Document:

12.31.2014 - Ex 10.381 Sublease Agreement Tara

EXHIBIT 10.381
SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT (this "Sublease") is made and entered into as of January 31, 2015 by and between ADK GEORGIA, LLC, a Georgia limited liability company ("Sublessor") and 3223 FALLIGANT AVENUE ASSOCIATES, L.P., a Georgia limited partnership ("Sublessee").
WITNESSETH:

WHEREAS, pursuant to that certain Lease ("Master Lease") dated August 1, 2010, Sublessor leased from William M. Foster ("Lessor") the premises described and defined in the Master Lease as the Property (the "Property"); and

WHEREAS, Sublessee desires to sublease that portion of the Property located at 3223 Falligant Avenue, Thunderbolt, Georgia 31404 consisting of 134 licensed beds and 11 assisted living beds (the "Premises") on the terms and conditions set forth herein.

NOW, THEREFORE, for and in consideration of Ten Dollars and no/100 ($10.00), and the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration paid by each party to the other, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1.Premises. Sublessor does hereby lease to Sublessee, and Sublessee does hereby lease from Sublessor, for the term and upon the conditions hereinafter provided, the Premises.

2.Terms and Conditions. The term of this Sublease shall commence on March 1, 2015 and continue until midnight July 31, 2020 unless sooner terminated as hereinafter provided, subject to (a) the terms of Section 20(h) hereof, and (b) the provisions of Section 20(d) providing for the possible extension thereof (the "Term"). Except to the extent expressly provided to the contrary in this Sublease, and subject to the terms of Section 20 of this Sublease, this Sublease is subject to the Master Lease and all of the terms, covenants, and conditions in the Master Lease are applicable to this Sublease with the same force and effect as if Sublessor were the lessor under the Master Lease and Sublessee were the Sublessor thereunder. If any term or provision of this Sublease imposes an obligation or condition that is different than a term or provision of the Master Lease incorporated into this Sublease, only the obligation or condition stated in this Sublease shall control.

3.Base Rent. During the Term, Sublessee shall pay in advance to Sublessor on or before the 1st day of each month (except for the first payment, which shall be made on the Commencement Date) the following amounts as Base Rent (as defined below):

Lease Year    Base Rent Per Month

	
		
	Year 1
	$150,000.00

	Year 2
	$151,500.00

	Year 3
	$153,015.00

	Year 4
	$154,545.15

	Year 5
	$156,090.60

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Commencing on the first day of any extended term of this Lease and on the first day of each year thereafter during an extended term, Base Rent payable hereunder shall increase by two percent (2%) over the Base Rent for the previous year.

4.Additional Rent and Other Charges. In addition to Base Rent, Sublessee shall pay to Sublessor, all other charges and additional rent payable by Sublessee under the Master Lease with respect to the Premises.

5.Absolute Net Lease.    All rent payments shall be absolutely net to Sublessor, free of any and all taxes, other charges, and operating or other expenses of any kind whatsoever, all of which shall be paid by Sublessee. Sublessee shall continue to perform its obligations under this Agreement even if Sublessee claims it has been damaged by Sublessor. Thus, Sublessee shall at all times remain obligated under this Agreement without any right of set-off, counterclaim, abatement, deduction, reduction or defense of any kind, except for those available to Sublessor from time to time as tenant pursuant to the Master Lease. Sublessee's sole right to recover damages against Sublessor under this Agreement shall be to prove such damages in a separate action.

6.Payment Terms. All Base Rent and other payments to Sublessor hereunder shall be paid by wire transfer in accordance with Sublessor's wire transfer instructions attached hereto as Exhibit "A", or as otherwise directed by Sublessor from time to time.

7.Security Deposit.  Sublessee shall deposit with Sublessor and maintain during the Term the sum of Seventy-Five Thousand and 00/100 Dollars ($75,000.00) as a security deposit (the "Security Deposit") against the faithful performance by Sublessee of its obligations under this Agreement.  The Security Deposit shall be paid upon execution of this Sublease. If (i) a Lessee's Default (as defined by Section 15(a) of the Master Lease, but only with respect to Sublessee and the Premises) or (ii) an event of default under this Sublease (as defined in Section 14 below) shall occur, Sublessor may use, apply or retain the whole or any part of the Security Deposit which is necessary for the payment of: (i) any rent or other sums of money which Sublessee has not paid when due after any applicable notice and cure period; (ii) any sum expended by Sublessor on behalf of Sublessee in accordance with the provisions of this Sublease; or (iii) any sum which Sublessor may expend or be required to expend by reason of any such Lessee's Default by Sublessee. If any portion of the Security Deposit is not used, applied or retained by Sublessor for the purposes set forth above, as of the end of the Term, then Sublessor agrees, within thirty (30) days after the expiration of the Term, to refund to Sublessee the entirety of such remaining portion.

8.Late Charges. The late payment of Base Rent or other amounts due under this Sublease will cause Sublessor to lose the use of such money and incur administrative and other expenses not contemplated under this Agreement. While the exact  amount of the  foregoing is difficult to ascertain, the parties agree that as a reasonable estimate of fair compensation to Sublessor, if Base Rent or any other amount is not paid within (ten (10) days after the due date for such payment, then Sublessee shall thereafter pay to Sublessor on demand a late charge equal to five percent (5%) of such delinquent amounts and such unpaid amount shall accrue interest from such date at the rate often percent (10%) per annum.

9.Assignment  and Subletting.  Sublessee shall not, either voluntarily or by operation 

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of law, assign this Agreement or further sublet all or any part of the Premises without the prior written consent of Sublessor. Any purported assignment or sublease without such consent shall be null and void and constitute a material breach of this Agreement.

10.Attorney Fees. If there is any legal or arbitration action or proceeding between Sublessor and Sublessee to enforce any provision of this Agreement or to protect or establish any right or remedy of either Sublessor or Sublessee hereunder, the unsuccessful party to such action or proceeding will pay to the prevailing party all costs and expenses, including reasonable attorneys' fees incurred by such prevailing party in such action or proceeding and in any appearance in connection therewith, and if such prevailing party recovers a judgment in any such action, proceeding or appeal, such costs and expenses will be determined by the court or arbitration panel handling the proceeding and will be included in and as a part of such judgment.

11.Notices.  All notices and demands that may be required or permitted by either party to the other shall be in writing. All notices, payments and demands hereunder shall be sent by overnight courier or by certified United States Mail, postage prepaid, addressed as provided below, or to any other place that one party may from time to time designate in a notice to the other party, and shall be deemed to have been received on the date when actually delivered to the addressee or delivery has been rejected.

	
			
	If to Sublessor:
	 
	If to Sublessee:

	 
	 
	 

	ADK Georgia, LLC
	 
	3223 Falligant Avenue Associates, L.P.

	Two Buckhead Plaza
	 
	20 Mansell Court East

	3050 Peachtree Road, NW
	 
	Suite 200

	Suite 355
	 
	Roswell, GA 30076

	Atlanta, Georgia 30335
	 
	Attention: General Counsel

	Attention: CEO
	 
	 

12.    Personal Property. Sublessee may bring his own articles of personal property to the Premises for use and Sublessee shall have the right to remove any such personal property from the Premises provided that Sublessee, at his expense, shall repair any damages  to  the Premises caused by such removal or by the original installation thereof. All personal property, fixtures and equipment located at the Premises as of the date of this Sublease (the "Sublessor FF&E") shall remain the property of Sublessor (as between Sublessor and Sublessee) and shall remain at the Premises at the end of the Term, and Sublessee shall have the right to use same during the Term in connection with the operation of the Premises. Any replacements of such Sublessor FF&E made by Sublessee  during the Term shall become the property of  Sublessor upon the expiration of the Term.

13.    Repairs & Improvements.  Sublessor shall not be required to make any repairs or improvements to the Premises. Sublessee shall make no alterations in, or additions to, the Premises in excess of twenty-five thousand dollars ($25,000) without first obtaining, in writing, Sublessor's consent for such alterations or additions. All such alterations or additions shall be at the sole cost and expense of Sublessee and shall become a part of the Premises and shall be the property of Sublessor.  Sublessee covenants  and agrees that  it will take  good  care of the Premises, its fixtures 

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and appurtenances, and suffer no waste or injury thereto and keep and maintain same in good and clean condition, reasonable wear and tear excepted. Sublessee shall be liable for and shall indemnify and hold Sublessor harmless in respect of any claims, liabilities, actions, damage, or injury to Sublessor, the Premises, and property or persons of anyone else, if due to wrongful act or negligence of Sublessee, or Sublessee's agents, employees, licensees or invitees.  With respect to work, services, repairs, repainting, restoration, the provision of utilities or HVAC services, or the performance of other obligations required of Lessor under the Master Lease, Sublessor shall, at the written request of Sublessee, request the same from Lessor and use reasonable efforts to obtain the same from Lessor at Sublessee's expense.  Sublessee shall reasonably cooperate with Sublessor as may be required to obtain from Lessor any such work, services, repairs, repainting restoration, the provision of utilities or HVAC services, or the performance of any of Lessor's other obligations under the Master Lease  with respect to the Premises. Sublessor shall be liable for and shall  indemnify  and  hold  Sublessee  harmless  in respect of any claims, liabilities, actions, damage, or injury to Sublessee, the  Premises,  and property or persons of anyone else, if due to (a) the wrongful act or negligence of Sublessor, or Sublessor's agents, employees, licensees or invitees, or (b) a default by  Sublessor  under  the Master Lease not resulting from either (i) the nullification  or termination  of this  Agreement based upon Sublessor's entry into this Agreement without having obtained the consent of Lessor, or (ii) a default by Sublessee of its obligations arising under this Sublease.

Additionally, within eighteen (18) months following the commencement of the Term hereunder, Sublessee shall replace the roof of the Premises in accordance with plans and specifications approved by Sublessor and, if required by the Master Lease, Lessor. Sublessee shall perform such work at its sole cost and expense.

14.    Default.

(a)     The following shall be deemed to be events of default by Sublessee: (i) Sublessee shall fail to pay when due any installment of Base Rent or any other charge or assessment against Sublessee pursuant to the terms of this Agreement and such failure shall continue for a period of five (5) business days after Sublessor's written notice to Sublessee thereof; (ii) Sublessee shall fail to comply in every respect with any term, provision, covenant, or warranty made under this Agreement by Sublessee and shall not cure such failure within thirty (30) days after written notice thereof to Sublessee; provided that if any such failure is not curable by its nature within such thirty-day period, then Sublessee shall have such additional time as necessary to cure the same; (iii) Sublessee shall fail to comply in any respect with any term, provision, covenant or warranty under the Master Lease, and such failure results in a default of the Master Lease; (iv) Sublessee shall do, or permit to be done anything which creates a lien upon the Premises which lien is not removed by payment or bond within twenty (20) days after Sublessee receives written notice thereof; or (v) a default under the Affiliated Sublease (as defined in Section 20(h) below) which is not cured within the applicable cure period.

(b)     Upon the occurrence of an aforesaid events of default, Sublessor shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (i) terminate this Agreement, in which event Sublessee shall immediately surrender the Premises to Sublessor, and if Sublessee fails to do so, Sublessor may without prejudice to any other remedy which it may have for possession or arrearage in Base Rent, enter upon and take possession of the Premises and expel or remove Sublessee and any other person  who may be occupying the Premises or any part thereof, by force, if necessary, as permitted by Georgia law 

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without being liable for prosecution or any claim of damages therefor; Sublessee hereby agreeing to pay to Sublessor on demand the amount of all Base Rent and other charges accrued through the date of termination; (ii) enter upon and take possession of the Premises and expel or remove Sublessee and any other person who may be occupying the Premises or any part thereof,  by force, if necessary, as permitted by Georgia law, without being liable  for prosecution  or any claim of damages thereof and, if Sublessor so elects, relet the Premises on such terms  as Sublessor may deem advisable, in its sole discretion, without advertisement, and by private negotiations provided that if Sublessor succeeds in re-letting the Premises and receives the rent therefor, Sublessee hereby agrees to pay to Sublessor the deficiency, if any, between all Rent reserved hereunder and the total rental applicable to the Term hereof obtained by  Sublessor through such re-letting, and Sublessee shall be liable for Sublessor's expenses in restoring the Premises and all costs incident to such re-letting; (iii) enter upon the Premises by force  if necessary as permitted by Georgia law, without being liable for prosecution or any claim of damages therefor, and do whatever Sublessee is obligated to do under the terms of this Agreement; and Sublessee agrees to reimburse Sublessor on demand for any expenses including, without limitation, reasonable attorney's fees which Sublessor may incur in thus effecting compliance with Sublessee's obligations under this Agreement and Sublessee further agrees that Sublessor shall not be liable for any damages resulting to Sublessee from such action.

(c)    Notwithstanding any provision hereof, if Lessor delivers to  Sublessor  written notice of a default under the Master Lease due to Sublessor having entered into this Sublease without having obtained the consent of Lessor, and such notice of default has not been rescinded by Lessor within ten (10) business days after the later of (1) the receipt thereof by Sublessor and (2) the delivery by Sublessor of same to Sublessee, then Sublessor thereafter shall have the right to terminate this Agreement immediately by delivery of written notice to Sublessee.

(d)    The remedies provided for herein are cumulative and in addition to any other remedy provided by law or at equity. No action taken by or on behalf of Sublessor shall be construed to be an acceptance of a surrender of this Agreement. Forbearance by Sublessor to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default.

15.    Holding Over.  If Sublessee remains in possession of any portion of the Premises after expiration or termination of the Term with or without Sublessor's written consent, Sublessee shall become a Sublessee-at-sufferance, and there shall be no renewal of this Sublease by operation of law. During the period of any such holding over, all provisions of this Sublease shall be and remain in effect except that the monthly rental shall be 150% of the amount of Base Rent payable for the last full calendar month of the Term including renewals or extensions. The inclusion of the preceding sentence in this Sublease shall not be construed as Sublessor's consent for Sublessee to hold over.

16.    Surrender  of  Premises.  Upon the expiration or other termination of this Sublease, Sublessee shall quit and surrender to Sublessor the Premises broom clean in substantially the same condition as at the commencement of the Sublease, reasonable wear and tear only  excepted.     Sublessee shall  have  no  obligation  to  remove  or  restore  alterations, modifications or additions to the Premises made with the consent of Sublessor, or made where no such consent is required under this Sublease. Sublessee's obligation to observe or perform this covenant shall survive the expiration or other termination of this Sublease.

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17.    Successors and Assigns. This Sublease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.

18.    Entire Sublease.  This Sublease sets forth all the Subleases between Sublessor and Sublessee concerning the Premises, and there are no other Subleases either oral or written other than as set forth in this Sublease.

19.    Intentionally Omitted. 

20.    Other Provisions of Master Lease. 

(a)    Sublease Subordinate to Master Lease. This Sublease is subject and subordinate to the Master Lease.  As and to the extent hereinafter provided, all applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublessee were the lessee under the Master Lease. Sublessor shall not agree with Lessor to terminate the Master Lease with respect to the Premises without having first obtained the prior written consent of Sublessee. Unless expressly provided for in this Sublease to the contrary, Sublessee assumes and agrees to perform the Sublessor's obligations under the Master Lease during the term of this Sublease with respect to the Premises, except that the obligation to pay rent to Lessor under the Master Lease shall be considered performed by Sublessee by virtue of its payments and reimbursements to Sublessor pursuant to this Sublease. Sublessee shall not cause or suffer any act of negligence that will violate any of the provisions of the Master Lease. If the Master Lease terminates for any reason (other than as a result of a consensual termination by Lessor and Sublessor), this Sublease shall terminate and the parties shall be relieved from all liabilities and obligations under this Sublease; provided, however, that if this Sublease is terminated by Lessor due to a default of Sublessor or Sublessee under the Master Lease or under this Sublease, the defaulting party shall be liable to the non-defaulting  party for all damage suffered by the non-defaulting party as a result of the termination. Sublessee shall provide copies of all reports required under the Master Lease to Sublessor and to Lessor.

(b)    Master Lease Provisions Not Incorporated. Notwithstanding the foregoing or any other provision  of this Sublease to the contrary, the following Sections of the Master Lease are not incorporated into this Sublease, and Sublessee  shall have no obligation to perform and shall not be bound by them:  l(b)(i)-(iii),  l(c),  l(d), l(e),  6(c), 15, 27 and 30(a).

(c)    Management Contracts.  As incorporated into this Sublease, Section 30(b) of the Master Lease is hereby revised to delete the words "or Chris Brogdon" from the first sentence; and the phrase "in which Chris Brogdon, directly or indirectly, has an equity interest" is deleted from the second sentence.

(d)    Sublessor's Renewal Right.  If the Master Lease is extended with respect to the Premises, Sublessee shall have the right, but not the obligation, to extend the term of this Sublease through the end of the extended term of the Master Lease upon (i) written notice to Sublessor and (ii) concurrent extension of the Affiliated Sublease. The annual and monthly Base Rent to be paid by Sublessee during an extended term is stated in Section 3, above.

(e)      Casualty.  Sublessor shall not exercise its right under Section 8(b) of the Master Lease to terminate the Master Lease with respect to the Premises without the prior written 

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consent of Sublessee, which consent Sublessee may withhold in its sole discretion.

(f)    Sublessor Consent: In each case provided herein for the consent or approval of Sublessor, in no event shall Sublessor's consent or approval be unreasonably withheld, conditioned or delayed. If a consent or approval of Lessor is required under the Master Lease, the giving of such consent or approval shall be deemed the consent or approval of Sublessor and no further consent or approval of Sublessor shall be required.

(g)    Sublessor Performance of Master Lease. Sublessor agrees to pay to Lessor installments of rental as required by the Master Lease and to perform all covenants of Lessor arising under the Master Lease that are not the obligation of Sublessee hereunder to perform. Within ten (10) days after receipt of Sublessee's written request, Sublessor shall provide Sublessee commercially reasonable evidence of the payment of all items of rental and other sums due under the Master Lease. Sublessor also shall deliver to Sublessee any written notice of non­ performance or demand that Sublessor receives from Lessor under the Master Lease within five (5) business days after receiving same.  If Sublessor fails to make any payment required under the Master Lease, or otherwise defaults under any provision of the Master Lease, then (i) after five (5) business days written notice to Sublessor, Sublessee shall have the right to cure such default and thereafter (without additional notice required) to pay all amounts due under this Sublease directly to Lessor, and any amount so paid by Sublessee, at the sole written election of Sublessee, shall be credited and offset against amounts Sublessee owes or will owe to Sublessor pursuant to this Sublease; and (ii) upon Sublessee's written demand, Sublessor shall immediately refund to Sublessee any and all amounts paid by Sublessee to Sublessor if Sublessee has repaid such amounts directly to Lessor or, at the sole written election of Sublessee, such amounts shall be credited and offset against amounts Sublessee owes or will owe to Sublessor pursuant to this Sublease. Sublessee shall inform Sublessor in writing of any action on its part to pay or perform directly to Lessor any of Sublessor's obligations under the Master Lease as permitted by this Section.

(h)    Condition to Effectiveness. This Sublease shall not be effective or binding upon the parties and Sublessee shall have no rights or obligations with respect to the Premises unless and until Sublessee obtains all regulatory and other approvals and licenses required for Sublessee to operate the facility as a Medicare and Medicaid enrolled Skilled Nursing  Facility located on the Premises (the "Approvals Date"). Additionally,  at  Sublessee's  election, this  Sublease  shall not be effective or binding upon the parties and Sublessee shall have no rights or obligations with respect to the Premises unless and until the simultaneous effectiveness of that certain Sublease Agreement between Sublessor and 3460 Powder Springs Road  Associates,  LP dated  the  same date as this Agreement  (the "Affiliated Sublease").  If the Approvals Date does not occur on the
first day of a calendar month, then this Sublease shall become  effective on the first day of the first full calendar month following the Approvals Date.

21.    Lessor Approval of Agreement.  Following the execution and delivery of this Agreement, Sublessor shall use commercially reasonable efforts to obtain the written consent of Lessor to the parties entering into this Agreement, in form and substance reasonably acceptable to Sublessee.  Such efforts shall continue after the Approvals Date.

22.    Governing Law and Venue.  This Sublease is made pursuant to, and shall be construed and enforced in accordance with, the laws in force in the State of Georgia, and any dispute arising hereunder shall be brought in the courts of Georgia.

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23.    Entire Agreement. The parties hereby understand and agree that this Sublease contains the entire agreement between the parties and cannot be changed or modified except by a written instrument subsequently executed by the parties hereto.

24.    Counterparts. This Sublease may be executed in any number of counterparts, all of which will be considered one and the same Sublease notwithstanding that all parties hereto have not signed the same counterpart. Signatures on this Sublease which are transmitted electronically shall be valid for all purposes. Any party shall, however, deliver an original signature on this Sublease to the other party upon request.

{Signatures on Following Page}

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IN WITNESS  WHEREOF,  the parties  hereto  have caused this  Sublease to  be  duly executed and delivered as of the day and year first written above.

    	
							
	SUBLESSEE:
	 
	 
	SUBLESSOR:
	 

	 
	 
	 
	 
	 
	 
	 

	3223 FALLIGANT AVENUE ASSOCIATES, L.P.,
	 
	ADK GEORGIA, LLC,

	a Georgia limited partnership
	 
	a Georgia limited liability company

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	By:
	/s/ James J. Andrews
	 
	 
	By:
	/s/ William McBride
	 

	Name:
	James J. Andrews
	 
	 
	Name:
	William McBride
	 

	Title:
	President
	 
	 
	Title:
	Manager
	 

	 
	 
	 
	 
	 
	 
	 

HNZW/494531_3.docx/3583-112.31.2014 - Ex 10.382 KeyBank Northridge Note Exit Fees

  Exhibit 10.382

PROMISSORY NOTE

(Northridge)

$170,000.00                                               February 25, 2015

FOR VALUE RECEIVED, ADCARE HEALTH SYSTEMS, INC., a Georgia corporation (“Borrower”), hereby promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association (together with any and all of its successors and assigns and/or any other holder of this Note, “Lender”), without offset, in immediately available funds in lawful money of the United States of America, at 1200 Abernathy Road, NE, Suite 1550, Atlanta, Georgia 30328 (or such other address as Lender may designate in written notice to Borrower from time to time), the principal sum of ONE HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS ($170,000.00) (the “Indebtedness”), as hereinafter provided.

Section 1.    Indebtedness.  The Indebtedness represents the portion of certain deferred “exit fees” allocated by Borrower and Lender to the skilled nursing facility identified as the “Facility” on Schedule 1 attached hereto and incorporated herein by this reference, which fees are owing by Borrower to Lender in connection with a mortgage loan in the original principal amount of $16,500,000 (the “Mortgage Loan”), made by Lender to the subsidiaries of Borrower identified on Schedule 1 hereto as the “Mortgage Loan Borrowers,” pursuant to that certain Secured Loan Agreement dated as of December 28, 2012, as amended prior to the date hereof (the “Mortgage Loan Agreement”), executed by and among Lender, the Mortgage Loan Borrowers, and the guarantors of the Mortgage Loan (including Borrower), and guaranteed by Borrower pursuant to that certain Payment Guaranty dated as of December 28, 2012, as amended prior to the date hereof.  The Mortgage Loan is being refinanced by a third-party lender on the date hereof.  This Note is being executed and delivered by Borrower to Lender in connection with the other promissory notes, each dated the date hereof, executed by Borrower, payable to the order of Lender and being more particularly described on Schedule 1 hereto (as the same may be modified, amended, extended, renewed, restated or replaced from time to time, collectively, the “Other Notes,” and each individually, an “Other Note”).  This Note and the Other Notes are collectively given in place of the obligations of Borrower and the Mortgage Borrowers to pay any “exit fees” pursuant to the terms of the Loan Documents (as defined in the Mortgage Loan Agreement) with respect to the Projects (as defined in the Mortgage Loan Agreement), and the Sumter Valley Facility (as defined in Schedule 1 hereto).  

Section 2.    Repayment of the Indebtedness.  

            (a)    The entire principal balance of this Note then unpaid shall be finally due and payable upon the Maturity Date (as hereinafter defined).  The term “Maturity Date,” as used in this Note shall mean the earliest to occur of the following: (i) August 25, 2016, as such date may be extended as provided in Section 2(b) hereof (the “Scheduled Maturity Date”), (ii) the date on which a Transfer (as hereinafter defined) shall occur, (iii) the date on which Borrower or any subsidiary of Borrower engages any Person (as hereinafter defined) other than Lender or an affiliate of Lender to originate or otherwise obtain mortgage loan financing (an “Agency Financing”) for the Facility that is to be insured or guaranteed by the U.S. Department of Health and Urban Development (“HUD”), and (iv) the date on which the maturity of this Note is accelerated as provided in Section 7 hereof.  The term, “Person,” as used in this Note, means any natural person, firm, corporation, limited liability company, trust, joint venture, association, company, unlimited liability company, partnership, Governmental Authority or other entity (whether or not having separate legal personality).

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(b)    In the event Lender or any Lender affiliate shall have submitted a loan package for the Facility to HUD for approval, and the date on which such loan package is submitted (the “Agency Financing Submission Date”) is less than one hundred twenty (120) days prior to the original Scheduled Maturity Date, then the original Scheduled Maturity Date shall automatically be deemed to have been extended, on a one-time basis only, to the one hundred twentieth (120th) day after the Agency Financing Submission Date, without the necessity of any further action on the part of Borrower or Lender.

(c)    If, prior to the Maturity Date, the Facility shall have been refinanced either (i) by a permanent loan from Lender or an affiliate of Lender, or (ii) by an Agency Financing originated by Lender or any affiliate of Lender, then and in such an event the entire remaining principal amount of this Note then outstanding shall be forgiven, this Note shall be cancelled and no further amounts shall be payable by Borrower hereunder.

Section 3.    Interest.  The Indebtedness evidenced by this Note shall not bear interest, except for Default Interest (as hereinafter defined).  If Borrower fails to pay the Indebtedness on the Maturity Date, the delinquent Indebtedness shall bear interest at the rate of fifteen percent (15%) per annum, calculated on the basis of a three hundred sixty (360)-day year for the actual number of days elapsed, which interest shall be due and payable on demand.

Section 4.    Prepayment.  Borrower may prepay the principal balance of this Note, in full at any time or in part from time to time, without fee, premium or penalty.

Section 5.    Certain Provisions Regarding Payments.  All payments made under this Note shall be applied, to the extent thereof, to Lender’s Expenses (as hereinafter defined), to Default Interest (if any), and to unpaid principal, in such manner and order as Lender may elect in its sole discretion, any instructions from Borrower or anyone else to the contrary notwithstanding.  Remittances shall be made without offset, demand, counterclaim, deduction, or recoupment (each of which is hereby waived) and shall be accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks.  Acceptance by Lender of any payment in an amount less than the amount then due on any indebtedness shall be deemed an acceptance on account only, notwithstanding any notation on or accompanying such partial payment to the contrary, and shall not in any way (a) waive or excuse the existence of an Event of Default (as hereinafter defined), (b) waive, impair or extinguish any right or remedy available to Lender hereunder, or (c) waive the requirement of punctual payment and performance or constitute a novation in any respect.  Whenever any payment under this Note falls due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day.

Section 6.    Events of Default.  The occurrence of any one or more of the following shall constitute an “Event of Default” under this Note:

(a)    Borrower fails to pay when and as due and payable any amounts payable by Borrower to Lender under the terms of this Note or any of the Other Notes;

(b)    Borrower fails to perform, observe or keep any covenant or agreement not referred to in Section 6(a), and such failure is not cured within ten (10) days after written notice of such failure is given by Lender to Borrower;

(c)    the occurrence of any Transfer without the prior written consent of Lender;

(d)    Borrower shall commence a voluntary case concerning any Borrower under Title 11 of the United States Code entitled “Bankruptcy” as now or hereafter in effect, or any successor thereto or any other present or future bankruptcy or insolvency statute (the “Bankruptcy Code”); or an involuntary proceeding is commenced against Borrower under the Bankruptcy Code and relief is ordered against Borrower, or the petition is controverted but not dismissed or stayed within sixty (60) days after the 

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commencement of the ease, or a custodian (as defined in the Bankruptcy Code) is appointed for or takes charge of all or substantially all of the property of Borrower; or Borrower commences any other proceedings under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Borrower; or there is commenced against Borrower any such proceeding which remains undismissed or unstayed for a period of sixty (60) days; or Borrower fails to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding is entered; or Borrower by any act or failure to act indicates its consent to, approval of, or acquiescence in any such case or proceeding or the appointment of any custodian or the like of or for it for any substantial part of its property or suffers any such appointment to continue undischarged or unstayed for a period of sixty (60) days;
(e)    Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall consent to the appointment of a receiver or trustee or liquidator of all of its property or the major part thereof or if all or a substantial part of the assets of Borrower are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any receiver, trustee, custodian or assignee for the benefit of creditors.

For purposes of this Note, the term “Transfer” shall mean (a) the sale, transfer or conveyance of the Facility by the Property Subsidiary, or (b) the occurrence of an event or series of events by which (i) Borrower ceases to be the direct or indirect owner of the Property Subsidiary, or (ii) any Person or group of Persons acting in concert as a partnership or other group shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases, merger, consolidation, sale of all or substantially all assets, or otherwise, have become, after the date hereof, the “beneficial owner” (within the meaning of such term under Rule 13d-3 under the federal Securities and Exchange Act of 1934, as amended) of equity interests of Borrower representing voting power having the right to elect at least 49% of the members of Borrower’s board of directors.

Section 7.    Remedies.  Upon the occurrence of an Event of Default, Lender may at any time thereafter exercise any one or more of the following rights, powers and remedies:

(a)    Lender may accelerate the Maturity Date and declare the unpaid principal balance and accrued but unpaid interest (if any) on this Note, and all other amounts payable hereunder, at once due and payable, and upon such declaration the same shall at once be due and payable; and.

(b)    Lender may exercise any of its other rights, powers and remedies available at law or in equity.

Notwithstanding the foregoing, upon the occurrence of any Event of Default under Section 6(d) hereof, all amounts evidenced by this Note shall automatically become due and payable, without any presentment, demand, protest or notice of any kind to Borrower.

Section 8.    Remedies Cumulative.  All of the rights and remedies of Lender under this Note are cumulative of each other and of any and all other rights at law or in equity, and the exercise by Lender of any one or more of such rights and remedies shall not preclude the simultaneous or later exercise by Lender of any or all such other rights and remedies.  No single or partial exercise of any right or remedy shall exhaust it or preclude any other or further exercise thereof, and every right and remedy may be exercised at any time and from time to time.  No failure by Lender to exercise, nor delay in exercising, any right or remedy shall operate as a waiver of such right or remedy or as a waiver of any Event of Default.

Section 9    Costs and Expenses of Enforcement and Preparation.  Borrower agrees to pay to Lender on demand all costs and expenses incurred by Lender in seeking to collect this Note, including court costs and reasonable attorneys’ fees and expenses actually incurred, whether or not suit is filed 

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hereon, or whether in connection with bankruptcy, insolvency or appeal.  Borrower agrees to pay Lender on demand for all costs incurred (including, but not limited to, Lender’s counsel’s attorney’s fees) in preparing this Note and all other documents.

Section 10.    Service of Process.  Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by serving of a copy thereof by certified mail, postage prepaid, return receipt requested, to Borrower.  Borrower irrevocably agrees that such service shall be deemed to be service of process upon Borrower in any such suit, action, or proceeding.  Nothing in this Note shall affect the right of Lender to serve process in any manner otherwise permitted by law and nothing in this Note will limit the right of Lender otherwise to bring proceedings against Borrower in the courts of any jurisdiction or jurisdictions.

Section 11.    Successors and Assigns.  The terms of this Note shall bind and inure to the benefit of the permitted successors and assigns of the parties; provided, however, that in no event shall Borrower delegate or assign its rights or obligations under this Note to any other Person (whether by operation of law or otherwise), without Lender’s prior written consent, and any such delegation or assignment by Borrower (or attempted by Borrower) in violation of the terms of this Note shall be void.

Section 12.    General Provisions.  Time is of the essence with respect to Borrower’s obligations under this Note.  If more than one Person executes this Note as Borrower, all of said parties shall be jointly and severally liable for payment of the indebtedness evidenced hereby.  Borrower and each party executing this Note as Borrower hereby severally (a) waive demand, presentment for payment, notice of dishonor and of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices (except any notices which are specifically required by this Note), filing of suit and diligence in collecting this Note or enforcing any of the security herefor; (b) agree to any substitution, subordination, exchange or release of any such security or the release of any party primarily or secondarily liable hereon; (c) agree that Lender shall not be required first to institute suit or exhaust its remedies hereon against Borrower or others liable or to become liable hereon or to perfect or enforce its rights against them or any security herefor; (d) consent to any extensions or postponements of time of payment of this Note for any period or periods of time and to any partial payments, before or after maturity, and to any other indulgences with respect hereto, without notice thereof to any of them; and (e) submit (and waive all rights to object) to non-exclusive personal jurisdiction of any state or federal court sitting in the State of Georgia for the enforcement of any and all obligations under this Note; (f) waive the benefit of all homestead and similar exemptions as to this Note; (g) agree that their liability under this Note shall not be affected or impaired by any determination that any title, security interest or lien taken by Lender to secure this Note is invalid or unperfected; and (h) hereby subordinate to the Indebtedness any and all rights against Borrower and any security for the payment of this Note, whether by subrogation, agreement or otherwise, until this Note is paid in full.  A determination that any provision of this Note is unenforceable or invalid shall not affect the enforceability or validity of any other provision and the determination that the application of any provision of this Note to any Person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other Persons or circumstances.  This Note may not be amended except in a writing specifically intended for such purpose and executed by the party against whom enforcement of the amendment is sought.  Captions and headings in this Note are for convenience only and shall be disregarded in construing it.  This Note and its validity, enforcement and interpretation shall be governed by the laws of the State of Georgia (without regard to any principles of conflicts of laws) and applicable United States federal law.  Whenever a time of day is referred to herein, unless otherwise specified such time shall be the local time of the place where payment of this Note is to be made.  The term “Business Day” shall mean a day of the year on which banks are not required or authorized to close in Atlanta, Georgia.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”

Section 13.    Notices.  Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given (a) if hand delivered, when delivered; (b) if mailed by United States Certified Mail 

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(postage prepaid, return receipt requested), three (3) Business Days after mailing (c) if by Federal Express or other reliable overnight courier service, on the next Business Day after delivered to such courier service or (d) if by telecopier, on the day of transmission so long as copy is sent on the same day by overnight courier as set forth below:

If to Borrower:

AdCare Health Systems, Inc.
1145 Hembree Road
Roswell, Georgia  30076
Attention:    E. Clinton Cain, CPA, MAcc
Vice President of Finance
Telephone:    (404) 781-2896
Facsimile:    (404) 842-1899

With a courtesy copy to:

Holt, Ney, Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 1800
Atlanta, Georgia  30339
Attention:    Gregory P. Youra, Esq.
Telephone:    (770) 956-9600
Facsimile:    (770) 956-1490

If to Lender:
KeyBank National Association
1200 Abernathy Road, NE
Suite 1550
Atlanta, Georgia  30328
Attention: Paul F. Di Vito, SVP
Telephone: (770) 510-2085
Facsimile: (770) 510-2195

With a courtesy copy to:

Bryan Cave LLP
One Atlantic Center, Fourteenth Floor
1201 West Peachtree Street, NW
Atlanta, Georgia  30309-3488
Attention: Robert C. Lewinson, Esq.
Telephone:    (404) 572-6623
Facsimile:    (404) 420-0623  

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Section 14.    No Usury.  It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than under state law) and that this Section shall control every other covenant and agreement in this Note.  If applicable state or federal law should at any time be judicially interpreted so as to render usurious any amount called for under this Note, or contracted for, charged, taken, reserved, or received with respect to the Indebtedness, or if Lender’s exercise of the option to accelerate the Maturity Date, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited on the principal balance of this Note, and the provisions of this Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder.  All sums paid or agreed to be paid to Lender for the use or forbearance of the Indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Indebtedness.

Section 15.  Reinstatement.  To the extent that any payment or payments made to Lender, or any payment or proceeds of any property received by Lender, in the reduction of the principal indebtedness or as payment of accrued interest are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, to a surety, or any other Person liable for any of the repayment of principal or accrued interest, whether directly or indirectly, as a debtor in possession or to a receiver or any other Person under title 11 of the United States Code, 11 U.S.C. §§ 101-1532, as amended (the “Bankruptcy Code”), or any other state or federal law, common law or equitable cause (collectively, the “Invalidated Payments”) whether pursuant to a settlement or a judgment by a court of competent jurisdiction, then the portion of such principal repayment or accrued interest payment equal to the Invalidated Payments and the lien or security title, if any, given to secure this Note will be revived and will continue in full force and effect as if such payment or proceeds had never been received by Lender.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, Borrower has duly executed this Note under seal as of the date first above written.

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SCHEDULE 1
TO PROMISSORY NOTE

(Northridge)

Mortgage Loan 
		
	Borrowers:
	Woodland Hills Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, APH&R Property Holdings, LLC, Woodland Hills HC Nursing, LLC, Northridge HC&R Nursing, LLC, APH&R Nursing, LLC, each a Georgia limited liability company 

		
	Facility:
	Northridge Healthcare and Rehabilitation

2501 John Ashley Drive
North Little Rock, AR 72114

Property
		
	Subsidiary:
	Northridge HC&R Property Holdings, LLC, a Georgia limited liability company

		
	Other Notes:                  1.
	Promissory Note in the original principal amount of $170,000.00, relating to the skilled nursing facility known as Cumberland Health and Rehabilitation Center, 1516 South Cumberland Street, Little Rock, AR  72202, the owner of which is APH&R HC Property Holdings, LLC, a Georgia limited liability company.

		
	2.
	Promissory Note in the original principal amount of $170,000.00, relating to the skilled nursing facility known as River Valley Health and Rehabilitation Center, 5301 Wheeler Avenue, Fort Smith, AR  72901, the owner of which is River Valley Property Holdings, LLC, a Georgia limited liability company.

		
	3.
	Promissory Note in the original principal amount of $170,000.00, relating to the skilled nursing facility known as Sumter Valley Nursing and Rehab Center, 1761 Pinewood Road, Sumter, SC  29154 (the “Sumter Valley Facility”), the owner of which is Sumter Valley Property Holdings, LLC, a Georgia limited liability company.

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