Document:

Exhibit 10.3

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the “Agreement”) made as of the 1st day of January, 2012 by and between HEARTH & HOME OF VANDALIA, INC. an Ohio corporation, with offices at 5057 Troy Road, Springfield, Ohio, 45502 (referred to in this Agreement as the “Debtor”), and RED MORTGAGE CAPITAL, LLC, a Delaware limited liability company, having an office and place of business at Two Miranova Place, 12th Floor, Columbus, Ohio 43215 (referred to in this Agreement as the “Secured Party”).

 

The Debtor is indebted to the Secured Party in the amount of $3,721,500.00 in connection with the financing of a health care facility known as “HEARTH & HOME OF VANDALIA”, FHA Project No. 046-43057, located in Vandalia, Montgomery County, Ohio (referred to in this Agreement as the “Project”). The indebtedness (which is referred to in this Agreement as the “Indebtedness”) is evidenced by a Mortgage Note dated of even date herewith, payable to the order of the Secured Party (referred to in this Agreement as the “Note”), and is secured by a Mortgage (the “Mortgage”) dated of even date herewith, and recorded or to be recorded among the land records for Montgomery County, Ohio. The Mortgage securing the Indebtedness is insured by the Secretary of Housing and Urban Development (referred to in this Agreement as the “Secretary”) under Section 232 pursuant to Section 223(f) of the National Housing Act, as amended.

 

To further secure the repayment of the Indebtedness and at the request of the Secured Party and the Secretary, the Debtor wishes to grant to the Secured Party, pursuant to the Uniform Commercial Code as in effect in the State of Ohio (referred to in this Agreement as the “State”) a security interest in certain property related to the Project. The parties also intend to set forth in this instrument their agreement with respect to that security interest.

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises set forth below, and in further consideration of the sum of One Dollar ($1.00) and other good and valuable consideration in hand paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1.                       Creation of Security Interest.

 

(a)                            Granting Clause. The Debtor hereby grants a security interest (referred to in this Agreement as the “Security Interest”) to the Secured Party in all property (referred to in this Agreement as the “Collateral”) which (i) is owned by the Debtor or becomes the property of the Debtor hereafter and is used in the operation of the Project, and/or (ii) is described in Exhibit “B” and Exhibit “C” attached to this Agreement; and/or (iii) is part of, attached to, or located on the land and premises legally described in Exhibit “A” attached to this Agreement. Exhibits “A,” “B,” and “C” are hereby incorporated into this Agreement by reference. The Security Interest is granted for the purpose of securing the Indebtedness.

 

(b)                            Warranty. The Debtor warrants and represents to the Secured Party that it owns the Collateral free and clear of any lien, security interest, encumbrance, and other claim of any kind, other than the Security Interest created by this Agreement, and has the full power to grant the Security Interest; provided, however that this warranty is subject to: (i) the rights of the lessor with respect to any personal property or equipment leased by the Debtor, as lessee; (ii) the rights of the lessee with respect to any personal property or equipment leased by the Debtor, as lessor (iii) any security deposits, accounts or monies in the custody of the Debtor or under its control which are subject to the rights of third parties; and (iv) any account or deposit which is

 

 

subject to terms and conditions contained in special purpose escrow agreements and other documents relating to the indebtedness.

 

(c)                             Perfection. The Debtor agrees, to the best of its knowledge, to comply with all applicable laws and requirements in order to grant to Secured Party a valid, perfected first lien in the Collateral, authorizes the Secured Party to file financing statements pursuant to Uniform Commercial Code which name Debtor and identify the Collateral in such places as are necessary and appropriate under the Uniform Commercial Code, and upon the request of the Secured Party, from time to time execute and deliver to the Secured Party one or more financing statements pursuant to the Uniform Commercial Code then in effect in the State, and any other instruments required by the Secured Party in connection herewith the filing of which is advisable, in the sole judgment of the Secured Party, to perfect the Secured Party’s Security Interest in the Collateral under the laws of the United States, the State, or any other jurisdiction in which the Secured Party shall determine such filings to be advisable. The Debtor hereby authorizes the Secured Party to execute and file, at any time and from time to time, on behalf of the Debtor one or more financing statements with respect to the Collateral, the filing of which is advisable, in the sole judgment of the Secured Party including, especially, but without limitation, continuation statements and statements reperfecting a security interest in any of the Collateral where the financing statements with respect thereto had lapsed. The Debtor hereby irrevocably appoints the Secured Party as the Debtor’s attorney-in-fact to execute and file, from time to time, on its behalf, one or more financing statements with respect to the Collateral and to execute such other documents and instruments on behalf of the Debtor as the Secured Party, in its sole judgment, shall deem necessary or desirable for the purposes of effectuating this Agreement, such power being coupled with an interest and irrevocable. The Debtor agrees to notify the Secured Party prior to any change in its mailing address or principal place of business, in order that a prompt filing or refiling of any outstanding financing statements or other public notices may be made, if necessary. The Debtor further agrees to advise the Secured Party promptly of any new facts which, to the best of its knowledge, would adversely affect the priority of the Security Interest granted to the Secured Party by this Agreement.

 

(d)                            Proceeds, etc. The Security Interest shall extend to and include the proceeds of any Collateral and any property which the Debtor may receive on account of any Collateral.

 

(e)                             Costs and Expenses of Secured Party. The Debtor will pay any and all fees, costs and expenses, of whatever kind and nature, which the Secured Party may incur in filing any financing statements or other public notices, and the charges of any attorneys whom the Secured Party may engage in preparing and filing such documents, making title examinations and rendering opinion letters, as well as all costs and expenses incurred by the Secured Party, including reasonable attorney’s fees and court costs incurred by the Secured Party hereunder, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions or proceedings arising out of or relating to this transaction, promptly after the Debtor shall have been notified by the Secured Party of the amount of such fees, costs or expenses, together with interest thereon at the rate of ten percent (10%) per annum until paid.

 

2.                         Care of Collateral. Unless specifically otherwise agreed by the Secured Party in writing, the Debtor shall at its sole cost and expense:

 

(a)                            Maintain possession of the Collateral on the Project premises (which are described in Exhibit “A”) and not remove the Collateral from that location.

 

(b)                            Keep the Collateral separate and identifiable.

 

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(c)                             Maintain the Collateral in good repair and condition as the same is as of the date hereof, as the same is when acquired, reasonable wear and tear excepted, making replacements when and where necessary, and otherwise deal with the Collateral in all such ways as are considered good practice by owners of such property.

 

(d)                            Use the Collateral lawfully and only as permitted by insurance policies.

 

(e)                             Permit the Secured Party to inspect the Collateral and any records relating to the Collateral upon reasonable request and notice during normal business hours.

 

(f)                              Insure the Collateral for its full replacement value, subject to a deductible of not more than the lesser of (i) $10,000 or (ii) one percent (1%) of the Mortgage Loan (unless the Secured Party has given written approval of a larger deductible) in the name of and with loss or damage payable to the Secured Party, the Federal Housing Administration and the Debtor as their interests may appear. All such policies shall provide for not less than thirty (30) days minimum written notice to the Secured Party of cancellation or material change.

 

(g)                             Keep the Collateral free and clear of all liens and security interests of others.

 

3.                         Defense of Collateral. The Debtor will promptly defend any proceeding which may affect the Security Interest or the title to the Collateral, and will reimburse the Secured Party for all costs and expenses incurred by the Secured Party in connection with such defense.

 

4.                         Charges, Liens and Encumbrances Affecting Collateral. The Debtor will pay when due all existing or future charges, liens, or encumbrances on and all taxes and assessments now or hereafter imposed on or affecting the Collateral.

 

5.                       Remedies on Default.  In the event of a default, as defined in Section 6:

 

(a)                            The Secured Party may, at its option, declare the full principal amount of the Indebtedness, and any interest accrued on that amount, to be immediately due and payable; and

 

(b)                            The Secured Party shall have all of the rights and remedies of a Secured Party against the Collateral under the Uniform Commercial Code as in effect in the State.

 

Without limitation of those rights and remedies, the Secured Party may, upon written notice to the Debtor, take, and publicly or privately sell or convey full right, title and interest in and to, the Collateral, or any part of it, in the name of the Secured Party and/or its designees. The Debtor hereby constitutes and appoints the Secured Party as its true and lawful attorney-in-fact, such power being coupled with an interest and irrevocable, to assign and transfer its interest in any or all of the Collateral in the event of a default.

 

6.                       Defaults. For purposes of this Agreement, the Debtor shall be deemed to be in default if:

 

(a)                            The Debtor violates any provision of (i) the Note (which evidences the Indebtedness); (ii) the Mortgage (which also secures the Indebtedness); (iii) this Security Agreement; or (iv) any other instrument related to the Indebtedness (which Note, Mortgage, Security Agreement and other instruments related to the Indebtedness are hereinafter sometimes collectively referred to as the “Security Documents”); provided, however, that an event of default shall not occur unless such violations are not cured within applicable cure periods, if any, as may be provided in said Security Documents;

 

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(b)                            There occurs any actual or threatened demolition of or injury or waste to the Project premises, not covered by insurance, or not replaced or restored by the Debtor, which may impair the value of the Collateral; or

 

(c)                             A receiver is appointed for or a petition in bankruptcy is filed by or against the Debtor, its successors or its assigns, which receiver or involuntary bankruptcy petition is not removed, vacated or stayed within sixty (60) days from the first date of appointment or filing thereof; or

 

(d)                            The Debtor is dissolved and liquidation of the Debtor is commenced in accordance with the Debtor’s organizational documents and/or the law of the State.

 

(e)                             The Debtor changes its name or the jurisdiction in which it is originated without the prior written consent of the Secured Party.

 

7.                         No Waiver. No failure on the part of the Secured Party to exercise, and no delay on the part of the Secured Party in exercising, any right or remedy under this Agreement shall operate as a waiver of that right or remedy. A single or partial exercise by the Secured Party of any right or remedy under this Agreement shall not constitute an election of remedies by the Secured Party or preclude any other or further exercise of that right or remedy or the exercise of any other right or remedy. The remedies provided in this Agreement are not exclusive of any remedies provided by law.

 

8.                         Priority of Remedies; Renewals and Extensions. Neither the Debtor nor any other persons interested in the Collateral or the proceeds of the Collateral shall have any right to require the Secured Party first to resort to or proceed personally against any other person or to proceed against any other collateral security, or to give priority or preference to any item of Collateral, or to proceed upon any guaranty prior to exercising its rights hereunder. No renewal or extension of the Indebtedness, no release or surrender of any Collateral given as security for the Indebtedness, no release of any obligor with respect to the Indebtedness, and no delay by the Secured Party in enforcing the Indebtedness or exercising any right or power with respect to the Indebtedness shall affect the Secured Party’s rights with respect to the Collateral.

 

9.                         Termination. This Agreement, and each of the rights and remedies afforded to the Secured Party hereunder shall automatically terminate upon payment of the Indebtedness in full in compliance with the provisions of the Note. Upon termination hereunder, the Secured Party hereby agrees to execute a Termination Statement and any other documents reasonably necessary to terminate this Agreement and release the Collateral from the Security Interest.

 

10.                  Non-Recourse Obligation. Notwithstanding any other provision contained herein or in the Note, it is agreed that the execution of the Note shall impose no personal liability upon the Debtor (nor any of its present or future members or managers) for payment of the indebtedness evidenced thereby and in the event of a default, the holder of the Note shall look solely to the property subject to the Mortgage and this Security Agreement and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Debtor (or any of its present or future limited or general partners) except such judgment as may be necessary to foreclose or bar its interest in the property subject to the Mortgage and this Security Agreement and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Debtor under that certain Regulatory Agreement of even date herewith between the Debtor and the Secretary.

 

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11.                  Terms. Unless otherwise defined, all words used in this Agreement shall have the meanings given them in the Uniform Commercial Code as in effect in the State.

 

12.                  Notices. All notices, demands and communications between the parties concerning this Agreement shall be in writing and shall be delivered, or mailed by registered or certified mail with postage prepaid, or telegraphed, addressed in each case as follows, and shall be deemed to have been given or made when so delivered, deposited in the mail, or telegraphed:

 

If to the Debtor, to:

 

HEARTH & HOME OF VANDALIA, INC.

5057 Troy Road

Springfield, Ohio, 45502

Attention: David A. Tenwick

 

If to the Secured Party, to:

 

Red Mortgage Capital, LLC

Two Miranova Place, 12th Floor

Columbus, Ohio 43215

Attention: Edward H. R. Tellings, Senior Managing Director

 

Either party, at any time, by written notice given to the other in accordance with this Section, may designate a different address to which such communications shall thereafter be directed.

 

13.                Rights of Secretary as Secured Party.

 

(a)                            Contemporaneously herewith the Secretary and the Debtor have executed the Regulatory Agreement, which Regulatory Agreement is hereby incorporated by reference herein.

 

(b)                            The Regulatory Agreement is incorporated in the Mortgage by reference. Under the terms of the Regulatory Agreement, the Secretary may exercise certain rights in and to the Collateral prior to the assignment of the Note, Mortgage, this Security Agreement and any other collateral documents which have been executed and delivered to the Secretary as a condition precedent to the Secretary’s endorsement of the Note for mortgage insurance.

 

(c)                             The Debtor and the Secured Party hereby agree that the Secretary shall be an additional secured party under this Security Agreement together with the Secured Party, as their interests may appear, and that the Secretary shall be listed on the Uniform Commercial Code Financing Statements to be filed contemporaneously herewith; provided, however, that nothing herein or in the Uniform Commercial Code Financing Statements shall require the execution, now or at any future time, of any amendment, extension, or other document by the Secretary.

 

(d)                            To the extent any party herein is required or desires to give notice to the Secretary hereunder, such notice shall be delivered in accordance with the provisions of Paragraph 12 hereof, as follows:

 

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U.S. Department of Housing and Urban Development

Office of Insured Health Care Facilities

451 Seventh Street SW, Room 2247

Washington, DC 20410

Attention: Section 232 Program Manager

 

14.                  Miscellaneous.

 

(a)                            This Agreement is intended to be supplemental to and not in substitution or in derogation of any security agreement contained in the Mortgage. In the event of any conflict between this Agreement and the Mortgage, the Mortgage shall be controlling.

 

(b)                            In any instance where the consent or approval of the Secured Party may be given or is required or any determination is to be rendered by the Secured Party hereunder, the granting, withholding or denial of such consent or approval and the rendering of such determination shall be made or exercised by the Secured Party at its sole and exclusive option and in its reasonable discretion.

 

(c)                             It is understood and agreed that no judgment or decree which may be entered on any debt secured or intended to be secured by the Mortgage shall operate to abrogate or lessen the effect of this Agreement, but that this Agreement shall continue in full force and effect until the payment and discharge of the Indebtedness due under the Security Documents.

 

(d)                            It is understood and agreed that the remedies granted to the Secured Party herein shall not be deemed exclusive of any other remedies possessed by the Secured Party under the Note, the Mortgage, any other of the Security Documents or at law or in equity, but shall be deemed additional and cumulative thereto.

 

(e)                             This Agreement shall be governed by and construed in accordance with the laws of the State.

 

(f)                              All captions in this Agreement are for convenience only, and shall not be considered in construing this Agreement.

 

(g)                             Any reference in this Agreement to a “Section” shall be construed as referring to a Section of this Agreement.

 

(h)                            This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.

 

(i)                                The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions, which shall remain in full force and effect.

 

(j)                               This instrument contains the entire agreement between the parties as to the rights granted and the obligations assumed in this instrument. This Agreement may be amended only by a subsequent written instrument signed by both parties.

 

[SIGNATURES APPEAR ON FOLLOWING PAGES]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year hereinabove first written.

 

	
 
    	
DEBTOR:
    
	
 
    	
HEARTH &   HOME OF VANDALIA, INC.
    
	
 
    	
an Ohio limited   liability company
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ David A.   Tenwick
    
	
 
    	
 
    	
David A. Tenwick
    

 

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SECURED   PARTY:
    
	
 
    	
RED   MORTGAGE CAPITAL, LLC
    
	
 
    	
a Delaware   limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Edward H. R.   Tellings
    
	
 
    	
 
    	
Edward H. R.   Tellings
    
	
 
    	
 
    	
Senior Managing   Director
    

 

8Exhibit 10.4

 

PROJECT NO. 046-43057
  PROJECT NAME: HEARTH & HOME OF VANDALIA

 

LESSEE SECURITY AGREEMENT

 

THIS LESSEE SECURITY AGREEMENT is made, entered into and dated as of January 1, 2012,  by and among ADCARE HEALTH SYSTEMS, INC., an Ohio corporation, having an address at 5057 Troy Road, Springfield, Ohio 45502 (hereinafter referred to as the “Grantor”), HEARTH & HOME OF VANDALIA, INC., an Ohio corporation, having an address at 8160 Corporate Park Drive, Suite 220, Cincinnati, Ohio 45242 (as hereinafter referred to as “Borrower” or “Landlord” or “Owner”), and RED MORTGAGE CAPITAL, LLC, a Delaware limited liability company, having an address and place of business at Two Miranova Place, 12th Floor, Columbus, Ohio 43215 (hereinafter referred to as “Secured Party”). Secured Party and The Secretary of Housing and Urban Development (hereinafter referred to as the “Secretary”), and their respective heirs and assigns, as their interests may appear, are hereinafter collectively referred to as the “Secured Party”.

 

Whereas, the Borrower is the owner of the real and personal property that comprises the health care facility (the “Project”) situated on the property described in Exhibit A attached hereto and made a part hereof (the “Premises”); and

 

Whereas, the Borrower intends to accept a loan (the “Loan”) in the sum of Three Million Seven Hundred Twenty-One Thousand Five Hundred and 00/100ths Dollars ($3,721,500.00) from Secured Party, pursuant to the terms and conditions set forth in that certain Mortgage Note in said sum, dated as of January 1, 2012, in favor of Secured Party, as mortgagee (the “Note”); and

 

Whereas, the Grantor operates the Project pursuant to the terms of that certain Management Agreement, dated as of January         , 2012 (as thereafter amended from time to time, the “Management Agreement” or “Lease”); and

 

Whereas, the Secured Party has requested that Grantor give to Secured Party a security interest in the Collateral (as hereinafter defined) as a condition of Secured Party making the Loan to the Borrower evidenced by the Note in order to secure Grantor’s obligations and performance under the Lease.

 

WITNESSETH THAT:

 

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms hereof, the Grantor hereby grants to the Secured Party, a security interest in, and the Grantor hereby mortgages to the Secured Party, the property described in the attached Exhibit B and Exhibit C, hereinafter collectively referred to as the “Collateral”, it being the intention of the parties hereto that: (a) the

 

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security interest of the Secured Party shall attach to the Collateral (i) as soon as the Grantor obtains any interest in any Collateral (ii) before the Collateral becomes a fixture; (iii) before the Collateral is installed or affixed to any other collateral; and, (b) the security interest held by the Secured Party shall cover cash and non-cash proceeds of the Collateral.

 

Notwithstanding the foregoing, nothing contained herein shall be construed as authorizing, either expressly or by implication, the sale or other disposition of the Collateral by the Grantor, which sale or other disposition is hereby expressly prohibited without the Secured Party’s prior written consent. Notwithstanding the foregoing (i) Collateral does not include anything which is not owned by Grantor (i.e. leased items or items located on property but owned by a contractor) and (ii) Grantor shall not be prohibited from selling or replacing Collateral in the ordinary course of business.

 

The security interest hereby granted in the Collateral is delivered to secure payment of the Grantor’s rent payments (including all tax, insurance or other capital, repair or impound reserve payments required under the Lease) and the performance by the Grantor of its obligations under the Lease and also to secure all obligations of the Grantor to the Secured Party under this Security Agreement (all of which obligations for which this Security Agreement is secured being hereinafter referred to as the “Obligations”).

 

Incident thereto, the Grantor agrees with the Secured Party as follows:

 

1.                                      Grantor warrants and represents that:

 

(a)                                 The security interest granted to the Secured Party in the Collateral shall constitute a first lien as to the Collateral, and that the Grantor is the lawful owner, or lessee, of such Collateral and has good right to pledge, sell, consign, assign, transfer and create a security interest in the same;

 

(b)                                 The Collateral shall continue to be free from all pledges, liens, encumbrances and security interests or other claims in favor of others, except for the security interests of the AR Lender (as hereinafter defined) previously disclosed in writing to Secured Party; and the Grantor will warrant and, at the Secured Party’s request, defend the same from all claims and demands of all persons;

 

(c)                                  The Collateral shall only be used by the Grantor in the maintenance and/or operation of the Project, and shall not be held for sale or leased to others, or otherwise disposed of by the Grantor without the prior written consent of the Secured Party, except for dispositions in the ordinary course of business and as permitted under the Lease;

 

(d)                                 The Collateral shall be located at the Premises, and shall not be removed therefrom without the prior written consent of the Secured Party, except that removals and replacements in the ordinary course of business shall require no consent;

 

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(e)                                       The Grantor shall, at its own cost and expense keep the Collateral in as good and substantial repair as the same is in at this date, or as the same is when acquired, only reasonable wear and tear excepted, and shall keep and maintain the Collateral in accordance with all applicable laws, rules, and regulations (governmental or otherwise), making replacements, repairs and improvements when and where necessary; and, in connection with the foregoing, the Secured Party hereby consents to the removal by the Grantor of the same, or any part hereof, from said Premises only if and to the extent that such removal is necessary or advisable in connection with the Grantor’s fulfillment of its obligations under this Subparagraph (e), and does not affect the priority of the security interest created hereby; and

 

(f)                                        Except in connection with the sale of stock of Grantor (which sale is subject to the prior written consent of Secured Party and HUD), Grantor will not sell, assign or otherwise transfer any document, instrument, or chattel paper in connection with the Collateral, except sales, assignments and transfers in the ordinary course of business as permitted under the Lease and will neither create nor suffer to be created any security interest, liens, encumbrances or claims in favor of others with respect thereto, except for the security interests to the AR Lender.

 

2.                                      Grantor agrees to comply with the requirements of all valid and applicable state and federal laws in order to grant to the Secured Party a valid lien upon, and a security interest in, the Collateral described herein, or which may be described in any amendment supplementary hereto.

 

3.                                      Grantor will pay, when due, all taxes, assessments and other charges lawfully and validly levied or assessed upon the Collateral or any part thereof, and the Grantor will pay any and all fees, costs and expenses, of whatever kind and nature, which the Secured Party may incur, including, reasonable attorneys’ fees, in protecting, maintaining, preserving, enforcing or foreclosing the security interest granted to the Secured Party hereunder, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions or proceedings arising out of or relating to this transaction, promptly after the Grantor shall have been notified by the Secured Party of the amount of such fees, costs or expenses.

 

4.                                      Grantor agrees that the Secured Party, or its agents, may enter upon the premises of Grantor at any time, and from time to time, for the purpose of inspecting the Collateral, and any and all records pertaining thereto. The Grantor agrees to notify the Secured Party promptly of any change in its mailing address or principal place of business, in order that a prompt refiling of any outstanding notices may be made, if necessary. The Grantor is also to advise the Secured Party, within thirty (30) days, of any new facts which, under the applicable provisions of law, would affect the priority of the security interest granted to the Secured Party by this instrument.

 

5.                                      At its option, the Secured Party may, after notice and time to cure (i) discharge taxes, liens or security interests or other encumbrances at anytime levied or placed on the Collateral, except for the security interests granted to the AR Lender, and/or (ii) pay

 

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for insurance on or the maintenance and preservation of the Collateral, if Grantor fails to do so. In such a case, the Grantor agrees to reimburse the Secured Party on demand for any payment made, or any expense incurred by the Secured Party pursuant to the foregoing authorization. Until default, the Grantor may have possession of the Collateral and use it in any lawful manner consistent with this Security Agreement and consistent with any policy of insurance thereon.

 

6.                                      The Grantor shall be in default under this Security Agreement upon the happening of any of the following events or conditions:

 

(a)                                 Default in the payment or performance of any obligations, covenant or liability contained or referred to herein or in the Lease continuing beyond applicable periods of grace, if any; or

 

(b)                                 Any warranty, representation or statements made or furnished to the Secured Party by or on behalf of the Grantor in connection with the Collateral proves to have been false in any material respect when made or furnished.

 

7.                                      Upon such default, and any time thereafter, the Secured Party may declare all Obligations secured hereby immediately due and payable, and shall have the remedies of a secured party under the Uniform Commercial Code. The Secured Party may require the Grantor to assemble the Collateral and make it available to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to both parties. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party will give the Grantor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to the address of the Grantor shown at the beginning of this Security Agreement at least five (5) days before the time of the sale or disposition. Expenses of retaking, holding, preparing for sale, selling or the like shall include the Secured Parties reasonable attorneys’ fees and legal expenses.

 

8.                                      No waiver by the Secured Party of any default shall operate as a waiver of any other default or of the same default on a future occasion. All rights of the Secured Party hereunder shall inure to the benefit of its successors and assigns; and all obligations of the Grantor shall bind its successors and assigns.

 

9.                                      RIGHTS OF SECRETARY AS Secured Party.

 

(A)                               Grantor and Secured Party hereby agree that Secretary shall be an additional secured party under this Security Agreement together with Secured Party, as their interests may appear, and that Secretary shall be listed on the Uniform Commercial Code Financing Statements to be filed contemporaneously herewith; provided, however, that nothing herein or in the Uniform Commercial Code Financing Statements shall require the

 

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execution, now or any future time, of any amendment, extension, or other document by Secretary.

 

(B)                               To the extent any party herein is required or desires to give notice to Secretary hereunder, such notice shall be delivered in accordance with the provisions hereof, as follows: U.S. Department of Housing and Urban Development, c/o Section 232 Program Manager, Office of Insured HealthCare Programs, 451 Seventh Street, Room 2247, Washington, D.C. 20410.

 

(C)                               For the term of this Security Agreement, Grantor continuously warrants to Secured Party that, except as provided in the Subordination Agreement referred to in Section 11 hereof, as follows:

 

(1)                                          The Collateral as described herein is free from all encumbrances and no financing statements covering any of said Collateral, or proceeds thereof, is on file in any public office.

 

(2)                                          Grantor is the right and lawful owner of each and every item of Collateral as described herein.

 

(3)                                          All Collateral mentioned in this Security Agreement is located on the premises of the above referenced FHA project and is being used for a legitimate business purpose.

 

(4)                                          All information given to Secured Party is true and correct.

 

(5)                                          Grantor has the right to make and execute this Security Agreement.

 

10.                               The Grantor further specifically agrees that, in any exercise of the rights of the Secured Party under this or any other instrument, any combination of all of the property, rights or security given to secure the Grantor’s indebtedness to the Secured Party may be offered for sale for one total price, and the proceeds of any such sale accounted for in one account without distinction between the items of security or without assigning to them any proportion of such proceeds, the Grantor hereby waiving the application of any doctrine of marshaling.

 

11.                               ADDITIONAL TERMS REGARDING ACCOUNTS RECEIVABLE OF GRANTOR.

 

Throughout the term of the Security Agreement, Grantor shall not pledge or otherwise grant a security interest in any of the Collateral to a third party without the prior written consent of the Secured Party (including HUD). Notwithstanding the foregoing or

 

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anything in this Agreement to the contrary, the parties hereby acknowledge that Grantor has an line of credit (the “AR Loan”) with The Huntington National Bank, a national banking association (hereinafter the “AR Lender”). In connection with the making of the Loan, Secured Party and AR Lender have entered into a Subordination Agreement (the “Subordination Agreement”). The parties hereto agree that the security interest of the Secured Party hereunder in the portion of the Collateral consisting of all healthcare insurance receivables of Grantor including, but not limited to, Medicaid and Medicare receivables, Veterans Administration or other governmental receivables, private patient receivables, and HMO receivables (collectively “Accounts Receivable”) will be senior to the security interest of the AR Lender in such Accounts Receivable. So long as the AR Loan is outstanding, or is replaced with one or more loans from another accounts receivable lender, whether before, concurrent with or at any time after indefeasible payment in full of the AR Loan, the relative priorities of the Secured Party and the AR Lender in and to the Accounts Receivable and certain other assets of Grantor shall be established and governed by the terms of the Subordination Agreement.

 

[The Balance of this Page is Blank]

 

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Lessee Security Agreement to be executed in their respective names as of the date hereinabove first written.

 

	
 
    	
GRANTOR:
    
	
 
    	
ADCARE HEALTH SYSTEMS, INC.
    
	
 
    	
an Ohio corporation
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ David A. Tenwick
    
	
 
    	
 
    	
David A. Tenwick
    
	
 
    	
 
    	
Chairman
    

 

 

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SECURED PARTY:
    
	
 
    	
RED MORTGAGE CAPITAL, LLC
    
	
 
    	
a Delaware limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Edward H. R. Tellings
    
	
 
    	
 
    	
Edward H. R. Tellings
    
	
 
    	
 
    	
Senior Managing Director
    

 

 

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ACKNOWLEDGED AND CONSENTED TO BY:
    
	
 
    	
 
    	
 
    
	
 
    	
OWNER:
    
	
 
    	
HEARTH & HOME OF VANDALIA, INC.
    
	
 
    	
an Ohio limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ David A. Tenwick
    
	
 
    	
 
    	
David A. Tenwick
    
	
 
    	
 
    	
Secretary

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