Exhibit 10.12

 

Execution Version

PLEDGE AGREEMENT

 

This PLEDGE AGREEMENT (this “Agreement”) is dated as of May 18, 2018 by and
between ADCARE OPERATIONS, LLC, a Georgia limited liability company (“Pledgor”),
and PINECONE REALTY PARTNERS, II, LLC, a Delaware limited liability company
(together with its successors and assigns, “Lender”).  

 

A.Pursuant to that certain Loan Agreement, dated as of February 15, 2018 , 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, LLC, a Georgia limited liability company, as borrower (the “Attalla
Borrower”), 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 the “Existing Guarantors” and each as an “Existing Guarantor”), and
Lender (the “Loan Agreement”), Lender has made loans, advances and other
extensions of credit to each Borrower.  

 

B.A portion of the loans, advances and other extensions of credit under the Loan
Agreement were used to settle or otherwise satisfy certain litigation claims
against the Pledgor, which litigation claims, if adversely determined, could
have reasonably been expected to have a material adverse effect on, and cause
irreparable harm to, the operations, business, properties, condition (financial
or otherwise) or prospects of RHP Guarantor and its Subsidiaries (collectively,
the “Existing RHP Parties”), including Pledgor, taken as a whole, by (i) causing
one or more defaults under the definitive documentation governing the
outstanding Indebtedness of one or more Existing RHP Parties, (ii) enabling the
lenders of such Indebtedness to accelerate such Indebtedness and foreclose on
the collateral therefor and (iii) causing RHP Guarantor and its Subsidiaries to
attempt to restructure such Indebtedness by commencing an Insolvency Proceeding,
which would have reasonably been expected to result in the termination or
rejection of the Operating Leases.

C.In connection with the initial loans, advances and other extensions of credit,
the Credit Parties agreed, pursuant to Section 5.3 of the Loan Agreement, to
cause, within 90 days of the date of the Loan Agreement, each subsidiary of
Pledgor to transfer and assign to the appropriate subsidiary of AdCare Holdco
the Operating Leases to which such subsidiary of Pledgor is a party, all of
which Operating Leases are material to the operations, business, properties,
condition (financial or otherwise) or prospects of the Existing RHP Parties,
taken as a whole (the “AdCare Opco Assignment”).  

D.The Credit Parties have informed Lender that, as of the date hereof, several
Events of Default have occurred and are continuing under the Loan Agreement. As
a result of the foregoing, Lender is currently entitled to accelerate all
Obligations and other amounts outstanding under the Loan Agreement, which
acceleration would have a material adverse effect on, and cause irreparable harm
to, the operations, business, properties, condition (financial or

 

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otherwise) or prospects of the Existing RHP Parties, taken as a whole. The
Credit Parties have requested Lender enter into that certain Forbearance
Agreement, dated as of the date hereof, with the Borrowers and the Existing
Guarantors, pursuant to which, among other things, Lender will agree to forbear
from exercising certain rights with respect to the Specified Defaults (as
defined in the Forbearance Agreement).

E.The Credit Parties have informed Lender that the AdCare Opco Assignment will
not be able to be completed within such 90-day period and an Event of Default
that is not a Specified Default will occur as a result of such failure to comply
with Section 5.3 of the Loan Agreement, which would result in a Termination
Event under, and as defined in, the Forbearance Agreement and enable Lender to
accelerate all Obligations and other amounts outstanding under the Loan
Agreement, which acceleration would have a material adverse effect on, and cause
irreparable harm to, the operations, business, properties, condition (financial
or otherwise) or prospects of the Existing RHP Parties, taken as a whole. As a
result, the Credit Parties have requested Lender to agree to amend the Loan
Agreement to eliminate the requirement to consummate the AdCare Opco Assignment.

F.As consideration for Lender’s agreement to forbear from exercising remedies
with respect to the Specified Defaults and to eliminate the requirement in the
Loan Agreement to consummate the AdCare Opco Assignment (each of which, if not
agreed to by Lender, would reasonably be expected to have a material adverse
effect on, and cause irreparable harm to, the operations, business, properties,
condition (financial or otherwise) or prospects of the Existing RHP Parties
(including Pledgor), taken as a whole, Pledgor has agreed to, among other
things, guarantee (the “Guaranty”) the full and prompt payment of each Loan to
and other sums owed by, and all other Obligations of, each Borrower under the
Loan Agreement and the other Loan Documents pursuant to that certain Guaranty
Agreement, dated as of the date hereof (the “Guaranty Agreement”) and to secure
its obligations under the Guaranty by granting a security interest in the
Pledged Collateral (as defined herein) in favor of Lender.

G.This Agreement is intended to provide security for the Guaranty and payment
and performance of all other Obligations of Pledgor under the Guaranty
Agreement.  All capitalized terms used but not otherwise defined in this
Agreement shall have the meanings provided to such terms in the Loan Agreement
and the Guaranty Agreement, as applicable.

 

NOW, THEREFORE, in consideration of the foregoing and in consideration of the
mutual covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and to secure the
Guaranty and payment and performance of all other Obligations of Pledgor under
the Guaranty Agreement, and the performance by Pledgor of all the terms,
conditions, and provisions of this Agreement, Pledgor hereby agrees as follows:

 

article 1

PLEDGE AND ASSIGNMENT

1.1Pledge and Assignment.  As security for the Guaranty and payment and
performance of all other Obligations of Pledgor under the Guaranty Agreement,
Pledgor hereby

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pledges to, and grants to Lender a security interest in, all right, title and
interest of Pledgor in all of the following (collectively, the “Pledged
Collateral”):

a.the Equity Interests listed on Schedule I hereto, including all membership
interests, limited liability company interests and other equity interests (the
“Pledged Interests”) in the issuers listed on Schedule I or any issuers
hereafter acquired by the Pledgor (the “Issuers”) and any certificates
representing the Pledged Interests, and all dividends, distributions, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Interests and any and all voting rights or other rights relating
to the management of the Issuers;

 

b.all additional interests of Pledgor in the Issuers from time to time acquired
by Pledgor in any manner (which interests shall be deemed to be part of the
Pledged Interests), and any certificates representing such additional interests,
and all dividends, distributions, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such interests;

 

c.all other property hereafter issued to Pledgor in substitution for or in
addition to any of the foregoing, all certificates, if any, and instruments
representing or evidencing such property, and all dividends, distributions,
cash, instruments and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
thereof; and

 

d.all products and proceeds of all of the foregoing.

 

1.2Obligations Secured.  This Agreement is made in favor of Lender to secure
payment of the Guaranty and payment and performance of all other Obligations of
Pledgor under the Guaranty Agreement.

1.3Delivery of Pledged Collateral.  If applicable, from time to time all
certificates and instruments evidencing any of the Pledged Collateral shall be
delivered to and held by or on behalf of Lender pursuant hereto.  All such
certificates and instruments evidencing any of the Pledged Interests shall be
accompanied by duly executed instruments of transfer or otherwise in form and
substance satisfactory to Lender.

article 2

Representations and Warranties

2.1Pledgor represents and warrants and, so long as this Agreement is in effect,
shall be deemed continuously to represent and warrant that:

a.Pledgor now is the sole and absolute owner of all right, title and interest in
the Pledged Collateral with full right and title to assign the same, and there
is no outstanding assignment, transfer, mortgage or pledge thereof and there are
no restrictions thereon which would impair the transfer of the Pledged
Collateral;

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b.Pledgor has not executed and will not execute any assignment or security
agreement or financing statement covering the Pledged Collateral other than to
Lender;

c.Schedule I is true, correct and complete in all respects as to the Pledged
Interests owned by Pledgor;

d.the Pledged Interests listed on Schedule I hereto are the only Equity
Interests of any Issuer;

e.as of the date hereof, there are no existing options, warrants, calls, or
commitments of any character whatsoever relating to the Pledged Interests owned
by Pledgor;

f.the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement
does not violate (i) the governing documents of Pledgor or any Issuer, or any
indenture, mortgage or agreement to which Pledgor is a party or by which
Pledgor’s properties or assets may be bound, (ii) any restriction on such
transfer or encumbrance of such Pledged Collateral or (iii) any securities law
or other Applicable Law;

g.(i) Each Issuer has expressly elected not to have its membership interests
treated as securities under and governed by Article 8 of UCC, (ii) the Pledged
Collateral is not currently evidenced by a limited liability company certificate
and (iii) Pledgor shall not permit any Issuer to make any such election or cause
any such Pledged Collateral to be evidenced by a limited liability company
certificate without the prior written consent of Lender in its sole and absolute
discretion; and

h.the address specified in Section 4.10 hereof for Pledgor is the principal
place of business and chief executive office of Pledgor.

article 3

COVENANTS REGARDING PLEDGED COLLATERAL

3.1Further Assurances; Possession of Pledged Collateral.  Pledgor shall execute
and deliver to Lender all assignments, endorsements, powers, hypothecations and
other documents requested at any time and from time to time by Lender with
respect to the Pledged Collateral and shall deliver to Lender any dividends
thereon (upon demand by Lender after notice has been provided thereto, which
notice shall be provided no later than five days after declaration of such
dividend) or splits thereof in each case to effectuate the terms of this
Agreement.  Until the later of the payment in full of the Obligations or the
termination of this Agreement, Lender shall hold possession of all instruments
at any time representing or evidencing the Pledged Collateral.

3.2Preservation of Pledged Collateral.  Pledgor represents and warrants that it
is the sole legal and beneficial owner of and has good and marketable title to
the Pledged Interests (or, in the case of after-acquired Pledged Collateral, at
the time Pledgor acquires rights in the Pledged Collateral, will be the sole
legal and beneficial owner thereof) free and clear of any liens, other than
Permitted Liens and liens in favor of Lender hereunder.  Pledgor will, at its
own cost and expense, promptly execute, acknowledge and deliver all such
instruments and take all

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such action as Lender from time to time may reasonably request in order to
protect the lien granted hereby or to enable Lender to exercise and enforce its
rights and remedies hereunder with respect to the Pledged Collateral, and will
defend the title to the Pledged Collateral and the liens of Lender thereon
against the claims of other Persons.  Lender shall be under no duty to: (a)
collect any of the Pledged Collateral or any moneys due or to become due
thereunder; (b) give any notices with respect to the Pledged Collateral; (c)
preserve or maintain any of the Pledged Collateral (except to the extent
delivered to Lender); or (d) preserve rights of Pledgor against prior parties to
the Pledged Collateral.

3.3Voting Rights.  So long as no Event of Default shall have occurred and be
continuing, Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to securities pledged hereunder or any part
thereof; provided, however, that Pledgor shall not at any time, without Lender’s
prior written consent, cast any vote or give or grant any consent, waiver or
ratification or take any other action which could: (a) materially and adversely
affect the value of the Pledged Collateral (or any portion thereof) or interfere
with the practical realization to Lender of the rights afforded to Lender under
this Agreement; (b) violate the terms of this Agreement or any of the Loan
Documents; (c) impair the validity or priority of the security position or
interests of Lender in any manner whatsoever; or (d) cause an Event of
Default.  Upon the occurrence and during the continuance of an Event of Default,
and, following notice from Lender, all rights of Pledgor to exercise the voting
and other consensual rights that it would otherwise be entitled to exercise
pursuant to this Section shall cease, and all such rights shall become vested in
Lender, which shall thereupon have the sole right to exercise such voting and
other consensual rights.

3.4Lender’s Rights.  Upon the occurrence of an Event of Default:

a.Lender may, at its option, and without notice to Pledgor or any other party,
sell or otherwise dispose of any or all of the Pledged Collateral.  The
occurrence or non‑occurrence of an Event of Default hereunder shall in no manner
impair the ability of Lender to demand payment of any portion of the Obligations
which are payable on demand and/or payable pursuant to the Loan
Documents.  Lender shall have all of the rights and remedies of a secured party
under the applicable UCC and under other Applicable Laws.  In addition to all
other rights available to it under Applicable Laws or otherwise, Lender, in
conjunction with the assignment, pledge or transfer of any of the Obligations by
Lender, shall have the right to assign therewith Lender’s rights in any of the
Pledged Collateral, and any assignee, pledgee or transferee shall have the
rights of Lender hereunder with respect to the Pledged Collateral so assigned,
pledged or transferred.

 

b.Any written notice of the sale, disposition, or other intended action by
Lender with respect to the Pledged Collateral which is required by Applicable
Laws and is sent by certified mail, postage prepaid, to Pledgor at Pledgor’s
address specified in Section 4.10 hereof at least ten (10) Business Days prior
to such sale, disposition, or action shall constitute reasonable notice to
Pledgor.

 

c.Pledgor recognizes that Lender may be unable to effect a public sale of all or
part of the Pledged Collateral by reason of certain prohibitions contained in
the Securities Act, and applicable state securities laws, but may be compelled
to resort to one or more private sales

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to a restricted group of purchasers who will be obligated to agree, among other
things, to acquire all or a part of the Pledged Collateral for its own account,
for the Loans and all other Obligations, and not with a view of the distribution
or resale thereof.  Pledgor acknowledges and agrees that any private sale so
made may be at prices and on other terms less favorable to the seller than if
such Pledged Collateral were sold at public sale and that Lender has no
obligation to delay the sale of such Pledged Collateral for the period of time
necessary to permit the registration of such Pledged Collateral for public sale
under any securities laws.  Pledgor agrees that a private sale or sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner.  If any consent, approval or authorization of
any federal, state, municipal or other governmental department, agency or
authority should be necessary to effectuate any sale or other disposition of the
Pledged Collateral, or any partial sale or other disposition of the Pledged
Collateral, Pledgor will execute all applications and other instruments as may
be reasonably required in connection with securing any such consent, approval or
authorization and will otherwise use its best efforts to secure the same.  In
addition, if the Pledged Collateral is disposed of pursuant to Rule 144 of the
Securities Act (“Rule 144”), Pledgor agrees to complete and execute a “Form
144,” or comparable successor form, at Lender’s request; and Pledgor agrees to
provide any material adverse information in regard to the current and
prospective operations of any entity whose membership interest or stock
constitutes all or a portion of the Pledged Collateral of which Pledgor has
knowledge and which has not been publicly disclosed, and Pledgor hereby
acknowledges that Pledgor’s failure to provide such information may result in
criminal and/or civil liability.

 

d.For so long as such Default or Event of Default continues and before the
Pledged Collateral has been sold, Lender shall be entitled to remove any or all
of the managers of each Issuer (the “Managers”) and appoint any representatives
of Lender or any other person or entity, as Lender elects, to be the Manager(s)
in order to fill the vacancy created by such removal and the members of the
Issuers shall not have the right to remove the Managers so appointed by Lender
or to elect a sole Manager or any new or additional Managers.

3.5.Limitations in Organizational Documents.  Any limitations contained in the
articles or organization, operating agreements or other organizational documents
of the Issuers (“Organizational Documents”) inconsistent with the provisions of
this Agreement shall be deemed waived until the Loans to and other sums owed by,
and all other Obligations of, each Borrower under the Loan Agreement and the
other Loan Documents, the Guaranty and payment and performance of all other
Obligations of Pledgor under the Guaranty Agreement have all been fully and
finally paid and performed, including, without limitation any provision that
requires approval of actions by a “Majority in Interest” and provisions
requiring the approval of the Managers for certain actions.  Notwithstanding
anything contained in any Issuer’s Organizational Documents to the contrary, all
restrictions on transfer and assignability of any member’s interests in such
Issuer shall be inapplicable, and of no force and effect, as to any transfer of
any interests in such Issuer to Lender (or any nominee affiliate, successor,
assignee or transferee thereof) or other person in accordance with this
Agreement.  

3.6.HUD Loans.  Notwithstanding anything contained in this Agreement to the
contrary, if any provision contained in any Organizational Documents of Issuers
with loans insured by the U.S. Department of Housing and Urban Development
(“HUD”), or any provision in the loan documents for such HUD-insured loans,
requires approval of HUD and/or the lender

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whose loan is insured by HUD (the “HUD Lender”) in order for Lender to cause any
of the Pledged Collateral to be transferred following an Event of Default, then
(i) Lender shall notify HUD and the HUD Lender, as applicable, of its intention
to cause such transfer and (ii) Lender shall not cause such transfer to be made
without the consent of HUD or the HUD Lender, as applicable, unless Lender
determines that such transfer would not cause a default or event of default
under such loan documents.

 

article 4

ADDITIONAL PROVISIONS

4.1Costs and Expenses.  All costs and expenses, including, without limitation,
reasonable attorneys’ fees and expenses, incurred by or on behalf of Lender in
connection with the taking, holding, preparing for sale or other disposition,
selling, managing, collecting or otherwise disposing of the Pledged Collateral
(collectively, the “Liquidation Costs”), together with interest thereon at a per
annum rate of interest which is equal to the then highest rate of interest
charged on the principal of any of the Obligations, from the date of payment
until repaid in full, shall be paid and shall constitute and become a part of
the Obligations secured hereby.  Any proceeds of sale or other disposition of
the Pledged Collateral will be applied by Lender to the payment of Liquidation
Costs and the balance of such proceeds (if any) will be applied by Lender toward
the payment of the Loans to and other sums owed by, and all other Obligations
of, each Borrower under the Loan Agreement and the other Loan Documents, the
Guaranty and payment and performance of all other Obligations of Pledgor under
the Guaranty Agreement (whether then due or not), at such time or times and in
such order and manner of application as Lender may from time to time in its sole
discretion determine.

4.2No Duty to Act.  Nothing contained in this Agreement or any of the other Loan
Documents shall be construed as requiring Lender to take any particular
enforcement or remedial action or combination of enforcement or remedial actions
at any time.

4.3Remedies Not Limited; Partial Exercise.  All of Lender’s rights and remedies,
whether provided under this Agreement, the other Loan Documents, at law, in
equity, or otherwise shall be cumulative and none is exclusive.  Such rights and
remedies may be enforced alternatively, successively or concurrently, and
Pledgor hereby agrees that Lender may enforce its rights separately hereunder
with respect to individual items or classes of Pledged Collateral without
waiving or prejudicing in any respect Lender’s rights hereunder with respect to
any other items or classes of Pledged Collateral.  Lender may exercise any other
right or remedy which may be available to it under this Agreement, the Loan
Agreement or Applicable Law, including, without limitation, the remedies set
forth in Article 11 of the Loan Agreement, or may proceed by appropriate court
action to enforce the terms hereof, to recover damages for the breach hereof, or
to rescind this Agreement in whole or in part.

4.4Mitigation of Damages.  To the extent permitted by Applicable Laws, Pledgor
hereby waives any notice or other mandatory requirements of Applicable Laws, now
or hereafter in effect, which might require Lender to sell, lease or otherwise
use any of the Pledged Collateral in mitigation of Lender’s damages; provided,
however, that Pledgor does not waive any legal requirement that Lender act in a
commercially reasonable manner.

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4.5No Waivers by Lender.  No failure of Lender to exercise, or delay by Lender
in the exercise of, any of its rights and remedies granted herein following the
occurrence of a Default or an Event of Default shall constitute a waiver of any
of Lender’s rights with respect to such Default or Event of Default or any
subsequent Default or Event of Default (whether or not similar).  Any failure or
delay by Lender to require strict performance by Pledgor of any of the
provisions, warranties, terms and conditions contained herein or in any other
agreement, document or instrument, shall not affect Lender’s right to demand
strict compliance and performance therewith.

4.6Waiver of Notice and Hearing Regarding Probable Cause by Pledgor. Pledgor
acknowledges being advised of a constitutional right, as to pre-judgment relief
as may be sought by Lender through the process of a court, to notice and a court
hearing to determine whether, upon an Event of Default, there is probable cause
to sustain the validity of Lender’s claim and whether Lender is entitled to
possession of the Pledged Collateral.  Being so advised, Pledgor, in regard to
such relief and to the fullest extent permitted by Applicable Laws, hereby
voluntarily gives up, waives and surrenders any right to a notice and hearing to
determine whether there is probable cause to sustain the validity of Lender’s
claim.  Any notices required pursuant to any state or local law shall be deemed
reasonable if mailed by Lender to Pledgor at Pledgor’s address specified in
Section 4.10 hereof at least ten (10) Business Days prior to disposition of the
Pledged Collateral, and in reference to a private sale, need state only that
Lender intends to negotiate such a sale.

4.7Additional Waivers.  In addition, and without limitation on any waivers
contained in this Agreement or the other Loan Documents:

a.

Pledgor hereby unconditionally waives any defense to the enforcement of this
Agreement based on the characterization of Pledgor as a guarantor and without
limitation.

b.

The Obligations of Pledgor 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 Pledgor, nor shall
any of the following give Pledgor any recourse or right of action against
Lender:

 

(1)

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;

 

(2)

Any exercise or non‑exercise by Lender of any right or privilege under the Loan
Documents;

 

(3)

Any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Pledgor, or any
guarantor (which term shall include any other party at any time directly or
contingently liable for any Credit Party’s Obligations under the Loan Documents)
or any affiliate of Pledgor or any guarantor, or any action taken with respect
to the Loan Documents by any trustee or receiver, or by

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any court, in any such proceeding, whether or not Pledgor shall have had notice
or knowledge of any of the foregoing;

 

(4)

Any release or discharge of any Credit Party or any guarantor 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 evidenced by the Loan Documents;

 

(5)

Any subordination, compromise, release (by operation of law or otherwise),
discharge, compound, collection, or liquidation of any or all of the Pledged
Collateral or any other collateral described in any of the Loan Documents or
otherwise in any manner, or any substitution with respect thereto;

 

(6)

Any assignment or other transfer of any of the Loan Documents;

 

(7)

Any acceptance of partial performance of the Obligations;

 

(8)

Any transfer or consent to the transfer of any Healthcare Facility or any
portion thereof or any collateral described in the Loan Documents or otherwise;
and

 

(9)

Any bid or purchase at any sale of any collateral described in the Loan
Documents or otherwise, or the release of the same by Lender.

c.

Pledgor unconditionally waives any defense to the enforcement of this Agreement,
including:

 

(1)

All presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Agreement or any Loan Document;

 

(2)

Any right to require Lender to proceed against any other Person (including
without limitation, any Credit Party 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;

 

(3)

The defense of any statute of limitations affecting the liability of Pledgor
hereunder, the liability of any Credit Party or any guarantor under the Loan
Documents, or the enforcement hereof, to the extent permitted by law;

 

(4)

Any defense arising by reason of any invalidity or unenforceability of (or any
limitation of liability in) any of the Loan Documents or

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any disability of any Credit Party, Pledgor 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 Credit Party,
Pledgor or any guarantor;

 

(5)

Without limitation on clause (4) 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 Credit Party or any principal of any Credit Party or any
defect in the formation thereof;

 

(6)

Any defense based upon the application by any Credit Party of the proceeds of
the Loans or other Obligations for purposes other than the purposes represented
by such Credit Party to Lender or intended or understood by Lender or Pledgor;

 

(7)

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
Pledgor or the rights of Pledgor to proceed against any other Credit Party for
reimbursement, or both;

 

(8)

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;

 

(9)

Any defense based upon Lender’s election, in any proceeding instituted under the
Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code or any successor statute;

 

(10)

Any defense based upon any borrowing or any grant of a security interest under
Section 364 of the Federal Bankruptcy Code;

 

(11)

Any duty of Lender to advise Pledgor of any information known to Lender
regarding the financial condition of any Credit Party, or any guarantor all
other circumstances affecting any Credit Party or any guarantor’s ability to
perform its Obligations to Lender, it being agreed that Pledgor assumes the
responsibility for being and keeping informed regarding such condition or any
such circumstances; and

 

(12)

Any right of subrogation, reimbursement, exoneration, contribution or indemnity,
or any right to enforce any remedy

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which Lender now has or may hereafter have against any other Person or any
benefit of, or any right to participate in, any security now or hereafter held
by Lender.

d.Bankruptcy Proceeding.  So long as any of the Loans or Obligations shall be
owing to Lender, Pledgor shall not, 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 other Credit
Party.  In any bankruptcy or other proceeding in which the filing of claims is
required by law, Pledgor shall file all claims which Pledgor may have against
any other Credit Party relating to any indebtedness of such Credit Party to
Pledgor and shall assign to Lender all rights of Pledgor thereunder.  If Pledgor
does not file any such claim, Lender, as attorney‑in‑fact for Pledgor, is hereby
authorized to do so in the name of Pledgor 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 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, Pledgor hereby
assigns to Lender all of Pledgor’s rights to any such payments or distributions;
provided, however, Pledgor’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 the Guaranty
Agreement.  Notwithstanding anything to the contrary herein, the liability of
Pledgor 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
Pledgor on account of the Promissory Note or the other Loan Documents which
Lender shall restore or return by reason of the bankruptcy, insolvency or
reorganization of Pledgor or for any other reasons, all as though such amount
had not been paid.

e.Subrogation.  Pledgor understands that the exercise by Lender of certain
rights and remedies may affect or eliminate Pledgor’s right of subrogation
against any Credit Party and that Pledgor may therefore incur partially or
totally nonreimbursable liability hereunder.  Nevertheless, Pledgor 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 Pledgor that the Obligations hereunder shall be absolute, continuing,
independent and unconditional under any and all circumstances.  Notwithstanding
any other provision of this Agreement or the Loan Documents to the contrary,
until the Loans to and other sums owed by, and all other Obligations of, each
Borrower under the Loan Agreement and the other Loan Documents, the Guaranty and
payment and performance of all other Obligations of Pledgor under the Guaranty
Agreement have all been fully paid and performed, Pledgor hereby waives and
releases any claim or other rights which Pledgor may now have or hereafter
acquire against any other Credit Party or any guarantor of all or any of the
Obligations of Pledgor hereunder that arise from the existence or performance of
Pledgor’s Obligations under this Agreement 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 Credit

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Party, any guarantor or any collateral which Pledgor 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, without limitation, the right to take or receive from any Credit
Party, any guarantor, 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.

f.Additional Waivers.  Pledgor shall not 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 Credit Party or any guarantor, or (ii) protect the property
covered by such lien or security interest.

4.8Lender’s Actions.  Lender may take or release the Pledged Collateral or other
security, may release any party primarily or secondarily liable for any
Indebtedness to Lender, may grant extensions, renewals or indulgences with
respect to such Indebtedness, and may apply any other security therefor held by
it to the satisfaction of such Indebtedness, all without prejudice to any of its
rights or Pledgor’s Obligations hereunder or under any of the other Loan
Documents.

4.9Liability for Loss.  Lender shall not be liable for any loss to the Pledged
Collateral in its possession, nor shall such loss diminish the debt due, except
for loss caused by Lender’s willful misconduct or gross negligence.

4.10Notices.  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 Pledgor:

 

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.

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4.11Further Assurances.  Pledgor will promptly and duly execute and deliver to
Lender such further documents and assurances and take such further actions as
Lender may from time to time reasonably request in order to carry out the intent
and purpose of this Agreement and to establish and protect the rights and
remedies created or intended to be created in favor of Lender hereunder.

4.12Successors and Assigns.  This Agreement shall be binding upon, and shall
inure to the benefit of, Pledgor, Lender, and their respective successors and
assigns.  

4.13Assignment.  Pledgor acknowledges that it may not assign any of its rights
or delegate any of its duties under this Agreement.  Lender may assign all of
its right, title and interest in and to this Agreement and the Pledged
Collateral to any transferee of the Loans or other Obligations that is
transferred in accordance with the terms of the Loan Agreement.

4.14Governing Law; Venue, etc.

a.THIS AGREEMENT 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, PLEDGOR HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

b.ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR PLEDGOR ARISING OUT OF
OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT
IN THE STATE OF NEW YORK AND PLEDGOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING,
AND PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN
ANY SUIT, ACTION OR PROCEEDING.

c.Pledgor expressly acknowledges and agrees that the provisions of this Section
4.14 are reasonable and made for the express benefit of Lender.

4.15Trial by Jury.  PLEDGOR 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 PLEDGOR 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

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HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 4.15 IN ANY PROCEEDING AS
CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.

4.16No Oral Modifications or Waivers.  This Agreement 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.

4.17Termination of Agreement; Release of Security Interest.  Upon the
satisfaction in full in cash of all amounts owing with respect to the Loans to
and other sums owed by, and all other Obligations of, each Borrower under the
Loan Agreement and the other Loan Documents, the Guaranty and payment and
performance of all other Obligations of Pledgor under the Guaranty Agreement,
this Agreement shall terminate without further action by Lender; provided,
however, that this Agreement shall remain in full force and effect and continue
to be effective should any petition be filed by or against Pledgor for
liquidation or reorganization, should Pledgor 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 Pledgor’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 Loans to and
other sums owed by, and all other Obligations of, each Borrower under the Loan
Agreement and the other Loan Documents, the Guaranty and payment and performance
of all other Obligations of Pledgor under the Guaranty Agreement shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.  Upon termination of this Agreement, Lender will
return the Pledged Collateral, if applicable, to Pledgor upon request therefor
and will execute and deliver to Pledgor any releases, termination statements or
similar instruments of reconveyance as Pledgor may reasonably request.  All such
instruments and documents shall be prepared by Pledgor and filed or recorded by
Pledgor, at Pledgor’s sole expense, and Lender shall not have any duty,
obligation or liability with respect thereto.

4.18Joint and Several Obligations.  If this Agreement is now, or hereafter shall
be, signed by more than one Person, it shall be the joint and several obligation
of all such persons (including, without limitation, all makers, endorsers,
guarantors and sureties, if any) and shall be binding on all such persons and
their respective heirs, executors, administrators, legal representatives,
successors and assigns.

4.19Severability.  Any provision of this Agreement 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, Pledgor
hereby waives any provision of law which renders any provision hereof or thereof
prohibited or unenforceable in any respect; provided, however, that to the
extent any provision of this Agreement violates any contract in effect as of the
date hereof to which Pledgor is a party or Applicable Law and such

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waiver is ineffective, such provision of this Agreement shall be deemed
automatically amended or modified to the extent necessary, and only to the
extent necessary, to ensure this Agreement does not violate such contract or
Applicable Law.

4.20Headings.  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.

4.21Counterparts.  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 Pledgor 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.

4.22Loan Document. This Agreement shall constitute a Loan Document and a
Collateral Document. It shall be an immediate Event of Default under the Loan
Agreement if Pledgor or any other Credit Party fails to perform, keep or observe
any term, provision, condition, covenant or agreement contained in this
Agreement or if any representation or warranty made by Pledgor or any other
Credit Party under or in connection with this Agreement shall be untrue, false
or misleading in any respect when made.

[remainder of page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF the undersigned Pledgor has executed and delivered this
Agreement under seal as of the day and year first written above.

 

PLEDGOR:

 

ADCARE OPERATIONS, LLC, a Georgia limited liability company

By: __________________________________

Name: Brent Morrison

Title: Manager

 

 

 

[Signature Page to Pledge Agreement]

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SCHEDULE I

PLEDGED INTERESTS

Name of Issuer

Type of Organization

Jurisdiction of Organization

Class of Equity Interest

Percentage of Outstanding
Equity Interests

NW 61st Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Little Rock HC&R Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Woodland Hills HC Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Northridge H&R Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Erin Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Homestead Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Park Heritage Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Valley River Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Mountain View Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Woodland Manor Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

CP Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

QC Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

ADK Georgia, LLC

Limited Liability Company

Georgia

Membership Interest

100%

APH&R Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

 

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Mountain Top ALF, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Eaglewood Village, LLC

Limited Liability Company

Georgia

Membership Interest

100%

2014 HUD Master Tenant, LLC

Limited Liability Company

Georgia

Membership Interest

100%

KB HUD Master Tenant, LLC

Limited Liability Company

Georgia

Membership Interest

100%

RMC HUD Master Tenant, LLC

Limited Liability Company

Georgia

Membership Interest

100%

ER Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Benton Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Rose Missouri Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Sumter N&R, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Mt. Kenn Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Glenvue H&R Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

Georgetown HC&R Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

CSCC Nursing, LLC

Limited Liability Company

Georgia

Membership Interest

100%

 

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