Exhibit 10.18

 

15780226

06-26-13

 

THIRD MODIFICATION AGREEMENT

 

THIS THIRD MODIFICATION AGREEMENT dated as of June 26, 2013 (this “Agreement”),
is entered into by and among LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC, a Georgia
limited liability company (the “Borrower”), ADCARE HEALTH SYSTEMS, INC., an Ohio
corporation (“AdCare”), LITTLE ROCK HC&R NURSING, LLC, a Georgia limited
liability company (the “Operator”) (AdCare and the Operator being sometimes
referred to herein collectively as the “Guarantors”) (the Borrower and the
Guarantors being sometimes referred to herein collectively as the
“Borrower/Guarantor Parties”), and THE PRIVATEBANK AND TRUST COMPANY, an
Illinois banking corporation (“Lender”).

 

RECITALS

 

A.                                    The Borrower/Guarantor Parties and the
Lender heretofore entered into the following documents (collectively, the
“Documents”):

 

(i)                                     Loan Agreement dated as of March 30,
2012 (the “Loan Agreement”), by and among the Borrower, Northridge HC&R Property
Holdings, LLC, a Georgia limited liability company (“Northridge”), Woodland
Hills HC Property Holdings, LLC, a Georgia limited liability company
(“Woodland”) and the Lender. Northridge and Woodland were released from their
respective obligations under the Loan Agreement and the other Documents pursuant
to the Second Modification (as defined below).

 

(ii)                                  Promissory Note A dated March 30, 2012,
from the Borrower to the Lender in the principal amount of $13,664,956, which,
along with Note B and Note C described below, replaced the Promissory Note dated
March 30, 2012, from the Borrower, Northridge and Woodland to the Lender in the
principal amount of $21,800,000.

 

(iii)                               Promissory Note B dated March 30, 2012
(“Note B”) from Northridge to the Lender in the principal amount of $4,507,038,
which, along with Note A and Note C described below, replaced the Original Note.
Note B was released pursuant to the Second Modification.

 

(iv)                              Promissory Note C dated March 30, 2012 (“Note
C”) from Woodlands to the Lender in the principal amount of $3,628,006, which,
along with Note A and Note B, replaced the Original Note. Note C was released
pursuant to the Second Modification.

 

(v)                                 Mortgage, Security Agreement, Assignment of
Rents and Leases and Fixture Filing dated as of April 1, 2012, by Borrower to
and for the benefit of the Lender, recorded in the Official Records of Larry
Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as Document
No. 2012019925.

 

--------------------------------------------------------------------------------

 

(vi)                              Mortgage, Security Agreement, Assignment of
Rents and Leases and Fixture Filing dated as of April 1, 2012 (“Mortgage 2”), by
Northridge to and for the benefit of the Lender, recorded in the Official
Records of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012,
as Document No. 2012019978. Mortgage 2 was released pursuant to the Second
Modification.

 

(vii)                           Mortgage, Security Agreement, Assignment of
Rents and Leases and Fixture Filing dated as of April 1, 2012 (“Mortgage 3”), by
Woodlands to and for the benefit of the Lender, recorded in the Official Records
of Larry Crane, Pulaski County Circuit/County Clerk, on April 5, 2012, as
Document No. 2012019971. Mortgage 3 was released pursuant to the Second
Modification.

 

(viii)                        Absolute Assignment of Rents and Leases dated as
of April 1, 2012, by Borrower to and for the benefit of the Lender, recorded in
the Official Records of Larry Crane, Pulaski County Circuit/County Clerk, on
April 5, 2012, as Document No. 2012019926.

 

(ix)                              Absolute Assignment of Rents and Leases dated
as of April 1, 2012 (“Assignment of Rents 2”), by Northridge to and for the
benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski
County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019979.
Assignment of Rents 2 was released pursuant to the Second Modification.

 

(x)                                 Absolute Assignment of Rents and Leases
dated as of April 1, 2012 (“Assignment of Rents 3”), by Woodlands to and for the
benefit of the Lender, recorded in the Official Records of Larry Crane, Pulaski
County Circuit/County Clerk, on April 5, 2012, as Document No. 2012019972.
Assignment of Rents 3 was released pursuant to the Second Modification.

 

(xi)                              Environmental Indemnity Agreement dated as of
March 30, 2012 (the “Indemnity Agreement”), by the Borrower, Northridge,
Woodlands, the Guarantors, Northridge HC&R Nursing, LLC, a Georgia limited
liability company (the “Northridge Operator”), and Woodland Hills HC Nursing,
LLC, a Georgia limited liability company (the “Woodland Operator”), to and for
the benefit of the Lender. Northridge, Woodland, the Northridge Operator and the
Woodland Operator were released from their respective obligations under the
Indemnity Agreement pursuant to the Second Modification.

 

(xii)                           Guaranty of Payment and Performance dated as of
March 30, 2012 (the “Guaranty”), by the Guarantors, the Northridge Operator and
the Woodlands Operator to and for the benefit of the Lender. The Northridge
Operator and the Woodland Operator were released from their respective
obligations under the Guaranty pursuant to the Second Modification.

 

B.                                    The Documents were previously modified and
amended by the following documents (the “Previous Modifications”): (i) the
Modification Agreement dated as of June 15, 2012, but effective as of March 30,
2012, by and among the Borrower/Guarantor Parties and

 

2

--------------------------------------------------------------------------------

 

the Lender, recorded in the Official Records of Larry Crane, Pulaski County
Circuit/County Clerk, on June 22, 2012, as Document No. 2012038003, and (ii) the
Second Modification Agreement dated as of December 28, 2012 (the “Second
Modification”), by and among the Borrower/Guarantor Parties and the Lender, a
Memorandum of which Second Modification Agreement was recorded in the Official
Records of Larry Crane, Pulaski County Circuit/County Clerk, on January 4, 2013,
as Document No. 2013001265.

 

C.                                    The Documents, as modified and amended by
the Previous Modifications, encumber the real estate described in Exhibit A
attached hereto and the personal property located thereon.

 

D.                                    The parties desire to make certain
modifications and amendments to the Documents, as modified and amended by the
Previous Modifications, as more fully provided for herein, all as modifications,
amendments and continuations of, but not as novations of, the Documents.

 

AGREEMENTS

 

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

 

Section 1.                                          Recitals Part of Agreement;
Defined Terms; References to Documents.

 

(a)                                 The foregoing Recitals are hereby
incorporated into and made a part of this Agreement.

 

(b)                                 All capitalized terms used and not otherwise
defined in this Agreement shall have the meanings set forth in the Loan
Agreement.

 

(c)                                  Except as otherwise stated herein, all
references in this Agreement to any one or more of the Documents shall be deemed
to include the previous modifications and amendments to the Documents provided
for in the Previous Modifications, whether or not express reference is made to
such previous modifications and amendments.

 

Section 2.                                          Change in Minimum Fixed
Charge Coverage Ratio of Operator. Notwithstanding anything to the contrary
contained in the Loan Agreement, Section 7.15 of the Loan Agreement shall not
apply with respect to the fiscal quarter ended March 31, 2013. Section 7.15 of
the Loan Agreement is hereby modified and amended in its entirety to read as
follows effective for the fiscal quarter ended June 30, 2013 and for each fiscal
quarter thereafter, with the existing Section 7.15 of the Loan Agreement to
continue to be effective for fiscal quarters ended prior to June 30, 2013 (with
the exception of the fiscal quarter ended March 31, 2013, as provided in the
first sentence of this Section):

 

7.15                        Minimum Fixed Charge Coverage Ratio of Operator. It
is a condition of this Agreement and the Loan that as of the end of each period
set forth below, the ratio of —

 

3

--------------------------------------------------------------------------------

 

(i)                                     the amount of the EBITDAR/Fully Adjusted
for the Operator for such period, to

 

(ii)                                  the sum of the amounts of the following
for the Operator for such period: (A) Rental Expense, plus (B) Interest Charges,
plus (C) Distributions, other than any amounts which were treated as an expense
for accounting purposes,

 

shall be not less than 1.05 to 1.00. The periods referred to above are as
follows:

 

Minimum Fixed Charge Coverage Ratio Period

 

Fiscal quarter ending on June 30, 2013

 

Two fiscal quarters ending on September 30, 2013

 

Three fiscal quarters ending on March 31, 2014

 

Four fiscal quarters ending on June 30, 2014, and on the last day of each fiscal
quarter thereafter

 

Section 3.                                          Limited Waiver of Fixed
Charge Coverage Ratio of Operator. The Lender hereby waives compliance with the
requirements of Section 7.15 of the Loan Agreement with respect to the fiscal
quarter ended December 31, 2012. This is a one-time waiver, and the Lender does
not waive compliance with the requirements of Section 7.15 of the Loan Agreement
for any fiscal quarter other than the fiscal quarter ended December 31, 2012.

 

Section 4.                                          Change in Minimum EBITDAR of
Operator. Section 7.16 of the Loan Agreement is hereby modified and amended in
its entirety to read as follows effective for the calendar month February, 2013,
and subsequent calendar months, with the existing Section 7.16 of the Loan
Agreement to continue to be effective for calendar months prior to February,
2013 (subject to the limited waiver provided for in Section 5 of this
Agreement):

 

7.16                        Minimum EBITDAR of Operator.

 

(a)                                 It is a condition of this Agreement and the
Loan that the EBITDAR/Management Fee Adjusted for Operator for each calendar
month set forth in the table below, shall be not less than the amount set forth
opposite such month in the table below:

 

 

 

Minimum EBITDAR

 

Calendar Months

 

for Operator

 

February, 2013

 

$

15,000

 

March, 2013

 

$

15,000

 

April, 2013

 

$

75,000

 

 

4

--------------------------------------------------------------------------------

 

(b)                                 Until such time as paragraph (c) of this
Section becomes effective, it is a condition of this Agreement and the Loan that
the EBITDAR/Fully Adjusted for Operator for each calendar month commencing with
the calendar month ended May 31, 2013, shall be not less than the amount set
forth opposite such month in the table below:

 

May, 2013

 

$

100,000

 

June and July, 2013

 

$

150,000

 

August, 2013 and Each Calendar

 

 

 

Month Thereafter

 

$

160,000

 

 

(c)                                  Effective for the first fiscal quarter
ending after the EBITDAR/Fully Adjusted for Operator has been not less than
$160,000 for each of six consecutive calendar months, as shown in monthly
financial statements of Operator and compliance certificates furnished to Lender
as provided in Section 7.4 of this Agreement, it is a condition of this
Agreement and the Loan that the EBITDAR/Fully Adjusted for Operator for each
fiscal quarter shall be not less than $480,000.

 

Section 5.                                          Limited Waiver of Minimum
EBITDAR of Operator. The Lender hereby waives compliance with the requirements
of Section 7.16(a) of the Loan Agreement with respect to the calendar months
ended December, 2012 and January, 2013. This is a one-time waiver, and the
Lender does not waive compliance with the requirements of Section 7.16(a) of the
Loan Agreement for any calendar month before the calendar month ended
December 31, 2012 or after the calendar month ended January 31, 2013.

 

Section 6.                                          Representations and
Warranties. The term “Signing Entity” as used in this Section means any entity
(other than a Borrower/Guarantor Party itself) that appears in the signature
block of any Borrower/Guarantor Party in this Agreement, any of the Documents or
the Previous Modifications, if any. In order to induce the Lender to enter into
this Agreement, the Borrower/Guarantor Parties hereby represent and warrant to
the Lender as follows as of the date of this Agreement and if different, as of
the date of the execution and delivery of this Agreement:

 

(a)                                 Borrower is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Georgia, has all necessary power and authority to carry on its present business,
and has full right, power and authority to enter into this Agreement, each of
the Documents to which it is a party and the Previous Modifications, and to
perform and consummate the transactions contemplated hereby and thereby.

 

(b)                                 AdCare is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio, has
all necessary power and authority to carry on its present business, and has full
right, power and authority to enter into this Agreement, each of the Documents
to which it is a party and the Previous Modifications, and to perform and
consummate the transactions contemplated hereby and thereby.

 

5

--------------------------------------------------------------------------------

 

(c)                                  Operator is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Georgia and duly registered to transact business and in good standing
in the state of Arkansas. Operator has full power and authority to carry on its
present business, and has full right, power and authority to enter into this
Agreement and each of the Documents to which it is a party and to perform and
consummate the transactions contemplated hereby and thereby.

 

(d)                                 Each Signing Entity is duly organized,
validly existing and in good standing under the laws of the State in which it is
organized, has all necessary power and authority to carry on its present
business, and has full right, power and authority to execute this Agreement, the
Documents and the Previous Modifications in the capacity shown in each signature
block contained in this Agreement, the Documents and the Previous Modifications
in which its name appears, and such execution has been duly authorized by all
necessary legal action applicable to such Signing Entity.

 

(e)                                  This Agreement, each of the Documents and
the Previous Modifications have been duly authorized, executed and delivered by
such of the Borrower/Guarantor Parties as are parties thereto, and this
Agreement, each of the Documents and the Previous Modifications constitute a
valid and legally binding obligation enforceable against such of the
Borrower/Guarantor Parties as are parties thereto. The execution and delivery of
this Agreement, the Documents and the Previous Modifications and compliance with
the provisions thereof under the circumstances contemplated therein do not and
will not conflict with or constitute a breach or violation of or default under
the organizational documents of any Borrower/Guarantor Party or any Signing
Entity, or any agreement or other instrument to which any of the
Borrower/Guarantor Parties or any Signing Entity is a party, or by which any of
them is bound, or to which any of their respective properties are subject, or
any existing law, administrative regulation, court order or consent decree to
which any of them is subject.

 

(f)                                   The Borrower/Guarantor Parties are in full
compliance with all of the terms and conditions of the Documents to which they
are a party and the Previous Modifications, and no Default or Event of Default
has occurred and is continuing with respect to any of the Documents or the
Previous Modifications.

 

(g)                                  There is no litigation or administrative
proceeding pending or threatened to restrain or enjoin the transactions
contemplated by this Agreement or any of the Documents or the Previous
Modifications, or questioning the validity thereof, or in any way contesting the
existence or powers of any of the Borrower/Guarantor Parties or any Signing
Entity, or in which an unfavorable decision, ruling or finding would adversely
affect the transactions contemplated by this Agreement or any of the Documents
or the Previous Modifications, or would result in any material adverse change in
the financial condition, properties, business or operations of any of the
Borrower/Guarantor Parties.

 

(h)                                 The statements contained in the Recitals to
this Agreement are true and correct.

 

6

--------------------------------------------------------------------------------

 

Section 7.                                          Documents to Remain in
Effect; Confirmation of Obligations; References. The Documents shall remain in
full force and effect as originally executed and delivered by the parties,
except as previously modified and amended by the Previous Modifications and as
expressly modified and amended herein. In order to induce the Lender to enter
into this Agreement, the Borrower/Guarantor Parties hereby (i) confirm and
reaffirm all of their obligations under the Documents, as previously modified
and amended by the Previous Modifications and as modified and amended herein;
(ii) acknowledge and agree that the Lender, by entering into this Agreement,
does not waive any existing or future default or event of default under any of
the Documents, or any rights or remedies under any of the Documents, except as
expressly provided herein; (iii) acknowledge and agree that the Lender has not
heretofore waived any default or event of default under any of the Documents, or
any rights or remedies under any of the Documents; and (iv) acknowledge and
agree that they do not have any defense, setoff or counterclaim to the payment
or performance of any of their obligations under, or to the enforcement by the
Lender of, the Documents, as previously modified and amended by the Previous
Modifications and as modified and amended herein, including, without limitation,
any defense, setoff or counterclaim based on the covenant of good faith and fair
dealing. All references in the Documents to any one or more of the Documents, or
to the “Loan Documents,” shall be deemed to refer to such Document, Documents or
Loan Documents, as the case may be, as previously modified and amended by the
Previous Modifications and as modified and amended by this Agreement. Electronic
records of executed documents maintained by the Lender shall be deemed to be
originals thereof.

 

Section 8.                                          Certifications,
Representations and Warranties. In order to induce the Lender to enter into this
Agreement, the Borrower/Guarantor Parties hereby certify, represent and warrant
to the Lender that all certifications, representations and warranties contained
in the Documents and the Previous Modifications and in all certificates
heretofore delivered to the Lender are true and correct as of the date of this
Agreement and if different, as of the date of the execution and delivery of this
Agreement, and all such certifications, representations and warranties are
hereby remade and made to speak as of the date of this Agreement and if
different, as of the date of the execution and delivery of this Agreement.

 

Section 9.                                          Entire Agreement; No
Reliance. This Agreement sets forth all of the covenants, promises, agreements,
conditions and understandings of the parties relating to the subject matter of
this Agreement, and there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them relating to the subject
matter of this Agreement other than as are herein set forth. The
Borrower/Guarantor Parties acknowledge that they are executing this Agreement
without relying on any statements, representations or warranties, either oral or
written, that are not expressly set forth herein.

 

Section 10.                                   Successors. This Agreement shall
inure to the benefit of and shall be binding upon the parties and their
respective successors, assigns and legal representatives.

 

Section 11.                                   Severability. In the event any
provision of this Agreement shall be held invalid or unenforceable by any court
of competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof.

 

7

--------------------------------------------------------------------------------

 

Section 12.                                   Amendments, Changes and
Modifications. This Agreement may be amended, changed, modified, altered or
terminated only by a written instrument executed by all of the parties hereto.

 

Section 13.                                   Construction.

 

(a)                                 The words “hereof,” “herein,” and
“hereunder,” and other words of a similar import refer to this Agreement as a
whole and not to the individual Sections in which such terms are used.

 

(b)                                 References to Sections and other
subdivisions of this Agreement are to the designated Sections and other
subdivisions of this Agreement as originally executed.

 

(c)                                  The headings of this Agreement are for
convenience only and shall not define or limit the provisions hereof.

 

(d)                                 Where the context so requires, words used in
singular shall include the plural and vice versa, and words of one gender shall
include all other genders.

 

(e)                                  The Borrower/Guarantor Parties and the
Lender, and their respective legal counsel, have participated in the drafting of
this Agreement, and accordingly the general rule of construction to the effect
that any ambiguities in a contract are to be resolved against the party drafting
the contract shall not be employed in the construction and interpretation of
this Agreement.

 

Section 14.                                   Counterparts; Electronic
Signatures. This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same document. Receipt of an executed signature
page to this Agreement by facsimile or other electronic transmission shall
constitute effective delivery thereof. An electronic record of this executed
Agreement maintained by the Lender shall be deemed to be an original.

 

Section 15.                                   Governing Law. This Agreement is
prepared and entered into with the intention that the law of the State of
Illinois shall govern its construction and enforcement, except that insofar as
this Agreement relates to a Document which by its terms is governed by the law
of the State of Arkansas, this Agreement shall also be governed by the law of
the State of Arkansas.

 

[SIGNATURE PAGE(S) AND EXHIBIT(S), 
IF ANY, FOLLOW THIS PAGE]

 

8

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

 

LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC

 

 

 

 

 

By

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

 

 

By

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, President and

 

 

Chief Executive Officer

 

 

 

 

 

 

 

LITTLE ROCK HC&R NURSING, LLC

 

 

 

 

 

 

 

By

/s/ Boyd P. Gentry

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

THE PRIVATEBANK AND TRUST COMPANY

 

 

 

 

 

 

 

By

 

 

 

Amy K. Hallberg, Managing Director

 

- AdCare Little Rock Owner Loan Third Modification Agreement -

- Signature Page 1 -

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

 

LITTLE ROCK HC&R PROPERTY HOLDINGS, LLC

 

 

 

 

 

By

 

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

 

 

 

 

By

 

 

 

Boyd P. Gentry, President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

LITTLE ROCK HC&R NURSING, LLC

 

 

 

 

 

 

 

By

 

 

 

Boyd P. Gentry, Manager

 

 

 

 

 

 

 

THE PRIVATEBANK AND TRUST COMPANY

 

 

 

 

 

 

 

By

/s/ Amy K. Hallberg

 

 

Amy K. Hallberg, Managing Director

 

- AdCare Little Rock Owner Loan Third Modification Agreement -

- Signature Page 1 -

 

--------------------------------------------------------------------------------