Document:

Exhibit 10.10

 

NOTE PURCHASE AGREEMENT

 

March 29, 2012

 

Adcare Health Systems, Inc.

5057 Troy Road

Springfield, Ohio 45502

 

	
Attn:
    	
Boyd   P. Gentry
    
	
 
    	
Chief   Executive Officer
    

 

Dear Ladies and Gentlemen:

 

The undersigned (the “Note Purchaser”) offers to enter into this Note Purchase Agreement (this “Note Purchase Agreement”) with Adcare Health Systems, Inc., an Ohio corporation (the “Company”), which, upon acceptance of this offer by the Company, will be binding upon the Company and the Note Purchaser.  This offer is made subject to written acceptance hereof by the Company at or before 6:00 P.M., Eastern Time, on the date hereof, unless extended by agreement by the parties.

 

SECTION 1.         PURCHASE AND SALE OF THE NOTE

 

Based upon the terms and conditions and upon the representations herein set forth, the Note Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell and deliver to the Note Purchaser, a single promissory note (the “Note”), which will, except as otherwise agreed to in writing by the Note Purchaser and the Company, or as otherwise provided therein, (i) mature on October 1, 2012 (the “Stated Maturity Date”), (ii) bear interest at the rate of ten percent (10.00%) per annum, (iii) be substantially in the form of Exhibit A, attached hereto and made a part hereof, and (iv) be in a principal amount not in excess of $3,500,000.  As additional consideration to the Note Purchaser, and as an inducement to the Note Purchaser to purchase the Note, the Company will, contemporaneously with its execution and delivery of the Note to the Note Purchaser, execute and deliver to the Note Purchaser, warrants to purchase up to 300,000 shares of the Company’s common stock (the “Shares”), exercisable at any time through and including April 1, 2015, at a price of $4.00 per Share (the “Warrants”).  Except as to the specific provisions set forth in the preceding sentence, the Warrants will be substantially in the form as those that the Company issued to Attosa Financial LLC (“Attosa”) in connection with Attosa’s purchase of the Company’s $3,500,000 Promissory Note dated September 30, 2010.

 

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SECTION 2.         DELIVERY OF THE NOTE AND CLOSING

 

At 10:00 a.m. (Eastern Time) on March 30, 2012, or at such other time or on such earlier or later date as to which we may mutually agree (the “Closing Date”), the Company will cause the Note and the Warrants to be delivered to Gregory D. Hughes, as escrow agent, to be held and disbursed in accordance with that certain escrow instruction letter of even date herewith.  On or before March 30, 2012, the Note Purchaser shall deposit with escrow agent the purchase price in an amount equal to one hundred percent (100%) of the face amount of the Note, in federal or other immediately available funds by wire.

 

SECTION 3.         REPRESENTATIONS AND AGREEMENTS OF THE NOTE PURCHASER

 

The Note Purchaser represents to and agrees with the Company that, as of the date hereof:

 

(a)           The Note Purchaser is a limited liability company, duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, having all requisite power and authority to carry on its business as now constituted.

 

(b)           The Note Purchaser has received all information with respect to the Company that it has requested from the Company in order to purchase the Note.

 

(c)           The documents relating to the purchase of the Note have been reviewed by the Note Purchaser and contain terms acceptable to, and agreed to by, the Note Purchaser.

 

(d)           The Note Purchaser has the requisite authority to enter into this Note Purchase Agreement.  This Note Purchase Agreement has been duly executed and delivered by the Note Purchaser and, assuming the due authorization, execution and delivery by the Company, is the binding and valid obligation of the Note Purchaser, enforceable in accordance with its terms, except that the enforceability hereof may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws or equitable principles affecting creditors’ rights or remedies generally.

 

SECTION 4.         REPRESENTATIONS, WARRANTIES, COVENANTS OF THE COMPANY

 

The Company represents to and agrees with the Note Purchaser that, as of the date hereof and the date of the Closing:

 

(a)           Disclosure.  The written statements made, and information provided, to the Note Purchaser, by or on behalf of the Company, in connection with the transactions contemplated herein (collectively, the “Disclosure Information”), are true, correct and complete in all material respects, and such information and statements do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make such statements and information, in light of the circumstances under which they are, or were made, not misleading.

 

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(b)           Existence.  The Company is, and will continue to be, a corporation, duly organized, validly existing, in good standing under the laws of the State of Ohio, with full power and authority to own its properties and conduct its business as and where the same are now owned and conducted.

 

(c)           Authority.  The Company has the requisite power and authority to enter into and consummate all of the transactions contemplated on its part by this Note Purchase Agreement, the Note, the Warrants, or any other document required by the terms hereof or of any thereof to be executed and delivered by the Company (collectively, the “Transaction Documents”).

 

(d)           Due Execution and Delivery of Documents.  This Note Purchase Agreement has been duly executed and delivered by the Company and, when executed and delivered by the Note Purchaser, will be, and the other Transaction Documents, when executed and delivered by the Company (if applicable) and the other parties thereto, will be, legal, valid and binding agreements of the Company, enforceable in accordance with their terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws in effect from time to time affecting the rights of creditors generally and to the availability of equitable relief.

 

(e)           No Conflicts.  The acceptance, execution and delivery of this Note Purchase Agreement and the other Transaction Documents, and the compliance with the provisions hereof and thereof do not and will not violate or conflict with (in any material respect) any resolution adopted by the Company’s board of directors, to the knowledge of the Company, do not and will not conflict with or violate, or result in or constitute a material breach of or default under, any indenture, mortgage, deed of trust, guaranty, lease, agreement or other instrument to which the Company is a party or by which the Company or any of its property is bound, which would have a materially adverse effect on the transactions contemplated by this Note Purchase Agreement, or, to the knowledge of the Company, conflict with or violate any provision of any law, administrative rule or regulation, or any judgment, order or decree to which the Company or any of its property is subject.

 

(f)            Compliance with Law.  Except as may otherwise be disclosed in writing to the Note Purchaser, the Company is in substantial compliance with all applicable federal, state and local laws and ordinances (including rules and regulations) that are applicable to it or its business operations and financial affairs.

 

SECTION 5.         INDEMNIFICATION

 

(a)           Scope of Indemnification by the Company.  The Company hereby agrees to indemnify, protect, defend and hold harmless the Note Purchaser, each member and employee thereof, and each person, if any, who controls the Note Purchaser within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (any such person being herein sometimes called an “Indemnified Party”), against all losses, claims, damages, liabilities or expenses, whether joint or several, to which any such Indemnified Party may become subject, under any statute or regulation at law or in equity or otherwise insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact set forth in of the Disclosure Information, or arise out of or are based upon the

 

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omission or alleged omission to state therein a material fact required to be stated therein or which is necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading in any material respect, and will reimburse any legal or other expenses reasonably incurred by any such Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action.  Provided, however, that such indemnity shall not extend to any Indemnified Party if the loss, claim, damage or liability is caused by the gross negligence or willful misconduct of the Indemnified Party.  This indemnity agreement shall not be construed as a limitation on any other liability that the Company may otherwise have to any Indemnified Party, provided that in no event shall the Company be obligated for double indemnification.

 

(b)           Procedure.  An Indemnified Party shall, promptly after the receipt of notice of the commencement of any action against such Indemnified Party in respect of which indemnification may be sought against the Company, notify the Company in writing of the commencement thereof.  Failure of the Indemnified Party to give such notice will reduce the liability of the Company by the amount of damages attributable to the failure of the Indemnified Party to give such notice to the Company, but the omission to notify the Company of any such action shall not relieve the Company from any liability that it may have to such Indemnified Party otherwise than under this section.  In case any such action shall be brought against an Indemnified Party and such Indemnified Party shall notify the Company of the commencement thereof, the Company may, or if so requested by such Indemnified Party shall, participate therein or assume the defense thereof, with counsel satisfactory to such Indemnified Party (it being understood that, except as hereinafter provided, the Company shall not be liable for the expenses of more than one separate counsel representing the Indemnified Parties in such action), and after notice from the Company to such Indemnified Party of an election so to assume the defense thereof, the Company will not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that unless and until the Company assumes the defense of any such action at the request of such Indemnified Party, the Indemnified Party shall have the right to participate at its own expense in the defense of any such action.  If the Company shall not have employed counsel to take charge of the defense of any such action, or if an Indemnified Party shall have reasonably concluded that there may be defenses available to it or other Indemnified Parties that are different from or additional to those available to the Company (in which cases the Company shall not have the right to direct the defense of such action on behalf of such Indemnified Party) or to other Indemnified Parties, legal and other expenses, including the expenses of separate counsel incurred by such Indemnified Party shall be borne by the Company.

 

SECTION 6.         CONDITIONS OF THE NOTE PURCHASER’S OBLIGATIONS

 

The Note Purchaser has entered into this Note Purchase Agreement in reliance upon the representations and agreements of the Company herein and the performance by the Company of its obligations hereunder, both as of the date hereof and as of the Closing Date.  The Note Purchaser’s obligations under this Note Purchase Agreement are and shall be subject to the following further conditions:

 

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(a)           Conditions at or Prior to the Closing.  Receipt by the Note Purchaser of the following documents at or prior to the Closing, all of which shall be fully executed (except for any necessary signature by the Note Purchaser):

 

(i)            The Note and the Warrants;

 

(ii)           A certificate, dated the date of the Closing, and signed by the Secretary or an Assistant Secretary of the Company, which sets forth or includes evidence satisfactory to the Note Purchaser, that: (A) the Company’s execution, delivery and performance of its obligations under the Transaction Documents have been duly authorized by all necessary corporate action of the Company; and (B) Boyd P. Gentry has been duly authorized by all necessary corporate action of the Company to execute and deliver, on behalf of the Company, all Transaction Documents to which the Company is a party;

 

(iii)          A certificate, dated the date of the Closing, signed by a duly authorized officer of the Company, and satisfactory to the Note Purchaser, to the effect that (A) each of the representations and warranties of the Company contained in this Note Purchase Agreement is true, accurate and complete on the Closing Date as if made on and as of the Closing Date, (B) each of the agreements of the Company to be complied with and each of the obligations of the Company to be performed hereunder on or prior to the Closing Date have been complied with and performed, and (C) as of the Closing Date, there has been no material adverse change in the status, business, condition or prospects (financial or otherwise) of the Company; and

 

(iv)          Such additional certificates, instruments, opinions of counsel, or other documents or conditions as the Note Purchaser may reasonably request, including, but without limitation to the generality of the foregoing, a requirement that the public sales price of the Shares, on the date of Closing, be not less than $3.50.

 

(b)           Failure to Satisfy Conditions.  If there shall be a failure to satisfy any of the conditions to the Note Purchaser’s obligations contained in this Note Purchase Agreement, or if the Note Purchaser’s obligations shall be terminated for any reason permitted by this Note Purchase Agreement, this Note Purchase Agreement shall terminate and neither the Note Purchaser nor the Company shall have any further obligation hereunder, except as provided in Section 9 hereof.

 

SECTION 7.         TERMINATION

 

The Note Purchaser shall have the right to terminate this Note Purchase Agreement by notifying the Company of its election to do so, if at the time of such notification, between the date hereof and the Closing Date, (i) there shall have occurred any new outbreak of hostilities or other unforeseen national or international calamity or crisis, the effect of such new outbreak, calamity or crisis on the financial markets of the United States being such in the reasonable judgment of the Note Purchaser as to materially adversely affect the value of the Note; (ii) there shall be in force a general suspension of trading on the New York Stock Exchange or minimum or maximum prices for trading shall have been fixed and be in force or maximum ranges for prices for securities shall have been required and be in force on the New York Stock Exchange, whether by virtue of a determination by that Exchange or by order of the Securities and Exchange Commission or any other governmental authority having jurisdiction; (iii) a general banking moratorium shall have

 

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been established by federal or applicable state authorities; (iv) any event, not caused by the Note Purchaser, shall have occurred or shall exist which, in the reasonable opinion of the Note Purchaser, makes untrue or incorrect, as of such time, in any material respect, any material statement or information contained in the Disclosure Information or makes the Disclosure Information inadequate by reason of the omission of information which should be reflected therein in order to make the statements and information contained therein not misleading as of such time; (v) a stop order, ruling, regulation or official statement by or on behalf of the Securities and Exchange Commission shall be issued or made to the effect that the issuance, offering or sale of the Note or the Warrants, or of obligations of the general character of the Note or Warrants, is in violation of any provision of the 1933 Act, the Securities Exchange Act of 1934, as amended, or the Trust Indenture Act of 1939, as amended; or (vi) the Note Purchaser’s due diligence examination in respect of the issuance of the Note and Warrants shall have revealed any fact or circumstance that, in the reasonable judgment of the Note Purchaser, would materially and adversely affect the value of the Note or the Warrants.

 

SECTION 8.         PAYMENT OF FEES AND EXPENSES

 

(a)           Payment by the Company.  Except as provided in Paragraph (b) below, the Company shall pay all expenses incident to the sale of the Note, including but without limitation, (A) the cost of the preparation (including printing, duplicating and distribution) of this Note Purchase Agreement, the Transaction Documents, or any amendment or supplement thereto, and (B) the fees of the Note Purchaser, the Note Purchaser’s Counsel, and any other counsel, experts or consultants retained by the Company or the Note Purchaser.

 

(b)           Payment by Purchaser.  Except as provided in the foregoing Paragraph (a), the Note Purchaser shall pay the cost of all regulatory expenses incurred by the Note Purchaser in connection with its purchase of the Note.

 

SECTION 9.         ISSUANCE OF ADDITIONAL WARRANTS  If, for any reason, the entire principal amount of the Note, together with all interest accrued thereon, shall not be paid in full when due, in accordance with the terms thereof, the Company shall, no later than ten (10) days after the date on which such payment was due, issue to the Note Purchaser warrants to purchase up to 50,000 shares of the Company’s common stock (the “Shares”), exercisable at any time through and including the third anniversary of the date of the issuance thereof, at a price of $4.00 per Share (the “Additional Warrants”).

 

SECTION 10.       NOTICES

 

Any notices or other communication to be given under this Note Purchase Agreement may be given by delivering the same in writing as follows:

 

	
As   to the Company:
    	
 
    	
Adcare   Health Systems, Inc.
    
	
 
    	
 
    	
5057   Troy Road
    
	
 
    	
 
    	
Springfield,   Ohio 45502
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Attn:
    	
Boyd   P. Gentry
    
	
 
    	
 
    	
 
    	
Chief   Executive Officer
    

 

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As   to the Note Purchaser:
    	
 
    	
Cantone   Asset Management LLC
    
	
 
    	
 
    	
c/o   Cantone Research, Inc.
    
	
 
    	
 
    	
766   Shrewsbury Avenue
    
	
 
    	
 
    	
Tinton   Falls, NJ 07724
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Attention:
    	
Anthony   J. Cantone
    
	
 
    	
 
    	
 
    	
Managing   Member
    

 

or to such different address written notice of which is given to each of the other parties hereto.

 

 

SECTION 11.       PARTIES IN INTEREST AND SURVIVAL OF REPRESENTATIONS

 

(a)           Parties in Interest.  This Note Purchase Agreement is made solely for the benefit of the Company and the Note Purchaser (including their respective successors or assigns), and no other person, partnership, association or corporation shall acquire or have any right hereunder or by virtue hereof.

 

(b)           Survival of Representations.  All representations and agreements of the Company in this Note Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Note Purchaser and all representations and agreements of the Company and the Note Purchaser shall survive the delivery of and payment for the Note.

 

SECTION 12.       MISCELLANEOUS

 

(a)           Headings.  The headings of the sections and Paragraphs of this Note Purchase Agreement are inserted for convenience only and shall not be deemed to be a part hereof.

 

(b)           Governing Law.  This Note Purchase Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey.

 

(c)           Counterparts.  This Note Purchase Agreement may be executed, accepted and approved in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute and accept or approve this Note Purchase Agreement by signing any such counterpart.

 

If you agree with the foregoing, please sign the enclosed counterpart of this Note Purchase Agreement and return it to the Note Purchaser. This Note Purchase Agreement shall become a binding agreement by and between the Company and the Note Purchaser when at least one counterpart of this Note Purchase Agreement shall have been signed by or on behalf of each of the parties hereto.

 

{Signatures on Following Page}

 

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Very   truly yours,
    
	
 
    	
 
    
	
 
    	
CANTONE   ASSET MANAGEMENT LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Anthony J. Cantone
    
	
 
    	
 
    	
Anthony J. Cantone
    
	
 
    	
 
    	
Managing Member
    

 

Accepted as of the date first

above written:

 

 

	
ADCARE   HEALTH SYSTEMS, INC.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Boyd P. Gentry
    	
 
    
	
 
    	
Boyd P. Gentry
    	
 
    
	
 
    	
Chief   Executive Officer
    	
 
    

 

8Exhibit 10.11

 

	
14307580.3
    	
 
    	
(A.4)
    
	
03-28-12
    	
 
    	
 
    

 

GUARANTY OF PAYMENT AND PERFORMANCE

 

THIS GUARANTY OF PAYMENT AND PERFORMANCE dated as of March 30, 2012 (this “Guaranty”), is made by ADCARE HEALTH SYSTEMS, INC., an Ohio corporation (“AdCare”), LITTLE ROCK HC&R NURSING, LLC, NORTHRIDGE HC&R NURSING, LLC and WOODLAND HILLS HC NURSING, LLC, each a Georgia limited liability company (each an “Operator” and collectively the “Operators”) (AdCare and the Operators being sometimes referred to herein collectively as the “Guarantors”), jointly and severally, to and for the benefit of THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (the “Lender”).

 

RECITALS

 

A.            The Lender has agreed to make a loan to Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC and Woodland Hills HC Property Holdings, LLC, each a Georgia limited liability company (collectively, the “Borrowers”), in the principal amount of $21,800,000 (the “Loan”) pursuant to the terms and conditions of a Loan Agreement of even date herewith (the “Loan Agreement”) by and among the Borrowers and the Lender. The Loan is evidenced by a Promissory Note of even date herewith (the “Note”) executed by each Borrower and payable to the order of the Lender. The Note is secured by three separate Mortgages, Security Agreements, Assignments of Rents and Leases and Fixture Filings dated as of April 1, 2012 (the “Mortgages”), each executed by a Borrower to and for the benefit of the Lender. All terms used and not otherwise defined herein shall have the meanings set forth in the Loan Agreement. For the avoidance of doubt, all references in this Guaranty to the “Loan Documents” include, without limitation, any Bank Product Agreements (as defined in the Loan Agreement) to which the Lender or any of its Affiliates is a party, including, without limitation, any Hedging Agreements (as defined in the Loan Agreement) to which the Lender is a party.

 

B.            The purpose of the Loan is to provide financing for the Projects described in the Loan Agreement. Each of Little Rock HC&R Nursing, LLC, Northridge HC&R Nursing, LLC and Woodland Hills HC Nursing, LLC, is the lessee of one of the Projects and is deriving a benefit from the making of the Loan by the Lender. AdCare is the owner of 100% of the membership interests in each of the Borrowers and the Operators either directly or indirectly through one or more intermediary entities, and is also deriving a benefit from the making of the Loan by the Lender.

 

C.            As a condition precedent to the making of the Loan to the Borrowers by the Lender and in consideration therefor, the Lender has required the execution and delivery of this Guaranty by the Guarantors.

 

AGREEMENTS

 

For good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, each Guarantor hereby agrees as follows:

 

 

1.             Guaranty of Payment. Each Guarantor hereby unconditionally, absolutely and irrevocably guarantees, jointly and severally, the punctual payment and performance when due, whether at stated maturity or by acceleration or otherwise, of the indebtedness and other obligations of the Borrowers to the Lender evidenced by the Note and any other amounts that may become owing by the Borrowers under the Loan Documents (such indebtedness, obligations and other amounts are hereinafter referred to as the “Payment Obligations”). This Guaranty is a present and continuing guaranty of payment and not of collectability, and the Lender shall not be required to prosecute collection, enforcement or other remedies against any Borrower, any Guarantor, or any other guarantor of the Payment Obligations, or to enforce or resort to any collateral for the repayment of the Payment Obligations or other rights or remedies pertaining thereto, before calling on any Guarantor for payment.  If for any reason the Borrowers shall fail or be unable to pay, punctually and fully, any of the Payment Obligations, the Guarantors shall jointly and severally pay such obligations to the Lender in full immediately upon demand.  One or more successive actions may be brought against the Guarantors, or any of them, as often as the Lender deems advisable, until all of the Payment Obligations are paid and performed in full.  The Payment Obligations and the Performance Obligations (as defined below) are referred to herein as the “Guaranteed Obligations.”

 

2.             Guaranty of Performance.  In addition to the guaranty of the Payment Obligations, each Guarantor hereby unconditionally, absolutely and irrevocably guarantees, jointly and severally, (i) the full and prompt performance and observance by each of the Borrowers of each and every other obligation, undertaking, liability, promise, warranty, covenant and agreement of the Borrowers in and under the terms of the Loan Documents; and (ii) the truth of each and every representation and warranty made by each of the Borrowers in the Loan Documents or in other certificates or documents delivered in connection with the Loan (the matters described in (i) and (ii) above being collectively referred to herein as the “Performance Obligations”).

 

3.             Representations and Warranties.  The following shall constitute representations and warranties of each Guarantor and each Guarantor hereby acknowledges that the Lender intends to make the Loan in reliance thereon:

 

(a)           Each Operator is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the State of Arkansas.  Each Operator has full power and authority to conduct its business as presently conducted, to execute and deliver the Loan Documents to which it is a party, and to perform all of its duties and obligations under the Loan Documents to which it is a party; and such execution and performance have been duly authorized by all necessary Legal Requirements.  The articles of organization and operating agreement of each Operator, each as amended to date, copies of which have been furnished to the Lender, are in effect, have not been further amended, and are the true, correct and complete documents relating to such Operator’s creation and governance.

 

(b)           AdCare is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio.  AdCare has full power and authority to conduct its business as presently conducted, to execute and deliver the Loan Documents

 

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to which it is a party, and to perform all of its duties and obligations under the Loan Documents to which it is a party; and such execution and performance have been duly authorized by all necessary Legal Requirements. The articles of incorporation and bylaws of AdCare, each as amended to date, copies of which have been furnished to the Lender, are in effect, have not been further amended, and are the true, correct and complete documents relating to AdCare’s creation and governance.

 

(c)           Each Guarantor is not in default and no event has occurred that with the passage of time or the giving of notice will constitute a default under any agreement to which such Guarantor is a party, the effect of which will impair performance by such Guarantor of its obligations under this Guaranty.  Neither the execution and delivery of this Guaranty nor compliance with the terms and provisions hereof will violate any applicable law, rule, regulation, judgment, decree or order, or will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of the articles of organization or operating agreement of any Operator, the articles of incorporation or bylaws of AdCare, any indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind that creates, represents, evidences or provides for any lien, charge or encumbrance upon any of the property or assets of any Guarantor, or any other indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind to which any Guarantor is a party or to which any Guarantor or the property of any Guarantor may be subject.

 

(d)           There is no litigation, arbitration, governmental or administrative proceedings, actions, examinations, claims or demands pending, or to the Guarantors’ knowledge, threatened that could adversely affect performance by any Guarantor of its obligations under this Guaranty.

 

(e)           Neither this Guaranty nor any statement or certification as to facts previously furnished or required herein to be furnished to the Lender by any Guarantor, contains any material inaccuracy or untruth in any representation, covenant or warranty or omits to state a fact material to this Guaranty.

 

4.             Continuing Guaranty.  Each Guarantor agrees that performance by such Guarantor of the obligations under this Guaranty shall be a primary obligation, shall not be subject to any counterclaim, set-off, abatement, deferment or defense based upon any claim that such Guarantor may have against the Lender, the Borrowers, any other guarantor of the Guaranteed Obligations or any other person or entity, and shall remain in full force and effect without regard to, and shall not be released, discharged or affected in any way by, any circumstance or condition (whether or not such Guarantor shall have any knowledge thereof), including without limitation —

 

(a)           Any lack of validity or enforceability of any of the Loan Documents;

 

(b)           Any termination, amendment, modification or other change in any of the Loan Documents, including, without limitation, any modification of the interest rate or rates described therein;

 

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(c)           Any furnishing, exchange, substitution or release of any collateral securing repayment of the Loan, or any failure to perfect any lien in such collateral;

 

(d)           Any failure, omission or delay on the part of the Borrowers, the Guarantors, any other guarantor of the Guaranteed Obligations or the Lender to conform or comply with any term of any of the Loan Documents or any failure of the Lender to give notice of any Event of Default;

 

(e)           Any waiver, compromise, release, settlement or extension of time of payment or performance or observance of any of the obligations or agreements contained in any of the Loan Documents;

 

(f)            Any action or inaction by the Lender under or in respect of any of the Loan Documents, any failure, lack of diligence, omission or delay on the part of the Lender to perfect, enforce, assert or exercise any lien, security interest, right, power or remedy conferred on it in any of the Loan Documents, or any other action or inaction on the part of the Lender;

 

(g)           Any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement, readjustment, assignment for the benefit of creditors, composition, receivership, liquidation, marshalling of assets and liabilities or similar events or proceedings with respect to any Borrower, any Guarantor or any other guarantor of the Guaranteed Obligations, as applicable, or any of their respective property or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding;

 

(h)           Any merger or consolidation of any Borrower into or with any entity, or any sale, lease or transfer of any of the assets of any Borrower, any Guarantor or any other guarantor of the Guaranteed Obligations to any other person or entity;

 

(i)            Any change in the ownership of any Borrower, or any change in the relationship between any Borrower and any Guarantor or any other guarantor of the Guaranteed Obligations, or any termination of any such relationship;

 

(j)            Any release or discharge by operation of law of any Borrower, any Guarantor or any other guarantor of the Guaranteed Obligations from any obligation or agreement contained in any of the Loan Documents; or

 

(k)           Any other occurrence, circumstance, happening or event, whether similar or dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which otherwise might limit recourse against any Borrower or any Guarantor to the fullest extent permitted by law.

 

5.             Waivers. Each Guarantor expressly and unconditionally waives (i) notice of any of the matters referred to in Section 4 above, (ii) all notices which may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve intact any rights against the Guarantors, including, without limitation, any demand, presentment and protest, proof of notice of non-payment under any of the Loan Documents and notice of any Event of Default or any

 

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failure on the part of any Borrower, any Guarantor or any other guarantor of the Guaranteed Obligations to perform or comply with any covenant, agreement, term or condition of any of the Loan Documents, (iii) any right to the enforcement, assertion or exercise against any Borrower, any Guarantor or any other guarantor of the Guaranteed Obligations of any right or remedy conferred under any of the Loan Documents, (iv) any requirement of diligence on the part of any person or entity, (v) to the fullest extent permitted by law and except as otherwise expressly provided in this Guaranty or the other Loan Documents, any claims based on allegations that the Lender has failed to act in a commercially reasonable manner or failed to exercise the Lender’s obligation of good faith and fair dealing, (vi) any requirement to exhaust any remedies or to mitigate the damages resulting from any default under any of the Loan Documents, and (vii) any notice of any sale, transfer or other disposition of any right, title or interest of the Lender under any of the Loan Documents. Each Guarantor agrees that such Guarantor is a guarantor and not a “surety” within the meaning of the Illinois Sureties Act, and also waives any and all rights under the Illinois Sureties Act.

 

6.             Subordination. Each Guarantor agrees that any and all present and future debts and obligations of any Borrower to such Guarantor hereby are subordinated to the claims of the Lender and hereby are assigned by such Guarantor to the Lender as security for the Guaranteed Obligations and such Guarantor’s obligations under this Guaranty.

 

7.             Subrogation Waiver. Until the Guaranteed Obligations are paid in full and all periods under applicable bankruptcy law for the contest of any payment by the Guarantors or the Borrowers as a preferential or fraudulent payment have expired, each Guarantor knowingly, and with advice of counsel, waives, relinquishes, releases and abandons all rights and claims to indemnification, contribution, reimbursement, subrogation and payment which such Guarantor may now or hereafter have by and from any Borrower and the successors and assigns of any Borrower, for any payments made by such Guarantor to the Lender, including, without limitation, any rights which might allow any Borrower, any Borrower’s successors, a creditor of any Borrower, or a trustee in bankruptcy of any Borrower to claim in bankruptcy or any other similar proceedings that any payment made by any Borrower or any Borrower’s successors and assigns to the Lender was on behalf of or for the benefit of such Guarantor and that such payment is recoverable by such Borrower, a creditor or trustee in bankruptcy of such Borrower as a preferential payment, fraudulent conveyance, payment of an insider or any other classification of payment which may otherwise be recoverable from the Lender.

 

8.             Reinstatement. The obligations of each Guarantor pursuant to this Guaranty shall continue to be effective or automatically be reinstated, as the case may be, if at any time payment of any of the Guaranteed Obligations or any Guarantor’s obligations under this Guaranty is rescinded or otherwise must be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Guarantor or any Borrower or otherwise, all as though such payment had not been made.

 

9.             Financial Statements. Each Guarantor represents and warrants to the Lender that (i) the financial statements of such Guarantor previously submitted to the Lender are true, complete and correct in all material respects, disclose all actual and contingent liabilities, and fairly present the financial condition of such Guarantor, and do not contain any untrue statement of a material fact or omit to state a fact material to the financial statements submitted or this

 

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Guaranty, and (ii) no material adverse change has occurred in the financial statements from the dates thereof until the date hereof. Each Guarantor shall furnish to the Lender financial statements and other information as provided in Section 7.4 of the Loan Agreement.

 

10.          Transfers, Sales, Etc.  Each Guarantor shall not sell, lease, transfer, convey or assign any of its or his assets, unless (i) if the Guarantor is a natural person, such sale, lease, transfer, conveyance or assignment is of a non-material asset of such Guarantor and will not have a material adverse effect on such Guarantor’s financial condition, or (ii) if the Guarantor is a limited liability company, corporation, partnership or other entity, such sale, lease, transfer, conveyance or assignment will not have a material adverse effect on the business or financial condition of such Guarantor or its ability to perform its obligations hereunder.

 

11.          Default; Remedies. An Event of Default shall occur hereunder if any Guarantor shall fail to pay or perform any of its covenants, agreements and obligations hereunder, or if any representation or warranty contained herein shall prove to be untrue or incorrect in any material respect. When any Event of Default hereunder has occurred and is continuing, the Lender may exercise any of the rights and remedies provided for herein or in any of the other Loan Documents, or provided to it by law, including, without limitation, the right of setoff.

 

12.          Enforcement Costs and Interest. If: (i) this Guaranty is placed in the hands of one or more attorneys for collection or is collected through any legal proceeding; (ii) one or more attorneys is retained to represent the Lender in any bankruptcy, reorganization, receivership or other proceedings affecting creditors’ rights and involving a claim under this Guaranty, or (iii) one or more attorneys is retained to represent the Lender in any other proceedings whatsoever in connection with this Guaranty, then the Guarantors shall pay to the Lender upon demand all fees, costs and expenses incurred by the Lender in connection therewith, including, without limitation, reasonable attorney’s fees, court costs and filing fees, in addition to all other amounts due hereunder. Amounts due from a Guarantor under this Guaranty shall bear interest until paid at the Default Rate.

 

13.          Successors and Assigns; Joint and Several Liability.

 

(a)           This Guaranty shall inure to the benefit of the Lender and its successors and assigns. This Guaranty shall be binding on each Guarantor and the heirs, legatees, successors and assigns of such Guarantor.

 

(b)           If this Guaranty is executed by more than one Guarantor, it shall be the joint and several undertaking of each of the undersigned. Regardless of whether this Guaranty is executed by more than one Guarantor, it is agreed that the liability of the undersigned hereunder is several and independent of any other guarantees or other obligations at any time in effect with respect to the Guaranteed Obligations or any part thereof and that the liability of any Guarantor hereunder may be enforced regardless of the existence, validity, enforcement or non-enforcement of any such other guarantees or other obligations.

 

(c)           Each Guarantor acknowledges that Lender has advised the Guarantors that the Lender is unwilling to provide the Loan to the Borrowers unless each Guarantor agrees to jointly and severally guaranty the Loan as provided herein. Each Guarantor has determined that it is in

 

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its best interest to undertake such joint and several liability because of, among other things (i) the benefit to each Borrower and Guarantor of the Borrowers being able to obtain the Loan and the desirability of the terms and conditions of the Loan, (ii) the benefit and economies to be realized by the Borrowers and in turn the Operators in the Borrowers’ obtaining the Loan as a single loan facility as compared to each Borrower’s obtaining an individual loan facility for its Project, and (iii) the fact that each Borrower and Guarantor is an Affiliate of all of the other Borrowers and Guarantors.

 

14.          No Waiver of Rights. No delay or failure on the part of the Lender to exercise any right, power or privilege under this Guaranty or any of the other Loan Documents shall operate as a waiver thereof, and no single or partial exercise of any right, power or privilege shall preclude any other or further exercise thereof or the exercise of any other power or right, or be deemed to establish a custom or course of dealing or performance between the parties hereto. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstance.

 

15.          Prior Agreements; No Reliance; Modification. This Guaranty shall represent the entire, integrated agreement between the parties hereto relating to the subject matter hereof, and shall supersede all prior negotiations, representations or agreements pertaining thereto, either oral or written. The Guarantors acknowledge that they are executing this Guaranty without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein. The terms of this Guaranty may be waived, discharged, or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. No amendment, modification, waiver or other change of any of the terms of this Guaranty shall be effective without the prior written consent of the Lender.

 

16.          Joinder. Any action to enforce this Guaranty may be brought against any Guarantor without any joinder of any Borrower, any other Guarantor, or any other guarantor of the Guaranteed Obligations in such action.

 

17.          Incorporation of Recitals. The Recitals to this Guaranty are hereby incorporated into and made a part of this Guaranty.

 

18.          Severability. If any provision of this Guaranty is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, the Guarantors and the Lender shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this Guaranty and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect.

 

19.          Applicable Law. This Guaranty is governed as to validity, interpretation, effect and in all other respects by laws and decisions of the State of Illinois.

 

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20.          Captions. The captions and headings of various Sections of this Guaranty pertaining hereto are for convenience only and are not to be considered as defining or limiting in any way the scope or intent of the provisions hereof.

 

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

 

22.          Construction. Each party to this Guaranty and legal counsel to each party have participated in the drafting of this Guaranty, and accordingly the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Guaranty.

 

23.          Notice. All notices and other communications provided for in this Guaranty (“Notices”) shall be in writing. The “Notice Addresses” of the parties for purposes of this Guaranty are as follows:

 

	
Guarantors:
    	
 
    	
AdCare Health Systems, Inc.

5057 Troy Road

Springfield, Ohio 45502

Attention: Boyd P. Gentry
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Little Rock HC&R Nursing, LLC

Northridge HC&R Nursing, LLC

Woodland Hills HC Nursing, LLC

Two Buckhead Plaza

3050 Peachtree Road NW, Suite 355

Atlanta, Georgia 30305

Attention: Boyd P. Gentry
    
	
 
    	
 
    	
 
    
	
With   a copy to:
    	
 
    	
Holt   Ney Zatcoff & Wasserman, LLP

100   Galleria Parkway, Suite 1800

Atlanta,   Georgia 30339

Attention:   Gregory P. Youra
    
	
 
    	
 
    	
 
    
	
Lender:
    	
 
    	
The PrivateBank and Trust Company

120 South LaSalle Street

Chicago, Illinois 60603

Attention:   Amy K. Hallberg
    

 

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With   a copy to:
    	
 
    	
Seyfarth   Shaw LLP

131   South Dearborn Street

Suite 2400

Chicago, Illinois   60603

Attention:   Alvin L. Kruse
    

 

or such other address as a party may designate by notice duly given in accordance with this Section to the other parties. A Notice to a party shall be effective when delivered to such party’s Notice Address by any means, including, without limitation, personal delivery by the party giving the Notice, delivery by United States regular, certified or registered mail, or delivery by a commercial courier or delivery service. If the Notice Address of a party includes a facsimile number or electronic mail address, Notice given by facsimile or electronic mail shall be effective when delivered at such facsimile number or email address. If delivery of a Notice is refused, it shall be deemed to have been delivered at the time of such refusal of delivery. The party giving a Notice shall have the burden of establishing the fact and date of delivery or refusal of delivery of a Notice.

 

24.          Litigation Provisions.

 

(a)           EACH GUARANTOR CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS, AND OF ANY STATE OR FEDERAL COURT LOCATED OR HAVING JURISDICTION IN THE COUNTIES IN WHICH THE PROJECTS ARE LOCATED, IN WHICH ANY LEGAL PROCEEDING MAY BE COMMENCED OR PENDING RELATING IN ANY MANNER TO THIS GUARANTY.

 

(b)           EACH GUARANTOR AGREES THAT ANY LEGAL PROCEEDING RELATING TO THIS GUARANTY MAY BE BROUGHT AGAINST SUCH GUARANTOR IN ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS, OR ANY STATE OR FEDERAL COURT LOCATED OR HAVING JURISDICTION IN THE COUNTIES IN WHICH THE PROJECTS ARE LOCATED. EACH GUARANTOR WAIVES ANY OBJECTION TO VENUE IN ANY SUCH COURT AND WAIVES ANY RIGHT SUCH GUARANTOR MAY HAVE TO TRANSFER OR CHANGE THE VENUE FROM ANY SUCH COURT.

 

(c)           EACH GUARANTOR AGREES THAT SUCH GUARANTOR WILL NOT COMMENCE ANY LEGAL PROCEEDING AGAINST THE LENDER RELATING IN ANY MANNER TO THIS GUARANTY IN ANY COURT OTHER THAN A STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS, OR IF A LEGAL PROCEEDING IS COMMENCED BY THE LENDER AGAINST SUCH GUARANTOR IN A COURT IN ANOTHER LOCATION, BY WAY OF A COUNTERCLAIM IN SUCH LEGAL PROCEEDING.

 

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(d)           EACH GUARANTOR HEREBY WAIVES TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS GUARANTY.

 

[SIGNATURE PAGE(S) AND EXHIBIT(S),

IF ANY, FOLLOW THIS PAGE]

 

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IN WITNESS WHEREOF, the Guarantors have executed this Guaranty as of the date first above written.

 

	
 
    	
ADCARE   HEALTH SYSTEMS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By
    	
/s/ Christopher F. Brogdon
    
	
 
    	
 
    	
Christopher F. Brogdon, Vice Chairman and

Chief Acquisition Officer
    
	
 
    	
 
    	
 
    
	
 
    	
LITTLE   ROCK HC&R NURSING, LLC,
    
	
 
    	
NORTHRIDGE   HC&R NURSING, LLC,
    
	
 
    	
WOODLAND   HILLS HC NURSING, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By
    	
/s/ Christopher F. Brogdon
    
	
 
    	
 
    	
Christopher   F. Brogdon, Manager of Each Operator
    

 

- AdCare Little Rock Owner Loan Guaranty -

- Signature Page -

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