Exhibit 99.1

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Introduction and Basis of Presentation

As previously disclosed, certain wholly owned subsidiaries of the Company (each, a “Beacon Sublessor”) entered into five sublease agreements, in or around October 2014, pursuant to which those subsidiaries shall lease four skilled nursing facilities and one assisted living facility located in Ohio (collectively, the “Beacon Facilities”) to certain affiliates of Beacon Health Management, LLC (each, a “Beacon Sublessee”) who will take over operations of the Beacon Facilities. On August 1, 2015, the Beacon Sublessors and the Beacon Sublessees entered into new sublease agreements that replaced the existing sublease agreements entered into in or around October 2014. Each of these new sublease agreements became effective on August 1, 2015 and the operations of the Beacon Facilities were transferred to the Beacon Sublessees. The Beacon Facilities constitute the following five properties:

The sublease agreements pertaining to the Beacon Facilities are in addition to several other sublease agreements which became effective on April 1, 2015, May 1, 2015, June 1, 2015, and July 1, 2015. See the Company’s Current Reports on Form 8-K filed on April 7, 2015, May 6, 2015, June 5, 2015, and July 7, 2015, respectively, for a description of these other sublease agreements. On a cumulative basis, the Company has entered into 24 sublease agreements (the "Cumulative Subleases") which are currently effective and under which operations of the applicable facilities have been transferred to third-party operators.

Beacon Facilities Sublease Agreements

The terms of the sublease agreements for Eaglewood Village, Hearth and Care of Greenfield, the Pavilion Care Center, and Woodland Manor (collectively, the “EHPW Facilities”) are materially identical and vary slightly from the terms of the sublease agreement for the Covington Care Center. Each of the five sublease agreements is structured as triple net lease wherein each Beacon Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial lease term for each of the EHPW Facilities is ten years with a five-year renewal option, and the initial lease term for the Covington Care Center is approximately four years with no renewal option. The aggregate annual base rent under the sublease agreements for the EHPW Facilities in the first year is $2.2 million and it will escalate at 2.5% each year through the initial term. The annual base rent for the Covington Care Center in the first

lease year is approximately $0.8 million and it will escalate at an annual rate of $12,000 through the initial term. To establish a fair market base rent under each of the sublease agreements for the EHPW Facilities during any renewal term, the base rent shall be reset and expressed as an annual amount equal to the greater of (i) the fair market rental value of the leased facility as established pursuant to a prescribed formula; or (ii) 102.5% of the base rent due for the immediately preceding lease year. In addition to base rent, the sublease agreements for the EHPW Facilities provides that the sublessees thereunder shall collectively pay to the applicable Beacon Sublessors special rent during the initial term in the amount of $109,632 per year, payable in advance in twelve equal monthly installments on or before the first day of each month (except for the first special rent payment, which shall be subtracted from the lease inducement fee described below). All five of the sublease agreements for the Beacon Facilities are cross-defaulted. Furthermore, the security deposit for any of the Beacon Facilities may be applied to the payment of any default under any one of the sublease agreements (or any other agreement cross-defaulted with the Beacon Facilities’ sublease agreements). In connection with entering into the sublease agreements for the Beacon Facilities, each Beacon Sublessor and Beacon Sublessee also entered into an operations transfer agreement with respect to the applicable facility, each containing customary terms and conditions relating to the transfer of operations thereof.

On August 1, 2015, the Company entered into a Lease Inducement Fee Agreement with certain affiliates of Beacon Health Management, LLC, pursuant to which the Company paid to certain affiliates of Beacon Health Management, LLC a fee of $0.6 million as a lease inducement for the Beacon Sublessees to enter into the sublease agreements described above and to commence such subleases and transfer operations thereunder. The inducement fee was paid net of certain other fees and costs owed by the affiliates of Beacon Health Management, LLC to the Beacon Sublessors, including the first month of base rent for all of the Beacon Facilities and the first month of special rent pertaining to the EHPW Facilities.

In addition to the sublease arrangements described above, affiliates of the Company also sublease to affiliates of Beacon Health Management, LLC two facilities, one located in Lumber City, Georgia ("Lumber City"), and the other located in Dublin, Georgia ("Southland"). As previously reported, on October 22, 2014, two wholly-owned subsidiaries of the Company (the “Lumber City Sublessor” and the "Southland Sublessor") entered into separate sublease agreements pursuant to which Lumber City Sublessor and Southland Sublessor each now leases one skilled nursing facility to affiliates of Beacon Health Management, LLC (the "Lumber City Sublessee" and the "Southland Sublessee"). The leases commenced on November 1, 2014, on which date the Lumber City Sublessee and Southland Sublessee each received all licenses and other approvals from the State of Georgia to operate such facilities. The annual rent under the Southland sublease agreement in the first year is approximately $0.9 million, and the annual rent will escalate at $12,000 annually through the lease term. The initial term of the Southland sublease agreement is ten years with a five year renewal option. The Lumber City facility is currently leased by Lumber City Sublessor, as tenant, pursuant to the Prime Lease with William M. Foster ("Prime Lease"), as landlord. The annual rent under the Lumber City sublease agreement in the first year is approximately $0.8 million, and the annual rent will escalate at $12,000 annually through the lease term. The initial term of the Lumber City sublease agreement will expire on July 31, 2020, coterminous with the Prime Lease. The sublease agreements are structured as triple net leases wherein the Lumber City Sublessee and Southland Sublessee are responsible for the day-to-day operation,

ongoing maintenance, taxes and insurance for the duration of each sublease. In connection with the sublease agreements, the current licensed operators (wholly-owned subsidiaries of Lumber City Sublessor and Southland Sublessor) and the Lumber City Sublessee and Southland Sublessee also entered into an operations transfer agreement with respect to the applicable facility, containing customary terms and conditions relating to the transfer of operations of skilled nursing facilities.

Pro Forma Financials

The unaudited pro forma balance sheet as of March 31, 2015 is based on the historical balance sheet of the Company as of March 31, 2015 after giving effect to the commencement of the Cumulative Subleases as of such date. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2015 and for the year ended December 31, 2014 are based on the historical statement of operations of the Company for the three months ending March 31, 2015 and for the year ending December 31, 2014, respectively, giving effect to the commencement of the Cumulative Subleases as of January 1, 2014.

The unaudited pro forma condensed consolidated financial statements presented are based on the assumptions and adjustments set forth in the notes thereto. The unaudited pro forma adjustments made in the compilation of the unaudited pro forma consolidated financial statements were directly attributable to the commencement of the Cumulative Subleases, based upon available information and assumptions, which we consider to be reasonable, and made solely for purposes of developing such unaudited pro forma financial information in compliance with the disclosure requirements of the SEC. The unaudited pro forma consolidated financial information is presented for informational purposes only and should not be considered indicative of actual results that would have been achieved had the Cumulative Subleases commenced on the dates indicated.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company's 2014 Annual Report on Form 10-K , filed on March 31, 2015, the Company's Current Report on Form 8-K , filed on April 7, 2015, the Company's Current Report on Form 8-K , filed on May 6, 2015, the Company's 1st Quarter 2015 Periodic Report on Form 10-Q , filed on May 14, 2015, the Company's Current Report on Form 8-K , filed on June 5, 2015, and the Company's Current Report on Form 8-K , filed on July 7, 2015.

Notes:

(1)     Security deposits from tenants related to certain subleased entities in accordance with the lease agreements

(2)    Lease inducement payments made to lessees

(3)    Cash paid for vacation accrual reduction due to transfer of employees to lessees

(4)    Payments made for capital expenditures and repairs & maintenance

Notes:

(1)     Eliminate results of operations for the Cumulative Subleases

(2)    Eliminate management's estimated general and administrative expense related to the Cumulative Subleases

(4)     Straight line rental revenue resulting from the Cumulative Subleases

(5)    Imputed interest payments on special rent payments

Notes:

(1)     Eliminate results of operations for the Cumulative Subleases

(2)    Eliminate management's estimated general and administrative expense related to the Cumulative Subleases

(3)     Eliminate interest expense related to lines of credit collateralized by accounts receivable related to two of the Cumulative Sublease entities

(4)     Straight line rental revenue resulting from the Cumulative Subleases

(5)    Imputed interest payments on special rent payments

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT (this “ Sublease ”) is entered into as of the 1 ^st day of August, 2015 (the “ Execution Date ”) by and between ADCARE HEALTH SYSTEMS, INC., a Georgia corporation (“ Sublessor ”) and CC SNF, LLC, a Florida limited liability company (“ Sublessee ”), for the improved real property described on Exhibit “A-1” (the “ Premises ”), on which Premises is located that certain 100 bed skilled nursing facility located at 75 Mote Drive, Covington, Ohio 45318, including the “ Sublessor Personal Property ” associated therewith described on Exhibit “A-2” (the Sublessor Personal Property together with the Premises, being collectively the “ Facility ”). Certain capitalized terms used in this Sublease are defined on Exhibit “B” .

RECITALS

WHEREAS, Sublessor is the tenant under that certain Lease Agreement dated August 26, 2002, as amended by a First Amendment to Lease Agreement dated July 14, 2003, by a Second Amendment to Lease Agreement dated April 1, 2008, by a Third Amendment to Lease Agreement dated May 1, 2011, and by a Fourth Amendment to Lease Agreement dated April 14, 2014 (as amended, the “Lease Agreement”), pursuant to which Sublessor leases the Premises from Covington Realty, LLC, an Ohio limited liability company (the “ Landlord ”); and

WHEREAS, this Sublease is subject and subordinate to the Lease Agreement. Sublessor shall remain responsible for all obligations under the Lease Agreement not agreed to be performed by Sublessee under this Sublease. Sublessor shall exercise due diligence in attempting to cause the Landlord to perform its obligations under the Lease Agreement for the benefit of the Sublessee.

NOW, THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Term . The “ Term ” of this Sublease shall commence on the first day of the month after the Sublessee’s receipt (i) of all licenses and other approvals from the State of Ohio required to operate the Facility and (ii) approval of this Sublease by the United States Department of Housing and Urban Development (the “ Commencement Date ”) , and shall end on April 30, 2019. A “ Sublease Year ” is the twelve (12) month period commencing on the Commencement Date (as defined below) and each anniversary thereof during each year of the Term.

2. Rent . During the Term, Sublessee shall pay in advance to Sublessor on or before the 1 ^st day of each month the following amounts as Rent (as defined below):

2.1      Initial Term Rent . During the Initial Term, “Rent” shall be as follows:

2.2     Renewal Term Rent . To establish a fair market Rent for the Premises during the Renewal Term, the Rent for the Renewal Term shall be reset and expressed as an annual amount equal to the greater of (a) the Fair Market Rental of the Premises as established pursuant to Exhibit C-1 , or (b) one hundred two percent (102%) of the Rent due for the immediately preceding Sublease Year. Commencing with the second (2 ^nd ) Sublease Year of the Renewal Term, the Rent due each Sublease Year shall equal the amount of the Rent payable for the immediately preceding Sublease Year as increased by two percent (2%).

2.3     Absolute Net Sublease. All Rent payments shall be absolutely net to Sublessor, free or any and all Taxes (as defined below in Section 5 ), Other Charges (as defined below in Section 5 ), and operating or other expenses of any kind whatsoever, all of which shall be paid by Sublessee. Sublessee shall at all times during the Term remain obligated under this Sublease without any right of set-off, counterclaim, abatement, deduction, reduction or defense of any kind. Sublessee’s sole right to recover damages against Sublessor under this Sublease shall be to prove such damages in a separate action.

2.4     Payment Terms . All 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 C-2 , or as otherwise directed by Sublessor from time to time.

3.     Security Deposit. Sublessee shall deposit with Sublessor and maintain during the Term the cash sum of Sixty-Five Thousand and 00/100 Dollars ($65,000.00) as a security deposit (the “ Security Deposit ”) which Sublessor shall hold as security for the full and faithful performance by Sublessee of every term, provision, obligation and covenant under this Sublease and subject to the terms and conditions of this Sublease. The Security Deposit shall be paid to Sublessor as follows: (i) $21,666.67 on the Commencement Date, (ii) $21,667.67 on December 1, 2014 and (iii) $21,666.66 on January 2, 2015. The Security Deposit may be deposited by Sublessor into an interest-bearing account, which interest shall accrue for the sole benefit of Sublessor and not Sublessee. The Security Deposit shall not be considered an advance payment of Rent (or of any other sum payable by Sublessee under this Sublease) or a measure of Sublessor’s damages in case of a default by Sublessee. Sublessor shall have no obligation to maintain the Security Deposit separate and apart from Sublessor’s general and/or other funds. If Sublessee defaults in respect of any of the terms, provisions, covenants and conditions of this Sublease (or if there is a default under any agreement or instrument with which this Sublease is cross-defaulted), Sublessor may, but shall not be required to, in addition to and not in lieu of any other rights and remedies available to Sublessor, apply all or any part of the Security Deposit to the payment of any sum in default, or any other sum that Sublessor may expend or be required to expend by reason of Sublessee’s default, including but not limited to, any damages or deficiency in reletting the Premises. Whenever, and as often as, Sublessor has applied any portion of the Security Deposit to cure Sublessee’s default hereunder or under any agreement with which this Sublease is cross-defaulted, Sublessee shall, within ten (10) days after Notice from Sublessor, deposit additional money with Sublessor sufficient to restore the Security Deposit to the full amount then required to be deposited with Sublessor, and Sublessee’s failure to do so shall constitute an Event of Default without any further Notice. If Sublessor transfers or assigns its interest under this Sublease, Sublessor shall assign the Security Deposit to the new Sublessor and thereafter Sublessor shall have no further liability for the return of the Security Deposit, and Sublessee agrees to look solely to the new Sublessor for the return of the Security Deposit. Sublessee agrees that it will not assign or encumber or attempt to assign or encumber the

Security Deposit and that Sublessor, its successors and assigns may return the Security Deposit to the last Sublessee in possession of the Premises at the last address for which Notice has given by such Sublessee and that Sublessor thereafter shall be relieved of any liability therefor, regardless of one or more assignments of this Sublease or any such actual or attempted assignment or encumbrances of the Security Deposit.

 

4.      Late Charges . The late payment of 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 Sublease. 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 Rent or any other amount is not paid within (a) five (5) 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 (b) ten (10) days after the due date for such payment, such unpaid amount shall accrue interest from such date at the rate of ten percent (10%) per annum (the “ Agreed Rate ”).

5.      Taxes and Other Charges . At the commencement and at the expiration of the Term, all Taxes and Other Charges shall be prorated. Sublessor shall promptly forward to Sublessee copies of all bills and payment receipts for Taxes or Other Charges received by it. Sublessee shall pay and discharge (including the filing of all required returns), prior to delinquency or imposition of any fine, penalty, interest or other cost (“ Penalty ”), (a) “ Taxes ”, consisting of any real property and other taxes and assessments levied or assessed with respect to the Premises (excluding income taxes, franchise taxes, estate taxes, transfer taxes and/or gross receipts taxes that may be imposed upon Sublessor), and (b) “ Other Charges ”, consisting of any utilities and other costs and expenses of the Facility or any portion of the Premises and all other charges, obligations or deposits assessed against any portion of the Premises during the Term. Sublessee shall pay the foregoing when due and before any Penalty, but may pay the foregoing in permitted installments (whether or not interest accrues on the unpaid balance). Within ten (10) days of its receipt of Sublessor’s written notice of payment, Sublessee shall pay Sublessor an amount equal to any Taxes or Penalty that Sublessor at any time is assessed or otherwise becomes responsible and for which Sublessee is liable under this Sublease. However, nothing in this Sublease shall obligate Sublessee to pay penalties incurred as a result of Sublessor’s failure to timely forward bills to Sublessee.

5.1     Protests . Sublessee has the right, but not the obligation, in good faith to protest or contest (a “ Protest ”) in whole or in part (a) the amount or payment of any Taxes or Other Charges, and (b) the existence, amount or validity of any Lien (as defined in Section 8.1 ), by appropriate proceedings sufficient to (i) prevent the collection or other realization of such Taxes, Other Charges or Liens, or (ii) prevent the sale, forfeiture or loss of any portion of the Premises, or (iii) prevent the forfeiture of Rent to satisfy such Taxes, Other Charges or Liens (so long as it provides Sublessor with reasonable security to assure the foregoing). Sublessee shall diligently prosecute any such Protest at its sole cost and expense and pay such Taxes, Other Charges or Lien. Sublessor shall cooperate in any Protest that involves an amount assessed against it.

5.2      Impound . If required by the Facility Mortgagee or upon Sublessor’s written notice to Sublessee during the Term, Sublessor may require Sublessee to pay with each Rent payment a deposit of one-twelfth (1/12 ^th ) of the amount required to discharge the annual amount of real property Taxes secured by a Lien encumbering any portion of the Premises as and when they become due. The deposits shall not bear interest nor be held by Sublessor in trust or as an agent of Sublessee,

but rather shall be applied to the payment of the related obligations. If at any time within thirty (30) days prior to the due date the deposits shall be insufficient for the payment of the obligation in full, Sublessee shall within ten (10) days after demand deposit the deficiency with Sublessor. If deposits are in excess of the actual obligation, the required monthly deposits for the ensuing Sublease Year shall be reduced proportionately and any such excess at the end of the final Sublease Year shall be refunded to Sublessee within thirty calendar (30) days. Sublessee shall forward to Sublessor or its designee all Tax bills, bond and assessment statements as soon as they are received. If Sublessor transfers this Sublease, it shall transfer all such deposits to the transferee, and Sublessor shall thereafter have no liability of any kind with respect thereto.

5.3      Tax Treatment; Reporting . Sublessor and Sublessee each acknowledges that each shall treat this transaction as a true Sublease for state law purposes and shall report this transaction as a Sublease for Federal income tax purposes.  For Federal income tax purposes each shall report this Sublease as a true Sublease with Sublessor as the owner of the Premises and Sublessee as the lessee of such Premises including: (a)  treating Sublessor as the owner of the property eligible to claim depreciation deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the “ Code ”) with respect to the Premises, (b)  Sublessee reporting its Rent payments as rent expense under Section 162 of the Code, and (c)  Sublessor reporting the Rent payments as rental income. For the avoidance of doubt, nothing in this Sublease shall be deemed to constitute a guaranty, warranty or representation by either Sublessor or Sublessee as to the actual treatment of this transaction for state law purposes and for federal income tax purposes.

6.     Insurance . All insurance provided for in this Sublease shall (i) be maintained under valid and enforceable policies issued by insurers licensed and approved to do business in the state where the Facility is located, (ii) name Sublessor as an additional insured and, for the property insurance policies, as the owner, (iii) be on an “occurrence” basis, or if claims made, include a provision whereby tail coverage costs are specified upon policy inception, (iv) cover all of Sublessee’s operations at the Facility, (v) provide that the policy may not be canceled except upon not less than thirty (30) days’ prior written notice to Sublessor and (vi) be primary and provide that any insurance with respect to any portion of the Premises maintained by Sublessor is excess and noncontributing with Sublessee’s insurance. The property policy(ies) shall also name the Sublessor and Facility Mortgagee as loss payee. The parties hereby waive as to each other all rights of subrogation which any insurance carrier, or either of them, may have by reason of any provision in any policy issued to them, provided such waiver does not thereby invalidate such policy. Original policies or satisfactory insurer certificates evidencing the existence of the insurance required by this Sublease and showing the interest of Sublessor and Facility Mortgagee shall be provided to Sublessor prior to the commencement of the Term or, for a renewal policy, not less than ten (10) days prior to the expiration date of the insurance policy being renewed. If Sublessor is provided with a certificate, it may demand that Sublessee provide a complete copy of the related policy within ten (10) days. Sublessee may satisfy the insurance requirements hereunder through coverage under so-called blanket policy(ies) of insurance carried and maintained by Sublessee regarding other operations or facilities; provided, however, that the coverage afforded Sublessor will not be reduced or diminished or otherwise be different from that which would exist under a separate policies of insurance meeting all other requirements of this Sublease by reason of the use of such blanket policies of insurance. During the Term, Sublessee shall maintain the following insurance and any claims thereunder shall be adjudicated by and at the expense of it or its insurance carrier:

(a)    Property Insurance with respect to the Facility against loss or damage from all causes under standard “all risk” property insurance coverage with an agreed amount endorsement (such that the insurance carrier has accepted the amount of coverage and has agreed that there will be no co-insurance penalty), without exclusion for fire, lightning, windstorm, explosion, smoke damage, vehicle damage, sprinkler leakage, flood, vandalism, earthquake, malicious mischief and any other risks normally covered under an extended coverage endorsement, in amounts that are not less than the actual replacement value of the Facility and all Sublessor and Sublessee Personal Property associated therewith (including the cost of compliance with changes in zoning and building codes and other laws and regulations, demolition and debris removal and increased cost of construction). Additionally, if the Facility contains steam boilers, steam pipes, steam engines, steam turbines or other high pressure vessels, insurance with an agreed amount endorsement (such that the insurance carrier has accepted the amount of coverage and has agreed that there will be no co-insurance penalty), covering the major components of the central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in the Facility, in an amount equal to one hundred percent (100%) of the full replacement cost of the Facility, which policies shall insure against physical damage to and loss of occupancy and use of the Facility arising out of an accident or breakdown covered thereunder;

(b)    Business Interruption and Extra Expense Coverage with respect to the Facility for loss of rental value for a period not less than twelve (12) months, covering perils consistent with the requirements of Section 6(a) , and including either an agreed amount endorsement or a waiver of any co-insurance provisions, so as to prevent Sublessee, Sublessor and any other insured thereunder from being a co-insurer, and providing that any covered loss thereunder shall be payable to the Sublessor;

(c)      Commercial General Public Liability Coverage with respect to the Facility (including products liability and broad form coverage) against claims for bodily injury, death or property damage occurring on, in or about the Facility, affording the parties protection of not less than $1m per occurrence/$3m per location in the aggregate, naming Sublessor as additional insured;

(d)      Professional Liability Coverage with respect to the Facility, providing for claims specifically relating to patient care and services provided by the Facility staff, its’ contractors and all related parties, to include coverage or medical directors with regard to their administrative duties provided to the facility, with limits of not less than $1,000,000.00 per occurrence/$3,000,000.00 per location in the aggregate, naming Sublessor as additional insured. If such coverage is purchased on a claims made basis, Sublessee must show proof of the ability to purchase tail coverage to last through the statute of limitations, upon the end of the Sublease Term;

(e)      Worker’s Compensation and Employers Liability Insurance with respect to the Facility for losses sustained by Sublessee’s employees in the course and scope of their employment, as well as volunteers, and otherwise consistent with all applicable state law and meeting all other legal requirements;

(f)    Business Interruption and Extra Expense Coverage with respect to the Facility for loss of rental value for a period not less than one (1) year, covering perils consistent with the requirements of Section 4(a) , and including either an agreed amount endorsement or a waiver of any co-insurance provisions, so as to prevent Sublessee, Sublessor and any other insured thereunder from being a co-insurer, and providing that any covered loss thereunder shall be payable to the Sublessor; and

(g)     Deductibles/Self-Insured Retentions for the above policies shall not be greater than One Hundred Thousand Dollars ($100,000), and Sublessor shall have the right at any time to require a lower amount or set higher policy limits, to the extent commercially available and reasonable and customary for similar operations and properties to those of the Facility.

7.     Use, Regulatory Compliance and Preservation of Business .

7.1     Permitted Use; Qualified Care . Sublessee shall continuously use and occupy the Facility during the Term as a skilled nursing facility with not less than 100 beds and for ancillary services relating thereto, but for no other purpose. Sublessee shall provide care, treatment and services to all residents of the Facility in a manner consistent with all applicable laws. Notwithstanding any common law or statutory right, Sublessee agrees not to transfer, move or otherwise take action that reduces licensed bed complement of the Facility and Sublessee agrees not to take any of the licensed beds out of service or move the beds to a different location.

7.2     Regulatory Compliance . Sublessee, the Facility and the Premises shall comply in all material respects with all licensing and other laws and all covenants, conditions, restrictions and other use or maintenance requirements applicable to the Facility and, to the extent applicable, all Medicare, Medicaid and other third-party payor certification requirements, including timely filing properly completed cost and other required reports, timely paying all expenses shown thereon, and ensuring that the Facility continues to be fully certified for participation in Medicare and Medicaid (if applicable) throughout the Term and when they are returned to Sublessor, all without any suspension, revocation, decertification or other material limitation of such certification. Further, Sublessee shall not commit any act or omission that would in any way violate any certificate of occupancy affecting the Facility, result in closure of the Facility or result in the sale or transfer of all or any portion of any related certificate of need (if applicable), bed rights or other similar certificate or license at any of the Facility. All inspection fees, costs and charges associated with a change of such licensure or certification shall be borne solely by Sublessor.

7.3     Preservation of Business . Sublessee acknowledges that a fair return to Sublessor on and protection of its investment in the Premises depends, in part, on Sublessee’s dedication to the Business and the concentration of similar businesses of Sublessee and its Affiliates in the geographical area of each Facility. Sublessee further acknowledges that the diversion of residents or patient care activities (except as is necessary to provide residents or patients with an alternative level of care) from any Facility to other facilities owned or operated by Sublessee or its Affiliates at any time during the Term will have a material adverse effect on the value and utility of such Facility. Therefore, Sublessee agrees that during the Term and for a period of two (2) years thereafter, neither Sublessee nor any of its Affiliates shall, without the prior written consent of Sublessor: (i)  operate, own, participate in or otherwise receive revenues from any other business providing services similar to those of the business of the Facility within a ten (10)-mile geographical radius of the Facility, (ii)  except as is necessary to provide residents or patients with an alternative

level of care, recommend or solicit the removal or transfer of any resident or patient from any Facility to any other nursing, health care, senior housing or retirement housing facility or divert actual or potential residents, patients or care activities of the business conducted at the Facility to any other facilities owned or operated by Sublessee or its Affiliates or from which they receive any type of referral fees or other compensation for transfers, or (iii) employ for other businesses any management or supervisory personnel working on or in connection with any portion of the business or the Facility; provided, however, that if Sublessee or an Affiliate leases or subleases additional facilities from Sublessor or Sublessor’s Affiliates, the parties agree that Sublessee may move employees among those Affiliated Facilities.

8.      Acceptance, Maintenance, Upgrade, Alteration and Environmental .

8.1      Acceptance “AS IS”; No Liens .

(a)     Sublessee acknowledges that it is presently engaged in operations similar to those to be conducted at the Facility and has expertise in such industry and, in deciding to enter into this Sublease, has not relied on any representations or warranties, express or implied, of any kind from Sublessor. Sublessee has investigated the Premises, has selected the Premises to its own specifications, has concluded that no improvements or modifications to them are required in order to operate the Facility, and accepts the Facility and the Premises on an “ AS IS ” basis and assumes all responsibility and cost for the correction of any observed or unobserved deficiencies or violations. Notwithstanding its right to Protest set forth in Section 5.1 , Sublessee shall not cause or permit any lien, levy or attachment to be placed or assessed against any portion of the Premises or the operation thereof (a “ Lien ”) for any reason, provided that nothing in this Sublease shall require Sublessee to keep the Premises free of liens that may be filed as a result of Sublessor’s action or omissions.

8.2      Sublessee’s Maintenance Obligations . Sublessee shall (a) keep and maintain the Premises and the Facility in good appearance, repair and condition and maintain proper housekeeping, (b) promptly make all repairs (interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen) necessary to keep the Facility in good and working order and condition and in substantial compliance with all applicable requirements and laws relating to the business conducted thereon, including if applicable, certification for participation in Medicare and Medicaid, and (c) keep and maintain all Sublessor and Sublessee Personal Property in good condition, ordinary wear and tear excepted, and repair and replace such property consistent with prudent industry practice as required under this Sublease.

8.3      Alterations by Sublessee . Sublessee may alter, improve, exchange, replace, modify or expand (collectively, “ Alterations ”) the Facility, equipment or appliances on the Premises from time to time as it may determine is desirable for the continuing and proper use and maintenance of the Premises; provided, that any Alterations in excess of One Hundred Thousand Dollars ($100,000) with respect to the Facility in any rolling twelve (12) month period shall require Sublessor’s prior written consent, which shall not be unreasonably withheld, delayed, or conditioned. All Alterations shall immediately become a part of the Premises and the property of Sublessor subject to this Sublease, and the cost of all Alterations or other purchases, whether undertaken as an on-going licensing, Medicare, Medicaid or other regulatory requirement, or otherwise, shall be

borne solely by Sublessee. All Alterations shall be constructed in a good and workmanlike manner in compliance with all applicable laws and the insurance required under this Sublease.

8.4      Hazardous Materials . Sublessee’s use of the Premises shall comply with all Hazardous Materials Laws. If any Environmental Activities occur or are suspected to have occurred in violation of any Hazardous Materials Laws by Sublessee during the Term or if Sublessee has received notice of any Hazardous Materials Claim against any portion of the Premises as a result of Sublessee’s acts or omissions during the Term, Sublessee shall promptly obtain all permits and approvals necessary to remedy any such actual or suspected problem through the removal of Hazardous Materials or otherwise, and upon Sublessor’s approval of the remediation plan, remedy any such problem to the satisfaction of Sublessor and all applicable governmental authorities, in accordance with all Hazardous Materials Laws and good business practices. During the Term, Sublessee shall promptly advise Sublessor in writing of (a) any Environmental Activities in violation of any Hazardous Materials Laws; (b) any Hazardous Materials Claims against Sublessee or any portion of the Premises; (c) any remedial action taken by Sublessee in response to any Hazardous Materials Claims or any Hazardous Materials on, under or about any portion of the Premises in violation of any Hazardous Materials Laws; (d) Sublessee’s discovery of any occurrence or condition on or in the vicinity of any portion of the Premises that materially increase the risk that any portion of the Premises will be exposed to Hazardous Materials; and (e) all communications to or from Sublessee, any governmental authority or any other Person relating to Hazardous Materials Laws or Hazardous Materials Claims with respect to any portion of the Premises, including copies thereof. Sublessor shall have the right, at Sublessee’s sole cost and expense (including, without limitation, Sublessor’s reasonable attorneys’ fees and costs) and with counsel chosen by Sublessor, to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims. Sublessor represents and warrants to Sublessee that to Sublessor’s knowledge, there are not pending claims or causes of action arising out or relating to the Facility or the Premises as of the commencement of the Term.

9.      Sublessee Property . Sublessee shall obtain and install all items of furniture, fixtures, supplies and equipment not included as Sublessor Personal Property as shall be necessary or reasonably appropriate to operate the Facility in compliance with this Sublease (“ Sublessee Personal Property ”, which collectively with the “ Sublessee Intangible Property ” shall be referred to herein as “ Sublessee Property ”.) As used herein, “ Sublessee Intangible Property ” means all the following at any time owned by Sublessee in connection with its use of any portion of the Premises: Medicare, Medicaid and other accounts and proceeds thereof; rents, profits, income or revenue derived from such operation or use; all documents, chattel paper, instruments, contract rights (including contracts with residents, employees and third-party payors), deposit accounts, general intangibles and chooses in action; refunds of any Taxes or Other Charges for periods of time during the Term; and licenses and permits necessary or desirable for Sublessee’s use of any portion of the Premises, including licensed Medicaid beds (if applicable). Except as may be allowed under common law, Sublessor shall have no lien or security interest in or to the Sublessee Intangible Property, and any such common law lien or security interest of Sublessor shall be subordinate to the lien and security interest of any third party lender providing to Sublessee a working capital line of credit, whether such working capital line of credit exists as of the Commencement Date or future working capital lines of credit, and no further instrument of subordination shall be required.

10.      Financial, Management and Regulatory Reports . Sublessee shall provide Sublessor with the reports listed in Exhibit “D” at the time described therein, and such other information about it or the operations of the Facility as Sublessor may reasonably request from time to time, including such information requested in connection with any financing of the Premises sought by Sublessor. All financial information provided by Sublessee shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be submitted electronically in the form of unrestricted, unlocked “.xls” spreadsheets created using Microsoft Excel (2003 or newer editions). If Sublessee or any Affiliate becomes subject to any reporting requirements of the Securities and Exchange Commission (“SEC”) during the Term, it shall concurrently deliver to Sublessor such reports as are delivered pursuant to applicable securities laws. Similarly, should Sublessor or its parent, AdCare Health Systems, Inc., be subject to any particular reporting requirements of the SEC during the Term for which it needs reports, documentation or other information from Sublessee, Sublessee agrees to deliver such reports, documentation and information within ten (10) days after Sublessor’s request for the same.

11.      Representations and Warranties . Each party represents and warrants to the other that: (a) this Sublease and all other documents executed or to be executed by it in connection herewith have been duly authorized and shall be binding upon it; (b) it is duly organized, validly existing and in good standing under the laws of the state of its formation and is duly authorized and qualified to perform this Sublease within the state where the Premises is located; and (c) neither this Sublease nor any other document executed or to be executed in connection herewith violates the terms of any other agreement of such party.

12.      Events of Default . So long as there is no Event of Default, Sublessee shall peaceably and quietly have, hold and enjoy the Premises for the Term, free of any claim or other action not caused or created by Sublessee or pursuant to Sections 16 or 17 . The occurrence of any of the following events will constitute an “ Event of Default ” on the part of Sublessee, and there shall be no cure period therefor except as otherwise expressly provided:

(a)      Sublessee’s failure to pay within five (5) business days of when due any Rent, Taxes, Other Charges or other required payments;

(b)      (i) The revocation, suspension or material limitation of any license required for the operation of the Facility or the certification of the Facility for provider status under Medicare or Medicaid, if applicable; (ii) the closure of the Facility; (iii) the sale or transfer of all or any portion of any certificate of need, bed rights or other similar certificate or license relating to the Facility; (iv) the use of any portion of the Facility other than for a skilled nursing facility and for ancillary services relating thereto; or (v) any act or omission of Sublessee that in the judgment of Sublessor will more likely than not result in any of the foregoing;

(c)      Any other material suspension, termination or restriction placed upon Sublessee, the Facility or the ability to admit residents or patients (e.g., an admissions ban or non-payment for new admissions by Medicare or Medicaid resulting from an inspection survey, if applicable);

(d)      An material default by Sublessee or any Affiliate under any other Sublease, agreement or obligation between it and Sublessor or any of Sublessor’s Affiliates which is not cured within any applicable cure period specified therein;

(e)      Any misrepresentation by Sublessee under this Sublease or material misstatement or omission of fact in any written report, notice or communication from Sublessee to Sublessor;

(f)      The failure to perform or comply with the provisions of Sections 6 or 15 ;

(g)      (i) Sublessee shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment of all or substantially all of its property for the benefit of creditors; or (ii) a receiver, trustee or liquidator shall be appointed for either or them or any of their property, if within three (3) business days of such appointment Sublessee does not inform Sublessor in writing that they intend to cause such appointment to be discharged or such discharge is not diligently prosecuted to completion within sixty (60) days after the date of such appointment; (iii) the filing by Sublessee of a voluntary petition under any federal bankruptcy or state law to be adjudicated as bankrupt or for any arrangement or other debtor’s relief; or (iv) the involuntary filing of such a petition against Sublessee by any other party, unless Sublessee within three (3) business days of such filing informs Sublessor in writing of its intent to cause such petition to be dismissed, such dismissal is diligently prosecuted and such petition is dismissed within one hundred twenty (120) days after filing; or

(h)      The failure to perform or comply with any provision of this Sublease not requiring the payment of money unless (i) within three (3) business days of Sublessee’s receipt of a notice of default from Sublessor, Sublessee gives Sublessor notice of its intent to cure such default; and (ii) Sublessee cures it either (x) within thirty (30) days after such notice from Sublessor or (y) if such default cannot with due diligence be so cured because of the nature of the default or delays beyond the control of Sublessee and cure after such period will not have a materially adverse effect upon the Facility, then such default shall not constitute an Event of Default if Sublessee uses its best efforts to cure such default by promptly commencing and diligently pursuing such cure to the completion thereof and cures it within ninety (90) days after such notice from Sublessor.

13.      Remedies . Upon the occurrence of an Event of Default, Sublessor may exercise all rights and remedies under this Sublease and the laws of the state where the Premises is located that are available to a Sublessor of real and personal property in the event of a default by its Sublessee, and as to the Sublessee Property, all remedies granted under the laws of such state(s) to a secured party under its Uniform Commercial Code. Sublessor shall have no duty to mitigate damages unless required by applicable law and shall not be responsible or liable for any failure to relet the Premises or to collect any rent due upon any such reletting. Sublessee shall pay Sublessor, promptly upon demand, all expenses incurred by it in obtaining possession and reletting any of the Premises, including fees, commissions and costs of attorneys, architects, agents and brokers.

13.2      General . Without limiting the foregoing, Sublessor shall have the right (but not the obligation) to do any of the following upon an Event of Default: (a) sue for the specific performance of any covenant of Sublessee as to which it is in breach; (b) enter upon any portion of the Premises, terminate this Sublease, dispossess Sublessee from the Premises through appropriate legal procedures and/or collect money damages by reason of Sublessee’s breach, including the acceleration of all Rent which would have accrued after such termination and all obligations and liabilities of Sublessee under this Sublease which survive the termination of the Term; (c) elect to leave this Sublease in place and sue for Rent and other money damages as the same come due; and (d) (before or after repossession of the Premises pursuant to clause (b) above and whether or not

this Sublease has been terminated) relet any portion of the Premises to such Sublessee(s), for such term(s) (which may be greater or less than the remaining balance of the Term), rent, conditions (which may include concessions or free rent) and uses as it may determine in its sole discretion and collect and receive any rents payable by reason of such reletting.

13.3      Remedies Cumulative; No Waiver . No right or remedy herein conferred upon or reserved to Sublessor is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. Any notice or cure period provided herein shall run concurrently with any provided by applicable law. No failure of Sublessor to insist at any time upon the strict performance of any provision of this Sublease or to exercise any option, right, power or remedy contained herein shall be construed as a waiver, modification or relinquishment thereof as to any similar or different breach (future or otherwise) by Sublessee. Sublessor’s receipt of and Sublessee’s payment of any rent or other sum due hereunder (including any late charge) with knowledge of any breach shall not be deemed a waiver of such breach, and no waiver by Sublessor of any provision of this Sublease shall be effective unless expressed in a writing signed by it.

13.4      Performance of Sublessee’s Obligations . If Sublessee at any time shall fail to make any payment or perform any act on its part required to be made or performed under this Sublease, then Sublessor may, without waiving or releasing Sublessee from any obligations or default hereunder, make such payment or perform such act for the account and at the expense of Sublessee after delivering Sublessee thirty (30) days’ notice with an opportunity to cure, and enter upon any portion of the Premises for the purpose of taking all such action as may be reasonably necessary. No such entry shall be deemed an eviction of Sublessee. All sums so paid by Sublessor and all necessary and reasonable incidental costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the performance of any such act by it, together with interest at the Agreed Rate (as defined in Section 3 hereof) from the date of the making of such payment or the incurring of such costs and expenses, shall be payable by Sublessee to Sublessor upon Sublessor’s written demand therefor.

14.      Provisions on Termination .

14.2      Surrender of Possession . On the expiration of the Term or earlier termination or cancellation of this Sublease (the “ Termination Date ”), Sublessee shall deliver to Sublessor or its designee possession of (a) the Facility and associated Sublessor Personal Property in a neat and clean condition and in as good a condition as existed at the date of Sublessee’s possession and occupancy pursuant to this Sublease, ordinary wear and tear excepted, (b) a fully operational, licensed and certified (if applicable) business at the Facility including, at Sublessee’s sole cost, any Alterations necessitated by, or imposed in connection with, a change of ownership inspection survey for the transfer of operation of any portion of the Premises to Sublessor or its designee, and (c) all patient charts and resident records along with appropriate resident consents if necessary and copies of all of its books and records relating to the Facility and the Premises. Accordingly, Sublessee shall not at any time during or after the Term seek to transfer, surrender, allow to lapse, or grant any security interest or any other interest in and to the licenses, permits or certifications relating to the Facility or the Premises, nor shall Sublessee commit or omit any act that would jeopardize the Facility or any licensure or certification of the Facility. Sublessee shall cooperate fully with Sublessor or its designee in transferring or obtaining all necessary licenses and certifications for Sublessor or its designee, and Sublessee shall comply with all requests for an orderly transfer of the Facility

licenses, and Medicare and Medicaid certifications and possession at the time of its surrender of the Premises to Sublessor or its designee to operate the Facility. Subject to all applicable laws, Sublessee hereby assigns, effective upon the Termination Date, all rights to operate the Facility to Sublessor or its designee, including all required licenses and permits and all rights to apply for or otherwise obtain them, and all other nonproprietary Sublessee Intangible Property relating to any portion of the Premises.

14.3      Removal of Sublessee Personal Property . Provided that no Event of Default then exists, in connection with the surrender of the Premises, Sublessee may upon at least five (5) business days’ prior notice to Sublessor remove from the Premises in a workmanlike manner all Sublessee Personal Property, leaving the Premises in good and presentable condition and appearance, including repair of any damage caused by such removal; provided that Sublessor shall have the right and option to purchase the Sublessee Personal Property for its then net book value during such five (5) business day notice period, in which case Sublessee shall so convey the Sublessee Personal Property to Sublessor by executing a bill of sale in a form reasonably required by Sublessor. If there is any Event of Default then existing, Sublessee may not remove any Sublessee Personal Property from the Premises and instead will, on demand from Sublessor, convey it to Sublessor for no additional consideration by executing a bill of sale in a form reasonably required by Sublessor. Title to any Sublessee Personal Property which is not removed by Sublessee as permitted above upon the expiration of the Term shall, at Sublessor’s election, vest in Sublessor; provided, however, that Sublessor may remove and store or dispose any or all of such Sublessee Personal Property which is not so removed by Sublessee without obligation or accounting to Sublessee.

14.4      Management of Premises . Commencing on the Termination Date, Sublessor or its designee, upon written notice to Sublessee, may elect to assume the responsibilities and obligations for the management and operation of the Facility and Sublessee agrees to cooperate fully to accomplish the transfer of such management and operation without interrupting the operation of the Facility. Sublessee agrees that Sublessor or its designee may operate the Facility under Sublessee’s licenses and certifications pending the issuance of new licenses and certifications to Sublessor or its designee. Sublessee shall not commit any act or be remiss in the undertaking of any act that would jeopardize any licensure or certification of the Facility, and Sublessee shall comply with all requests for an orderly transfer of any and all Facility and other licenses, Medicare and Medicaid certifications and possession of the Premises at the time of any such surrender.

14.5      Holding Over . If Sublessee shall for any reason remain in possession of the Premises after the Termination Date, such possession shall be a month-to-month tenancy during which time Sublessee shall pay as rental on the first (1 ^st ) business day of each month one hundred twenty-five percent (125%) of the monthly Rent payable with respect to the last Sublease Year, all additional charges accruing during the month and all other sums, if any, payable by Sublessee pursuant to this Sublease. Nothing contained herein shall constitute the consent, express or implied, of Sublessor to the holding over of Sublessee after the Termination Date, nor shall anything contained herein be deemed to limit Sublessor’s remedies.

14.6      Survival . All representations, warranties, covenants and other obligations of Sublessee under this Sublease shall survive the Termination Date.

15.      Certain Sublessor Rights .

15.2      Entry and Examination of Records . Sublessor and its representatives may enter any portion of the Premises at any reasonable time after at least forty-eight (48) hours’ notice to Sublessee to inspect the Premises for compliance, to exhibit the Premises for sale, Sublease or mortgaging, or for any other reason; provided that no such notice shall be required in the event of an emergency, upon an Event of Default or to post notices of non-responsibility under any mechanics’ or materialmans’ lien law. No such entry shall unreasonably interfere with residents, patients, patient care or the Sublessee’s operations of the Facility. During normal business hours, Sublessee will permit Sublessor and its representatives, inspectors and consultants to examine all contracts, books and financial and other records (wherever kept) relating to Sublessee’s operations of the Facility.

15.3      Grant Liens . This Sublease shall be subordinate to the right, title, and interest of any lender or other party holding a security interest in or a lien upon the Premises under any and all mortgage instruments or deeds to secure debt presently encumbering the Premises or the Building and to any and all other deeds to secure debt or mortgage instruments hereafter encumbering the Premises or the Building. Sublessee shall at any time hereafter, on demand of Sublessor or the holder of any such deed to secure debt or mortgage instrument, execute any instruments which may reasonably be required by such party for the purpose of evidencing the subordination of this Sublease to the lien or security of such party. Sublessee shall, upon demand, at any time or times, execute, acknowledge, and deliver to Sublessor or the holder of any such instruments or deeds to secure debt, without expense, any and all documents that may be necessary to make this Sublease superior to the lien of any of the same. If the holder of any of said instruments or deeds to secure debt shall hereafter succeed to the rights of Sublessor under this Sublease, Sublessee shall, at the option of such holder or a purchaser at any foreclosure or sale under power, attorn to and recognize such successor as Sublessee’s Sublessor under this Sublease. Sublessee shall promptly execute, acknowledge, and deliver any instrument that may be necessary to evidence such attornment. Sublessor will use commercially reasonably efforts to obtain from any lender holding a lien on the Premises, a subordination, non-disturbance and attornment agreement for the benefit of Sublessee.

15.4      Estoppel Certificates . Sublessor and Sublessee shall, at any time upon not less than five (5) business days’ prior written request by the other party, have an authorized representative execute, acknowledge and deliver to Sublessor or Sublessee, as the case may be, or their designee a written statement certifying (a) that this Sublease, together with any specified modifications, is in full force and effect, (b) the dates to which Rent and additional charges have been paid, (c) that no default by either party exists or specifying any such default, and (d) as to such other matters as Sublessor or Sublessee, as the case may be, may reasonably request.

15.5      Conveyance Release . If Sublessor or any successor owner shall sell or transfer any portion of the Premises in accordance with this Sublease, they shall thereafter be released from all future liabilities and obligations hereunder arising or accruing from and after the date of such conveyance or other transfer, which instead shall thereupon be binding upon the new owner.

16.      Assignment and Subletting .

16.2      Except as otherwise expressly permitted in this Sublease, without Sublessor’s prior written consent, not to be unreasonably withheld or delayed, Sublessee shall not assign this Sublease, or Sublease all or any part of the Premises, or permit the use of the Premises by any party other than Sublessee. This prohibition includes an assignment or subletting to or by a receiver or trustee in any federal or state bankruptcy, insolvency, or other proceeding. For purposes of this Section, a sale or transfer of all or a controlling ownership interest in Sublessee or a merger or other combination by Sublessee or a sale of all or substantially all of Sublessee’s assets in lieu thereof shall be deemed an assignment or other transfer of this Sublease. Notwithstanding any provision hereof, Sublessee may assign this Sublease to an entity in which Bruce Wertheim owns a majority equity interest.

17.      Damage by Fire or Other Casualty .

17.2      Damage by Fire or Other Casualty . Sublessee shall promptly notify Sublessor of any damage or destruction of any portion of the Premises and diligently repair or reconstruct such portion of the Premises to a like or better condition than existed prior to such damage or destruction. Any net insurance proceeds payable with respect to the casualty shall be paid directly to Sublessor and, if an Event of Default has not occurred hereunder, may be used for the repair or reconstruction of the applicable portion of the Premises pursuant to Sublessor's reasonable disbursement requirements and subject to the provisions of the Facility Mortgage Documents and the release of insurance proceeds by the Facility Mortgagee, if any. If such proceeds are insufficient, Sublessee shall provide the required additional funds; if they are more than sufficient, the surplus shall belong and be paid to Sublessee. Sublessee shall not have any right under this Sublease, and hereby waives all rights under applicable law, to abate, reduce or offset rent by reason of any damage or destruction of any portion of the Premises by reason of an insured or uninsured casualty.

18.      Condemnation . Except as provided to the contrary in this Section 18 , this Sublease shall not terminate and shall remain in full force and effect in the event of a taking or condemnation of the Premises, or any portion thereof, and Sublessee hereby waives all rights under applicable law to abate, reduce or offset rent by reason of such taking. If during the Term all or substantially all (a “ Complete Taking ”) or a smaller portion (a “ Partial Taking ”) of the Premises is taken or condemned by any competent public or quasi-public authority, then (a) in the case of a Complete Taking, Sublessee may at its election made within thirty (30) days of the effective date of such Taking, terminate this Sublease and the current Rent shall be equitably abated as of the effective date of such termination, or (b) in the case of a Partial Taking, the Rent shall be abated to the same extent as the resulting diminution in Fair Market Value of the applicable portion of the Premises. The resulting diminution in Fair Market Value on the effective date of a Partial Taking shall be as established pursuant to Exhibit “E” . Sublessor alone shall be entitled to receive and retain any award for a taking or condemnation other than a temporary taking; provided, however, Sublessee shall be entitled to submit its own claim in the event of any such taking or condemnation with respect to the value of Sublessee’s Subleasehold interest in any portion of the Premises and/or the relocation costs incurred by Sublessee as a result thereof. In the event of a temporary taking of less than all or substantially all of the Premises, Sublessee shall be entitled to receive and retain any and all awards for the temporary taking and the Rent due under this Sublease shall be not be abated during the period of such temporary taking.

19.      Indemnification. Sublessee agrees to protect, indemnify, defend and save harmless Sublessor, its members, managers, Affiliates, directors, officers, shareholders, agents and employees from and against any and all foreseeable or unforeseeable liability, expense, loss, cost, deficiency, fine, penalty or damage (including consequential or punitive damages) of any kind or nature, including reasonable attorneys’ fees, from any suits, claims or demands, on account of any matter or thing, action or failure to act arising out of or in connection with this Sublease, the Premises or the operations of Sublessee on any portion of the Premises, including, without limitation, (a) the breach by Sublessee or any of its representations, warranties, covenants or other obligations hereunder, (b) any Protest, (c) all known and unknown Environmental Activities on any portion of the Premises, Hazardous Materials Claims or violations by Sublessee of a Hazardous Materials Law with respect to any portion of the Premises, and (d) upon or following the Termination Date, the correction of all deficiencies of a physical matter identified by, and any liability assessed or asserted by, any governmental agency or Medicare or Medicaid providers as a result of or arising out of or in connection with this Sublease or the related change in ownership inspection and audit (including any overpayment to any Medicare, Medicaid or other third party payor). Upon receiving knowledge of any suit, claim or demand asserted by a third party that Sublessor believes is covered by this indemnity, it shall give Sublessee notice of this matter. If Sublessor does not elect to defend the matter with its own counsel at Sublessee’s expense, Sublessee shall then defend Sublessor at Sublessee’s expense (including Sublessor’s reasonable attorneys’ fees and costs) with legal counsel satisfactory to Sublessor.

20.      Disputes . If any party brings any action to interpret or enforce this Sublease, or for damages for any alleged breach, the prevailing party shall be entitled to reasonable attorneys’ fees and costs as awarded by the court in addition to all other recovery, damages and costs.

A party may designate a different address by notice as provided above. Any notice or other instrument so delivered (whether accepted or refused) shall be deemed to have been given and received on the date of delivery established by U.S. Post Office return receipt or the carrier’s proof of delivery or, if not so delivered, upon its receipt. Delivery to any officer, general partner or principal of a party shall be deemed delivery to such party. Notice to any one co-Sublessee shall be deemed notice to all co-Sublessees.

22.      Approvals; Compliance with Facility Mortgage Documents.

(a)      Sublessee acknowledges that the Facility is currently encumbered with a loan from Red Mortgage Capital, Inc., an Ohio corporation (“ RMC ”) that is insured by the United States Department of Housing and Urban Development (“ HUD ”; such loan being the “ HUD Loan ”). Sublessee acknowledges that it shall deliver to Sublessor, RMC and HUD any and all documentation required to obtain the approval of RMC and HUD of this Sublease. Sublessee further acknowledges and agrees that if (i) the entering into of this Sublease results in the Facility Mortgagee or HUD giving notice of default under the HUD Loan, (ii) RMC or HUD shall withhold its consent to and approval of this Sublease, or (iii) Landlord shall withhold its consent to and approval of this Sublease, then in any such event Sublessor shall have the right to terminate this Sublease immediately.

(b)      Sublessee acknowledges that any Facility Mortgage Documents executed by Landlord, Sublessor or any Affiliate of Sublessor may impose certain obligations on the “borrower” or other counterparty thereunder to comply with or cause the operator and/or lessee of a Facility to comply with all representations, covenants and warranties contained therein relating to such Facility and the operator and/or lessee of such Facility, including, covenants relating to (i)  the maintenance and repair of such Facility; (ii)  maintenance and submission of financial records and accounts of the operation of such Facility and related financial and other information regarding the operator and/or lessee of such Facility and such Facility itself; (iii)  the procurement of insurance policies with respect to such Facility; (iv) minimum occupancy, fixed coverage ratio or other Facility-

related financial and/or performance requirements, and (v)  without limiting the foregoing, compliance with all applicable legal requirements relating to such Facility and the operation of the business thereof. For so long as any Facility Mortgages encumber the Premises or any portion thereof or interest therein, Sublessee covenants and agrees, at its sole cost and expense and for the express benefit of Sublessor, to operate the applicable Facility in strict compliance with the terms and conditions of the Facility Mortgage Documents (other than payment of any indebtedness evidenced or secured thereby) and to timely perform all of the obligations of Sublessor relating thereto, or to the extent that any of such duties and obligations may not properly be performed by Sublessee, Sublessee shall cooperate with and assist Sublessor in the performance thereof (other than payment of any indebtedness evidenced or secured thereby); provided, however, this Section 22(a) shall not (i) increase Sublessee’s monetary obligations under this Sublease, (ii) increase Sublessee’s non-monetary obligations under this Sublease or (iii) diminish Sublessee’s rights under this Sublease. If any new Facility Mortgage Documents to be executed by Sublessor or any Affiliate of Sublessor would impose on Sublessee any obligations under this Section 22(a) (provided that all such obligations shall comply with the restrictions set forth in the immediately preceding sentence), Sublessor shall provide copies of the same to Sublessee for informational purposes (but not for Sublessee’s approval) prior to the execution and delivery thereof by Sublessor or any Affiliate of Sublessor.

(c)      During the Term, Sublessee acknowledges and agrees that, except as expressly provided elsewhere in this Sublease, it shall undertake at its own cost and expense the performance of any and all repairs, replacements, capital improvements, maintenance items and all other requirements relating to the condition of a Facility that are required by any Facility Mortgage Documents, and Sublessee shall be solely responsible and hereby covenants to fund and maintain any and all impound, escrow or other reserve or similar accounts required under any Facility Mortgage Documents as security for or otherwise relating to any operating expenses of a Facility, including any capital repair or replacement reserves and/or impounds or escrow accounts for Taxes or insurance premiums (each a “ Facility Mortgage Reserve Account ”); provided, however, this Section 22(b) shall not (i) increase Sublessee’s monetary obligations under this Sublease, (ii) increase Sublessee’s non-monetary obligations under this Sublease, or (iii) diminish Sublessee’s rights under this Sublease. During the Term of this Sublease and provided that no Event of Default shall have occurred and be continuing hereunder, Sublessee shall, subject to the terms and conditions of such Facility Mortgage Reserve Account and the requirements of the Facility Mortgagee(s) thereunder, have access to and the right to apply or use (including for reimbursement) to the same extent of Sublessor all monies held in each such Facility Mortgage Reserve Account for the purposes and subject to the limitations for which such Facility Mortgage Reserve Account is maintained, and Sublessor agrees to reasonably cooperate with Sublessee in connection therewith.

23.      Cooperation . Sublessee agrees that should Sublessor and Sublessor’s Affiliates desire to consolidate all of their Subleases with Sublessee and Sublessee’s Affiliates into one master Sublease, Sublessee shall cooperate with Sublessor and Sublessor’s Affiliates in so documenting such consolidation.

24.      Miscellaneous . This Sublease has been freely and fairly negotiated, and all provisions shall be interpreted according to their fair meaning and shall not be strictly construed against any party. While nothing contained in this Sublease should be deemed or construed to constitute an extension of credit by Sublessor to Sublessee, if a portion of any payment made to Sublessor is deemed to violate any applicable laws regarding usury, such portion shall be held by

Sublessor to pay the future obligations of Sublessee as such obligations arise and if Sublessee discharges and performs all obligations hereunder, such funds will be reimbursed (without interest) to Sublessee on the Termination Date. If any part of this Sublease shall be determined to be invalid or unenforceable, the remainder shall nevertheless continue in full force and effect. Time is of the essence, and whenever action must be taken (including the giving of notice or the delivery of documents) hereunder during a certain period of time or by a particular date that ends or occurs on a Saturday, Sunday or federal holiday, then such period or date shall be extended until the immediately following business day. Whenever the words “ including ”, “ include ” or “ includes ” are used in this Sublease, they shall be interpreted in a non-exclusive manner as though the words “ without limitation ” immediately followed. Whenever the words day or days are used in this Sublease, they shall mean “ calendar day ” or “ calendar days ” unless expressly provided to the contrary. The titles and headings in this Sublease are for convenience of reference only and shall not in any way affect the meaning or construction of any provision. Unless otherwise expressly provided, references to any “Section” mean a section of this Sublease (including all subsections), to any “ Exhibit ” or “ Schedule ” mean an exhibit or schedule attached hereto or to “ Medicare ” or “ Medicaid ” include any successor program. If more than one Person is Sublessee hereunder, their liability and obligations hereunder shall be joint and several. Promptly upon the request of either party and at its expense, the parties shall prepare, enter into and record a suitable short form memorandum of this Sublease. This Sublease (a) contains the entire agreement of the parties as to the subject matter hereof and supersedes all prior or contemporaneous verbal or written agreements or understandings, (b) may be executed in several counterparts, (including electronically mailed copies in portable document format (PDF)), each of which shall be deemed an original, but all of which shall constitute one and the same document, (c) may only be amended by a writing executed by the parties, (d) shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties, (e) shall be governed by and construed and enforced in accordance with the internal laws of the State of Georgia, and (f) incorporates by this reference any Exhibits and Schedules attached hereto.

25.      Non-Disturbance and Attornment . If the Lease Agreement shall expire or terminate during the term of this Sublease for any reason other than condemnation or destruction by fire or other casualty, or if Sublessor shall surrender the Lease Agreement to Landlord during the term of this Sublease, Landlord shall continue this Sublease with the same force and effect as if Landlord as lessor and Sublessee as lessee had entered into a lease as of such effective date for a term equal to the then unexpired term of this Sublease and containing the same provisions as those contained in this Sublease, provided that (i) the Lease Agreement was terminated pursuant to Sublessor’s default under the Lease Agreement, (ii) the default is of such a type that Sublessee can cure, and (iii) Sublessee in fact cures such default within thirty (30) days, where possible, or within a reasonable amount of time. In such event, Sublessor shall promptly transfer the security deposit described in Section 3 of this Sublease to Landlord prior to this Sublease continuing as a direct lease. If Landlord continues this Sublease, Sublessee shall attorn to Landlord and Landlord and Sublessee shall have the same rights, obligations and remedies thereunder as were had by Sublessor and Sublessee hereunder prior to such effective date, respectively, except that in no event shall Landlord be (i) liable for any act or omission by Sublessor, (ii) subject to any offsets or defenses which Sublessee had or might have against Sublessor, or (iii) bound by (A) any previous modification of the Sublease not consented to in writing by Landlord or (B) by any Rent, Taxes, Other Charges and/or additional rent or other payment paid by Sublessee to Sublessor in advance.

26.      Lease Agreement . This Sublease supersedes and replaces in its entirety the Sublease Agreement executed between AdCare Health Systems, Inc., and CC SNF, LLC dated October 29, 2014. This Sublease is subject and subordinate to the Lease Agreement. As and to the extent hereinbefore provided, all applicable terms and conditions of the Lease Agreement are incorporated into and made a part of this Sublease as if Sublessee were the lessee under the Lease Agreement. Unless expressly provided for in this Sublease to the contrary, Sublessee assumes and agrees to perform the Sublessor’s obligations under the Lease Agreement during the term of this Sublease, except that the obligation to pay rent to Landlord under the Lease Agreement shall remain the obligation of Sublessor. Sublessee shall not cause or suffer any act of negligence that will violate any of the provisions of the Lease Agreement. If the Lease Agreement terminates for any reason, 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 Landlord due to a default of Sublessor or Sublessee under the Lease Agreement 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 Lease Agreement and the Facility Mortgage Documents to Sublessor and to Landlord.

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IN WITNESS WHEREOF , this Sublease has been executed by Sublessor and Sublessee as of the date first written above.