immediately upon obtaining knowledge of the institution of any proceeding for the condemnation or requisition of its Real Property or any portion thereof, shall notify Lender of the pendency of such proceeding. Lender may participate in such proceeding, and such Mortgagor from time to time shall deliver to Lender all instruments requested by Lender to permit such participation.
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7.23 Use of Proceeds . Each Borrower agrees that the proceeds of its Loan shall be used by such Borrower solely for: (a) payment of fees and Expenses incurred in connection with this Agreement; (b) with respect to each Mortgagor, refinancing or termination on the Closing Date of first and second lien mortgages securing Indebtedness of such Mortgagor; (c) with respect to AdCare Holdco, funding of the RHP Guarantor Note and (d) general corporate purposes.
ARTICLE VIII. NEGATIVE COVENANTS.
So long as any Loan or other Obligations hereunder shall remain unpaid or unsatisfied, each Credit Party covenants and agrees that it shall not, and shall cause each of its Subsidiaries not to:
8.1 Liens . Create, incur, assume or suffer to exist any Lien upon any Collateral or any of its other property, assets or revenues, whether now owned or hereafter acquired, other than Permitted Liens and Permitted Encumbrances.
8.2 Investments . Make any Investments except for Permitted Investments.
8.3 Indebtedness . Create, incur, assume or suffer to exist any Indebtedness, except for Permitted Indebtedness, nor amend, extend or otherwise modify any Permitted Indebtedness.
8.4 Contingent Obligations . Create, incur, assume or suffer to exist any Contingent Obligation, except for Permitted Contingent Obligations.
. Make any loans or other advances of money to any Person, except (a) advances to an officer or employee for salary, travel expenses, commissions and similar items in the ordinary course of business; (b) prepaid expenses and extensions of trade credit made in the ordinary course of business; and (c) deposits with financial institutions permitted hereunder.
8.6 Fundamental Changes . Merge, dissolve, liquidate, consolidate with or into another Person, or transfer of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except as expressly provided in Schedule 5.3.
8.7 Asset Dispositions . Make any Asset Disposition, except a Permitted Asset Disposition, without Lender’s prior written approval.
8.8 Distributions; Certain Other Payments or Repurchase of Shares . Declare or make, directly or indirectly, any Distribution or incur any obligation (contingent or otherwise) to do so (except for Permitted Distributions); issue or sell any Equity Interests (other than the issuance or sale of shares of stock of the RHP Guarantor); or repurchase any of its outstanding preferred shares of stock or incur any obligation (contingent or otherwise) to do so (except for mandatory dividends declared by the RHP Guarantor in connection with its outstanding preferred shares).
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8.9 Change in Nature of Business; Change to Organization Documents . (a) Engage in any business activity not related to the ownership, leasing and subleasing of the Healthcare Facilities owned or leased by it or any of its Subsidiaries or any business substantially related or incidental thereto, (b) amend any of its Organization Documents, (c) change its jurisdiction of formation or organization or its type or for m of organization, e.g., corporation or limited liability company or (d) chang e its name or identity (including trade name or names) without notifying Lender of such amendment or change in writing at least thirty (30) days prior to the effective date thereof and without first obtaining the prior written consent of Lender. Each Mortgagor shall execute and deliver to Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Lender to establish or maintain the validity, perfection and priority of the security interest granted herein.
8.10 Transactions With Affiliates . Enter into any transaction of any kind with any of its Affiliates, whether or not in the ordinary course of business except (a) transactions contemplated by the Loan Documents; (b) payment of regularly scheduled compensation to officers and employees, and loans and advances permitted by Section 8.5 ; (c) payment of reasonable directors’ fees and directors’ indemnities to natural Persons; (d) agreements with Affiliates that were entered into on or prior to the Closing Date, as shown on Schedule 6.33 ; and (e) transactions with Affiliates in the ordinary course of business, upon fair and reasonable terms fully disclosed to Lender and no less favorable to Credit Parties than would be obtained in a comparable arm’s-length transaction with a non-Affiliate.
8.11 Burdensome Agreements . Enter into any Contractual Obligation (other than this Agreement or any other Loan Document) that (a) limits its ability (i) to make Distributions to any Credit Party, (ii) to guarantee the Indebtedness of any Credit Party or (iii) to create, incur, assume or suffer to exist Liens on property of such Person.
8.12 Zoning . Initiate or consent to any zoning reclassification of any Real Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Real Property in any manner that could reasonably be expected to result in such use becoming a non‑conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender.
8.13 No Joint Assessment . Suffer, permit or initiate the joint assessment of any Real Property or Healthcare Facility (i) with any other real property constituting a tax lot separate from such Real Property or Healthcare Facility, and (ii) with any portion of such Real Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Real Property.
8.14 Use of Proceeds . Use the proceeds of any Loan, whether directly or indirectly, and whether immediately, incidentally or ultimately, for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose that would be inconsistent with such Regulation U or any other regulation of such Board of Governors, or for any purpose prohibited by Laws or any Loan Document.
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8.15 Change of Control . Cause or permit any Change of Control.
8.16 Dissolution and Transfers . (i) Engage in any dissolution, liquidation or consolidation or merger with or into any other business entity or (ii) transfer, lease or sell, in one transaction or any combination of transactions, all or substantially all of the property or assets of such Credit Party (including leasehold or other interests in Leases, Licenses and Healthcare Authorizations), except to the extent expressly permitted by the Loan Documents (including pursuant to Schedule 5.3) .
8.17 Leases . (a) Enter into any Leases of any real property (including any Real Property or any part thereof), as lessor or lessee, without the prior written consent of Lender, other than pursuant to the Operating Leases in effect on the Closing Date. If Lender shall consent and any RHP Party shall enter into a Lease, such RHP Party shall faithfully keep, observe and satisfy all the obligations on the part of the lessor or lessee, as applicable, to be kept, performed and satisfied under every Lease (including the Operating Leases) from time to time in force, and shall not alter or terminate any such Lease (including the Operating Leases), or any guarantee of such Lease (including the Operating Leases), except in the ordinary course of business, or accept, as lessor, any rentals for more than one (1) month in advance. Each RHP Party shall submit to Lender for its review and prior written approval all draft agreements, related materials and all other information relating to all proposed Leases, all proposed modifications of any Lease (including any Operating Lease), and all proposed renewals of any Lease.
(b) Substitute or replace any Operator as operator of a Healthcare Facility without the prior written consent of Lender.
(c) Without the prior written approval of Lender, permit any material improvements or alterations to be made to any Healthcare Facility other than in connection with any Restoration permitted pursuant to Section 7.14 , as required pursuant to the terms of any Permitted Indebtedness or as required by Applicable Laws.
8.18 Indebtedness Cancellation . Cancel or otherwise forgive, release, extend, amend or otherwise modify any claim or debt owed to it by any Person, except for reasonably equivalent consideration and in the ordinary course of its business; provided , however, that the maturity date of the existing first mortgage loan made by Congressional Bank to QC Property Holdings, LLC, a Georgia limited liability company, secured by the Healthcare Facility known as “Quail Creek Nursing Home” may be extended to a date not later than the date that the aggregate amount of extension fees paid or incurred by any RHP Party after the Closing Date in respect of such extensions is Fifty Thousand Dollars ($50,000.00).
8.19 Certain Accounting Changes . (a) Change its Fiscal Year end or (b) make any change in its accounting treatment and reporting practices except as required or permitted by GAAP.
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8.20 Healthcare Matters . Suffer or permit to occur any of the following:
(a) any transfer of a Healthcare Authorization or rights thereunder to any Person (other than any Credit Party, any Operator or Lender) or to any location other than a Healthcare Facility approved by Lender in advance in writing.
(b) any pledge or hypothecation of any Healthcare Authorization as collateral security for any Indebtedness other than Indebtedness to the Lender hereunder.
(c) any rescission, withdrawal, revocation, amendment or modification of or other alteration to the nature, tenor or scope of any Healthcare Authorization without Lender’s prior written consent, including (I) any change to the authorized licensed beds or units capacity of any Healthcare Facility and/or the number of licensed beds or units approved by the applicable Governmental Authority, and (II) any transfer all or any part of any Healthcare Facility’s authorized units or licensed beds to another site or location.
(d) any voluntary transfer of any resident of any Healthcare Facility to any other facility, unless such transfer is at the request of the resident (without economic incentives being given to the resident by an Affiliate of any Credit Party) or the resident’s payor or is for reasons relating to non-payment or the health, required level of medical care or safety of the resident to be transferred.
8.21 Principal Place of Business; Location of Collateral . Change its principal place of business, chief executive office or the location of any of the Collateral without first giving Lender thirty (30) days’ prior notice.
(a) Engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA.
(b) Maintain, sponsor, contribute to or become obligated to contribute to, or suffer or permit any ERISA Affiliate of any RHP Party to, maintain, sponsor, contribute to or become obligated to contribute to, any Plan or any Welfare Plan or permit the assets of any RHP Party to become “plan assets,” whether by operation of law or under regulations promulgated under ERISA. Each Credit Party shall deliver to Lender such certifications or other evidence from time to time, as requested by Lender in its sole discretion, that (A) no RHP Party nor any ERISA Affiliate maintains or maintained sponsors or sponsored, contributes to or contributed to, has or had any obligations to make contributions to a Plan or a “governmental plan” within the meaning of Section 3(3) of ERISA; (B) each RHP Party is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) the assets of each RHP Party do not constitute “plan assets” within the meaning of 29 C.F.R. Section 2510.3-101.
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8.23 Arrangements with Referral Sources . Enter into arrangements which (i) provide remuneration to Persons in return for referrals to any RHP Party; (ii) receive remuneration from Persons in return for referrals by any RHP Party; or (iii) otherwise violate the provisions of the Federal health care program exclusion provisions (42 U.S.C. §1320a ‑7); the Civil Monetary Penalties Act (42 U.S.C. §1320a ‑7a), the Federal health care program fraud and abuse provision (42 U.S.C. §1320 ‑7b) and other such Healthcare Laws.
8.24 Restrictive Agreements . Enter into any Restrictive Agreement, except (a) a Restrictive Agreement as in effect on the Closing Date and shown on Schedule 8.24 hereto; (b) a Restrictive Agreement relating to secured Permitted Indebtedness, if such restrictions apply only to the collateral for such Permitted Indebtedness; and (c) customary provisions in leases and other contracts restricting assignment thereof or Liens in the assets or real property covered thereby.
8.25 IRS Form 8821 . Alter, amend, restate, or otherwise modify, or withdraw, terminate or re-file the IRS Form 8821 required to be filed pursuant to Section 5.2 .
8.26 Swap Agreements . Enter into any swap, derivatives or other hedge agreements other than those approved by Lender in writing.
8.27 Conduct of Business . Engage in any business, other than as conducted on the Closing Date and any activities incidental thereto or otherwise reasonably related thereto.
8.28 Federal Employer Identification Number . Change its federal employer identification number.
8.29 Operating Leases and Other Material Contracts . Without the prior written consent of the Lender: (i) amend, modify, surrender, terminate, cancel, renew, execute or otherwise extend or reduce the term of any Operating Lease or any guaranty or credit support therefor or any other Material Contract; (ii) consent to any assignment or sublease of any Operating Lease or change of control of any Operator, to the extent that the same requires the consent of any RHP Party pursuant to an Operating Lease, or (iii) exercise any put rights under any Operating Lease.
8.30 Publicity . Except as may be required by Legal Requirements, refer to or authorize the use or disclosure of (a) Lender’s name or the name of any Lender Affiliate or (b) any of the terms of the Loans, in each case, in any future news release, advertisement, roadshow, marketing presentation, public filing or other publicity or marketing materials by or relating to any RHP Party, without the prior written consent of Lender; provided , however , that the inclusion of any information referenced in clause (a) or (b) in any publicity or marketing materials shall require prior written notice to Lender (with Lender having an opportunity to object to the description of Lender in such materials) notwithstanding such information may be or may have been included in filings by any RHP Party with the SEC.
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8.31 Confidentiality . Disclose the fees and material financial terms of the Loans nor any information regarding Lender’s operational procedures, memoranda, customer lists, banking or investment contacts or networks or any other proprietary information from or relating to Lender with any Person without the prior written consent of Lender, except for disclosures (a) to legal counsel, accountants and other professional advisors who need to know such terms and so long as such Persons agree to maintain the confidential nature thereof, (b) as set forth in Section 8.30, or (iii) as otherwise required by Legal Requirements, and each Credit Party agrees for itself and its Subsidiaries that money damages would not be a sufficient remedy for any breach or threatened breach of this Section 8.31 and that, in addition to all other rights and remedies to which Lender may be entitled to under this Agreement or Applicable Laws (which Lender does not waive by the exercise of any rights hereunder), Lender shall be entitled to seek specific performance and injunctive or other equitable relief as a remedy for any such breach or threatened breach of this Section 8.31, and Credit Parties, for themselves and their Subsidiaries, hereby waive any requirement for the showing of any actual monetary damages in connection with seeking such relief.
8.32 Capital Expenditures . Make or become legally obligated to make any Capital Expenditure, except for Capital Expenditures paid or incurred (a) pursuant to a budget approved in writing by Lender or (b) in the ordinary course of business, as a result of a Casualty or Condemnation or mandated by any applicable Legal Requirement, in each case with respect to this clause (b), not exceeding in the aggregate for the RHP Parties on a Consolidated Basis during each Fiscal Year Two Hundred Fifty Thousand Dollars ($250,000.00), but excluding for the purposes of this clause (b) the aggregate amount (not to exceed Two Million Dollars ($2,000,000.00)) held as reserves or restricted cash pursuant to the terms of HUD-insured loans constituting Permitted Indebtedness secured by one or more Healthcare Facilities.
ARTICLE IX. COVENANTS OF RHP GUARANTOR.
9.1 Fixed Charge Coverage Ratio . Commencing with the Fiscal Quarter ending March, 2018, the RHP Guarantor shall not permit the Fixed Charge Coverage Ratio as of the last day of each Fiscal Quarter during which any Loan is outstanding (calculated for each Test Period ending on such date) to be less than 1.2 to 1.0.
9.2 Minimum Liquidity . As of Closing and at all times thereafter, the RHP Guarantor will maintain Minimum Liquidity of not less than (a) Five Hundred Thousand Dollars ($500,000.00) from the Closing Date until the first anniversary thereof; (b) Seven Hundred Fifty Thousand Dollars ($750,000.00) from the first anniversary of the Closing Date until the date that is eighteen (18) months after the Closing Date; and (c) One Million Dollars ($1,000,000.00) from and after the date that is eighteen (18) months after the Closing Date.
9.3 Leverage . As of Closing and as of the last day of each Fiscal Quarter during which any Loan is outstanding, the RHP Guarantor shall not permit the ratio of Consolidated Total Indebtedness to Consolidated Total Assets to exceed ninety percent (90%).
9.4 Minimum Occupancy . Commencing with the Fiscal Quarter ending March, 2018, the RHP Guarantor shall not permit, as of the last day of each Occupancy Test Period, the aggregate Occupancy for such Occupancy Test Period to be less than seventy-five percent (75%).
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ARTICLE X. NOTICES AND REPORTING.
10.1 Notices . All notices, consents, approvals and requests required or permitted under this Agreement or any other Loan Document (a “ Notice ”) shall be given in writing and shall be effective for all purposes if either hand delivered with receipt acknowledged, or by a nationally recognized overnight delivery service (such as Federal Express), or by certified or registered United States mail, return receipt requested, postage prepaid, or, with respect to routine or administrative notices (but specifically excluding notices of Default, Events of Default or acceleration of the Loans) by electronic mail, in each case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party):
If to Lender: Pinecone Realty Partners II, LLC
315 S. Beverly Drive, Suite 404
Beverly Hills, CA 90212
If to Credit Parties: Regional Health Properties, Inc.
454 Satellite Boulevard, Suite 100
Suwanee, GA 30024
A Notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of overnight delivery, upon the first attempted delivery on a Business Day; or, in the case of electronic mail, at the time of delivery.
10.2 Notice of Litigation and Other Matters . Each Credit Party shall promptly, and in any event within three (3) Business Days after such Credit Party or any Authorized Officer of such Credit Party obtains knowledge thereof, provide telephonic and written Notice to Lender and each Lender of:
(a) the commencement of all litigation, proceedings and investigations, including those by or before any Governmental Authority, and all actions and proceedings in any court or before any arbitrator against or involving any RHP Party or any of its properties, assets or businesses, which could reasonably be expected to have a Material Adverse Effect;
(b) any notice of any violation received by any RHP Party from any Governmental Authority including any notice of violation of Healthcare Laws, Environmental Laws or any other Legal Requirements which in any such case could reasonably be expected to have a Material Adverse Effect;
(c) any labor controversy that has resulted in, or threatens to result in, a strike or other work stoppage against any Healthcare Facility;
(d) any attachment, judgment, lien, levy or order exceeding $25,000.00 that may be assessed against any RHP Party excluding judgments that are fully covered by insurance;
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(e) the occurrence of any “reportable event” (as defined in ERISA) which might result in the termination by the PBGC of any employee benefit plan (“ Plan ”) covering any officers or employees of any Credit Party, any benefits of which are, or are required to be, guaranteed by the PBGC, (y) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor or (z) its intention to terminate or withdraw from any Plan;
(f) the occurrence of any Default or Event of Default;
(g) (i) any default under or termination of a Material Contract, or (ii) the assertion of any Intellectual Property Claim, if an adverse resolution could have a Material Adverse Effect;
(h) any material Environmental Release by any RHP Party or on any property owned, leased or occupied by an RHP Party; or receipt of any Environmental Notice;
(i) the discharge of or any withdrawal or resignation by any RHP Party’s certified independent accountants;
(j) any other material adverse change in the business, Collateral, property, assets, prospects, operations or condition, financial or otherwise, of any RHP Party;
(k) promptly after any material property owned or used by any RHP Party is (i) materially damaged or destroyed, or suffers any other material loss, or (ii) is condemned, confiscated or otherwise taken, in whole or in part, or the use thereof is otherwise diminished so as to render impracticable or unreasonable the use of such asset or property for the purpose to which such property was used immediately prior to such condemnation, confiscation or taking, by exercise of the powers of condemnation or eminent domain or otherwise, and in either case the amount of the damage, destruction, loss or diminution in value of the Collateral not covered by insurance equals or exceeds $25,000.00 (collectively, a “ Casualty Loss ”);
(l) (i) the receipt of any notice or request from any Governmental Authority or Government Reimbursement Program regarding any liability or claim of liability, (ii) any pending, threatened or actual investigation or survey of any RHP Party or any Operator or their directors, officers or managing employees by any Government Reimbursement Program, or any nongovernmental payor programs, (iii) any RHP Party or any Operator becoming a party to a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services, (iv) any RHP Party or any Operator becoming subject to reporting obligations pursuant to any settlement agreement entered into with any Governmental Authority, (v) any RHP Party or any Operator becoming the subject of any government payor program investigation conducted by any federal or state enforcement agency, (vi) any RHP Party or any Operator becoming a defendant in any qui tam/False Claims Act litigation, (vii) any RHP Party being served with or received any search warrant, subpoena, civil investigative demand or contact letter by or from any federal or state enforcement agency relating to an investigation, (viii) any RHP Party becoming subject to any written complaint filed with or submitted to any Governmental Authority having jurisdiction over such RHP Party or filed with or submitted to such RHP Party pursuant to their policies relating to the filing or submissions of such types of complaints, from employees, independent contractors, vendors, physicians, or any other Person that would indicate that such RHP Party has violated any Law;
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(m) Credit Parties shall, by the fifth (5 th ) day of each calendar month (but the twentieth (20 th ) day of each calendar month for operating surveys), provide copies of all cost reports, operating surveys, rate reports, rate computation reports, licensing reports, deficiency notices, recoupment orders or similar reports from any Government Reimbursement Program, each together with true and correct copies thereof , received for the prior calendar month ; provided , however , that any Citation shall be provided to Lender within one (1) Business Day after the receipt thereof. Notwithstanding the above provisions of this paragraph, upon the occurrence of an Event of Default, without limitation on any other rights or remedies, Lender may require delivery of all such reports and other items upon receipt or at such other times as Lender designates ; and
(n) Copies of all reports and notices provided or to be provided by any Operator to any RHP Party under any of the Operating Leases.
10.3 Financial Statements, Compliance Certificates and Projections . The RHP Guarantor will furnish, or cause to be furnished, to Lender:
(a) Annual Financial Statements . As soon as available, and in any event within 120 days after the close of each fiscal year of the RHP Guarantor, a Form 10-K as required to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Exchange Act, which includes financial information required by such Form 10‑K, such financial information to be in reasonable form and detail and audited by KPMG LLP or another independent registered public accounting firm of recognized national standing reasonably acceptable to the Lender and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect
(b) Quarterly Financial Statements . As soon as available, and in any event within 60 days after the close of each of the first three fiscal quarters of the RHP Guarantor, a Form 10‑Q as required to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Exchange Act, which includes the financial information required by such Form 10‑Q, such financial information to be in reasonable form and detail and accompanied by a certificate of the chief financial officer or treasurer of the RHP Guarantor to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the RHP Guarantor and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments.
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(c) Officer’s Certificate . At the time of delivery of the financial statements provided for in clauses (a) and (b) above, a certificate of an Authorized Officer, substantially in the form of Exhibit A , (i) demonstrating compliance with the financial covenants contained in Article XI by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default by the RHP Guarantor exists, or if any such Default or Event of Default does exist, specifying the nature and extent thereof and what action the RHP Guarantor proposes to take with respect thereto.
(d) Reports . Promptly upon transmission or receipt thereof, copies of any publicly available filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all publicly available financial statements, proxy statements, notices and reports as the RHP Guarantor shall send to its shareholders.
(e) Other Information . Promptly upon any such request, such other information regarding the business, properties or financial condition of the RHP Guarantor or any of its Subsidiaries as Lender may request.
(a) Promptly upon receipt thereof, copies of all material reports, if any, submitted to each Credit Party, its Board of Directors or members by its independent public accountants in connection with their auditing function, including any management report and any management responses thereto; and
(b) Such other financial reports and other information regarding the operations, business affairs and financial condition of the RHP Parties as Lender may reasonably request.
10.5 Accuracy of Information . All written information, reports, statements and other papers and data furnished by or on behalf of each Credit Party to Lender (other than financial forecasts and information prepared by third parties and required to be delivered to Lender by this Agreement) whether pursuant to this Article 10 or any other provision of this Agreement, or any of the Loan Documents, shall be, at the time the same is so furnished, complete and correct in all material respects.
10.6 Protected Health Information . All written information, reports, statements and other papers and data furnished by or on behalf of each Credit Party to Lender shall be furnished by each Credit Party in material compliance with all Applicable Laws regarding the use and/or disclosure of patient health information in order to comply with all Applicable Laws governing the security, integrity, and confidentiality of patient health information, including regulations, standards and rules promulgated under the HIPAA/HITECH. Each Credit Party agrees not to include or disclose any “protected health information” in any such information, reports, statements and other papers or data furnished by or on behalf of each Credit Party to Lender and further agrees to indemnify Lender pursuant to Section 7.18 for any Indemnified Liabilities Lender or any Lender may incur as a result of the provision of any “protected health information” by any Credit Party to Lender or such Lender.
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ARTICLE XI. DEFAULTS AND REMEDIES.
11.1 Events of Default . An “ Event of Default ” shall exist under this Agreement if any of the following shall occur:
(a) Payment : If any Borrower fails to make any payment of Principal or interest or any Finance Fee, Prepayment Premium, Late Payment Charge or Expense owing to Lender or any Lender Affiliate in respect to any Loan and the other Obligations on the date such payment is due and payable;
(b) Other Obligations : If any Borrower fails to make any other payment of any fees, Expenses or other monetary obligations owing to Lender or any Lender Affiliate arising out of or incurred in connection with this Agreement and the other Loan Documents or on the date any such payment is due and payable;
(c) Covenants : If any Credit Party shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in this Agreement, particularly including those set forth in Articles 7 8 , 9 and 10 , or those set forth in any other Loan Document (other than a default under Section 7.1(c), which default shall be governed by Section 11.1(g)), and such violation, breach, default or failure shall not be cured within the applicable period (if any) set forth in the applicable Loan Document; provided that, with respect to the affirmative covenants set forth in Article 7 (other than Sections 7.1(a) and (b), 7.2, 7.7 and 7.14 , for which there shall be no cure period) and any covenant, obligation or agreement set forth in any other Loan Document that does not have a cure period specified therefor, there shall be a fifteen (15) calendar day cure period commencing from the earlier of (i) receipt by such Person of written notice of such breach, default, violation or failure, and (ii) the time at which such Person or any Authorized Officer thereof knew or became aware, or should have known or been aware, of such failure, violation, breach or default;
(d) Representations, Warranties and Information : If any representation or warranty made, or financial or other information provided, by any Credit Party in this Agreement and any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document provided by any Credit Party in connection with this Agreement or any other Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made or the financial or other information was provided;
(e) Uninsured Loss : If there shall occur an uninsured damage to or loss, theft or destruction in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate with respect to the Collateral or other properties and assets of any Credit Party;
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(f) Insolvency Proceedings : If a receiver, liquidator or trustee shall be appointed for any RHP Party; or any RHP Party shall make an assignment for the benefit of creditors or be adjudicated a bankrupt or insolvent under any Debtor Relief Law; or any Insolvency Proceeding, shall be filed by or against, consented to, or acquiesced in by, any RHP Party, as the case may be; provided , however , if such appointment, adjudication, or Insolvency Proceeding was involuntary and not consented to by any RHP Party, as the case may be, only upon the same not being discharged, stayed or dismissed within sixty (60) days;
(g) Other Indebtedness : If (i) any RHP Party shall default beyond any grace period in the payment of principal or interest of any Indebtedness of such RHP Party in excess of Fifty Thousand Dollars ($50,000.00) in the aggregate to any Person (other than to the Lender under Section 11.1(a) or (b) ); or (ii) any Credit Party otherwise defaults under the terms of any such Indebtedness if the effect of such default is to enable the holder of such Indebtedness to accelerate the payment of such Credit Party’s obligations, which are the subject thereof, prior to the Scheduled Maturity Date or prior to the regularly scheduled date of payment;
(h) Liens : If any Lien in favor of Lender shall cease to be a valid, enforceable First Priority Lien, or if any Credit Party or any Governmental Authority shall assert any of the foregoing;
(i) Healthcare Authorizations : If (i) any Healthcare Authorization of any Credit Party or any Operator of any Healthcare Facility shall be revoked, fail to be renewed, restricted, suspended or otherwise terminated and such termination, revocation, restriction or failure to renew has or would have a Material Adverse Effect, (ii) any RHP Party or any Operator of any Healthcare Facility shall fail to be eligible for any reason to participate in any Government Reimbursement Program or to accept assignments or rights to reimbursement thereunder or (iii) any Non-Government Payor shall terminate, revoke or fail to renew any right of any RHP Party or any Operator of any Healthcare Facility to participate in any program that provides reimbursement for Healthcare Services and such termination, revocation or failure to renew has or would be have a Material Adverse Effect;
(j) Criminal Proceedings : If any criminal proceeding is instituted against any RHP Party or any Authorized Officer that has or would have a Material Adverse Effect, or the indictment of any RHP Credit Party or Authorized Officer for any crime other than vehicle tickets and misdemeanors not punishable by jail terms;
(k) Investigations : If any indication or evidence received by Lender reasonably leads it to believe any RHP Party or any Authorized Officer may have directly or indirectly been engaged in any type of activity which, would be reasonably likely to result in the forfeiture of any material property of such RHP Party to any Governmental Authority;
(l) Change of Control : If any Change of Control shall occur;
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(m) Judgments : If the aggregate amount of (i) any final judgment for the payment of money (which judgment is not fully and unconditionally covered by insurance) shall be rendered by a court of record against any RHP Party and any such judgment shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or bonded pending appeal, and (ii) any settlement of any case or proceeding by any RHP Party (or establishment of cash or cash equivalent reserves in connection with any such case or proceeding) exceeds Two Hundred Fifty Thousand Dollars ($250,000.00);
(n) Execution Process : If any Person shall issue any execution or distraint process against the Collateral or any other property of any Credit Party and such execution or distraint shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or bonded pending appeal;
(o) Termination of Business : If Credit Party ceases any material portion of its business operations as presently conducted;
(p) Pension Benefits : If any Credit Party fails to comply with ERISA so that proceedings are commenced to appoint a trustee under ERISA to administer any employee plans or the PBGC institutes proceedings to appoint a trustee to administer such plan(s), or a Lien is entered to secure any deficiency or claim or a “reportable event” as defined under ERISA occurs;
(q) Material Adverse Change : If any material adverse change occurs in the Collateral, business, property, assets, prospects, operations or condition, financial or otherwise of any Credit Party, or the occurrence of any other event which has or would have a Material Adverse Effect;
(s) Post Closing Items . If any Credit Party shall fail to deliver or satisfy any of the post-closing items set forth on Schedule 5.3 hereto within the time periods set forth on such Schedule 5.3 ;
(r) Policies . If any of the Policies are not kept in full force and effect, or are not delivered to Lender upon request;
(s) Improvements . Except as expressly permitted hereunder, the actual or threatened alteration, improvement, demolition or removal of all or any portion of the Improvements without the prior written consent of Lender;
(t) Collateral . If any of the Collateral is attached or seized by any other party;
(u) Survey Deficiencies . Any Healthcare Facility has outstanding Medicare or Medicaid survey deficiencies at Level G, H, I, J, K, L or worse that (i) have been outstanding for a period longer than six (6) months after receipt of notice by any Credit Party from Lender, any Governmental Authority or any Operator, or (ii) have resulted in denial of payment for new admissions for a period of six (6) months or more after receipt of notice by any Credit Party from Lender, any Governmental Authority or any Operator as a result of Medicare or Medicaid survey deficiencies or state monitoring, or (iii) have resulted in the imposition by CMS or the applicable state survey agency of sanctions in the form of a program termination or temporary management;
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(v) Admissions Default . Any Governmental Authority (i) ceases to permit new residents or tenants to be admitted to any Healthcare Facility for a period longer than six (6) months after receipt of notice by any Credit Party from Lender, any Governmental Authority or any Operator or (ii) orders the discharge of any residents or tenants from any Healthcare Facility; or
(w) Leases . If either the lessor or the lessee under any Lease (including any Operating Lease) is in default (as such term defined in the applicable Lease) or any other default occurs pursuant to the terms of any such Lease.
(a) Acceleration . Upon the occurrence of an Event of Default (other than an Event of Default described in paragraph (f) of Section 11.1 ) under or with respect to any Loan and at any time and from time to time thereafter, in addition to any other rights or remedies available to it pursuant to the Loan Documents or at law or in equity, Lender may, and at the instruction of Lender, shall, take such action, without notice or demand, that Lender deems advisable to protect and enforce Lender’s rights against any Credit Party and in and to the Collateral, including declaring all Obligations with respect to the Loans to be immediately due and payable (including unpaid interest, Default Rate interest, Late Payment Charges, Prepayment Premiums, Finance Fees, Early Termination Fees any other amounts owing by the Credit Parties), without notice or demand, and upon any Event of Default described in paragraph (f) of Section 11.1 , all such Obligations (including unpaid interest, Default Rate interest, Late Payment Charges, Prepayment Premium, Finance Fees, Early Termination Fees and any other amounts owing by the Credit Parties) shall immediately and automatically become due and payable, without notice or demand, and each Credit Party hereby expressly waives any such notice or demand, anything contained in any Loan Document to the contrary notwithstanding.
(b) Remedies Cumulative . Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against any Credit Party under the Loan Documents or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Obligations shall be declared, or be automatically, due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth in the Loan Documents. Without limiting the generality of the foregoing, each Credit Party agrees that if an Event of Default is continuing, (i) to the extent permitted by Applicable Law, Lender is not subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Real Property, the Real Property has been sold and/or otherwise realized upon in satisfaction of the Obligations secured thereby or the Obligations have been paid in full. To the extent permitted by Applicable Law, nothing contained in any Loan Document shall be construed as requiring Lender to resort to any portion of the Real Property for the satisfaction of any of the Obligations in preference or priority to any other portion, and Lender may seek satisfaction out of the entire Real Property or any part thereof, in its discretion.
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(c) Severance . Lender shall have the right from time to time to sever any Promissory Note and the other Loan Documents into one or more separate notes, mortgages and other security documents in such denominations and priorities of payment and liens as Lender shall determine in its discretion for purposes of evidencing and enforcing the rights and remedies of the Lender hereunder. Each Credit Party shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Each Credit Party hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect such severance, each Credit Party ratifying all that such attorney shall do by virtue thereof.
(d) Delay . No delay or omission to exercise any remedy, right or power accruing upon an Event of Default, or the granting of any indulgence or compromise by Lender or any Lender shall impair any such remedy, right or power hereunder or be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim in connection with the foreclosure of any Mortgage to the extent necessary to foreclose on all or any portion of the Real Property, the rents and receipts therefrom and/or any other collateral.
(e) Lender’s Right to Perform . If any Credit Party fails to perform any covenant or obligation contained herein and such failure shall continue for a period of five (5) Business Days after any Credit Party’s receipt of written notice thereof from Lender, without in any way limiting Lender’s right to exercise any of their rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Lender may, but shall have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Lender incurred or paid in connection therewith shall be payable by the Credit Parties to Lender upon demand and if not paid shall be added to the Obligations (and to the extent permitted under Applicable Laws, secured by the Mortgages and other Loan Documents) and shall bear interest thereafter at the Default Rate. Notwithstanding the foregoing, Lender shall have no obligation to send notice to any Credit Party of any such failure.
11.3 Application of Payments After Event of Default or Exercise of Remedies .
Notwithstanding any other provisions of this Agreement to the contrary, after the occurrence and during the continuation of any Event of Default, or after the exercise of remedies by Lender pursuant to Section 11.2 (or after the Loans (with accrued interest thereon) and all other Obligations under the Loan Documents shall have automatically become due and payable in accordance with the terms of such Section 11.2 ), all amounts collected or received by Lender in respect of each Loan (on account of the Obligations or any other amounts outstanding under any of the Loan Documents in respect of such Loan or in respect of the Collateral securing the same) shall be applied to amounts outstanding in respect of such Loan, as follows (and each Credit Party irrevocably waives the right to direct the application of any such amounts in any other manner):
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FIRST, to the payment of all fees, costs and Expenses (including the reasonable fees and disbursements of legal counsel for Lender, and the reasonable costs of internal legal counsel) of Lender in connection with enforcing the rights of Lender under the Loan Documents, and any other Obligations owing to Lender in respect of sums advanced by Lender to preserve the Collateral or to preserve its security interest in the Collateral (or any other collateral provided pursuant to any other Loan Document);
SECOND, to payment of that portion of the Obligations consisting of other fees, costs, expenses and indemnities of Lender;
THIRD, to the payment of all of the Obligations consisting of accrued and unpaid interest, including interest at the Default Rate, owing to Lender;
FOURTH, to all Obligations consisting of principal owing to the Lender;
FIFTH, to all other Obligations and other obligations which shall have become due and payable under the Loan Documents or otherwise and not repaid pursuant to clauses “FIRST” through “FOURTH” above; and
SIXTH, to the payment of the surplus, if any, to any Credit Party or whoever else may be lawfully entitled to receive such surplus.
In carrying out the foregoing, amounts received shall be applied in the numerical order provided above until exhausted prior to application to the next succeeding category.
11.4 Rights to Appoint Receiver . Without limiting and in addition to any other rights, options and remedies Lender have under this Agreement, the other Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default or the acceleration of the Loans pursuant to Section 11.2 , Lender shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Lender to enforce its rights and remedies in order to manage, protect, preserve, sell or dispose the Collateral and continue the operation of the business of each Credit Party and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. EACH CREDIT PARTY HEREBY IRREVOCABLY CONSENTS TO AND WAIVES ANY RIGHT TO OBJECT TO OR OTHERWISE CONTEST THE APPOINTMENT OF RECEIVER AS PROVIDED ABOVE. EACH CREDIT PARTY (I) GRANTS SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE IMPLICATIONS THEREOF WITH COUNSEL, (II) ACKNOWLEDGES THAT (A) THE UNCONTESTED RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED ESSENTIAL BY LendeR IN CONNECTION WITH THE ENFORCEMENT OF ITS RIGHTS AND REMEDIES UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) THE AVAILABILITY OF SUCH APPOINTMENT AS A REMEDY UNDER THE FOREGOING CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING Lender TO MAKE THE LOAN; AND (III) AGREES TO ENTER INTO ANY AND ALL STIPULATIONS IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER
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INSTRUMENTS IN CONNECTION WITH THE FOREGOING AND TO COOPERATE FULLY WITH Lender IN CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER OVER ALL OR ANY PORTION OF THE COLLATERAL, THE HEALTHCARE FACILITIES OR ANY OTHER PROPERTY OF EACH CREDIT PARTY.
11.5 Assistance and Cooperation . Each Credit Party agrees to assist and cooperate with Lender, and take any action which Lender may reasonably request or require of such Credit Party, in order to enable Lender to obtain and enjoy the full rights and benefits granted to Lender by the Credit Party under this Agreement and the other Loan Documents, including specifically, at the cost and expense of the Credit Parties, the use of their best efforts to assist in obtaining approval of any Governmental Authority for any transaction or action contemplated thereunder which is necessary under any Law or Contractual Obligation, and specifically the preparation, execution and filing with any such Person of any application for consent to assignment of Governmental Authorizations or otherwise.
11.6 License . Lender is hereby granted an irrevocable, non-exclusive license or other right to use, license or sub-license (without payment of royalty or other compensation to any Person) any or all Intellectual Property of any Credit Party computer hardware and software, trade secrets, brochures, customer lists, promotional and advertising materials, labels, packaging materials and other property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or remedies with respect to, any Collateral. Any Credit Party’s rights and interests under Intellectual Property shall inure to Lender’s benefit.
11.7 Injunctive Relief . Each Credit Party acknowledges and agrees that if such Credit Party fails to perform any covenant or obligation contained herein or under any of the other Loan Documents, Lender may have no adequate remedy in monetary damages and, accordingly, shall be entitled to an injunction, (including a temporary restraining order, preliminary injunction, writ of attachment or order compelling performance) against such non-performance. Lender shall not be deemed to have waived any other legal or equitable remedies under this Agreement, the other Loan Documents or at law if Lender shall seek injunctive relief under this Section 11.7 . Each Credit Party waives any requirement for the posting of a bond or other security by Lender in connection with any such injunctive relief.
ARTICLE XII. PARTICIPATIONS AND ASSIGNMENTS.
12.1 Sale of Loans . Lender shall have the right at any time and from time to time (i) to sell or otherwise transfer any or all of the Loans or any portion thereof or the Loan Documents or any interest therein to one or more investors, or (ii) to sell participation interests in any Loan to one or more investors. In connection with any such sale, transfer or participation of any Loan or any portion thereof, each Credit Party shall, at such Credit Party’s expense, use all reasonable efforts and cooperate fully and in good faith with Lender and otherwise assist Lender in consummating any such sale, transfer or participation. All information regarding any Credit Party or any Collateral may be furnished, without liability to Lender, to any prospective purchaser or participant in the Loans. All documents, financial statements, appraisals and other data relevant to any Credit Party or the Loans may be exhibited to and retained by any such purchaser or participant in its files.
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ARTICLE XIII. EFFECTIVE DATE AND TERMINATION.
13.1 Effective Date and Termination . This Agreement shall become effective on the Closing Date and shall continue in full force and effect until the Scheduled Maturity Date. The Credit Parties may terminate this Agreement earlier with at least thirty (30) Business Days’ prior written notice thereof to Lender, upon (a) the payment in full of the outstanding Loans, together with accrued and unpaid interest thereon, (b) the payment in full of the Finance Fee and any Prepayment Premium and (c) the payment in full of all fees, Expenses and other Obligations together with accrued and unpaid interest thereon; provided, however , that, notwithstanding any other provision of any Loan Document, the Credit Parties shall have no right to terminate this Agreement until after the first anniversary of the Closing Date.
13.2 Effect of Termination . The termination of this Agreement shall not affect any Credit Party’s, Lender’s or any Lender Affiliate’s rights, or any of the Obligations having their inception prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights or interests created or Obligations have been fully disposed of, concluded or liquidated. Accordingly, each Credit Party waives any rights which it may have under the UCC to demand the filing of termination statements with respect to the Collateral, and Lender shall not be required to send such termination statements to each Credit Party, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations shall have been paid in full in immediately available funds.
13.3 Survival . All obligations, covenants, agreements, representations, warranties, waivers and indemnities made by any Credit Party in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making of the Loans and any termination of this Agreement until all Obligations are fully performed and indefeasibly paid in full in cash. The obligations and provisions of Sections 7.17 , 7.18 , 7.19 , 7.21 , 13.3 , 14.6 , 14.7 , 14.12 , 14.14 and 14.23 shall survive the termination of this Agreement and the other Loan Documents and any payment, in full or in part, of the Obligations.
14.3 Lender’s Discretion. Whenever pursuant to this Agreement or any other Loan Document Lender exercises any right given to it to approve or disapprove, or consent or withhold consent, or any arrangement or term is to be satisfactory to Lender or is to be in Lender’s discretion, the decision of Lender to approve or disapprove, to consent or withhold consent, or to decide whether arrangements or terms are satisfactory or not satisfactory, or acceptable or unacceptable or in Lender’s discretion shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender (unless another standard is specified herein, in which event such other standard shall be applicable) and shall be final and conclusive.
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(A) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(B) SUBMISSION TO JURISDICTION. EACH CREDIT PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST LENDER OR ANY IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY CREDIT PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(C) WAIVER OF VENUE. EACH CREDIT PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH CREDIT PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
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14.5 Modification, Waiver in Writing, No Deemed Consent . Lender’s failure, at any time or times hereafter, to require strict performance by any Credit Party of any provision of this Agreement shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under any Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under the Loan Documents, or to declare an Event of Default for failure to effect prompt payment of any such other amount. Any suspension or waiver by Lender of an Event of Default under this Agreement or a default under any of the other Loan Documents shall not suspend, waive or affect any other Event of Default under this Agreement or any other default under any of the other Lo Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. None of the undertakings, agreements, warranties, covenants and representations of the Credit Parties contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by Lender unless such suspension or waiver is in writing signed by an officer of Lender, and directed to a Credit Party specifying such suspension or waiver.
14.6 Waiver of Trial by Jury . EACH CREDIT PARTY HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH CREDIT PARTY, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. Lender and each lender is HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 14.6 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY ANY CREDIT PARTY.
14.7 Waiver of Consequential Damages, Etc . To the fullest extent permitted by Applicable Law, each Credit Party agree not to assert, and hereby waive, in any legal action or other proceeding, any claim against Lender or any Lender Affiliate, on any theory of liability, for special, indirect, consequential, special, exemplary or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, the Loans or the use of the proceeds thereof.
14.8 Headings/Exhibits . The Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. The Exhibits attached hereto, are hereby incorporated by reference as a part of the Agreement with the same force and effect as if set forth in the body hereof.
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14.9 Severability . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable 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 Agreement.
14.10 Preferences . To the extent any Credit Party makes a payment to Lender hereunder, or Lender receives proceeds of any collateral, which is in whole or part subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Indebtedness or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. This provision shall survive the expiration or termination of this Agreement and the repayment of the Indebtedness.
14.11 Waiver of Notice . No Credit Party shall be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or any other Loan Document specifically and expressly requires the giving of notice by Lender to the Credit Parties and except with respect to matters for which the Credit Parties are not, pursuant to Applicable Laws, permitted to waive the giving of notice. Each Credit Party hereby expressly waives the right to receive any notice from Lender with respect to any matter for which no Loan Document specifically and expressly requires the giving of notice by Lender to any Credit Party.
14.12 Remedies of Credit Parties . If a claim or adjudication is made that Lender or any of its agents has acted unreasonably or unreasonably delayed acting in any case where by law or under any Loan Document, Lender or any such agent, as the case may be, has an obligation to act reasonably or promptly, each Credit Party agrees that Lender nor its respective agents shall be liable for any monetary damages, and such Credit Party’s sole remedy shall be to commence an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Each Credit Party specifically waives any claim against Lender and its agents with respect to actions taken by Lender or its agents on such Credit Party’s behalf.
14.13 Prior Agreements . This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements, understandings and negotiations among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents.
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14.14 Offsets, Counterclaims and Defenses . Each Credit Party hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its respective agents or otherwise offset any obligations to make payments required under the Loan Documents. Any assignee of Lender’s interest in and to the Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which such Credit Party may otherwise have against any assignor of such documents, and no such offset, counterclaim or defense shall be interposed or asserted by such Credit Party in any action or proceeding brought by any such assignee upon such documents, and any such right to interpose or assert any such offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by such Credit Party.
14.15 No Usury . Each Credit Party and Lender intend at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under state law) and that this Section 14.15 shall control every other agreement in the Loan Documents. If the Applicable Law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under any Promissory Note or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Obligations, or if Lender’s exercise of the option to accelerate the maturity of the Loans or any prepayment by Borrowers results in Borrowers having paid any interest in excess of that permitted by Applicable Law, then it is the Credit Parties’ and Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited against the unpaid principal amount of the Obligations (or, if the Obligations have been or would thereby be paid in full, refunded to the Credit Parties), and the provisions of the Loan Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with Applicable Law, but so as to permit the recovery of the fullest amount otherwise called for thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Loans shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loans until payment in full so that the rate or amount of interest on account of the Loans does not exceed the maximum lawful rate from time to time in effect and applicable to the Loans for so long as the Loans are outstanding. Notwithstanding anything to the contrary contained in any Loan Document, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.
14.16 Conflict; Construction of Documents . In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that each is represented by separate counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents shall not be subject to the principle of construing their meaning against the party that drafted them.
14.17 No Third Party Beneficiaries . The Loan Documents are solely for the benefit of Lender, Lender and the Credit Parties and nothing contained in any Loan Document shall be deemed to confer upon anyone other than Lender and the Credit Parties any right to insist upon or to enforce the performance or observance of any of the obligations contained therein.
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14.18 Assignment . The Loans, the Promissory Notes, the Loan Documents and/or any Lender’s rights, title, obligations and interests therein may be assigned by such Lender and any of its successors and assigns in accordance with the terms and conditions set forth in Article XII . No Credit Party may assign its rights, title, interests or obligations under this Agreement or under any of the other Loan Documents.
14.19 Set-Off . Without limiting and in addition to any other rights, options and remedies Lender have under this Agreement, the other Loan Documents, the UCC, at law or in equity, Lender shall have the right, without prior notice to any Credit Party, any such notice being expressly waived by each Credit Party to the extent permitted by Applicable Law, upon any amount becoming due and payable by any Credit Party hereunder or under any Swap Agreement (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Lender or any Lender to or for the credit or the account of any Credit Party. Lender agrees promptly to notify the Credit Parties after any such set-off and application made by Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application.
14.20 Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier, facsimile machine, portable document format (“ PDF ”) or other electronic means shall be as effective as delivery of a manually executed counterpart of this Agreement. The effectiveness of any such documents and signatures shall, subject to Applicable Laws, have the same force and effect as manually signed originals and shall be binding on the Credit Parties and Lender. Lender may also require that any such documents and signatures be confirmed by a manually signed original thereof; provided , however , that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature. No party may raise the use of a telecopier, facsimile machine, PDF or other electronic means, or the fact that any signature was transmitted through the use of a telecopier, facsimile machine, PDF or other electronic means, as a defense to the enforcement of this Agreement.
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14.23 Release of Claims . Each Credit Party does hereby (i) waive any claim in tort, contract or otherwise which such Credit Party may have against Lender, any Lender, any of their respective Affiliates or their respective officers, directors, agents, or employees (collectively, “ Lender Agents ”) which may arise out of the relationship between any such Credit Party and any such Person prior to the Closing Date; and (ii) absolutely and unconditionally releases and discharges Lender, each Lender, each of their respective Affiliates and the Lender Agents from any and all claims, causes of action, losses, damages or expenses which may arise out of any relationship between it and Lender, such Lender, any such Affiliate or the Lender Agents which such Credit Party may have as of the Closing Date. Each Credit Party acknowledges that it makes this waiver and release knowingly, voluntarily and only after considering the ramifications of this waiver and release with its legal counsel.
14.24 Acting Through Agents . In exercising any rights under the Loan Documents or taking any actions provided for therein, Lender may act through its employees, agents or independent contractors as authorized by Lender. The Credit Parties shall authorize their accounting firm and/or service bureaus to provide Lender with such information as is requested by Lender in accordance with this Agreement. Each Credit Party authorizes Lender to contact directly any such accounting firm and/or service bureaus to obtain such information.
[ Remainder of page intentionally left blank; Signature page follows. ]
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CP PROPERTY HOLDINGS, LLC , a Georgia limited liability company |
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NORTHWEST PROPERTY HOLDINGS, LLC , a Georgia limited liability company |
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ATTALLA NURSING ADK, LLC , a Georgia limited liability company |
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ADCARE PROPERTY HOLDINGS, LLC , a Georgia limited liability company |
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REGIONAL HEALTH PROPERTIES, INC. , a Georgia corporation |
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ADCARE PROPERTY HOLDINGS, LLC , a Georgia limited liability company |
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HEARTH & HOME OF OHIO, INC. , a Georgia limited liability company |
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LENDER: |
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PINECONE REALTY PARTNERS II, LLC , a Delaware limited liability company |
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[Signature Page to Loan Agreement]
S-2
99305209_1
[Signature Page to Loan Agreement]
S-3
99305209_1
Exhibit 10 .426
PROMISSORY NOTE
$3,500,000.00 |
February 15, 2018 |
FOR VALUE RECEIVED, the undersigned ( "Borrower" ) , hereby promises to pay to Pinecone Realty Partners Il, LLC, a Delaware limited liability company, or its successors and/or assigns ( "Lender" ), the principal amount of THREE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($3,500,000.00) as provided in accordance with the provisions of that certain Loan Agreement by and among Borrower, CP Property Holdings, LLC, a Georgia limited liability company, Northwest Property Holdings, LLC, a Georgia limited liability company, and Attalla Nursing ADK, LLC, as borrowers, Hearth & Home of Ohio, Inc., a Georgia corporation, as a guarantor, Regional Health Properties, Inc., a Georgia corporation, as a guarantor, Borrower, as a guarantor, and Lender of even date herewith (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Loan Agreement" ) . All capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount of the Loan from the date of this Note until such principal amount is paid in full, at such interest rates and at such times as provided in the Loan Agreement. All payments of principal and interest shall be made in immediately available funds as provided in the Loan Agreement. 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 Loan Agreement.
This Note is a Promissory Note referred to in the Loan 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 Note is also entitled to the benefits of the applicable Guaranty and is secured by Borrower's Pledged Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Loan Agreement. The Loan made by Lender shall be evidenced by one or more loan accounts or records maintained by Lender in the ordinary course of business. Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of the Loan and payments with respect thereto.
Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Delivery of the executed signature pages of this Note by facsimile or other electronic transmission will constitute effective and binding execution and delivery.
Page 1 of 3
Exhibit 10 .426
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIMS TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE.
[remainder of page intentionally left blank; signature page follows]
Page 2 of 3
Exhibit 10 .426
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BORROWER : |
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ADCARE PROPERTY HOLDINGS, LLC, |
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a Georgia limited liability company |
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By: |
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/s/ Brent Morrison |
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Name: |
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Brent Morrison |
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Title: |
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Manager |
Page 3 of 3
Signature Page – Promissory Note
Exhibit 10 .427
PROMISSORY NOTE
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February 15, 2018 |
FOR VALUE RECEIVED, the undersigned (" Borrower "), hereby promises to pay to Pinecone Realty Partners Il, LLC, a Delaware limited liability company, or its successors and/or assigns (" Lender "), the principal amount of EIGHT MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS as provided in accordance with the provisions of that certain Loan Agreement by and among Borrower, CP Property Holdings, LLC, a Georgia limited liability company, Northwest Property Holdings, LLC, a Georgia limited liability company, and AdCare Property Holdings, LLC, a Georgia limited liability company, as borrowers, Hearth & Home of Ohio, Inc., a Georgia corporation, as a guarantor, AdCare Property Holdings, LLC, a Georgia limited liability company, as a guarantor, Regional Health Properties, Inc., a Georgia corporation, as a guarantor, and Lender of even date herewith (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “ Loan Agreement” ). All capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount of the Loan from the date of this Note until such principal amount is paid in full, at such interest rates and at such times as provided in the Loan Agreement. All payments of principal and interest shall be made in immediately available funds as provided in the Loan Agreement. 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 Loan Agreement.
This Note is a Promissory Note referred to in the Loan 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 Note is also entitled to the benefits of the applicable Guaranty and is secured by Borrower's Mortgage Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Loan Agreement. The Loan made by Lender shall be evidenced by one or more loan accounts or records maintained by Lender in the ordinary course of business. Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of the Loan and payments with respect thereto.
Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Delivery of the executed signature pages of this Note by facsimile or other electronic transmission will constitute effective and binding execution and delivery.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED
Page 1 of 3
Exhibit 10 .427
BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIMS TO ASS ERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE.
[remainder of page intentionally left blank; signature page follows]
Page 2 of 3
Exhibit 10 .427
BORROWER: |
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ATTALLA NURSING ADK, LLC, |
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a Georgia limited lia bility company |
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By: |
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Brent Morrison |
Name: |
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Brent Morrison |
Title: |
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Manager |
Page 3 of 3
Signature Page — Promissory Note
Exhibit 10 .428
PROMISSORY NOTE
$2,500,000.00 |
February 15, 2018 |
FOR VALUE RECEIVED, the undersigned (" Borrower "), hereby promises to pay to Pinecone Realty Partners Il, LLC, a Delaware limited liability company, or its successors and/or assigns (" Lender "), the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00) as provided in accordance with the provisions of that certain Loan Agreement by and among Borrower, Northwest Property Holdings, LLC, a Georgia limited liability company, Attalla Nursing ADK, LLC, a Georgia limited liability company, and AdCare Property Holdings, LLC, a Georgia limited liability company, as borrowers, Hearth & Home of Ohio, Inc., a Georgia corporation, as a guarantor, AdCare Property Holdings, LLC, a Georgia limited liability company, as a guarantor, Regional Health Properties, Inc., a Georgia corporation, as a guarantor, and Lender of even date herewith (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the " Loan Agreement "). All capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount of the Loan from the date of this Note until such principal amount is paid in full, at such interest rates and at such times as provided in the Loan Agreement. All payments of principal and interest shall be made in immediately available funds as provided in the Loan Agreement. 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 Loan Agreement.
This Note is a Promissory Note referred to in the Loan 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 Note is also entitled to the benefits of the applicable Guaranty and is secured by Borrower's Mortgage Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Loan Agreement. The Loan made by Lender shall be evidenced by one or more loan accounts or records maintained by Lender in the ordinary course of business. Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of the Loan and payments with respect thereto.
Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Delivery of the executed signature pages of this Note by facsimile or other electronic transmission will constitute effective and binding execution and delivery.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
Page 1 of 3
CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTE D BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIMS TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE.
[remainder of page intentionally left blank; signature page follows]
Page 2 of 3
BORROWER: |
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CP PROPERTY HOLDINGS,LLC, |
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a Georgia limited lia bility company |
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By: |
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/s/ Brent Morrison |
Name: |
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Brent Morrison |
Title: |
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Manager |
Page 3 of 3
Signature Page — Promissory Note
Exhibit 10 .429
PROMISSORY NOTE
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February 15, 2018 |
FOR VALUE RECEIVED, the undersigned (" Borrower "), hereby promises to pay to Pinecone Realty Partners Il, LLC, a Delaware limited liability company, or its successors and/or assigns (" Lender "), the principal amount of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00) as provided in accordance with the provisions of that certain Loan Agreement by and among Borrower, CP Property Holdings, LLC, a Georgia limited liability company, Attalla Nursing ADK, LLC, a Georgia limited liability company, and AdCare Property Holdings, LLC, a Georgia limited liability company, as borrowers, Hearth & Home of Ohio, Inc., a Georgia corporation, as a guarantor, AdCare Property Holdings, LLC, a Georgia limited liability company, as a guarantor, Regional Health Properties, Inc., a Georgia corporation, as a guarantor, and Lender of even date herewith (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the " Loan Agreement "). All capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount of the Loan from the date of this Note until such principal amount is paid in full, at such interest rates and at such times as provided in the Loan Agreement. All payments of principal and interest shall be made in immediately available funds as provided in the Loan Agreement. 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 Loan Agreement.
This Note is a Promissory Note referred to in the Loan 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 Note is also entitled to the benefits of the applicable Guaranty and is secured by Borrower's Mortgage Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Loan Agreement. The Loan made by Lender shall be evidenced by one or more loan accounts or records maintained by Lender in the ordinary course of business. Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of the Loan and payments with respect thereto.
Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Delivery of the executed signature pages of this Note by facsimile or other electronic transmission will constitute effective and binding execution and delivery.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
Page 1 of 3
Exhibit 10 .429
CONTR ACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIMS TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE.
[remainder of page intentionally left blank; signature page follows]
Page 2 of 3
Exhibit 10 .429
BORROWER: |
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NORTHWEST PROPERTY HOLDINGS, LLC, |
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a Georgia limited lia bility company |
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By: |
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/s/ Brent Morrison |
Name: |
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Brent Morrison |
Title: |
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Manager |
Page 3 of 3
Signature Page — Promissory Note
Exhibit 10 .430
SECOND AMENDMENT TO MASTER SUBLEASE AGREEMENT
THIS SECOND AMENDMENT T MASTER SUBLEASE AGREEMENT (this "Amendment' ) is entered into as of the 30 day of March, 2018 by and among ADK GEORGIA, LLC, a Georgia limited liability company ( " Sublessor " ) and OS TYBEE, LLC, a Georgia limited liability company ( " OS Tybee " ), SB TYBEE, LLC , a Geprg ia limited liability company ( "SB Tybee" ) and JV JEFFERSONVILLE, LLC, a Georgia limited liability company ( "W Jeffersonville" ) (OS Tybee, SB Tybee and JV Jeffersonville are collectively referred to as "Sublessee" ) and amends that certain Master Sublease between Sublessor and Sublessee dated June 18, 2016, as amended by that certain First Amendment (the "Master Sublease" ). Capitalized terms used herein which are not otherwise defined shall have the meanings assigned to such terms in the Master Sublease.
RECITALS
WHEREAS, Sublessor and Sublessee have reached agreement regarding the Inontllly base rent payable under the Master Sublease and the increases thereto and desire to document such incrcases as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree that notwithstanding anything in Section 4. I(b) or the other provisions of the Master Sublease to the contrary, the Master Sublease shall be amended as follows:
1. Monthly Rent for the Jeffersonville Facility . Rent for the Jeffersonville Facility is culTently $27,295 which rate shall continue through March 1, 2018 at which time it shall increase to $54,590. Beginning July 1, 2018, Rent for the Jeffersonville Facility shall increase 3% to $56,227.70 and thereafter increase by an additional 3% on July 1 st of each remaining year of the Term and any extension thereof.
2. Monthly Rent for the Oceanside Facility . Rent for the Oceanside Facility is currently $18,540 which rate shall continue through March I, 2108 at which time it shall increase to $37,080. Beginning August 1, 20185 Rent for the Oceanside Facility shall increase by 3% to $38,192 and thereafter increase by an additional 3% on August 1 st of each remaining year of the Tenn and any extension thereof,
3. Additional Rent for thc Jeffersonville Facility , In addition to the Monthly Rent for the Jeffersonville Facility, beginning April 1, 2018, Sublessee shall pay to Sublessor the sum of $3,400 per month as Additional Rent for the Initial Term and any extension thereof. Beginning April 1, 2019, Additional Rent for the Jeffersonvillc Facility shall increase 3% to $3,502 and thereafter increase by an additional 3% on April 1 st of each remaining year of the Term and any extension thereof.
4. Additional Rent for the Oceanside Facility . In addition to the Monthly Rent for the Occanside Facility, beginning April 1, 2018, Sublessee shall pay to Sublessor the sum of $2,500 per month as Additional Rent for the Initial Term and any extension thereof, Beginning April 1, 2019, Additional Rent for the Oceanside Facility shall increase 3% to $2,575 and thereafter increase by an additional 3% on April 1 st of each remaining year of the Term and any extension thereof.
5. Rent Payment Schedule . All Rents and Additional Rents shall be paid pursuant to the payment schedule attached hereto as Exhibit A.
6. Other Terms. All other terms and conditions of the Master Sublease not expressly amended or modified herein shall remain in full force and effect.
[Signatures on Following Page]
2
IN WITNESS WHEREOF, this Second Amendment to Sublease has been executed by Sublessor and Sublessee as of the date first written above.
SUBLESSOR: |
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ADK GEORGIA, LLC, |
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a Georgia limited liability company |
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By: |
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/s/ Brent Morrison |
Name: |
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Brent Morrison |
Title: |
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Interim CEO |
SUBLESSEE: |
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OS TYBEE, LLC, |
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a Georgia limited liability company |
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By: |
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/s/ David Lemcke |
Name: |
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David Lemcke |
Title: |
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CFO |
SB TYBEE, LLC, |
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a Georgia limited liability company |
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By: |
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/s/ David Lemcke |
Name: |
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David Lemcke |
Title: |
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CFO |
JV JEFFERSONVILLE, LLC, |
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a Georgia limited liability company |
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By: |
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/s/ David Lemcke |
Name: |
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David Lemcke |
Title: |
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CFO |
3
RENT SCHEDULE |
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Jeffersonville |
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Oceanside |
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April 1, 2018 |
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$54,590 |
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April 1, 2018 |
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$37,080 |
July 1, 2018 |
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$56,228 |
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August 1, 2018 |
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$38,192 |
July 1, 2019 |
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$57,915 |
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August 1, 2019 |
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$39,338 |
July 1, 2020 |
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$59,652 |
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August 1, 2020 |
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$40,518 |
July 1, 2021 |
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$61,442 |
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August 1, 2021 |
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$41,734 |
July 1, 2022 |
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$63,285 |
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August 1, 2022 |
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$42,986 |
July 1, 2023 |
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$65,183 |
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August 1, 2023 |
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$44,275 |
July 1, 2024 |
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$67,139 |
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August 1, 2024 |
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$45,604 |
July 1, 2025 |
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$69,153 |
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August 1, 2025 |
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$46,972 |
July 1, 2026 |
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$71,228 |
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August 1, 2026 |
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$48,381 |
July 1, 2027 |
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$73,364 |
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August 1, 2027 |
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$49,832 |
ADDITIONAL RENT |
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Jeffersonville |
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Oceanside |
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Aprll 1, 2018 |
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$3,400 |
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April 1, 2018 |
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$2,500 |
April 1, 2019 |
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$3,502 |
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April 1, 2019 |
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$2,575 |
April 1, 2020 |
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$3,607 |
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April 1, 2020 |
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$2,652 |
April 1, 2021 |
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$3,715 |
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April 1, 2021 |
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$2,732 |
April 1, 2022 |
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$3,827 |
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April 1, 2022 |
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$2,814 |
April 1, 2023 |
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$3,942 |
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April 1, 2023 |
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$2,898 |
April 1, 2024 |
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$4,060 |
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April 1, 2024 |
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$2,985 |
April 1, 2025 |
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$4,182 |
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April 1, 2025 |
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$3,075 |
April 1, 2026 |
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$4,307 |
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April 1, 2026 |
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$3,167 |
April 1, 2027 |
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$4,436 |
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April 1, 2027 |
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$3,262 |
April 1, 2028 |
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$4,569 |
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April 1, 2028 |
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$3,360 |
4
Exhibit 10 . 431
SETTLEMENT AGREEMENT
This Settlement Agreement and Release (the “Agreement”) is by and between Columbia Casualty Company (“Columbia”), on the one hand, and AdCare Health Systems, Inc.; Regional Health Properties, Inc.; AdCare Administrative Services, LLC; Woodland Hills HC Nursing, LLC; Woodland Hills HC Property Holdings, LLC; AdCare Operations, LLC; APH&R Nursing LLC d/b/a Cumberland Health and Rehabilitation Center; APH&R Property Holdings, LLC; Little Rock HC&R Nursing LLC d/b/a West Markham Sub Acute and Rehabilitation Center; Little Rock HC&R Property Holdings, LLC; Northridge HC&R Nursing, LLC d/b/a Northridge Healthcare and Rehabilitation; Northridge HC&R Property Holdings, LLC; Coosa Nursing ADK, LLC; Denene Hurst; Jackie Campbell; Robert Barnett; Blaine Brint; Patricia Ann Cahoon; Glenn Clark; Gloria Hall Cooper; Sheneeivah Gilbert; Lauren Greenwood; Rickey Griffin; Debbie Hicks; Mary Huntsman-Hartfield; Mishana Jackson; Mary Pauline Lowe; Timothy Simmons; and Richard West (collectively, “AdCare”), on the other hand. Columbia and AdCare are collectively referred to herein as the “Parties” and each individually as a “Party.”
RECITALS
WHEREAS, Columbia issued Long Term Care Commercial Liability Policy No. PLC-6010419174, effective February 1, 2014 through May 1, 2015 (the “Primary Policy”) and Long Term Care Umbrella Policy No. UMB-6010419160, effective February 1, 2014 through May 1,2015 (the “Umbrella Policy,” and together with the Primary Policy, the “Policies”) to AdCare Health Systems, Inc.;
WHEREAS, Columbia paid the Policies' combined total limits of liability of $15,000,000 in settlement of various underlying lawsuits brought against AdCare for which the Policies afforded coverage;
WHEREAS, on May 27,2016, Columbia filed a complaint against AdCare Health Systems, Inc.; AdCare Administrative Services, LLC; Woodland Hills HC Nursing, LLC; Woodland Hills HC Property Holdings, LLC; AdCare Operations, LLC; Coosa Nursing ADK, LLC; Denene Hurst; and Jackie Campbell (the “AdCare Defendants”) in a lawsuit captioned Columbia Casualty Co. v. AdCare Health Systems, Inc., et al. , No. 4:16-cv-295-JLH (E.D. Ark.), seeking determinations that (1) Columbia properly exhausted the Policies' limits of liability in settling various underlying suits; (2) by virtue of such exhaustion, Columbia has no further obligations to defend or indemnify AdCare or any other Insured under the Policies; and (3) AdCare is obligated to reimburse Columbia for any amounts advanced by Columbia for defense expenses after exhaustion of the Policies (the “Coverage Litigation”);
WHEREAS, on July 7, 2017, the AdCare Defendants filed an Answer and Counterclaim in the Coverage Litigation, asserting: (1) Columbia wrongfully exhausted the Policies' limits of liability in order to avoid its obligation to pay defense costs and (2) because of the alleged wrongful exhaustion, Columbia is not entitled to the relief it seeks in the Coverage Litigation, and (3) several causes of action, including but not limited to, breach of contract; breach of fiduciary duty; declaratory relief; and bad faith claims (the “Counterclaim”);
WHEREAS, AdCare has sought coverage under the Policies for the following lawsuits filed against one or more of the AdCare Defendants in the Circuit Court for Pulaski County, Arkansas (collectively, the “Underlyin g Lawsuits”):
• Alma Ross v. AdCare Health Systems, Inc., et al., No. 60CV-16-1907;
• Wilalice Adams v. AdCare Operations, et al., LLC, No. 60CV-16-2768;
• Jeffrey Childress v. AdCare Health Systems, Inc., et al., No. 60CV-16-3239;
• Alexis Clark v. AdCare Health Systems, Inc., et al., No. 60CV-16-3089;
• Robert Lee Currie v. AdCare Health Systems, Inc., et al., No. 60CV-16-3287;
• Gloria Hankins v. AdCare Health Systems, Inc., et al., No. 60CV-16-3394;
• Elmoryo Livingston v. AdCare Health Systems, Inc., et al., 60CV-16-3393;
• Gloria Patillo v. AdCare Health Systems, Inc., et al., No. 60CV-16-3460;
• Gregory Rice v. AdCare Health Systems, Inc., et al., No. 60CV-16-3508;
• Sandy Mitchell v. AdCare Health Systems, Inc., et al., No. 60CV-16-5572;
• Jacquelyn Jones v. AdCare Health Systems, Inc., et al., No. 60CV-16-5586;
• Elizabeth Holmes v. AdCare Health Systems, Inc., et al., No. 60CV-16-5577;
• Vickie Heithkamper v. AdCare Health Systems, Inc., et al., No. 60CV-16-5385;
• Albert Lee Funch es v. AdCare Health Systems, Inc., et al., No. 60CV-16-5288;
• Clinton Smith v. AdCare Health Systems, Inc., et al., No. 60CV-16-5296;
• Tommie Ready v. AdCare Health Systems, Inc., et al., No. 60CV-16-5604;
• John Clowney v. AdCare Health Systems, Inc., et al., No. 60CV-16-5653;
• William Dust v. AdCare Health Systems, Inc., et al., No. 60CV-16-6671;
• Cecelia Morse v. A d Care Health Systems, Inc., et al., No. 60C V -17-65;
• Chris Bradshaw v. AdCare Health Systems, Inc., et al., No. 60CV-17-15;
• Pamela Frazier v. AdCare Health Systems, Inc., et al., No. 60CV-16-7069;
• Cathy Talbert v. AdCare Health Systems, Inc., et al., No. 60CV-16-6428;
• Betty Key v. AdCare Health Systems, Inc., et al., No. 60CV-17-173;
• Judy Harris v. AdCare Health Systems, Inc., et al., No. 60CV-16-7066; and
• Vakeisa Johnson v. AdCare Health Systems, Inc., et al., No. 60CV-17-1660.
WHEREAS, AdCare has also sought coverage under the Policies for the lawsuit captioned Ward, Legal Guardian Conservator of Laphesia Smith v. Coosa Nursing ADK LLC d/b/a Coosa Valley Health Care , Case No. CV-2014-900321.00 (Ala. Cir. Ct.) (the “Smith Action”), which has since been dismissed with prejudice;
WHEREAS, Columbia agreed to advance a portion of the defense expenses incurred by AdCare in connection with certain of the Underlying Lawsuits and the Smith Action pursuant to a complete reservation of rights, including the right to recoup any defense expenses advanced for the Underlying Lawsuits;
WHEREAS, the Parties participated in two mediations of the Coverage Litigation before Ralph Levy, Esq. of JAMS, in Atlanta, Georgia on November 2, 2016, and May 4, 2017, after which the mediator made a mediator's proposal for Columbia to pay $2.85 million to resolve the Parties' disputes and the Coverage Litigation;
2
WHEREAS, AdCare has agreed to pay $5.2 million to resolve all of the Underlying Lawsuits in exchange for a complete release and dismissal of the Underlying Lawsuits wit h prejudice (the “Settlement”);
WHEREAS, the Parties now desire to resolve all claims and issues between them related to the Policies, the Underlying Lawsuits, the Smith Action, the Settlement, and the Coverage Litigation, including the Counterclaim;
NOW THEREFORE, in consideration of the mutual promises herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. Recitals . The recitals above are incorporated herein and by this reference made a part of this Agreement.
2. Settlement Payment .
(a) Within seven days after the Effective Date, Columbia will pay the sum of two million eight hundred and fifty thousand dollars and zero cents ($2,850,000.00) by check made payable to “Law Office of Travis Berry Trust Account” to be delivered to Travis Berry & Associates PLLC, 901 Main Street, Arkadelphia, AR 71923.
(b) The “Effective Date” means the date on which the last of all of the following have occurred:
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(i) |
receipt by Columbia of fully executed mediation agreements for each of the Underlying Lawsuits in a form acceptable to Columbia; |
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(ii) |
receipt by Columbia of a fully executed version of this Agreement; and |
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(iii) |
receipt by Columbia of a W-9 for “Law Office of Travis Berry & Associates PLLC Trust Account.” |
|
(c) If the Effective Date does not occur by May 1, 2018, this Agreement shall be considered null, void, and of no effect, and the Parties shall be returned to the status quo ante as of the date of this Agreement (except for this Paragraph 2(c) and 11, which shall survive).
3. Exhaustion . The Parties agree that Columbia has exhausted the Policies' respective limits of liability and has no further obligations under the Policies. AdCare shall not tender any other claim or matter to Columbia, provide notice to Columbia under the Policies of any claim or circumstances which may subsequently give rise to a claim, or seek coverage for any other claim or matter under the Policies. The Parties agree that, except as provided in this Agreement, the Policies shall not provide any coverage or respond in any manner to the Underlying Lawsuits, the Smith Action, or any other claim, matter, or allegation that has been made or may be made in the future against AdCare or any other party who is an Insured as defined by the Policies.
4. A d Care Releases . Except for the promises and obligations set forth in this Agreement, AdCare hereby releases and discharges Columbia and its respective past, present and future predecessors, successors, parents, subsidiaries, affiliates, assigns, representatives, directors, officers, employees, shareholders, partners, principals, agents, attorneys, spouses, insurers and reinsurers, and any person acting on its behalf, and the predecessors, successors and assigns of same
3
(“ Columbia Related Parties”), from an y and all past, present and future claims, demands, obligations, and/or causes of action of any kind, type or nature whatsoever, whether known or unknown, whether suspected or unsuspected, whether concealed or not concealed, whether fixed or contingent, wh ether asserted or unasserted, whether matured or unmatured, and whether direct or consequential arising out of, related to, based upon, by reason of, or in any way involving the Policies; any claim or lawsuit tendered under the Policies, including any and all claims based upon, arising out of, related to, by reason of, or in any way involving the Underlying Lawsuits or the Settlement; the Smith Action; or the Coverage Litigation, including the Counterclaim (collectively, the “AdCare Released Matters”), as w ell as any claim for misrepresentation, fraud, indemnity, contribution, breach of contract, breach of duty, negligence, “bad faith,” violation of statute or regulation, unfair or improper claims handling, or damages of any kind whatsoever arising out of or relating to the AdCare Released Matters or any right to recoup any amount paid by any Party toward the defense of the Underlying Lawsuits or the Smith Action.
5. Columbia Releases . Except for the promises and obligations set forth in this Agreement, Columbia hereby releases and discharges AdCare and its respective past, present and future predecessors, successors, parents, subsidiaries, affiliates, assigns, representatives, directors, officers, employees, shareholders, partners, principals, agents, attorneys, spouses, insurers and reinsurers, and any person acting on its, his, or her behalf, and the predecessors, successors and assigns of same (the “AdCare Related Parties”), from any and all past, present and future claims, demands, obligations, and/or causes of action of any kind, type or nature whatsoever, whether known or unknown, whether suspected or unsuspected, whether concealed or not concealed, whether fixed or contingent, whether asserted or unasse1ied, whether matured or unmatured, and whether direct or consequential arising out of, related to, based upon, by reason of, or in any way involving the Policies; any claim or lawsuit tendered under the Policies, including any and all claims based upon, arising out of, related to, by reason of, or in any way involving the Underlying Lawsuits or the Settlement; the Smith Action; or the Coverage Litigation, including the Counterclaim (collectively, the “Columbia Released Matters”), as well as any claim for misrepresentation, fraud, indemnity, contribution, breach of contract, breach of duty, negligence, “bad faith,” violation of statute or regulation, unfair or improper claims handling, or damages of any kind whatsoever arising out of or relating to the Columbia Released Matters or any right to recoup any amount paid by any Party toward the defense of the Underlying Lawsuits or the Smith Action.
6. Dismissal of the Coverage Litigation . Within seven days after the Effective Date, Columbia and the AdCare Defendants will dismiss the Coverage Litigation, including the Counterclaim, with prejudice, with each Party to bear its own fees and costs.
4
7. Waiver of Unknown Claims . In exchange for this Agreement, it is the intention of the Parties in executing this Agreement that this instrument shall be effective as a full and final accord and satisfaction and a general release of each and every Released Matter except as specificall y set forth by the terms of this Agreement. In furtherance of this intention, the Parties, for themselves and their respective Related Parties, expressly waive any and all rights that might be claimed by reason of fraudulent inducement and any and all righ ts under Section 1542 of the California Civil Code with respect to the AdCare Released Matters and the Columbia Released Matters, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The Parties acknowledge and agree that this waiver is an essential and material term of this Agreement and without such waiver the Agreement would not have been entered into.
8. Denial of Liability/No Admission . This Agreement is entered into for the sole purpose of resolving and compromising disputed claims, and nothing contained in this Agreement is to be construed as an admission by any Party. By executing this Agreement, the Parties are not admitting the nature, amount, or cause of damages claimed, if any. Further, any and all liability for wrongful or improper conduct is hereby expressly denied by all Parties.
9. Representations and Warranties .
(a) Each Party represents and warrants that it, he, or she has neither sold, assigned, pledged nor otherwise transferred any interest in the claims, demands, actions, or causes of action that are the subject of this Agreement.
(b) Regional Health Properties, Inc. (“RHP”) represents that, if it (or any entity comprising RHP) becomes a debtor or debtor-in-possession in a bankruptcy proceeding, a bankruptcy court would n ot find this Agreement or any of the transactions contemplated hereby or consummated in accordance herewith to be an avoidable fraudulent transfer under Sections 548(a)(1)(B) or 544 of Title 11 of the United States Code (the “ Bankruptcy Code ”). RHP also represents that in the event RHP (or any entity comprising RHP) is not a debtor under the Bankruptcy Code, a federal or state court of competent jurisdiction would not find this Agreement or any of the transactions contemplated hereby or consummated in accordance herewith to be avoidable under the Georgia Uniform Voidable Transactions Act, O.C.G.A. sections 18-2-70, et seq.
(c) Each entity comprising RHP represents and warrants that, neither this Agreement nor the transactions contemplated hereby or consumma ted in accordance herewith, are made with any actual intent to hinder, delay or defraud any creditor of RHP, or are made with any intent to defraud or deceive any person.
(d) RHP represents and warrants that the consideration received under this Agreement constitutes reasonably equivalent value in exchange for (i) any rights or claims that RHP has or may
5
have under the Policies relating to the Underlying Lawsuits, and (ii) any other consideration exchanged by RHP hereunder.
(e) RHP represents and warrants that, as of the date of this Agreement, (i) RHP is not Insolvent, and (ii) the consummation of the transactions contemplated by this Agreement will not render RHP Insolvent. For the purposes of this Section 7(e) , “Insolvent” shall have the meaning provided in Section 101(32) of the Bankruptcy Code.
(f) RHP represents and warrants that, as of the date of this Agreement, (i) RHP is not engaged in any business or transaction, or about to engage in any business or transaction, for which its remaining property was unreasonably small capital; (ii) RHP does not intend to incur, and does not believe it will incur, debts beyond its ability to pay as they mature; and (iii) RHP has not entered into this Agreement, or the transactions contemplated hereby or consummated in accordance herewith, for the benefit of an Insider, under an employment contract and not in the ordinary course of RHP's business. For the purposes of this Section 7(f) , “Insider” shall have the meaning provided in Section 101(31) of the Bankruptcy Code.
(g) The List of Liabilities attached hereto as Exhibit A is true and correct as of November 30, 2017 and represents and accurate and comprehensive statement of liabilities of RHP as of such date, prepared in accordance with Generally Accepted Accounting Principles. This Section 7(g) is certified as true and correct by Brent Morrison , who is the duly appointed interim chief executive officer of Regional Health Properties, Inc.
(h) Each Party represents and warrants that the undersigned signature and execution of this Agreement is made and undertaken by an individual authorized to execute this Agreement.
(i) Each Party represents and warrants that this Agreement is made and executed by each Party of such Party's own free will and in accordance with such Party's own judgment and upon advice of counsel. No Pa rty has been influenced, coerced, or induced to make this compromise and settlement by any improper action by any other Party or its counsel.
(j) Each Party represents and warrants that this Agreement was negotiated and drafted with input from all of the Parties and their counsel.
10. Integration . This Agreement supersedes all prior or contemporaneous agreements, understandings, representations, warranties, negotiations and discussions, whether oral or written, of the Parties or their agents and representatives, except as specifically set forth herein. Each Party acknowledges and agrees that it has not relied on any representations made by any other Party (or its agents or representatives) in deciding to enter into this Agreement, except as expressly provided by this Agreement. No supplements, modifications, waiver, or terminations of this Agreement shall be binding unless executed in writing by the Parties to be bound thereby. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision herein (whether or not similar), and no such waiver shall constitute a continuing waiver unless expressly provided.
11. Confidentiality . The Parties shall keep the facts and terms of this settlement strictly confidential and will not disclose such information to any third party except: (a) as necessary to seek the dismissal of the Coverage Litigation, including the Counterclaim; (b) as required by law or court order; (c) as necessary to enforce this Agreement; (d) as reasonably necessary to enforce any Party's
6
rights against any other person or entity; (e) as necessary and in confidence to their respective legal counsel, officers, directors, employees, auditors, regulators, insurers, reinsurers or financial and tax advisors; or (f) as specifically consented to by all other Parties in writing.
7
12. Interpretation . As the Parties acknowledge and agree that each has been given the opportunity independently to review this Agreement with legal counsel and agree to the particular langu age of the provisions, this Agreement shall not be interpreted by rules of construction providing for interpretation against the drafter.
13. Binding on Successors . All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the Parties, their assigns and successors.
14. Execution in Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement shall be effective and finally executed when identical counterparts, which when taken together bear the signature of all Parties, have been delivered to counsel or representatives for all the Parties, either by e-mail in .pdf, facsimile, overnight delivery service, or U.S. mail. Copies of all or part of this Agreement, including signatures thereto, which are transmitted by facsimile or by e-mail in .pdf shall be presumed valid.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
8
IN WITNESS WHEREOF , the Parties duly executed this Agreement as follows:
Columbia Casualty Company
By: |
/s/ Edward Ewing |
|
Printed Name: |
Edward Ewing |
|
Title: |
AVD |
|
Date: |
February 13 th , 2018 |
|
AdCare Health Systems, inc.
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Regional Health Properties, inc.
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
AdCare Administrative Services, llc
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Woodland Hills HC Nursing, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Woodland Hills HC Property Holdings, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
9
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
AdCare Administrative Services, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
APH&R Nursing LLC d/b/a Cumberland Health and Rehabilitation Center
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
APH&R Property Holdings, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Little Rock HC&R Nursing LLC d/b/a West Markham Sub Acute and Rehabilitation Center
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Little Rock HC&R Property Holdings, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Northridge HC&R Nursing, LLC d/b/a Northridge Healthcare and Rehabilitation
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
10
Northridge HC&R Nursing property Holdings, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Coosa Nursing ADK, LLC
By: |
/s/ Brent Morrison |
|
Printed Name: |
Brent Morrison |
|
Title: |
Interim CEO |
|
Date: |
March 9 th , 2018 |
|
Denene Hurst
/s/ Denene Hurst |
|
|
Date: |
February 26th, 2018 |
|
Jackie Campbell
/s/ Jackie Campbell |
|
|
Date: |
February 27th, 2018 |
|
Ricky Griffin
/s/ Ricky Griffin |
|
|
Date: |
February 18th, 2018 |
|
Debbie Hicks
/s/ Debbie Hicks |
|
|
Date: |
February 20th, 2018 |
|
Patricia Ann Cahoon
/s/ Patricia Ann Cahoon |
|
|
Date: |
February 28th, 2018 |
|
Glenn Clark
/s/ Glenn Clark |
|
|
Date: |
February 21st, 2018 |
|
Mary Hunstman-Hartfield
/s/ Mary Huntsman-Hartfield |
|
|
Date: |
February 20th, 2018 |
|
11
/s/ Mishana Jackson |
|
|
Date: |
February 26th, 2018 |
|
Mary Pauline Lowe
/s/ Mary Pauline Lowe |
|
|
Date: |
March 5th, 2018 |
|
Timothy Simmons
/s/ Timothy Simmons |
|
|
Date: |
February 28th, 2018 |
|
Richard West
/s/ Richard West |
|
|
Date: |
February 15th, 2017 |
|
Lauren Greenwood
/s/ Laura Greenwood |
|
|
Date: |
February 16th, 2018 |
|
Robert Barnett
/s/ Robert Barnett |
|
|
Date: |
|
|
Blaine Brint
/s/ Blaine Brint |
|
|
Date: |
March 6th, 2018 |
|
Gloria Hall Cooper
/s/ Gloria Hall Cooper |
|
|
Date: |
February |
|
12
EXHIBIT A
13
Exhibit 10 . 431
For more information, visit www.regionalhealthproperties.com .
Entity |
|
Jurisdiction of Organization |
2014 HUD Master Tenant, LLC |
|
Georgia |
ADK Administrative Property, LLC |
|
Georgia |
ADK Bonterra/Parkview, LLC |
|
Georgia |
ADK Georgia, LLC |
|
Georgia |
ADK LaGrange Operator, LLC |
|
Georgia |
ADK Powder Springs Operator, LLC |
|
Georgia |
ADK Thomasville Operator, LLC |
|
Georgia |
APH&R Nursing, LLC |
|
Georgia |
APH&R Property Holdings, LLC |
|
Georgia |
AdCare Administrative Services, LLC |
|
Georgia |
AdCare Consulting, LLC |
|
Georgia |
AdCare Employee Leasing, LLC |
|
Georgia |
AdCare Financial Management, LLC |
|
Georgia |
AdCare Health Systems, Inc. |
|
Georgia |
AdCare Oklahoma Management, LLC |
|
Georgia |
AdCare Operations, LLC |
|
Georgia |
AdCare Property Holdings, LLC |
|
Ohio |
Attalla Nursing ADK, LLC |
|
Georgia |
Attalla Property Holdings, LLC |
|
Georgia |
Benton Nursing, LLC |
|
Georgia |
Benton Property Holdings, LLC |
|
Georgia |
CP Nursing, LLC |
|
Georgia |
CP Property Holdings, LLC |
|
Georgia |
CSCC Nursing, LLC |
|
Georgia |
CSCC Property Holdings, LLC |
|
Georgia |
Coosa Nursing ADK, LLC |
|
Georgia |
Eaglewood Property Holdings, LLC |
|
Georgia |
Erin Nursing, LLC |
|
Georgia |
Erin Property Holdings, LLC |
|
Georgia |
Georgetown HC&R Nursing, LLC |
|
Georgia |
Georgetown HC&R Property Holdings, LLC |
|
Georgia |
Glenvue H&R Nursing, LLC |
|
Georgia |
Glenvue H&R Property Holdings, LLC |
|
Georgia |
Hearth & Care of Greenfield, LLC |
|
Ohio |
Hearth & Home of Ohio, Inc. |
|
Ohio |
Home Office Property Holdings, LLC |
|
Georgia |
Homestead Nursing, LLC |
|
Georgia |
Homestead Property Holdings, LLC |
|
Georgia |
KB HUD Master Tenant 2014, LLC |
|
Georgia |
Little Rock HC&R Nursing, LLC |
|
Georgia |
Little Rock HC&R Property Holdings, LLC |
|
Georgia |
Mountain Top Property Holdings, LLC |
|
Georgia |
Mountain Trace Nursing ADK, LLC |
|
Ohio |
Mountain View Nursing, LLC |
|
Georgia |
Entity |
|
Jurisdiction of Organization |
|
Georgia |
|
Mt. Kenn Property Holdings, LLC |
|
Georgia |
Mt. V Property Holdings, LLC |
|
Georgia |
NW 61st Nursing, LLC |
|
Georgia |
Northridge HC&R Nursing, LLC |
|
Georgia |
Northridge HC&R Property Holdings, LLC |
|
Georgia |
Northwest Property Holdings, LLC |
|
Georgia |
Park Heritage Nursing, LLC |
|
Georgia |
Park Heritage Property Holdings, LLC |
|
Georgia |
QC Nursing, LLC |
|
Georgia |
QC Property Holdings, LLC |
|
Georgia |
Regional Health Properties, Inc. |
|
Georgia |
RMC HUD Master Tenant, LLC |
|
Georgia |
Sumter N&R, LLC |
|
Georgia |
Sumter Valley Property Holdings, LLC |
|
Georgia |
The Pavilion Care Center, LLC |
|
Ohio |
Valley River Nursing, LLC |
|
Georgia |
Valley River Property Holdings, LLC |
|
Georgia |
Woodland Hills HC Nursing, LLC |
|
Georgia |
Woodland Hills HC Property Holdings, LLC |
|
Georgia |
Woodland Manor Nursing, LLC |
|
Georgia |
Woodland Manor Property Holdings, LLC |
|
Georgia |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Regional Health Properties, Inc.:
We consent to the incorporation by reference in the registration statements No. 333-184462 and No. 333-177531 on Form S-8 of Regional Health Properties, Inc. of our report dated April 13, 2018, with respect to the consolidated balance sheets of Regional Health Properties, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the “consolidated financial statements”), which report appears in the December 31, 2017 annual report on Form 10-K of Regional Health Properties, Inc.
/s/ KPMG LLP
Atlanta, Georgia
April 16, 2018
|
|
|
CERTIFICATIONS
I, Brent Morrison, certify that:
1. I have reviewed this annual report on Form 10-K of Regional Health Properties, 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; and
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.
April 16, 2018 |
By |
/s/ Brent Morrison |
|
|
Interim Chief Executive Officer and Interim President |
CERTIFICATIONS
I, E. Clinton Cain, certify that:
1. I have reviewed this annual report on Form 10-K of Regional Health Properties, 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; and
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.
April 16, 2018 |
By |
/s/ E. Clinton Cain |
|
|
Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer (principal financial officer) |
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 Annual Report of Regional Health Properties, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, Brent Morrison, Interim Chief Executive Officer and Interim President of the Company, certify, pursuant to 18 U.S.C. § 1350, as added by § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
April 16, 2018 |
By: |
/s/ BRENT MORRISON |
|
|
Brent Morrison Interim Chief Executive Officer and Interim President |
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 Annual Report of Regional Health Properties, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, E. Clinton Cain, Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer (principal 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, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
April 16, 2018 |
By: |
/s/ E. CLINTON CAIN |
|
|
E. Clinton Cain Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer (principal financial officer) |