ADCARE HEALTH SYSTEMS, INC (Form: 10-Q, Received: 08/13/2015 06:51:56)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33135

AdCare Health Systems, Inc.

(Exact name of registrant as specified in its charter)



Georgia		31-1332119
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

1145 Hembree Road, Roswell, GA 30076

(Address of principal executive offices)

(678) 869-5116

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 31, 2015 : 19,879,417 shares of common stock with no par value were outstanding.

Table of Contents

AdCare Health Systems, Inc.

Form 10-Q

Table of Contents



		Page Number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	4
	Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	4
	Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited)	5
	Consolidated Statement of Stockholders' Equity/(Deficit) for the six months ended June 30, 2015 (unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	53

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55

Signatures		64

Table of Contents

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Quarterly Report") and certain information incorporated herein by reference contain forward-looking statements and information within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management’s plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company’s future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seeks,” “plan,” “project,” “continue,” “predict,” “will,” “should,” and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company’s current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.

All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company’s actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company’s critical accounting policies and risks and uncertainties related to, but not limited to, overall industry environment, regulatory delays, negative clinical results, and the Company’s financial condition. These and other risks and uncertainties are described in more detail in the Company’s most recent Annual Report on Form 10-K, as well as other reports that the Company files with the SEC.

Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company’s views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company’s business.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)



	June 30, 2015			December 31, 2014
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	15,340		$	10,735
Restricted cash and investments	8,354			3,321
Accounts receivable, net of allowance of $10,903 and $6,708	16,654			24,294
Prepaid expenses and other	3,327			1,766
Deferred tax asset	569			569
Assets of disposal group held for use	—			4,592
Assets of disposal group held for sale	10,242			5,813
Assets of variable interest entity held for sale	5,894			5,924
Total current assets	60,380			57,014
Restricted cash and investments	6,009			5,456
Property and equipment, net	128,693			130,993
Intangible assets - bed licenses	2,471			2,471
Intangible assets - lease rights, net	3,754			4,087
Goodwill	4,224			4,224
Lease deposits	1,816			1,683
Deferred loan costs, net	3,491			3,464
Other assets	2,286			569
Total assets	$	213,124		$	209,961
LIABILITIES AND EQUITY / (DEFICIT)
Current liabilities:
Current portion of notes payable and other debt	$	6,259		$	2,436
Current portion of convertible debt, net of discounts	4,482			14,000
Revolving credit facilities and lines of credit	1,542			5,576
Accounts payable	13,915			16,434
Accrued expenses	10,583			15,653
Liabilities of disposal group held for use	—			4,035
Liabilities of disposal group held for sale	9,398			5,197
Liabilities of variable interest entity held for sale	5,870			5,956
Total current liabilities	52,049			69,287
Notes payable and other debt, net of current portion:
Senior debt, net of discounts	102,621			106,089
Bonds, net of discounts	6,918			7,011
Convertible debt, net of discounts	9,200			—
Revolving credit facilities	—			1,059
Other liabilities	2,947			2,129
Deferred tax liability	605			605
Total liabilities	174,340			186,180
Commitments and contingency (Note 14)
Preferred stock, no par value; 5,000 shares authorized; 2,113 and 950 shares issued and outstanding, redemption amount $52,831 and $23,750 at June 30, 2015 and December 31, 2014, respectively	47,950			20,392
Stockholders’ equity:
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 19,838 and 19,151 issued and outstanding at June 30, 2015 and December 31, 2014, respectively	62,036			61,896
Accumulated deficit	(68,262		)	(56,067		)
Total stockholders’ equity / (deficit)	(6,226		)	5,829
Noncontrolling interest in subsidiary	(2,940		)	(2,440		)
Total equity / (deficit)	(9,166		)	3,389
Total liabilities and equity / (deficit)	$	213,124		$	209,961

See accompanying notes to unaudited consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in 000’s, except per share data)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Patient care revenues	$	18,865		$	19,467		$	38,088		$	38,944
Management revenues	256			304			474			786
Rental revenues	4,205			296			5,545			593
Total revenues	23,326			20,067			44,107			40,323

Expenses:
Cost of services (exclusive of facility rent, depreciation and amortization)	16,862			16,013			33,822			31,907
General and administrative expense	2,513			4,179			5,683			8,740
Facility rent expense	1,932			923			3,021			1,855
Depreciation and amortization	1,797			1,856			3,473			3,614
Salary retirement and continuation costs	(39		)	1,282			(47		)	1,282
Total expenses	23,065			24,253			45,952			47,398

Income (loss) from operations	261			(4,186		)	(1,845		)	(7,075		)

Other income (expense):
Interest expense, net	(2,279		)	(2,601		)	(4,769		)	(5,174		)
Loss on extinguishment of debt	—			—			(680		)	(583		)
Other expense	(194		)	(83		)	(480		)	(191		)
Total other expense, net	(2,473		)	(2,684		)	(5,929		)	(5,948		)

Loss from continuing operations before income taxes	(2,212		)	(6,870		)	(7,774		)	(13,023		)
Income tax expense	—			—			(20		)	(8		)
Loss from continuing operations	(2,212		)	(6,870		)	(7,794		)	(13,031		)

Income (loss) from discontinued operations, net of tax	(3,151		)	4,075			(2,818		)	7,713
Net loss	(5,363		)	(2,795		)	(10,612		)	(5,318		)

Net loss attributable to noncontrolling interests	270			157			500			330
Net loss attributable to AdCare Health Systems, Inc.	(5,093		)	(2,638		)	(10,112		)	(4,988		)

Preferred stock dividend	(1,437		)	(646		)	(2,083		)	(1,292		)
Net loss attributable to AdCare Health Systems, Inc. Common Stockholders	$	(6,530	)	$	(3,284	)	$	(12,195	)	$	(6,280	)

Net loss per share of common stock attributable to AdCare Health Systems, Inc.
Basic:
Continuing operations	$	(0.17	)	$	(0.43	)	$	(0.48	)	$	(0.81	)
Discontinued operations	(0.16		)	0.24			(0.15		)	0.45
	$	(0.33	)	$	(0.19	)	$	(0.63	)	$	(0.36	)

Diluted:
Continuing operations	$	(0.17	)	$	(0.43	)	$	(0.48	)	$	(0.81	)
Discontinued operations	(0.16		)	0.24			(0.15		)	0.45
	$	(0.33	)	$	(0.19	)	$	(0.63	)	$	(0.36	)

Weighted average shares of common stock outstanding:
Basic	19,775			17,221			19,499			17,220
Diluted	19,775			17,221			19,499			17,220

See accompanying notes to unaudited consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY / (DEFICIT)

(Amounts in 000’s)

(Unaudited)



	Common Stock	Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interests			Total
Balances, December 31, 2014	19,151	$	61,896		$	(56,067	)	$	(2,440	)	$	3,389

Stock-based compensation expense	—	432			—			—			432

Exercises of options and warrants, net of shares withheld	527	1,791			—			—			1,791

Issuance of restricted stock, net	160	—			—			—			—

Common stock dividend	—	(2,083		)	—			—			(2,083		)

Preferred stock dividend	—	—			(2,083		)	—			(2,083		)

Net loss	—	—			(10,112		)	(500		)	(10,612		)
Balances, June 30, 2015	19,838	$	62,036		$	(68,262	)	$	(2,940	)	(9,166		)

See accompanying notes to unaudited consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)



	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(10,612	)	$	(5,318	)
(Income) loss from discontinued operations, net of tax	2,818			(7,713		)
Loss from continuing operations	(7,794		)	(13,031		)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	3,473			3,614
Warrants issued for services	—			88
Stock-based compensation expense	432			738
Rent expense in excess of cash paid	1,038			53
Amortization of deferred financing costs	753			935
Amortization of debt discounts and premiums	(7		)	(16		)
Loss on debt extinguishment	680			583
Bad debt expense	1,359			478
Changes in operating assets and liabilities:
Accounts receivable	(2,874		)	(1,137		)
Prepaid expenses and other	(1,434		)	(1,622		)
Other assets	(1,852		)	15
Accounts payable and accrued expenses	(176		)	(1,944		)
Net cash used in operating activities - continuing operations	(6,402		)	(11,246		)
Net cash provided by (used in) operating activities - discontinued operations	(2,275		)	2,708
Net cash used in operating activities	(8,677		)	(8,538		)

Cash flows from investing activities:
Change in restricted cash and investments	(4,186		)	7,257
Purchase of property and equipment	(722		)	(1,617		)
Net cash provided by (used in) investing activities - continuing operations	(4,908		)	5,640
Net cash used in investing activities - discontinued operations	(1,408		)	(1,585		)
Net cash provided by (used in) investing activities	(6,316		)	4,055

Cash flows from financing activities:
Proceeds from debt	22,730			3,255
Proceeds from convertible debt	2,049			6,055
Repayment of notes payable	(25,523		)	(6,197		)
Repayment on bonds payable	—			(3,049		)
Repayment on convertible debt	—			(4,014		)
Proceeds from lines of credit	20,780			34,823
Repayment of lines of credit	(25,874		)	(34,936		)
Debt issuance costs	(830		)	(648		)
Exercise of warrants and options	1,791			2,342
Proceeds from preferred stock issuances, net	27,558			—
Other	—			(50		)
Dividends paid on common stock	(990		)	—
Dividends paid on preferred stock	(2,083		)	(1,292		)
Net cash provided by (used in) financing activities - continuing operations	19,608			(3,711		)
Net cash used in financing activities - discontinued operations	(10		)	(33		)
Net cash provided by (used in) financing activities	19,598			(3,744		)
Net change in cash and cash equivalents	4,605			(8,227		)
Cash and cash equivalents, beginning	10,735			19,374
Cash and cash equivalents, ending	$	15,340		$	11,147

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	4,674		$	2,472
Supplemental disclosure of non-cash activities:
Conversions of debt and other liabilities to equity	$	—		$	2,930
2014 Notes surrendered and cancelled in payment for 2015 Notes	$	5,651		$	—
2011 Notes surrendered and cancelled in payment for 2014 Notes	$	—		$	445
Warrants issued in conjunction with convertible debt offering	$	—		$	87

See accompanying notes to unaudited consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2015 and 2014

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

See Note 1 to our Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 , filed with the Securities and Exchange Commission (the "SEC") on March 31, 2015 (the "Annual Report"), for a description of all significant accounting policies.

Description of Business

AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively with AdCare, the “Company” ) own, lease, operate or manage for third-parties skilled nursing and assisted living facilities in the states of Alabama, Arkansas, Georgia, North Carolina, Ohio, Oklahoma and South Carolina.

In July 2014, the Company announced that the Board of Directors had approved a strategic plan to transition the Company to a healthcare property holding and leasing company. Through a series of leasing and subleasing transactions, the Company is in the process of transitioning to third-parties the operations of the Company’s currently owned and operated healthcare facilities, which are principally skilled nursing facilities. In furtherance of this strategic plan, the Company is now focused on the ownership, acquisition and leasing of healthcare related properties.

As of June 30, 2015 , the Company operated or managed fifteen facilities comprised of thirteen skilled nursing facilities, one assisted living facility and one independent living/senior housing facility totaling 1,572 beds. The Company’s facilities provide a range of health care services to patients and residents including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term residents and short-stay patients. As of June 30, 2015 , of the fifteen facilities, the Company owned and operated nine facilities, leased and operated three facilities, and managed three facilities for third-parties.

As of June 30, 2015 , the Company also leased fourteen owned and subleased eight leased skilled nursing and rehabilitation facilities and one owned assisted living facility to local third-party operators in the states of Alabama, Arkansas, Georgia, North Carolina and South Carolina.

During the three and six months ended June 30, 2015 , the Company entered into certain leasing and operations transfer agreements for facilities located in Arkansas, Georgia, North Carolina and South Carolina (see Note 7 - Leases for a full description of such leases). Subsequent to June 30, 2015 , the Company entered into certain leasing and operations transfer agreements for facilities located in Georgia and Ohio (see Note 16 - Subsequent Events ).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included. Operating results for the three and six months ended June 30, 2015 and 2014 , are not necessarily indicative of the results that may be expected for the fiscal year. The balance sheet at December 31, 2014 , has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the accompanying unaudited consolidated financial statements together with the historical consolidated financial statements of the Company for the year ended December 31, 2014 , included in the Annual Report.

The Company operates in one business segment. These statements include the accounts of AdCare Health Systems, Inc. and its controlled subsidiaries. Controlled subsidiaries include AdCare’s majority owned subsidiaries and one consolidated variable interest entity (a "VIE") in which AdCare has control as primary beneficiary. All inter-company accounts and transactions were eliminated in the consolidation.

Table of Contents

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported results of operations during the reporting period. Examples of significant estimates include allowance for doubtful accounts; contractual allowances for Medicaid, Medicare, and managed care reimbursements; deferred tax valuation allowance; fair value of derivative instruments; fair value of employee and nonemployee stock based awards; and valuation of goodwill and other long-lived assets. Actual results could differ materially from those estimates.

Reclassifications

Certain items previously reported in the consolidated financial statement captions have been reclassified to conform to the current financial statement presentation with no effect on the Company’s consolidated financial position or results of operations. These reclassifications did not affect total assets, total liabilities, or stockholders’ equity. In addition, reclassifications were made to the Consolidated Statements of Operations for the three and six months ended June 30, 2014 , to reflect the same facilities in discontinued operations for both periods presented.

Patient Care Revenue Recognition and Receivables

The Company recognizes patient care revenue when the following four conditions have been met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or service has been rendered; (iii) the price is fixed or determinable; and (iv) collection is reasonably assured. The Company's patient care revenue is derived primarily from providing healthcare services to residents and is recognized on the date services are provided at amounts billable to the individual. For reimbursement arrangements with third-party payors including Medicaid, Medicare and private insurers, patient care revenue is recorded based on contractually agreed-upon amounts on a per patient, daily basis.

Patient care revenue from the Medicaid and Medicare programs accounted for 80.0% and 79.9% of the Company’s patient care revenue for the three and six months ended June 30, 2015 , respectively, and 81.5% and 81.2% of the Company's patient care revenue for the three and six months ended June 30, 2014 , respectively. The Company records patient care revenue from these governmental and managed care programs as services are performed at their expected net realizable amounts under these programs. The Company’s patient care revenue from governmental and managed care programs is subject to audit and retroactive adjustment by governmental and third-party agencies. Consistent with healthcare industry accounting practices, any changes to these governmental revenue estimates are recorded in the period the change or adjustment becomes known. The Company recorded retroactive adjustments to patient care revenue which were not material to the Company's consolidated revenue for the three and six months ended June 30, 2015 and 2014 .

Potentially uncollectible patient accounts are provided for on the allowance method based upon management's evaluation of outstanding accounts receivable at period-end and historical experience. Uncollected accounts that are written off are charged against allowance. As of June 30, 2015 and December 31, 2014 , the Company has an allowance for uncollectible accounts of $10.9 million and $6.7 million , respectively.

Management Fee Revenue Recognition and Receivables

Management fee revenues and receivables are recorded in the month that services are provided. As of June 30, 2015 and December 31, 2014 , the Company evaluated collectibility of management fees and determined that no allowance was required.

Rental Revenue Recognition and Receivables

The Company, as lessor or sublessor, makes a determination with respect to each of its leases and subleases whether they should be accounted for as operating leases. The Company recognizes rental revenues on a straight-line basis over the term of the lease when collectibility is reasonably assured. Differences between rental income earned and amounts due under the lease are charged or credited, as applicable, to straight-line rent receivable, net. Payments received under operating leases are accounted for in the statements of operations as rental revenue for actual rent collected plus or minus a straight-line adjustment for estimated minimum lease escalators. As of June 30, 2015 and December 31, 2014 , the Company evaluated collectibility of rental revenue and determined that no allowance was required.

Table of Contents

Fair Value Measurements and Financial Instruments

Accounting guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1— Quoted market prices in active markets for identical assets or liabilities

Level 2— Other observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3— Significant unobservable inputs

The respective carrying value of certain financial instruments of the Company approximates their fair value. These instruments include cash and cash equivalents, restricted cash and investments, accounts receivable, notes receivable, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short-term in nature and their carrying amounts approximate fair values, they are receivable or payable on demand, or the interest rates earned and/or paid approximate current market rates.

Recent Accounting Pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. The Company has reviewed the FASB accounting pronouncements and ASU interpretations that have effectiveness dates during the periods reported and in future periods.

In April 2014, the FASB issued ASU 2014-08 which amends the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU should be applied prospectively and is effective for the Company for the 2015 annual and interim reporting periods. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The Company has adopted this ASU as of January 1, 2015.

In May 2014, the FASB issued ASU 2014-09 guidance requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for those goods and services. The new standard requires the disclosure of sufficient quantitative and qualitative information for financial statement users to understand the nature, amount, timing and uncertainty of revenue and associated cash flows arising from contracts with customers. In July 2015, the FASB delayed the effective date of the new revenue standard by one year. As a result, this new revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted beginning after December 15, 2016, including interim periods within those reporting periods. The Company has not yet determined the impact, if any, that the adoption of this new standard will have on its consolidated financial position or results of operations.

In August 2014, the FASB issued ASU 2014-15 guidance regarding an entity’s ability to continue as a going concern, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new standard, there was minimal guidance in GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The Company has not yet determined the impact, if any, that the adoption of this new standard will have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03 guidance regarding debt issuance costs as a part of the simplification and productivity initiative. Under this new standard, debt issuance costs will be presented as a direct reduction from the carrying amount of the debt liability, consistent with the presentation of debt discounts. The amortization of debt issuance costs will be reported as interest expense. The new standard is to be applied on a retrospective basis and reported as a change in an accounting principle. This standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating changes in its accounting required by this new standard and the impact to the Company's financial position and related disclosures.

Table of Contents

NOTE 2. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted for potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under subordinated convertible promissory notes outstanding during the period when such potentially dilutive securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method. Potentially dilutive securities from subordinated convertible promissory notes are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance. For the six months ended June 30, 2015 and 2014 , potentially dilutive securities of 6.6 million and 9.1 million , respectively, were excluded from the diluted income (loss) per share calculation because including them would have been anti-dilutive in both periods.

The following tables provide a reconciliation of net income (loss) for continuing and discontinued operations and the number of shares of common stock used in the computation of both basic and diluted earnings per share:



	Three Months Ended June 30,
	2015							2014
(Amounts in 000’s, except per share data)	Income (loss)			Shares	Per Share			Income (loss)			Shares	Per Share
Continuing operations:
Loss from continuing operations	$	(2,212	)					$	(6,870	)
Net income attributable to noncontrolling interests	270							157
Loss from continuing operations	(1,942		)					(6,713		)
Preferred stock dividend	(1,437		)					(646		)
Basic loss from continuing operations	(3,379		)	19,775	$	(0.17	)	(7,359		)	17,221	$	(0.43	)
Diluted loss from continuing operations ^(a)	(3,379		)	19,775	$	(0.17	)	(7,359		)	17,221	$	(0.43	)

Discontinued operations:
Basic (loss) income from discontinued operations	(3,151		)	19,775	$	(0.16	)	4,075			17,221	$	0.24
Diluted (loss) income from discontinued operations ^(a)	(3,151		)	19,775	$	(0.16	)	4,075			17,221	$	0.24

Net loss attributable to AdCare:
Basic loss	(6,530		)	19,775	$	(0.33	)	(3,284		)	17,221	$	(0.19	)
Diluted loss ^(a)	(6,530		)	19,775	$	(0.33	)	(3,284		)	17,221	$	(0.19	)

Table of Contents



	Six Months Ended June 30,
	2015							2014
(Amounts in 000’s, except per share data)	Income (loss)			Shares	Per Share			Income (loss)			Shares	Per Share
Continuing operations:
Loss from continuing operations	$	(7,794	)					$	(13,031	)
Net loss attributable to noncontrolling interests	500							330
Basic loss from continuing operations	(7,294		)					(12,701		)
Preferred stock dividend	(2,083		)					(1,292		)
Basic loss from continuing operations	(9,377		)	19,499	$	(0.48	)	(13,993		)	17,220	$	(0.81	)
Diluted loss from continuing operations ^(a)	(9,377		)	19,499	$	(0.48	)	(13,993		)	17,220	$	(0.81	)

Discontinued operations:
Basic loss from discontinued operations	(2,818		)	19,499	$	(0.15	)	7,713			17,220	$	0.45
Diluted (loss) income from discontinued operations ^(a)	(2,818		)	19,499	$	(0.15	)	7,713			17,220	$	0.45

Net loss attributable to AdCare:
Basic loss	(12,195		)	19,499	$	(0.63	)	(6,280		)	17,220	$	(0.36	)
Diluted loss ^(a)	(12,195		)	19,499	$	(0.63	)	(6,280		)	17,220	$	(0.36	)

^(a) Securities outstanding that were excluded from the computation, prior to the use of the treasury stock method, because they would have been anti-dilutive are as follows:



	June 30,
(Share amounts in 000’s)	2015	2014
Outstanding stock options	774	1,758
Outstanding warrants - employee	1,887	1,876
Outstanding warrants - nonemployee	585	1,016
Subordinated convertible notes	3,319	4,406
Total anti-dilutive securities	6,565	9,056

NOTE 3. LIQUIDITY AND PROFITABILITY

Sources of Liquidity

At June 30, 2015 , the Company had $15.3 million in cash and cash equivalents as well as restricted cash and investments of $14.4 million . Over the next 12 months, the Company anticipates both access to and receipt of several sources of liquidity.

At June 30, 2015 , the Company had one facility, three office buildings and one VIE held for sale that the Company anticipates selling in 2015. The Company expects that the cash proceeds and the release of restricted cash on the sale of the VIE and the sale of the one facility will be approximately equivalent to the related debt obligations. The Company expects that the cash proceeds from the sale of the office buildings will exceed related debt obligations by approximately $0.6 million .

The Company routinely has ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, has refinanced short term acquisition debt, including seller notes, with traditional long term mortgage notes, some of which have been executed under government guaranteed lending programs.

During the remainder of 2015, the Company anticipates net proceeds of approximately $1.6 million on refinancing of existing debt, primarily in the fourth quarter of 2015, subject to approval by the United States Department of Housing and Urban Development.

Table of Contents

The Company maintains two revolving lines of credit for which the Company has limited remaining capacity. All balances on these lines of credit are expected to be repaid in 2015. Given the Company's ongoing transition out of healthcare operations, the Company does not anticipate any additional draws on these credit lines.

On April 13, 2015, the Company issued and sold 575,000 shares of Series A Cumulative Redeemable Preferred Stock, no par value per share and liquidation preference of $25.00 per share (the "Series A Preferred Stock"), in a “best efforts” registered public offering for a public offering price of $25.75 per share. In connection therewith, the Company received net proceeds of $13.8 million , after the payment of underwriting commissions and discounts and other offering expenses payable by the Company.

On June 2, 2015, the Company issued and sold 588,235 shares of Series A Preferred Stock in a “best efforts” registered public offering for a public offering price of $25.50 per share. In connection therewith, the Company received net proceeds of approximately $14.2 million after the payment of underwriting commissions and discounts and other offering expenses payable by the Company (see Note 11 - Dividends and Equity ).

On July 21, 2015, the Company entered into separate at market issuance sales agreements with two sales agents, pursuant to which the Company may offer and sell, from time to time, up to 800,000 shares of Series A Preferred Stock through an “at the market” offering program (see Note 16 - Subsequent Events ).

On July 30, 2015, the Company entered into an amendment, effective July 31, 2015, to a certain 8% subordinated convertible note issued by the Company and due July 31, 2015, with a then-current principal amount of $4,847,000 , to, among other things: (i) extend the maturity date of such note with respect to $1,500,000 of its principal amount to October 31, 2017; (ii) increase the interest rate from 8.0% to 10.0% per annum; and (iii) increase the conversion price from $3.97 to $4.25 per share (see Note 9 - Notes Payable and Other Debt, Note 15 - Related Party Transactions and Note 16 - Subsequent Events ).

Other liquidity sources include to a lesser extent, the proceeds from the exercise of options and warrants.

Cash Requirements

At June 30, 2015 , the Company had $146.3 million in indebtedness of which the current portion was $27.6 million . This current portion is comprised of: (i) convertible debt of approximately $4.5 million ; (ii) debt of held for sale entities of approximately $15.3 million , which is primarily senior debt - bond and mortgage indebtedness; and (iii) remaining debt of approximately $7.8 million which includes revolver debt, senior debt - bonds, and senior debt - mortgage indebtedness (for a complete debt listing and credit facility detail, see Note 9 - Notes Payable and Other Debt ).

The convertible debt includes the 8% subordinated convertible note which was amended effective July 31, 2015 and described under "-Sources of Liquidity" (see Note 9 - Notes Payable and Other Debt, Note 15 - Related Party Transactions and Note 16 - Subsequent Events ).

The current debt maturing in 2015 for all other debt approximates $7.8 million . As indicated previously, the Company routinely has ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, has refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs.

The Company anticipates net principal disbursements of approximately $9.8 million over the next twelve months which reflect the offset of anticipated proceeds on refinancing of approximately $2.5 million . The Company anticipates operating cash requirements in 2015 as being less than in 2014 due to the Company's transition to a healthcare property holding and leasing company. Based on the described sources of liquidity and related cash requirements, the Company expects sufficient funds for its operations, scheduled debt service, and capital expenditures at least through the next twelve months. On a longer term basis, at June 30, 2015, the Company has approximately $64.2 million of debt maturities due over the next two-year period, ending June 30, 2017, excluding convertible notes which are convertible into shares of common stock. The Company has been successful in recent years in raising new equity capital and believes, based on recent discussions, that these markets will continue to be available to it for raising capital in 2015 and beyond. The Company believes its long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.

In order to satisfy the Company's capital needs, the Company seeks to: (i) improve operating results through a series of leasing and subleasing transactions with favorable terms and consistent and predictable cash flow; (ii) expand borrowing arrangements with certain lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities on terms favorable to the Company. The Company anticipates that these actions, if successfully executed, will provide the opportunity to maintain liquidity on a short-and-long term basis, thereby permitting the Company to

Table of Contents

meet our operating and financing obligations for the next twelve months. However, there is no guarantee that such actions will be successful or that anticipated operating results or the transition of the Company to primarily a property holding and leasing company will be achieved. The Company currently has limited borrowing availability under our existing revolving credit facilities.

NOTE 4. RESTRICTED CASH AND INVESTMENTS

The following table sets forth the Company’s various restricted cash, escrow deposits and investments:



(Amounts in 000’s)	June 30, 2015		December 31, 2014
HUD escrow deposits	$	365	$	289
Lender's collection account	299		35
Current replacement reserves	133		9
HUD current replacement reserves	637		637
Cash collateral and certificates of deposit	6,920		2,302
Property tax escrow	—		49
Total current portion	8,354		3,321

HUD replacement reserves	1,110		1,074
Reserves for capital improvements	211		936
Restricted investments for other debt obligations	4,688		3,446
Total noncurrent portion	6,009		5,456
Total restricted cash and investments	$	14,363	$	8,777

NOTE 5. PROPERTY AND EQUIPMENT

The following table sets forth the Company’s property and equipment:



(Amounts in 000’s)	Estimated Useful Lives (Years)	June 30, 2015			December 31, 2014
Buildings and improvements	5-40	$	128,355		$	128,136
Equipment	2-10	13,261			13,294
Land	—	7,122			7,127
Computer related	2-10	2,915			2,908
Construction in process	—	175			52
		151,828			151,517
Less: accumulated depreciation and amortization		(23,135		)	(20,524		)
Property and equipment, net		$	128,693		$	130,993

Buildings and improvements includes the capitalization of the costs incurred for the respective certificates of need (the "CON"). For additional information on the CON amortization, see Note 6 - Intangible Assets and Goodwill .

Depreciation and amortization expense was approximately $1.6 million and $3.1 million for the three and six months ended June 30, 2015 , and $1.7 million and $3.3 million for the three and six months ended June 30, 2014 , respectively. Total depreciation and amortization expense excludes $0.03 million and $0.08 million for the three and six months ended June 30, 2015 , and $0.1 million and $0.3 million for the three and six months ended June 30, 2014 , respectively, that is recognized in loss from discontinued operations, net of tax.

During the three months ended June 30, 2015 , the Company recognized an impairment charge of approximately $0.1 million to write down the carrying value of its two office buildings located on Hembree Road in Roswell, Georgia. The assets and liabilities of the Hembree Road buildings are included in Assets and Liabilities Held for Sale as of June 30, 2015 (see Note 10 - Discontinued Operations ).

Table of Contents

NOTE 6. INTANGIBLE ASSETS AND GOODWILL

There have been no impairment adjustments to intangible assets and goodwill during the three and six months ended June 30, 2015 .

Intangible assets consist of the following:



(Amounts in 000’s)	Bed Licenses (included in property and equipment)			Bed Licenses - Separable		Lease Rights			Total
Balances, December 31, 2014
Gross	$	35,690		$	2,471	$	7,406		$	45,567
Accumulated amortization	(3,587		)	—		(3,319		)	(6,906		)
Net carrying amount	$	32,103		$	2,471	$	4,087		$	38,661

Disposition
Gross ^(a)	—			—		(525		)	(525		)
Accumulated amortization ^(a)	—			—		525			525
Amortization expense	(586		)	—		(333		)	(919		)

Balances, June 30, 2015
Gross	35,690			2,471		6,881			45,042
Accumulated amortization	(4,173		)	—		(3,127		)	(7,300		)
Net carrying amount	$	31,517		$	2,471	$	3,754		$	37,742

^(a) During the six months ended June 30, 2015 , the Company removed fully amortized carrying balances for lease rights related to one skilled nursing facility located in Cassville, Missouri. The lease expired on September 30, 2014 , and the Company elected not to renew the lease agreement.

Amortization expense for bed licenses included in property and equipment was approximately $0.3 million and $0.6 million for the three and six months ended June 30, 2015 , and $0.3 million and $0.6 million for the three and six months ended June 30, 2014 .

Amortization expense for lease rights was approximately $0.2 million and $0.3 million for the three and six months ended June 30, 2015 and $0.2 million and $0.3 million for the three and six months ended June 30, 2014 .

Expected amortization expense for all definite lived intangibles for each of the years ended December 31 , is as follows:



(Amounts in 000’s)	Bed Licenses		Lease Rights
2015 ^(a)	$	586	$	333
2016	1,173		667
2017	1,173		667
2018	1,173		667
2019	1,173		667
Thereafter	26,239		753
Total expected amortization expense	$	31,517	$	3,754

^(a) Estimated amortization expense for the year ending December 31, 2015 , includes only amortization to be recorded after June 30, 2015 .

Table of Contents

The following table summarizes the carrying amount of goodwill:



(Amounts in 000’s)	June 30, 2015			December 31, 2014
Goodwill	$	5,023		$	5,023
Accumulated impairment losses	(799		)	(799		)
Total	$	4,224		$	4,224

The Company does not amortize goodwill or indefinite lived intangibles, which consist of separable bed licenses.

NOTE 7. LEASES

Operating Leases

The Company leases a total of eleven skilled nursing facilities under non-cancelable operating leases, most of which have initial lease terms of ten to twelve years with rent escalation clauses and provisions for payments by the Company of real estate taxes, insurance and maintenance costs; three of the skilled nursing facilities that are leased are also operated by the Company. The Company also leases certain office space with similar provisions as the aforementioned skilled nursing facility leases.

Eight of the Company's skilled nursing facilities are operated under a single master indivisible lease arrangement, dated August 1, 2010 , with William M. Foster as landlord (the "Prime Lease"). The lease has a term of ten years into 2020. Under the Prime Lease, a breach at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. Failure to comply with regulations or governmental authorities, such as Medicaid and Medicare provider requirements, is a default under the Prime Lease. In addition, other potential defaults related to an individual facility may cause a default of the entire Prime Lease. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.

As previously disclosed, on May 18, 2015, the landlord delivered to the Company a notice which alleges that the Company is in default under the Prime Lease for, among other reasons, subleasing the facilities to third-party operators without the landlord’s written consent and reserves the landlord’s right to terminate the Prime Lease and/or pursue any other remedy available at law or in equity. The Company does not believe that it is in default under the Prime Lease and is in discussions with the landlord regarding the matter.

Two of the Company's facilities are operated under a single indivisible lease; therefore, a breach at a single facility could subject the second facility to the same default risk. The lease has an initial term of twelve years into 2022 and two optional ten -year renewal terms, and includes covenants and restrictions. The Company is required to make minimum capital expenditures of $375 per licensed bed per lease year at each facility which amounts to $0.1 million per year for both facilities. As of June 30, 2015 , the Company is in compliance with all financial and administrative covenants of this lease agreement.

Future minimum lease payments for each of the next five years ending December 31 , are as follows:



	(Amounts in 000's)
2015 ^(a)	$	4,000
2016	7,980
2017	8,062
2018	8,188
2019	7,861
Thereafter	8,279
Total	$	44,370

^(a) Estimated minimum lease payments for the year ending December 31, 2015 , include only payments to be recorded after June 30, 2015 .

The Company has also entered into lease agreements for various equipment used in the facilities. These leases are included in future minimum lease payments above.

Leased and Subleased Facilities to Third-Party Operators

Table of Contents

In connection with the Company's strategic plan to transition to a healthcare property holding and leasing company, twenty-three facilities ( fifteen owned by us and eight leased to us) are leased or subleased on a triple net basis, meaning that the lessee ( i.e ., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all liabilities of the property in respect to insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable.

Future minimum lease receivables from the Company’s facilities leased and subleased to third party operators for each of the next five years ending December 31 , are as follows:



	(Amounts in 000's)
2015 ^(a)	$	10,273
2016	21,146
2017	21,596
2018	22,030
2019	21,753
Thereafter	75,834
Total	$	172,632

^(a) Estimated minimum lease receivables for the year ending December 31, 2015 , include only payments to be received after June 30, 2015 .

For further details regarding the Company's leased and subleased facilities to third-party operators, see below and also Note 16 - Subsequent Events in this Quarterly Report and Note 7 - Leases included in the Annual Report.

Arkansas Leases

On January 16, 2015, ten wholly-owned subsidiaries (each, an “Aria Sublessor”) of the Company entered into separate sublease agreements pursuant to which each Aria Sublessor leases one of ten skilled nursing facilities located in Arkansas, and owned by a subsidiary of AdCare, to an affiliate of Aria Health Group, LLC (each, an "Aria Sublessee"), which subleases were originally scheduled to commence on March 1, 2015, subject to, among other things: (i) such Aria Sublessee’s receipt of all licenses and other approvals from the State of Arkansas to operate such facility; and (ii) approval of the mortgage lender with respect to such facility. Each sublease agreement is structured as triple net lease wherein the Aria Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease.

On April 30, 2015, the Company entered into a Lease Inducement Fee Agreement (the "Aria Lease Inducement") with Aria Health Consulting, LLC. The Aria Lease Inducement provided for a one-time payment from the Company to Aria Health Consulting, LLC equal to $2.0 million minus the security deposits and first month's base and special rent for all Aria Sublessees. On April 30, 2015, in connection with the Aria Lease Inducement, the eight sublease agreements with the Aria Sublessees were amended to, among other things, provide that the Aria Sublessees shall, collectively, pay to the Aria Sublessors special rent in the amount of $29,500 per month payable in advance on or before the first day of each month (except for the first special rent payment, which was subtracted from the lease inducement fee paid by the Company under the Aria Lease Inducement).

On April 30, 2015, two Aria Sublessors entered into separate sublease termination agreements with two Aria Sublessees, pursuant to which each Aria Sublessor and Aria Sublessee mutually agreed to terminate two of the separate sublease agreements previously entered into on January 16, 2015. The remaining eight sublease agreements commenced on May 1, 2015. In connection with entering into the sublease agreements, each Aria Sublessor and Aria 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 of the skilled nursing facilities.

As a condition to the Aria Sublessees agreement to a commencement date of May 1, 2015, the Company and the Aria Sublessees agreed to assess, in good faith and within thirty (30) days following the commencement date, making a one-time equitable adjustment to base rent equal to the difference between the facilities 2014 professional liability and general liability insurance costs and projected costs for the first lease year of comparable or mutually acceptable insurance as further adjusted by anticipated Medicaid reimbursement rate increases solely from such added costs. Pursuant to each sublease agreement, the initial lease term is ten years with a five -year renewal option. The annual base rent under all of the sublease agreements in the first year is $5.3 million in the aggregate, exclusive of any equitable adjustment, and the annual base rent under each sublease will escalate at 2% each year through the initial term and 3% per year upon renewal. The sublease agreements are cross-defaulted. On February 27, 2015 and

Table of Contents

March 31, 2015, the sublease agreements with the Aria Sublessees were amended to extend the commencement date of the subleases to April 1, 2015, and May 1, 2015, respectively.

On July 17, 2015, the Company, on behalf of each Aria Sublessor, and Highlands Arkansas Holdings, LLC, an affiliate of Aria (“HAH”) and acting on behalf of each Aria Sublessee, entered into a letter agreement whereby the parties agreed to amend the sublease agreements to reflect a onetime equitable adjustment to annual base rent, for the collective benefit of each Aria Sublessee, in the aggregate amount of $360,000 . On July 17, 2015, the Company made a short-term loan to HAH and, in connection therewith, HAH executed a promissory note in the amount $1.2 million in favor of the Company. Interest accrues on the unpaid principal balance of the note at a rate of 12.5% per annum (see Note 16 - Subsequent Events ).

Georgia Leases

On January 31, 2015 , a wholly owned subsidiary (“Wellington Sublessor”) of the Company entered into separate sublease agreements pursuant to which Wellington Sublessor leases two skilled nursing facilities located in Georgia, to affiliates of Wellington Health Services, L.L.C (each a "Wellington Sublessee"). Each sublease agreement was subject to, among other things, each Wellington Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The subleases commenced on April 1, 2015 . The facilities are currently leased by Wellington Sublessor, as tenant, pursuant to the Prime Lease. Each sublease agreement is structured as triple net lease wherein the Wellington Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of each sublease agreement will expire on July 31, 2020 coterminous with the Prime Lease. If Wellington Sublessor and landlord agree to extend the term of the Prime Lease, Wellington Sublessee has the right to extend the term of the sublease agreements through the end of the renewal term of the Prime Lease. The annual rent under the two sublease agreements in the first year will be $3.9 million in the aggregate, and the annual rent under each sublease will escalate at 1% each year through the initial term and 2% per year through the renewal term, if any. The sublease agreements are cross-defaulted. In connection with the sublease agreements, the current licensed operators (wholly-owned subsidiaries of Wellington Sublessor) and the Wellington Sublessees also entered into operations transfer agreements with respect to the applicable facility, containing customary terms and conditions relating to the transfer of operations of skilled nursing facilities.

On February 18, 2015 , a wholly owned subsidiary (“College Park Sublessor”) of the Company entered into separate sublease agreements pursuant to which College Park Sublessor leases one skilled nursing facility located in Georgia, to affiliates of C.R. of College Park, LLC (the "College Park Sublessee"). The sublease agreement was subject to, among other things, the College Park Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease agreement is structured as triple net lease wherein the College Park Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2020 and has a five year renewal option. The annual rent under the sublease agreement in the first year will approximate $0.6 million annually, and the annual rent will escalate at $12,000 annually through the lease term. The sublease commenced on April 1, 2015 . In connection with the sublease agreements, the current licensed operator (wholly-owned subsidiary of College Park Sublessor) and the College Park 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.

On February 18, 2015 , a wholly owned subsidiary (“Autumn Breeze Sublessor”) of the Company entered into a sublease agreement pursuant to which Autumn Breeze Sublessor will lease one skilled nursing facility located in Georgia, to affiliates of C.R. of Autumn Breeze, LLC (the "Autumn Breeze Sublessee"). The sublease agreement is subject to, among other things, the Autumn Breeze Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease agreement is structured as triple net lease wherein the Autumn Breeze Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2020 and has a five year renewal option. The annual rent under the sublease agreement in the first year will approximate $0.8 million annually, and the annual rent will escalate at $12,000 annually through the initial lease term. In connection with the sublease agreements, the current licensed operator (wholly-owned subsidiary of Autumn Breeze Sublessor) and the Autumn Breeze 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.

Table of Contents

taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on July 31, 2020 coterminous with the Prime Lease. If LaGrange Sublessor and landlord agree to extend the term of the Prime Lease, LaGrange Sublessee has the right to extend the term of the sublease agreements through the end of the renewal term of the Prime Lease. The annual rent under the sublease agreement in the first two years will approximate $1.0 million annually, and the annual rent will escalate at 3.0% annually through the lease term. In connection with the sublease agreements, the current licensed operators (wholly-owned subsidiaries of LaGrange Sublessor) and the LaGrange 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.

On July 20, 2015, a wholly owned subsidiary of the Company (the “Georgia Sublessor”) entered into a sublease agreement pursuant to which the Georgia Sublessor will lease two skilled nursing facilities located in Georgia to affiliates of Wellington Health Services, L.L.C (see Note 16 - Subsequent Events ).

North Carolina and South Carolina Leases

On February 27, 2015 , three wholly owned subsidiaries (each, a “Symmetry Healthcare Sublessor”) of the Company entered into separate sublease agreements pursuant to which each Symmetry Healthcare Sublessor leases one skilled nursing facility located in North Carolina and two skilled nursing facilities located in South Carolina, respectively, to a wholly-owned subsidiary of Symmetry Healthcare Management (each, a "Symmetry Healthcare Sublessee"). The sublease agreements were subject to, among other things: (i) such Symmetry Healthcare Sublessee’s receipt of all licenses and other approvals from the states of North Carolina and South Carolina to operate such facilities, respectively; and (ii) approval of the mortgage lender with respect to such facility. Each sublease agreement is structured as triple net lease wherein the Symmetry Healthcare Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. Pursuant to each sublease agreement, the initial lease term is fifteen years with a five -year renewal option. The annual rent under all of the sublease agreements in the first year will be $1.8 million in the aggregate, and the annual rent under each sublease will escalate at 3% each year through the initial term and upon renewal. The sublease agreements are cross-defaulted. In connection with entering into the sublease agreements, each Symmetry Healthcare Sublessor and Symmetry Healthcare Sublessee also entered into an operations transfer agreement with respect to the applicable North Carolina and South Carolina facilities, each containing customary terms and conditions.

On March 20, 2015 , each Symmetry Healthcare Sublessor entered into a separate First Amendment to the Lease Agreement, which amended each of the separate sublease agreements to, among other things: (i) extended the commencement date of the sublease agreement for the skilled nursing facility located in North Carolina (the "Related Lease") to June 1, 2015 ; and (ii) included a 20% monthly base rent and asset management and professional services fee escalation provision for each of the two skilled nursing facilities located in South Carolina that will take immediate effect if the Related Lease does not commence by June 1, 2015 .

On May 31, 2015 , the Symmetry Healthcare Sublessor for the Mountain Trace Rehabilitation and Nursing Center entered into a Second Amendment to the Lease Agreement, which amended the sublease agreement to, among other things: (i) reduce the first year base rent from $59,000 to $54,000 ; and (ii) specify a specific rent of $59,000 for the second year of the lease rather than the prior provision that the second year lease rate shall equal one hundred three percent ( 103% ) of the base rent payable for the immediately preceding lease year.

The subleases for the two South Carolina and one North Carolina skilled nursing facilities commenced on April 1, 2015 and June 1, 2015 , respectively.

Oklahoma Leases

On May 1, 2015, two wholly owned subsidiaries (each, a “Sublessor”) of the Company entered into separate sublease agreements with Southwest LTC-Quail Creek, LLC and Southwest LTC-NW OKC, LLC (each, a "Sublessee") pursuant to which each Sublessor will lease one of two skilled nursing facilities. The two facilities are as follows:


▪	Quail Creek Nursing Home, a 109 -bed skilled nursing facility located in Oklahoma City, OK.


▪	Northwest Nursing Center, an 88 -bed skilled nursing facility located in Oklahoma City OK.

Table of Contents

ten years with two separate renewal terms of five years each. The annual cash rent under all of the sublease agreements in the first year will be $0.96 million and will escalate thereafter on an annual basis through the initial term and any renewal terms. The sublease agreements are cross-defaulted. In connection with entering into the sublease agreements, each Sublessor and Sublessee also entered into an operations transfer agreement with respect to the applicable facilities, each containing customary terms and conditions.

NOTE 8. ACCRUED EXPENSES

Accrued expenses consist of the following:



(Amounts in 000’s)	June 30, 2015		December 31, 2014
Accrued payroll related	$	3,284	$	6,915
Accrued employee benefits	1,468		3,405
Real estate and other taxes	1,193		1,335
Other accrued expenses	4,638		3,998
Total accrued expenses	$	10,583	$	15,653

NOTE 9. NOTES PAYABLE AND OTHER DEBT

Notes payable and other debt consist of the following:



(Amounts in 000’s)	June 30, 2015		December 31, 2014
Revolving credit facilities and lines of credit	$	1,542	$	6,832
Senior debt - guaranteed by HUD	25,754		26,022
Senior debt - guaranteed by USDA	26,809		27,128
Senior debt - guaranteed by SBA	3,627		3,703
Senior debt - bonds, net of discount ^(a)	12,873		12,967
Senior debt - other mortgage indebtedness ^{(b) (c)}	60,089		60,277
Other debt	1,914		430
Convertible debt issued in 2012	5,982		7,500
Convertible debt issued in 2014	—		6,500
Convertible debt issued in 2015	7,700		—
Total	$	146,290	$	151,359
Less: current portion	12,283		22,012
Less: portion included in liabilities of disposal group held for sale ^(b)	9,398		5,197
Less: portion included in liabilities of variable interest entity held for sale ^(a)	5,870		5,956
Less: portion included in liabilities of disposal group held for use ^(c)	—		4,035
Notes payable and other debt, net of current portion	$	118,739	$	114,159

^(a) The senior debt - bonds, net of discount includes $5.9 million at June 30, 2015 and $6.0 million at December 31, 2014 related to the Company's consolidated VIE, Riverchase Village ADK, LLC ("Riverchase"), revenue bonds, in two series, issued by the Medical Clinical Board of the City of Hoover in the State of Alabama, which the Company has guaranteed the obligation under such bonds.

^(b) At December 31, 2014 , the senior debt - other mortgage indebtedness includes $5.0 million related to the outstanding loan entered into in conjunction with the acquisition of Companions, a skilled nursing facility located in Tulsa, Oklahoma, as well as a related $0.2 million outstanding line of credit balance. At June 30, 2015 , the senior debt - other mortgage indebtedness includes $5.0 million related to the outstanding loans entered into in conjunction with the acquisition of the Companions facility, as well as the outstanding loans as reclassified from liabilities held for use. Specifically, the reclassified loans total $4.0 million on a skilled nursing facility located in Bentonville, Arkansas and one of the two Hembree Road office buildings located in Roswell, Georgia. An additional $0.4 million is an increase to the outstanding loan of the Bentonville, Arkansas property resulting from an increased debt allocation to the building for payoff purposes at sale closing.

^(c) At December 31, 2014 , the senior debt - other mortgage indebtedness includes $4.0 million related to the outstanding loans entered into in conjunction with the acquisition of a skilled nursing facility located in Bentonville, Arkansas and one of the two Hembree Road office buildings located in Roswell, Georgia. During the six months ended June 30, 2015, the outstanding loans were reclassified to liabilities held for sale.

Table of Contents

Scheduled Maturities

The 2016 maturities include the outstanding loans of an aggregate $9.4 million related to the Companions facility, a skilled nursing facility located in Bentonville, Arkansas and one of the two Hembree Road office buildings located in Roswell, Georgia, which are classified as liabilities of a disposal group held for sale at June 30, 2015 , and $5.9 million related to the Riverchase bonds classified as liabilities of a variable interest entity held for sale at June 30, 2015 .

The schedule below summarizes the scheduled maturities for the twelve months ended June 30 of the respective year:



	(Amounts in 000’s)
2016	$	27,721
2017	54,371
2018	4,382
2019	1,810
2020	1,903
Thereafter	56,486
Subtotal	146,673
Less: unamortized discounts ($170 classified as current)	(383		)
Total notes and other debt	$	146,290

Debt Covenant Compliance

As of June 30, 2015 , the Company (including its consolidated VIE) has approximately 43 credit related instruments (credit facilities, mortgage notes, bonds and other credit obligations) outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDA or EBITDAR, current ratios and tangible net worth requirements. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are further defined in the table below as follows: (i) financial covenants measured against subsidiaries of the Company ("Subsidiary"); and (ii) financial covenants measured against third-party operator performance ("Operator"). Some covenants are based on annual financial metric measurements whereas others are based on quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of June 30, 2015 , the Company has not been in compliance with certain financial covenants. For each instance of such non-compliance, the Company has obtained waivers or amendments to such requirements including, as necessary, modifications to future covenant requirements or the elimination of certain requirements in future periods.

The table below indicates which of the Company's credit-related instruments are not in compliance as of June 30, 2015 :



Credit Facility	Balance at June 30, 2015 (000's)		Subsidiary or Operator Level Covenant Requirement	Financial Covenant	Min/Max Financial Covenant Required			Financial Covenant Metric Achieved				Future Financial Covenant Metric Required
Contemporary Healthcare Capital - Term Note - CSCC Nursing, LLC	$	5,000	Subsidiary	Minimum Debt Service Coverage Ratio	1.15			(1.38		)	(a)	1.15
			Subsidiary	Minimum Occupancy	70		%	67		%	(a)	70		%
PrivateBank - Mortgage Note - Valley River Nursing, LLC; Park Heritage Nursing, LLC; Benton Nursing, LLC	$	10,885	Operator	Minimum Operator EBITDAR (000s)	$	450		$	10		(a)	$	450
PrivateBank - Mortgage Note - APH&R Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC	$	11,926	Operator	Minimum Operator EBITDAR (000s)	$	450		$	(636	)	(a)	$	450
PrivateBank - Mortgage Note - Little Rock HC&R Nursing, LLC	$	11,513	Operator	Minimum Operator EBITDAR (000s)	$	358		$	159		(a)	$	358
			Subsidiary	Minimum Borrower Fixed Charge Coverage	1.05			0.97			(a)	1.05

Table of Contents

^(a) Waiver, amendment or other cure provision for violation of covenant obtained.

The measurement period for each covenant requirement in the table above is on a quarterly basis.

Revolving Credit Facilities and Lines of Credit

Gemino-Northwest Credit Facility

On May 30, 2013, NW 61 ^st Nursing, LLC (“Northwest”), a wholly owned subsidiary of the Company, entered into a Credit Agreement (the “Northwest Credit Facility”) with Gemino Healthcare Finance, LLC ("Gemino"). The Northwest Credit Facility provided for a $1.0 million principal amount senior-secured revolving credit facility.

The Northwest Credit Facility matured on January 31, 2015. Interest accrued on the principal balance thereof at an annual rate of 4.75% plus the current LIBOR rate. Northwest also paid to Gemino: (i) a collateral monitoring fee equal to 1.0% per annum of the daily outstanding balance of the Northwest Credit Facility; and (ii) a fee equal to 0.5% per annum of the unused portion of the Northwest Credit Facility. The Northwest Credit Facility was secured by a security interest in the accounts receivable and the collections and proceeds thereof relating to the Company’s skilled nursing facility located in Oklahoma City, Oklahoma known as the Northwest Nursing Center. AdCare had unconditionally guaranteed all amounts owing under the Northwest Credit Facility.

On January 30, 2015 and March 25, 2015, Northwest and Gemino amended the Northwest Credit Facility to extend its term to March 31, 2015 and to April 30, 2015, respectively.

On April 30, 2015, the outstanding principal amount of $1.0 million under the Northwest Credit Facility was repaid in full, thus releasing all liens and security interests as well as terminating all indebtedness on the Northwest Credit Facility.

Gemino-Bonterra Credit Facility

On September 20, 2012, ADK Bonterra/Parkview, LLC, a wholly owned subsidiary of the Company ("Bonterra"), entered into a Second Amendment to the Credit Agreement with Gemino, which amended the original Credit Agreement dated April 27, 2011 between Bonterra and Gemino ("Gemino-Bonterra Credit Facility"). The Gemino-Bonterra Credit Facility was a secured credit facility for borrowings up to $2.0 million . The amendment extended the term of the Gemino-Bonterra Credit Facility from October 29, 2013 to January 31, 2014 and amended certain financial covenants regarding Bonterra's fixed charge coverage ratio, maximum loan turn days and applicable margin. Interest accrued on the principal balance outstanding at an annual rate equal to the LIBOR rate plus the applicable margin of 4.75% to 5.00% , which fluctuated depending upon the principal amount outstanding.

On May 30, 2013, Bonterra, entered into a Fourth Amendment to Credit Agreement with Gemino, which among other things: (i) extended the term of the Gemino-Bonterra Credit Facility from January 31, 2014 to January 31, 2015; (ii) amended certain financial covenants regarding Bonterra’s fixed charge coverage ratio and maximum loan turn days; and (iii) amended the Gemino-Bonterra Credit Facility to include the Northwest Credit Facility as an affiliated credit agreement in determining whether certain financial covenants are being met.

On January 30, 2015 and March 31, 2015, Bonterra and Gemino amended the Gemino-Bonterra Credit Facility to extend its term to March 31, 2015 and to April 30, 2015, respectively.

On May 1, 2015, Bonterra and Gemino amended the Gemino-Bonterra Credit Facility to extend its term from April 30, 2015 to June 30, 2015.

As of June 30, 2015, $0.4 million was outstanding of the maximum borrowing amount of $2.0 million under the Gemino-Bonterra Credit Facility. At June 30, 2015, the Company was in compliance with all covenants contained in the Gemino-Bonterra Credit Facility.

On July 1, 2015, the outstanding principal amount of $0.4 million under the Gemino-Bonterra Credit Facility was repaid in full, thus releasing all liens and security interests as well as terminating all indebtedness on the Gemino-Bonterra Credit Facility.

PrivateBank Credit Facility

On April 1, 2015, certain wholly owned subsidiaries (the “PrivateBank Borrowers”) the Company entered into a Eighth Modification Agreement (the “Eighth Modification”) with The PrivateBank and Trust Company (“PrivateBank”), which modified that certain Loan Agreement, dated September 20, 2012, between the PrivateBank Borrowers, PrivateBank and the Company, as guarantor (as amended, the “PrivateBank Credit Facility”). Under the Eighth Modification: (i) a borrower was added as a party thereto which

Table of Contents

was omitted on the prior Seventh Modification as a result of a clerical error; (ii) PrivateBank consented to the transfer of operations to new operators and the amendment of the related leases; (iii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from $8.8 million to $6.0 million , effective April 1, 2015; (iv) the outstanding amount owing under the PrivateBank Credit Facility was reduced from $6.0 million to $5.8 million , effective August 1, 2015.

On May 1, 2015, the PrivateBank Borrowers entered into a Ninth Modification Agreement (the “Ninth Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Ninth Modification: (i) PrivateBank consented to the transfer of operations to new operators and the amendment of the related leases; (ii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from $5.8 million to $3.8 million , effective September 1, 2015.

As of June 30, 2015 , there were no cash borrowings outstanding on the maximum amount owing under the PrivateBank Credit Facility of $6.0 million . As of June 30, 2015 , the Company has $3.8 million of outstanding letters of credit relating to this credit facility. At June 30, 2015 , the Company was in compliance with all covenants contained in the PrivateBank Credit Facility.

On July 30, 2015 , the PrivateBank Borrowers entered into a Tenth Modification Agreement (the “Tenth Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Tenth Modification: (i) the outstanding amount owing under the PrivateBank Credit Facility was reduced to $3.8 million , effective July 30, 2015; and (ii) the PrivateBank Borrowers shall not have the right to receive any additional cash borrowings under the PrivateBank Credit Facility.

Contemporary Healthcare Loan

On August 17, 2012, in conjunction with the acquisition of Companions, a wholly owned subsidiary of the Company entered into a Loan Agreement with Contemporary Healthcare Capital LLC ("Contemporary") and issued a promissory note in favor of Contemporary with a principal amount of $0.6 million ("Contemporary $0.6 million Loan"). The Contemporary $0.6 million Loan was to mature on August 20, 2015 and interest accrued on the principal balance at an annual rate of 9.0% . Payments for the interest and a portion of the principal in excess of the borrowing base were payable monthly, commencing on September 20, 2012.

On May 14, 2015, the outstanding principal amount of $0.2 million under the Contemporary $0.6 million Loan was repaid in full, thus releasing all liens and security interests as well as terminating all indebtedness on the Contemporary $0.6 million Loan.

Senior Debt—Other Mortgage Indebtedness

Companions Specialized Care

In August 2012, a wholly owned subsidiary of the Company financed the acquisition of Companions by entering into a loan agreement for $5.0 million ("Contemporary Loan") with Contemporary. The loan matures on August 20, 2015 with a required final payment of $5.0 million and accrues interest at a fixed rate of 8.5% per annum. Deferred financing costs incurred on the loan amounted to $0.2 million and are being amortized to interest expense over the life of the loan. The loan has a prepayment penalty of 5% during the first year of the term and 1% during the second year of the term. The loan is secured by the Companions facility and guaranteed by AdCare.

As of June 30, 2015 , $5.0 million was outstanding under the loan, and the Company has $2.0 million of restricted assets related to this loan. At June 30, 2015 , the Company was not in compliance with covenants contained in the Contemporary loan and has obtained a waiver from Contemporary.

On August 12, 2015, a wholly owned subsidiary of the Company entered into a First Amendment to Promissory Note (the "First Amendment") with Contemporary, which, among other things, extended the maturity date of and reduced the outstanding amount owing under the Contemporary Loan (see Note 16 - Subsequent Events ).

Northridge, Woodland Hills and Abington Credit Facility

On February 25, 2015, three wholly owned subsidiaries of the Company entered into a Loan Agreement (the "Northridge, Woodland Hills and Abington Credit Facility") with PrivateBank, which provides for a $12.0 million principal amount secured credit facility. The credit facility is secured by real property.

The Northridge, Woodland Hills and Abington Credit Facility matures on September 1, 2016. Interest accrues on the principal balance thereof at the LIBOR rate plus 4.25% . Principal and interest payments on the loan are due and payable monthly, beginning on March 1, 2015. The facility is also secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Northridge, Woodland Hills and Abington Credit Facility.

AdCare has unconditionally guaranteed all amounts owing under the Northridge, Woodland Hills and Abington Credit Facility. Proceeds from the Northridge, Woodland Hills and Abington Credit Facility were used to pay off all amounts outstanding under a separate $12.0 million credit facility with KeyBank National Association ("KeyBank") under which certain subsidiaries of the Company were borrowers.

Table of Contents

As of June 30, 2015 , $11.9 million was outstanding of the maximum borrowing amount of $12.0 million under the Northridge, Woodland Hills and Abington Credit Facility. As of June 30, 2015 , the Company had $2.0 million of outstanding restricted assets related to this credit facility. At June 30, 2015 , the Company was not in compliance with a covenant contained in the Northridge, Woodland Hills and Abington Credit Facility and has obtained a waiver from PrivateBank.

Little Rock Credit Facility

On March 30, 2012 , Little Rock HC&R Property Holdings, LLC ("Little Rock") and two other wholly owned subsidiaries of the Company, in connection with the Company's April 2012 acquisition of three skilled nursing facilities located in Arkansas, entered into a loan agreement for $21.8 million with PrivateBank (the "Little Rock Credit Facility"). The Little Rock Credit Facility, as amended on December 28, 2012, matures in December 2016 with a required final payment of $13.7 million . The Little Rock Credit Facility accrues interest at the LIBOR rate plus 4% with a minimum rate of 6% per annum and requires monthly principal payments plus interest for total current monthly payments of $0.2 million . Deferred financing costs incurred on the loan amounted to $0.4 million and are being amortized to interest expense over the life of the loan. The Little Rock Credit Facility has a prepayment penalty of 5% through 2012 declining by 1% each year through 2015. The Little Rock Credit Facility is secured by the three facilities and guaranteed by Little Rock HC&R Nursing, LLC and AdCare. A portion of the Little Rock Credit Facility with respect to the Northridge facility and Woodland Hills facility was paid off and refinanced with a portion of the proceeds from a new credit facility with KeyBank.

On May 1, 2015, Little Rock entered into a Fifth Modification Agreement with PrivateBank, which modified the Little Rock Credit Facility. The Fifth Modification, among other things: (i) provided for PrivateBank's consent to the sublease of the Company’s Little Rock Health & Rehabilitation Center to an affiliate of Aria Health Group, LLC; and (ii) amended the minimum EBITDAR covenant discussed in the Little Rock Credit Facility to reflect a new facility operator, Highlands of Little Rock West Markham, LLC.

The Company has $2.1 million of restricted assets related to this loan. As of June 30, 2015 , $11.5 million was outstanding under loan agreement. At June 30, 2015 , the Company was not in compliance with a covenant contained in the loan agreement and has obtained a waiver from PrivateBank.

Bentonville, Heritage Park and River Valley

On May 1, 2015 , Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC, and Valley River Property Holdings, LLC, each a wholly owned subsidiary of the Company (collectively, the “Borrower Group”), entered into a Loan Modification Agreement with PrivateBank, which modified that certain Loan Agreement, dated September 1, 2011, as amended, between the Borrower Group and PrivateBank. The Loan Modification, among other things: (i) provided for PrivateBank's consent to the sublease of the Company’s Heritage Park Nursing Center to an affiliate of Aria Health Group, LLC; and (ii) amended the minimum EBITDA covenant described in the Loan Agreement to (a) reflect a new facility operator, Highlands of Rogers Dixieland, LLC, and (b) change the minimum EBITDA covenant to a “Minimum EBITDAR/Management Fee” covenant, which modifies minimum EBITDAR to take into account management fees equal to the greater of the operator’s actual management fees for such period or imputed management fees equal to 5% of such operator’s gross income for such period, as determined in accordance with generally accepted accounting principles.

As of June 30, 2015 , $10.9 million was outstanding under loan agreement. At June 30, 2015 , the Company was not in compliance with a covenant contained in the loan agreement and has obtained a waiver from PrivateBank.

On July 1, 2015 , the Company completed the sale of its Bentonville, Arkansas skilled nursing facility consisting of 83 licensed beds for $3.4 million net of customary closing and certain real property apportionments. Net proceeds were used to repay certain mortgage indebtedness under that certain Loan Agreement, dated September 1, 2011, as amended, between the Borrower Group and PrivateBank.

Other Debt

Insurance Funding

In March 2015, the Company obtained financing from IPFS Corporation and entered into a Commercial Insurance Premium Finance Security Agreement for several insurance programs, including property, casualty, and crime, effective March 1, 2015 and maturing on December 31, 2015. The total amount financed was approximately $0.4 million requiring monthly payments with interest of 3.29% starting April 2015.

In May 2015, the Company obtained additional financing from IPFS Corporation, effective May 1, 2015 and maturing on April 30, 2016. The additional amount financed was approximately $1.0 million requiring monthly payments with interest of 3.29%

Table of Contents

starting June 2015. At June 30, 2015 , the combined outstanding principal and interest was approximately $1.2 million under the Commercial Insurance Premium Finance Security Agreement.

KeyBank Promissory Notes

On February 25, 2015 , the Company entered into four separate unsecured Promissory Note Agreements (the "KeyBank Promissory Notes") with KeyBank for an aggregate principal amount of $0.7 million . The indebtedness represents the portion of certain deferred exit fees owed by the Company to KeyBank in connection with the February 2015 repayment of a credit facility with KeyBank. The KeyBank Promissory Notes mature on August 25, 2016 , at which time the entire principal balance of the non-interest-bearing notes then unpaid shall be due. If, prior to the maturity date, certain refinancing agreements are entered into with KeyBank as lender, affiliate of lender, or by an agency financing originated by KeyBank or any affiliate of KeyBank, then and in such an event the entire remaining principal amount of the KeyBank Promissory Notes shall be forgiven.

On April 3, 2015 , the Company entered into five separate unsecured Amended and Restated Promissory Note Agreements with KeyBank, which amend the KeyBank Promissory Notes to include a fifth note with the aggregate principal total of $0.7 million remaining unaltered. The amendments restate the principal balances on the original notes in order to include a fifth facility.

Convertible Debt

Convertible Subordinated Notes Issued in 2012 (the "2012 Notes")

On June 30, 2015, the Company entered into prepayment agreements with Anthony Cantone and Cantone Asset Management, LLC ("CAM") in connection with the Company's 8% Subordinated Convertible Notes due July 31, 2015 issued to them with an aggregate original principal amount of approximately $6.4 million (the "Cantone Notes"). In connection therewith, the Company made principal prepayments in aggregate of approximately $1.5 million with respect to the Cantone Notes. On August 21, 2014, Mr. Cantone and certain of his affiliates filed a Schedule 13G/A with the Securities and Exchange Commission reporting ownership in excess of 5% of the Company’s common stock (see Note 15 - Related Party Transactions and Note 16 - Subsequent Events ).

Convertible Subordinated Notes Issued in 2014 (the "2014 Notes")

On April 30, 2015, the Company repaid the outstanding principal amount of $6.5 million under the 2014 Notes plus all interest accrued and unpaid thereunder.

Convertible Subordinated Notes Issued in 2015 (the "2015 Notes")

On March 31, 2015, the Company entered into Subscription Agreements for $8.5 million of the 2015 Notes with certain accredited investors, including certain holders of the 2014 Notes. In connection therewith, the Company issued approximately $1.7 million in principal amount of 2015 Notes on March 31, 2015 and approximately $6.0 million in principal amount of 2015 Notes on April 30, 2015. Accepted subscriptions for $0.8 million in principal amount of 2015 Notes were not funded by the April 30, 2015 payment deadline, and 2015 Notes were not issued in respect thereof.

The 2015 Notes are convertible at the option of the holder into shares of common stock at an initial conversion price equal to $4.25 per share. If, prior to September 30, 2015, the Company issues or sells any shares of common stock or common stock equivalents (excluding certain excluded securities, as defined in the 2015 Notes) for a consideration per share (the “New Issuance Price”) less than the conversion price then in effect immediately prior to such issuance or sale, then immediately after such issuance or sale the conversion price then in effect shall be reduced to an amount equal to the New Issuance Price (an “Adjustment for Dilutive Issuances”). Notwithstanding the foregoing, no Adjustment for Dilutive Issuances shall be effected to the extent it would cause the number of shares of common stock issued, plus the number of shares of common stock issuable, in respect of all 2015 Notes in the aggregate to exceed 3,850,405 shares of common stock. In addition, the conversion price will be subject to adjustment for any subdivision (by stock dividend, stock split or similar corporation action) or combination (by reverse stock split or similar corporate action) of the common stock.

The Company may prepay at any time, without penalty, upon 60 days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to any 2015 Note; provided, however, that: (i) the shares of common stock issuable upon conversion of any 2015 Note which is to be so prepaid must be: (a) registered for resale under the Securities Act of 1933, as amended (the "Securities Act"); or (b) otherwise sellable under Rule 144 of the Securities Act without volume limitations thereunder; (ii) at any time after the issue date of such 2015 Note, the volume-weighted average price of the common stock for ten consecutive trading days has equaled or exceeded 125% of the then-current conversion price; and (iii) such prepayment may not be effected prior to March 31, 2016.

Table of Contents

The holders holding a majority of the outstanding principal amount with respect to all the 2015 Notes may require the Company to redeem all or any portion of the 2015 Notes upon a change of control (as defined in the 2015 Notes) for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon. In addition, upon a change of control, the Company may redeem all or any portion of the 2015 Notes for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon.

During the existence and continuance of an event of default under a 2015 Note, the outstanding principal amount of such 2015 Note shall incur interest at a rate of 14% per annum, and the holder of such 2015 Note may require the Company to redeem all or any portion of such 2015 Note at a redemption price in cash equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon. An “event of default,” with respect to a 2015 Note includes: (i) the Company’s failure to pay to the holder of such 2015 Note any amount of principal or interest by the seventh business day following the date when due under such 2015 Note; and (ii) specific events of bankruptcy, insolvency, reorganization or liquidation.

In the offering, the Company accepted Subscription Agreements from certain related parties (see Note 15 - Related Party Transactions ).

NOTE 10. DISCONTINUED OPERATIONS

On April 1, 2015, the subleases commenced and operations transferred for four skilled nursing facilities located in Georgia and two skilled nursing facilities located in South Carolina (see Note 7 - Leases ).

On April 29, 2015, a wholly-owned subsidiary of the Company (the “Companions Seller”) entered into an asset purchase agreement (the “Companions Sale Agreement”) with Gracewood Manor, LLC, an Oklahoma limited liability company (the “Companions Purchaser”), to sell Companions, a 102 -bed skilled nursing facility located in Tulsa, Oklahoma. The Companions Sale Agreement may be terminated by the Companions Purchaser for any reason before the 30th day of the due diligence period set forth in the agreement. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions. Pursuant to the Companions Sale Agreement, the sale price of $3.5 million is due to the Companions Seller on the closing date after completion of customary closing conditions. In connection with entering into the Companions Sale Agreement, the Companions Seller and Companions Purchaser entered into an operations transfer agreement to transfer the operations of Companions concurrent with the closing of the asset purchase agreement.

On May 1, 2015, the subleases commenced and operations transferred for seven skilled nursing facilities and one assisted living facility located in Arkansas (see Note 7 - Leases ).

On May 15, 2015, a wholly-owned subsidiary of the Company (the “Bentonville Seller”) entered into an asset purchase agreement (the “Bentonville Sale Agreement”) with Bozeman Development, LLC, a Texas limited liability company (the “Bentonville Purchaser”), to sell Bentonville Manor, a 83 -bed skilled nursing facility located in Bentonville, Arkansas. Upon satisfaction of the due diligence, the transaction closed on July 1, 2015 and the net sales proceeds of $3.4 million were remitted to the Bentonville Seller. In connection with entering into the Bentonville Sale Agreement, the Bentonville Seller and Bentonville Purchaser entered into an operations transfer agreement to transfer the operations of Bentonville Manor concurrent with the closing of the asset purchase agreement.

On June 1, 2015, the sublease commenced and operations transferred for one skilled nursing facility located in North Carolina (see Note 7 - Leases ).

On June 11, 2015, Riverchase Village ADK, LLC, a consolidating variable interest entity of the Company, entered into an asset purchase agreement (the "Riverchase Sale Agreement") with Omega Communities, LLC ("Omega") to sell Riverchase, a 105 -bed assisted living facility located in Hoover, Alabama. The purchase price for the Riverchase facility was $6.8 million and was originally scheduled to close on or before July 31, 2015, subject to the purchaser's right to extend the closing date to August 31, 2015. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions (see Note 16 - Subsequent Events ).

For the discontinued operations, the patient care revenue, related cost of services, and facility rental expense prior to the commencement of subleasing are classified in the activities below. For a historical description of the Company's discontinued entities, see Item 8, Notes to Consolidated Financial Statements - Note 11 - Discontinued Operations , of the Annual Report.

Table of Contents

The following table summarizes the activity of discontinued operations for the three and six months ended June 30, 2015 and 2014 :



	Three Months Ended June 30,					Six Months Ended June 30,
(Amounts in 000’s)	2015			2014		2015			2014
Total revenues from discontinued operations	$	6,182		$	37,532	$	33,822		$	74,004
Net income (loss) from discontinued operations	$	(3,151	)	$	4,075	$	(2,818	)	$	7,713
Interest expense, net from discontinued operations	$	309		$	313	$	616		$	622

On January 21, 2015, the Company listed for sale its two office buildings located on Hembree Road in Roswell, Georgia as part of its transition to a healthcare property holding and leasing company. During the three months ended June 30, 2015 , the Company recognized an impairment charge of approximately $0.1 million to write down the carrying value of its two office buildings located on Hembree Road in Roswell, Georgia. The assets and liabilities of the two Hembree Road buildings have been reclassified to assets and liabilities of disposal groups held for sale as of June 30, 2015 .

Assets and liabilities of the disposal groups held for sale at June 30, 2015 and December 31, 2014 , are as follows:



(Amounts in 000’s)	June 30, 2015		December 31, 2014
Property and equipment, net	$	8,190	$	3,777
Other assets	2,052		2,036
Assets of disposal groups held for sale	$	10,242	$	5,813

Notes payable	$	9,398	$	5,000
Line of credit	—		197
Liabilities of disposal group held for sale	$	9,398	$	5,197

Assets and liabilities of the variable interest entity held for sale at June 30, 2015 and December 31, 2014 , are as follows:



Amounts in (000's)	June 30, 2015		December 31, 2014
Property and equipment, net	$	5,892	$	5,893
Other assets	2		31
Assets of variable interest entity held for sale	$	5,894	$	5,924

Bonds payable	$	5,870	$	5,956
Liabilities of variable interest entity held for sale	$	5,870	$	5,956

NOTE 11. DIVIDENDS AND PREFERRED STOCK

Common Stock Dividends

On March 31, 2015, the Board of Directors declared a cash dividend of $0.05 per share to shareholders of common stock of record as of April 15, 2015. The cash dividend was paid on April 30, 2015.

On June 30, 2015, the Board of Directors declared a cash dividend of $0.055 per share to shareholders of common stock of record as of July 15, 2015. The cash dividend was paid on July 31, 2015.

Preferred Stock

On April 13, 2015, the Company issued and sold 575,000 shares of Series A Preferred Stock in a “best efforts” registered public offering for a public offering price of $25.75 per share. In connection therewith, the Company received net proceeds of $13.8 million , after the payment of underwriting commissions and discounts and other offering expense payable by the Company.

Table of Contents

On June 2, 2015, the Company issued and sold 588,235 shares of Series A Preferred Stock in a “best efforts” registered public offering for a public offering price of $25.50 per share. In connection therewith, the Company received net proceeds of $14.2 million , after the payment of underwriting commissions and discounts and other offering expense payable by the Company.

NOTE 12. STOCK BASED COMPENSATION

For the three and six months ended June 30, 2015 and 2014 , the Company recognized stock-based compensation expense as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in 000’s)	2015		2014		2015		2014
Employee compensation:
Stock options	$	2	$	7	$	45	$	189
Warrants	52		49		85		90
Restricted stock	128		68		191		101
Total employee stock-based compensation expense	$	182	$	124	$	321	$	380
Non-employee compensation:
Board restricted stock	$	36	$	42	$	87	$	226
Board stock options	12		61		24		121
Warrants	—		—		—		11
Total non-employee stock-based compensation expense	$	48	$	103	$	111	$	358
Total stock-based compensation expense	$	229	$	226	$	432	$	738

Stock Incentive Plans

The Company has two employee stock option plans:


•	The 2005 Stock Incentive Plan, which expires September 30, 2015 and provides for a maximum of 578,812 shares of common stock to be issued.


•	The 2011 Stock Incentive Plan, which expires March 28, 2021 and provides for a maximum of 2,152,500 shares of common stock to be issued.

Both plans permit the granting of incentive or nonqualified stock options. The 2011 Stock Incentive Plan also permits the granting of restricted stock. The plans are administered by the Board of Directors which has the authority to determine the employees to whom awards will be made, the amounts of the awards, and the other terms and conditions of the awards. The Company intends to use only the 2011 Stock Incentive Plan to make future grants. The number of securities remaining available for future issuance is 453,923 .

In addition to the Company's stock option plans, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board of Directors and, when appropriate, the Compensation Committee of the Board of Directors. The Board of Directors administers the granting of warrants, determines the persons to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards.

The assumptions used in calculating the fair value of employee common stock options and warrants granted during the six months ended June 30, 2015 and June 30, 2014 , using the Black-Scholes-Merton option-pricing model, are set forth in the following table:



	Six Months Ended June 30,
	2015		2014
Dividend yield	4.76	%	n/a
Expected volatility	38.6	%	51	%
Risk-free interest rate	1.09	%	1.73	%
Expected term	3.9 years		5.2 years

Table of Contents

The weighted-average grant date fair value for the options and warrants granted during the six months ended June 30, 2015 was approximately $0.85 per share.

Common Stock Options

No stock options were awarded during the three and six months ended June 30, 2015 . At June 30, 2015 , there were 774,172 outstanding options to purchase shares of common stock with a weighted average exercise price of $5.11 per share.

Common Stock Warrants

On April 1, 2015 , the Company granted 275,000 warrants to its President and Chief Financial Officer at an exercise price equal to the closing stock price at March 25, 2015 of $4.25 per share. The warrants shall vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date. At June 30, 2015 , there were 2,471,983 outstanding warrants to purchase shares of common stock with a weighted average exercise price of $3.55 per share.

Restricted Stock

On April 1, 2015 , pursuant to the 2011 Stock Incentive Plan, the Company granted 125,000 shares of common stock with a three-year restriction to its President and Chief Financial Officer. The restricted stock shall vest as to one-third of the shares on each of the three subsequent anniversaries of the grant date and has all the rights of a shareholder from the date of grant including, without limitation, the right to receive dividends and the right to vote. The Company determined the fair value of the restricted stock at date of grant to be equal to the closing stock price at March 25, 2015 of $4.25 per share.

On May 12, 2015 , pursuant to the 2011 Stock Incentive Plan, the Company granted 6,157 shares of common stock with a three-year restriction to its Chairman and Chief Executive Officer. The restricted stock vested immediately and has all the rights of a shareholder from the date of grant including, without limitation, the right to receive dividends and the right to vote. The Company determined the fair value of the restricted stock at date of grant to be equal to the grant date closing stock price of $4.06 per share.

At June 30, 2015 , there were 726,672 outstanding shares of restricted stock with a weighted average grant-date fair value of $3.81 per share.

NOTE 13. . VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entity

As further described in Note 15 to our Consolidated Financial Statements in the Annual Report, the Company has one consolidating VIE, Riverchase Village ADK, LLC ("Riverchase") that is required to be consolidated because AdCare has control as primary beneficiary. A “primary beneficiary” is the party that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The following summarizes the assets and liabilities of the variable interest entity included in the consolidated balance sheets:



(Amounts in 000’s)	June 30, 2015			December 31, 2014
Assets of variable interest entity held for sale	5,894			5,924
Other assets	331			343
Total assets	$	6,225		$	6,267

Accounts payable	$	1,907		$	1,923
Accrued expenses	1,126			651
Current portion of notes payable	262			177
Liabilities of variable interest entity held for sale	5,870			5,956
Non-controlling interest	(2,940		)	(2,440		)
Total liabilities and non-controlling interest	$	6,225		$	6,267

Non-consolidated Variable Interest Entities

Table of Contents

On April 30, 2015, the Company entered into the Aria Lease Inducement with Aria Health Consulting, LLC. The Aria Lease Inducement provides for a one-time payment from the Company to Aria Health Consulting, LLC equal to $2.0 million minus the security deposits and first month's base and special rent for all Aria Sublessees. On April 30, 2015, in connection with the Aria Lease Inducement, the eight sublease agreements with Aria Sublessees were amended to, among other things, provide that the Aria Sublessees shall, collectively, pay to the Aria Sublessors special rent in the amount of $29,500 per month payable in advance 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 paid by the Company under the Aria Lease Inducement).

The Aria Lease Inducement entered into by the Company provides subordinated financial support to Aria Health Consulting, LLC and creates a variable interest that may absorb some or all of a variable interest entity’s expected losses. The Company does not consolidate the operating activities of the Aria Sublessees as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance (see Note 7 - Leases and Note 16 - Subsequent Events ).

NOTE 14. COMMITMENTS AND CONTINGENCIES

Regulatory Matters

Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. The Company believes that it is in compliance in all material respects with all applicable laws and regulations.

A significant portion of the Company’s revenue is derived from Medicaid and Medicare, for which reimbursement rates are subject to regulatory changes and government funding restrictions. Any significant future change to reimbursement rates could have a material effect on the Company’s operations.

Legal Matters

The skilled nursing business involves a significant risk of liability due to the age and health of the Company’s patients and residents and the services the Company provides. The Company and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, which may allege that services have resulted in personal injury, elder abuse, wrongful death or other related claims. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.

In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payer. A violation may provide the basis for exclusion from federally funded healthcare programs. As of June 30, 2015 , the Company does not have any material loss contingencies recorded or requiring disclosure based upon the evaluation of the probability of loss from known claims, except as disclosed below.

Oklahoma Facilities

On June 24, 2013, South Star Services, Inc. (“SSSI”), Troy Clanton and Rose Rabon (collectively, the “Plaintiffs”) filed a complaint in the District Court of Oklahoma County, State of Oklahoma against: (i) AdCare, certain of its wholly owned subsidiaries and AdCare’s former Chief Executive Officer (collectively, the “AdCare Defendants”); (ii) Christopher Brogdon (a director of the Company, owner of greater than 5% of the outstanding shares of AdCare Health Systems, Inc. common stock and former Chief Acquisition Officer of the Company) and his wife; and (iii) five entities controlled by Mr. and Mrs. Brogdon, which entities own five skilled-nursing facilities located in Oklahoma that were previously managed by an AdCare subsidiary (the "Oklahoma Facilities"). The complaint alleges, with respect to the AdCare Defendants, that: (i) the AdCare Defendants tortuously interfered with contractual relations between the Plaintiffs and Mr. Brogdon, and with Plaintiffs’ prospective economic advantage, relating to SSSI’s right to manage the Oklahoma Facilities and seven other skilled-nursing facilities located in Oklahoma (collectively, the “Facilities”), respectively; (ii) the AdCare Defendants fraudulently induced the Plaintiffs to perform work and incur expenses with respect to the Facilities; and (iii) one of the AdCare subsidiaries which is an AdCare Defendant provided false and defamatory information to an Oklahoma regulatory authority regarding SSSI’s management of one of the Oklahoma Facilities. The complaint seeks damages against the AdCare Defendants, including punitive damages, in an unspecified amount, as well as costs and expenses, including reasonable attorney fees. On March 7, 2014, the Plaintiffs filed an amended complaint in which they alleged additional facts regarding the alleged fraudulent inducement caused by Mr. and Mrs. Brogdon and the AdCare Defendants.

Table of Contents

On February 10, 2015, Plaintiffs and the defendants participated in a voluntary mediation in an attempt to resolve the case. Although the case did not settle at the mediation, Plaintiffs and defendants continued to negotiate over the following weeks and executed a settlement agreement on March 30, 2015 (the "Clanton Settlement Agreement") to settle all claims for a lump sum payment of $2.0 million . In April 2015, under the Clanton Settlement Agreement, the Company paid $0.6 million to the Plaintiffs with the balance thereof to be paid by two of the Company's insurance carriers. The Company and the other defendants in the matter deny all of the Plaintiff's claims and any wrongdoing but agreed to settle the matter to avoid the continued expense and unpredictability of litigation.

Ohio Facilities

On March 7, 2014, the Company responded to a letter received from the Ohio Attorney General ("OAG") dated February 25, 2014 demanding repayment of approximately $1.0 million as settlement for alleged improper Medicaid payments related to seven Ohio facilities affiliated with the Company. The OAG alleged that the Company had submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws. The Company intends to defend itself against the claims. The Company has not recorded a liability for this matter because the liability, if any, and outcome cannot be determined at this time.

NOTE 15. RELATED PARTY TRANSACTIONS

Settlement and Indemnification Agreement

On March 26, 2015, the Company and certain entities controlled by Christopher Brogdon, a director of the Company and a beneficial owner of 5% of the outstanding common stock, entered into a Settlement and Indemnification Agreement with respect to: (i) certain claims made by the Brogdon entities in connection with management and administrative services provided by the Company to the Brogdon entities under various management agreements; and (ii) certain pending, or threatened, legal proceedings against the Company and certain of its subsidiaries, and Mr. Brogdon and certain entities controlled by him, including the litigation filed in the District Court of Oklahoma County, State of Oklahoma and described in Note 14 - Commitments and Contingencies (collectively, and including any unasserted claims arising from the management agreements, the “AdCare Indemnified Claims”). Pursuant to the Settlement and Indemnification Agreement, the Company agreed to contribute up to $0.6 million towards the settlement of the litigation, and Mr. Brogdon and the Brogdon entities agree to release the Company from any and all claims arising in connection with the management agreements and to indemnify the Company with respect to the AdCare Indemnified Claims.

Riverchase

On June 11, 2015, Riverchase Village ADK, LLC, a consolidating variable interest entity of the Company controlled by Mr. Brogdon, entered into the Riverchase Sale Agreement to sell Riverchase, a 105 -bed assisted living facility located in Hoover, Alabama (see Note 10 - Discontinued Operations and Note 16 - Subsequent Events ).

Personal Guarantor on Loan Agreements

Mr. Brogdon serves as personal guarantor on certain loan agreements totaling $17.9 million entered into by the Company prior to 2015.

Park City Capital

On March 27, 2014, the Company accepted a Subscription Agreement from Park City Capital Offshore Master, Ltd. (“Park City Offshore”), an affiliate of Michael J. Fox, the Lead Director of the Board of Directors, pursuant to which the Company issued to Park City Offshore in March 2014 $1.0 million in principal amount of the 2014 Notes. Mr. Fox is a director of Park City Offshore and a director of the Company and a beneficial owner of 5% of the outstanding common stock. The promissory note was offered to and sold to Park City Offshore on the same terms and conditions as all other buyers in the offering.

On March 31, 2015, the Company accepted a Subscription Agreement from Park City Capital Offshore, for 2015 Notes with an aggregate principal amount of $1.0 million . The 2015 Note was offered to Park City Offshore on the same terms and conditions as all other investors in the offering except the 2015 Note to be issued to Park City Capital Offshore is not subject to any Adjustment for Dilutive Issuances.

Doucet Asset Management, LLC

Table of Contents

On May 5, 2015, Doucet Capital, LLC, Doucet Asset Management, LLC, Christopher L. Doucet and Suzette A. Doucet jointly filed with the SEC a Schedule 13D reporting beneficial ownership of greater than 5% of the common stock.

On March 31, 2015, the Company accepted Subscription Agreements from Christopher L. Doucet and Suzette A. Doucet for 2015 Notes with an aggregate principal amount of $0.3 million . The 2015 Notes were offered to them on the same terms and conditions as all other investors in the offering. With respect to the offering of 2015 Notes, Doucet Asset Management, LLC served as the selected dealer.

Cantone

On June 30, 2015, the Company entered into prepayment agreements with Anthony Cantone and CAM, an affiliate of Mr. Cantone in connection with the Cantone Notes. In connection therewith, the Company made principal prepayments in aggregate of approximately $1.5 million with respect to the Cantone Notes. On August 21, 2014, Mr. Cantone and certain of his affiliates filed a Schedule 13G/A with the SEC reporting ownership in excess of 5% of the Company’s common stock. For a description of certain transactions with Mr. Cantone and his affiliates, see Item 13, Certain Relationships and Related Party Transactions, and Director Independence –Related Party Transactions – Cantone , of the Annual Report (see Note 16 - Subsequent Events ).

NOTE 16. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC. The following is a summary of the material subsequent events.

Common Stock Dividends

On June 30, 2015, the Board of Directors declared a cash dividend of $0.055 per share to shareholders of common stock of record as of July 15, 2015. The cash dividend was paid on July 31, 2015.

Preferred Stock At Market Offering

On July 21, 2015, the Company entered into separate At Market Issuance Sales Agreements (together, the “Sales Agreements”) with each of MLV & Co. LLC and JMP Securities LLC (each, an “Agent” and together, the “Agents”), pursuant to which the Company may offer and sell, from time to time, up to 800,000 shares of Series A Preferred Stock through an “at the market” offering program through the Agents.

Sales of the shares pursuant to the Sales Agreements, if any, may be made in negotiated transactions or any method permitted by Rule 415 under the Securities Act, including sales made directly on the NYSE MKT or sales made to or through a market maker other than on an exchange. The Agents are not required to sell any specific number of shares, but each Agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices and in accordance with the terms set forth in the Sales Agreements. The Company will instruct each Agent as to the number of shares to be sold by it. Additionally, the Company may instruct the Agents not to sell the shares if the sales cannot be effected at or above the price designated by the Company in its instructions to the Agents. On any given day, only one Agent may sell the shares pursuant to the Sales Agreements. Under the Sales Agreements, the applicable Agent will be entitled to compensation of up to 2.0% of the gross sales price of all shares sold through it as Agent.

The Sales Agreements contains customary representations and warranties of the parties and indemnification and contribution under which the Company, on the one hand, and the Agents, on the other hand, have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Arkansas Subleases

On July 17, 2015, a wholly owned subsidiary of the Company (the “Highlands Sublessor”) entered into a sublease agreement pursuant to which the Highlands Sublessor will lease one skilled nursing facility located in Arkansas to an affiliate of Aria Health Group, LLC (the “Highlands Sublessee”). Affiliates of both the Company and Aria Health Group, LLC had entered into a sublease agreement, dated January 16, 2015, for the same facility but it was mutually terminated on April 30, 2015.

The sublease agreement, and the transfer of operations of the facility as contemplated thereby, shall commence on September 1, 2015 and are subject to, among other things, the Highland Sublessee’s receipt of all licenses and other approvals from the State of Arkansas to operate such facility. The sublease agreement is structured as triple net lease wherein the Highlands Sublessee is

Table of Contents

responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2022 and may be renewed once, upon the exercise of the Highlands Sublessee’s option assuming the satisfaction of certain conditions, for an additional five year period. The annual rent under the sublease agreement in the first year will be approximately $600,000 , and the annual rent will escalate by 3% per year through the lease term and any renewal term. In connection with the sublease agreement, the current licensed operator of the facility, a wholly-owned subsidiary of the Highlands Sublessor, and the Highlands Sublessee also entered into an operations transfer agreement with respect to the facility, containing customary terms and conditions relating to the transfer of operations thereof.

On May 1, 2015, the Aria Sublessors leased, and transferred the operations of, eight skilled nursing facilities located in Arkansas to the Aria Sublesses, pursuant to separate sublease agreements dated January 16, 2015. As a condition to the commencement of the sublease agreements on May 1, 2015, the Company agreed to assess in good faith the making of a one-time equitable adjustment to the applicable base rent of each subleased facility. On July 17, 2015, the Company, on behalf of each Aria Sublessor, and HAH, acting on behalf of each Aria Sublessee, entered into a letter agreement whereby the parties agreed to amend the sublease agreements to reflect a onetime equitable adjustment to annual base rent, for the collective benefit of each Aria Sublessee, in the aggregate amount of $360,000 . In consideration for this one-time equitable adjustment in base rent, the parties further agreed that each sublease agreement shall be amended to reflect that base rent after the initial lease year will increase during each subsequent lease year by 3% .

On July 17, 2015, the Company made a short-term loan to HAH and, in connection therewith, HAH executed a promissory note in the amount $1.2 million in favor of the Company. Interest accrues on the unpaid principal balance of the note at a rate of 12.5% per annum. The principal and interest thereon is payable on August 13, 2015. Until all amounts due and owing under the note have been paid, neither the Aria Sublessees nor the Highland Sublessee will pledge, as security, any of the accounts receivable relating to the respective facilities that such entity subleases from the Aria Sublessors or the Highland Sublessor, as applicable. Until all principal and interest under the note is paid, the Company and its affiliates may retain as collateral all funds received by them from Medicare for the benefit of HAH or its affiliates with respect to the properties leased to the affiliates of Aria Health Group, LLC. If the note is not paid in full by the maturity date, then the Company may apply such funds to principal and interest due under the note. The Company is currently in discussions with HAH to extend the maturity date of the loan.

Georgia Leases

On July 1, 2015, a wholly-owned subsidiary (“Glenvue Sublessor”) of the Company entered into a sublease agreement ("Glenvue Agreement") pursuant to which Glenvue Sublessor leased the Facility to C.R. of Glenvue, LLC (the "Glenvue Sublessee") commencing on July 1, 2015. The Glenvue Agreement is structured as triple net lease wherein the Glenvue Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the Glenvue Agreement will expire on June 30, 2020 and has a five year renewal option. The annual cash rent under the sublease agreement in the first year is $1.2 million , and the annual rent will escalate at $12,000 annually through the lease term. The Glenvue Agreement replaces an existing sublease agreement that was originally executed in November 2014.

On July 20, 2015, the Georgia Sublessor entered into a sublease agreement pursuant to which the Georgia Sublessor will lease two skilled nursing facilities located in Georgia (the “Georgia Properties”) to affiliates of Wellington Health Services, L.L.C (collectively, the “Georgia Sublessees”). The sublease agreement is one indivisible lease for the lease of both Georgia Properties, and the terms of the sublease agreement apply to both Georgia Properties collectively as though they are treated as one economic unit. The Wellington Sublessor currently leases the Georgia Properties from a third-party landlord (“Landlord”) under a master lease agreement (the “Master Lease”), and the sublease agreement is subject and subordinate to the Master Lease.

The sublease agreement, and the transfer of operations of the Georgia Properties as contemplated thereby, are subject to, among other things, the Landlord’s consent to the sublease agreement and each Wellington Sublessee’s receipt of all licenses and other approvals from the State of Georgia to operate the applicable Georgia Property. The initial term of the sublease agreement commences as of the date the Wellington Sublessees have obtained all necessary licenses and approvals, subject to certain adjustments. The sublease agreement is structured as a triple net lease wherein the Wellington Sublessees are responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on the tenth anniversary of the commencement date. If the Wellington Sublessor and the Landlord agree to extend the term of the Master Lease, then the Wellington Sublessees have the right to extend the term of the sublease agreement through the end of the applicable renewal term of the Master Lease. The annual rent under the sublease agreement in the first year will be approximately $2.0 million , and shall increase by $5,000 per month in the second year and again by $5,000 per month in the third year. Thereafter, base rent will escalate by 3% per year through the lease term and any renewal term. In connection with the sublease agreement, the Wellington Sublessor and the Wellington Sublessees also entered into operations transfer agreements with respect to the applicable Georgia Properties, containing customary terms and conditions relating to the transfer of operations thereof.

Table of Contents

Ohio Leases

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 would 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”). 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 terms of the sublease agreements for four of the Beacon Facilities known as 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 fifth Beacon Facility, 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.

Bentonville

On July 1, 2015, the Company completed the sale of its Bentonville, Arkansas skilled nursing facility consisting of 83 licensed beds for $3.4 million net of customary closing and certain real property apportionments. Net proceeds were used to repay certain mortgage indebtedness.

Riverchase

On August 6, 2015, Riverchase Village ADK, LLC entered into a First Amendment to Asset Purchase Agreement ("First Amendment") with Omega, which amended the Riverchase Sale Agreement. Under the First Amendment: (i) the closing date of the Riverchase Sale Agreement was extended to August 31, 2015, subject to the purchaser's right to extend the closing date to September 30, 2015, upon completion of conditions set forth in the agreement; (ii) Omega transferred $0.1 million in additional earnest money to Riverchase Village ADK, LLC, to extend the Riverchase Sale Agreement to August 31, 2015; and (iii) the total purchase price, inclusive of the additional earnest money, increased by $0.1 million to $6.9 million.

Gemino-Bonterra Credit Facility

Table of Contents

PrivateBank Credit Facility

On July 30, 2015, the PrivateBank Borrowers entered into the Tenth Modification Agreement with PrivateBank, which modified the PrivateBank Credit Facility. The primary modification pursuant to the Tenth Modification: (i) the outstanding amount owing under the PrivateBank Credit Facility was reduced to $3.8 million , effective July 30, 2015; and (ii) the PrivateBank Borrowers shall not have the right to receive any additional cash borrowings under the PrivateBank Credit Facility.

Companions Specialized Care

On August 12, 2015, a wholly owned subsidiary of the Company entered into a First Amendment with Contemporary, which modified the Contemporary Loan. Under the First Amendment: (i) the outstanding amount owing under the Contemporary Loan was reduced from $5.0 million to $3.0 million ; (ii) restricted assets related to the loan of $2.0 million were used to reduce the outstanding amount owing under the Contemporary Loan, thus eliminating all restricted assets related to the loan; and (iii) the maturity date of the Contemporary Loan was extended from August 20, 2015 to November 20, 2015.

Amendment to Subordinated Convertible Note

On July 30, 2015, the Company and CAM entered into an amendment, effective July 31, 2015, to that certain 8% Subordinated Convertible Note issued by the Company to CAM and due July 31, 2015, with a principal amount as of such date of $4.8 million to, among other things: (i) extend the maturity date with respect to $1.5 million of the principal amount of the note to October 31, 2017; (ii) increase the interest rate from 8.0% to 10.0% per annum; and (iii) increase the conversion price from $3.97 to $4.25 per share.

Additionally, the amendment modifies the Company’s right to prepay the note so that the Company may prepay at any time, without penalty, upon 60 days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to the note; provided, however, that: (i) the shares of the common stock issuable upon conversion of the note have been registered for resale under the Securities Act; (ii) at any time after the issue date of the note, the volume-weighted average price of the common stock for ten consecutive trading days has equaled or exceeded 150% of the then-current conversion price; and (iii) such prepayment may not be effected prior to July 31, 2016. The amendment also affords each of CAM and the Company the right to cause the redemption of all or any portion of the principal amount of the note upon a change of control (as defined in the note) at a redemption price equal to 115% of the sum of (i) outstanding principal amount to be redeemed, plus (ii) the amount of accrued and unpaid interest thereon.

Pursuant to the amendment, the Company paid to Cantone Research, Inc. (“CRI”), an affiliate of CAM, a fee equal to $37,500 . The amendment also amends that certain Consulting Agreement, dated July 2, 2012, between the Company and CRI to: (i) reduce the annual consulting fee payable thereunder to $15,000 and further reduce such fee proportionately upon each repayment, redemption or conversion of the principal amount of the note; and (ii) terminate the Consulting Agreement upon the earlier of October 31, 2017, or the conversion, redemption or prepayment of the entire principal amount of the note.

CAM, CRI and certain of their affiliates, including Anthony J. Cantone, filed with the SEC in August 2014 a Schedule 13D/A reporting beneficial ownership of the Company’s common stock in excess of 5% of the total shares outstanding. For a description of certain arrangements with Mr. Cantone and his affiliates, see “Item 13. Certain Relationships and Related Party Transactions and Director Independence - Related Party Transactions - Cantone” in the Annual Report.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively with AdCare, the “Company” or “we”) own, lease, operate or manage for third-parties skilled nursing and assisted living facilities in the states of Alabama, Arkansas, Georgia, North Carolina, Ohio, Oklahoma and South Carolina.

In July 2014, we announced that the Board of Directors had approved a strategic plan to transition the Company to a healthcare property holding and leasing company. Through a series of leasing and subleasing transactions, we are in the process of transitioning to third-parties the operations of the Company’s currently owned and operated healthcare facilities, which are principally skilled nursing facilities. In furtherance of this strategic plan, the Company is now focused on the ownership, acquisition and leasing of healthcare related properties.

As of June 30, 2015 , we operated or managed fifteen facilities comprised of thirteen skilled nursing facilities, one assisted living facility and one independent living/senior housing facility totaling 1,572 beds. The Company’s facilities provide a range of health care services to patients and residents including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term residents and short-stay patients. As of June 30, 2015 , of the fifteen facilities, we owned and operated nine facilities, leased and operated three facilities, and managed three facilities for third-parties.

As of June 30, 2015 , we also leased fourteen owned and subleased eight leased skilled nursing and rehabilitation facilities and one owned assisted living facility to local third-party operators in the states of Alabama, Arkansas, Georgia, North Carolina and South Carolina.

During the three and six months ended June 30, 2015 , we entered into certain leasing and operations transfer agreements for facilities located in Arkansas, Georgia, North Carolina and South Carolina, which are described below. Subsequent to June 30, 2015 , the Company entered into certain leasing and operations transfer agreements for facilities located in Georgia and Ohio (see Note 16 - Subsequent Events , located in Part I, Item 1., Notes to Consolidated Financial Statements).

The following table provides summary information regarding the number of operational beds at the Company's facilities managed and operated by the Company as of June 30, 2015 (excluding discontinued operations):



		Number of Facilities
State	Number of Operational Beds/Units	Owned	Leased	Managed For Third Parties	Total
Arkansas	129	1	—	—	1
Georgia	541	2	2	—	4
Ohio	705	4	1	3	8
Oklahoma	197	2	—	—	2
Total	1,572	9	3	3	15



Facility Type	Number of Operational Beds/Units	Owned	Leased	Managed For Third Parties	Total
Skilled Nursing	1,409	8	3	2	13
Assisted Living	80	1	—	—	1
Independent Living	83	—	—	1	1
Total	1,572	9	3	3	15

Table of Contents

The following table provides summary information regarding the number of operational beds at our facilities leased and subleased to third parties as of June 30, 2015 :



		Number of Facilities Leased and Subleased to Third-Parties
State	Number of Operational Beds/Units	Owned	Leased	Total
Alabama	304	2	—	2
Arkansas	829	8	—	8
Georgia	1,090	2	8	10
North Carolina	106	1	—	1
South Carolina	180	2	—	2
Total	2,509	15	8	23



Facility Type	Number of Operational Beds/Units	Owned	Leased	Total
Skilled Nursing	2,477	14	8	22
Assisted Living	32	1	—	1
Total	2,509	15	8	23

Liquidity Overview

At June 30, 2015 , we had $15.3 million in cash and cash equivalents as well as restricted cash and investments of $14.4 million . Over the next 12 months, we anticipate both access to and receipt of several sources of liquidity. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, have refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs. During the remainder of 2015, we anticipate positive cash flow from operations as we complete our transition to a healthcare property holding and leasing company and from other working capital changes. At June 30, 2015 , we had $146.3 million in indebtedness of which the current portion is $27.6 million . We anticipate our operating cash requirements in 2015 as being less than in 2014 due to the Company's transition to a healthcare property holding and leasing company. We expect sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next twelve months. We have been successful in recent years in raising new equity capital and believe, based on recent discussions, that these markets will continue to be available to us for raising capital in 2015 and beyond. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness (for a more detailed discussion, see Note 3 - Liquidity and Profitability , located in Part I, Item 1., Notes to Consolidated Financial Statements).

Discontinued Operations

On April 29, 2015, a wholly owned subsidiary of the Company (the “Companions Seller”) entered into an asset purchase agreement (the “Companions Sale Agreement”) with Gracewood Manor, LLC, an Oklahoma limited liability company (the “Companions Purchaser”), to sell Companions, a 102 -bed skilled nursing facility located in Tulsa, Oklahoma. The Companions Sale Agreement may be terminated by the Companions Purchaser for any reason before the 30th day of the due diligence period set forth in the agreement. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions. Pursuant to the Companions Sale Agreement, the sale price of $3.5 million is due to the Companions Seller on the closing date after completion of customary closing conditions. In connection with entering into the Companions Sale Agreement, the Companions Seller and Companions Purchaser entered into an operations transfer agreement to transfer the operations of Companions concurrent with the closing of the asset purchase agreement.

On May 1, 2015, the subleases commenced and operations transferred for seven skilled nursing facilities and one assisted living facility located in Arkansas (see Note 7 - Leases , located in Part I, Item 1., Notes to Consolidated Financial Statements).

Table of Contents

On May 15, 2015, a wholly owned subsidiary of the Company (the “Bentonville Seller”) entered into an asset purchase agreement (the “Bentonville Sale Agreement”) with Bozeman Development, LLC, a Texas limited liability company (the “Bentonville Purchaser”), to sell Bentonville Manor, a 95-bed skilled nursing facility located in Bentonville, Arkansas. Upon satisfaction of the due diligence, the transaction closed on July 1, 2015 and the net sales proceeds of $3.4 million were remitted to the Bentonville Seller. In connection with entering into the Bentonville Sale Agreement, the Bentonville Seller and Bentonville Purchaser entered into an operations transfer agreement to transfer the operations of Bentonville Manor concurrent with the closing of the Bentonville Sale Agreement.

On June 1, 2015, the sublease commenced and operations transferred for one skilled nursing facility located in North Carolina (see Note 7 - Leases , located in Part I, Item 1., Notes to Consolidated Financial Statements).

On June 11, 2015, Riverchase Village ADK, LLC, a consolidating variable interest entity ("VIE") of the Company, entered into an asset purchase agreement (the "Riverchase Sale Agreement") to sell Riverchase, a 105-bed assisted living facility located in Hoover, Alabama. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions (see Note 16 - Subsequent Events , located in Part I, Item 1., Notes to Consolidated Financial Statements).

The following table summarizes the activity of discontinued operations for the three and six months ended June 30, 2015 and 2014 :



	Three Months Ended June 30,					Six Months Ended June 30,
(Amounts in 000’s)	2015			2014		2015			2014
Total revenues from discontinued operations	$	6,182		$	37,532	$	33,822		$	74,004
Net income (loss) from discontinued operations	$	(3,151	)	$	4,075	$	(2,818	)	$	7,713
Interest expense, net from discontinued operations	$	309		$	313	$	616		$	622

Primary Performance Indicators

We own, operate and manage skilled nursing facilities and assisted living facilities, and deliver our services through wholly owned separate operating subsidiaries.

We focus on two primary indicators in evaluating the Company's financial performance. Those indicators are facility occupancy and patient mix. Facility occupancy is critical as higher occupancy generally leads to higher revenues. In addition, concentrating on increasing the number of Medicare covered admissions (“the patient mix”) helps in increasing revenues. We include commercial insurance covered admissions that are reimbursed at the same level as those covered by Medicare in our Medicare utilization percentages and analysis.

Average occupancy rates at all of our facilities, excludes discontinued operations and managed facilities, for the three and six months ended June 30, 2015 and 2014 , were as follows:



	Average Occupancy
	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
All facilities	82.1	%	83.6	%	82.4	%	83.9	%

Patient mix at our eleven skilled nursing facilities, excluding discontinued operations and managed facilities, for the three and six months ended June 30, 2015 and 2014 , was as follows:

Table of Contents



	Patient Mix (SNF only)				Patient Mix (SNF only)
	Three Months Ended June 30,				Six Months Ended June 30,
	All Facilities				All Facilities
	2015		2014		2015		2014
Medicare	14.1	%	14.9	%	14.3	%	14.6	%
Medicaid	69.0	%	70.8	%	68.7	%	70.8	%
Other	16.9	%	14.3	%	17.0	%	14.6	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

On July 31, 2014, the Centers for Medicare and Medicaid Services ("CMS") issued a final rule outlining fiscal year 2015 (which began October 1, 2014) Medicare payment rates for skilled nursing facilities. Based on the changes contained within the rule, CMS estimates that aggregate payments to skilled nursing facilities will increase by $750 million, or 2.0%, from payments in fiscal year 2014 (which began October 1, 2013), which represents a higher update factor than the 1.3% update finalized for skilled nursing facilities in fiscal year 2014. This estimated increase is attributable to a 2.5% market basket increase, reduced by the 0.5 percentage point multifactor productivity adjustment required by law.

On July 30, 2015, CMS issued a final rule outlining fiscal year 2016 (which begins October 1, 2015) Medicare payment rates for skilled nursing facilities. Based on the changes contained within the rule, CMS estimates that aggregate payments to skilled nursing facilities will increase by $430 million, or 1.2%, from payments in fiscal year 2015 (which began October 1, 2014), which represents a lower update factor than the 2.0% update finalized for skilled nursing facilities in fiscal year 2015. This estimated increase is attributable to a 2.3% market basket increase, reduced by a 0.6 percentage point forecast error adjustment and further reduced by the 0.5 percentage point multifactor productivity adjustment required by law.

Medicare reimburses our SNFs under a prospective payment system (“PPS”) for certain inpatient covered services. Under PPS, facilities are paid a predetermined amount per patient, per day, based on the anticipated costs of treating patients. Should future changes in PPS include further reduced rates or increased standards for reaching certain reimbursement levels (including as a result of automatic cuts tied to federal deficit cut efforts or otherwise), our Medicare revenues derived from our skilled nursing facilities could be reduced, with a corresponding adverse impact on our financial condition or results of operations.

We also derive a substantial portion of our consolidated revenue from Medicaid reimbursement, primarily through our skilled nursing business. Medicaid programs are administered by the applicable states and financed by both state and federal funds. Medicaid spending nationally has increased significantly in recent years, becoming an increasingly significant component of state budgets. This, combined with slower state revenue growth and other state budget demands, has led the Federal government to institute measures aimed at both controlling the growth of Medicaid spending and, in some instances, reducing it.

Historically, adjustments to reimbursement under Medicare and Medicaid have had a significant effect on our revenue and results of operations. Recently enacted, pending and proposed legislation and administrative rulemaking at the federal and state levels could have similar effects on our business. Efforts to impose reduced reimbursement rates, greater discounts and more stringent cost controls by government and other payors are expected to continue for the foreseeable future and could adversely affect our business, financial condition and results of operations. Additionally, any delay or default by the Federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and adversely affect our business, financial condition and results of operations.

Average occupancy and reimbursement rates at the Company’s eleven skilled nursing facilities for the three and six months ended June 30, 2015 and 2014 , were as follows:

Table of Contents



	For the Three Months Ended June 30, 2015
State (SNF only)	Operational Beds at Period End (1)	Period's Average Operational Beds	Occupancy (Operational Beds)		Medicare Utilization (Skilled %ADC) (2)		Total Revenues		Medicare (Skilled) $PPD (3)		Medicaid $PPD (3)
Arkansas	129	129	62.6	%	7.9	%	$	1,338	$	452.42	$	153.52
Georgia	541	541	86.4	%	14.3	%	$	9,023	$	446.82	$	162.24
Ohio	293	293	84.9	%	14.2	%	$	5,215	$	442.79	$	167.57
Oklahoma	197	197	75.6	%	17.0	%	$	2,744	$	435.49	$	144.06
Total	1,160	1,160	81.5	%	14.1	%	$	18,320	$	443.88	$	159.81



	For the Three Months Ended June 30, 2014
State (SNF only)	Operational Beds at Period End (1)	Period's Average Operational Beds	Occupancy (Operational Beds)		Medicare Utilization (Skilled %ADC) (2)		Total Revenues		Medicare (Skilled) $PPD (3)		Medicaid $PPD (3)
Arkansas	129	129	59.9	%	7.0	%	$	1,345	$	435.63	$	151.96
Georgia	541	541	90.3	%	14.8	%	$	9,492	$	444.97	$	164.76
Ohio	293	293	83.5	%	14.2	%	$	5,068	$	425.04	$	165.01
Oklahoma	197	197	72.6	%	21.0	%	$	2,919	$	472.49	$	145.13
Total	1,160	1,160	82.2	%	14.9	%	$	18,823	$	445.56	$	161.11



	For the Six Months Ended June 30, 2015
State (SNF only)	Operational Beds at Period End (1)	Period's Average Operational Beds	Occupancy (Operational Beds)		Medicare Utilization (Skilled %ADC) (2)		Total Revenues		Medicare (Skilled) $PPD (3)		Medicaid $PPD (3)
Arkansas	129	129	65.1	%	8.8	%	$	2,794	$	431.65	$	153.49
Georgia	541	541	87.2	%	13.7	%	$	18,311	$	460.16	$	164.41
Ohio	293	293	83.9	%	15.6	%	$	10,470	$	443.53	$	166.54
Oklahoma	197	197	75.5	%	17.3	%	$	5,448	$	436.68	$	144.15
Total/Average	1,160	1,160	82.0	%	14.3	%	$	37,023	$	449.50	$	160.78



	For the Six Months Ended June 30, 2014
State (SNF only)	Operational Beds at Period End (1)	Period's Average Operational Beds	Occupancy (Operational Beds)		Medicare Utilization (Skilled %ADC) (2)		Total Revenues		Medicare (Skilled) $PPD (3)		Medicaid $PPD (3)
Arkansas	129	129	65.2	%	8.3	%	$	2,884	$	424.02	$	152.19
Georgia	541	541	90.7	%	14.0	%	$	19,158	$	463.46	$	164.52
Ohio	293	293	84.3	%	15.2	%	$	10,273	$	434.61	$	164.52
Oklahoma	197	197	70.3	%	19.2	%	$	5,377	$	449.24	$	145.11
Total/Average	1,160	1,160	82.8	%	14.6	%	$	37,692	$	451.02	$	160.92

⁽¹⁾ Excludes managed beds which are not consolidated.

⁽²⁾ ADC is the Average Daily Census.

⁽³⁾ PPD is the Per Patient Day equivalent.

Critical Accounting Policies

We prepare financial statements in accordance with Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. We base estimates on historical experience, business knowledge and on various other assumptions that we believe

Table of Contents

to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change.

During the six months ended June 30, 2015 , we adopted Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08 , which amends the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU is applied prospectively and is effective for the Company for the 2015 annual and interim periods.

Results of Operations

Comparison for the three months ended June 30, 2015 and 2014

The table below summarizes the operating results of continuing operations for the three months ended June 30, 2015 and 2014 :



	Three Months Ended June 30,
(Amounts in 000’s)	2015			2014			Change			Percent Change
Revenues:
Patient care revenues	$	18,865		$	19,467		$	(602	)	(3.1	)%
Management revenues	256			304			(48		)	(15.8	)%
Rental revenues	4,205			296			3,909			1,320.6	%
Total revenues	23,326			20,067			3,259			16.2	%
Expenses:
Cost of services (exclusive of facility rent, depreciation and amortization)	16,862			16,013			849			5.3	%
General and administrative expense	2,513			4,179			(1,666		)	(39.9	)%
Facility rent expense	1,932			923			1,009			109.3	%
Depreciation and amortization	1,797			1,856			(59		)	(3.2	)%
Salary retirement and continuation costs	(39		)	1,282			(1,321		)	(103.0	)%
Total expenses	23,065			24,253			(1,188		)	(4.9	)%

Income (loss) from operations	261			(4,186		)	4,447			(106.2	)%
Other expense:
Interest expense, net	(2,279		)	(2,601		)	322			(12.4	)%
Other expense	(194		)	(83		)	(111		)	—	%
Total other expense, net	(2,473		)	(2,684		)	211			(7.9	)%

Loss from continuing operations before income taxes	(2,212		)	(6,870		)	4,658			(67.8	)%
Income tax benefit (expense)	—			—			—			—	%
Loss from continuing operations	$	(2,212	)	$	(6,870	)	$	4,658		(67.8	)%

Patient Care Revenues —Total patient care revenues decreased by $0.6 million , or 3.1% , for the three months ended June 30, 2015 , as compared with the same period in 2014. The decrease was primarily due to a slight decrease in the skilled nursing facility occupancy rate from 82.2% to 81.5% and a decrease in the skilled nursing facility average Medicare reimbursement rate per patient day from $445.56 to $443.88 , or 0.4% .

Management Revenues — Management revenues decreased by $0.05 million , or 15.8% , for the three months ended June 30, 2015 , as compared with the same period in 2014. The decrease is primarily due to the discontinuance of a management agreement effective as of December 31, 2014.

Rental Revenues — Rental revenues increased by $3.9 million , or 1,320.6% , for the three months ended June 30, 2015 , as compared with the same period in 2014. The increase reflects the Company's continuing transition to a healthcare property holding and leasing company in 2015 and accordingly a greater amount of rental revenue as entities transition and facilities are leased to third parties.

Table of Contents

Cost of Services — Cost of services increased by $0.8 million , or 5.3% , during the three months ended June 30, 2015 , as compared with the same period in 2014. The increase is primarily due to the following: (i) an increase of $0.8 million in bad debt expense; (ii) an increase of $0.3 million in nursing expense; (iii) an increase of $0.2 million in professional liability insurance expense; and (iv) an increase of $0.2 million in pharmacy (Medicare) expense. The increases were offset only by decreases to administration, therapy, and social services of $0.6 million , $0.1 million , and $0.1 million , respectively. Cost of services as a percentage of patient care revenue increased from 82.3% for the three months ended June 30, 2014 , to 89.4% for the three months ended June 30, 2015 .

General and Administrative — General and administrative costs decreased by $1.7 million , or 39.9% , during the three months ended June 30, 2015 , as compared with the same period in 2014. The net decrease is primarily due to the following: (i) a decrease in salaries, wages and employee benefits expense of approximately $1.2 million , partially offset by an increase in contract services expense of approximately $0.2 million ; (ii) a decrease of $0.3 million in legal expenses; and (iii) a decrease of approximately $0.1 million in travel and other reimbursable expenses.

Facility Rent Expense — Facility rent expense increased by $1.0 million , or 109.3% , during the three months ended June 30, 2015 , as compared with the same period in 2014. The increase is primarily due to the treatment of certain facility rent expense as part of continuing operations for the three months ended June 30, 2015 , in connection with the Company's continuing transition to a healthcare property holding and leasing company. Prior to the announcement of the transition plan, certain facility rent expense was classified as part of discontinued operations for the three months ended June 30, 2014 .

Salary retirement and continuation costs — Salary retirement and continuation costs decreased by $1.3 million , or 103.0% , during the three months ended June 30, 2015 , as compared with the same period in 2014 . The decrease reflects the Company's continuing transition to a healthcare property holding and leasing company wherein staff reductions and related severance packages were recognized in 2014 .

Depreciation and Amortization — Depreciation and amortization decreased by $0.06 million , or 3.2% , during the three months ended June 30, 2015 , as compared with the same period in 2014. The decrease is primarily due to certain assets becoming fully depreciated in 2014 and the decrease in capital expenditures for the three months ended June 30, 2015 , as compared with the same period in 2014 .

Interest Expense, net — Interest expense, net decreased by $0.3 million , or 12.4% , during the three months ended June 30, 2015 , as compared with the same period in 2014. The decrease is primarily due to the refinancing of certain loan agreements to more favorable terms and the extinguishment of certain other debt (for further information, see Note 9 - Notes Payable and Other Debt , located in Part I, Item 1., Notes to Consolidated Financial Statements).

Comparison for the six months ended June 30, 2015 and 2014

The table below summarizes the operating results of continuing operations for the six months ended June 30, 2015 and 2014 :

Table of Contents



	Six Months Ended June 30,						Increase (Decrease)
(Amounts in 000’s)	2015			2014			Amount			Percent
Revenues:
Patient care revenues	$	38,088		$	38,944		$	(856	)	(2.2	)%
Management revenues	474			786			(312		)	(39.7	)%
Rental revenues	5,545			593			4,952			835.1	%
Total revenues	44,107			40,323			3,784			9.4	%
Expenses:
Cost of services (exclusive of facility rent, depreciation and amortization)	33,822			31,907			1,915			6.0	%
General and administrative expenses	5,683			8,740			(3,057		)	(35.0	)%
Facility rent expense	3,021			1,855			1,166			62.9	%
Depreciation and amortization	3,473			3,614			(141		)	(3.9	)%
Salary retirement and continuation costs	(47		)	1,282			(1,329		)	—	%
Total expense	45,952			47,398			(1,446		)	(3.1	)%
Income (loss) from operations	(1,845		)	(7,075		)	5,230			(73.9	)%
Other expense:
Interest expense, net	(4,769		)	(5,174		)	(405		)	(7.8	)%
Loss on extinguishment of debt	(680		)	(583		)	97			16.6	%
Other expense	(480		)	(191		)	289			151.3	%
Total other expense, net	(5,929		)	(5,948		)	(19		)	(0.3	)%
Loss from continuing operations before income taxes	(7,774		)	(13,023		)	(5,249		)	(40.3	)%
Income tax expense	(20		)	(8		)	12			150.0	%
Loss from continuing operations	$	(7,794	)	$	(13,031	)	$	(5,237	)	(40.2	)%

Patient Care Revenues —Total patient care revenues decreased by $ 0.9 million , or 2.2% , for the six months ended June 30, 2015 as compared with the same period in 2014 . The decrease was primarily due to a slight decrease in the skilled nursing facility occupancy rate from 82.8% to 82.0% and a decrease in the skilled nursing facility average Medicare reimbursement rate per patient day from $451.02 to $449.50 , or 0.3% .

Management Revenues — Management revenues decreased approximately $0.3 million , or 39.7% , for the six months ended June 30, 2015 , as compared with the same period in 2014 . The decrease is primarily due to the discontinuance of managements agreement effective as of March 1, 2014 and December 31, 2014.

Rental Revenues — Rental revenues increased by $5.0 million , or 835.1% for the six months ended June 30, 2015 , as compared with the same period in 2014. The increase reflects the Company's continuing transition to a healthcare property holding and leasing in 2015 and accordingly a greater amount of rental revenue as entities transition and facilities are leased to third parties.

Cost of Services — Cost of services increased approximately $1.9 , or 6.0% , for the six months ended June 30, 2015 , as compared with the same period in 2014 . The increase is primarily due to the following: (i) an increase of $0.9 million in bad debt expense; (ii) an increase of $0.3 million in nursing expense; (iii) an increase of $0.2 million in insurance expense; and (iv) an increase of $0.2 million in pharmacy (Medicare) expense. The increases were offset only by a decrease to social services of $0.1 million . Cost of services as a percentage of patient care revenue increased from 81.9% for the six months ended June 30, 2014 , to 88.8% for the six months ended June 30, 2015 .

General and Administrative — General and administrative costs decreased by $3.1 million to $ 5.7 million for the six months ended June 30, 2015 , compared with $ 8.7 million for the same period in 2014 . The net decrease is primarily due to the following: (i) a decrease in salaries, wages and employee benefits expense of approximately $2.6 million , partially offset by an increase in contract services expense of approximately $0.7 million ; (ii) a decrease of $0.3 million in legal expenses; and (iii) a decrease of approximately $0.2 million in travel and other reimbursable expenses.

Facility Rent Expense —Facility rent expense for the six months ended June 30, 2015 , increased by approximately $1.1 million to $3.0 million , compared with $1.9 million for the same period in 2014 , respectively. The increase is primarily due to the treatment of certain facility rent expense as part of continuing operations for the six months ended June 30, 2015 , in connection with the

Table of Contents

Company's continuing transition to a healthcare property holding and leasing company. Prior to the announcement of the transition plan, certain facility rent expense was classified as part of discontinued operations for the six months ended June 30, 2014 .

Salary retirement and continuation costs — Salary retirement and continuation costs decreased by $1.3 million , or 103.7% , during the six months ended June 30, 2015 , as compared with the same period in 2014 . The decrease reflects the Company's continuing transition to a healthcare property holding and leasing company wherein staff reductions and related exit packages were recognized in 2014.

Depreciation and Amortization — Depreciation and amortization for the six months ended June 30, 2015 , decreased by $ 0.1 million to $3.5 million , compared with $ 3.6 million for the same period in 2014 . The decrease is primarily due to certain assets becoming fully depreciated in 2014 and the decrease in capital expenditures for the six months ended June 30, 2015 , as compared with the same period in 2014

Interest Expense, net — Interest expense, net decreased by $ 0.4 million , or 7.8% , to $ 4.8 million for the six months ended June 30, 2015 , compared with $ 5.2 million for the same period in 2014 . The decrease is primarily due to the refinancing of certain loan agreements to more favorable terms and the extinguishment of certain other debt (for further information, see Note 9 - Notes Payable and Other Debt , located in Part I, Item 1., Notes to Consolidated Financial Statements).

Loss on Extinguishment of Debt — The Company recognized a loss on extinguishment of debt of approximately $0.7 million for the six months ended June 30, 2015 , compared with approximately $0.6 million for the same period in 2014 . The $0.7 million loss is due to the February 2015 issuance of promissory notes related to the refinancing of certain loan agreements with one of our lenders (for further information, see Note 9 - Notes Payable and Other Debt , located in Part I, Item 1., Notes to Consolidated Financial Statements).

Other Expense — The Company recognized approximately $0.5 million of other expense for the six months ended June 30, 2015 , compared with approximately $0.2 million for the same period in 2014 . The increase is primarily due to additional costs associated with the Company's continuing transition to a healthcare property holding and leasing company and legal fees associated with ongoing litigation matters.

Income Tax Expense — The Company recognized income tax expense of approximately $0.02 million for the six months ended June 30, 2015 , compared with approximately $0.01 million for the same period in 2014 . The increase of $0.01 million is primarily due to the submission of additional filing extensions related to the 2014 tax year.

Liquidity and Capital Resources

Sources of Liquidity

At June 30, 2015 , we had one facility, three office buildings and one VIE held for sale that we anticipate selling in 2015. We expect that the cash proceeds and the release of restricted cash on the sale of the VIE and the sale of the one facility will be approximately equivalent to the related debt obligations. We expect that the cash proceeds from the sale of the office buildings will exceed related debt obligations by approximately $0.6 million .

We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, have refinanced short-term acquisition debt, including seller notes, with traditional long-term mortgage notes, some of which have been executed under government guaranteed lending programs.

During the remainder of 2015, we anticipate net proceeds of approximately $1.6 million on refinancing of existing debt, primarily in the fourth quarter of 2015, subject to approval by the United States Department of Housing and Urban Development.

We maintain two revolving lines of credit for which we have limited remaining capacity. All balances on these lines of credit are expected to be repaid in 2015. Given the Company's ongoing transition out of healthcare operations, we do not anticipate any additional draws on these credit lines.

On April 13, 2015, we issued and sold 575,000 shares of Series A Cumulative Redeemable Preferred Stock, no par value per share and liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in a “best efforts” registered public offering for

Table of Contents

a public offering price of $25.75 per share. In connection therewith, we received net proceeds of $13.8 million , after the payment of underwriting commissions and discounts and other offering expenses payable by the Company.

On June 2, 2015, we issued and sold 588,235 shares of Series A Preferred Stock in a “best efforts” registered public offering for a public offering price of $25.50 per share. In connection therewith, we received net proceeds of approximately $14.2 million after the payment of underwriting commissions and discounts and other offering expenses payable by the Company (see Note 11 - Dividends and Equity , located in Part I, Item 1., Notes to Consolidated Financial Statements).

On July 21, 2015, we entered into separate at market issuance sales agreements with two sales agents, pursuant to which we may offer and sell, from time to time, up to 800,000 shares of Series A Preferred Stock through an “at the market” offering program (see Note 16 - Subsequent Events , located in Part I, Item 1., Notes to Consolidated Financial Statements).

On July 30, 2015, we entered into an amendment, effective July 31, 2015, to a certain 8% subordinated convertible note issued by the Company and due July 31, 2015, with a then-current principal amount of $4,847,000 , to, among other things: (i) extend the maturity date of such note with respect to $1,500,000 of its principal amount to October 31, 2017; (ii) increase the interest rate from 8.0% to 10.0% per annum; and (iii) increase the conversion price from $3.97 to $4.25 per share (see Note 9 - Notes Payable and Other Debt, Note 15 - Related Party Transactions and Note 16 - Subsequent Events , each of which is located in Part I, Item 1., Notes to Consolidated Financial Statements).

Other liquidity sources include to a lesser extent, the proceeds from the exercise of options and warrants.

Cash Requirements

At June 30, 2015 , we had $146.3 million in indebtedness of which the current portion was $27.6 million . This current portion is comprised of: (i) convertible debt of approximately $4.5 million ; (ii) debt of held for sale entities of approximately $15.3 million , which is primarily senior debt - bond and mortgage indebtedness; and (iii) remaining debt of approximately $7.8 million which includes revolver debt, senior debt - bonds, and senior debt - mortgage indebtedness (for a complete debt listing and credit facility detail, see Note 9 - Notes Payable and Other Debt , located in Part I, Item 1., Notes to Consolidated Financial Statements).

The current debt maturing in 2015 for all other debt approximates $7.8 million . As indicated previously, we routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, have refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs.

We anticipate net principal disbursements of approximately $9.8 million over the next twelve months which reflect the offset of anticipated proceeds on refinancing of approximately $2.5 million . We anticipate operating cash requirements in 2015 as being less than in 2014 due to the Company's transition to a healthcare property holding and leasing company. Based on the described sources of liquidity and related cash requirements, we expect sufficient funds for its operations, scheduled debt service, and capital expenditures at least through the next twelve months. On a longer term basis, at June 30, 2015, we have approximately $64.2 million of debt maturities due over the next two-year period, ending June 30, 2017, excluding convertible notes which are convertible into shares of common stock. We have been successful in recent years in raising new equity capital and believe, based on recent discussions, that these markets will continue to be available to us for raising capital in 2015 and beyond. We believe the Company's long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.

In order to satisfy the Company's capital needs, we seek to:(i) improve operating results through a series of leasing and subleasing transactions with favorable terms and consistent and predictable cash flow; (ii) expand borrowing arrangements with certain lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities on terms favorable to the Company. We anticipate that these actions, if successfully executed, will provide the opportunity to maintain liquidity on a short-and-long term basis, thereby permitting the Company to meet our operating and financing obligations for the next twelve months. However, there is no guarantee that such actions will be successful or that anticipated operating results or the transition of the Company to primarily a property holding and leasing company will be achieved. We currently have limited borrowing availability under our existing revolving credit facilities.

Table of Contents

Cash Flows

The following table presents selected data from our consolidated statement of cash flows for the periods presented:



	Six Months Ended June 30,
(Amounts in 000’s)	2015			2014
Net cash used in operating activities - continuing operations	$	(6,402	)	$	(11,246	)
Net cash provided by (used in) operating activities - discontinued operations	(2,275		)	2,708
Net cash provided by (used in) investing activities - continuing operations	(4,908		)	5,640
Net cash used in investing activities - discontinued operations	(1,408		)	(1,585		)
Net cash provided by (used in) financing activities - continuing operations	19,608			(3,711		)
Net cash used in financing activities - discontinued operations	(10		)	(33		)
Net change in cash and cash equivalents	4,605			(8,227		)
Cash and cash equivalents at beginning of period	10,735			19,374
Cash and cash equivalents at end of period	$	15,340		$	11,147

Six Months Ended June 30, 2015

Net cash used by operating activities —continuing operations for the six months ended June 30, 2015 , was approximately $ 6.4 million , consisting primarily of our loss from operations less changes in working capital, and noncash charges (primarily depreciation and amortization, share-based compensation, rent expense in excess of cash paid, and amortization of debt discounts and related deferred financing costs) all primarily the result of routine operating activity. Net cash used in operating activities—discontinued operations was approximately $2.3 million .

Net cash used by investing activities —continuing operations for the six months ended June 30, 2015 , was approximately $ 4.9 million . This is primarily the result of a increase in restricted cash deposits of approximately $4.2 million and capital expenditures of approximately $0.7 million . Net cash used in investing activities—discontinued operations was approximately $1.4 million related to restricted cash changes and capital expenditures.

Net cash provided by financing activities —continuing operations was approximately $ 19.6 million for the six months ended June 30, 2015 . This is primarily the result of cash proceeds received from preferred stock issuances and additional debt borrowings. These proceeds were offset primarily by repayments of existing debt obligations and payments of dividends. Net cash used in financing activities—discontinued operations was $0.01 million .

Six Months Ended June 30, 2014

Net cash used in operating activities —continuing operations for the six months ended June 30, 2014 , was $ 11.2 million , consisting primarily of our loss from operations less changes in working capital, and noncash charges (primarily depreciation and amortization, share-based compensation, rent expense in excess of cash paid, and amortization of debt discounts and related deferred financing costs) all primarily the result of routine operating activity. Net cash provided by operating activities—discontinued operations was approximately $2.7 million.

Net cash provided by investing activities —continuing operations for the six months ended June 30, 2014 , was approximately $ 5.6 million . This is primarily the result of a decrease in restricted cash deposits of approximately $7.3 million while offset by capital expenditures of approximately $1.6 million . Net cash used in investing activities—discontinued operations was approximately $1.6 million related to restricted cash changes and capital expenditures.

Net cash used in financing activities —continuing operations was approximately $ 3.7 million for the six months ended June 30, 2014 . This is primarily the result of cash proceeds received from additional debt borrowings, partially offset by repayments of existing debt obligations and payments of preferred stock dividends. Net cash used in financing activities—discontinued operations was $0.03 million .

Notes Payable and Other Debt

Table of Contents

For information regarding the Company's debt financings, please refer to Note 9 - Notes Payable and Other Debt , located in Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Receivables

The Company’s operations could be adversely affected if we experience significant delays in: (i) reimbursement from Medicare, Medicaid or other third-party revenue sources; or (ii) collection of rent from third-party operators. As the Company continues its transition to a healthcare property holding and leasing company, our operations will become less dependent upon patient care reimbursements and increasingly dependent upon the collection of rent. The Company’s future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash and patient accounts receivable) and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on our liquidity.

Accounts receivable totaled $16.7 million at June 30, 2015 , compared to $24.3 million at December 31, 2014 , representing approximately 53 and 44 days of revenue in accounts receivable as of June 30, 2015 and December 31, 2014 , respectively.

The allowance for doubtful accounts was $10.9 million and $6.7 million at June 30, 2015 and December 31, 2014 , respectively. We continually evaluate the adequacy of our bad debt reserves based on patient mix trends, aging of older balances, payment terms and delays with regard to third-party payors, as well as other factors. We continue to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts.

Inflation

We have historically derived a substantial portion of our revenue from the Medicare program. We also derive revenue from state Medicaid and similar reimbursement programs. Payments under these programs generally provide for reimbursement levels that are adjusted for inflation annually based upon the state’s fiscal year for the Medicaid programs and in each October for the Medicare program. These adjustments may not continue in the future, and even if received, such adjustments may not reflect the actual increase in our costs for providing healthcare services.

Labor and supply expenses make up a substantial portion of our cost of services. Those expenses can be subject to increase in periods of rising inflation and when labor shortages occur in the marketplace. To date, we have generally been able to implement cost control measures or obtain increases in reimbursement sufficient to offset increases in these expenses. We may not be successful in offsetting future cost increases.

Off-Balance Sheet Arrangements

There were $3.8 million of outstanding letters of credit at both June 30, 2015 and December 31, 2014 . For the period ended June 30, 2015 , the outstanding letter of credit were fully collateralized with restricted cash deposits. For the period ended December 31, 2014 , the outstanding letters of credit were fully collateralized with accounts receivable.

Operating Leases

We lease a total of eleven skilled nursing facilities under non-cancelable operating leases, most of which have initial lease terms of ten to twelve years with rent escalation clauses and provisions for payments by the Company of real estate taxes, insurance and maintenance costs; three of the skilled nursing facilities that are leased are also operated by the Company. We also lease certain office space with similar provisions as the aforementioned skilled nursing facility leases.

Table of Contents

in equity. The Company does not believe that it is in default under the Prime Lease and is in discussions with the landlord regarding the matter.

Two of the Company's facilities are operated under a single indivisible lease; therefore, a breach at a single facility could subject the second facility to the same default risk. The lease has an initial term of twelve years into 2022 and two optional ten -year renewal terms, and includes covenants and restrictions. We are required to make minimum capital expenditures of $375 per licensed bed per lease year at each facility which amounts to $0.1 million per year for both facilities. As of June 30, 2015 , we are in compliance with all financial and administrative covenants of this lease agreement.

Future minimum lease payments for each of the next five years ending December 31 , are as follows:



	(Amounts in 000's)
2015 ^(a)	$	4,000
2016	7,980
2017	8,062
2018	8,188
2019	7,861
Thereafter	8,279
Total	$	44,370

^(a) Estimated minimum lease payments for the year ending December 31, 2015 , include only payments to be recorded after June 30, 2015 .

We have also entered into lease agreements for various equipment used in the facilities. These leases are included in future minimum lease payments above.

Leased and Subleased Facilities to Third-Party Operators

Future minimum lease receivables from the Company’s facilities leased and subleased to third party operators for each of the next five years ending December 31 , are as follows:



	(Amounts in 000's)
2015 ^(a)	$	10,273
2016	21,146
2017	21,596
2018	22,030
2019	21,753
Thereafter	75,834
Total	$	172,632

^(a) Estimated minimum lease receivables for the year ending December 31, 2015 , include only payments to be received after June 30, 2015 .

For further details regarding the Company's leased and subleased facilities to third-party operators, see below and also Note 16 - Subsequent Events , located in Part I, Item 1., Notes to Consolidated Financial Statements and Note 7 - Leases included in the Annual Report.

Arkansas Leases

On January 16, 2015, ten wholly owned subsidiaries (each, an “Aria Sublessor”) of the Company entered into separate sublease agreements pursuant to which each Aria Sublessor leases one of ten skilled nursing facilities located in Arkansas, and owned by a subsidiary of AdCare, to an affiliate of Aria Health Group, LLC (each, an "Aria Sublessee"), which subleases were originally scheduled to commence on March 1, 2015, subject to, among other things: (i) such Aria Sublessee’s receipt of all licenses and

Table of Contents

other approvals from the State of Arkansas to operate such facility; and (ii) approval of the mortgage lender with respect to such facility. Each sublease agreement is structured as triple net lease wherein the Aria Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease.

Georgia Leases

Table of Contents

Park Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease agreement is structured as triple net lease wherein the College Park Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2020 and has a five year renewal option. The annual rent under the sublease agreement in the first year will approximate $0.6 million annually, and the annual rent will escalate at $12,000 annually through the lease term. The sublease commenced on April 1, 2015 . In connection with the sublease agreements, the current licensed operator (wholly-owned subsidiary of College Park Sublessor) and the College Park 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.

On March 17, 2015 , a wholly owned subsidiary (“LaGrange Sublessor”) of the Company entered into a sublease agreement pursuant to which LaGrange Sublessor leases one skilled nursing facility located in Georgia, to affiliates of C.R. of LaGrange, LLC (the "LaGrange Sublessee") The sublease agreement was subject to, among other things, the LaGrange Sublessee's receipt of all licenses and other approvals from the State of Georgia to operate such facility. The sublease commenced on April 1, 2015 . The facilities are currently leased by LaGrange Sublessor, as tenant, pursuant to the Prime Lease. The sublease agreement is structured as triple net lease wherein the LaGrange Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on July 31, 2020 coterminous with the Prime Lease. If LaGrange Sublessor and landlord agree to extend the term of the Prime Lease, LaGrange Sublessee has the right to extend the term of the sublease agreements through the end of the renewal term of the Prime Lease. The annual rent under the sublease agreement in the first two years will approximate $1.0 million annually, and the annual rent will escalate at 3.0% annually through the lease term. In connection with the sublease agreements, the current licensed operators (wholly-owned subsidiaries of LaGrange Sublessor) and the LaGrange 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.

North Carolina and South Carolina Leases

Table of Contents

agreement for the skilled nursing facility located in North Carolina (the "Related Lease") to June 1, 2015 ; and (ii) included a 20% monthly base rent and asset management and professional services fee escalation provision for each of the two skilled nursing facilities located in South Carolina that will take immediate effect if the Related Lease does not commence by June 1, 2015 .

The subleases for the two South Carolina and one North Carolina skilled nursing facilities commenced on April 1, 2015 and June 1, 2015 , respectively.

Oklahoma Leases


▪	Quail Creek Nursing Home, a 109 -bed skilled nursing facility located in Oklahoma City, OK.


▪	Northwest Nursing Center, an 88 -bed skilled nursing facility located in Oklahoma City OK.

The leases commence on October 1, 2015, subject to, among other things: (i) such Sublessee’s receipt of all licenses and other approvals from the State of Oklahoma to operate such facility; and (ii) approval of the mortgage lender with respect to such facility. Each sublease agreement is structured as triple net lease wherein the Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. Pursuant to each sublease agreement, the initial lease term is ten years with two separate renewal terms of five years each. The annual cash rent under all of the sublease agreements in the first year will be $0.96 million and will escalate thereafter on an annual basis through the initial term and any renewal terms. The sublease agreements are cross-defaulted. In connection with entering into the sublease agreements, each Sublessor and Sublessee also entered into an operations transfer agreement with respect to the applicable facilities, each containing customary terms and conditions.

Adjusted EBITDA from continuing operations

Due to the material amount of non-cash related items included in the Company’s results of operations, we have developed an Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA from continuing operations”) metric which provides management with a clearer view of operational uses of cash (see the table below).

“Adjusted EBITDA from continuing operations” is a measure of operating performance that are not calculated in accordance with GAAP. We define “Adjusted EBITDA from continuing operations” as net income (loss) from continuing operations before interest expense, income tax expense, depreciation and amortization (including amortization of non-cash stock-based compensation), loss on extinguishment of debt, and other non-routine adjustments. We have provided below supplemental financial disclosure for these measures, including the most directly comparable GAAP measure (Net Loss) and an associated reconciliation.

Table of Contents

The following table provides reconciliation of reported Net Loss on a GAAP basis to Adjusted EBITDA from continuing operations for the three and six months ended June 30, 2015 and 2014 :



	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in 000’s)	2015			2014			2015			2014
Condensed Consolidated Statements of Operations Data:
Net loss	$	(5,363	)	$	(2,795	)	$	(10,612	)	$	(5,318	)
Discontinued operations	3,151			(4,075		)	2,818			(7,713		)
Net loss from continuing operations (Per GAAP)	(2,212		)	(6,870		)	(7,794		)	(13,031		)
Add back:
Interest expense, net	2,279			2,601			4,769			5,174
Income tax expense	—			—			20			8
Amortization of stock based compensation	229			226			432			738
Depreciation and amortization	1,797			1,856			3,473			3,614
Loss on extinguishment of debt	—			—			680			583
Other adjustments	70			84			225			193
New business model expenses	123			—			255			—
Salary retirement and continuation costs	(39		)	1,282			(47		)	1,282
Adjusted EBITDA from continuing operations	$	2,247		$	(821	)	$	2,013		$	(1,439	)

Adjusted EBITDA from continuing operations should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by, or used in, operations as determined in accordance with GAAP.

We believe Adjusted EBITDA from continuing operations is useful to investors in evaluating the Company’s performance, results of operations and financial position for the following reasons:


•	It is helpful in identifying trends in the Company’s day-to-day performance because the items excluded have little or no significance to the Company’s day-to-day operations;


•	It provides an assessment of controllable expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and


•	It provides data that assists management determine whether or not adjustments to current spending decisions are needed.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Disclosure in response to Item 3. of Form 10-Q is not required to be provided by smaller reporting companies.

Table of Contents

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the "Evaluation Date"). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Table of Contents

Part II. Other Information

Item 1. Legal Proceedings.

There are no material developments other than disclosed as previously reported in: (i) the section entitled "Note to Consolidated Financial Statements, Note 14 - Commitments and Contingencies " of this Quarterly Report and "Note to Consolidated Financial Statements, Note 20 - Subsequent Events" of the Annual Report.

Item 1A. Risk Factors.

Disclosure in response to Item 1A of Form 10-Q is not required to be provided by smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended June 30, 2015 , the Company issued to one current director 5,151 and 5,151 shares of common stock upon exercise of warrants with exercise prices of $1.04 and $1.93, respectively. During the three months ended June 30, 2015 , the Company issued to one former director 58,884 shares of common stock upon exercise of warrants with an exercise price of $1.04. The warrants were originally issued to the recipients in November 2007, and subsequently amended in November 2009, as partial compensation for service to the Company. The shares of common stock were issued without registration under the Securities Act in reliance upon the exemption from the registration requirements of Section 4(a)(2) of the Securities Act. The Company based such reliance upon, among other things, the isolated and private nature of the transaction and upon the recipients’ status and relationship to the Company and representations made by them regarding investment intent, sophistication, and access to information.

For additional information on the Company’s outstanding options and warrants, see Note 12 - Stock Based Compensation , located in Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Companions Specialized Care

In August 2012, a wholly owned subsidiary of the Company financed the acquisition of Companions by entering into a loan agreement for $5.0 million ("Contemporary Loan") with Contemporary Healthcare Capital LLC ("Contemporary"). The loan originally matured on August 20, 2015 with a required final payment of $5.0 million and accrues interest at a fixed rate of 8.5% per annum.

On August 12, 2015, a wholly owned subsidiary of the Company entering into a First Amendment to Promissory Note (the "First Amendment") with Contemporary, which modified the Contemporary Loan. Under the First Amendment: (i) the outstanding amount owing under the Contemporary Loan was reduced from $5.0 million to $3.0 million ; (ii) restricted assets related to the loan of $2.0 million were used to reduce the outstanding amount owing under the Contemporary Loan, thus eliminating all restricted assets related to the loan; and (iii) the maturity date of the Contemporary Loan was extended from August 20, 2015 to November 20, 2015.

Riverchase

On June 11, 2015, Riverchase Village ADK, LLC, a consolidating variable interest entity of the Company, entered into an asset purchase agreement (the "Riverchase Sale Agreement") with Omega Communities, LLC ("Omega") to sell Riverchase, a 105 -bed assisted living facility located in Hoover, Alabama. The purchase price for the Riverchase facility was $6.8 million and was originally scheduled to close on or before July 31, 2015 subject to the purchaser's right to extend the closing date to August 31, 2015. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions.

Table of Contents

Riverchase is controlled by Christopher Brogdon, a director of the Company and a beneficial owner of 5% of the outstanding common stock. For information about Mr. Brogdon's relationship with the Company, see Note 15 - Related Party Transactions , located in Part I, Item 1., Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q and Part III, Item 13., Certain Relationships and Related Transactions, and Director Independence - Related Party Transactions included in the Annual Report.

Item 6. Exhibits.

The agreements included as exhibits to this Quarterly Report are included to provide information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company, its business or the other parties to these agreements. These agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:


•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;


•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;


•	may apply standards of materiality in a way that is different from what may be viewed as material to investors; and


•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.

Table of Contents

EXHIBIT INDEX



Exhibit No.	Description	Method of Filing

2.1	Asset Purchase Agreement, dated March 17, 2015, by and between CSCC Property Holdings, LLC, and Gracewood Manor, LLC	Incorporated by reference to Exhibit 10.401 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
2.2	First Amendment to Asset Purchase Agreement, dated May 19, 2015, by and between CSCC Property Holdings, LLC, and Gracewood Manor, LLC	Filed herewith
2.3	Purchase and Sale Agreement, dated May 15, 2015, by and between Benton Property Holdings, LLC and Bozeman Development, LLC.	Filed herewith
3.1	Declaration of Conversion of AdCare Health Systems, Inc., an Ohio corporation, to AdCare Health Systems, Inc., a Georgia corporation	Incorporated by reference to Appendix A of the Registrant’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on October 29, 2013
3.2	Certificate of Conversion of AdCare Health Systems, Inc.	Incorporated by reference to Exhibit 3.2 of the Registrant’s Current report on Form 8-K filed on December 18, 2013
3.3	Certificate for Conversion for Entities Converting Within or Off the Records of the Ohio Secretary of State.	Incorporated by reference to Exhibit 3.1 of the Registrant’s Current report on Form 8-K filed on December 18, 2013
3.4	Articles of Incorporation of AdCare Health Systems, Inc., filed with the Secretary of State of the State of Georgia on December 12, 2013	Incorporated by reference to Exhibit 3.3 of the Registrant’s Current report on Form 8-K filed on December 27, 2013
3.5	Articles of Correction to Articles of Incorporation of AdCare Health Systems, Inc., filed with the Secretary of State of the State of Georgia on December 12, 2013.	Incorporated by reference to Exhibit 3.1 of the Registrant’s Current report on Form 8-K filed on December 27, 2013
3.6	Bylaws of AdCare Health Systems, Inc.	Incorporated by reference to Exhibit 3.4 of the Registrant’s Current report on Form 8-K filed on December 27, 2013
3.7	Amendment No. 1 to the Bylaws of AdCare Health Systems, Inc.	Incorporated by reference to Exhibit 3.7 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
3.8	Articles of Amendment to the Articles of Incorporation of AdCare Health Systems, Inc., as amended, filed with the Secretary of State of the State of Georgia on April 7, 2015.	Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on April 13, 2015
3.9	Articles of Amendment to the Articles of Incorporation of AdCare Health Systems, Inc., as amended, filed with the Secretary of State of the State of Georgia on May 28, 2015	Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on June 2, 2015
4.1	Registration Rights Agreement, dated March 31, 2015, by and among AdCare Health Systems, Inc. and the Purchasers of the Company’s 10% Convertible Subordinated Notes Due April 30, 2017	Incorporated by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
4.2	Form of 10% Convertible Subordinated Notes Due April 30, 2017	Incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
4.3	Form of 10% Convertible Subordinated Notes Due April 30, 2017 (Affiliate Form)	Filed herewith
10.1	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC	Incorporated by reference to Exhibit 99.12 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.2	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC	Incorporated by reference to Exhibit 99.13 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.3	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC	Incorporated by reference to Exhibit 99.14 of the Registrant's Current Report on Form 8-K filed on May 6, 2015

Table of Contents



10.4	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC	Incorporated by reference to Exhibit 99.15 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.5	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC	Incorporated by reference to Exhibit 99.16 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.6	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC	Incorporated by reference to Exhibit 99.17 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.7	First Amendment to Sublease Agreement, dated February 27, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC	Incorporated by reference to Exhibit 99.18 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.8	First Amendment to Sublease Agreement, dated February 27, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC	Incorporated by reference to Exhibit 99.19 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.9	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC	Incorporated by reference to Exhibit 99.20 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.10	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC	Incorporated by reference to Exhibit 99.21 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.11	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC	Incorporated by reference to Exhibit 99.22 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.12	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC	Incorporated by reference to Exhibit 99.23 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.13	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC	Incorporated by reference to Exhibit 99.24 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.14	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC	Incorporated by reference to Exhibit 99.25 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.15	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC	Incorporated by reference to Exhibit 99.26 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.16	Second Amendment to Sublease Agreement, dated March 31, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC	Incorporated by reference to Exhibit 99.27 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.17	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC	Incorporated by reference to Exhibit 99.28 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.18	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC	Incorporated by reference to Exhibit 99.29 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.19	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC	Incorporated by reference to Exhibit 99.30 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.20	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC	Incorporated by reference to Exhibit 99.31 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.21	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC	Incorporated by reference to Exhibit 99.32 of the Registrant's Current Report on Form 8-K filed on May 6, 2015

Table of Contents



10.22	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC	Incorporated by reference to Exhibit 99.33 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.23	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC	Incorporated by reference to Exhibit 99.34 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.24	Third Amendment to Sublease Agreement, dated April 30, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC	Incorporated by reference to Exhibit 99.35 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.25	Amended and Restated Promissory Note for exit fees (Cumberland), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association	Incorporated by reference to Exhibit 10.25 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.26	Amended and Restated Promissory Note for exit fees (Northridge), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association	Incorporated by reference to Exhibit 10.26 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.27	Amended and Restated Promissory Note for exit fees (River Valley), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association	Incorporated by reference to Exhibit 10.27 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.28	Amended and Restated Promissory Note for exit fees (Sumter Valley), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association	Incorporated by reference to Exhibit 10.28 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.29	Promissory Note for exit fees (Stone County), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association	Incorporated by reference to Exhibit 10.29 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.30	Eighth Amendment to Credit Agreement, dated March 25, 2015, by and among ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC	Incorporated by reference to Exhibit 10.30 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.31	Fifth Amendment to Credit Agreement, dated March 25, 2015, by and among NW 61ST Nursing, LLC, Georgetown HC&R Nursing, LLC, Sumter N&R, LLC and Gemino Healthcare Finance, LLC	Incorporated by reference to Exhibit 10.31 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.32	Ninth Modification Agreement to Loan and Security Agreement, dated May 1, 2015, by and among ADK Lumber City Operator, LLC, ADK LaGrange Operator, LLC , ADK Powder Springs Operator, LLC, ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC , Mountain Trace Nursing ADK, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Coosa Nursing ADK, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.	Incorporated by reference to Exhibit 10.32 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.33	Eighth Modification Agreement to Loan and Security Agreement, dated as of April 1, 2015 by and among ADK Lumber City Operator, LLC, ADK Lagrange Operator, LLC , ADK Powder Springs Operator, LLC , ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC , Mountain Trace Nursing ADK, LLC, Mt. Kenn Nursing, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Glenvue H&R Nursing, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.	Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on April 7, 2015
10.34	Sublease Agreement, dated April 1, 2015, by and between ADK Georgia, LLC and C.R. of Lagrange, LLC	Incorporated by reference to Exhibit 99.10 of the Registrant's Current Report on Form 8-K filed on April 7, 2015
10.35	Sublease Agreement, dated as of January 16, 2015, by and among Woodland Hills HC Property Holdings, LLC, Woodland Hills HC Nursing, LLC and Highlands of Little Rock Riley, LLC	Incorporated by reference to Exhibit 10.363 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014

Table of Contents



10.36	Sublease Agreement, dated as of January 16, 2015, by and among Little Rock HC&R Property Holdings, LLC, Little Rock HC&R Nursing, LLC and Highlands of Little Rock West Markham, LLC	Incorporated by reference to Exhibit 10.364 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.37	Sublease Agreement, dated as of January 16, 2015, by and among Mt. View Property Holdings, LLC, Mountain View Nursing, LLC and Highlands of Mountain View SNF, LLC	Incorporated by reference to Exhibit 10.365 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.38	Sublease Agreement, dated as of January 16, 2015, by and among Valley River Property Holdings, LLC, Valley River Nursing, LLC and Highlands of Fort Smith, LLC	Incorporated by reference to Exhibit 10.366 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.39	Sublease Agreement, dated as of January 16, 2015, by and among Park Heritage Property Holdings, LLC, Park Heritage Nursing, LLC and Highlands of Rogers Dixieland, LLC	Incorporated by reference to Exhibit 10.367 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.40	Sublease Agreement, dated as of January 16, 2015, by and among Homestead Property Holdings, LLC, Homestead Nursing, LLC and Highlands of Stamps, LLC	Incorporated by reference to Exhibit 10.368 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.41	Sublease Agreement, dated as of January 16, 2015, by and among Benton Property Holdings, LLC, Benton Nursing, LLC and Highlands of Bentonville, LLC	Incorporated by reference to Exhibit 10.369 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.42	Sublease Agreement, dated as of January 16, 2015, by and among Mountain Top Property Holdings, LLC, Mountain Top ALF, LLC and Highlands of Mountain View RCF, LLC	Incorporated by reference to Exhibit 10.370 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.43	Sublease Agreement, dated as of January 16, 2015, by and among APH&R Property Holdings, LLC, APH&R Nursing, LLC and Highlands of Little Rock South Cumberland, LLC	Incorporated by reference to Exhibit 10.371 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.44	Sublease Agreement, dated as of January 16, 2015, by and among Northridge HC&R Property Holdings, LLC, Northridge HC&R Nursing, LLC and Highlands of North Little Rock John Ashley, LLC	Incorporated by reference to Exhibit 10.372 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.45	Loan Agreement, dated January 30, 2015, by and among Georgetown HC&R Property Holdings, LLC, Sumter Valley Property Holdings, LLC and The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.373 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.46	Promissory Note, dated January 30, 2015, issued by Georgetown HC&R Property Holdings, LLC, and Sumter Valley Property Holdings, LLC to The PrivateBank and Trust Company in the amount of $9,300,000	Incorporated by reference to Exhibit 10.374 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.47	Guaranty of Payment and Performance, dated January 30, 2015, issued by AdCare Health Systems, Inc. to and for the benefit of The PrivateBank and Trust Company in the amount of $9,300,000	Incorporated by reference to Exhibit 10.375 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.48	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated January 30, 2015, by Georgetown HC&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.376 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.49	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated January 30, 2015, by Sumter Valley Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.377 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.50	Seventh Amendment to Credit Agreement, dated January 30, 2015, by and between ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC	Incorporated by reference to Exhibit 10.378 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.51	Fourth Amendment to Credit Agreement, dated January 30, 2015, by and among NW 61st Nursing, LLC, Georgetown HC&R Nursing, LLC, Sumter N&R, LLC and Gemino Healthcare Finance, LLC	Incorporated by reference to Exhibit 10.379 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.52	Sublease Agreement, dated as of January 31, 2015, by and between ADK Georgia, LLC. and 3460 Powder Springs Road Associates, L.P.	Incorporated by reference to Exhibit 10.380 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.53	Sublease Agreement, dated as of January 31, 2015, by and between ADK Georgia, LLC. and 3223 Falligant Avenue Associates, L.P.	Incorporated by reference to Exhibit 10.381 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.54	Promissory Note for exit fees (Northridge), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000	Incorporated by reference to Exhibit 10.382 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014

Table of Contents



10.55	Promissory Note for exit fees (Cumberland), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000	Incorporated by reference to Exhibit 10.383 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.56	Promissory Note for exit fees (River Valley), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000	Incorporated by reference to Exhibit 10.384 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.57	Promissory Note for exit fees (Sumter Valley), dated February 25, 2015, issued by AdCare Health Systems, Inc. to KeyBank National Association in the amount of $170,000	Incorporated by reference to Exhibit 10.385 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.58	Loan Agreement, dated February 25, 2015, by and among APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, Woodland Hills HC Property Holdings, LLC, and The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.386 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.59	Promissory Note, dated February 25, 2015, issued by APH&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland Hills HC Property Holdings, LLC to The PrivateBank and Trust Company in the amount of $12,000,000	Incorporated by reference to Exhibit 10.387 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.60	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated February 25, 2015, by Woodland Hills HC Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.388 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.61	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated February 25, 2015, by APH&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.389 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.62	Guaranty of Payment and Performance, dated February 25, 2015, issued by AdCare Health Systems, Inc. to and for the benefit of The PrivateBank and Trust Company in the amount of $12,000,000	Incorporated by reference to Exhibit 10.390 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.63	Absolute Assignment of Rents and Leases, dated February 25, 2015, by Woodland Hills HC Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.391 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.64	Absolute Assignment of Rents and Leases, dated February 25, 2015, by APH&R Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.392 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.65	Amendment to Promissory Note, dated March 25, 2015, by and between Riverchase Village ADK, LLC and Adcare Health Systems, Inc.	Incorporated by reference to Exhibit 10.393 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.66	Amendment to Second Amended and Restated Note, dated March 25, 2015, by and between Christopher F. Brogdon and Adcare Health Systems, Inc.	Incorporated by reference to Exhibit 10.394 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.67	Third Amendment, dated March 25, 2015, by and among BAN NH, LLC, Senior NH, LLC, Oak Lake, LLC, Kenmetal, LLC, Living Center, LLC, Meeker Nursing, LLC, MCL Nursing, LLC, Harrah Whites Meadows Nursing, LLC, Meeker Property Holdings, LLC, McLoud Property Holdings, LLC, Harrah Property Holdings, LLC, GL Nursing, LLC, Christopher F. Brogdon, AdCare Oklahoma Management, LLC, AdCare Administrative Services, LLC, AdCare Health Systems, Inc., and Hearth & Home of Ohio, Inc.	Incorporated by reference to Exhibit 10.395 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.68	First Amendment to Executive Employment Agreement, dated March 25, 2015, by and among AdCare Health Systems, Inc. and William McBride, III	Incorporated by reference to Exhibit 10.396 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.69	Employment Agreement between AdCare Health Systems, Inc. and Allan J. Rimland, dated March 25, 2015	Incorporated by reference to Exhibit 10.397 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.70	Settlement Agreement and Release dated March 30, 2015, by and among Troy Clanton, Rose Rabon and South Star Services, Inc., and Chris Brogdon , Connie Brogdon, Kenmetal, LLC, Senior NH, LLC, BAN NH, LLC, Living Center, LLC, and Oak Lake, LLC, and Adcare Oklahoma Management, LLC, Adcare Health Systems, Inc., Adcare Property Holdings, LLC, and Boyd Gentry	Incorporated by reference to Exhibit 10.398 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014

Table of Contents



10.71	Settlement Agreement and Release dated March 30, 2015, by and among Starr Indemnity & Liability Company, Columbia Casualty Company, Chris Brogdon, Connie Brogdon, Kenmetal, LLC, Senior NH, LLC, BAN NH, LLC, Living Center, LLC, and Oak Lake, LLC, and AdCare Oklahoma Management, LLC, AdCare Health Systems, Inc., AdCare Property Holdings, LLC, and Boyd Gentry	Incorporated by reference to Exhibit 10.399 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.72	Settlement and Indemnification Agreement dated March 26, 2015, by and between Adcare Health Systems, Inc and its wholly owned subsidiaries and affiliates and Chris Brogdon and any affiliates or entities in which Chris Brogdon has an ownership interest	Incorporated by reference to Exhibit 10.400 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.73	Lease Agreement, dated February 27, 2015, by and between Georgetown HC&R Property Holdings, LLC and Blue Ridge in Georgetown LLC	Incorporated by reference to Exhibit 10.408 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.74	First Amendment to Lease Agreement, dated March 20, 2015, by and between Georgetown HC&R Property Holdings, LLC and Blue Ridge in Georgetown, LLC	Incorporated by reference to Exhibit 10.409 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.75	Lease Agreement, dated February 27, 2015 by and between Sumter Valley Property Holdings, LLC and Blue Ridge of Sumter LLC	Incorporated by reference to Exhibit 10.410 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.76	First Lease Amendment to Lease Agreement, dated March 20, 2015, by and between Sumter Valley Property Holdings, LLC and Blue Ridge of Sumter, LLC	Incorporated by reference to Exhibit 10.411 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.77	Lease Agreement dated February 27, 2015 by and between Mountain Trace Nursing ADK, LLC and Blue Ridge on the Mountain LLC	Incorporated by reference to Exhibit 10.412 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.78	First Amendment to Lease Agreement, dated March 20, 2015 by and between Mountain Trace Nursing ADK,LLC and Blue Ridge on the Mountain, LLC	Incorporated by reference to Exhibit 10.413 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.79	Sublease Agreement, dated February 18, 2015 by and between CP Nursing, LLC and C.R. of College Park, LLC	Incorporated by reference to Exhibit 10.417 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014
10.80	Sublease Termination Agreement, dated April 30, 2015, by and among Benton Property Holdings, LLC, Benton Nursing, LLC, and Highlands of Bentonville, LLC	Incorporated by reference to Exhibit 99.36 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.81	Sublease Termination Agreement, dated April 30, 2015, by and among Valley River Property Holdings, LLC, Valley River Nursing, LLC, and Highlands of Fort Smith, LLC	Incorporated by reference to Exhibit 99.37 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.82	Lease Inducement Fee Agreement, dated April 30, 2015, by and between AdCare Health Systems, Inc. and Aria Health Consulting, LLC	Incorporated by reference to Exhibit 99.38 of the Registrant's Current Report on Form 8-K filed on May 6, 2015
10.83	Sublease Agreement, dated May 1, 2015 by and between NW 61 ^st Nursing, LLC and Southwest LTC-NW OKC, LLC	Incorporated by reference to Exhibit 10.83 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.84	Sublease Agreement, dated May 1, 2015 by and between QC Nursing, LLC and Southwest LTC-Quail Creek, LLC	Incorporated by reference to Exhibit 10.84 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.85	Fifth Modification Agreement, dated May 1, 2015, by and among Little Rock HC&R Property Holdings, LLC, AdCare Health Systems, Inc., Little Rock HC&R Nursing, LLC, and The PrivateBank and Trust Company	Incorporated by reference to Exhibit 10.85 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.86	Loan Modification Agreement, dated May 1, 2015, by and among Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, as borrowers; AdCare Health Systems, Inc., Benton Nursing, LLC, Park Heritage Nursing, LLC, and Valley River Nursing, LLC, as Guarantors; and The PrivateBank and Trust Company, as lender	Incorporated by reference to Exhibit 10.86 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
10.87	Underwriting Agreement, dated April 8, 2015, by and between AdCare Health Systems, Inc. and MLV & Co. LLC, as the representative of the several underwriters named therein.	Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on April 13, 2015

Table of Contents



10.88	Fourth Amendment to Credit Agreement, dated May 30, 2013, by and between ADK Bonterra/Parkview, LLC and Gemino Healthcare Finance, LLC	Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013
10.89	Second Amendment to Lease Agreement, dated May 31, 2015 by and between Mountain Trace Nursing ADK,LLC and Blue Ridge on the Mountain, LLC	Incorporated by reference to Exhibit 10.7 of the Registrant's Current Report on Form 8-K filed on June 5, 2015
10.90	Sublease Agreement, dated July 1, 2015 by and between 2014 HUD Master Tenant, LLC and C.R. of Glenvue, LLC	Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on July 7, 2015
10.91	Underwriting Agreement, dated May 28, 2015, by and between AdCare Health Systems, Inc and MLV & Co. LLC, as the representative of the several underwriters named therein.	Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on June 2, 2015
10.92	At Market Issuance Sales Agreement, dated July 21, 2015, between AdCare Health Systems, Inc. and MLV & Co. LLC.	Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on July 22, 2015
10.93	At Market Issuance Sales Agreement, dated July 21, 2015, between AdCare Health Systems, Inc. and JMP Securities LLC.	Incorporated by reference to Exhibit 1.2 of the Registrant's Current Report on Form 8-K filed on July 22, 2015
10.94	Sublease Agreement, dated August 1, 2015, by and between AdCare Health Systems, Inc. and CC SNF, LLC.	Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
10.95	Sublease Agreement, dated August 1, 2015, by and between Eaglewood Village, LLC and EW ALF, LLC.	Incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
10.96	Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and HC SNF, LLC.	Incorporated by reference to Exhibit 99.4 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
10.97	Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and PV SNF, LLC.	Incorporated by reference to Exhibit 99.5 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
10.98	Sublease Agreement, dated August 1, 2015, by and between 2014 HUD Master Tenant, LLC and EW SNF, LLC.	Incorporated by reference to Exhibit 99.6 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
10.99	Lease Inducement Fee Agreement, dated August 1, 2015, by and between the AdCare Health Systems, Inc. and PWW Healthcare, LLC, PV SNF, LLC, HC SNF, LLC, EW SNF, LLC, and EW ALF, LLC.	Incorporated by reference to Exhibit 99.7 of the Registrant's Current Report on Form 8-K filed on August 5, 2015
10.100	Tenth Modification Agreement to Loan and Security Agreement, dated July 30, 2015, by and among ADK Lumber City Operator, LLC, ADK LaGrange Operator, LLC , ADK Powder Springs Operator, LLC, ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC , Mountain Trace Nursing ADK, LLC, Erin Nursing, LLC, CP Nursing, LLC, Benton Nursing, LLC, Valley River Nursing, LLC, Park Heritage Nursing, LLC, Homestead Nursing, LLC, Mountain View Nursing, LLC, Little Rock HC&R Nursing, LLC , Coosa Nursing ADK, LLC and QC Nursing, LLC, AdCare Health Systems, Inc., and the Privatebank and Trust Company.	Filed herewith
10.101	Promissory Note, dated July 17, 2015, by and between Highlands Arkansas Holdings, LLC and AdCare Health Systems, Inc.	Filed herewith
10.102	Letter Agreement to the Equitable Adjustments, dated July 17, 2015, by and between AdCare Health Systems, Inc. and Highlands Arkansas Holdings, LLC.	Filed herewith
10.103	Promissory Note, dated August 1, 2015, by and between PWW Healthcare, LLC, PV SNF, LLC, HC SNF, LLC, CC SNF, LLC EW SNF, LLC, and EW ALF, LLC, and AdCare Health Systems, Inc.	Filed herewith
10.104	Sublease Agreement, dated July 20, 2015, by and between ADK Bonterra/Parkview, LLC and 2801 Felton Avenue, L.P., and 460 Auburn Avenue, L.P.	Filed herewith
10.105	Amendment to Subordinated Convertible Note, dated July 30, 2015, by and between AdCare Health Systems, Inc. and Cantone Asset Management LLC and Cantone Research, Inc.	Filed herewith

Table of Contents



10.106	First Amendment to Promissory Note, dated August 12, 2015, by and among CSCC Property Holdings, LLC and CSCC Nursing, LLC, AdCare Health Systems, Inc. and AdCare Oklahoma Management, LLC, and Contemporary Healthcare Senior Lien I, L.P.	Filed herewith
10.107	Asset Purchase Agreement, dated June 11, 2015, by and between Riverchase Village ADK, LLC and Omega Communities, LLC.	Filed herewith
10.108	First Amendment to Asset Purchase Agreement, dated August 6, 2015, by and between Riverchase Village ADK, LLC and Omega Communities, LLC.	Filed herewith
10.109	Sublease Agreement, dated July 17, 2015, by and among Valley River Property Holdings, LLC,Valley River Nursing, LLC and Highlands of Fort Smith, LLC	Filed herewith
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith
101	The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (ii) Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, (iv) Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2015 and (v) the Notes to Consolidated Financial Statements.	Filed herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.



		ADCARE HEALTH SYSTEMS, INC.
		(Registrant)

Date:	August 13, 2015	/s/ William McBride III
		William McBride III
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date:	August 13, 2015	/s/ Allan J. Rimland
		Allan J. Rimland
		President and Chief Financial Officer
		(Principal Financial and Accounting Officer)



	Exhibit 2.2

FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT

THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (this “Amendment”) is made and entered into as of the 19 ^th day of May, 2015 (the “Effective Date”) by and between CSCC PROPERTY HOLDINGS, LLC , a Georgia limited liability company (“Seller”) and GRACEWOOD MANOR, LLC , an Oklahoma limited liability company (“Purchaser”).

RECITALS

Purchaser and Seller are parties to that certain Asset Purchase Agreement dated as of April 29, 2015 (the “Purchase Agreement”); and

Purchaser and Seller desire to amend the Purchase Agreement on the terms hereinafter set forth.

In consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration paid by Purchaser to Seller, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows:

1. Capitalized Terms . Capitalized but undefined terms used in this Amendment shall have the meanings set forth in the Purchase Agreement.

2. Closing . Section 4 of the Purchase Agreement is hereby amended to change the date in the sixth line thereof from “July 1, 2015” to “October 1, 2015”.

3. Earnest Money . Section 5(b) of the Purchase Agreement is hereby amended to change the amount of the Earnest Money deposit from “Fifty Thousand and 00/100 Dollars ($50,000.00)” to “One Hundred Thousand and 00/100 Dollars ($100,000.00)”.

4. Due Diligence Period . Section 8.a. of the Purchase Agreement is deleted in its entirety.

5. Conditions to Purchaser’s Obligations . The following new Section 16.q. is added to Section 16 immediately following Section 16.p.:

16.q. Financing. Seller shall have provided financing for Purchaser’s acquisition of the Property on the terms and conditions set forth on Exhibit “A” to this Amendment.

6. Termination . Section 19.a.ii. of the Purchase Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof:

ii. by Purchaser, if Seller is unable to meet a condition precedent prior to the Closing Date (as the same may be extended) or is in breach of its obligation to consummate the transaction contemplated by this Agreement pursuant to the terms hereof, and such breach has not been (A) waived in writing by Purchaser or (B) cured by Seller within ten (10) business days after notice to Seller of such breach.

7. Effect of Termination . Section 19.b. of the Purchase agreement is hereby deleted in its entirety and the following is inserted in lieu thereof:

b. Effect of Termination . In the event this Agreement is terminated in accordance with the terms of Section 19(a)(i) or Section 19(a)(ii), the Earnest Money shall be returned to

Purchaser and the provisions of this Agreement shall immediately become void and of no further force and effect (other than this Section 19(b) and such other provisions of this Agreement which expressly survive the termination of this Agreement). In the event this Agreement is terminated in accordance with the terms of Section 19(a)(iii) or 19(a)(iv), the Earnest Money shall be disbursed to Seller and the provisions of this Agreement shall immediately become void and of no further force and effect (other than this Section 19(b) and such other provisions of this Agreement which expressly survive termination of this Agreement). Unless otherwise provided herein, each party to this Agreement shall be responsible for its own fees and expenses.

8. Ratification . Except to the extent amended hereby, Purchaser and Seller ratify and confirm that all other terms and conditions of the Purchase Agreement remain in full force and effect.

9. Counterparts . This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall be taken to be one and the same Amendment, for the same effect as if all parties hereto had signed the same signature page, and a facsimile copy of an executed counterpart shall constitute the same as delivery of the original of such executed counterpart. Any signature page of this Amendment (whether original or facsimile) may be detached from any counterpart of this Amendment (whether original or facsimile) without impairing the legal effect of any signatures thereof and may be attached to another counterpart of this Amendment (whether original or facsimile) identical in form hereto but having attached to it one or more additional signature pages (whether original or facsimile).

[Signatures on next page]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the day and year first above written.



		SELLER:

		CSCC PROPERTY HOLDINGS, LLC
		a Georgia limited liability company

		By:	/s/ William McBride, III
		Name:	William McBride, III
		Title:	Manager


		PURCHASER:

		GRACEWOOD MANOR, LLC
		an Oklahoma limited liability company

		By:	/s/ Bradford Montgomery
		Name:	Bradford Montgomery
		Title:	Manager

EXHIBIT “A”

AdCare Health Systems, Inc.

Two Buckhead Plaza

3050 Peachtree Road NW, Suite 355

Atlanta, Georgia 30305

May 19, 2015

Gracewood Manor, LLC

9 Professional Drive

Bella Vista, Arkansas 72715

Attn: Bradford Montgomery

Dear Mr. Montgomery:

The Following is a summary of AdCare Health Systems, Inc.’s (“AdCare”) commitment to finance the acquisition of that certain 121 bed skilled nursing facility commonly known as Companions Specialized Care Center with an address of 6201 East 36 ^th Street, Tulsa, Oklahoma 74135 (the “Facility”). Commitment details are as follows:

Borrower: Gracewood Manor, LLC

Lender: AdCare

Loan Amount: $3,500,000.00


Terms:	Monthly payments of principal and interest until Maturity Date. All outstanding principal plus accrued interest due at Maturity. Monthly principal and interest payments based upon remaining 25 year amortization period.


Purpose:	Acquisition of the Facility.


Maturity Date:	Five years.


Rate:	12.5% per annum.


Loan Fee:	1% of loan amount.


Collateral:	Assignment of rents and leases, first mortgage on the Facility and security interest in furniture, fixtures and equipment.


Insurance:	General liability, professional liability and property insurance in an amount and coverage determined by AdCare (but not less than $1,000,000.00/

$3,000,000.00) showing AdCare as additional insured/mortgage/loss payee.


Prepayment Penalty:	2% if prepaid within the first two (2) years and 0% if prepaid after the first two (2) years.


Guarantor:	To be determined.


Reporting Requirements:	Borrower and Guarantor will be subject to periodic reporting requirements as determined by AdCare.


Events of Default:	The note and other credit documents will contain such events of default as AdCare deems appropriate and as are usual and customary.


Transaction Costs:	Borrower is responsible for all transaction costs including legal counsel to AdCare relating to this loan.

If you are in agreement with the terms and specifications as outlined in this commitment, please acknowledge by signing where indicated below.

Sincerely,

AdCare Health Systems, Inc.

/s/ William McBride, III

William McBride, III,

Chairman and CEO

ACCEPTED BY:

Gracewood Manor, LLC,

an Oklahoma limited liability company

By: /s/ Bradford Montgomery

Name: Bradford Montgomery

Title: Manager

Guarantor:

___________________________________



	Exhibit 2.3

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT is made and entered into as of May 15 ^th , 2015 (the “ Effective Date ”) by and between BENTON PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“ Seller ”) and Bozeman Development, LLC, a Texas Limited Liability Company or its designee (“ Purchaser ”).

WITNESSETH :

WHEREAS, Seller owns certain land, buildings, improvements, furniture, fixtures and equipment comprising the skilled nursing facility located at 224 South Main Street, Bentonville, Arkansas 72712 consisting of 95 licensed beds (the “ Facility ”); and

WHEREAS, Seller owns various equipment, inventories and other assets related to the operation of the Facility; and

WHEREAS , Seller desires to sell its entire right, title and interest in and to the Facility to Purchaser, and Purchaser desires to purchase Seller’s entire right, title and interest in and to the Facility from Seller, subject to and upon the terms and conditions hereinafter set forth.

NOW, THEREFORE , in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Sellers and Purchaser, intending to be legally bound, hereby agree as follows:

ARTICLE 1
DEFINITIONS

1.1 Capitalized Terms . Capitalized terms used in this Agreement shall have the meanings set forth below or in the section of this Agreement referred to below. Such terms, as so defined, shall include in the singular, the plural, and in the plural, the singular.

“ Agreement ” shall mean this Purchase and Sale Agreement, together with all Schedules and Exhibits attached hereto, as it and they may be amended from time to time as herein provided.

“ Business Day ” shall mean any day other than a Saturday, Sunday or any other day on which banking institutions in the State of Arkansas are authorized by law or executive action to close.

“ Closing ” shall mean the closing of the transaction contemplated by this Agreement.

“ Closing Date ” shall mean July 1, 2015.

“ Contracts ” shall mean all service contracts, equipment leases, booking agreements, warranties and guaranties, and other arrangements or agreements which relate exclusively to the ownership, repair, maintenance, management, leasing or operation of the Facility.

HNZW/511704_4.doc/3583-98

“ Deposit ” shall mean the amount of One-Hundred Thousand and 00/100s Dollars ($100,000.00), plus any additional amount deposited by Purchaser pursuant to Section 2.2 hereof.

“ Effective Date ” shall have the meaning given such term in the opening paragraph to this Agreement.

“ Escrow Agent ” shall mean ____________________________.

“ Environmental Law ” shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, including the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Sections 9601 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 466 et seq.), the Safe Drinking Water Act Sections 1401 (14 U.S.C. Section 1450), the Hazardous Materials Transportation Act (79 S.S.C. Sections 1801 et seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601-2629) and any other federal, state, or local law, regulation, or ordinance.

“ FF&E ” shall mean, collectively, all appliances, machinery, devices, fixtures, equipment, furniture, furnishings, partitions, signs or trade fixtures or other tangible personal property owned by Seller and located at the Facility.

“ Facility Records ” shall mean all files and records pertaining to the residents and employees of the Facility which are located at the Facility on the Closing Date.

“ Hazardous Substance ” shall mean any chemical, substance, material, object, condition, or waste harmful to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, infectiousness, or other harmful or potentially harmful properties or effects, including, without limitation, petroleum or petroleum products, and all of those chemicals, substances, materials, objects, conditions, wastes, or combinations of them which are now or become listed, defined or regulated in any manner by any Environmental Law.

“ Improvements ” shall mean, collectively, all buildings and other structures and improvements situated on, affixed or appurtenant to the Land on which the Facility is located.

“ Inspection Period ” shall mean the period beginning on the Effective Date and expiring at 5:00 p.m. eastern time on the fifteenth (15 ^th ) day after the Effective Date.

“ Intangible Property ” shall mean all transferable intangible property owned by the Seller and arising from or used in connection with the ownership, use, operation or maintenance of the Real Property or FF&E related to the Facility, including, without limitation, any names or other marks used exclusively in connection therewith and only to the extent such Seller’s interest therein is freely assignable or transferable; provided , however , in no event shall the “Intangible Property” include any cash on hand or any accounts related to the Facility or its operation.

HNZW/511704_4.doc/3583-98

“ Inventory ” shall mean, collectively, any consummables, inventories, stocks, supplies and other related items which are used in connection with the use, operation or maintenance of such Facility or the provision of services to the residents of the Facility.

“ Land ” shall mean the parcel or parcels of land described on Exhibit “A” attached hereto on which the Facility is located, together with all appurtenances thereto.

“ Properties ” shall mean, collectively, Seller’s entire right, title and interest in and to the Real Property, Seller’s entire right, title and interest in and to the FF&E, the Inventory, the Intangible Property, the Contracts, the Resident Agreements and the Resident Trust Funds related to the Facility. The term Properties shall specifically exclude Sellers’ cash balances and accounts receivable and all Contracts which are not being assumed by Purchaser in accordance with Section 8.1(c) .

“ Purchase Price ” shall mean Three Million Five Hundred Thousand 00/100s Dollars ($3,500,000.00).

“ Purchaser ” shall have the meaning given such term in the opening paragraph to this Agreement, together with any of its permitted successors and assigns.

“ Real Property ” shall mean, collectively, the Land and the Improvements related to the Facility.

“ Resident Agreements ” shall mean, collectively, all resident agreements or other contracts or arrangements for the use or occupancy of any units, beds or other facilities provided, meals served, goods sold or services rendered, in each case, on or at the Facility.

“ Resident Trust Funds ” shall mean, collectively, all resident trust funds held by Seller for the Facility as of the Closing Date.

“ Surviving Obligations ” shall mean all of the obligations and liabilities of Purchaser or either Seller which expressly survive the Closing or any termination of this Agreement.

“ Tax Code ” shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended.

“ Title Company ” shall mean such reputable national title insurance company as may be selected by Purchaser.

ARTICLE 2
PURCHASE AND SALE; CLOSING

2.1 Purchase and Sale . In consideration of the payment of the Purchase Price by Purchaser to Seller and for other good and valuable consideration, Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, all of Seller’s right, title and interest in and to the Properties for the Purchase Price, subject to and in accordance with the terms and conditions of this Agreement.

HNZW/511704_4.doc/3583-98

2.2 Closing . If the closing conditions in Section 4 and Section 5 are satisfied, the purchase and sale of the Properties shall be consummated on the Closing Date by the release of the documents and funds held in escrow by the Escrow Agent.

2.3 Purchase Price . The aggregate purchase price to be paid for the Properties shall be the Purchase Price. The Purchase Price shall be paid as follows:

(a) Deposit . Within three (3) Business Days following the Effective Date, Purchaser shall deposit the Deposit with the Escrow Agent by wire transfer of immediately available funds.

(b) Cash Consideration . The sum of Three Million Five Hundred Thousand and 00/100s Dollars ($3,500,000.00) (including the Deposit), subject to adjustment as provided in Article 9 , shall be deposited into escrow with the Escrow Agent by wire transfer of immediately available funds and released to Seller at the Closing.

2.4 Duties of Escrow Agent .

(a) Holding of Deposit . The Escrow Agent shall hold the Deposit in a non-interest bearing account and shall pay the Deposit to the party entitled thereto in accordance with the terms of this Agreement.

(b) IRS Real Estate Sales Reporting . The Escrow Agent shall act as “the person responsible for closing” the transactions contemplated hereby pursuant to Section 6045(e) of the Tax Code, and the Escrow Agent shall prepare and file all informational returns, including IRS Form 1099‑S, and shall otherwise comply with the provisions of said Section 6045(e).

(c) Escrow Agreement . Simultaneously with the execution and delivery of this Agreement, Seller, Purchaser and Escrow Agreement shall execute and deliver an escrow agreement in the form attached hereto as Exhibit “B” .

ARTICLE 3
DILIGENCE

3.1 Inspections and Other Diligence Activities .

(a) Property Inspections . During the Inspection Period and thereafter until the Closing or the earlier termination of this Agreement, Seller shall permit Purchaser and its representatives to conduct non-invasive physical inspections of the Properties; provided , however , Purchaser shall not be permitted to perform any environmental investigations or invasive testing which are beyond the scope of typical so-called “Phase I” investigation without Seller’s prior written consent, which consent shall not be unreasonably withheld or delayed. Except for the administrator of the Facility (whom Purchaser may contact), Purchaser shall not contact any employees or any residents of the Facility without Seller’s prior written consent prior to the expiration of the Inspection Period. All such inspections shall be performed in a manner consistent with this Agreement and so as to minimize any interference or disruptions to the residents or the operations of the Facility.

HNZW/511704_4.doc/3583-98

Purchaser shall notify Seller (i) at least one (1) Business Day prior to entering the Facility for the purpose of making any such inspections and (ii) within five (5) Business Days of Purchaser’s Receipt of the Phase I investigation as to any matters to which Purchaser objects.

(b) Diligence Materials . From and after the Effective Date until the Closing or the earlier termination of this Agreement, Seller shall deliver to Purchaser for Purchaser’s review true, correct and complete copies of any materials pertaining to the Facility that are reasonably requested by Purchaser to the extent such materials are within Sellers’ possession or control. Except as otherwise expressly set forth herein, Seller makes no representation or warranty, express or implied, with respect to the accuracy or completeness of any materials, reports, data or other information provided by Seller pursuant to or in connection with this Agreement.

(c) Indemnification . Purchaser shall indemnify, defend and hold harmless Seller from and against any and all expenses, losses, claims or damages which Seller suffer as a result of any act or omission of Purchaser or its representatives, agents or contractors in connection with any inspection conducted by Purchaser or its representatives, agents or contractors pursuant to this Agreement. Purchaser’s obligations under this Section 3.1(c) shall survive the Closing or any earlier termination of this Agreement.

3.2 Termination of Agreement .

(a) Termination Prior to the End of Inspection Period . Purchaser shall have the right to terminate this Agreement at any time prior to the expiration of the Inspection Period by giving written notice thereof to Seller, in which event the Escrow Agent shall disburse the Deposit to Purchaser and neither party shall have any further rights or obligations hereunder, except the Surviving Obligations.

(b) Termination After the End of Inspection Period or Failure to Close On or Before the Closing Date . If (i) Purchaser terminates this Agreement after the expiration of the Inspection Period or (ii) Purchaser fails to close the transaction contemplated hereunder on or prior to the Closing Date except (A) in the case of a material breach of this Agreement by Seller (in which case, Section 11.3 hereof shall govern the rights and obligations of the parties), (B) in the event a casualty or condemnation occurs with respect to the Facility (in which case Article 10 shall govern the rights and obligations of the parties) or (C) in the event Seller fails to satisfy the conditions precedent to Purchaser’s obligation to close set forth in Section 4 hereof (in which case, the Deposit shall be disbursed to Purchaser), the Deposit shall be disbursed to Seller and neither party shall have any further rights or obligations hereunder, except the Surviving Obligations.

3.3 Title and Survey . Within five (5) Business Days following the Effective Date, Seller shall deliver to Purchaser copies of the most recent title policies and surveys of the Real Property that are in Seller’s possession or control (if any). Purchaser shall have the right to obtain new or updated title commitments and/or surveys for the Real Property and Purchaser shall provide copies of any such updates to Seller within two (2) Business Days after its receipt thereof. On or before May 31, 2015, Purchaser shall give Seller notice of any title exceptions or other matters set forth on Seller’s title policies or surveys or any updates thereof as to which Purchaser objects in its sole and absolute discretion. Seller shall have the right, but not the obligation, to remove, satisfy or

HNZW/511704_4.doc/3583-98

otherwise cure any such exception or other matter as to which Purchaser so objects, Seller is unable or unwilling to take such actions as may be required to cure such objections, Seller shall give Purchaser notice thereof; it being understood and agreed that the failure of Seller to give such notice (“ Seller’s Notice ”) within three (3) Business Days after its receipt of Purchaser’s notice of objection shall be deemed an election by Seller not to remedy such matters. If Seller shall be unable or unwilling to remove any title defects to which Purchaser has so objected, Purchaser shall elect either (a) to terminate this Agreement (in whole but not in part) or (b) to proceed to Closing notwithstanding such title defect without any abatement or reduction in the Purchase Price on account thereof. Purchaser shall make any such election by written notice to Seller within three (3) Business Days after its receipt of Seller’s Notice; provided , however , if Seller commences to cure a title defect and then elects not to complete such cure, Purchaser shall have the right to terminate this Agreement by written notice to Seller within three (3) Business Days after Seller notifies Purchaser thereof. The failure of Purchaser to give such notice shall be deemed an election by Purchaser to proceed to Closing in accordance with clause (b) above. If Purchaser terminates this Agreement in accordance with this Section 3.3 , Escrow Agent shall return the Deposit to Purchaser and neither party shall have any further rights or obligations hereunder, except with respect to the Surviving Obligations.

3.4 Confidentiality, Etc. Purchaser shall not disclose or otherwise use any data or other information concerning the Facility for any purpose other than for evaluating the Facility in the course of its due diligence as provided herein, and Purchaser shall keep all such data and information strictly confidential. Notwithstanding the foregoing, Seller acknowledges that Purchaser may disclose (i) such data and information by furnishing copies thereof to third party consultants in the normal course of Purchaser’s due diligence provided that such consultants agree to be abide bound the terms and conditions of this Section 3.4 and/or (ii) the terms of this Agreement as may be required for any regulatory filings. Purchaser shall indemnify, defend and hold harmless Seller from and against any loss, claim, damage or expense which Seller may incur as a result of any breach by Purchaser or any third party of the terms and conditions of this Section 3.4 . This Section 3.4 shall survive any termination of this Agreement.

3.5 Return of Materials . If the Closing does not take place as herein contemplated for any reason, Purchaser shall promptly return all materials delivered to it by Sellers pursuant to this Agreement, and Seller shall also deliver to Purchaser copies of any reports, surveys, data or other information obtained by Purchaser in connection with its diligence hereunder without any representation or warranty whatsoever.

ARTICLE 4
CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE

The obligation of Purchaser to acquire the Properties shall be subject to the satisfaction of the following conditions precedent on and as of the Closing Date:

4.1 Closing Documents . Seller shall have delivered to Escrow Agent and shall have authorized and directed Escrow Agent to record or release to Purchaser (as applicable) the following:

HNZW/511704_4.doc/3583-98

(a) Deed . A limited warranty deed with respect to the Real Property in proper statutory form for recording, duly executed and acknowledged by Seller;

(b) Bill of Sale . A bill of sale, duly executed by Seller with respect to Seller’s right, title and interest in and to the FF&E related to the Facility;

(c) Assignments . One or more assignment and assumption agreement(s), duly executed by Seller, with respect to Seller’s right, title and interest in and to all Intangible Property at the Facility;

(e) FIRPTA . A so-called “FIRPTA” affidavit pursuant to Section 1445 of the Tax Code, duly executed by Seller;

(f) Settlement Statement . A settlement statement showing the Purchase Price and all adjustment thereto in accordance with the terms and conditions of this Agreement, which settlement statement shall be in a form and substance reasonably satisfactory to Seller and Purchaser, duly executed by Seller.

(g) Original Documents . To the extent the same are in Seller’s possession or control, original, fully executed copies of the Resident Agreements.

(h) Title Affidavits . Such usual and customary affidavits and indemnities as the Title Company may reasonably require, including, without limitation, a so-called owner’s affidavit in such form as will permit the Title Company to issue its title policy without exceptions for parties-in-possession (other than the residents under Resident Agreements) or mechanic’s liens.

(i) Other Conveyance Documents . Such other conveyance documents and instruments as Purchaser, Sellers or the Title Company may reasonably require and as are consistent with this Agreement and are customary in like transactions in the State of Arkansas, including, without limitation, a GAP indemnity.

4.2 Representations and Warranties . All representations and warranties of Seller herein shall be true, correct and complete in all material respects on and as of the Closing Date, and Seller shall certify in writing at the Closing that each of the representations and warranties made by Seller herein are true, correct and complete in all material respects on and as of the Closing Date.

4.3 Seller’s Covenants . Seller shall have performed in all material respects all covenants and obligations required to be performed by Seller on or before the Closing Date.

4.4 Licensure . The Facility shall, on the Closing Date, be licensed as a skilled nursing facility under the laws of the State of Arkansas.

4.5 Title Policy . The Title Company shall be committed, subject only to payment of its usual and customary premium at the Closing, to issue a title policy to Purchaser insuring that fee simple title to the Real Property on which the Facility is located is vested in Purchaser.

HNZW/511704_4.doc/3583-98

4.6 Substantial Compliance . The Facility shall, on the Closing Date, be in substantial compliance with all regulatory requirements and shall have provided a letter from the applicable regulatory agency confirming such compliance.

ARTICLE 5
CONDITIONS TO SELLER’S OBLIGATION TO CLOSE

The obligation of Seller to convey the Properties to Purchaser is subject to the satisfaction of the following conditions precedent on and as of the Closing Date:

5.1 Purchase Price . Purchaser shall have delivered the Purchase Price to Escrow Agent and shall have authorized and directed Escrow Agent to pay the same to Seller.

5.2 Closing Documents . Purchaser shall have delivered to Escrow Agent duly executed and acknowledged counterparts of the documents described in Section 4.1 , where applicable, and shall have authorized and directed Escrow Agent to release the same to Purchaser.

5.3 Representations and Warranties . All representations and warranties of Purchaser herein shall be true, correct and complete in all material respects on and as of the Closing Date, and Purchaser shall certify in writing at the Closing that each of the representations and warranties made by Purchaser herein are true, correct and complete in all material respects on and as of the Closing Date.

5.4 Purchaser’s Covenants . Purchaser shall have performed in all material respects all covenants and obligations required to be performed by Purchaser on or before the Closing Date.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLER

6.1 Seller’s Representations . To induce Purchaser to enter into this Agreement, Seller represents and warrants to Purchaser as follows:

(a) Status and Authority . Seller is a limited liability company duly formed, validly existing and in good standing under the laws of its state of formation, and has all requisite power and authority under the laws of such state and its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby and thereby.

(b) Action . Seller has taken (or will have taken prior to Closing) all necessary action to authorize the execution, delivery and performance of this Agreement and upon the execution and delivery of this Agreement and/or any document to be delivered by Seller hereunder or thereunder, this Agreement and such document shall constitute the valid and binding obligations and agreements of Seller, enforceable against Seller in accordance with their respective terms, except

HNZW/511704_4.doc/3583-98

as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

(c) No Violations of Agreements . Neither the execution, delivery or performance of this Agreement by Seller, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the Properties pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which such Seller is bound.

(d) Litigation . There are no pending investigations, actions or proceedings which questions the validity of this Agreement or any action taken or to be taken pursuant hereto or thereto. Seller has not received any written notice regarding any pending or threatened litigation or administrative proceedings with respect to any Property which could reasonably be expected to materially adversely affect the Properties or the Facility or Seller’s right to enter into this Agreement or to consummate the transactions contemplated by this Agreement. Seller is not subject to any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental department, agency, board, bureau or instrumentality issued or entered in a proceeding to which Seller or the Facility is or was a party which is binding upon the Facility, including, without limitation, any uncorrected license deficiencies, restrictions or limitations related to the operation of the Facility.

(e) Notices of Violation . Except as otherwise disclosed to Purchaser in writing, as of the Effective Date, Seller has not received any written notice from any governmental authority claiming that any of the Properties is in material violation of any applicable law, code, rule, regulation, ordinance, license or permit (including, without limitation, any Environmental Law).

6.2 Knowledge Defined . All references in this Agreement to “Seller’s knowledge” or words of similar import shall refer to the actual, conscious knowledge of _____________________, without any duty of investigation or inquiry.

6.3 Survival . The representations and warranties made in this Agreement by Seller shall be continuing and shall be deemed remade as of the Closing Date, with the same force and effect as if made on, and as of, such date, subject to Seller’s right to update such representations and warranties by written notice to Purchaser prior to the Closing Date. All representations and warranties made in this Agreement by Seller shall survive the Closing for a period of one (1) year. Purchaser must notify Seller of any alleged breach of any representation on or before the day preceding the first anniversary of the Closing Date, and no action or proceeding may be commenced against Seller for any breach of any representation or warranty after the day preceding the first anniversary of the Closing Date.

HNZW/511704_4.doc/3583-98

6.4 AS-IS . EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER HAS NOT MADE, AND PURCHASER HAS NOT RELIED UPON, ANY INFORMATION, PROMISE, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING THE PROPERTIES OR THE FACILITY, WHETHER MADE BY SELLER, INCLUDING, WITHOUT LIMITATION, ANY INFORMATION, PROMISE, REPRESENTATION OR WARRANTY REGARDING THE PHYSICAL CONDITION OR VALUE OF THE PROPERTIES OR THE FACILITY, THE FINANCIAL CONDITION OF THE RESIDENTS UNDER THE RESIDENT AGREEMENTS, TITLE TO OR THE BOUNDARIES OF ANY OF THE PROPERTIES OR THE FACILITY, PEST CONTROL MATTERS, SOIL CONDITIONS, THE PRESENCE, EXISTENCE OR ABSENCE OF HAZARDOUS SUBSTANCES, TOXIC SUBSTANCES OR OTHER ENVIRONMENTAL MATTERS, COMPLIANCE WITH BUILDING, HEALTH, SAFETY, LAND USE AND ZONING LAWS, REGULATIONS AND ORDERS, STRUCTURAL AND OTHER ENGINEERING CHARACTERISTICS, TRAFFIC PATTERNS, MARKET DATA, ECONOMIC CONDITIONS OR PROJECTIONS, AND ANY OTHER INFORMATION PERTAINING TO ANY OF THE PROPERTIES, THE FACILITY OR THE MARKET AND PHYSICAL ENVIRONMENTS IN WHICH THEY MAY BE LOCATED AND SELLER EXPRESSLY DISCLAIMS ALL WARRANTIES RELEVANT TO THE PROPERTIES OR THE FACILITY, EITHER EXPRESS OR IMPLIED, INCLUDING MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND SUITABILITY FOR ITS INTENDED USE. PURCHASER ACKNOWLEDGES THAT (A) PURCHASER IS A SOPHISTICATED OWNER AND OPERATOR OF PROPERTIES AND FACILITY SIMILAR TO THE PROPERTIES AND FACILITY, (B) PURCHASER HAS ENTERED INTO THIS AGREEMENT WITH THE INTENTION OF MAKING AND RELYING UPON ITS OWN INVESTIGATION OR THAT OF THIRD PARTIES WITH RESPECT TO THE PHYSICAL, ENVIRONMENTAL, ECONOMIC AND LEGAL CONDITION OF THE PROPERTIES AND THE FACILITY AND (C) PURCHASER IS NOT RELYING UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES OF ANY KIND, AND IS ACQUIRING THE PROPERTIES AND FACILITY IN “AS IS, WHERE IS” CONDITION, EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT.

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER

7.1 Representations of Purchaser . To induce Seller to enter in this Agreement, Purchaser represents and warrants to Seller as follows:

(a) Status and Authority of Purchaser . Purchaser is a corporation duly formed, validly existing and in good standing under the laws of its state of formation, and has all requisite power and authority under the laws of such state and its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby and thereby.

(b) Action of Purchaser, Etc. Purchaser has taken (or will have taken prior to Closing) all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of this Agreement and/or any document to be delivered by Purchaser

HNZW/511704_4.doc/3583-98

hereunder or thereunder, this Agreement and such documents shall constitute the valid and binding obligations and agreements of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

(c) No Violations of Agreements . Neither the execution, delivery or performance of this Agreement by Purchaser, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon the Property or assets of Purchaser pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which Purchaser is bound.

(d) Litigation . No investigation, action or proceeding is pending and, to Purchaser’s knowledge, no action or proceeding is threatened and no investigation looking toward such an action or proceeding has begun, which questions the validity of this Agreement or any action taken or to be taken pursuant hereto or thereto.

7.2 Survival . The representations and warranties made in this Agreement by Purchaser shall be continuing and shall be deemed remade as of the Closing Date, with the same force and effect as if made on, and as of, such date. All representations and warranties made in this Agreement by Purchaser shall survive the Closing for a period of one (1) year. Seller must notify Purchaser of any alleged breach of any representation on or before the day preceding the first anniversary of the Closing Date, and no action or proceeding may be commenced against Purchaser for any breach of any representation or warranty after the day preceding the first anniversary of the Closing Date.

ARTICLE 8
COVENANTS

8.1 Seller’s Covenants . Seller hereby covenants with Purchaser between the Effective Date and the Closing Date as follows:

(a) Material Agreements . Not to enter into, modify, amend or terminate any material agreement with respect to Facility, which would encumber or be binding upon the Facility from and after the Closing Date, without in each instance obtaining the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed prior to the expiration of the Inspection Period but which may be withheld in Purchaser’s sole and absolute discretion thereafter.

(b) Operation of Property . To continue to own the Facility in a good and businesslike fashion consistent with past practices; provided , however , notwithstanding anything to the contrary contained in this Article 8 or elsewhere in this Agreement, it is expressly understood and agreed that no Seller shall have any obligation to make any capital expenditure with respect to the Facility.

(c) Contracts . Prior to the end of the Inspection Period, Purchaser shall notify Seller in writing which (if any) Contracts Purchaser shall assume. If Purchaser fails to provide such notice, Purchaser shall not assume any Contracts.

HNZW/511704_4.doc/3583-98

(d) Civil Monetary Penalties . Seller acknowledges and agrees that Seller shall be responsible for payment of all civil monetary penalties (“ CMPs ”) relating to services provided at the Facility prior to the Closing Date.

8.2 Licensing . Purchaser hereby covenants with Seller between the Effective Date and the Closing Date to use commercially reasonable efforts to obtain all material licenses, certificates, permits and approvals from all Federal, state and local regulatory agencies required to acquire, own, lease, manage and operate the Facility in the manner currently operated. Seller hereby covenants to reasonably cooperate with Purchaser, at no out-of-pocket cost or expense to Seller, in obtaining all such licenses, certificates, permits and approvals.

ARTICLE 9
APPORTIONMENTS

9.1 Real Property Apportionments .

(a) Prorations . The following items for the Facility shall be apportioned at the Closing as of 11:59 p.m. on the day immediately preceding the Closing Date:


(i)	real estate taxes and assessments other than special assessments, based on the rates and assessed valuation applicable in the fiscal year for which assessed;


(ii)	municipal assessments and governmental license and permit fees;


(iii)	amounts payable under financing or equipment leases affecting personal property; and


(iv)	all other items of income and expense normally apportioned in sales of properties of the nature and type of the Facility.

If any of the foregoing cannot be apportioned at the Closing because of the unavailability of the amounts which are to be apportioned, such items shall be apportioned on the basis of a good faith estimate by the parties and reconciled as soon as practicable after the Closing Date but, in any event, no later than forty-five (45) days after the Closing Date.

(b) Utilities . Seller shall obtain readings of any water, gas, electric or other utility meters located at the Facility as of the Closing Date, so that all such utilities are transferred over to Purchaser’s own accounts as of the Closing Date, and either Seller or Purchaser, as applicable, shall pay all such invoices related to such party’s period of ownership directly to the applicable utility provider.

(c) Tax Refunds . If any refunds of real property taxes or assessments, water rates and charges or sewer taxes and rents shall be made after the Closing Date, the same shall be held in trust by Seller or Purchaser, as the case may be, and shall first be applied to the unreimbursed costs incurred in obtaining the same and the balance, if any, shall be paid to Seller (for the period prior to the Closing Date) and to Purchaser (for the period commencing with the Closing Date).

HNZW/511704_4.doc/3583-98

(d) Insurance Policies . No insurance policies of Seller are to be transferred to Purchaser, and no apportionment of the premiums therefor shall be made.

(e) Net Adjustments . If a net amount is owed by Seller to Purchaser pursuant to this Section 9.1 , such amount shall be credited against the Purchase Price. If a net amount is owed by Purchaser to Seller pursuant to this Section 9.1 , such amount shall be added to the Purchase Price.

9.2 Closing Costs .

(a) Purchaser’s Closing Costs . Purchaser shall pay the following costs in connection with the consummation of the Closing: (i) the premium charges for Purchaser’s title policies and all of the charges for any endorsements thereto and (ii) all other charges incurred by Purchaser in connection with this Agreement (including, without limitation, the fees and expenses of Purchaser’s attorneys and other consultants).

(b) Seller’s Closing Costs . Seller shall pay the following costs in connection with the consummation of the Closing: (i) all of the charges and transfer taxes for recording the deeds; (ii) all commissions owed to any broker in accordance with the terms of a separate agreement between Seller and such broker; and (iii) all other charges incurred by the Seller in connection with this Agreement (including, without limitation, the fees and expenses for the Seller’s attorneys and other consultants).

9.3 Survival . Notwithstanding any term herein to the contrary, the covenants contained in this Article 9 shall survive closing for a period of one year following the Closing Date or such shorter period as may be specified herein and each party’s obligation to pay any applicable closing costs in accordance with Section 9.2 shall survive any earlier termination of this Agreement.

ARTICLE 10
DAMAGE TO OR CONDEMNATION OF PROPERTY

10.1 Casualty . If, prior to the Closing, all or any material part of the Facility is destroyed or materially damaged by fire or other casualty, Seller shall promptly notify Purchaser of such fact. In such event, Purchaser shall have the right to terminate this Agreement (in whole but not in part) by giving notice thereof to Seller not later than ten (10) days after receiving Seller’s notice (and, if necessary, the Closing Date shall be extended until the second Business Day after the expiration of such ten-day period). If Purchaser elects to terminate this Agreement as aforesaid, the Deposit shall be paid to Purchaser, whereupon, this Agreement shall terminate and be of no further force and effect and no party shall have any rights or obligations hereunder except for the Surviving Obligations. If less than a material part of the Facility shall be affected or if Purchaser shall not elect to terminate this Agreement as aforesaid, there shall be no abatement of the Purchase Price and Seller shall assign to Purchaser at the Closing all of Seller’s right, title and interest in and to the proceeds, if any, under Seller’s insurance policies covering such Property with respect to such damage or destruction and there shall be credited against the Purchase Price the amount of any applicable deductible.

HNZW/511704_4.doc/3583-98

10.2 Condemnation . If, prior to the Closing, all or any material part of the Facility is taken by eminent domain (or becomes the subject of a pending taking which has not yet been consummated), Seller shall notify Purchaser of such fact promptly after obtaining knowledge thereof and Purchaser shall have the right to terminate this Agreement (in whole but not in part) by giving notice thereof to Seller not later than ten (10) days after the giving of Seller’s notice (and, if necessary, the Closing Date shall be extended until the second day after the expiration of such ten-day period). If Purchaser elects to terminate this Agreement as aforesaid, the Deposit shall be paid to Purchaser, whereupon, this Agreement shall terminate and be of no further force and effect and no party shall have any rights or obligations hereunder except for the Surviving Obligations. If less than a material part of the Facility shall be affected or if Purchaser shall not elect to terminate this Agreement as aforesaid, the sale of the Facility shall be consummated as herein provided without any adjustment to the Purchase Price (except to the extent of any condemnation award received by Seller prior to the Closing) and Seller shall assign to Purchaser at the Closing all of Seller’s right, title and interest in and to all awards, if any, for the taking, and Purchaser shall be entitled to receive and keep all awards for the taking of the Facility or portion thereof.

ARTICLE 11
INDEMNIFICATION AND DEFAULT

11.1 Seller’s Indemnification . Seller will defend, indemnify and hold Purchaser harmless against and in respect of any and all liability, damage, loss, cost, and expenses arising out of or otherwise in respect of: (a) any misrepresentation, breach of warranty, or non-fulfillment of any agreement or covenant made by Seller in this Agreement; (b) the ownership and/or operation of the Facility prior to the Closing Date; (c) any and all actions, suits, proceedings, audits, judgments, costs, and legal and other expenses incident to any of the foregoing or to the enforcement of this Section 11.1 .

11.2 Purchaser’s Indemnification . Purchaser will defend, indemnify and hold Seller harmless against and in respect of any and all liability, damage, loss, cost, and expenses arising out of or otherwise in respect of: (a) any misrepresentation or breach of warranty contained in this Agreement; (b) the ownership and/or operation of the Facility on and after the Closing Date; (c) any and all actions, suits, proceedings, audits, judgments, costs, and legal and other expenses incident to any of the foregoing or to the enforcement of this Section 11.2 .

11.3 Default by Seller . If, on or prior to the Closing, Seller shall have made any representation or warranty herein which shall be untrue or misleading in any material respect, or if Seller shall fail to perform any of the material covenants and agreements contained herein to be performed by Seller, Purchaser may, as its sole and exclusive remedy at law or in equity, elect to either (a) terminate this Agreement and receive a refund of the Deposit (following which no party shall have any rights or obligations hereunder except for the Surviving Obligations) or (b) pursue a suit for specific performance.

HNZW/511704_4.doc/3583-98

11.4 Default by Purchaser . If, on or prior to Closing, Purchaser shall have made any representation or warranty herein which shall be untrue or misleading in any material respect, or if Purchaser shall fail to perform any of the covenants and agreements contained herein to be performed by it, Seller, as its sole and exclusive remedy at law or in equity, may terminate this Agreement and retain the Deposit, as liquidated damages and not as a penalty. The parties agree that in the event of such a default, it would be extremely difficult or impossible to determine Seller’s actual damages and that the liquidated damages amount is a reasonable estimate thereof. Following any such termination, no party shall have any rights or obligations hereunder except for the Surviving Obligations.

ARTICLE 12
MISCELLANEOUS

12.1 Brokers . Except as disclosed on Schedule 12.2 hereto neither party has dealt with any broker, finder or like agent in connection with this Agreement or the transactions contemplated hereby. Each party shall indemnify, defend and hold harmless the other parties from and against any loss, liability or expense, including, without limitation, reasonable attorneys’ fees, arising out of any claim or claims for commissions or other compensation for bringing about this Agreement or the transactions contemplated hereby made by any other broker, finder or like agent, if such claim or claims are based in whole or in part on dealings with the indemnifying party.

12.2 Notices .

(a) Form of Notices . Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement may be given by the attorneys of the parties and shall be deemed adequately given if in writing. All such notices shall be delivered either in hand, by facsimile with written confirmation of transmission, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b) Timing of Notices . All notices shall be deemed to have been given for all purposes of this Agreement upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. For purposes of any notice given by facsimile, the date of receipt shall be the date of transmission (as confirmed by electronic confirmation of transmission generated by the sender’s machine).

if to Seller, to: Benton Property Holdings, LLC

Two Buckhead Plaza

3050 Peachtree Road NW, Suite 355

Atlanta, Georgia 30305

Attn: CEO

HNZW/511704_4.doc/3583-98


If to Purchaser, to:	Bozeman Development LLC

1197 Greenville Highway

#23

Hendersonville NC 28792

Attn: Kris Compton


If to Escrow Agent, to:	_________________________

_________________________

Attn: ____________________

Facsimile No. _____________

(d) Change of Notice Addresses . By notice given as herein provided, the parties hereto shall have the right from time to time and at any time to change their respective addresses to any other address within the United States of America effective upon receipt by the other parties of such notice.

12.3 Waivers . Any waiver of any term or condition of this Agreement, or of the breach of any covenant, representation or warranty contained herein, in any one instance, shall not operate as or be deemed to be or construed as a further or continuing waiver of any other breach of such term, condition, covenant, representation or warranty or any other term, condition, covenant, representation or warranty, nor shall any failure at any time or times to enforce or require performance of any provision hereof operate as a waiver of or affect in any manner such party’s right at a later time to enforce or require performance of such provision or any other provision hereof.

12.4 Amendments . This Agreement may not be amended, nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing executed by or on behalf of the party against whom enforcement of any amendment, waiver, change, modification, consent or discharge is sought.

12.5 Assignment; Successors and Assigns . This Agreement and all rights and obligations hereunder shall not be assignable by Purchaser without the prior written consent of Seller, except that Purchaser may assign this Agreement to one or more entities owned and/or controlled, directly or indirectly, by Purchaser upon not less that three (3) Business Days’ prior notice to Seller. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement is not intended and shall not be construed to create any rights in or to be enforceable in any part by any other persons or entities.

HNZW/511704_4.doc/3583-98

12.6 Severability . If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflict of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case.

12.7 Counterparts, Etc . This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any such counterparts or signatures may be delivered by facsimile or e-mail (in .pdf format), and any counterparts or signatures so delivered shall be deemed an original counterpart or signature for all purposes related to this Agreement.

12.8 Integration . This Agreement and the documents referenced herein constitute the entire agreement of the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

12.9 Attorneys’ Fees . Notwithstanding anything contained herein to the contrary, if any lawsuit or arbitration or other legal proceeding arises in connection with the interpretation or enforcement of this Agreement, the prevailing party therein shall be entitled to receive from the other party the prevailing party’s costs and expenses, including reasonable attorneys’ fees incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts shall be included in any judgment therein.

12.10 Section and Other Headings . The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

12.11 No Presumption Against Drafter . This Agreement has been extensively negotiated between Seller and Purchaser and none of the provisions set forth herein shall be construed narrowly against either party on the account of the fact that such party (or its attorney) drafted such provision.

12.12 Time of Essence . Time shall be of the essence with respect to the performance of each and every covenant and obligation, and the giving of all notices, under this Agreement.

HNZW/511704_4.doc/3583-98

12.13 Performance on Business Days . In the event the date on which performance or payment of any obligation of a party required hereunder is other than a Business Day, the time for payment or performance shall automatically be extended to the first Business Day following such date.

12.14 Governing Law . This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the State of Arkansas.

12.15 Survival . The provisions of this Article 12 shall survive the Closing hereunder.

[Signatures on Following Page]

HNZW/511704_4.doc/3583-98

IN WITNESS WHEREOF , the parties have caused this Agreement to be executed as of the date first above written.



		SELLER:

		BENTON PROPERTY HOLDINGS, LLC,
		a Georgia limited liability company

		By:	/s/ William McBride, III
		Name:	William McBride, III
		Title:	Manager


		PURCHASER:

		Bozeman Development, LLC,
		a Texas limited liability company

		By:	/s/ Kris Compton
		Name:	Kris Compton
		Title:	Manager

HNZW/511704_4.doc/3583-98

IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly

executed as of the day and year first above written.



		SELLER:

		BENTON PROPERTY HOLDINGS, LLC,
		a Georgia limited liability company

		By:	/s/ William McBride, III
		Name:	William McBride, III
		Title:	Manager


		PURCHASER:

		Bozeman Development, LLC,
		a Texas limited liability company

		By:	/s/ Kris Compton
		Name:	Kris Compton
		Title:	Manager

HNZW/511704_4.doc/3583-98

SCHEDULE 12.2

BROKERS

None.

HNZW/511704_4.doc/3583-98

EXHIBIT “A”

LEGAL DESCRIPTION



Address: 224 S. Main Street, Bentonville, Arkansas 72712

Lot 1, Rose Care, Inc. Addition, being a replat of part of Lot 8, Lots 9 & 15 of the Railroad
Addition, to the City of Bentonville, Benton County, Arkansas, as shown on Plat Record “11”, at
Page 159.

HNZW/511704_4.doc/3583-98

EXHIBIT “B”

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (hereinafter referred to as “Escrow Agreement”) is made and entered into as of ______________ __, 2015 by and among BENTON PROPERTY HOLDINGS, LLC , a Georgia limited liability company (hereinafter referred to as “Seller” ); (ii) ____________________, a _________ ____________________, or its designee (hereinafter referred to as “ Purchaser ”), and (iii) ________________________ , (hereinafter referred to as “ Escrow Agent ”).

WHEREAS , Seller and Purchaser have entered into a Purchase and Sale Agreement (“ Purchase and Sale Agreement ”) dated as of _______________ __, 2015 for the purchase and sale of certain real property located at 224 South Main Street, Bentonville, Arkansas 72712 which is the subject of the Purchase and Sale Agreement (hereinafter referred to as the “ Property ”); and

WHEREAS , Purchaser and Seller desire to have Escrow Agent hold certain earnest money funds in escrow as required under the Purchase and Sale Agreement pursuant to the terms hereof;

NOW, THEREFORE , in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto covenant and agree as follows:

Seller and Purchaser hereby appoint ________________________ as Escrow Agent hereunder.

Purchaser has, or will, deposit and deliver to Escrow Agent a wire transfer in the amount of ___________________ and NO/100 Dollars ($____________) (the “Earnest Money” ) representing the Earnest Money due under the Purchase and Sale Agreement. Additional monies may be deposited with Escrow Agent as may be provided in the Purchase and Sale Agreement, all of which are to be held and disbursed as provided herein.

Escrow Agent agrees to deposit the funds in a non-interest bearing Georgia IOLTA attorney’s escrow account and to hold and disburse the funds as herein provided. Notwithstanding anything to the contrary contained in the Purchase and Sale Agreement, the undersigned hereby agree that the disposition of the Earnest Money shall be solely governed by this Escrow Agreement.

Upon written notification from Purchaser and Seller that the contemplated sale is to be consummated, or in the alternative, that the contemplated sale shall not take place, Escrow Agent shall deliver the Earnest Money as jointly instructed by the parties, assuming said written instructions are mutually compatible. In the event of a dispute between any of the parties hereto sufficient in the sole discretion of Escrow Agent to justify its doing so, Escrow Agent shall be entitled to tender into the registry or custody of any court of competent jurisdiction all money or property in its hands held under the terms of this Escrow Agreement, together with such legal pleadings as it deems appropriate, and thereupon be discharged. Escrow Agent shall be fully indemnified by the parties hereto for all his expenses, costs, and attorney's fees incurred in connection with any interpleader action which Escrow Agent may file, in its sole discretion, to resolve any dispute as to the Deposit, or which may be filed against the Escrow Agent. Escrow Agent's estimate of such costs, expenses

HNZW/511704_4.doc/3583-98

or attorney's fees, may be deducted from the Deposit, and the parties hereby authorize and direct Escrow Agent to sever said estimate from the Deposit and acknowledge and agree that the interpleaded amount shall be the Deposit minus said estimate. The undersigned parties hereby agree that upon a final judgment of any action with regard to a dispute as to the Deposit, Escrow Agent shall be reimbursed from the corpus of the amount interpleaded for any costs, expenses or attorney's fees in excess of the said severed and retained estimate, and will remit to the parties to the action any excess amount remaining after payment of all Escrow Agent's costs, expenses and attorney's fees, in accordance with any directive contained within the final judgment. The undersigned Purchaser and Seller hereby consent to the ______________ Court of ___________ County, ___________, as the venue for said interpleader action, or any other civil action with regard to this Agreement.

The parties hereto covenant and agree that in performing any of its duties under this Escrow Agreement, Escrow Agent shall not be liable for any loss, costs or damage which it may incur as a result of serving as Escrow Agent hereunder, except for any loss, costs or damage arising out of its willful default or gross negligence.

Accordingly, Escrow Agent shall not incur any liability with respect to (i) any action taken or omitted to be taken in good faith upon advice of its counsel given with respect to any questions relating to its duties and responsibilities or (ii) any action taken or omitted to be taken in reliance upon any document, including any written notice of instruction provided in this Escrow Agreement, not only as to its due execution and the validity and effectiveness of its provisions, but also the truth and accuracy of any information contained therein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by a proper person or persons and to conform with the provisions of this Escrow Agreement. Escrow Agent shall not incur any liability for any loss or fund due to bank or other depository failure, suspension or cessation of business or any action or inaction on the part of the bank or other depository. Escrow Agent is specifically authorized to refuse to act except upon the written instructions of Purchaser and Seller.

Purchaser and Seller hereby agree to indemnify and hold harmless Escrow Agent against any and all losses, claims, damages, liabilities and expenses, including without limitation, cost of investigation and attorneys’ fees and disbursements which may be imposed upon or incurred by Escrow Agent in connection with its serving as Escrow Agent hereunder.

If Purchaser should subsequently deliver any additional Earnest Money to Escrow Agent in connection with the sale contemplated by this Escrow Agreement, Escrow Agent shall hold such additional Earnest Money under the terms of this Escrow Agreement, unless instructed otherwise in writing by the parties.

[Signatures are set forth on the immediately following page.]

HNZW/511704_4.doc/3583-98

Exhibit 4.3

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE.

ADCARE HEALTH SYSTEMS, INC.

10% CONVERTIBLE SUBORDINATED NOTE DUE APRIL 30, 2017

No. ____

Issuance Date: April 30, 2015 Original Principal Amount: U.S.

This 10% CONVERTIBLE SUBORDINATED NOTE (including all 10% Convertible Subordinated Notes issued in transfer or replacement hereof, this “ Note ”) is one of a series of 10% Convertible Subordinated Notes originally issued by AdCare Health Systems, Inc., a Georgia corporation (the “ Company ”), as contemplated by the Company’s Confidential Offering Memorandum dated March 24, 2015, and pursuant to Subscription Agreements relating thereto between the Company and the Persons signatory thereto (collectively, the “ Notes ”). Certain capitalized terms used herein are defined in Section 24.

FOR VALUE RECEIVED , the Company hereby promises to pay to ____________ or his, her or its registered assigns (the “ Holder ”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms of this Note by redemption, conversion or otherwise, the “ Principal ”) when due, whether upon the Maturity Date, acceleration, redemption or otherwise (in each case in accordance with the terms of this Note) and to pay interest on any outstanding Principal (“ Interest ”) at the applicable interest rate from the date set forth above as the Issuance Date (the “ Issuance Date ”) until the same becomes due and payable, whether upon an Interest Payment Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms of this Note).

1. Payments of Principal . On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal and accrued and unpaid Interest thereon.

2. Interest; Interest Rate; Default Interest Rate . Interest on this Note shall: (i) accrue daily on the outstanding Principal commencing on the Issuance Date, (ii) be computed on the basis of a 360-day year of twelve 30-day months, and (iii) be payable in cash in arrears on each of March 31, June 30, September 30 and December 31 of each year during which this Note remains outstanding and the Maturity Date (each, an “ Interest Payment Date ”), with the first Interest Payment Date being, notwithstanding the foregoing, June 30, 2015. Interest hereunder shall be paid to the record holder of this Note. Absent an Event of Default (as defined in Section 4), Interest on the outstanding

870353_2

Principal shall accrue at the rate of 10.00% per annum (the “ Interest Rate ”). During the existence and continuance of an Event of Default, the outstanding Principal shall accrue Interest at a rate of 14.00% per annum (the “ Default Rate ”); provided , however , that if such Event of Default is subsequently cured, then the rate of Interest on this Note will be reduced from the Default Rate to the Interest Rate on the date of such cure.

3. Conversion of Notes . This Note shall be convertible into shares of the Company’s common stock, no par value (the “ Common Stock ”), on the terms and conditions set forth in this Section 3. The shares of Common Stock issuable upon conversion of this Note pursuant to this Section 3 are referred to herein collectively as the “ Conversion Shares .”

(a) Conversion Right . Subject to the provisions of Section 3(d), the Holder shall be entitled to convert any Conversion Amount (as defined in Section 3(b)(i)) into fully paid and nonassessable Conversion Shares in accordance with Section 3(c), at the Conversion Rate (as defined in Section 3(b)). The Company shall not issue any fractional Conversion Shares upon any conversion. If the issuance would result in the issuance of a fractional Conversion Share, then the Company shall round such fractional Conversion Share to the nearest whole Conversion Share. The Company shall pay any and all expenses of issuance, including transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Conversion Shares.

(b) Conversion Rate . The number of Conversion Shares issuable upon conversion of any Conversion Amount shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “ Conversion Rate ”).

(i) “ Conversion Amount ” means the sum of (A) the amount of outstanding Principal to be converted, redeemed or otherwise with respect to which this determination is made, plus (B) the amount of accrued and unpaid Interest with respect to such Principal.

(ii) “ Conversion Price ” is $4.25.

(i) Optional Conversion . To convert any Conversion Amount into Conversion Shares on any date (a “ Conversion Date ”), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or before 5:00 p.m., Atlanta Time, on such date, a copy of an executed notice of conversion in the form attached as Exhibit I (the “ Conversion Notice ”) to the Company and (B) surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or provide an indemnification undertaking acceptable to the Company with respect to this Note in the case of its loss, theft or destruction). On or before the second (2nd) Business Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the third (3rd) Trading Day following the date of receipt of a Conversion Notice, the Company shall: (x) provided that (1) the Transfer Agent is participating in the Depository Trust Company’s (“ DTC ”) Fast Automated

Securities Transfer Program and (2) the Registration Condition is satisfied, credit such aggregate number of Conversion Shares to which the Holder shall be entitled to the Holder’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or if the Registration Condition is not satisfied, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of Conversion Shares to which the Holder shall be entitled, provided , however , that such certificate shall bear the following restrictive legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE.

Notwithstanding anything herein to the contrary, the Company shall not be obligated to issue any Conversion Shares until this Note is physically surrendered to the Company, or the Holder notifies the Company that this Note has been lost, stolen or destroyed and provides an indemnification undertaking acceptable to the Company to indemnify the Company from any loss incurred by it in connection therewith. If the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than four (4) Trading Days after receipt of this Note and at its own expense, issue and deliver to the Holder a new Note (in accordance with Section 14(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the Conversion Shares issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such Conversion Shares.

(ii) Company’s Failure to Timely Convert . If the Company shall fail to issue a certificate to the Holder or credit the Holder’s balance account with DTC for the number of Conversion Shares which the Company is obligated to issue to the Holder upon conversion of any Conversion Amount on or prior to the date which is three (3) Trading Days after the Company’s receipt of the facsimile (or otherwise delivered) copy of a Conversion Notice, then the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued before the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3) Trading Days after the

Company’s receipt of the facsimile (or otherwise delivered) copy of a Conversion Notice, the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Company is obligated to issue to the Holder upon conversion of any Conversion Amount or on any date of the Company’s obligation to deliver Conversion Shares as contemplated pursuant to clause (y) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a “ Buy-In ”), then the Company shall, within three (3) Trading Days after the Holder’s request and in the Holder’s discretion, either (x) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate and the applicable portion of the Note will be deemed to have been converted, or (y) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (I) such number of shares of Common Stock, times (II) the Closing Bid Price on the Conversion Date.

(iii) Registration; Book-Entry . The Company shall maintain a register (the “ Register ”) for the recordation of the names and addresses of the Holders of the Notes and the principal amount of the Notes held by such Holders (the “ Registered Notes ”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Company and the Holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest hereunder, notwithstanding notice to the contrary. Subject to compliance with any requirements of applicable federal and state securities laws and regulations and the provisions of Section 13: (A) a Holder may assign or sell a Registered Note in whole or in part only by registration of such assignment or sale on the Register; and (B) upon its receipt of a request to assign or sell all or part of any Registered Note by the Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 14.

(iv) Pro Rata Conversion; Disputes . In the event that the Company receives a Conversion Notice from more than one Holder of the Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each Holder of the Notes electing to have Notes converted on such date a pro rata amount of such Holder’s portion of such Holder’s Notes submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such Holder relative to the aggregate principal amount of all the Notes submitted for conversion on such date. In the event of a dispute as to the number of Conversion Shares issuable to the Holder in

connection with a conversion of this Note, the Company shall issue to the Holder the number of Conversion Shares not in dispute and resolve such dispute in accordance with Section 19.

(v) Company Optional Redemption . If (i) at any time after the Issuance Date the arithmetic average of the Weighted Average Price of the Common Stock for any ten (10) consecutive Trading Days equals or exceeds 125% of the Conversion Price (subject to appropriate adjustments pursuant to Section 6) and (ii) the Resale Condition has been satisfied as of the Company Optional Redemption Notice Date (as defined below), then the Company shall have the right, at its option and sole discretion, and without penalty, to redeem all or any portion of the outstanding Principal under this Note (the “ Company Optional Redemption Amount ”) as designated in the Company Optional Redemption Notice (as defined below) (a “ Company Optional Redemption ”). The portion of this Note subject to redemption under this Section shall be redeemed by the Company in cash at a price equal to the sum of (i) 100% of the outstanding Principal being redeemed plus (ii) any accrued and unpaid Interest on such outstanding Principal (the “ Company Optional Redemption Price ”). The Company may exercise its right to require redemption under this Section by delivering a written notice by facsimile or overnight courier to the Holder (the “ Company Optional Redemption Notice ,” and the date the Company sends such notice is referred to as the “ Company Optional Redemption Notice Date ”). Each Company Optional Redemption Notice shall be irrevocable unless revocation by the Company is consented to by the Holder in writing. The Company Optional Redemption Notice shall state (x) the date on which the Company Optional Redemption shall occur (the “ Company Optional Redemption Date ”), which date shall not be prior to March 31, 2016, and shall not be less than sixty (60) days following the Company Optional Redemption Notice Date, and (y) the aggregate outstanding Principal of this Note which the Company has elected to be subject to Company Optional Redemption from the Holder pursuant to this Section 3(c)(v) on the Company Optional Redemption Date. Notwithstanding anything to the contrary in this Section 3(c)(v), until the Company Optional Redemption Price is paid, in full, the Company Optional Redemption Amount may be converted, in whole or in part, by the Holders into Conversion Shares pursuant to Section 3. If the Holder so elects, any or all of the Principal converted by the Holder after the Company Optional Redemption Notice Date shall reduce the Company Optional Redemption Amount of this Note required to be redeemed on the Company Optional Redemption Date. Redemptions made pursuant to this Section 3(c)(v) shall be made in accordance with Section 9.

(d) Limitations on Conversions; Beneficial Ownership .

(i) Notwithstanding anything in this Note to the contrary, the Company shall not effect any conversion of this Note, and the Holder shall not have the right to convert any portion of this Note pursuant to Section 3, to the extent that after giving effect to such conversion, the Holder (together with the Holder’s Affiliates) would (A) beneficially own in excess of 4.9% (the “ Maximum Percentage ”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion, or (B) control in excess of the Maximum Percentage of the total voting power of the Company’s securities outstanding

immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (1) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its Affiliates and (2) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Notes) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written request of the Holder, the Company shall within two (2) Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.9% specified in such notice; provided that (1) any such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (2) any such increase or decrease will apply only to the Holder and not to any other Holder of Notes.

(ii) The Company shall not be obligated to issue any Conversion Shares upon conversion of this Note if the issuance of such shares would exceed the aggregate number of shares of Common Stock which the Company may issue upon conversion of the Notes without breaching the Company’s obligations under the rules or regulations of the Principal Market or any other Eligible Market on which the Conversion Stock is then quoted or listed (the “ Exchange Cap ”), except that such limitation shall not apply in the event that the Company obtains the approval of its shareholders as required by the applicable rules of the Principal Market (or such Eligible Market, as applicable) for issuances of Common Stock in excess of such amount. Unless such approval is obtained, no Holder of the Notes shall be issued in the aggregate upon conversion of Notes, Conversion Shares in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by such Holder of outstanding Notes and the denominator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by all Holders of outstanding Notes (with respect to each Holder, the “ Exchange Cap Allocation ”). In the event that any Holder shall

sell or otherwise transfer any of such Holder’s Notes, the transferee shall be allocated a pro rata portion of such Holder’s Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any Holder of Notes shall convert all of such Holder’s Notes into a number of Conversion Shares which, in the aggregate, is less than such Holder’s Exchange Cap Allocation, then the difference between such Holder’s Exchange Cap Allocation and the number of Conversion Shares actually issued to such Holder shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Notes on a pro rata basis in proportion to the aggregate Outstanding Principal amount of the Notes then held by each such Holder.

(iii) The Company shall not be obligated to issue any Conversion Shares upon conversion of this Note until the Principal Market has approved the additional listing of such Conversion Shares. The Company shall apply for such approval as soon as practicable after the Issuance Date.

4. Rights Upon Event of Default .

(a) Event of Default . An Event of Default (as defined below) may only be waived by the written consent of the Holder. Unless waived pursuant to the immediately preceding sentence, each of the following events shall constitute an “ Event of Default ”:

(i) the Company’s failure to pay to the Holder any amount of Principal or Interest by the seventh (7 ^th ) Business Day following the date when due under this Note (including, without limitation, the Company’s failure to pay any redemption amounts hereunder);

(ii) the Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, “ Bankruptcy Law ”), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a “ Custodian ”), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; or

(iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its subsidiaries or (C) orders the liquidation of the Company or any of its subsidiaries.

(b) Redemption Right . Upon the occurrence and during the continuance of an Event of Default with respect to this Note, the Company shall within two (2) Business Days deliver written notice thereof via facsimile and overnight courier (an “ Event of Default Notice ”) to the Holder. Subject to Section 11(c), at any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the

“ Event of Default Redemption Notice ”) to the Company, which Event of Default Redemption Notice shall indicate the Conversion Amount of this Note the Holder is electing to require the Company to redeem. The portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the Conversion Amount to be redeemed as specified in the Event of Default Redemption Notice (the “ Event of Default Redemption Price ”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 9 and Section 11(c). To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

5. Rights Upon Change of Control .

(a) No sooner than twenty (20) days nor later than ten (10) days prior to the consummation of a Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “ Change of Control Notice ”). At any time during the period commencing on the earlier to occur of (i) any definitive written agreement by the Company, which upon consummation of the transaction contemplated thereby would reasonably be expected to result in a Change of Control, and (ii) the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change of Control, the Required Holders may require the Company to redeem all or any portion of this Note (and a pro rata portion of all of the other Notes) by delivering written notice thereof (“ Holders Change of Control Redemption Notice ”) to the Company, which Holders Change of Control Redemption Notice shall indicate the Conversion Amount of this Note (and the pro rata portion of all of the other Notes) that the Required Holders are electing to require the Company to redeem. The portion of this Note subject to redemption pursuant to this Section 5(a) shall be redeemed by the Company in cash at a price equal to the Conversion Amount to be redeemed as specified in the Holders Change of Control Redemption Notice (the “ Holders Change of Control Redemption Price ”).

(b) In addition, at any time during the period commencing on the earlier to occur of (i) any definitive written agreement by the Company, which upon consummation of the transaction contemplated thereby would reasonably be expected to result in a Change of Control, and (ii) the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change of Control, the Company may redeem all or any portion of this Note (and a pro rata portion of all of the other Notes) by delivering written notice thereof (“ Company Change of Control Redemption Notice ”) to the Holder, which Company Change of Control Redemption Notice shall indicate the Conversion Amount of this Note (and the pro rata portion of all of the other Notes) that the Company is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Company in cash at a price equal to the Conversion Amount to be redeemed as specified in the Company Change of Control Redemption Notice (the “ Company Change of Control Redemption Price ”).

(c) Redemptions required by Section 5(a) or Section 5(b) shall be made in accordance with the provisions of Section 9 and Section 11(c) and shall have priority to payments to shareholders in connection with a Change of Control. To the extent redemptions required by Section 5(a) or Section 5(b) are deemed or determined by a court of competent jurisdiction to be

prepayments of the Notes by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d): (i) until the Holders Change of Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under Section 5(a) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3 and, if so converted, the Holder shall not be entitled to receive the Holders Change of Control Redemption Price with respect to such Conversion Amount; and (ii) until the Company Change of Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under Section 5(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3 and, if so converted, the Holder shall not be entitled to receive the Company Change of Control Redemption Price with respect to such Conversion Amount.

6. Conversion Price Adjustments .

(a) [Intentionally Omitted].

(b) Adjustment of Conversion Price Upon Subdivision or Combination of Common Stock . If the Company at any time on or after the Issuance Date subdivides (by any stock dividend, stock split, recapitalization or otherwise) outstanding shares of its Common Stock into a greater number of shares, then the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) outstanding shares of its Common Stock into a smaller number of shares, then the Conversion Price in effect immediately prior to such combination will be proportionately increased.

7. Noncircumvention . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note.

8. Reservation of Authorized Shares .

(a) Reservation . The Company shall initially reserve out of its authorized and unissued Common Stock a number of Conversion Shares for each of the Notes equal to 120% of the Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date (assuming the Notes are convertible on such date). So long as any of the Notes are outstanding, the Company shall take all action reasonably necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, 120% of the number of the Conversion Shares as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding; provided that at no time shall the number of Conversion Shares so reserved be less than the number of Conversion Shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the “ Required Reserve Amount ”). The initial number of Conversion Shares reserved for conversions of the Notes and each increase in the number of Conversion Shares so reserved shall be allocated pro rata among

the Holders of the Notes based on the Original Principal Amount of the Notes purchased by each Holder or increase in the number of reserved Conversion Shares, as the case may be (the “ Authorized Share Allocation ”). In the event that the initial Holder of any Notes shall sell or otherwise transfer any of such Holder’s Notes, each transferee shall be allocated a pro rata portion of such Holder’s Authorized Share Allocation. Any Conversion Shares reserved and allocated to any Person that ceases to hold any Notes shall be allocated to the remaining Holders of the Notes, pro rata based on the Principal amount of the Notes then held by such Holders.

(b) Insufficient Authorized Shares . If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of Conversion Shares equal to the Required Reserve Amount (an “ Authorized Share Failure ”), then the Company shall use commercially reasonable efforts to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than one hundred twenty (120) days after the occurrence of such Authorized Share Failure, the Company shall either (i) hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock or (ii) obtain such approval by written consent and take all action necessary to rectify the Authorized Share Failure. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use commercially reasonable efforts to solicit its shareholders’ approval of such increase in authorized shares of Common Stock and to cause the Company’s Board of Directors to recommend to the shareholders that they approve such proposal. In connection with such written consent, the Company shall provide each shareholder with an information statement and shall use commercially reasonable efforts to solicit its shareholders’ approval of such increase in authorized shares of Common Stock and to cause the Company’s Board of Directors to recommend to the shareholders that they approve such proposal.

9. Redemptions .

(a) Mechanics . The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company’s receipt of the Holder’s Event of Default Redemption Notice. If the Required Holders have submitted a Holders Change of Control Redemption Notice in accordance with Section 5(a), then the Company shall deliver the applicable Holders Change of Control Redemption Price to the Holder (i) concurrently with the consummation of such Change of Control if such notice is received at least three (3) Business Days prior to the consummation of such Change of Control and (ii) within five (5) Business Days after the Company’s receipt of such notice otherwise. If the Company has submitted a Company Change of Control Redemption Notice in accordance with Section 5(b), then the Company shall deliver the applicable Company Change of Control Redemption Price to the Holder within five (5) Business Days after the consummation of such Change of Control. In the event of a redemption of a Conversion Amount which is less than all of the outstanding Principal of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 14(d)) representing the outstanding Principal which has not been redeemed. In the

event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price has not been paid. Upon the Company’s receipt of such notice, (A) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (B) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 14(d)) to the Holder representing such Conversion Amount to be redeemed and (C) the Conversion Price of this Note or such new Notes shall be adjusted to the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided.

(b) Redemption by Other Holders . If the Company receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date which is three (3) Business Days prior to the Company’s receipt of the Holder’s Redemption Notice and ending on and including the date which is three (3) Business Days after the Company’s receipt of the Holder’s Redemption Notice and the Company is unable to redeem all amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each Holder of the Notes (including the Holder) based on the principal amount of the Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven (7) Business Day period.

10. Voting Rights . This Note shall not entitle the Holder to any of the rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of shareholders or any other proceedings of the Company, unless and to the extent converted into Conversion Shares in accordance with the terms hereof.

11. Subordination .

(a) Subordination to Senior Debt . The Company, for itself, its successors and assigns, covenants and agrees, and the Holder by acceptance of this Note, likewise covenants and agrees that the payment of the Principal of, Interest on and all other amounts with respect to this Note is subordinated in right of payment to the payment of all existing and future Senior Debt (as defined below) of the Company. “ Senior Debt ” means the principal of, premium, if any, and accrued and unpaid interest on, and all other amounts with respect to, all Indebtedness of the Company, whether outstanding on the date of issuance of this Note or any of the other Notes or thereafter created, incurred or assumed, unless, in the agreement or instrument creating or evidencing such Indebtedness or pursuant to which the same is outstanding, it is provided that such Indebtedness is subordinated to Senior Debt of the Company or that such Indebtedness is not superior in right of payment to this Note; provided , however , that “Senior Debt” shall not to be deemed to include any Indebtedness of the Company to any of its subsidiaries or Affiliates.

(b) Rank; Future Subordinated Debt . This Note will rank pari passu with all of the other Notes and with all existing and future subordinated debt of the Company, including, without

limitation, the Company’s outstanding Subordinated Convertible Notes due April 30, 2017 and July 31, 2015.

(c) Default . Upon any default of the Company in the payment of principal of or interest on Senior Debt, whether at maturity or otherwise, no payment may be made with respect to the Principal of or Interest on this Note or in respect of any redemption, retirement, purchase or other acquisition of this Note, unless and until such default has been cured or waived or has ceased. Upon any other default with respect to any Senior Debt permitting the holders thereof to accelerate the maturity thereof and upon written notice thereof given to the Company, no payment may be made with respect to the Principal of or Interest on this Note or in respect of any redemption, retirement, purchase or other acquisition of this Note for a period terminating upon the cure, waiver or cessation of such default.

(d) Liquidation; Dissolution, Etc . Upon any payment or distribution of the assets of the Company to creditors upon any dissolution, total or partial liquidation or reorganization of or similar proceeding relating to the Company, the holders of Senior Debt will be entitled to receive payment in full before the Holder is entitled to receive any payment in respect of this Note.

12. Vote to Issue, or Change the Terms of, Notes . Except as otherwise provided herein, this Note may only be amended by the written consent of the Holder and the Company.

13. Transfer . This Note has been issued subject to certain investment representations of the Holder set forth in the Holder’s Subscription Agreement. This Note and any Conversion Shares issued upon conversion of this Note may not be offered, sold, assigned or transferred by the Holder unless in compliance with, and subject to, this Section 13. The Holder understands and acknowledges that:

(a) the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (i) subsequently registered thereunder, or (ii) the Holder shall have delivered to the Company an opinion of counsel reasonably acceptable to the Company to the effect that the Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from the registration of the Securities Act, including, but not limited to, Rule 144;

(b) without limiting the generality of the foregoing, any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and

(c) neither the Company nor any other Person is under any obligation to register the Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder, except as required under the Registration Rights Agreement.

Notwithstanding the foregoing, the Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and the pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Holder in effecting a pledge of Securities shall not be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Note, including, without limitation, this Section 13; provided , that in order to make any sale, transfer or assignment of Securities, the Holder and the Holder’s pledgee makes the disposition in accordance with or pursuant to a registration statement or an exemption under the Securities Act.

14. Reissuance of this Note .

(a) Transfer and Reissuance . If the Holder seeks to transfer this Note subject to and in compliance with Section 14, then the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 14(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 14(d)) to the Holder representing the outstanding Principal not being transferred.

(b) Lost, Stolen or Mutilated Note . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 14(d)) representing the outstanding Principal.

(c) Note Exchangeable for Different Denominations . This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 14(d) and in Principal amounts of at least $10,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

(d) Issuance of New Notes . Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note: (i) shall be of like tenor with this Note; (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 14(a) or Section 14(c), the Principal designated by the Holder which, when added to the Principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes); (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note; (iv) shall have the same rights and conditions as this Note; and (v) shall represent accrued and unpaid Interest on the Principal from the Issuance Date.

15. Remedies and Injunctive Relief . The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note at law or in equity (including a decree of specific performance and/or other injunctive relief). Amounts set forth or

provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

16. Payment of Collection, Enforcement and Other Costs . If (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note; or (ii) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

17. Construction; Headings . This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.

18. Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

19. Dispute Resolution . In the case of a dispute as to the determination of the Closing Bid Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile (i) the disputed determination of the Closing Bid Price or the Weighted Average Price to an independent, reputable investment bank or financial advisor selected by the Company or (ii) the disputed arithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to the Company’s independent, outside accountant. The Company shall cause the investment bank, financial advisor or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s, financial advisor’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. Each of the Company and the Holder

shall pay 50% of the fees and expenses of such investment bank, financial advisor or accountant, as the case may be, incurred pursuant to this Section 19.

20. Notices; Payments .

(a) Notices . Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Note must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for the communications shall be:

If to the Company:

AdCare Health Systems, Inc.

Two Buckhead Plaza

3050 Peachtree Road NW

Suite 355

Atlanta, GA 30305

Telephone: (404) 781-2884

Facsimile: (404) 842-1899

Attention: Chief Executive Officer

With a copy (for informational purposes only) to:

Rogers & Hardin LLP

2700 International Tower

229 Peachtree Street, N.E.

Atlanta, GA 30303

Telephone: (404) 420-4646

Facsimile: (404) 230-0940

Attention: Lori A. Gelchion, Esq.

If to the Holder, to the Holder’s address and facsimile number provided to the Company on the Holder’s Signature Page to the Holder’s Subscription Agreement (as may be updated by the Holder from time to time in writing to the Company), with copies to:

Institutional Securities Corporation

3500 Oaklawn Avenue, Suite 400

Dallas, TX 75219

Telephone: (214) 520-1115

Facsimile: (214) 520-3203

Attention: Chris Doucet

or to the other address and/or facsimile number and/or to the attention of the other Person as the recipient party has specified by written notice given to each other party. Written confirmation of receipt (A) given by the recipient of the notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of the transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

(b) Notices Upon Certain Events . The Company will give written notice to the Holder (i) as soon as practicable upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(c) Payments . Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing; provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Payment Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date.

21. Cancellation . After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

22. Waiver of Notice . To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.

23. Governing Law . This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Georgia, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Georgia or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Georgia. The Company and the Holder irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of Georgia and of the United States District Court for the

Northern District of Georgia, Atlanta Division, for any lawsuits, claims or other proceedings arising out of or relating to this Note and agree not to commence any such lawsuit, claim or other proceeding except in such courts. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

24. Certain Definitions . For purposes of this Note, the following terms shall have the following meanings:

(a) “ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

(b) “ Bloomberg ” means Bloomberg Financial Markets.

(c) “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

(d) “ Change of Control ” means any Fundamental Transaction other than (i) any consolidation or merger of the Company, or any reorganization, recapitalization or reclassification of the Common Stock, in which holders of the Company’s voting power immediately prior to such consolidation, merger, reorganization, recapitalization or reclassification continue after such consolidation, merger, reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respect, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such consolidation, merger, reorganization, recapitalization or reclassification; or (ii) a Fundamental Transaction (A) in which at least one-half of the members of the Company’s Board of Directors immediately prior to such transaction remain as members of the Company’s Board of Directors immediately after such transaction or (B) in which the replacement of more than one-half of the members of the Company’s Board of Directors immediately after such transaction is approved by a majority of those individuals who are members of the Company’s Board of Directors immediately prior to such transaction.

(e) “ Closing Bid Price ” means, for any security as of any date, the last closing bid price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price then the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported by OTC Markets, Inc. If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 19. All such determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

(f) “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

(g) “ Eligible Market ” means the Principal Market, The New York Stock Exchange, the NYSE MKT, The NASDAQ Global Select Market, The NASDAQ Capital Market, The NASDAQ Global Market or the OTC Bulletin Board.

(h) “ Fundamental Transaction ” means that: (i) the Company shall, directly or indirectly, in one or more related transactions, (A) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, or (B) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (C) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (D) reorganize, recapitalize or reclassify the Voting Stock of the Company; or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial

owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the Company.

(i) “ GAAP ” means United States generally accepted accounting principles, consistently applied.

(j) “ Holders ” or “ Holders of the Notes ” mean, collectively, the holders of the Notes (including, without limitation, the Holder of this Note), and each of the foregoing, individually, a “ Holder ” or “ Holder of the Notes .”

(k) “ Indebtedness ” of any Person means, without duplication: (i) all indebtedness for borrowed money; (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) “capital leases” in accordance with GAAP (other than trade payables entered into in the ordinary course of business); (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments; (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease; (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness; and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

(l) “ Maturity Date ” means April 30, 2017.

(m) “ Original Principal Amount ” means, with respect to any Note, the Original Principal Amount set forth on the first page of such Note on the date of its original issuance.

(n) “ Other Redemption Notice ” means a notice from any of the Holders of the other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(a).

(o) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

(p) “ Principal Market ” means the NYSE MKT.

(q) “ Redemption Notices ” means, collectively, the Event of Default Redemption Notices, the Holders Change of Control Redemption Notices, the Company Change

of Control Redemption Notices and the Company Optional Redemption Notices, and each of the foregoing, individually, a “ Redemption Notice .”

(r) “ Redemption Prices ” means, collectively, the Event of Default Redemption Price, the Holders Change of Control Redemption Price, the Company Change of Control Redemption Price and the Company Optional Redemption Price, and each of the foregoing, individually, a “ Redemption Price .”

(s) “ Registration Condition ” means that the resale of the Conversion Shares shall have been registered under the Securities Act and that such registration continues to be effective and available for such resale.

(t) “ Registration Rights Agreement ” means the Registration Rights Agreement with respect to the Notes to which the Company, the Holder and the Holders of the other Notes are parties.

(u) “ Required Holders ” means the Holders of the Notes representing at least a majority of the aggregate Principal amount of the Notes then outstanding.

(v) “ Resale Condition ” means that either: (i) the Registration Condition is satisfied as of the date of the Company Optional Redemption Notice; or (ii) that the Conversion Shares are salable under Rule 144 of the Securities Act without any volume limitations.

(w) “ Rule 144 ” means Rule 144 promulgated under the Securities Act (or any rule successor thereto).

(x) “ Securities ” means, collectively, this Note and the Conversion Shares.

(y) “ Securities Act ” means the Securities Act of 1933, as amended.

(z) “ Subscription Date ” means the date on which the Company accepts Subscription Agreements for the Notes.

(aa) “ Subscription Agreement ” means the Subscription Agreement between the Company and the Holder, with respect to the issuance of this Note.

(bb) “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).

(cc) “ Voting Stock ” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general

power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

(dd) “ Weighted Average Price ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its “ Volume at Price ” functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume- weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by OTC Markets, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 19.

[Signature Page Follows]

IN WITNESS WHEREOF , the Company has caused this 10% Convertible Subordinated Note Due April 30, 2017 to be duly executed as of the Issuance Date set out above.




		ADCARE HEALTH SYSTEMS, INC.

		By:
		Name:
		Title:

EXHIBIT I

ADCARE HEALTH SYSTEMS, INC.

CONVERSION NOTICE

Reference is made to the 10% Convertible Subordinated Note Due April 30, 2017 (the “ Note ”) issued to the undersigned by AdCare Health Systems, Inc. (the “ Company ”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the amount of the outstanding Principal (as defined in the Note) of the Note indicated below into shares of Common Stock, no par value (the “ Common Stock ”), of the Company, as of the date specified below. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Note.


1.	Date of Conversion:


2.	Amount of outstanding Principal to be converted:


3.	Amount of accrued and unpaid Interest on such outstanding Principal:


4.	Total Conversion Amount (Sum of lines 2 and 3):


5.	Please confirm the following information:

Conversion Price:

Number of shares of Common Stock to be issued in respect of the Conversion Amount:


6.	Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Name of Holder:

Address:

Facsimile Number:

Telephone Number:

By:

Title:

Dated:

Holder Requests Delivery to be made: (check one)

Γ By Delivery of Physical Certificates to the Above Address

Γ Through Depository Trust Corporation

(Broker DTC Participant Code: )



(Broker Name, Telephone and Contact Person:

		)
(Account No.:	)

Exhibit 10.100

20111675.3

07-29-15

TENTH MODIFICATION AGREEMENT

THIS TENTH MODIFICATION AGREEMENT dated as of July 30, 2015 (this “ Agreement ” ), is entered into by and among ADK LUMBER CITY OPERATOR, LLC ( “ Borrower 2 ” ), ADK LAGRANGE OPERATOR, LLC ( “ Borrower 4 ” ), ADK POWDER SPRINGS OPERATOR, LLC ( “ Borrower 5 ” ), ADK THUNDERBOLT OPERATOR, LLC ( “ Borrower 7 ” ), ATTALLA NURSING ADK, LLC ( “ Borrower 9 ” ), MOUNTAIN TRACE NURSING ADK, LLC , an Ohio limited liability company ( “ Borrower 10 ” ), ERIN NURSING, LLC ( “ Borrower 12 ” ), CP NURSING, LLC ( “ Borrower 13 ” ), BENTON NURSING, LLC ( “ Borrower 14 ” ), VALLEY RIVER NURSING, LLC ( “ Borrower 15 ” ), PARK HERITAGE NURSING, LLC ( “ Borrower 16 ” ), HOMESTEAD NURSING, LLC ( “ Borrower 17 ” ), MOUNTAIN VIEW NURSING, LLC ( “ Borrower 19 ” ), LITTLE ROCK HC&R NURSING, LLC ( “ Borrower 21 ” ), COOSA NURSING ADK, LLC ( “ Borrower 25 ” ), and QC NURSING, LLC ( “ Borrower 26 ” ), each a Georgia limited liability company except as hereinabove set forth (the “ Borrowers ” ), ADCARE HEALTH SYSTEMS, INC., a Georgia corporation (the “ Guarantor ” ) (the Borrowers and the Guarantor being sometimes referred to herein collectively as the “ Borrower/Guarantor Parties ” ), and THE PRIVATEBANK AND TRUST COMPANY , an Illinois banking corporation ( “ Lender ” ).

RECITALS

A. The Borrower/Guarantor Parties and the Lender heretofore entered into the following documents (collectively, the “ Documents ” ):

(i) Loan and Security Agreement dated as of September 20, 2012 (the “ Loan Agreement ” ), by and among the Borrowers named therein and the Lender.

(ii) Promissory Note dated September 20, 2012 (the “ Note ” ), from the Borrowers named therein to the Lender in the principal amount as amended effective April 1, 2015, of $6,000,000, and in the principal amount as amended effective August 1, 2015, of $5,750,000.

(iii) Guaranty of Payment and Performance dated as of September 20, 2012, by the Guarantor to and for the benefit of the Lender.

(iv) Pledge Agreement dated as of April 16, 2015 (the “ Pledge Agreement ” ), by the Guarantor to and for the benefit of the Lender.

B. The parties previously entered into following documents (the “ Previous Modifications ” ) which modified and amended or contained additional agreements concerning the Documents (all of which modifications, amendments and additional agreements are referred to herein as “ Amending ” the Documents): (i) the Modification Agreement dated as of October 26, 2012; (ii) the Memorandum of Agreement dated January 25, 2013 (the “ Second Modification ” ); (iii) the Third Modification Agreement dated as of September 30, 2013 (the “ Third Modification ” );

(iv) the Fourth Modification Agreement dated as of November 26, 2013; (v) the Fifth Modification Agreement dated as of July 22, 2014; (vi) the Sixth Modification Agreement dated as of September 24, 2014 (the “ Sixth Modification ” ); (vii) the Seventh Modification Agreement dated as of December 17, 2014 (the “ Seventh Modification ” ); (viii) the Pledge Agreement dated as of April 16, 2015, by the Guarantor to the Lender; (ix) the Eighth Modification Agreement dated as of April 1, 2015 (the “ Eighth Modification ” ); and (x) the Tenth Modification Agreement dated as of May 1, 2015 (the “ Ninth Modification ” ).

C. Borrower 20, Borrower 22 and Borrower 23 (as defined in the Second Modification) were released from their respective obligations under the Documents pursuant to the Second Modification.

D. Borrower 3, Borrower 6 and Borrower 8 (as defined in the Third Modification) were released from their respective obligations under the Documents pursuant to the Third Modification.

E. Borrower 1, Borrower 18 and Borrower 24 (as defined in the Sixth Modification) were released from their respective obligations under the Documents pursuant to the Sixth Modification.

F. Borrower 11 (as defined in the Seventh Modification) was released from its obligations under the Documents pursuant to the Seventh Modification.

G. Borrowers 2, 5, 7, 9, 10, 12 and 25 transferred operations of their facilities with the consent of the Lender granted in the Eighth Modification.

H. Borrowers 4, 13, 16, 17, 19 and 21 transferred operations of their facilities with the consent of the Lender granted in the Ninth Modification.

I. The parties desire to make certain modifications and amendments to the Documents, as Amended by the Previous Modifications, as more fully provided for herein, all as modifications, amendments and continuations of, but not as novations of, the Documents.

AGREEMENTS

In consideration of the premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

Section 1 . Recitals Part of Agreement; Defined Terms; References to Documents .

(a) The foregoing Recitals are hereby incorporated into and made a part of this Agreement.

(b) All capitalized terms used and not otherwise defined in this Agreement shall have the meanings set forth in the Loan Agreement.

- 2 -

(c) Except as otherwise stated herein, all references in this Agreement to any one or more of the Documents shall be deemed to include the Previous Modifications and amendments to the Documents provided for in the Previous Modifications, whether or not express reference is made to such previous modifications and amendments.

Section 2 . Waiver of Financial Covenants for Fiscal Quarter Ended March 31, 2015 . The Borrowers failed to satisfy the covenants contained in Sections 7.12 (Minimum Coverage of Rent and Debt Service) and 7.13 (Minimum Fixed Charge Coverage Ratio of Borrowers) of the Loan Agreement, as modified and amended by the Previous Modifications, for the fiscal quarter ended March 31, 2015. The Borrower/Guarantor Parties hereby request that the Lender waive such non-compliance with Sections 7.12 and 7.13 of the Loan Agreement, and the Lender is willing to do so, subject to the condition that the Borrower/Guarantor Parties shall enter into this Agreement with the Lender. The Borrower/Guarantor Parties hereby agree to that condition by executing this Agreement. The Lender hereby waives compliance with the covenants contained in Sections 7.12 (Minimum Coverage of Rent and Debt Service) and 7.13 (Minimum Fixed Charge Coverage Ratio of Borrowers) of the Loan Agreement, as modified and amended by the Previous Modifications, for the fiscal quarter ended March 31, 2015. The Lender does not hereby waive compliance with any other provisions of the Loan Agreement or any of the other Documents.

Section 3 . Reductions of Loan Amount .

(a) Pursuant to the Eighth Modification, the amount of the Loan and the Note and the Loan Amount were reduced from $8,815,000 to $6,000,000, effective as of the date of April 1, 2015, date of the Eighth Modification.

(b) Pursuant to the Eighth Modification, the amount of the Loan and the Note and the Loan Amount were further reduced from $6,000,000 to $5,750,000, effective as of August 1, 2015.

(c) Pursuant to the Ninth Modification, the amount of the Loan and the Note and the Loan Amount were further reduced from $5,750,000 to $3,750,000, effective as of September 1, 2015.

(d) The date for the reduction of the amount of the Loan and the Note and the Loan Amount from $5,750,000 to $3,750,000 is hereby changed from September 1, 2015, to be the date of this Agreement, and the amount of the Loan and the Note and the Loan Amount are hereby further reduced from $5,750,000 to $3,750,000, effective immediately as of the date of this Agreement, and all of the Documents, as modified and amended by the Previous Modifications, are hereby modified and amended accordingly.

(e) Without limitation on the generality of the foregoing provisions of this Section, the dollar amounts that appear in the Documents, as modified and amended by the Previous Modifications, in reference to the amount of the Loan and the Note are hereby modified and amended to be the respective reduced amounts set forth above in this Section effective as of the respective reduction dates set forth above in this Section, including, without limitation, in the defined term “Loan Amount” in Section 1.1 of the Loan Agreement, in the upper left corner of page 1 of the

- 3 -

Note, in the definition of the term “Loan” in Section 1 of the Note, and in Recital paragraph A of the Guaranty, each as modified and amended by the Previous Modifications.

Section 4 . No Additional Borrowings or Letters of Credit; Cash Collateral .

(a) As of the date of this Agreement, there are no cash borrowings outstanding under the Loan Agreement, and Letters of Credit are outstanding under the Loan Agreement in the face amount of $3,750,000. From and after the date of this Agreement, the Borrowers shall not have the right to receive any additional cash borrowings under the Loan Agreement, or the issuance of any additional Letters of Credit under the Loan Agreement.

(b) From and after the date of this Agreement, the Borrower/Guarantor Parties shall at all times have on deposit with the Lender, in a cash collateral account as security for the Loan in the name of one or more of the Borrowers or the Guarantor, an amount equal to the face amount of all outstanding Letters of Credit.

(c) All of the Documents, as modified and amended by the Previous Modifications, are hereby modified and amended to incorporate the foregoing provisions of this Section.

Section 5 . Elimination of Financial Covenants . So long as the Borrower/Guarantor Parties are in compliance with the provisions of Section 4(b) of this Agreement, the Borrower/Guarantor Parties shall no longer be required to comply with the provisions of Sections 7.12 (Minimum Coverage of Rent and Debt Service), 7.13 (Minimum Fixed Charge Coverage Ratio of Borrowers), 7.14 (AdCare Leverage Ratio) or 7.15 (AdCare Debt Service Coverage Ratio) of the Loan Agreement, as modified and amended by the Previous Modifications, and all of the Documents, as modified and amended by the Previous Modifications, are hereby modified and amended accordingly.

Section 6 . Elimination of Compliance Certificate, Borrowing Base and Accounts Receivable Aging Reporting . So long as the Borrower/Guarantor Parties are in compliance with the provisions of Section 4(b) of this Agreement, the Borrower/Guarantor Parties shall no longer be required to furnish to the Lender compliance certificates, Borrowing Base Certificates or aged schedules of the Accounts of the Borrowers, as provided for in Section 7.4(a) of the Loan Agreement, as modified and amended by the Previous Modifications, and all of the Documents, as modified and amended by the Previous Modifications, are hereby modified and amended accordingly.

Section 7 . Release of Security Interest in Accounts . The Lender hereby releases its security interest in the Accounts of the Borrowers.

Section 8 . Change in Interest Rate . The first sentence in Section 2.1 of the Note, as modified and amended by the Previous Modifications, is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing first sentence in Section 2.1 of the Note to continue to be effective for periods prior to the date of this Agreement:

- 4 -

Except as otherwise expressly provided in this Note, interest shall accrue on the principal balance of this Note through the Maturity Date at a floating per annum rate of interest equal to the “ Prime Rate ” (as defined below), plus 1.0%.

Section 9 . Change in Letter of Credit Fees . Notwithstanding any provision contained in any of the Documents, as modified and amended by the Previous Modifications, the non-refundable annual letter of credit fee payable by the Borrowers to the Lender on the anniversary date of each Letter of Credit shall be an amount equal to 1.5% of the face amount of such Letter of Credit, and all of the Documents, as modified and amended by the Previous Modifications, are hereby modified and amended accordingly.

Section 10 . Attachment to Note . The Lender may, and prior to any transfer by it of the Note shall, attach a copy of this Agreement to the original Note and place an endorsement on the original Note making reference to the fact that such attachment has been made.

Section 11 . Representations and Warranties . The term “ Signing Entity ” as used in this Section means any entity (other than a Borrower/Guarantor Party itself) that appears in the signature block of any Borrower/Guarantor Party in this Agreement, any of the Documents or any of the Previous Modifications, if any. In order to induce the Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby represent and warrant to the Lender as follows as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement:

(a) Each Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of which is stated in the Preambles to this Agreement, and if such State is not the State in which its Facility is located, such Borrower is duly registered or qualified to transact business and in good standing in the State in which its Facility is located. Each Borrower has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party and the Previous Modifications, and to perform and consummate the transactions contemplated hereby and thereby.

(b) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement, each of the Documents to which it is a party and the Previous Modifications, and to perform and consummate the transactions contemplated hereby and thereby.

(c) Each Signing Entity is duly organized, validly existing and in good standing under the laws of the State in which it is organized, has all necessary power and authority to carry on its present business, and has full right, power and authority to execute this Agreement, the Documents and the Previous Modifications in the capacity shown in each signature block contained in this Agreement, the Documents and the Previous Modifications in which its name appears, and such execution has been duly authorized by all necessary legal action applicable to such Signing Entity.

- 5 -

(d) This Agreement, the Documents and the Previous Modifications have been duly authorized, executed and delivered by such of the Borrower/Guarantor Parties as are parties thereto, and this Agreement, the Documents and the Previous Modifications constitute valid and legally binding obligations enforceable against such of the Borrower/Guarantor Parties as are parties thereto. The execution and delivery of this Agreement, the Documents and the Previous Modifications and compliance with the provisions thereof under the circumstances contemplated therein do not and will not conflict with or constitute a breach or violation of or default under the organizational documents of any Borrower/Guarantor Party or any Signing Entity, or any agreement or other instrument to which any of the Borrower/Guarantor Parties or any Signing Entity is a party, or by which any of them is bound, or to which any of their respective properties are subject, or any existing law, administrative regulation, court order or consent decree to which any of them is subject.

(e) The Borrower/Guarantor Parties are in full compliance with all of the terms and conditions of the Documents to which they are a party and the Previous Modifications, and no Default or Event of Default has occurred and is continuing with respect to any of the Documents or the Previous Modifications.

(f) There is no litigation or administrative proceeding pending or threatened to restrain or enjoin the transactions contemplated by this Agreement, any of the Documents or the Previous Modifications, or questioning the validity thereof, or in any way contesting the existence or powers of any of the Borrower/Guarantor Parties or any Signing Entity, or in which an unfavorable decision, ruling or finding would adversely affect the transactions contemplated by this Agreement, any of the Documents or the Previous Modifications, or would result in any material adverse change in the financial condition, properties, business or operations of any of the Borrower/Guarantor Parties.

(g) The statements contained in the Recitals to this Agreement are true and correct.

Section 12 . Documents to Remain in Effect; Confirmation of Obligations; References . The Documents shall remain in full force and effect as originally executed and delivered by the parties, except as previously modified and amended by the Previous Modifications and as expressly modified and amended herein. In order to induce the Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby (i) confirm and reaffirm all of their obligations under the Documents, as previously modified and amended by the Previous Modifications and as modified and amended herein; (ii) acknowledge and agree that the Lender, by entering into this Agreement, does not waive any existing or future default or event of default under any of the Documents, or any rights or remedies under any of the Documents, except as expressly provided herein; (iii) acknowledge and agree that the Lender has not heretofore waived any default or event of default under any of the Documents, or any rights or remedies under any of the Documents; and (iv) acknowledge and agree that they do not have any defense, setoff or counterclaim to the payment or performance of any of their obligations under, or to the enforcement by the Lender of, the Documents, as previously modified and amended by the Previous Modifications and as modified and amended herein, including, without limitation, any defense, setoff or counterclaim based on the covenant of good faith and fair dealing. All references in the Documents to any one or more of the Documents, or to the “Loan Documents,” shall be deemed to refer to such Document, Documents or Loan Documents, as the case may be, as previously modified and amended by the Previous

- 6 -

Modifications and as modified and amended by this Agreement. Electronic records of executed documents maintained by the Lender shall be deemed to be originals thereof.

Section 13 . Certifications, Representations and Warranties . In order to induce the Lender to enter into this Agreement, the Borrower/Guarantor Parties hereby certify, represent and warrant to the Lender that all certifications, representations and warranties contained in the Documents and the Previous Modifications and in all certificates heretofore delivered to the Lender are true and correct as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement, and all such certifications, representations and warranties are hereby remade and made to speak as of the date of this Agreement and if different, as of the date of the execution and delivery of this Agreement.

Section 14 . Entire Agreement; No Reliance . This Agreement sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Agreement, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than as are herein set forth. The Borrower/Guarantor Parties acknowledge that they are executing this Agreement without relying on any statements, representations or warranties, either oral or written, that are not expressly set forth herein.

Section 15 . Successors . This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors, assigns and legal representatives.

Section 16 . Severability . In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

Section 17 . Amendments, Changes and Modifications . This Agreement may be amended, changed, modified, altered or terminated only by a written instrument executed by all of the parties hereto.

Section 18 . Construction .

(a) The words “hereof,” “herein,” and “hereunder,” and other words of a similar import refer to this Agreement as a whole and not to the individual Sections in which such terms are used.

(b) References to Sections and other subdivisions of this Agreement are to the designated Sections and other subdivisions of this Agreement as originally executed.

(d) Where the context so requires, words used in singular shall include the plural and vice versa, and words of one gender shall include all other genders.

- 7 -

(e) The Borrower/Guarantor Parties and the Lender, and their respective legal counsel, have participated in the drafting of this Agreement, 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 Agreement.

Section 19 . Counterparts; Electronic Signatures . This Agreement 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 Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. An electronic record of this executed Agreement maintained by the Lender shall be deemed to be an original.

Section 20 . Governing Law . This Agreement is prepared and entered into with the intention that the law of the State of Illinois shall govern its construction and enforcement.

Section 21 . Waiver of Trial by Jury . THE PROVISIONS OF THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS RELATING TO WAIVER OF TRIAL BY JURY SHALL APPLY TO THIS AGREEMENT.

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

IF ANY, FOLLOW THIS PAGE]

- 8 -

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.



		ADK LUMBER CITY OPERATOR, LLC
		ADK LAGRANGE OPERATOR, LLC
		ADK POWDER SPRINGS OPERATOR, LLC
		ADK THUNDERBOLT OPERATOR, LLC
		ATTALLA NURSING ADK, LLC
		MOUNTAIN TRACE NURSING ADK, LLC
		ERIN NURSING, LLC
		CP NURSING, LLC
		BENTON NURSING, LLC
		VALLEY RIVER NURSING, LLC
		PARK HERITAGE NURSING, LLC
		HOMESTEAD NURSING, LLC
		MOUNTAIN VIEW NURSING, LLC
		LITTLE ROCK HC&R NURSING, LLC
		COOSA NURSING ADK, LLC
		QC NURSING, LLC


		By	/s/ Allan J. Rimland
			Allan Rimland, President and Chief Financial
			Officer of AdCare Health Systems, Inc., Duly
			Authorized Signatory on behalf of Each Borrower


		ADCARE HEALTH SYSTEMS, INC.


		By	/s/ Allan J. Rimland
			Allan Rimland, President and Chief Financial Officer


		THE PRIVATEBANK AND TRUST COMPANY


		By	/s/ Amy K. Hallberg
			Amy K. Hallberg, Managing Director

- AdCare Portfolio Operator Loan Tenth Modification Agreement -

- Signature Page -

Exhibit 10.101

$1,200,000.00 Atlanta, Georgia

As of July 17, 2015

PROMISSORY NOTE

FOR VALUE RECEIVED, HIGHLANDS ARKANSAS HOLDINGS, LLC , a Delaware limited liability company (hereinafter referred to as “Maker”), promises to pay to the order of ADCARE HEALTH SYSTEMS, INC. , a Georgia corporation (hereinafter, together with any other holder hereof, referred to as “Holder”), or to such other party or parties as Holder from may from time to time designate in writing, the principal sum of ONE MILLION TWO HUNDRED THOUSAND AND 00/100 DOLLARS ($1,200,000.00), together with simple interest accruing on the unpaid balance of this Note at a rate equal to twelve and one-half percent (12.5%) per annum (the “Interest Rate”).

The principal sum of this Note together with all accrued and unpaid interest is due and payable on August 13, 2015 (the “Maturity Date”).

The principal amount of the Note may be prepaid in whole from time to time and at any time without premium or penalty.

If the payment obligation under this Note is not paid when due, the Holder shall provide written notice of default to the Maker at the address written above, and Maker will have five (5) days from the receipt of such written notice to cure the default. If Maker fails to cure any payment default within the cure period, the Maker will be obligated to pay the Holder’s costs of collection, including reasonable attorney fees actually incurred. Any payment which is not paid within the cure period (including that which may become due upon acceleration as hereinafter provided) will bear interest at the rate which is eight percent (8%) per annum in excess of the Interest Rate (the “Default Rate”), from the date of the payment default until paid.

If Maker fails to pay when due any amount payable hereunder, then, after the notice and expiration of the cure period described above, the entire unpaid principal balance of this Note, together with accrued interest thereon, will, at the option of Holder, be immediately due and payable, and Holder may proceed forthwith to collect the same regardless of the stipulated date of maturity, TIME BEING OF THE ESSENCE HEREOF FOR ALL PURPOSES. Neither Holder’s failure to exercise this right of acceleration of the maturity of the indebtedness evidenced hereby, nor Holder’s acceptance of one or more past due installments, nor Holder’s granting of any indulgences from time to time, will constitute a novation of this contract or a waiver of the right of Holder thereafter to insist upon strict compliance with the terms of this Note.

No extension of time for the payment of this Note or any installment due hereunder will release, discharge, modify or change the liability of the Maker or any endorser under this Note.

HNZW//3583-1

This Note may not be assigned to or assumed by any other party, without the express written consent of the Holder.

Maker covenants and agrees that until all principal and interest due under this Note have been paid in full that it and its affiliated entities shall not pledge the accounts receivable relating to any of the Facilities (as defined in that certain Sublease Guaranty dated as of April 30, 2015, as amended, given by Maker in favor of Holder).

The terms of this Note are binding upon and inure to the benefit of the parties, and their respective legal representatives, successors and assigns. This instrument is governed by the laws of the State of Georgia without regard to conflicts of laws principles.

[SIGNATURES ON NEXT PAGE]

HNZW//3583-1

IN WITNESS WHEREOF, Maker has executed and delivered this Note under seal effective as of the day and year first above written.



HIGHLANDS ARKANSAS HOLDINGS,
LLC, a Delaware limited liability company

By:	/s/ R. Denny Barnett	(SEAL)
Name:	R. Denny Barnett
Title:	Managing Member

Exhibit 10.102

AdCare Health Systems, Inc.

Two Buckhead Plaza

3050 Peachtree Road NW, Suite 355

Atlanta, Georgia 30305

July 17, 2015

Mr. Blaine Brint

President / CFO

Highlands Arkansas Holdings, LLC

2 Office Park Circle, Suite 110

Birmingham, AL 35223


Re:	Facility Sublease Agreements / 9 Arkansas Facilities

Dear Blaine:

This letter will confirm our agreement with respect to the equitable adjustments contemplated in the nine sublease agreements for Arkansas facilities (collectively, the “ Leases ”) leased by subsidiaries of AdCare Health Systems, Inc. (collectively, “ ADK ”) to affiliates of Highlands Arkansas Holdings, LLC (collectively, “ Highlands Arkansas ”), relating to a one-time equitable adjustment to Base Rent relating to projected professional liability and general liability insurance costs and projected costs.

Specifically, the parties expressly agree that such equitable adjustment shall total $360,000 cumulatively for all 9 Leases, to be apportioned by the parties pursuant to mutually acceptable lease amendments finalized on or before July 24, 2015; provided, however, that there shall be no such equitable adjustment with respect to the River Valley Facility because the Base Rent under such Facility Lease reflects an appropriate equitable adjustment. The parties further agree that as consideration for this one-time equitable adjustment, that the Base Rent under all of the Leases after the initial Lease Year shall be increased during each subsequent Lease Year by three percent (3%), and that the amendments to Leases shall reflect this increased Base Rent escalation. Finally, the parties acknowledge and agree that the Leases shall also be amended to delete to paragraph at the end of Section 7.7 to each Lease relating to the Reimbursement Threshold.



			Sincerely,

			ADCARE HEALTH SYSTEMS, INC.

			/s/ William McBride, III
			William McBride, III, Chairman and
			Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:

HIGHLANDS ARKANSAS HOLDINGS, LLC

By:	/s/ R. Denny Barnett	(Seal)
	Managing Member
Date:	7/17/2015

525265

Exhibit 10.103

$600,000.00 Atlanta, Georgia

As of August 1, 2015

PROMISSORY NOTE

FOR VALUE RECEIVED, PWW HEALTHCARE, LLC, PV SNF LLC, HC SNF, LLC, CC SNF, LLC, EW SNF LLC AND EW ALF, LLC, each a Florida limited liability company (hereinafter collectively referred to as “Maker”), jointly and severally, promise to pay to the order of ADCARE HEALTH SYSTEMS, INC. , a Georgia corporation (hereinafter, together with any other holder hereof, referred to as “Holder”), or to such other party or parties as Holder from may from time to time designate in writing, the principal sum of SIX HUNDRED THOUSAND AND 00/100 DOLLARS ($600,000.00), together with simple interest accruing on the unpaid balance of this Note at a rate equal to twelve and one-half percent (12.5%) per annum (the “Interest Rate”).

An amount up to the principal amount of this Note shall be disbursed by Holder to Maker in not more than two (2) draws at any time after September 1, 2015 but prior to October 1, 2015 within two (2) business days of Maker’s written request to Holder.

The principal sum of this Note together with all accrued and unpaid interest is due and payable on October 1, 2015 (the “Maturity Date”); provided, however, that Maker shall have two (2) options to extend the Maturity Date by thirty (30) days each by providing written notice to Holder prior to October 1, 2015 or October 31, 2015, as the case may be (e.g., the latest possible Maturity Date shall be November 30, 2015).

The principal amount of the Note may be prepaid in whole from time to time and at any time without premium or penalty.

HNZW//3583-1

No extension of time for the payment of this Note or any installment due hereunder will release, discharge, modify or change the liability of the Maker or any endorser under this Note.

This Note may not be assigned to or assumed by any other party, without the express written consent of the Holder.

Maker covenants and agrees that until all principal and interest due under this Note have been paid in full that it and its affiliated entities shall not pledge the accounts receivable relating to any of the facilities (collectively, the “Facilities”) identified in those certain operations transfer agreements dated as of August 1, 2015 between Maker and/or its affiliates on one hand and Holder and/or its affiliates on the other hand (collectively, the “Operations Transfer Agreements”).

Notwithstanding any provision of any agreement between Maker and/or its affiliates on one hand and Holder and/or its affiliates on the other hand (including, without limitation, the Operations Transfer Agreements), Maker (on behalf of itself and its affiliates) acknowledges and agrees that funds received by Holder (or its affiliates) prior to the receipt of Medicare tie-in notices for the Facilities (collectively, the “Medicare Funds”) shall be held by Holder as collateral until all principal and interest due under this Note have been paid in full; provided, however, that in the event that Maker needs all or any portion of the Medicare Funds prior to the Maturity Date, Holder may, in its sole discretion, disburse such amounts of the Medicare Funds to Maker as Maker requests in writing within two (2) business days of Maker’s written request (each such request, a “Medicare Funds Request”) therefor. Each Medicare Funds Request shall include a description of how the requested Medicare Funds shall be used by Maker. If all principal and interest due under this Note is not paid in full on or before the Maturity Date, (as such date may be extended as provided herein), Maker may apply the Medicare Funds to principal and interest due hereunder. Upon payment in full of all amounts due hereunder, Holder shall promptly disburse to Maker the balance of the Medicare Funds held by Holder and, thereafter, all future Medicare Funds received by Holder (or its affiliates) shall be disbursed in accordance with the Operations Transfer Agreements.

[SIGNATURES ON NEXT PAGE]

HNZW//3583-1

IN WITNESS WHEREOF, Maker has executed and delivered this Note effective as of the day and year first above written.



		PWW HEALTHCARE, LLC,
		a Florida limited liability company

		By:	/s/ Bruce E. Wertheim
		Name:	Bruce E. Wertheim
		Title:	Manager

		PV SNF LLC,
		a Florida limited liability company

		By:	/s/ Bruce E. Wertheim
		Name:	Bruce E. Wertheim
		Title:	Manager

		HC SNF, LLC,
		a Florida limited liability company

		By:	/s/ Bruce E. Wertheim
		Name:	Bruce E. Wertheim
		Title:	Manager

		CC SNF, LLC,
		a Florida limited liability company

		By:	/s/ Bruce E. Wertheim
		Name:	Bruce E. Wertheim
		Title:	Manager

		EW SNF LLC,
		a Florida limited liability company

		By:	/s/ Bruce E. Wertheim
		Name:	Bruce E. Wertheim
		Title:	Manager

		EW ALF, LLC,
		a Florida limited liability company

		By:	/s/ Bruce E. Wertheim
		Name:	Bruce E. Wertheim
		Title:	Manager

HNZW//3583-1



	Exhibit 10.104

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT (this “ Sublease ”) is entered into as of the 20th day of July, 2015 (the “ Execution Date ”) by and among ADK BONTERRA/PARKVIEW, LLC, a Georgia limited liability company (“ Sublessor ”), 2801 FELTON AVENUE, L.P. , a Georgia limited partnership (“ Bonterra Sublessee ”), for the improved real property described on Exhibit “A-1” ( the “ Bonterra Leased Property ”), and 460 AUBURN AVENUE, L.P. , a Georgia limited partnership (“ Parkview Sublessee ”; collectively with Bonterra Sublessee, the “ Sublessees ” and, individually, a “ Sublessee ”), for the improved real property described on Exhibit “A-2” ( the “ Parkview Leased Property ”; collectively with the Bonterra Leased Property, the “ Leased Properties ” and, individually, a “ Leased Property ”), on which Leased Properties are located the skilled nursing facilities more particularly identified on Exhibits “A-1” and “A-2” (collectively, the “ Facilities ”).

WITNESSETH:

WHEREAS , Sublessor is the tenant under that certain Third Amended and Restated Multiple Facilities Lease dated as of October 29, 2010, as amended pursuant to that certain First Amendment to Third Amended and Restated Multiple Facilities Lease (as amended, the “ Existing Master Lease ”) pursuant to which Sublessor leases the Leased Properties from Georgia Lessor – Bonterra/Parkview, Inc., a Maryland corporation (the “ Lessor ”); and

WHEREAS , Sublessor desires to sublease the Leased Properties to Bonterra Sublessee, with respect to the Bonterra Leased Property, and to Parkview Sublessee, with respect to the Parkview Leased Property, and Sublessees desire to sublease the Leased Properties from Sublessor on the terms and conditions hereinafter set forth.

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

1. Definitions . Any capitalized terms used but not defined in this Sublease will have the meaning assigned to such terms in the Existing Master Lease.

2. Sublease . Upon and subject to the terms and conditions set forth in this Sublease and the Existing Master Lease, (i) Sublessor leases to Bonterra Sublessee, and Bonterra Sublessee leases from Sublessor, the Bonterra Leased Property, and (ii) Sublessor leases to Parkview Sublessee, and Parkview Sublessee leases from Sublessor, the Parkview Leased Property.

3. Conditions to Effectiveness . This Sublease shall not be effective or binding upon the parties and Sublessees shall have no rights or obligations with respect to the Leased Properties unless and until the following shall have occurred: (i) Lessor shall have approved this Sublease in its sole discretion and (ii) Sublessees shall have obtained all regulatory and other approvals and licenses for Sublessees to operate the Facilities as Medicare and Medicaid enrolled skilled nursing facilities (such date being hereinafter referred to as the “ Approvals Date ”).

4. Single, Indivisible Lease . This Sublease constitutes one indivisible lease of the Leased Properties and not separate leases governed by similar terms. Bonterra Sublessee is the sublessee of the Bonterra Leased Property, and Parkview Sublessee is the sublessee of the Parkview Leased property, but each Sublessee is jointly liable for all obligations of the Sublessees hereunder. The Leased Properties constitute one economic unit, and the Base Rent (as hereinafter defined) and all other provisions have been negotiated and agreed to based on a demise of all of the Leased Properties to Sublessees as a single, composite, inseparable transaction and would have been substantially different had separate leases or a divisible lease been intended. Except as expressly provided in this Sublease for specific, isolated purposes (and then only to the extent expressly otherwise stated), all provisions of this Sublease apply equally and uniformly to all of the Leased Properties as one unit. An Event of Default (as hereinafter defined) with respect to any Leased Property is an Event of Default as to all of the Leased Properties. The parties intend that the provisions of this Sublease shall at all times be construed, interpreted and applied so as to carry out their mutual objective to create an indivisible lease of all of the Leased Properties and, in particular but without limitation, that, for purposes of any assumption, rejection or assignment of this Sublease under 11 U.S.C. 365, this is one indivisible and non-severable sublease and executory contract dealing with one legal and economic unit and that this Sublease must be assumed, rejected or assigned as a whole with respect to all (and only as to all) of the Leased Properties.

5. Subordination . This Sublease is subject and subordinate to the Existing Master Lease. Except as provided in Section 26(b) below, all applicable terms and conditions of the Existing Master Lease are incorporated into and made a part of this Sublease as if Sublessees were the Lessee under the Existing Master Lease. If any term or provision of this Sublease imposes an obligation or condition that is different than a term or provision of the Existing Master Lease, the obligation or conditions set forth in this Sublease shall control. Sublessor shall not agree with Lessor to terminate the Existing Master Lease without first having obtained the prior written consent of Sublessees. Unless expressly provided for in this Sublease to the contrary, Sublessees assume and agree to perform the Sublessor’s obligations under the Existing Master Lease during the term of this Sublease, except that the obligation to pay Base Rent and Additional Charges to Lessor under the Existing Master Lease shall remain the obligation of Sublessor and shall be considered performed by Sublessees upon payment of Base Rent and Additional Charges due under this Sublease. Sublessees shall not cause or suffer any act of negligence that will violate any of the provisions of the Existing Master Lease. If the Existing Master Lease 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 Lessor due to a default of Sublessor or Sublessees under the Existing Master Lease or under this Sublease, the defaulting party shall be liable to the non-defaulting party for all damage suffered by the non-defaulting party as a result of the termination.

6. Initial Term . Subject to the provisions of Section 3 above, the initial term of this Sublease shall commence on the Commencement Date (as hereinafter defined) and continue until midnight on the tenth (10 ^th ) anniversary of the Commencement Date unless sooner terminated as provided in this Sublease or upon termination of the Existing Master Lease (the “Initial Term”). A “ Lease Year ” as used in this Sublease is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during the Term. The “ Commencement Date ” of this Sublease shall be the Approvals Date, provided, however, if the Approvals Date does not occur on the first day of a calendar month, then the Commencement Date shall be the first day of the calendar month following the Approvals Date.

7. Renewal Term . If (i) the Existing Master Lease is extended for a Renewal Term as provided in Section 1.3 thereof and (ii) there is no uncured Event of Default by Sublessees under this Sublease as of the date Sublessor receives the Renewal Notice (as defined below) or on the last day of the Initial Term or Renewal Term, as applicable, Sublessees shall have the right but not the obligation, to extend the Term of this Sublease through the end of the applicable Renewal Term upon written notice (the “ Renewal Notice ”) to Sublessor and Lessor at least one-hundred twenty (120) days prior to the expiration of the Initial Term or the current Renewal Term, as the case may be.

8. Term . For purposes hereof, the “ Term ” shall mean the Initial Term and any Renewal Term.

9. Base Rent . During the Term, Sublessees shall pay in advance to Sublessor on or before the 1st day of each month the following amounts as “ Base Rent ”:



Lease Year		Base Rent Per Month
Year 1		$170,000.00
Year 2		$175,000.00
Year 3		$180,000.00

Commencing on the first day of the 4 ^th Lease Year of this Sublease and continuing on the first day of each Lease Year thereafter during the Initial Term and any Renewal Term, Base Rent payable hereunder shall increase by three percent (3%) over the Base Rent for the previous Lease Year.

10. Additional Charges . In addition to Base Rent, Sublessees shall pay to Sublessor, all Additional Charges payable by Sublessees under the Existing Master Lease. For purposes of this Sublease, the term “ Rent ” shall mean the Base Rent and all Additional Charges.

11. Absolute Net Lease . All Rent payments shall be absolutely net to Sublessor, free of any and all taxes, other charges, and operating or other expenses of any kind whatsoever, all of which shall be paid by Sublessees. Sublessees shall continue to perform their obligations under this Sublease even if Sublessees claims they have been damaged by Sublessor. Thus, Sublessee

shall at all times remain obligated under this Sublease without any right of set-off, counterclaim, abatement, deduction, reduction or defense of any kind. The sole right of Sublessees to recover damages against Sublessor under this Sublease shall be to prove such damages in a separate action.

12. Payment Terms . All Rent to Sublessor hereunder shall be paid by wire transfer in accordance with Sublessor’s wire transfer instructions to be provided to Sublessees, or as otherwise directed by Sublessor from time to time.

13. Security Deposit . Sublessees shall deposit with Sublessor and maintain during the Term the sum of One Hundred Seventy Thousand and 00/100 Dollars ($170,000.00) as a security deposit (the “ Security Deposit ”) against the faithful performance by Sublessees of their obligations under this Sublease. The Security Deposit shall be paid on the Commencement Date. If an Event of Default shall occur under the Existing Master Lease or this Sublease, Sublessor may use, apply or retain the whole or any part of the Security Deposit which is necessary for the payment of: (i) any Rent which Sublessees have not paid when due after any applicable notice and cure period; (ii) any sum expended by Sublessor on behalf of Sublessees in accordance with the provisions of this Sublease; or (iii) any sum which Sublessor may expend or be required to expend by reason of any Event of Default under the Existing Master Lease. If any portion of the Security Deposit is not used, applied or retained by Sublessor for the purposes set forth above, as of the end of the Term, then Sublessor agrees, within thirty (30) days after the expiration of the Term, to refund to Sublessees the entirety of such remaining portion.

14. Late Charges; Interest . If any Rent is not paid when due, Sublessees shall pay to Sublessor all late charges and interest required to be paid under Section 3.3 of the Existing Master Lease.

15. Assignment and Subletting . Sublessees shall not, either voluntarily or by operation of law, assign this Agreement or further sublet all or any part of the Leased Properties without the prior written consent of Sublessor and Lessor. Any purported assignment or sublease without such consent shall be null and void and constitute a material breach of this Sublease.

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

17. Notices . All notices and demands that may be required or permitted by either party to the other shall be in writing. All notices, payments and demands hereunder shall be sent by overnight courier or by certified United States Mail, postage prepaid, addressed as provided below, or to any other place that one party may from time to time designate in a notice to the other party,

and shall be deemed to have been received on the date when actually delivered to the addressee or delivery has been rejected.

If to Sublessor:

ADK Bonterra/Parkview, LLC

Two Buckhead Plaza

3050 Peachtree Road, NW

Suite 355

Atlanta, Georgia 30335

Attention: CEO

If to Sublessees:

2801 Felton Avenue, L.P., and

460 Auburn Avenue, L.P.

20 Mansell Court East

Suite 200

Roswell, Georgia 30076

Attention: General Counsel

18. Personal Property . Sublessees may bring their own articles of personal property to the Leased Properties for use and, subject to the terms of the Existing Master Lease, Sublessees shall have the right to remove any such personal property from the Leased Properties provided that Sublessees, at their expense, shall repair any damages to the Leased Properties caused by such removal or by the original installation thereof. All personal property, fixtures and equipment located at the Leased Properties as of the Execution Date of this Sublease (the “ Sublessor FF&E ”) shall remain the property of Sublessor (as between Sublessor and Sublessees) and shall remain at the Leased Properties at the end of the Term, and Sublessees shall have the right to use same during the Term in connection with the operation of the Facilities. Any replacements of such Sublessor FF&E made by Sublessees during the Term shall become the property of Sublessor upon the expiration of the Term.

19. Default .

(a) The following shall be deemed to be events of default by Sublessees (each, an “ Event of Default ”): (i) Sublessees shall fail to pay when due any installment of Base Rent or Additional Charges within this Sublease; (ii) Sublessees shall fail to comply in any respect with any term, provision, covenant or warranty under the Existing Master Lease which results in an Event of Default under the Existing Master Lease and (iii) Sublessees shall fail to comply in every respect with any term, provision, covenant, or warranty made under this Sublease by Sublessees and shall not cure such failure within thirty (30) days after written notice thereof to Sublessees; provided that if any such failure is not curable by its nature within such thirty-day period, then Sublessees shall have such additional time as is necessary to cure the same, if and for so long as Sublessees proceed

promptly and with due diligence to cure the failure, and provided that such additional time to cure does not result in an Event of Default under the Existing Master Lease

(b) Upon the occurrence of an Event of Default, Sublessor shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (i) terminate this Sublease, in which event Sublessees shall immediately surrender the Leased Properties to Sublessor, and if Sublessees fail to do so, Sublessor may without prejudice to any other remedy which it may have for possession or arrearage in Rent, enter upon and take possession of the Leased Properties and expel or remove Sublessees and any other person who may be occupying the Leased Properties or any part thereof, by force, if necessary, as permitted by Georgia law without being liable for prosecution or any claim of damages therefor; Sublessees hereby agreeing to pay to Sublessor on demand the amount of all Rent and other charges accrued through the date of termination; (ii) enter upon and take possession of the Leased Properties and expel or remove Sublessee and any other person who may be occupying the Leased Properties or any part thereof, by force, if necessary, as permitted by Georgia law, without being liable for prosecution or any claim of damages thereof and, if Sublessor so elects, relet the Leased Properties on such terms as Sublessor may deem advisable, in its sole discretion, without advertisement, and by private negotiations provided that if Sublessor succeeds in re-letting the Leased Properties and receives the rent therefor, Sublessees hereby agree to pay to Sublessor the deficiency, if any, between all Rent reserved hereunder and the total rental applicable to the Term hereof obtained by Sublessor through such re-letting, and Sublessees shall be liable for Sublessor's expenses in restoring the Leased Properties and all costs incident to such re-letting; (iii) enter upon the Leased Properties by force if necessary as permitted by Georgia law, without being liable for prosecution or any claim of damages therefor, and do whatever Sublessees are obligated to do under the terms of this Sublease; and Sublessees agree to reimburse Sublessor on demand for any expenses including, without limitation, reasonable attorney's fees which Sublessor may incur in thus effecting compliance with Sublessees’ obligations under this Sublease and Sublessees further agree that Sublessor shall not be liable for any damages resulting to Sublessee from such action.

(c) An Event of Default by Sublessees under this Sublease shall be an Event of Default under the Existing Master Lease and entitle Lessor to exercise any and all remedies provided by the Existing Master Lease.

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

20. Holding Over . If Sublessees remain in possession of any portion of the Leased Properties after expiration or termination of the Term with or without Sublessor's written consent, each Sublessee shall become a Sublessee-at-sufferance, and there shall be no renewal of this Sublease by operation of law. During the period of any such holding over, all provisions of this Sublease shall be and remain in effect except that the monthly rental shall be 150% of the amount of Base Rent payable for the last full calendar month of the Term including renewals or extensions. The

inclusion of the preceding sentence in this Sublease shall not be construed as Sublessor's consent for Sublessees to hold over.

21. Surrender of Leased Properties . Upon the expiration or other termination of this Sublease, Sublessees shall quit and surrender to Sublessor the Leased Properties broom clean in substantially the same condition as at the commencement of the Sublease, reasonable wear and tear only excepted. Unless otherwise required under the Existing Master Lease, Sublessees shall have no obligation to remove or restore alterations, modifications or additions to the Leased Properties made with the consent of Sublessor and Lessor, or made where no such consent is required under this Sublease or the Existing Master Lease. Sublessees’ obligation to observe or perform this covenant shall survive the expiration or other termination of this Sublease.

22. Insurance . Sublessees shall name Sublessor and AdCare Health Systems, Inc. as additional insureds under all general liability and professional liability insurance policies to be provided by Sublessees under the Existing Master Lease.

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

24. Entire Agreement. This Sublease sets forth the entire agreement between Sublessor and Sublessee concerning the Leased Properties, and, except for the operations transfer agreements to be entered into between the licensed operators of the Facilities, there are no other agreements either oral or written between the parties relating to the Leased Properties.

26. Other Provisions of Existing Master Lease .

(a) Reports . Sublessees shall provide copies of all reports required under the Existing Master Lease to Sublessor and to Lessor.

(b) Existing Master Lease Provisions Not Incorporated . Notwithstanding the foregoing or any other provision of this Sublease to the contrary, the following Sections of the Existing Master Lease are not incorporated into this Sublease and Sublessee shall have no obligation to perform and shall not be bound by them:

Section 7.3 - Certain Environmental Matters [but only with respect to environmental conditions existing prior to the Commencement Date or obligations arising prior to the Commencement Date];

Section 8.2.1 – Lessee’s Tangible Net Worth;

Section 8.2.2 – Guarantor’s Tangible Net Worth;

Section 8.2.8 [incorrectly numbered as Section 8.2.5 in Master Lease] – Loans From Affiliates;

Section 8.5 – Other Facilities;

Section 23.1(a) – Financial Statements [but only with respect to (i) any requirement to provide financial statements with respect to “Guarantor”, as defined in the existing Master Lease, and (ii) any requirement that financial statements provided by Sublessees must be audited]; and

Section 39.1 – Security Deposit.

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

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

(e) Taking : Sublessor shall not exercise its rights under Article XV of the Master Lease to terminate the Master Lease with respect to any Leased Property without the prior written consent of Sublessees, which consent Sublessees may withhold in their sole discretion.

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

28. Counterparts . This Sublease may be executed in any number of counterparts, all of which will be considered one and the same Sublease notwithstanding that all parties hereto have not signed the same counterpart. Signatures on this Sublease which are transmitted electronically

shall be valid for all purposes. Any party shall, however, deliver an original signature on this Sublease to the other party upon request.

[Signatures on Following Page]

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



	SUBLESSOR:

	ADK BONTERRA/PARKVIEW, LLC
	a Georgia limited liability company

	By:	/s/ William McBride, III
	Name:	William McBride, III
	Title:	Manager

	SUBLESSEES:

	BONTERRA SUBLESSEE

	2801 Felton Avenue, L.P.
	a Georgia limited partnership

	By:	/s/ James J. Andrews
	Name:	James J. Andrews
	Title:	President

	PARKVIEW SUBLESSEE

	460 AUBURN AVENUE, L.P.
	a Georgia limited partnership

	By:	/s/ James J. Andrews
	Name:	James J. Andrews
	Title:	President

EXHIBIT “A-1”

BONTERRA LEASED PROPERTY

FACILITY :

Bonterra Nursing Center / 2801 Felton Drive, East Point, Georgia 30344 (114 beds)

Legal description:

All that tract or parcel of land lying and being in Land Lot 125 of the 14th District of Fulton County, Georgia and being more fully described as follows:

To reach the point of beginning, start at the intersection of the South right-of-way of Cleveland Avenue and the East right-of-way of Felton Drive (40' R/W); thence running Southerly along the said East right-of-way of Felton Drive a distance of 575.0 feet to an iron pin and the point of beginning. Thence leaving the said East right-of-way of Felton Drive and from the point of beginning running South 89° 58' 30" East a distance of 114.50 feet to an iron pin; thence running South 00° 59' 34" West a distance of 334.40 feet to an iron pin; thence running North 89° 19' 21" West a distance of 435.00 feet to an iron pin; thence running North 28° 07' 10" East a distance of 165.60 feet to an iron pin; thence running North 32° 59' 10" East a distance of 20.00 feet to an iron pin; thence running Northwesterly and following the arc of a curve to the right an arc distance of 129.60 feet (said arc having a chord bearing of North 29° 55' 18" West and a chord distance of 124.12 feet) to an iron pin located on the Southerly right-of-way of the said Felton Drive; thence running Southeasterly along the said Southerly right-of-way of Felton Drive and following the arc of a curve to the left an arc distance of 66.04 feet (said arc having a chord bearing of South 62° 31' 45" East and a chord distance of 63.62 feet) to a point; thence running South 89° 33' 27" East along the said Southerly right-of-way of Felton Drive a distance of 158.24 feet to a point; thence running Northeasterly along the said Southerly right-of-way of Felton Drive and following the arc of a curve to the left an arc distance of 85.56 feet (said arc having a chord bearing of North 61° 20' 37" East and a chord distance of 81.93 feet) to an iron pin; thence running North 89° 26' 10" East along the said Southerly right-of-way of Felton Drive a distance of 12.60 feet to an iron pin located on the East right-of-way of the said Felton Drive; thence running North 00° 04' 20" East along the said East right-of-way of Felton Drive a distance of 50.00 feet to an iron pin and the point of beginning.

EXHIBIT “A-2”

PARKVIEW LEASED PROPERTY

FACILITY :

Parkview Manor Nursing Home / 460 Auburn Avenue, NE, Atlanta, Georgia 30312 (186 beds)

Legal description:

All that tract or parcel of land lying and being in Land Lot 46 of the 14th District of Fulton County, Georgia and being more fully described as follows:

BEGINNING AT AN "X" MARK ON A CONCRETE WALK LOCATED AT THE INTERSECTION OF THE NORTH RIGHT-OF-WAY OF AUBURN AVENUE (60' R/W) AND THE WEST RIGHT-OF-WAY OF BOULEVARD (60' R/W), SAID "X" BEING THE POINT OF BEGINNING. THENCE FROM THE POINT OF BEGINNING RUNNING NORTH 00° 09' 00" EAST ALONG THE SAID WEST RIGHT-OF-WAY OF BOULEVARD A DISTANCE OF 155.60 FEET TO AN IRON PIN LOCATED ON THE SOUTH PROPERTY LINE OF PROPERTY NOW OR FORMERLY OWNED BY THE CITY OF ATLANTA; THENCE LEAVING THE SAID WEST RIGHT-OF-WAY OF BOULEVARD AND RUNNING NORTH 89° 34' 00" WEST ALONG THE SAID SOUTH PROPERTY LINE OF THE SAID CITY OF ATLANTA PROPERTY A DISTANCE OF 200.00 FEET TO A POINT LOCATED ON THE EAST PROPERTY LINE OF PROPERTY NOW OR FORMERLY OWNED BY THE CITY OF ATLANTA; THENCE RUNNING SOUTH 00° 09' 00" WEST ALONG THE SAID EAST PROPERTY LINE OF THE SAID CITY OF ATLANTA PROPERTY A DISTANCE OF 157.11 FEET TO A NAIL LOCATED ON THE NORTH RIGHT-OF-WAY OF AUBURN AVENUE; THENCE RUNNING NORTH 90° 00' 00" EAST ALONG THE SAID NORTH RIGHT-OF-WAY OF AUBURN AVENUE A DISTANCE OF 200.00 FEET TO A "X" AND THE POINT OF BEGINNING.



	Exhibit 10.105

THE NOTE (AS DEFINED BELOW) AND THE SECURITIES ISSUABLE UPON CONVERSION OF THE NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE.

AMENDMENT TO SUBORDINATED CONVERTIBLE NOTE

THIS AMENDMENT TO SUBORDINATED CONVERTIBLE NOTE (this “ Amendment ”), dated as of July 30, 2015, is entered into by and between ADCARE HEALTH SYSTEMS, INC . (the “ Company ”), CANTONE ASSET MANAGEMENT LLC (“ CAM ”) and, solely with respect to Section 4 of this Amendment, CANTONE RESEARCH, INC. (“ CRI ”).

W I T N E S E T H :

WHEREAS, CAM holds that certain 8% Subordinated Convertible Note (No. 070212-029), dated July 2, 2012 and due July 31, 2015, issued by the Company (the “ Note ”), with an original principal amount of $5,497,000;

WHEREAS , pursuant to that certain Prepayment Agreement, dated as of June 30, 2015, between the Company and CAM, the Company prepaid $650,000 of the principal amount of the Note on or about such date, and, as a result of such prepayment, the principal amount of the Note as of the date of this Amendment equals $4,847,000;

WHEREAS , CAM and the Company desire to modify and amend the terms of the Note, and enter into certain other agreements, as set forth herein;

WHEREAS , capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Note;

NOW, THEREFORE , in consideration of the covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as set forth below:

1. Partial Repayment . CAM and the Company hereby agree that: (i) the Company shall pay to CAM, on or about July 31, 2015, $3,347,000 of the Principal amount of the Note, plus all accrued but unpaid Interest (as in effect prior to the Effective Time, as hereinafter defined) thereon; (ii) $1,500,000 of the Principal shall continue to be the Principal amount of the Note as of

the Effective Time (the “ Amended Principal Amount ”); and (iii) the Company shall pay to CAM, on or about July 31, 2015, the accrued but unpaid Interest (as in effect prior to the Effective Time) on the Amended Principal Amount.

2. Amendments to Note . CAM and the Company hereby amend the Note, effective as of July 31, 2015, at 5:00 p.m., Eastern Time (the “ Effective Time ”), as follows:

Maturity Date . Section 25(l) of the Note is amended and restated in its entirety as follows: “(l) “ Maturity Date ” means October 31, 2017.”

Interest Payment Date . The first sentence of Section 2 of the Note is amended and restated in its entirety as follows: “ Interest on this Note shall: (i) accrue daily on the outstanding Principal commencing on the Issuance Date, (ii) be computed on the basis of a 360-day year of twelve 30-day months, and (iii) be payable in cash in arrears on each of October 31, January 31, April 30 and July 31 of each year during which this Note remains outstanding and the Maturity Date (each, an “ Interest Payment Date ”).”

Interest Rate; Default Rate . Section 2 of the Note is amended to replace the references to: (i) “8.00%” in the second sentence of such Section 2 with “10.00%”; and (ii) “18.00%” in the last sentence of such Section 2 with “14.00%”. The Note is further amended in all respects necessary to reflect that the Interest Rate is 10.00% per annum and the Default Rate is 14.00% per annum.

Conversion Price . Section 3(b)(ii) of the Note is amended and restated in its entirety as follows: “(ii) “ Conversion Price ” is $4.25.”

Company Optional Redemption . Sections 3(c)(v)(1) and (2) of the Note are amended and restated in their entirety as follows:

(v) Company Optional Redemption . If (i) at any time after July 31, 2015, the arithmetic average of the Weighted Average Price of the Common Stock for any ten (10) consecutive Trading Days equals or exceeds 150% of the Conversion Price (subject to appropriate adjustments pursuant to Section 6) and (ii) the Resale Condition has been satisfied as of the Company Optional Redemption Notice Date (as defined below), then the Company shall have the right, at its option and sole discretion, and without penalty, to redeem all or any portion of the outstanding Principal under this Note (the “ Company Optional Redemption Amount ”) as designated in the Company Optional Redemption Notice (as defined below) (a “ Company Optional Redemption ”). The portion of this Note subject to redemption under this Section shall be redeemed by the Company in cash at a price equal to the sum of (i) 100% of the outstanding Principal being redeemed plus (ii) any accrued and unpaid Interest on such outstanding Principal (the “ Company Optional Redemption Price ”). The Company may exercise its right to require redemption under this Section by delivering a written notice by facsimile or overnight courier to the Holder (the “ Company Optional Redemption Notice ,” and the date the Company sends such notice is referred to as the “ Company Optional Redemption Notice Date ”). Each Company Optional Redemption Notice shall be irrevocable unless revocation by the Company is consented to by the Holder in writing. The Company Optional Redemption Notice shall state (x) the date on which the Company Optional Redemption shall occur (the “ Company Optional

Redemption Date ”), which date shall not be prior to July 31, 2016, and shall not be less than sixty (60) days following the Company Optional Redemption Notice Date, and (y) the aggregate outstanding Principal of this Note which the Company has elected to be subject to Company Optional Redemption from the Holder pursuant to this Section 3(c)(v) on the Company Optional Redemption Date. Notwithstanding anything to the contrary in this Section 3(c)(v), until the Company Optional Redemption Price is paid, in full, the Company Optional Redemption Amount may be converted, in whole or in part, by the Holder into Conversion Shares pursuant to Section 3. If the Holder so elects, any or all of the Principal converted by the Holder after the Company Optional Redemption Notice Date shall reduce the Company Optional Redemption Amount of this Note required to be redeemed on the Company Optional Redemption Date. Redemptions made pursuant to this Section 3(c)(v) shall be made in accordance with Section 9.

Limitations on Conversions; Beneficial Ownership .

(a) Section 3(d)(i) of the Note is amended to replace the references to: (i) “4.99%” in such Section 3(d)(i) with “4.9%”; and (ii) “9.99%” in such Section 3(d)(i) with “9.9%.”

(b) Section 3(d)(ii) of the Note is amended to delete each of the following clauses from the first sentence thereof: “(A)” and “or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Required Holders.” Section 3(d)(ii) of the Note is also amended to delete the following clause from the second sentence thereof: “or written opinion”.

(c) A new Section 3(d)(iii) of the Note is added in its entirety as follows: “(iii) The Company shall not be obligated to issue any Conversion Shares upon conversion of this Note until the Principal Market has approved the additional listing of such Conversion Shares, if required. The Company shall apply for such approval, if required, as soon as practicable.”

Event of Default . Section 4(a) of the Note is amended and restated in its entirety as follows:

(i) the Company’s failure to pay to the Holder any amount of Principal or Interest by the seventh (7th) Business Day following the date when due under this Note (including, without limitation, the Company’s failure to pay any redemption amounts hereunder);

the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; or

Change of Control . Section 5 of the Note is amended and restated in its entirety as follows:

5. Rights Upon Change of Control .

(a) No sooner than twenty (20) days nor later than ten (10) days prior to the consummation of a Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “ Change of Control Notice ”). At any time during the period commencing on the earlier to occur of (i) any definitive written agreement by the Company, which upon consummation of the transaction contemplated thereby would reasonably be expected to result in a Change of Control, and (ii) the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change of Control, the Required Holders may require the Company to redeem all or any portion of this Note (and a pro rata portion of all of the other Notes) by delivering written notice thereof (“ Holders Change of Control Redemption Notice ”) to the Company, which Holders Change of Control Redemption Notice shall indicate the Conversion Amount of this Note (and the pro rata portion of all of the other Notes) that the Required Holders are electing to require the Company to redeem. The portion of this Note subject to redemption pursuant to this Section 5(a) shall be redeemed by the Company in cash at a price equal to 115% of the Conversion Amount to be redeemed as specified in the Holders Change of Control Redemption Notice (the “ Holders Change of Control Redemption Price ”).

(b) In addition, at any time during the period commencing on the earlier to occur of (i) any definitive written agreement by the Company, which upon consummation of the transaction contemplated thereby would reasonably be expected to result in a Change of Control, and (ii) the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change of Control, the Company may redeem all or any portion of this Note (and a pro rata portion of all of the other Notes) by delivering written notice thereof (“ Company Change of Control Redemption Notice ”) to the Holder, which Company Change of Control Redemption Notice shall indicate the Conversion Amount of this Note (and the pro rata portion of all of the other Notes) that the Company is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Company in cash at a price equal to 115% of the Conversion Amount to be redeemed as specified in the Company Change of Control Redemption Notice (the “ Company Change of Control Redemption Price ”).

required by Section 5(a) or Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Notes by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d): (i) until the Holders Change of Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under Section 5(a) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3 and, if so converted, the Holder shall not be entitled to receive the Holders Change of Control Redemption Price with respect to such Conversion Amount; and (ii) until the Company Change of Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under Section 5(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3 and, if so converted, the Holder shall not be entitled to receive the Company Change of Control Redemption Price with respect to such Conversion Amount.

Adjustments . Section 6(b) of the Note is deleted in its entirety.

Redemption Mechanics . The first two sentences of Section 9(a) of the Note are amended and restated in their entirety as follows (with the last sentence in the paragraph below being added in its entirety):

Other Definitions .

(a) The definition of “Redemption Notices” in Section 25(q) of the Note is amended and restated in its entirety as follows:

(q) “ Redemption Notices ” means, collectively, the Event of Default Redemption Notices, the Holders Change of Control Redemption Notices, the Company Change of Control Redemption Notices and the Company Optional Redemption Notices, and each of the foregoing, individually, a “ Redemption Notice .”

(b) The definition of “Redemption Prices” in Section 25(r) of the Note is amended and restated in its entirety as follows:

(r) “ Redemption Prices ” means, collectively, the Event of Default Redemption Price, the Holders Change of Control Redemption Price, the

Company Change of Control Redemption Price and the Company Optional Redemption Price, and each of the foregoing, individually, a “ Redemption Price .”

(z) “ Resale Condition ” means that either: (i) the Registration Condition is satisfied as of the date of the Company Optional Redemption Notice; or (ii) that the Conversion Shares are salable under Rule 144 of the Securities Act without any volume limitations.

3. Registration . No later than October 31, 2015, the Company shall file with the Securities and Exchange Commission (the “ SEC ”), under the Securities Act of 1933, as amended (the “ Securities Act ”), a new registration statement on Form S-3 or another available form (or, in the Company’s sole discretion, a post-effective amendment to an existing registration statement) with respect to the resale of the Conversion Shares. The Company will use its best efforts to cause the SEC to declare the registration statement (or post-effective amendment) effective as soon as practicable after filing. CAM acknowledges and agrees that neither the Note nor the Conversion Shares may be offered for sale or sold by it unless a registration statement under the Securities Act and applicable state laws shall be effective with respect thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer and sale.

4. Consulting Agreements . Simultaneously with the execution of this Amendment, the Company shall pay to Cantone Research, Inc. (“ CRI ”) an amendment fee equal to 2.5% of the Amended Principal Amount. In addition, the Company and CRI hereby also amend, as of the Effective Time, that certain Consulting Agreement, dated July 2, 2012, between them to: (i) reduce the annual consulting fee payable thereunder to an amount equal to 1% of the Amended Principal Amount and further reduce such fee proportionally upon each repayment, redemption or conversion of a portion of the Principal; and (ii) terminate the Consulting Agreement, and the Company’s obligation to pay the consulting fee thereunder, upon the earlier of: (a) the Maturity Date of the Note; or (b) the conversion, redemption or prepayment of the entire Principal amount of the Note.

5. Representations . CAM represents and warrants to the Company that the representations made by CAM pursuant to Section 2 of the Securities Purchase Agreement are true and correct as if made on the date of this Amendment (and assuming the Note was originally issued and sold as of such date), including, without limitation, that CAM is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act.

6. General Terms .

6.1. Binding Effect . This Amendment shall inure to the benefit of and be binding upon the parties hereto, and their respective spouses, heirs, representatives, successors and assigns.

6.2. Severability . It is understood that if any provision of this Amendment is declared to be invalid by a court of competent jurisdiction, such provision will be severed from this Agreement and the other provisions hereof will remain in full force and effect.

6.3. Modification and/or Revocation . This Amendment can only be modified or revoked by a written instrument signed by all of the parties hereto.

6.4. Governing Law . This Amendment is made and entered into in the State of Georgia and shall be governed by and construed in accordance with the laws thereof, without giving effect to principles of conflicts of laws.

6.5. Counterparts . This Amendment may be executed in counterparts, and counterparts may be delivered by facsimile or other electronic transmission and counterparts so delivered shall be treated in all manner and respects as an original agreement or instrument and shall be deemed to have the same binding legal effect as if it were an originally signed version.

6.6. Headings . The headings in this Amendment are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Amendment or any provision hereof.

6.7. No Reliance; Representation by Counsel . Each party hereto has read this Amendment and, in executing it, has not relied upon any statement or representation of any kind of any other party, except as expressly set forth in this Amendment. Each party hereto has been or has had the opportunity to be represented in the preparation, negotiation and execution of this Amendment, and any documents to be executed in connection herewith, by legal counsel of such party’s own choice.

6.8. Integration . This Amendment constitutes the entire agreement and understanding between and among the parties hereto relating to the subject matter hereof. This Amendment supersedes all other agreements and understandings between the parties hereto, verbal or written, express or implied, relating to the subject matter hereof. No course of dealing, course of performance or trade usage, and no parole evidence of any nature, shall be used to supplement or modify any terms of this Amendment. Without limiting the generality of the foregoing, CAM agrees that, in connection with this Amendment, the fourth sentence of Section 9(e) of the Securities Purchase Agreement is waived and such Section has no force or effect in connection herewith.

[ Signatures contained on next page .]

IN WITNESS WHEREOF, the parties hereto have executed, acknowledged and delivered this Amendment all as of the date and year first written above.



	ADCARE HEALTH SYSTEMS, INC.

	By:	/s/ William McBride, III
	Name:	William McBride, III
	Title:	Manager

	CANTONE ASSET MANAGEMENT LLC

	By:	/s/ Anthony Cantone
	Name:	Anthony Cantone
	Title:	Managing Member

	CANTONE RESEARCH, INC.

	By:	/s/ Anthony Cantone
	Name:	Anthony Cantone
	Title:	President



	Exhibit 10.106

FIRST AMENDMENT TO PROMISSORY NOTE

This FIRST AMENDMENT TO PROMISSORY NOTE (this “ First Amendment ”) dated August 12, 2015, is by and among CSCC PROPERTY HOLDINGS, LLC , a Georgia limited liability company, and CSCC NURSING, LLC , a Georgia limited liability company (collectively “ Maker ”), ADCARE HEALTH SYSTEMS, INC ., a Georgia corporation and ADCARE OKLAHOMA MANAGEMENT, LLC , a Georgia limited liability company (collectively, the “ Guarantors ”) and CONTEMPORARY HEALTHCARE SENIOR LIEN FUND I, L.P. , a Delaware limited partnership (the “ Holder ”).

Whereas, Maker executed the Promissory Note dated August 17, 2012 (the “ Original Note ”) for a loan (the “ Loan ”) in the original principal amount of Five Million and No/100 Dollars ($5,000,000) in favor of Holder, as such Original Note is attached hereto as Exhibit A .

Whereas, the Original Note evidences the Maker's obligations to Holder under the Loan Agreement dated August 17, 2012 (as amended, the “ Loan Agreement ”) and certain related documents (as amended, the “ Loan Documents ”), between such parties.

Whereas the Original Note matures August 20, 2015 (the “ Original Maturity Date ”).

Whereas, the Maker has requested an extension of the Original Maturity Date to November 20, 2015 (as extended, the “Maturity Date ”).

Whereas, Maker and Guarantors are in default (the “ Existing Defaults ” and “ Ongoing Defaults ”) for those matters listed in the Forbearance Agreement dated August __, 2015 (the “ Forbearance Agreement ”).

Whereas, as a condition to approving such extension, Holder requires (i) certain changes to the Original Note and (ii) satisfaction of additional conditions (“ Additional Conditions ”) as set forth in Paragraph B herein.

The Maker and Guarantors executing this First Amendment agree that Holder’s agreeing to this First Amendment and the Forbearance Agreement constitute good and adequate consideration for their acceptance of the Additional Conditions.

Now, therefore, the parties hereto agree as follows:

A. Amendments to Note .


1.	Any term used and not defined herein shall have the meaning given such term in the Loan Agreement.


2.	Paragraphs (B) and (C) of the Original Note are replaced in their entirety to read as follows:

B. On September 20, 2012, and on the twentieth day of each successive calendar month thereafter until November 20, 2015, Maker shall pay to Holder an installment of interest at the Note Rate on the principal amount of this Note outstanding, or such greater amount as may be required pursuant to the terms of this Note (such payments under paragraphs A and B being hereinafter referred to as the “Installment Payments”) or such greater amount pursuant to the terms of this Note. The Installment Payments are set forth on an amortization schedule attached to the Loan Agreement (as defined below) as Schedule 2.4(a). Borrower acknowledges receipt and review of both Schedule 2.4(a) of the Loan Agreement and the electronic version of Schedule 2.4(a), which electronic version, among other things, sets forth the formulas and other calculations employed to create such amortization table.

C. On November 20, 2015 (the “Maturity Date”), if not sooner prepaid, Maker shall pay to Holder, without demand, the outstanding principal balance of this Note, together with all accrued and unpaid interest.


3.	The outstanding principal balance of the Note, net of cure amounts on deposit with Holder, as of the date hereof is $3,041,149.20.


4.	The definition of Maturity Date in the Loan Agreement shall be deleted in its entirety and replaced with the definition set forth above in this First Amendment.


5.	Any reference to “Note” or “Maturity Date” in any Loan Document shall mean the Original Note as modified by this First Amendment.


6.	A revised amortization schedule for the Note is attached hereto as Exhibit B , which schedule may be modified as provided for herein and in the Loan Agreement.


7.	Except as specifically set forth herein, all other terms of the Original Note shall remain the same.


8.	This First Amendment, including all exhibits, shall be attached to the Original Note and made a part thereof.


9.	The parties hereto further agree that any reference to the Maturity Date and Note in any Loan Document, including the Mortgage, as defined in the Loan Agreement, shall mean such terms as modified by this First Amendment.

B. Additional Conditions .


1.	A Forbearance Agreement, acceptable to the Holder in its sole discretion, shall have been executed by Maker, Guarantors and Holder.

C. Miscellaneous .


1.	This First Amendment shall become effective as of the date first above written (the “ Effective Date ”) after all of the conditions set forth in Section B shall have been satisfied.


2.	This First Amendment shall have been executed and delivered by the Maker and Guarantors.


3.	By their signatures on this First Amendment, each Guarantor reaffirms his/her/its guaranty of the obligations of the Loan Documents and Guaranties.


4.	By its signature to this First Amendment, Maker and each Guarantor certifies to Holder that other than the Ongoing Defaults and Existing Defaults, the representations and warranties set forth in the Loan Documents, as amended, are true and correct in all material respects.


5.	By its signature to this First Agreement, Maker and each Guarantor certifies to Holder that other than the Existing Defaults, no Defaults or Events of Default shall have occurred and be continuing.

IN WITNESS WHEREOF, Maker and Holder has caused this First Amendment to be properly executed and delivered as of the day and year first above written.



	MAKER:

	CSCC PROPERTY HOLDINGS, LLC
	a Georgia limited liability company

	By:	/s/ William McBride
	Name:	William McBride
	Title:	Manager

	CSCC NURSING, LLC
	a Georgia limited liability company

	By:	/s/ William McBride
	Name:	William McBride
	Title:	Manager

	GUARANTORS:

	ADCARE HEALTH SYSTEMS, INC
	an Ohio corporation

	By:	/s/ William McBride
	Name:	William McBride
	Title:	Chairman and CEO

	ADCARE OKLAHOMA MANAGEMENT, LLC
	a Georgia limited liability company

	By:	/s/ William McBride
	Name:	William McBride
	Title:	Manager

SIGNATURE PAGE TO PROMISSORY NOTE – FIRST AMENDMENT - ADCARE 15 - SENIOR

Exhibit A

Original Note

(attach)

Exhibit B

Revised Amortization Schedule



	Exhibit 10.107

ASSET PURCHASE AGREEMENT

by and between

RIVERCHASE VILLAGE ADK, LLC, as Seller

and

OMEGA COMMUNITIES, LLC, as Purchaser

dated as of

June 11, 2015

HNZW/512200_6doc/2887-181

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT is entered into as of June11, 2015, by and between RIVERCHASE VILLAGE ADK, LLC , a Georgia limited liability company (“Seller”), and OMEGA COMMUNITIES, LLC , a Florida limited liability company (“Purchaser”).

RECITALS

A. Seller owns and operates the congregate assisted living facility located at 1851 Data Drive, Hoover, Alabama 35244, known as Riverchase Village Senior Living Community (the “Facilities”). The Facilities include a 125 bed congregate assisted living facility licensed by the Alabama Department of Public Health.

B. Seller desires to sell substantially all of the assets used or held for use in connection with the operation of the Facilities, and Purchaser desires to purchase such assets, all in accordance with and subject to the terms and conditions set forth below.

C. Unless otherwise specifically provided herein, all references to schedules set forth in this Agreement refer to the numbered sections contained in a separate document of even date herewith (the “Disclosure Schedules”) delivered by Seller to Purchaser, which schedules and information set forth therein are incorporated by reference in this Agreement.

NOW, THEREFORE , in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows:

ARTICLE 1

DEFINITIONS AND REFERENCES

Capitalized terms used herein without definition shall have the respective meanings assigned thereto as follows (such definitions to be equally applicable to both the singular and plural forms of the terms defined). Unless otherwise specified, all references herein to “Articles” or “Sections” are to Articles or Sections of this Agreement.

“Affiliate” means a Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified herein but shall specifically exclude AdCare Health Systems, Inc., a Georgia corporation. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, the holding of proxies, by contract other than a commercial contract for goods or non-management services, or otherwise.

“Agreement” means this Asset Purchase Agreement, the Exhibits hereto, including those executed and delivered by one or more of the parties prior to or at the Closing pursuant to this Asset Purchase Agreement, the Schedules hereto, and the Seller Documents and Purchaser Documents.

“Allocation” shall have the meaning specified in Section 2.7 .

HNZW/512200_6.doc/2887-181

“Assignment and Assumption Agreements” shall have the meaning specified in Section 12.2(a)(v) .

“Assumed Contracts” shall have the meaning set forth in Section 2.1(d) .

“Assumed Liabilities” shall have the meaning set forth in Section 2.6 .

“Basket Amount” shall have the meaning set forth in Section 13.2(e) .

“Bill of Sale” means a Bill of Sale, dated as of the Closing Date and executed by Seller, substantially in the form attached hereto as Exhibit A , pursuant to which, effective as of the Closing Date, Seller shall assign, transfer and convey to Purchaser certain of the Transferred Assets.

“Breach” means a breach of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement, which will be deemed to have occurred if there is or has been (a) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (b) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision.

“Brokers” shall have the meaning set forth in Section 4.21 .

“Business Day” means a day other than a Saturday or a Sunday on which banks in Birmingham, Alabama are not authorized or required by law or executive order to close.

“Closing” means the closing of the purchase, assignment and sale of the Transferred Assets, as further described in Section 12.1(a) .

"Closing Date" means the time and date on which the Closing takes place, as established by and further described in Section 12.1(a) .

“COBRA” shall have the meaning set forth in Section 8.4(d) .

“Code” means the Internal Revenue Code of 1986, as amended, and all regulations promulgated pursuant thereto.

“Confidential Information” means any information which is proprietary in nature and non-public or confidential, in whole or in part; provided, however, Confidential Information does not include any information in the possession of the receiving party (a) that is independently developed by the such party, (b) is learned from a third party not under any duty of confidence to the disclosing party, or (c) is or becomes part of the public domain through no fault of the receiving party.

“Consent” means any approval, consent, ratification, waiver, or other authorization.

“Contract” means any agreement, contract, obligation, commitment, lease, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding.

“Damages” means any Loss, Liability, deficiency, Proceeding or Order.

“Deed” shall have the meaning specified Section 12.2(a)(ii) .

“Direct Claim” shall have the meaning specified in Section 13.2(d)(v) .

“Direct Claim Notice” shall have the meaning specified in Section 13.2(d)(v) .

“Disclosure Schedules” shall have the meaning specified in the Recitals.

“Due Diligence Material” shall have the meaning specified in Section 3.1(f) .

“Due Diligence Period” shall have the meaning specified in Section 3.1(a) .

“Earnest Money Deposit” shall have the meaning specified in Section 2.3 .

“Effective Time” means 12:01 a.m., Central Standard Time, on the Closing Date.

“Employee Benefit Plans” means any pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off, welfare, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, that is or has been maintained, sponsored, contributed to, or required to be contributed to by the Seller for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Seller or any spouse or dependent of such individual, or under which the Purchaser or any of its ERISA Affiliates has or may have any Liability or to which the Transferred Assets could be subject, or with respect to which the Purchaser or any of its ERISA Affiliates could reasonably be expected to have any Liability or to which the Transferred Assets could be subject, contingent or otherwise.

“Encumbrances” means any agreements, mortgages, defects in title, easements, rights‑of‑way, charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, restriction of any kind affecting title, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership and other matters affecting title.

“Entity” means any corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association or any other type of business organization.

“Environmental Laws” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, ("CERCLA") as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. ' 9601 et seq .; the Toxic Substances Control Act ("TSCA"), 15 U.S.C. ' 2601 et seq .; the Hazardous Materials Transportation Act, 49 U.S.C. ' 1802 et seq .; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ' 9601 et seq .; the Clean Water Act ("CWA"), 33 U.S.C. ' 1251 et seq .; the Safe Drinking Water Act, 42 U.S.C. ' 300f et seq .; the Clean Air Act ("CAA"), 42 U.S.C. ' 7401 et seq .; or any other applicable federal, state, or local laws relating to the protection of the environment from Hazardous Materials, including any plans, rules, regulations, orders, or ordinances adopted, pursuant to the preceding laws or other similar laws, regulations, rules, orders, or ordinances now in effect relating to Hazardous Materials generation, production, use, storage, treatment, transportation or disposal.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and all regulations and rules promulgated pursuant thereto.

“ERISA Affiliate” means any Person other than the Seller, whether or not incorporated, that together with the Seller would be deemed a “single employer” for purposes of Section 414 of the Code or Section 4001 of ERISA.

“Excluded Assets” shall have the meaning specified in Section 2.2 .

“Excluded Contracts” shall have the meaning specified in Section 2.2(c) .

“Extension Deposit” shall have the meaning specified in Section 2.3 .

“Facilities” shall have the meaning specified in the Recitals.

“Facility Employees” shall have the meaning specified in Section 4.11(a) .

“ Facility Employee Benefit Plans ” shall have the meaning specified in Section 4.11(b) .

“GAAP” means generally accepted accounting principles applied on a consistent basis.

“Governmental Authority” means any agency, board, bureau, court, commission, department, instrumentality or administration of the United States government, any state government or any local or other governmental body in a state, territory or possession of the United States or the District of Columbia.

“Governmental Authorization” means any Consent, license or permit issued, granted, given, or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Law, including any certificate of need.

“Hazardous Materials” means any wastes, substances, or materials (whether solids, liquids or gases) that are deemed as hazardous, toxic, pollutants or contaminants under any Environmental Law, including without limitation, substances defined as "hazardous wastes," "hazardous substances," "toxic substances," "radioactive materials," or other similar designations in, or otherwise subject to regulation under, any Environmental Laws. "Hazardous Materials" includes, without limitation, polychlorinated biphenyls (PCBs), asbestos, lead-based paints and petroleum and petroleum products.

“Indemnified Party” and “Indemnifying Party” shall have the respective meanings specified in Section 13.2(d) .

“Initial Deposit” shall have the meaning specified in Section 2.3.

HNZW/512200_6.doc/2887-181

“Insured Exception” shall have the meaning set forth in Section 7.1(c).

“IRS” means the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury.

“Knowledge” of a particular fact or other matter means, with respect to Seller, the facts or matters known by (i) Christopher F. Brogdon; (ii) Linda Tiffany, Executive Director of the Facilities and (iii) Lucas Haven without inquiry or investigation.

“Laws” means any statute, law, code, ordinance, regulation, rule, resolution, order, determination, writ, injunction, award (including, without limitation, any award of any arbitrator), judgments and decrees applicable to the specified persons or entities and to the businesses and assets thereof (including, without limitation, Laws relating to the sale, leasing, ownership or management of real property; employment practices, terms and conditions, and wages and hours; building standards, land use and zoning; safety, health and fire prevention; and environmental protection, including Environmental Laws).

“ Legal Requirement ” means any federal, state, local or foreign law, statue, code, ordinance, regulation, rule, regulatory or administrative ruling or guidance, directive, order, award, decision, injunction, judgment, ruling, decree, assessment, charge, writ, subpoena or verdict entered, issued, made or rendered by any Governmental Authority, or constitution, treaty or other requirement or rule of law of any Governmental Authority.

“Liabilities” means, as to any Person, all debts, adverse claims, liabilities and obligations, direct, indirect, absolute or contingent of such Person, whether accrued, vested or otherwise, whether in contract, tort, strict liability or otherwise and whether or not actually reflected, or required by GAAP to be reflected, in such Person's balance sheets or other books and records.

“Loss” or "Losses” means any and all demands, claims, complaints, actions or causes of action, suits, proceedings, investigations, arbitrations, assessments, losses (exclusive of diminution in value but including lost profits), damages (exclusive of indirect, consequential and incidental damages but including lost profits), liabilities, obligations (including those arising out of any action, such as any settlement or compromise thereof or judgment or award therein) and any costs and expenses, including, without limitation to, interest, penalties and reasonable attorneys' fees and disbursements.

“Material Adverse Change” means a material adverse change in the operations of the Facilities; provided, however, that in no event shall any of the following constitute a Material Adverse Change: (i) any change in the sources of competition in the market in which the Facilities are located, other than from Seller or its Affiliates, or other changes affecting the market for potential Residents not caused by Seller or its Affiliates; (ii) any casualty or condemnation proceeding affecting all or any part of the Facilities (since such matters are provided for in Sections 8.1 and 8.2 ); (iii) any change resulting from conditions affecting the assisted living or long term care industries (including any change in Laws or GAAP or regulatory accounting principles generally applicable to such industries), or changes resulting from general business or economic conditions; (iv) any change that would not be material to the operations if continued in the same manner as

HNZW/512200_6.doc/2887-181

conducted by Seller prior to the Closing Date, yet are material to Purchaser due to Purchaser’s unique circumstances or its proposed operation of the Facilities or its integration of the Facilities into its corporate organization; (v) any change resulting from the announcement or pendency of any of the transactions described in this Agreement; or (vi) any change resulting from compliance by Seller with the terms of, or the taking of any action contemplated or permitted by, this Agreement.

“Material Adverse Effect” means a material adverse effect on the business, operations, assets, property or condition (financial or otherwise) of the Facilities.

“Material Contracts” shall have the meaning specified in Section 4.9(a) .

“Material Equipment” shall have the meaning specified in Section 4.6(b) .

“Maximum Amount” shall have the meaning set forth in Section 13.2(e) .

“Monetary Encumbrance” shall have the meaning set forth in Section 7.2(a).

“Multiemployer Plan” means any Plan described in Section 3(37) of ERISA

“Objection Notice” shall have the meaning set forth in Section 7.1(c) .

“Order” means any award, decision, injunction, judgment, decree, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency or Governmental Authority or by any arbitrator.

“Ordinary Course of Business” means, with respect to Seller or the Facilities, the ordinary course of business, consistent with past practices, of Seller or the Facilities, as applicable.

“Permits” shall have the meaning set forth in Section 2.1(g) .

“Permitted Encumbrances” means (a) any Encumbrance which is deemed to be a Permitted Encumbrance pursuant to Section 7.1(c) or Section 7.2(b) ; (b) subject to the adjustments as provided in the Agreement, the Encumbrances for real estate Taxes not yet due and payable; (c) Residency Agreements; (4) subject to the adjustments as provided in the Agreement, any service, installation, connection or maintenance charge due after Closing Date and charges for sewer, water, electricity, telephone, cable television or gas due after Closing Date; and (d) easements, minor imperfections of title, zoning laws, land use restrictions, shortage in area, encroachments, and other matters of record that in Purchaser's reasonable judgment do not materially adversely affect the full use and enjoyment of any Real Property for the purposes for which such Real Property is currently used or detract from the value of such Real Property in any material respect.

“Person” means any individual, Entity, organization, labor union, or Governmental Authority.

“Personal Property” shall have the meaning set forth in Section 2.1(b) .

“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority or arbitrator.

“Purchase Price” shall have the meaning set forth in Section 2.4 .

“Purchaser” shall have the meaning set forth in the Preamble to this Agreement.

“Purchaser Documents” means, collectively, this Agreement, the Assignment and Assumption Agreement, and any other agreement to be executed and delivered by Purchaser hereunder, or as otherwise contemplated herein.

“Purchaser Indemnified Parties” shall have the meaning specified in Section 13.2(a).

“ Purchaser’s Broker” shall have the meaning set forth in Section 4.21 .

“Real Property” shall have the meaning set forth in Section 2.1(a) .

“Rent Roll” shall have the meaning set forth in Section 4.18 .

“Rents” means monthly fees and other charges paid or payable by Residents under the Residency Agreements.

“Representative” means with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.

“Residency Agreements” means agreements between the Facility and Residents for the rental of apartment units in the Facility.

“Residents” means individuals who (i) currently reside, (ii) have entered into a Contract to reside, or (iii) have resided in the Facilities.

“Seller Documents” means, collectively, this Agreement, the Bill of Sale, and any other agreements to be executed and delivered by Seller hereunder or as otherwise contemplated herein.

“Seller Indemnified Parties” shall have the meaning set forth in Section 13.2(b) .

“Seller’s Broker” shall have the meaning set forth in Section 4.21 .

“Seller's Notice” shall have the meaning set forth in Section 7.2(b) .

“Survey” shall have the meaning set forth in Section 7.1(b) .

“Tax Returns” means all federal, state, local, foreign and other applicable Tax returns and declarations of estimated Tax reports required to be filed by Seller.

“Taxes” means all federal, state and local taxes (including, without limitation, income, profit, franchise, sales, use, real property, personal property, ad valorem, excise, employment, social security and wage withholding taxes) and installments of estimated taxes, assessments, deficiencies, levies, imports, duties, license fees, registration fees, withholdings, or other similar charges of every kind, character or description imposed by any Governmental Authorities, and any interest, penalties or additions to tax imposed thereon or in connection therewith, that arise from or relate to the business or operations of the Facilities.

“ Transactions ” means the sale, transfer, conveyance, assignment and delivery and purchase, acquisition, acceptance and assumption of the Transferred Assets and the Assumed Liabilities, as well as the other transactions contemplated by this Agreement and documents directly related thereto.

“Title Commitment” shall have the meaning set forth in Section 7.1(a) .

"Title Company" means Reli Title.

“Title Objections” shall have the meaning set forth in Section 7.1(c) .

“Title Policy” shall have the meaning set forth in Section 10.5 .

“Transferred Assets” shall have the meaning specified in Section 2.1 .

“Transferred Employees” shall have the meaning specified in Section 8.4(c) .

“ Treasury Regulations ” means the income tax regulations, including the temporary regulations, promulgated under the Code.

“UCC” means the Uniform Commercial Code as in effect in the State of Alabama.

ARTICLE 2

SALE AND PURCHASE OF ASSETS; PURCHASE PRICE;

ADJUSTMENTS; ASSUMPTION OF LIABILITY

2.1 Purchase of Assets.

Subject to the terms and conditions of this Agreement, at the Closing, but effective at the Effective Time, Seller agrees to sell, transfer, convey, assign and deliver to Purchaser, and Purchaser agrees to purchase from Seller, all right, title and interest of Seller in and to the following properties, assets and rights, free and clear of any Encumbrances except for Permitted Encumbrances (collectively, the "Transferred Assets"):

2.1(a) All right, title and interests in, to and under the real property described on Schedule 2.1(a) , together with all improvements, buildings and fixtures located thereon and all easements and rights appurtenant to such real property (the “Real Property”);

2.1(b) All tangible personal property (including all machinery, equipment, office equipment, fixtures, computer hardware and software (but only to the extent such hardware and software is used solely in connection with the operation of the Facilities and is not part of any network system employed by Seller and is further subject to any restrictions by the licensor on the assignment of such software), tools, supplies, spare parts and furniture) owned or leased by Seller and either located at the Facilities or used solely in connection with the operation of the Facilities and not any other facility which is owned or operated by Seller or any of its Affiliates, including the tangible personal property as specifically listed and described on Schedule 2.1(b) (the “Personal Property”);

2.1(c) All rights to receive payments from customers or Residents or from others which payments are due and payable but have been paid prior to the Effective Time;

2.1(d) The Contracts that relate solely to the business and/or operations of the Facilities (and not any other facility of Seller that is owned or operated by Seller or any of its Affiliates) to which Seller is a party or by which Seller is bound, as specifically listed or described in Schedule 2.1(d) , but excluding the Excluded Contracts (collectively, but excluding the Excluded Contracts, the “Assumed Contracts”);

2.1(e) The financial, medical and other records for all Residents currently residing in the Facilities and all business and other books, customer lists, papers, logs, files and records (excluding the corporate records of Seller) relating specifically to the Real Property and the Personal Property or relating solely to the business and/or operations of the Facilities (excluding any such records relating to any other facility of Seller, the Excluded Assets, Liabilities not assumed by Purchaser, or the Facility Employees as identified in Section 2.2(f)) ;

2.1(f) All of Seller's right to the telephone numbers used by the Facilities and to the telephone listing in the local telephone directories as listed and described on Schedule 2.1(f) ;

2.1(g) All Governmental Authorizations owned, held or utilized by Seller or the Facilities in connection with the ownership of the Transferred Assets and the operation of the Facilities, and all pending applications related to the Facilities or its operation, including the Permits listed on Schedule 2.1(g) (the “Permits”), in each case to the extent transferrable to Purchaser;

2.1(h) All rights and claims under or pursuant to all warranties or product guarantees made by manufacturers, suppliers, vendors or contractors arising under or relating to the Real Property or Personal Property;

2.1(i) All golf carts, vans, and other vehicles owned or leased by Seller and used in the operation of the Facilities as listed and described on Schedule 2.1(i) ;

2.1(j) The business of the Facilities as a “going concern” and goodwill; and

2.1(k) All inventories of supplies and food, located in the Facilities as of the Closing Date.

2.2 Excluded Assets.

Notwithstanding anything to the contrary in this Agreement, the assets described below shall be excluded from the Transferred Assets (such excluded assets, the “Excluded Assets”). Seller is not selling or otherwise transferring to Purchaser any of the Excluded Assets, and Purchaser shall acquire no interest in or to the Excluded Assets pursuant to this Agreement.

2.2(a) All Employee Benefit Plans, including, without limitation, the assets thereof and any prepaid expenses related thereto;

2.2(b) All books, records, files, and papers (whether in hard copy or computer format) (i) that are not used in, or that do not relate to or affect, the Facilities, including sales and promotional literature, manuals and data, sales and purchase correspondence, (2) that are not solely related to the business and/or operation of the Facilities and (3) that relate to the Excluded Assets or Liabilities not assumed by Purchaser;

2.2(c) All Contracts not specifically set forth on Schedule 2.1(d) and all Contracts under which products are purchased through a group purchasing organization (the “Excluded Contracts”);

2.2(d) Any Governmental Authorization that relates to or affects the Facilities but is not assignable or transferable;

2.2(e) All personnel and employment records that relate to former or current employees of the Facilities, except to the extent that Laws require such records, or copies of such records, to remain at the Facilities, provided that copies of employment records relating to the Transferred Employees shall be provided to Purchaser;


2.2(f)	Any insurance policies to which Seller is a party;

2.2(g) Seller’s right to any of its trade names, trademarks or service marks (collectively, the “Marks”); and


2.2(h)	Any other property of Seller not expressly described in Section 2.1.

2.3 Earnest Money Deposit.

Within three (3) business days after the execution and delivery of this Agreement, Purchaser shall deliver to Title Company earnest money in the amount of One-Hundred Thousand and No/100 Dollars ($100,000.00) (the “Initial Deposit”) to be held by Title Company in escrow in a non-interest bearing account. If Purchaser wishes to extend the Closing Date from July 10, 2015 to August 10, 2015, Purchaser must (i) provide written notice to Seller on or before July 6, 2015 and (ii) deliver to the Title Company on or before July 9, 2015, an extension deposit in the amount of One-Hundred Thousand and No/100 Dollars ($100,000.00) (the “Extension Deposit”) to be held by the Title Company in escrow in a non-interest bearing account. Hereinafter, the Initial Deposit and the Extension Deposit (if any) are collectively referred to as the “Earnest Money Deposit”. Title Company shall hold and disburse the Earnest Money Deposit in accordance with this Agreement and the terms and conditions of escrow, if any, that Title Company shall require upon creation of the escrow. The parties agree that if the purchase of the Transferred Assets closes, the Earnest Money Deposit shall be applied to the Purchase Price as a credit to Purchaser at Closing. If Purchaser fails to deposit the Earnest Money Deposit with Title Company within the period provided in this Section 2.3 , this Agreement shall automatically terminate and be of no further force or effect except for the provisions which by the terms of this Agreement expressly survive termination of this Agreement.

2.4 Purchase Price.

The purchase price for the Transferred Assets (the “Purchase Price”) shall be an amount equal to Six Million Seven Hundred Fifty Thousand and No/100 Dollars ($6,750,000.00).

2.5 Payment of Purchase Price.

Purchaser shall deliver to Seller on the Closing Date an amount sufficient to pay the Purchase Price and all other obligations of Purchaser arising under this Agreement, after taking into account (1) the appropriate adjustments as required by Article 9, and (2) the Earnest Money Deposit, by immediately available funds. All or a portion of the funds payable by Purchaser at Closing may, at the direction of Seller, be paid to the Title Company. If Seller desires payment by wire transfer, Seller shall provide wire transfer instructions to Purchaser at least two (2) days prior to the Closing Date.

2.6 Assumption of Liabilities and Obligations.

At the Effective Time, Purchaser shall assume the Liabilities arising after the Closing Date (i) under the Assumed Contracts, and (ii) relating to the Permitted Encumbrances, if any (collectively, the “Assumed Liabilities”). Except for the Assumed Liabilities, Purchaser does not assume any Liabilities of Seller. All other Liabilities of Seller shall herein be referred to collectively as the “Excluded Liabilities.”

2.7 Allocation of Purchase Price

Prior to the expiration of the Due Diligence Period, the parties shall allocate the Purchase Price among the Transferred Assets in the manner complying with Section 1060 of the Code. Such allocation (the “Allocation”) will be agreed to by Purchaser and Seller prior to the Closing Date. The parties hereby agree that the Allocation will be added to this Agreement as Schedule 2.7 and shall be conclusive and binding on each of them for purposes of federal and, where applicable, state and local tax returns and that they will not voluntarily take any position on such returns inconsistent with the Allocation, as adjusted for any Purchase Price adjustments hereunder. The parties hereby agree to prepare and timely file all applicable forms concerning the allocation of the Purchase Price with the Internal Revenue Service (“IRS”) and any other Governmental Authority consistent with the Allocation.

2.8 Financing

Upon Purchaser’s request and at Purchaser’s sole cost and expense, Seller hereby agrees to reasonably cooperate with Purchaser or any third party in connection with Purchaser’s financing or refinancing of its purchase of the Property, whether through bond financing or otherwise. In addition, upon request by Purchaser, Seller agrees to convey the Property to a government bond issuer named by Purchaser at Closing.

ARTICLE 3

DUE DILIGENCE AND INVESTIGATION

3.1 Access and Investigation

3.1(a) For a period commencing on the date of this Agreement and expiring at midnight on June 30, 2015 (the “Due Diligence Period”), Seller shall: (1) afford Purchaser and its Representatives access to Seller’s personnel, properties (including access for subsurface testing), books and records, and other documents and data, and (2) furnish Purchaser and Purchaser’s Representatives with copies of all Assumed Contracts, books and records, financial information and other existing documents and data related to the operation of the Facilities and the Transferred Assets as Purchaser may reasonably request. Purchaser hereby requests from Seller the list of documents and data set forth on Schedule 3.1(a). Based on Purchaser's due diligence review, it shall have the right and opportunity to request additional information from Seller as is reasonable in relation to Purchaser's due diligence. The parties agree that time is of the essence as to the Due Diligence Period.

3.1(b) In conducting any inspections of the Transferred Assets, Purchaser shall not (1) interfere with the business of Seller, (2) unreasonably disturb the Residents, (3) disrupt the operations of the Facilities, or (4) damage any of the Transferred Assets. Seller may, from time to time, establish reasonable rules of conduct for Purchaser and its Representatives in their performance of due diligence activities. Purchaser shall schedule and coordinate all inspections with Seller and shall give Seller at least 24 hours notice prior to conducting any inspection. Prior to Closing, Purchaser, at its expense, shall have the right to obtain a Phase I environmental site assessment and, with the written consent of Seller, which consent shall not be unreasonably withheld or delayed, a Phase II environmental site assessment on the Real Property. Purchaser shall not be permitted to conduct any boring on any of the Real Property in connection with its due diligence review or otherwise without the prior consent of Seller. If Purchaser’s Representatives alter or damage any of the assets or properties owned or used by Seller in operation of the Facilities or otherwise located at the Real Property, Purchaser shall promptly restore such altered or damaged asset or property to its state prior to such alteration or damage and shall pay to Seller, on demand, the cost of repairing and restoring any damage or disturbance that Purchaser causes to any such assets or property.

3.1(c) If, after notice by Purchaser to Seller of an inspection by an independent contractor, Seller requests evidence of insurance described below, prior to any entry onto the Real Property or the premises of the Facilities by any independent contractor employed by Purchaser for the purpose of conducting the due diligence review of the Transferred Assets, Purchaser shall deliver evidence reasonably satisfactory to Seller that such independent contractor has general liability insurance, with coverages in the amounts set forth below, and workers compensation insurance as required by applicable law, insuring such independent contractor and its employees against loss, liability, personal injury, death or property damage arising or occurring upon or in connection with the presence or activities of such independent contractor while on the Real Property or the premises of any such Facilities. Seller reserves the right, where commercially reasonable, to require that any such independent contractor name Purchaser as an additional insured on its general liability insurance policy or to require that such policy provide coverage for the contract between such independent contractor and Purchaser with respect to such independent contractor’s activities on the Real Property or at the Facilities.

3.1(d) Purchaser hereby agrees that: (1) any information concerning the Transferred Assets or Seller (whether prepared by Seller, its advisors or otherwise) which is furnished to Purchaser or its Representatives by or on behalf of Seller, or which is developed or prepared by Purchaser or its Representatives therefrom or from any of Purchaser’s or its Representatives’ inspections or examinations of the Transferred Assets (collectively, the “Due Diligence Material”), will be used solely for the purpose of evaluating the proposed purchase of the Transferred Assets by Purchaser, (2) such information will be kept strictly confidential by Purchaser and its Representatives; and (3) any of the Due Diligence Material may be disclosed only to Purchaser’s Representatives who need to know such information for the purpose of evaluating such purchase, to any lender to which Purchaser makes a formal application for a loan secured by the Facility, or to any other Person necessary to closing of the transaction, in each such circumstance only if such Representative, lender or other Person agrees (i) to treat such information as strictly confidential and (ii) to be bound by the provisions of this Section 3.1(e) . The covenants of this Section 3.1(e) shall expire upon the earlier of the Closing or the 1 ^st anniversary of the date hereof. In addition, this covenant shall not apply to Due Diligence Material that would not be considered “Confidential Information” hereunder.

3.2 Scope of Purchaser’s Due Diligence.

Purchaser acknowledges and agrees that, except as expressly set forth in this Agreement, Seller makes no representations or warranties whatsoever, whether express or implied or arising by operation of law, regarding the Facilities, Transferred Assets, their condition or state of repair, the financial condition of the Facilities or the operations of the Facilities. Purchaser agrees that the Transferred Assets will be sold and conveyed to (and accepted by) Purchaser at the Closing in the then existing condition of the Transferred Asset, AS IS, WHERE IS, WITH ALL FAULTS, except as otherwise expressly provided in this Agreement.

3.3 Termination of Agreement by Purchaser.

Purchaser may terminate this Agreement for any reason or no reason at all, in Purchaser’s sole and absolute discretion, by delivery to Seller of notice of termination prior to 5:00 p.m., Central Standard Time, on or prior to the expiration of the Due Diligence Period. Upon termination, the Earnest Money Deposit shall be promptly refunded to Purchaser without further demand therefor.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES BY SELLER

Seller hereby represents and warrants to Purchaser as follows:

4.1 Organization and Standing.

Seller is a limited liability company duly formed, validly existing and in good standing under the laws of Georgia and has full power and authority to own and lease, as applicable, the Transferred Assets as they are now owned or leased and to carry on its business as its business is now being conducted. Seller has the power and authority to execute and deliver this Agreement and the other Seller Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. Seller, to the extent required by Law, is qualified to do business and is in good standing in Alabama. Seller’s Federal Employer Identification Number is set forth on the signature page to this Agreement. Seller certifies that (a) such number is correct, (b) it is not subject to backup withholding because (1) it has not been notified that it is subject to backup withholding as a result of a failure to report all interest or dividends or (2) the IRS has notified it that it is no longer subject to backup withholding, and (c) it is not a foreign Person within the meaning of sections 1445 and 1446 of the IRC, and the regulations promulgated under such code sections.

4.2 Authorization.

The execution, delivery and performance by Seller of this Agreement and the other Seller Documents to which it is a party, and the consummation of the transactions provided for herein and therein have been duly and validly authorized by all necessary actions of Seller and its members and manager (none of which has been modified or rescinded and all of which actions are in full force and effect). This Agreement constitutes, and each of the other Seller Documents upon execution and delivery of such other Seller Document will constitute, valid and binding agreements and obligations of Seller, enforceable against Seller in accordance with their respective terms, except as such enforceability may be limited by applicable creditors’ rights laws and general principles of equity.

4.3 Compliance with Laws.

To the Knowledge of Seller, Seller has complied and is in compliance in all material respects with all Laws applicable to Seller, to the Transferred Assets and/or the Facilities and to the ownership, leasing or operation (as applicable) of the Transferred Assets (excepting from this Section 4.3 any Laws the compliance with which is specifically dealt with elsewhere in this Article 4 ). Seller has obtained and holds all permits, licenses and approvals (all of which are in full force and effect) from all Governmental Authorities, necessary in order to conduct the operations of the Facilities in accordance with applicable Law, as presently conducted, and to own, use and maintain the Transferred Assets, except where the failure to so obtain such permits, licenses and approvals has not had, and will not have, a Material Adverse Effect.

4.4 Required Consents; No Conflicts.

4.4(a) The execution, delivery and performance by Seller of Seller Documents will not require the Consent of, or filing with, or notification to any Person or Governmental Authority, except (i) as have been obtained or will be obtained or have occurred prior to the Closing and (ii) that certain of the Assumed Contracts may be assigned only with the Consent of third parties as set forth in Schedule 4.4(a) .

4.4(b) The execution and delivery of the Seller Documents, the fulfillment of and the compliance with the respective terms and provisions of each, and the consummation of the transactions described in each, do not and will not (i) conflict, in any material respects, with or violate any Law applicable to or affecting Seller, the Facilities or the Transferred Assets, (ii) conflict, in any material respects, with or result in any material breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under any Material Contract to which Seller is a party or by which Seller is bound or to which any of the Transferred Assets or either of the Facilities is subject or affected, or result in the creation of any Encumbrance upon the Transferred Assets, or (iii) conflict, with or violate the organizational documents of Seller or any resolution adopted by its board of directors or shareholders.

4.5 Absence of Litigation.

There is no Proceeding, nor any Order pending or, to the Knowledge of Seller, threatened against, affecting or involving Seller (as it relates to the ownership, leasing or operation of the Facilities), the Transferred Assets, the Facilities or, to the Knowledge of Seller, the Facility Employees, or the transactions provided for in this Agreement or any other Seller Document, at law or in equity, or before or by any court, arbitrator or Governmental Authority. The Facilities are not operating under or subject to any Order of any court, arbitrator or Governmental Authority.

4.6 Ownership and Condition of Transferred Assets.

4.6(a) Schedule 2.1(a) contains a complete and accurate description of all the Real Property and Seller's interest therein. The Real Property listed on Schedule 2.1(a) comprises all real property interests owned, leased or used by Seller in the conduct of the business and operations of the Facilities as now conducted and which is material to the business and operations of the Facilities, and Seller (i) is the owner of, and has good fee title to all fee estates included in the Real Property which is owned by Seller, and (ii) has good leasehold interests in all Real Property leased by Seller, in each case free and clear of any Encumbrances, except for Permitted Encumbrances. All Real Property (including the improvements thereon) (i) is available for immediate use in the conduct of the business and operations of Purchaser, and (ii) to the Knowledge of Seller, complies in all material respects with all applicable building or zoning codes and regulations of any Governmental Authority having jurisdiction, except where the failure to so comply has not had a Material Adverse Effect. The Real Property abuts on and has direct vehicular access to a public road, or has access to a public road via an appurtenant easement benefitting the Real Property. To the Knowledge of Seller no portion of the Real Property or any building, structure, fixture or improvement thereon is the subject of, or affected by, any condemnation, eminent domain or inverse condemnation proceeding currently instituted or pending or, to the Knowledge of Seller threatened.

4.6(b) Personal Property . Schedule 4.6(b) sets forth a listing of the material Personal Property owned or used by Seller in the operation of the Facility (the “Material Equipment”). Except as disclosed on Schedule 4.6(b) , Seller owns the Material Equipment that it purports to own or that is reflected as owned in the books and records of Seller (except for assets held under capitalized leases disclosed in Schedule 2.1(d) of this Agreement). None of such Material Equipment is subject to any Encumbrance or other charge, except for Permitted Encumbrances or as otherwise specifically disclosed in Schedule 4.6(b) . Except as otherwise specified in Schedule 4.6(b) , all Material Equipment of Seller is free of material defect and in good repair and working order (ordinary wear and tear excepted).

4.7 Financial Statements.

Set forth in Schedule 4.7 are (i) unaudited balance sheets of Seller for the Facilities as of the end of the fiscal years ending December 31, 2012, 2013 and 2014, (ii) unaudited interim balance sheets of Seller dated as of March 31, 2015, (iii) unaudited statements of income for Seller for the fiscal years ending December 31, 2012, 2013 and 2014, and (iv) interim statements of income for the month ending March 31, 2015. All of the financial statements referred to in this Section: (i) are prepared from the books and records of Seller in accordance with GAAP, except that such financial statements are prepared without footnotes or other presentation items and, in the circumstance of the interim financial statements, without normal year-end adjustments; and (ii) present fairly in all material respects the financial condition of Seller as of the respective periods covered thereby. Seller has no Liabilities relating to the Facilities, except for (i) Liabilities reflected or reserved against any financial statements furnished pursuant to this Section; (ii) Liabilities described in Schedule 4.7 ; or (iii) Liabilities incurred since March 31, 2015 in the Ordinary Course of Business.

4.8 Reports and Records.

To Seller's Knowledge, all returns, reports, statements and other documents relating to the Facilities currently required to be filed by Seller with any Governmental Authority in connection with, or as a result of, Seller's operation of the Facilities or ownership of the Transferred Assets, have been filed and complied with by Seller and are true, correct and complete in all material respects as filed, except where failure to file will not have a Material Adverse Effect.

4.9 Material Contracts.

4.9(a) Schedule 2.1(d) contains a complete list, as of the date hereof, of all of the Contracts which are material to the business and operations of the Facilities (the “Material Contracts”). Seller has delivered to Purchaser a full and complete copy of each of the Material Contracts.

4.9(b) Each Material Contract is in full force and effect, and constitutes a valid and binding obligation of, and is legally enforceable against, Seller. Seller and, to the Knowledge of Seller, the other parties thereto, have complied in all material respects with all of the provisions of such Material Contracts and are not in breach or default thereunder in any material respect, and there has not occurred any event which (whether with or without notice or lapse of time) would constitute such a material breach or default by any of the parties thereunder. To the Knowledge of Seller, there has not been any threatened cancellation of any Material Contract and there is no outstanding dispute thereunder. The consummation of the transactions described in this Agreement will not cause a default under any Assumed Contract.

4.10 Taxes.

4.10(a) Seller has timely filed with the appropriate taxing authorities all Tax Returns (including, without limitation, information returns and other material information) required to be filed through the date hereof for which such Seller would have Liability for Taxes relating to the operations of the Facilities.

4.10(b) There is no action, suit, proceeding, audit, investigation or claim pending or, to the Knowledge of Seller, threatened in respect of any Taxes relating to the Facilities for which Seller is or may become liable; no deficiency or claim for any Tax relating to the Facilities has been proposed, asserted, or to the Knowledge of Seller, threatened, nor to the Knowledge of Seller, is there basis for any such claim. There are no outstanding agreements or waivers providing for an extension of time with respect to the assessment or collection of any Taxes against Seller relating to the Facilities, and no power of attorney granted by Seller with respect to any Tax matter relating to the Facilities is currently in force, the existence of which may give rise to any Encumbrance on any of the Transferred Assets.

4.10(c) Seller has duly and timely withheld and paid all Taxes which it is required to withhold and pay relating to salaries and other compensation paid to Facility Employees.

4.11 Employees; Employee Benefit Plans.

4.11(a) Set forth on Schedule 4.11(a) is a list of all persons who are employees, independent contractors or consultants of Seller at the Facilities as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized (the “Facility Employees”), and sets forth for each of the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate; and (v) commission, bonus or other incentive-based compensation. As of the date of this Agreement, all compensation, including wages, commissions and bonuses, that is due and payable as of the date of this Agreement to all employees, independent contractors or consultants of Seller for services performed on or prior to the date of this Agreement has been paid in full, other than such compensation due and payable for the then current week, which will have been accrued for by Seller and will be paid during the immediately following week by Seller.

4.11(b) Schedule 4.11(b) lists all Employee Benefit Plans for which any Facility Employee has participated, is participating or is eligible (the “Facility Employee Benefit Plans”). Seller has no liability for any delinquent contributions within the meaning of Section 515 of ERISA (including, without limitation, related attorneys' fees, costs, liquidated damages and interest) for any arrearages of wages.

4.11(c) Seller and its ERISA Affiliates have never maintained, sponsored, contributed to or been required to contribute to, and have no Liability with respect to, (i) an employee pension benefit plan subject to Title IV of ERISA; (ii) a multiemployer plan (within the meaning of Section 3(37) of ERISA); (iii) a multiple employer plan (within the meaning of Section 413(c) of the Code); or (iv) a multiple employer welfare arrangement (within the meaning of Section 3(40) of ERISA).

4.11(d) With respect to each Facility Employee Benefit Plan, the Company has made available to Purchaser accurate, current and complete copies of each of the following: (i) the plan document together with all amendments; (ii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the Transactions; (iii) copies of any summary plan descriptions, summaries of material modifications, employee handbooks and any other written communications (or a description of any oral communications) relating to each Facility Employee Benefit Plan; (iv) a copy of the most recent determination, opinion or advisory letter from the IRS on any Facility Employee Benefit Plan that is qualified under Section 401(a) of the Code; (v) a copy of the two most recently filed Form 5500, with schedules and financial statements attached; (vi) the most recent nondiscrimination tests performed under the Code; and (vii) copies of material notices, letters or other correspondence from the IRS, Department of Labor, or other Governmental Authority relating to any Facility Employee Benefit Plan.

4.11(e) Each Facility Employee Benefit Plan and related trust has been established, administered and maintained in material compliance with its terms and in material compliance with all Legal Requirements (including ERISA and the Code). Each Facility Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code (a “Qualified Benefit Plan”), is so qualified and can rely on an opinion letter from the IRS to the prototype plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that would reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Facility Employee Benefit Plan that would reasonably be expected to subject Purchaser or any of its ERISA Affiliates to a penalty under Section 502 of ERISA or to a tax or penalty under Section 4975 of the Code. All benefits, contributions and premiums relating to each Facility Employee Benefit Plan have been timely paid in accordance with the terms of such Facility Employee Benefit Plan and are in material compliance with all applicable Legal Requirements and accounting principles.

4.11(f) Other than as required under Section 601 et. seq. of ERISA or other applicable Legal Requirement, no Facility Employee Benefit Plan provides post-termination or retiree welfare benefits to any individual for any reason.

4.11(g) There is no pending or, to the Knowledge of Seller, threatened Proceeding relating to a Facility Employee Benefit Plan (other than routine claims for benefits), and no Facility Employee Benefit Plan has within the two (2) years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under, or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.

4.11(h) There has been no amendment to, announcement by Seller or any of its ERISA Affiliates relating to, or change in employee participation or coverage under the Facility Employee Benefit Plans that would increase the annual expense of maintaining the Facility Employee Benefit Plans above the level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee, consultant or independent contractor of Seller, as applicable. Neither the Seller nor any of its ERISA Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, consultant or independent contractor of the Seller, whether or not legally binding, to adopt, amend, or modify any of the Facility Employee Benefit Plans.

4.11(i) Neither the execution of this Agreement nor the consummation of the Transactions (either alone or upon the occurrence of any additional or subsequent events) will result in “excess parachute payments” within the meaning of Section 280G(b) of the Code.

4.12 Labor Relations.

4.12(a) The consummation of the transactions contemplated hereby will not cause Purchaser to incur or suffer any liability relating to, or obligation to pay, severance, termination or other payments to any person or entity.

4.12(b) There are no strikes, work stoppages, grievance proceedings, union organization efforts pending or, to the Knowledge of Seller, threatened, affecting the Facilities, between Seller and (i) its current or former employees or agents, or (ii) any union or collective bargaining unit representing or claiming to represent such employees. Seller is in compliance in all material respects with all applicable Laws and regulations relating to employment or the workplace at the Facilities including, without limitation, provisions relating to wages, hours, collective bargaining, safety and health, work authorization, equal employment opportunity, immigration and the withholding of income taxes, unemployment compensation, worker's compensation, employee privacy and right to know and social security contributions, and Seller has complied with all notice or other requirements which could be triggered by the transactions provided for in this Agreement.

4.12(c) No labor union or other collective bargaining unit represents or claims to represent any of the Facility Employees, there are no collective bargaining agreements with the Facility Employees or their agents affecting the Facilities to which Seller is a party or by which Seller is bound, there are no employment agreements, contracts, plans, arrangements, commitments or understandings between Seller and Seller's employees not terminable at will, and there are no professional service contracts not terminable at will relating to the Facilities or the business and operations thereof to which Seller is a party or by which Seller is bound.

4.13 Environmental Matters.

4.13(a) To the Knowledge of Seller, with respect to the Facilities, Seller has complied and is in material compliance with, and the Real Property and all improvements thereon are in material compliance with, all Environmental Laws.

4.13(b) To the Knowledge of Seller, neither Seller nor any other person has generated, spilled, treated, stored or disposed of, nor in any manner arranged for the disposal or treatment of any Hazardous Materials in violation of any Environmental Laws on or from the Real Property and, to the Knowledge of Seller, there are currently no Hazardous Materials present on, in or under the Real Property above any applicable threshold level which now requires clean-up or remediation under any Environmental Laws.

4.13(c) There are no pending or, to the Knowledge of Seller, threatened actions, suits, claims, legal proceedings or other proceedings based on, and to the Knowledge of Seller, Seller has not received any notice of any complaint, order, directive, citation, notice of responsibility, notice of potential responsibility, or information request from any Governmental Authority or any other person or entity facts which could reasonably likely form the basis for any such actions or notices arising out of or attributable to: (i) the presence at any part of the Real Property of Hazardous Materials; (ii) the current or past release or threatened release into the environment from the Real Property (including, without limitation, into any storm drain, sewer, septic system or publicly owned treatment works) of any Hazardous Materials; (iii) the off-site disposal of Hazardous Materials originating on or from the Real Property, the business of Seller or the Transferred Assets; (iv) any facility operations or procedures of Seller which do not conform to requirements of the Environmental Laws; or (v) any violation of Environmental Laws at any part of the Real Property or otherwise arising from any of Seller's activities involving Hazardous Materials.

4.13(d) Seller is not required to maintain any permits, licenses, certificates, and approvals required under any Environmental Law for the operation of the Facilities. To the Knowledge of Seller, there has been no discharge of any Hazardous Materials at the Facilities.

4.13(e) To the Knowledge of Seller, the Real Property contains no underground storage tanks, or underground piping associated with such tanks, used currently or in the past for Hazardous Materials, and no portion of the Real Property is or has been used for underground storage tanks, as a dump or landfill. To the Knowledge of Seller, neither PCBs nor friable asbestos materials are present on or in the Real Property.

4.13(f) Seller has furnished to Purchaser all environmental assessments in Seller's possession pertaining to the Real Property.

4.14 Insurance.

Schedule 4.14 contains a true and complete list of all policies of title, property, fire, casualty, liability, life, workers' compensation, libel and slander, and other forms of insurance of any kind relating to the Transferred Assets (other than the Excluded Assets) or the business and operations of the Facilities and owned or held by Seller as of the date hereof. All such policies are (i) in full force and effect; and (ii) valid, outstanding, and enforceable policies and the policy holder is not in default in any material respect thereunder.

4.15 Affiliated Transactions.

Neither Seller nor any of its partners, officers, directors, employees or Affiliates is a party to any transaction or agreement with respect to the Facilities or the Transferred Assets, including, without limitation, the extension of credit or the commitment to extend credit to any such Persons or entities. Schedule 4.15 describes all agreements and arrangements related to the Facilities pursuant to which Seller or any Affiliate pays certain expenses or assumes certain financial obligations on behalf of Seller which are not reflected in the financial statements of Seller included in Schedule 4.7 hereof.

4.16 OSHA.

To the Knowledge of Seller, the Facilities comply in all material respects with OSHA and the requirements of state Laws on occupational safety. Seller has not received any written notice from any Governmental Authority that past or present conditions of the Facilities or Transferred Assets violate in any material respects any applicable legal requirements related to occupational safety or otherwise will be made the basis of any claim, proceeding, or investigation, based on OSHA violations or otherwise related to occupational safety violations.


4.17	Permits.

Schedule 2.1(g) lists all of the Governmental Authorizations from all Governmental Authorities held by Seller or any of its Affiliates in connection with Seller's ownership and operating of the Facilities.


4.18	Rent Rolls.

Set forth on Schedule 4.18 is a list of each of the current agreements between Seller and each of the Residents, the unit to which each such agreement pertains, and the current monthly fee charge to each of the Residents pursuant to such agreements (the “Rent Roll”). None of the Residents has an option for any renewal or extension.


4.19	Bankruptcy.

Seller is not insolvent, and further is not involved in any bankruptcy, reorganization or insolvency proceeding.

4.20 Absence of Changes. Since March 31, 2015, there has been no:

(i) transaction by the Seller relating to the operation of the Facilities except in the ordinary course of business as conducted on that date; or

(ii) Material Adverse Change.

4.21 Brokers or Finders

Except for Emory Relocation and Referral (“Purchaser’s Broker”) and Marcus & Millichap (“Seller’s Broker”; together with Purchaser’s Broker, collectively, the “Brokers”), no agent, broker, investment banker or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with the Closing. Seller hereby agrees to pay Seller’s Broker a commission fee equal to three percent (3%) of the Purchase Price, which commission fees shall be deducted from the Seller’s proceeds at Closing. In addition, if the Closing occurs on or before July 10, 2015, Seller shall pay Purchaser’s Broker a commission fee equal to one percent (1%) of the Purchase Price, which commission fee shall be deducted from Seller’s proceeds at Closing. If the Closing occurs on or after July 11, 2015, for any reason including Purchaser’s exercise of its right to extend the Closing Date to August 10, 2015 as described in Section 2.3 above, Seller shall not pay Purchaser’s Broker a commission fee.

4.22 Full Disclosure.

The representations and warranties of Seller in this Agreement and in the Schedules hereto are true, complete and correct, and no such representation or warranty contains any untrue statement of material fact or omits to state any material fact necessary to make the statements made not misleading.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES BY PURCHASER

Purchaser represents and warrants to Seller as follows:

5.1 Organization and Standing.

Purchaser is a public corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has full power and authority to own and lease its properties as such properties are now owned and leased and carry on its business as such business is now being conducted. Purchaser has full power and authority to execute and deliver this Agreement and the other Purchaser Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby.

5.2 Authorization.

The execution, delivery and performance by Purchaser of this Agreement and the other Purchaser Documents to which it is a party, and the consummation of the transactions provided for herein and therein have been duly and validly authorized by all necessary actions of Purchaser (none of which has been modified or rescinded and all of which actions are in full force and effect), including approval by the commission, board of directors or other similar type of governing body having authority over the business and operations of Purchaser. This Agreement constitutes, and each Purchaser Document upon execution and delivery of such Purchaser Document will constitute, valid and binding agreements and obligations of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as such enforceability may be limited by applicable creditors’ rights laws and general principles of equity.

5.3 No Conflicts.

The execution and delivery of this Agreement and the other Purchaser Documents, the fulfillment of and the compliance with the respective terms and provisions of each, and the consummation of the transactions described in each, do not and will not (a) conflict with or violate the organizational documents or any Law regarding Purchaser’s organization, existence and authority, or any resolution adopted by any commission, board of directors or other similar type of governing body having authority over Purchaser’s business and operations; (b) conflict, in any material respects, with or violate any material Law applicable to or affecting Purchaser, (c) conflict, in any material respects, with or result in any material breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under any Contract to which Purchaser is a party or by which Purchaser is bound, or (d) require the Consent or the making by Purchaser of any declaration, filing or registration with, any Person.

5.4 Brokers or Finders.

Except for Purchaser’s Broker, no agent, broker, investment banker or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with the Closing based on arrangements made by or on behalf of Purchaser.

5.5 Completeness of Statements.

No representation or warranty made by Purchaser in this Agreement contains any untrue statement of a material fact, any misstatement of a material fact, or omits to state of material fact necessary to make the statement made herein, in light of the circumstances in which it was made, not misleading.

ARTICLE 6

COVENANTS AND AGREEMENTS OF SELLER

Seller covenants and agrees with Purchaser as follows:

6.1 Negative Covenants of Seller.

Pending and prior to the Closing, Seller will not, without the prior written consent or approval of Purchaser, which consent shall not be unreasonably withheld, do or agree to do any of the following, as such actions relate to the Facilities:

6.1(a) Sell, assign, lease or otherwise transfer or dispose of any of the Transferred Assets, or enter into any Contracts or agreements (or any negotiation for any such Contract or agreement) relating thereto other than in the Ordinary Course of Business.

6.1(b) Acquire or enter into any additional agreements, except in the Ordinary Course of Business, or renew, extend, amend, alter, modify, replace or otherwise change any Material Contract, except in the Ordinary Course of Business.

6.1(c) Except as required by Law or in the Ordinary Course of Business, (i) enter into, become subject to or amend or modify any existing employment, labor, union, independent contractor or professional service Contract not terminable at will, or any Employee Benefit Plan or other bonus, pension, insurance, profit sharing, incentive, deferred compensation, severance pay, retirement, hospitalization, employee benefit, or other similar plan relating to the Facilities, or (ii) increase the compensation payable or to become payable to any Facility Employee.

6.1(d) Create, assume or permit to exist any Encumbrances upon any of the Transferred Assets, except for Permitted Encumbrances and Encumbrances that will be discharged prior to or on the Closing Date.

6.1(e) Waive any material right relating to the Facilities or the Transferred Assets, except in the Ordinary Course of Business.

6.1(f) Take or fail to take any action which, if taken or not taken, would result in a violation of any of the representations or warranties of Seller made under Article 4 of this Agreement.

6.2 Affirmative Covenants.

Pending and prior to the Closing Date, Seller will:

6.2(a) Preserve its existence as a limited liability company and keep its business organization intact, maintain existing franchises and licenses relating to the Facilities and the operation thereof in accordance with this Agreement, and shall use its commercially reasonable efforts to preserve for Purchaser the relationships of the business of the Facilities with suppliers, employees and others with whom the Facilities have business relationships.

6.2(b) Subject to the terms and conditions of this Agreement (including, without limitation, Section 6.1 ), (i) carry on the businesses and activities of the Facilities, in the Ordinary Course of Business; (ii) pay or otherwise satisfy, as they come due and payable, all obligations under the Assumed Contracts and all obligations of the Facilities (including, without limitation, Taxes relating to the Facilities), that, if not paid, may result in an Encumbrance on the Transferred Assets or that could result in a Material Adverse Effect; (iii) maintain all Transferred Assets in customary repair, maintenance and condition; and (iv) maintain its books of account, records, and files in substantially the same manner as heretofore maintained.

6.2(c) Upon receiving notice or otherwise becoming aware of any material violations under any applicable Laws relating to the Facilities, promptly notify Purchaser.

6.2(d) Seller shall promptly notify Purchaser of any Material Adverse Change.

ARTICLE 7

REAL PROPERTY MATTERS; CERTAIN COSTS


7.1	Current Evidence of Title.

7.1(a) As soon as practicable after the date hereof, Purchaser shall obtain, at Purchaser’s expense, a current title commitment (the “Title Commitment”) from Title Company, together with legible copies of all exceptions to title referenced therein. The Title Commitment shall set forth the state of title to the Real Property, together with all exceptions or conditions to such title, including, without limitation, all easements, restrictions, rights‑of‑way, covenants, reservations, and all other Encumbrances affecting the Real Property which would appear in an ALTA owner's policy of title insurance, if issued. The Title Commitment shall include the Title Company's requirements for issuing the Title Policy. Seller's obligation under this Agreement to secure the release of Encumbrances that are not Permitted Encumbrances, whether set forth in the Title Commitment or not, is set forth in Section 7.2 .

7.1(b) As soon as practicable after the date hereof, Purchaser may, at Purchaser's expense, cause a survey of the Real Property (the “Survey”) to be performed by a licensed professional land surveyor or engineer selected by Purchaser and acceptable to the Title Company. Seller shall cooperate fully with the surveyor to permit the Survey to be performed. Without limitation of the foregoing, the Survey shall be prepared, platted and certified to Purchaser and the Title Company based upon and in satisfaction of the minimum Standard Detail Required and Classifications for ALTA/ACSM Land Title Surveys as shall be reasonably acceptable to Purchaser and the Title Company and shall include a legal description and area computation prepared by the surveyor in accordance with the map. Seller's obligation under this Agreement to secure the release of Encumbrances that are not Permitted Encumbrances disclosed on the Survey is set forth in Section 7.2 .

7.1(c) If the Title Commitment or Survey shall disclose any Encumbrance that is not a Permitted Encumbrance (“Title Objections”), then Purchaser shall notify Seller in writing (“Objection Notice”) of such objections within 10 days after receiving the Title Commitment, Survey and copies of all recorded documents referenced in the Title Commitment. Any Title Objection that the Title Company is willing to insure over on terms reasonably acceptable to Purchaser and Seller is herein referred to as an “Insured Exception.” The Insured Exceptions, together with any title exception in the Title Commitment or matters disclosed by the Survey not objected to by Purchaser in the manner set forth above, shall be deemed to be Permitted Encumbrances for purposes of this Agreement.

7.1(d) Purchaser and Seller shall cooperate with Title Company in connection with obtaining title insurance insuring title to the Transferred Assets subject only to the Permitted Encumbrances. In furtherance and not in limitation of the foregoing, at or prior to the Closing, Purchaser and Seller shall deliver to Title Company such affidavits, certificates and other instruments as are reasonably requested by Title Company and customarily furnished in connection with the issuance of owner's policies of title insurance.


7.2	Inability to Convey; Rights of Parties.

7.2(a) Except as specifically provided in this Section 7.2, Seller shall not have any obligation to take or bring any action or proceeding or take any other steps to remove any Encumbrance that does not constitute a Permitted Encumbrance or to expend any money to remove any such Encumbrance, nor shall Purchaser have any right of action against Seller, at law or in equity, for Seller's inability to convey title to the Transferred Assets subject only to the Permitted Encumbrances. At or prior to the Closing, Seller shall (1) remove and discharge all monetary liens specifically secured by the Real Property and the Personal Property that have been voluntarily created or assumed by Seller or that arise as a result of Seller's failure to pay such amounts that become due in the Ordinary Course of Business, including but not limited to, its indebtedness or obligations in accordance with normal terms, taxes, assessments and governmental charges imposed on its income or the Transferred Assets, or lawful claims to labor, materials or supplies (“Monetary Encumbrance”); and (2) take such steps that are commercially reasonable and necessary to discharge or remove all other Encumbrances which do not constitute Permitted Encumbrances or Monetary Encumbrances that can be discharged or removed at an expense to Seller.

7.2(b) Notwithstanding anything contained herein to the contrary, within ten (10) days after receipt of the Objection Notice, Seller shall notify Purchaser as to whether Seller will be able to cure and/or remove Title Objections (other than Monetary Encumbrances which are to be removed by Seller at or before Closing pursuant to Section 7.2(a)) (“Seller's Notice”). If Seller indicates in the Seller’s Notice that it will not be able to so cure and/or remove such Title Objections then, subject to the next sentence, Purchaser shall be entitled, at its option, either (i) to terminate this Agreement (so long as such notice of termination is given to Seller within five (5) days of Purchaser's receipt of Seller's Notice) and to receive a full refund of the Earnest Money Deposit, or (ii) to purchase the Transferred Assets subject to such Title Objections (other than the Monetary Encumbrances ) (in which event such Title Objections, to the extent not fully discharged and removed by Seller's expenditures, shall be deemed to be Permitted Encumbrances). The preceding sentence notwithstanding, with respect to any Encumbrance that is not a Permitted Encumbrance which appears of record or arises after the date of the Title Commitment, or in the event that Seller notifies Purchaser of its intention to cure and/or remove Title Objections but fails to do so on or before the Closing Date, Purchaser shall have the options specified in the preceding sentence except that the option to terminate this Agreement and receive a refund of the Earnest Money Deposit may be exercised at any time up to and including the Closing Date, and in addition to the refund of the Earnest Money Deposit, Seller shall reimburse Purchaser with the reasonable costs of the Purchaser's due diligence (upon presentation of usual and customary receipts), including but not limited to the Title Commitment, the Survey, the Phase I Report the Phase II Report, if any, and reasonable attorneys’ fees relating to the review thereof in an amount not to exceed $100,000.00.

ARTICLE 8

MUTUAL COVENANTS AND UNDERSTANDINGS

OF SELLER AND PURCHASER

8.1 Risk of Loss.

The risk of loss or damage by fire or other casualty or cause to the Transferred Assets until the Closing Date shall be upon Seller. If, on or before the Closing Date, all or any of the Transferred Assets are Damaged or destroyed by fire or other casualty, Seller shall promptly notify Purchaser. If the resulting Damage to the Transferred Assets is greater than $500,000, taken in the aggregate, Purchaser may terminate this Agreement by delivery of notice of termination to Seller within 10 days of date of delivery of Seller’s notice of such casualty. If Purchaser does not terminate this Agreement prior to the expiration of such 10-day period, this Agreement shall remain in full force and effect. In such instance, at the Closing, Seller shall credit against the Purchase Price an amount equal to the damage to the Transferred Assets based on a reasonable estimate to rebuild, restore or correct the Transferred Assets to their condition immediately prior to the casualty, as determined by an independent, certified engineer or other qualified professional acceptable to Seller and Purchaser (the “Independent Engineer”). If the resulting Damage to the Transferred Assets is $500,000 or less, taken in the aggregate, this Agreement shall remain in full force and effect. In such instance, at the Closing, Seller shall credit against the Purchase Price an amount equal to the damage to the Transferred Assets based on a reasonable estimate to rebuild, restore or correct the Transferred Assets to their condition immediately prior to casualty, as determined by the Independent Appraiser. Notwithstanding anything to the contrary set forth in this Section 8.1, if Seller is required under its loan covenants to commence rebuilding, restoring or otherwise correcting the Transferred Assets prior to the Closing, any costs or expenses incurred by Seller in rebuilding, restoring or correcting the Transferred Assets prior to the Closing shall be applied against and reduce the amount to be credited to Purchaser at Closing pursuant hereto. All costs of the Independent Engineer shall be borne equally by Seller and Purchaser. Seller shall retain all rights to receive insurance proceeds paid in respect of any such casualty and, post-closing, shall have no Liability to Purchaser associated with completion of the rebuilding, restoration or correction of the Transferred Assets.


8.2	Risk of Condemnation Loss.

8.2(a) If, on or before the Closing Date, all or any of the Transferred Assets are taken as a result of any condemnation or eminent domain proceeding, Seller shall promptly notify Purchaser. If the resulting condemnation would materially and adversely affect the ability to operate the Transferred Assets, taken as a whole, in the same manner as the Transferred Assets were operated prior to the condemnation, taken as a whole, Purchaser may terminate this Agreement by delivery of notice of termination within ten days of the date of delivery of Seller’s notice of such condemnation or eminent domain proceedings. If Purchaser does not terminate this Agreement prior to the expiration of such 10‑day period, or such condemnation or eminent domain proceedings do not materially and adversely affect the ability to operate the Transferred Assets, taken as a whole, in the same manner as the Transferred Assets were operated prior to the condemnation, taken as a whole, this Agreement shall remain in full force and effect.

8.2(b) At the Closing, Seller shall credit against the Purchase Price an amount equal to the net proceeds, if any, received by Seller from such condemnation. If, as of the Closing Date, Seller has not received any such condemnation proceeds, then the parties shall nevertheless consummate the transactions described in this Agreement on the Closing Date, without any deduction for such condemnation proceeds, and Seller shall at the Closing assign to Purchaser all of Seller’s rights, if any, to the condemnation proceeds and to all other rights or claims arising out of or in connection with such condemnation.

8.3 No Public Announcement.

No party shall make any press release or other public announcement regarding this Agreement or the transactions described in this Agreement, unless such party is obligated by Law or the rules of any stock exchange upon which its shares are traded to make such a disclosure. When a party determines that it is obligated by Law or the rules of a stock exchange to make such a disclosure, it shall notify all of the other parties prior to such disclosure and be entitled to make such disclosure in accordance with applicable Law.

8.4 Employees and Employee Benefit Matters.

8.4(a) The employment of each Facility Employee is terminable “at will” by Seller, and Seller is not a party to any written employment or severance contract with any current or former Facility Employee. No Facility Employee has given notice terminating such Facility Employee’s contract with Seller and no amount due to or in respect of any current or former Facility Employee is in arrear, unpaid and past due. There is no collective bargaining agreement currently in effect between the Seller and any labor unions or organizations representing any of the Facility Employees. Seller has not experienced any organized slowdown, work interruption, strike or work stoppage by its employees and, to the Knowledge of Seller, there is no strike, labor dispute or union organization activity pending or threatened affecting the Seller.

8.4(b) Seller is, and has been, in compliance in all material respects with all Legal Requirements that are applicable to Seller pertaining to employment and employment practices to the extent they relate to Facility Employees including all Legal Requirements relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance. All individuals characterized and treated by Seller as consultants or independent contractors of Seller are properly treated as independent contractors under all applicable Legal Requirements. All Facility Employees classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified in all material respects. Other than routine claims for benefits under the Facility Employee Benefit Plans, there are no Proceedings against Seller pending or, to the Knowledge of Seller, threatened to be brought or filed, by or with any Governmental Authority in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of Seller, including any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wages and hours or any other employment related matter arising under applicable Legal Requirements.

8.4(c) On a date mutually acceptable to Seller and Purchaser prior to the Closing Date, but not later than five (5) days prior to the Closing Date, Seller shall notify the Facility Employees that it will terminate their employment as of the Effective Time. Purchaser may, in its sole discretion, make an offer of employment to any or all Facility Employees, at such salaries, benefits, duties and conditions of employment as determined by Purchaser in its sole discretion. Those employees that accept employment with Purchaser shall, at the Effective Time, become employees of Purchaser (the “Transferred Employees”). Seller shall be responsible for and pay all salary and accrued vacation owed to the Transferred Employees as of midnight on the day prior to the Closing Date.

8.4(d) At the Effective Time, all Transferred Employees shall cease to participate in Seller’s Employee Benefit Plans, except to the extent of any applicable continuation coverage under the Combined Omnibus Budget Reconciliation Act of 1985, as amended, as provided for under Sections 601 through 608 of ERISA, Section 4980B of the Code, and Sections 54.489B-1 through 54.4980B-10 of the Treasury Regulations (“COBRA”) or similar law.

8.4(e) Purchaser shall have the sole responsibility and obligation for complying with the requirements of COBRA applicable to any termination of employment or any other qualifying event within the meaning of COBRA which occurs after the date of Closing with respect to any eligible Transferred Employee.

8.4(f) Seller shall assume all obligations to provide continuation coverage of COBRA applicable to any termination of employment or any other qualifying event within the meaning of COBRA which occurred on or before the Closing Date with respect to any eligible Facility Employees of Seller, including but not limited to all former Facility Employees as of the Closing Date and any other M&A Qualified Beneficiaries (as defined in Sections 54.4980B-9, Q8A-4 of the Treasury Regulations), or those employees who otherwise discontinue service to Seller on or before the Closing Date as a result of the sale or purchase of the Transferred Assets.

8.4(g) Purchaser shall not assume or be bound, and shall not be required in any manner by Seller to assume or be bound, by any labor and employment obligations relating to employees of Seller, including any collective bargaining agreements of Seller. Purchaser does not intend to become a successor employer to any collective bargaining agreement, either by operation of Law or fact. Except as otherwise provided by applicable Law, Seller shall continue to be responsible for any and all Liabilities arising or asserted to exist prior to or as of the Closing Date with respect to any collective bargaining agreement which covers or may cover employees of Seller, and shall discharge, or make adequate provision for the discharge of, any such Liabilities on or before the Closing Date. Seller shall continue to be responsible for any legal, administrative, arbitration or other action or proceeding arising out of the collective bargaining agreements existing on or before the Closing Date. Nothing in this Section 8.4(g) shall limit Purchaser's rights against Seller under any other provisions of this Agreement.

8.4(h) From the Closing Date and for a period of one (1) year from the Closing Date, except as otherwise provided herein, neither Seller nor its Affiliates shall, directly or indirectly, for its own benefit or the benefit of others, induce, or attempt to induce, any Transferred Employee to terminate his or her employment with Purchaser or any Affiliate of Purchaser; provided, however, that the following shall not constitute a breach of the foregoing covenant: (1) Seller’s placement of a general advertisement for employment in a publication of regional or nationwide circulation; or (2) the hiring by Seller of any such employee who is terminated by Purchaser.

8.5 Preservation of Records; Access by Seller.

8.5(a) After the Effective Time, Purchaser shall keep and preserve all medical records and other records that it obtained from Seller for Persons who were Residents of the Facility for the longer of five (5) years following the Closing Date or such time as may be required by any applicable Law.

8.5(b) For a period of five (5) years following the Effective Time (or such time as may be required by any applicable Law), Seller agrees not to dispose of, and agrees to provide Purchaser, during regular business hours, reasonable access to, any material books or records in Seller's possession immediately after the Effective Time that relate to the business or operations of the Facilities prior to the Effective Time. After the Effective Time, upon reasonable notice to Purchaser by Seller or any of its Affiliates, Seller and its Representatives shall be entitled, during regular business hours, to have access to, and make copies of, all records specifically pertaining to the operation of the Facility prior to the Effective Time, for any lawful purpose. Any medical records or Resident charts shall only be removed from the Facilities for purposes of pending litigation involving a Resident to whom such record or chart refers and in response to a subpoena or court order or for purposes of introduction into evidence. Any records or charts so removed from the Facility shall be promptly returned to Purchaser following their use by Seller or any of its Affiliates.


8.6	Approvals of Governmental Bodies.

As promptly as practicable after the date of this Agreement, Purchaser and Seller shall make all filings required by Laws to be made by each of them to consummate the transactions described in this Agreement. Purchaser shall file all required notices and complete applications necessary to obtain licenses and certificates (including a certificate of need) as required to operate the Facilities as a congregate assisted living facility with the applicable Governmental Authorities having jurisdiction for the licensure or certification thereof (including the Alabama Department of Public Health for licensing purposes, and the Alabama State Health Planning and Development Agency for certificate of need approvals). Seller shall cooperate with Purchaser and assist Purchaser in obtaining Governmental Authorizations necessary for Purchaser to own and operate the Facilities from the State of Alabama, provided, however, that in such assistance Seller shall not be required to spend any money, or to do anything that would jeopardize Seller’s or any of its Affiliates’ ability to have Governmental Authorizations outstanding in favor of Seller or its Affiliates.


8.7	Residents’ Accounts.

Seller agrees that if it receives any payment for services performed or provided by or at the Facility that pertains to services performed or provided after the Effective Time, it shall remit such payment to Purchaser within seven days of Seller’s receipt. Similarly, Purchaser agrees that if it receives any payment for services performed or provided by Seller that pertains to services performed or provided before the Effective Time, it shall remit to Seller such payment within seven days of Purchaser’s receipt.


8.8	Tax Certiorari Proceedings.

8.8(a) If any Tax reduction Proceeding related to the Real Property for any fiscal year ending prior to the fiscal year in which the Closing occurs is pending at the time of the Closing, Seller reserves the right to continue to prosecute or settle the same. If any Tax reduction Proceeding related to the Real Property for the fiscal year in which the Closing occurs is pending at the time of Closing, Seller reserves the right to continue to prosecute or settle the same; provided, however, that Seller shall not settle any such Proceeding without Purchaser’s prior Consent, which consent shall not be unreasonably withheld or delayed. Purchaser shall cooperate reasonably with Seller in connection with the prosecution of any such Tax reduction Proceedings.

8.8(b) All refunds or savings in Taxes resulting from such Tax reduction Proceedings for periods ending prior to the Effective Time shall belong to and be the property of Seller. All refunds or savings in the payment of Taxes resulting from such Tax reduction Proceedings for periods beginning after the Effective Time shall belong to and be the property of Purchaser. All refunds or savings in the payment of Taxes resulting from such Tax reduction Proceedings for periods that include the Closing Date shall be apportioned between Purchaser and Seller equitably.


8.9	[Intentionally Omitted].


8.10	Restrictions on Post-Closing Activities.

For a period commencing on the Closing Date and expiring on the first anniversary of the Closing Date, Seller shall not, directly or indirectly, open a new assisted living facility within Jefferson County, Alabama.

Seller recognizes that the covenants in this Section 8.10 , and the territorial, time and other limitations with respect thereto, are reasonable and properly required for the adequate protection of the acquisition of the Transferred Assets by Purchaser, and agrees that such limitations are reasonable with respect to its activities, business and public purpose. Seller agrees and acknowledges that the violation of the covenants or agreements in this Section 8.10 would cause irreparable injury to Purchaser and that the remedy at law for any violation or threatened violation thereof would be inadequate and that, in addition to whatever other remedies may be available at law or in equity, Purchaser shall be entitled to temporary and permanent injunctive or other equitable relief without the necessity of proving actual damages or posting bond. The parties hereto also waive any requirement of proving actual damages in connection with the obtaining of any such injunctive or other equitable relief.

It is the intention of each party hereto that the provisions of this Section 8.10 shall be enforced to the fullest extent permissible under the laws and the public policies of the State of Alabama and of any other jurisdiction in which enforcement may be sought, but that the unenforceability (or the modification to conform with such laws or public policies) of any provisions hereof shall not render unenforceable or impair the remainder of this Agreement. Accordingly, if any term or provision of this Section 8.10 shall be determined by a court or other tribunal to be illegal, invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid.


8.11	Compliance with Conditions.

Each party hereto agrees to cooperate fully with each other party, and shall use its commercially reasonable efforts to cause the conditions precedent for which such party is responsible to be fulfilled. Each party hereto further agrees to use its commercially reasonable efforts, and act in good faith, to consummate this Agreement and the transactions contemplated in this Agreement as promptly as possible; provided however , that the parties acknowledge that the Purchaser may terminate this Agreement at its sole discretion pursuant to the terms of Section 3.3 .

ARTICLE 9

ADJUSTMENTS

Unless otherwise provided below, the following are to be adjusted and prorated between Seller and Purchaser as of the Effective Time, based upon a 365 day year (except as otherwise set forth in this Article 9 ), and the net amount thereof shall be added to (if such net amount is in Seller’s favor) or deducted from (if such net amount is in Purchaser’s favor) the Purchase Price payable at Closing:


9.1	Revenues.

Purchaser shall receive a pro rata share of all Rents due for the month which includes the Effective Time that have been paid by Residents to Seller prior to the Effective Time, and Seller shall receive a pro rata share of all Rents due for the month which includes the Effective Time that remain due as of the Effective Time, each determined on a per diem basis according to the number of days of ownership of the Facility by Seller and Purchaser, respectively, during such month. Seller will assign to Purchaser at Closing all Rents for the month which includes the Effective Time that remain unpaid as of the Effective Time. All other Rents that pertain to periods ended prior to the Effective Time shall remain the property of Seller, and Seller may continue to take action to collect such Rents after the Closing. If Purchaser receives payment of any Rents that pertains to a period ended prior to the Effective Time, Purchaser shall remit such Rents to Seller within seven days of Purchaser’s receipt.


9.2	Taxes and Assessments.

All ad valorem Taxes assessable against any of the Transferred Assets for the year in which the Closing occurs shall be adjusted and prorated based on the period of ownership of the Facility by Seller and Purchaser, respectively, during such year. If such Tax to be apportioned between Purchaser and Seller pursuant to this Section 9.2 are not available or have not been billed, such Taxes shall be prorated based on the most recent invoices received, subject to further and final adjustment when the rate and assessed valuation for such Taxes for the applicable period is fixed. If the Transferred Assets or any part thereof shall be or shall have been affected by an assessment or assessments, whether or not the same become payable in annual installments, Purchaser shall be responsible for any installments due on or after the Closing.


9.3	Utility Charges.

Gas, steam, electricity, water, sewage and other public utility charges will be paid by Seller to the utility company to the Closing Date. Seller shall arrange for a final reading of all utility meters (covering gas, steam, electricity, water and sewage) as of the Closing. Seller and Purchaser shall jointly execute a letter to each of such utility companies advising such utility companies of the termination of Seller’s responsibility for such charges for utilities furnished to the Facilities as of the Closing Date and commencement of Purchaser’s responsibilities therefor from and after such date. If a bill is obtained from any such utility company as of the Closing, Seller shall pay such bill on or before the Closing. If such bill shall not have been obtained on or before the Closing, Seller shall, upon receipt of such bill, pay all such utility charges as evidenced by such bill or bills pertaining to the period prior to the Closing, and Purchaser shall pay all such utility charges pertaining to the period thereafter. Any bill that covers a period both before and after the Closing Date shall be apportioned between Purchaser and Seller as of the Closing. Seller shall be entitled to a refund of all deposits held by such utility companies and Purchaser shall arrange to make its own deposits with the utility companies as of the Closing Date.


9.4	Assumed Contracts.

All charges and payments under all Assumed Contracts will be adjusted as of the Closing Date. To the extent any such Assumed Contracts provide for any payment in arrears, the parties shall, to the extent possible, adjust for such charges and payments.


9.5	Residents’ Personal Funds Accounts.

On the Closing Date or such earlier date as may be required by applicable Laws, Seller shall furnish to Purchaser an accounting of all personal funds, if any, of Residents that Seller holds in a custodial capacity. Such accounting shall set forth the name of each Resident for whom such funds are held and the amount held by Seller on behalf of such Resident. Contemporaneously with the Closing, Seller shall transfer all such funds to Purchaser, and Purchaser shall execute and deliver to Seller a receipt and assumption agreement in form satisfactory to Seller acknowledging receipt and assumption by Purchaser of such funds.


9.6	Re-Adjustment.

If any of the above items are not determinable at the Closing, the adjustment shall be made subsequent to the Closing when the charge is determined. Any errors or omissions in computing adjustments at the Closing shall be promptly corrected, provided that the party seeking to correct such error or omission shall have notified the other party of such error or omission on or prior to the date that is 180 days following the Closing Date. The provisions of this Article 9 shall survive the Closing.

ARTICLE 10

CONDITIONS PRECEDENT TO

PURCHASER'S OBLIGATION TO CLOSE

The obligations of Purchaser to purchase the Transferred Assets and to proceed with the Closing are subject to the satisfaction (or waiver in writing by Purchaser) at or prior to the Closing of each of the following conditions:

10.1 Representations and Covenants.

Each of the representations and warranties (other than those representations and warranties which by their terms are as of a specific date) of Seller made in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on or as of the Closing Date (except for representations and warranties that speak of a specific date or time other than the Closing Date (which need only be true and correct in all material respects as of such date or time) and except where such failure to be true and correct in all material respects is not reasonably likely to result in any material Loss to Purchaser after the Effective Time or otherwise materially detract from the value of the Facilities or the Transferred Assets or adversely affect the Purchaser's ownership, use or operations of the Facilities after the Effective Time), and Seller shall have performed and complied in all material respects, with all covenants and agreements required by this Agreement to be performed or complied with by Seller on or prior to the Closing.

10.2 Consents.

The following shall have been obtained prior to the Closing Date:

10.2(a) All Consents necessary for the proper transfer to Purchaser of all material Assumed Contracts.

10.2(b) At the time of Closing, Purchaser has received, or has been notified by the Alabama Department of Public Health and the State Health Planning and Development Agency that upon delivery to such entities of evidence that title is vested in Purchaser to the Facilities it will receive (a) all approvals necessary for Purchaser to own and operate the Facilities in a manner consistent with the existing licenses of Seller, and (b) the approval of the State Health Planning and Development Agency to transfer of the certificate of need for the Facilities.

10.3 Delivery of Documents.

Seller shall have delivered, in accordance with the terms of this Agreement, to Purchaser the Seller Documents and all other contracts, agreements, instruments and documents required to be delivered by Seller to Purchaser pursuant to Section 12.2 .

10.4 Legal Proceedings.

No court or Governmental Authority shall have enacted, enforced, issued or entered (a) any Law or Order of any nature, including in connection with any action or proceeding brought by a third party, (not subsequently dismissed, settled or otherwise terminated) which restrains, prohibits or invalidates the transactions provided for in this Agreement, or (b) any Order of any nature, including in connection with any action or proceeding brought by a third party, (not subsequently dismissed, settled or otherwise terminated) which prevents, materially limits, restricts or impairs the ownership, use or operation of the Transferred Assets or the Facilities by Purchaser following the transfer of the Transferred Assets to Purchaser, other than an action or proceeding instituted by Purchaser.

10.5 Title Insurance; Survey.

Purchaser shall have received confirmation that Title Company can issue an ALTA owner's policy of title insurance (the “Title Policy”) insuring good and marketable fee simple title in Purchaser in a form reasonably acceptable to Purchaser, in an amount equal to the Purchase Price, free of all Encumbrances other than Permitted Encumbrances. The Title Policy shall include such endorsements as Purchaser may require, including, but not limited to, a comprehensive endorsement, a zoning endorsement insuring the use of the Facilities complies with applicable zoning laws, and a utilities facility endorsement, and shall insure Purchaser against any loss on account of any defect or Encumbrance on title, except Permitted Encumbrances. Such title insurance coverage shall extend, during the gap period, if any, between the most recent effective date of the Title Commitment and the conveyance of the Real Property to Purchaser.

10.6 Material Adverse Change.

There shall not have occurred, between the date of this Agreement and the Closing Date, any condition or event affecting the operation of the Facilities that constitutes a Material Adverse Change, or any condition or event that is likely to result in a Material Adverse Change.


10.7	Satisfactory Due Diligence.

Purchaser shall not have sent the termination notice to Seller described in Section 3.3 .

ARTICLE 11

CONDITIONS PRECEDENT TO

SELLER'S OBLIGATION TO CLOSE

The obligation of Seller to sell, transfer, convey and deliver the Transferred Assets and to proceed with the Closing are subject to the satisfaction (or waiver in writing by Seller) at or prior to the Closing of each of the following conditions:

11.1 Representations and Covenants.

Each of the representations and warranties of Purchaser made in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representation and warranty had been made on or as of the Closing Date; and Purchaser shall have performed and complied in all material respects with all covenants and agreements required to be performed or complied with by Purchaser on or prior to the Closing.

11.2 Delivery by Purchaser.

Purchaser shall have delivered, in accordance with the terms of this Agreement, to Seller (or to Title Company if directed to do so by Seller) the Purchase Price and all Purchaser Documents and all other contracts, agreements, instruments and other documents required to be delivered by Purchaser to Seller pursuant to Section 12.3 .

11.3 Legal Proceedings.

No Governmental Authority shall have enacted, enforced, issued or entered any Law or Order, including in connection with any action or proceeding brought by a third party, enacted, enforced, issued or entered any Law, rule, regulation or order (not subsequently dismissed, settled, or otherwise terminated) which prohibits or invalidates the transactions provided for in this Agreement or any other Purchaser Document, other than an action or proceeding instituted by Seller.


11.4	State Government Approvals.

At the time of Closing, Purchaser has received, or has been notified by the Alabama Department of Public Health and the State Health Planning and Development Agency that upon delivery to such entities of evidence that title is vested in Purchaser to the Facilities it will receive (a) all approvals necessary for Purchaser to own and operate the Facilities in a manner consistent with the existing licenses of Seller, and (b) the approval of the State Health Planning and Development Agency to transfer of the certificate of need for the Facilities.

ARTICLE 12

THE CLOSING; DELIVERIES

12.1 Closing.

12.1(a) The Closing hereunder shall take place through an escrow closing by release of documents and funds held in escrow by the Title Company on or before July 10, 2015, subject to Purchaser’s right to extend the Closing Date to August 10, 2015 as described in Section 2.3 above.

12.1(b) All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed simultaneously and no proceedings shall be deemed to have been taken nor documents executed or delivered until all have been taken, executed and delivered. The effective time of the Closing and all transactions consummated pursuant to this Agreement shall be the Effective Time.

12.2 Deliveries by Seller.

At or before the Closing, Seller shall deliver to Purchaser the following:

12.2(a) Agreements and Instruments . The following agreements and instruments of transfer, dated as of the Closing Date, and, if applicable, duly executed by Seller:

(i) the Bill of Sale;

(ii) a limited warranty deed for the Real Property in the form of Exhibit B attached to this Agreement (the “Deed”);

(iii) An Assignment and Assumption Agreement in the form of Exhibit C attached to this Agreement executed in counterpart by Seller (the “Assignment and Assumption Agreement”); and


(iv)	The Certificate of Insurance described in Section 8.9 .

12.2(b) Consents . Copies of all Consents Seller is required to obtain pursuant to Section 10.2(a) and all other Consents Seller has been able to obtain to effect the assignment to Purchaser of the Contracts listed on Schedule 2.1(d) .

12.2(c) Certified Resolutions . A copy of the resolutions or other similar actions of Seller, certified as being correct and complete and then in full force and effect, authorizing the execution, delivery and performance of this Agreement and the other Seller Documents, and the consummation of the transactions provided for hereby and thereby.

12.2(d) Certificates .

(i) A certificate of Seller certifying that all conditions set forth in Section 10.1 have been satisfied, and that there has been no Material Adverse Change in the operation of the Facilities, or in the condition of the Facilities or the Transferred Assets since the date of this Agreement; and

(ii) A certificate signed by the manager of Seller as to the incumbency of the individual executing this Agreement and any other Seller Document on behalf of Seller.

12.2(e) Good Standing Certificates . Seller’s certificates of existence and authority to transact business in Alabama issued by the appropriate Governmental Authorities in the states of Georgia and Alabama each such certificate (if available) to be dated a date not more than thirty (30) days prior to the Closing Date.

12.2(f) Other Documents . Such other documents and instruments as are reasonably required in closing similar transactions or as are reasonably necessary for Purchaser to effect and document the transactions contemplated hereby.

12.3 Deliveries by Purchaser.

At or before the Closing, Purchaser shall deliver (or take all actions necessary to cause to be delivered) to Seller the following:

12.3(a) Purchase Price . The Purchase Price, payable in the amount and manner set forth in Section 2.5 hereof.

12.3(b) Certificates . The following certificates:

(i) A certificate of Purchaser certifying that all conditions set forth in Section 11.1 have been satisfied; and

(ii) A certificate signed by an authorized officer of Purchaser as to the incumbency of the officers executing this Agreement and any other Purchaser Document on behalf of Purchaser.

12.3(c) Assignment and Assumption Agreement . The Assignment and Assumption Agreement executed in counterpart by Purchaser.

12.3(d) Certified Resolutions . Copies of the resolutions or other similar actions of the governing body of Purchaser, certified as being correct and complete and in full force and effect, authorizing and approving the execution, delivery and performance of this Agreement and the consummation of the transactions provided for hereby or thereby.

12.3(e) Other Documents . Such other documents and instruments as are reasonably required in closing similar transactions or as are reasonably necessary for Seller to effect and document the transactions contemplated herein.

ARTICLE 13

SURVIVAL; INDEMNIFICATION

13.1 Survival of Representations, Warranties and Covenants.

The representations and warranties made by the parties in this Agreement or in documents and instruments delivered pursuant hereto shall survive the Closing for a period of eighteen (18) months from the Closing Date; provided , however , that (i) the representations and warranties contained in Section 4.10 (Taxes) and Section 4.12 (Environmental Matters) shall survive the Closing Date for a period of time equal to the statute of limitations for any claims that could arise for matters described in such sections, and (ii) the representations and warranties contained in Section 4.1 (Organization and Standing), Section 4.2 (Authorization), Section 4.6 (Ownership of Transferred Assets), Section 5.1 (Organization and Standing) and Section 5.2 (Authorization) shall survive without any time limitations as to the right to seek indemnification. Any covenant in this Agreement that is to be performed after the Closing Date shall survive the Closing.

13.2 Indemnification.

13.2(a) Indemnification by Seller . Subject to the conditions and provisions of this Article 13 , from and after the Closing Date, Seller agrees to indemnify, defend and hold harmless Purchaser and its officers, members, managers, directors, employees, agents and shareholders (the "Purchaser Indemnified Parties") from and against and in any respect of, any and all Losses, asserted against, resulting to, imposed upon or incurred by any Purchaser Indemnified Party, directly or indirectly, by reason of or resulting from: (i) any failure by Seller to pay, perform or discharge any of the Excluded Liabilities of Seller not expressly assumed by Purchaser pursuant hereto or pursuant to any Purchaser Document; (ii) any Liability arising out of the operations of the Facilities during the period prior to the Closing Date; (iii) any misrepresentation or Breach of the representations and warranties of Seller contained in or made pursuant to this Agreement or any other Seller Document; or (iv) any Breach by Seller of any covenants of Seller contained in or made by Seller pursuant to this Agreement or any other Seller Document.

13.2(b) Indemnification by Purchaser . Subject to the conditions and provisions of this Article 13, from and after the Closing Date, Purchaser hereby agrees to indemnify, defend and hold harmless Seller and its officers, members, managers, directors, employees, agents and shareholders (the "Seller Indemnified Parties") from, against and with respect of, any and all Losses, asserted against, resulting to, imposed upon or incurred by any Seller Indemnified Party, directly or indirectly, by reason of or resulting from: (i) any failure by Purchaser to pay, perform or discharge any of the Assumed Liabilities assumed by Purchaser pursuant to Section 2.6 hereof or pursuant to any Purchaser Document; (ii) the business or operations of the Facilities during the period from and after the Closing Date, except for Losses resulting from intentional actions or gross negligence of Seller; (iii) any misrepresentation or breach of the representations and warranties of Purchaser contained in or made pursuant to this Agreement or any other Purchaser Document; or (iv) any breach by Purchaser of any covenants of Purchaser contained in or made pursuant to this Agreement or any other Purchaser Document.

13.2(c) Environmental Indemnification . Seller agrees to indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against and in any respect of, any and all Losses relating to any violation of any Environmental Laws by Seller at the Facilities prior to the Effective Time.

13.2(d) Conditions on Indemnification . The obligations and liabilities of Seller and of Purchaser hereunder with respect to their respective indemnities pursuant to this Section 13 , resulting from any Losses, shall be subject to the following terms and conditions:

(i) The party seeking indemnification (the "Indemnified Party") must give the other party (the "Indemnifying Party"), notice of any such Losses promptly after the Indemnified Party receives notice thereof; provided that the delay or failure in giving such notice shall not affect the rights of the Indemnified Party hereunder except to the extent that the Indemnifying Party shall have suffered actual damage or Loss by reason of such delay or failure. The notice of any Loss shall include a description of the Loss in reasonable detail.

(ii) The Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Losses at the Indemnifying Party's risk and expense.

(iii) In the event that the Indemnifying Party shall elect not to undertake such defense, or, within a reasonable time after notice from the Indemnified Party of any such Losses, shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Losses, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Losses at any time prior to settlement, compromise or final determination thereof). In such event, the Indemnifying Party shall pay to the Indemnified Party, in addition to the other sums required to be paid hereunder, the costs and expenses incurred by the Indemnified Party in connection with such defense, compromise or settlement as and when such costs and expenses are so incurred.

(iv) Anything in this Section 13.2 to the contrary notwithstanding, (a) if there is a reasonable possibility that Losses may materially and adversely affect the Indemnified Party other than as a result of money damages or other money payments for which it would be entitled to indemnification hereunder, the Indemnified Party shall have the right, at its own cost and expense, to participate in the defense, compromise or settlement of the Losses, (b) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Losses or consent to entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Losses in form and substance satisfactory to the Indemnified Party, and (c) in the event that the Indemnifying Party undertakes defense of any Losses, the Indemnified Party, by counsel or other representative of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Losses and the Indemnifying Party and the Indemnified Party and their respective counsel or other representatives shall cooperate with respect to such Losses and (d) in the event that the Indemnifying Party undertakes defense of any Losses, the Indemnifying Party shall have an obligation to keep the Indemnified Party informed of the status of the defense of such Losses and furnish the Indemnified Party with all documents, instruments and information that the Indemnified party shall reasonably request in connection therewith.

(v) In the event that an Indemnified Party has a good faith basis for a claim for indemnification which does not involve a claim against it by a third party (a "Direct Claim"), the Indemnified Party shall notify the Indemnifying Party in writing of such Direct Claim with reasonable promptness, specifying, to the extent known, the nature, circumstances and amount of such Direct Claim (a "Direct Claim Notice"), including with particularity the specific representation and warranty or covenant and agreement alleged to have been breached. If the Indemnifying Party notifies the Indemnified Party that it disputes an Indemnified Party's right of indemnification with respect to a particular Direct Claim, the parties shall use their reasonable efforts to negotiate a resolution of such dispute promptly. Except to the extent of the limitations on indemnification set forth in this Article 13 , nothing in this Section 13.2(d)(v) shall be deemed to prevent any Indemnified Party from initiating litigation under this Agreement with respect to any Direct Claim disputed by the Indemnifying Party for the purpose of establishing the Indemnified Party's right to indemnification hereunder.

13.2(e) Limitation of Indemnification . No party shall be entitled to indemnification from any other party hereunder until such time that the claims subject to indemnification equal or exceed, in the aggregate, the sum of Twenty-Five Thousand Dollars ($25,000.00) (the “Basket Amount”) and then only to the extent of any excess above the Basket Amount. The maximum liability of each of Seller and Purchaser for indemnification under this Agreement shall be in the aggregate an amount equal to Fifty Percent (50%) of the Purchase Price (the "Maximum Amount"); provided , however , that the Basket Amount and the Maximum Amount shall not apply to claims for indemnification made by Purchaser under Sections 13.2(a)(i), 13.2(a)(ii), or 13.2(c) , and shall not apply to claims for indemnification made by Seller under Sections 13.2(b)(i), 13.2(b)(ii) or 13.2(b)(iv) . A party's right to seek indemnification hereunder shall survive the Closing Date; provided that claims for indemnification relating solely to breaches of representations or warranties shall be subject to the time limitations described in Section 13.1 . As to claims for indemnification relating solely to breaches of representations and warranties, the Indemnifying Party shall have no Liability to the Indemnified Party hereunder unless the Indemnified Party delivers to the Indemnifying Party notice of the claim within the applicable time limitation described in Section 13.1 . If a party specifically waives a condition to Closing, that party shall have no claim for or right to indemnification based upon the other party's failure to fulfill the condition waived.

13.2(f) Effect of Insurance . The amount of any indemnification under this Article 13 shall be reduced by the insurance proceeds received and any other amount, if any, recovered from third parties by the Indemnified Party (or its affiliated entities) with respect to any indemnifiable amounts.

13.3 Indemnification as Exclusive Remedy. Except for claims for fraud or claims for injunctive or equitable relief for which monetary damages covered by an indemnity set forth herein are not available, the indemnification provided in this Section 13 shall be the sole and exclusive post-closing remedy available to the parties to this Agreement under contract, tort or any other legal theory for any Breach of any representations, warranty, covenant or agreement by or on behalf of the Indemnifying Party, or otherwise arising out of the transactions described in this Agreement.

13.4 Subrogation . If an Indemnifying Party pays a Claim of an Indemnified Party, then the Indemnifying Party shall be subrogated to all rights that the Indemnified Party may have against third parties (except Affiliates, Representatives, successors or assigns of the Indemnified Party) for recovery of the Damages.

ARTICLE 14

TERMINATION

14.1 Termination Rights.

This Agreement may be terminated by mutual consent of Seller and Purchaser or with prior written notice by either Purchaser or Seller, as the terminating party, to the other party, as follows:

14.1(a) by Seller, if Seller is not in breach of any material provision of this Agreement, if all of the conditions in Article 11 have not been satisfied or waived by the date scheduled for the Closing pursuant to Section 12.1 ; or

14.1(b) by Purchaser pursuant to Section 8.1 and/or Section 8.2 ; or

14.1(c) by Purchaser, if Purchaser is not in breach of any material provision of this Agreement, if all of the conditions in Article 10 have not been satisfied or waived by the date scheduled for the Closing pursuant to Section 12.1 ;

14.1(d) by Purchaser in accordance with Section 3.3 or Section 7.2 ; or

14.1(e) by either party, if there shall be in effect on the Closing Date any judgment, decree or order that would prevent or make unlawful the Closing of the transactions provided for in this Agreement.

14.2 Effect of Termination.

Upon termination: (i) if neither party hereto is in breach of any material provision of this Agreement, the parties hereto shall not have any further liability to each other; (ii) if Seller shall be in breach of any material provision of this Agreement, Purchaser shall have the right, as its sole remedy upon making the election to terminate this Agreement, to seek monetary damages, not to exceed $100,000.00 in the aggregate, for reimbursement of all costs and expenses paid or incurred by Purchaser in connection with this Agreement and fulfillment of Purchaser’s obligations hereunder, including, without limitation, the due diligence activities of Purchaser and the negotiation of this Agreement; or (iii) if Purchaser shall be in breach of any material provision of this Agreement, Seller shall have the right to receive the Earnest Money Deposit from the Title Company as its sole remedy hereunder. Notwithstanding the foregoing, if Seller is in breach of a material provision of this Agreement, and the covenants or obligations breached by Seller are capable of being performed by Seller, then instead of terminating this Agreement pursuant to Section 14.1, Purchaser shall have the right to sue for specific performance and to receive reimbursement, subject to an aggregate limit of $100,000.00, of all costs and expenses incurred by Purchaser associated with Seller’s breach. In the event of termination for any reason other than as a result of a material breach by Purchaser, Purchaser and Seller shall instruct the Title Company to return to Purchaser the Earnest Money Deposit within three (3) Business Days following delivery of the termination notice. Without limiting the foregoing, if the Purchaser elects to terminate this Agreement pursuant to the provisions of Section 3.3 , Purchaser and Seller shall instruct the Title Company to return to Purchaser the Earnest Money Deposit within three (3) Business Days following delivery by Purchaser of the notice of termination described in Section 3.3 . In the event that Seller is entitled to receive the Earnest Money Deposit pursuant to this Section 14.2, Purchaser and Seller shall instruct Title Company to disburse the Earnest Money Deposit to Seller within three (3) Business Days following delivery by Seller of the notice of termination described in Section 14.1. The provisions of this Section 14.2 set forth the sole and exclusive remedies to Seller and Purchaser resulting from a breach of any representation, warranty, covenant or agreement prior to Closing.

14.3 Survival. Sections 3.1(f), 3.l(g), 14.2, 14.3, 15.2 and 15.11 shall survive the termination of this Agreement.

ARTICLE 15

GENERAL PROVISIONS

15.1 Further Assurances.

Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its commercially reasonable efforts to take or cause to be taken all such further actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective the transactions provided for in this Agreement or in order to fully effectuate the purposes, terms and conditions of this Agreement (including, without limitation, executing, delivering and filing or causing to be executed, delivered and filed such further documents and instruments and obtaining such consents (including governmental approvals), as may be necessary or reasonably requested in connection with the consummation of the transactions provided for herein). In case at any time after the Closing Date any further action is necessary to carry out the purposes of this Agreement, including, without limitation, each party hereto shall use its best efforts to take all such necessary action.

15.2 Expenses; Legal Fees and Costs.

15.2(a) Except as otherwise expressly set forth in this Agreement, all expenses of the negotiation and preparation of this Agreement and of the consummation of the transactions set forth in this Agreement, including counsel fees, accounting fees, investment advisor’s fees and disbursements, shall be borne by the respective Parties incurring such expense, whether or not such transactions are consummated.

15.2(b) Purchaser shall pay (a) all transfer Taxes relating to the transfer of the Transferred Assets to Purchaser; (b) all intangible Taxes and similar Taxes and all sales, use and similar Taxes, relating to the transfer of the Transferred Assets to Purchaser, (c) the cost of any survey of the Real Property performed in connection with this transaction or to facilitate Purchaser’s financing of the purchase of the Transferred Assets, (d) one-half of the cost of premiums on the Title Policies, (e) the cost of any environmental report, (f) the cost of any recordation fees to put the Deed of record with the appropriate Governmental Authority, (g) all costs and expenses of obtaining any financing Purchaser may elect to obtain, including any fees, financing costs, transfer Taxes, mortgage and recordation Taxes and intangible Taxes in connection therewith) and (h) the cost of its legal counsel, advisors and other professionals employed by Purchaser in connection with its purchase of the Transferred Assets from Seller. Seller shall pay (a) one-half of the cost of premiums on the Title Policies, (b) the costs of its legal counsel, advisors and other professionals employed by Seller in connection with the sale of the Transferred Assets to Purchaser, and (c) recordation fees and other expenses related to the discharge of any Encumbrance on the Property that is not a Permitted Encumbrance. Except as otherwise expressly provided for in this Agreement, each party will bear its own expenses incurred in connection with the preparation, execution and performance of its obligations under this Agreement, including all fees and expenses of Representatives.

15.3 Mail.

Following the Closing Date, Purchaser may receive and open all mail or other communications addressed to the Seller that reasonably appears related to the Purchaser’s operation of the Facilities and deal with the contents thereof in its discretion to the extent that such mail relates to the Purchaser’s operations of the Facilities or its obligations under this Agreement; provided that (a) Purchaser shall have no right to deal with the contents of any other such material, and (b) Purchaser shall promptly notify Seller as to the receipt thereof and make appropriate arrangements to deliver such materials promptly to Seller.

15.4 Notices.

All notices, demands, requests, or other communications which may be or are required to be given or made by any party to any other party pursuant to this Agreement shall be in writing and shall be hand delivered, mailed by first-class registered or certified mail, return receipt requested, postage prepaid, delivered by overnight air courier, or transmitted by facsimile transmission addressed as follows:



If to Seller:	Riverchase Village ADK, LLC Two Buckhead Plaza 3050 Peachtree Road NW, Suite 355 Atlanta, Georgia 30305 Attn: Christopher F. Brogdon Facsimile Number: (404) 842-1899
With a copy (which shall not constitute notice) to:	Holt Ney Zatcoff & Wasserman, LLP 100 Galleria Parkway, Suite 1800 Atlanta, Georgia 30339 Attn: Gregory P. Youra, Esq. Facsimile Number: (770) 956-1490
If to Purchaser:	Omega Communities, LLC Two Metroplex Drive, Suite 202 Birmingham, Alabama 35209 Attn: Brett T. Taylor Facsimile Number: (205) 870-8209
With a copy (which shall not constitute notice) to:	Maynard, Cooper & Gale, P.C. 1901 Sixth Avenue North Suite 2400 Regions/Harbert Plaza Birmingham, Alabama 35203-2618 Attn: Thomas C. Clark, III Facsimile Number: (205) 254-1999

or such other address as the addressee may indicate by written notice to the other parties.

Each notice, demand, request, or communication which shall be given or made in the manner described above shall be deemed sufficiently given or made for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or the affidavit of messenger being deemed conclusive but not exclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation.

15.5 Waiver.

No delay or failure on the part of any party hereto in exercising any right, power or privilege under this Agreement or under any other instrument or document given in connection with or pursuant to this Agreement shall impair any such right, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege, or the exercise of any other right, power or privilege. No waiver shall be valid against any party hereto unless made in writing and signed by the party against whom enforcement of such waiver is sought and then only to the extent expressly specified therein. No course of dealing shall operate as a waiver or modification of any provision of this Agreement or otherwise prejudice such party’s rights, powers and remedies.

15.6 Benefit and Assignment.

15.6(a) Purchaser shall have the right to assign this Agreement to any Affiliate so long as any such assignment will not delay in any material respect the consummation of the transaction contemplated by this Agreement. Any assignment in accordance with the terms hereof shall become effective upon delivery of one (1) business day prior written notice in accordance with Section 15.4 .

15.6(b) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns as permitted hereunder. No person or entity other than the parties hereto is or shall be entitled to bring any action to enforce any provision of this Agreement against any of the parties hereto, and the covenants and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto or their respective successors and assigns as permitted hereunder.


15.7	Construction and Interpretation of Agreement.

15.7(a) Section titles or captions in this Agreement are included for purposes of convenience only and shall not be considered a part of the Agreement in construing or interpreting any of its provisions. All references in this Agreement to Sections shall refer to Sections of this Agreement unless the context clearly otherwise requires.

15.7(b) The parties have participated jointly in the negotiation and drafting of this Agreement. If any ambiguity or question of intent or interpretation arises, no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

15.7(c) Unless the context otherwise requires, when used in this Agreement, the singular shall include the plural, the plural shall include the singular, and all pronouns shall be deemed to refer to the masculine, feminine or neuter, as the identity of the person or persons may require.

HNZW/512200_6.doc/2887-181

15.7(d) The parties do not intend that this Agreement shall confer on any third party any right, remedy or benefit or that any third party shall have any right to enforce any provision of this Agreement, except for the rights of Title Company as set forth in this Agreement.

15.7(e) When used in the Agreement, including shall have the commonly accepted meaning associated with such word and any list of items that may follow such word shall not be deemed to represent a complete list of the contents of the referent of the subject but should be considered to be construed as Aincluding without limitation.

15.8 Entire Agreement; Amendment.

This Agreement and the other instruments and documents referred to herein or delivered pursuant hereto contain the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, including, without limitation, the letter of intent dated as of March 23, 2015 among Seller and Purchaser, commitments or understandings with respect to such matters. No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by the parties hereto.

15.9 Severability.

If any part of any provision of this Agreement or any other contract, agreement, document or writing given pursuant to or in connection with this Agreement shall be invalid or unenforceable under applicable Law, such part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provisions or the remaining provisions of said contract, agreement, document or writing.

15.10 Headings.

The headings of the sections and subsections contained in this Agreement are inserted for convenience only and do not form a part or affect the meaning, construction or scope thereof.

15.11 Governing Law.

This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed under and in accordance with the laws of the State of Alabama, excluding the choice of law rules thereof.

15.12 Signature in Counterparts.

This Agreement may be executed in separate counterparts, none of which need contain the signatures of all parties, each of which shall be deemed to be an original, and all of which taken together constitute one and the same instrument.

[Signatures on Following Page]

HNZW/512200_6.doc/2887-181

IN WITNESS WHEREOF, each of the parties hereto has executed this Asset Purchase Agreement, or has caused this Asset Purchase Agreement to be duly executed and delivered in its name on its behalf, all as of the day and year first above written.



	SELLER:

	RIVERCHASE VILLAGE ADK, LLC,
	a Georgia limited liability company

	By:	/s/ Christopher F. Brogdon
	Name:	Christopher F. Brogdon
	Title:	Manager

	PURCHASER:

	OMEGA COMMUNITIES, LLC,
	a Florida limited liability company

	By:	/s/ James A. Taylor, Jr.
	Name:	James A. Taylor, Jr.
	Title:	COO

HNZW/512200_4.doc/2887-181

EXHIBIT A

BILL OF SALE

This BILL OF SALE is made as of _______________, by RIVERCHASE VILLAGE ADK, LLC , a Georgia limited liability company (“Seller”), in favor of OMEGA COMMUNITIES, LLC, a Florida limited liability company (“Purchaser”).

RECITALS:

A. Seller owns and operates the congregate assisted living facility1851 Data Drive, Hoover, Alabama 35244 (the "Facilities"). The Facilities include a 125 bed congregate assisted living facility licensed by the Alabama Department of Public Health.

B. Pursuant to a certain Asset Purchase Agreement, dated _________, 2015 (“Purchase Agreement”) by and between Purchaser and Seller, Seller agreed to sell, transfer, convey, assign and deliver to Purchaser substantially all of the assets used or held for use in connection with the operation of the Facilities, and Purchaser agreed to purchase such assets.

C. In order that Purchaser is in possession of an instrument vesting title in Purchaser to certain of the assets being acquired by it, Seller desires to execute and deliver this Bill of Sale.

AGREEMENT:

Now, Therefore, for good and valuable consideration, the receipt of which is hereby acknowledged:

1. Transfer of the Transferred Assets . Seller hereby sells, transfers, conveys, assigns, sets over and confirms unto Purchaser and its successors and assigns, to have and to hold, for its and their own use forever, free and clear of all liens, pledges, charges and encumbrances of any nature whatsoever, other than the Permitted Encumbrances, all of Seller’s right, title and interest under, in and to the following (collectively, the “Transferred Assets”):

(a) All right, title and interests in, to and under the real property described on Schedule 2.1(a) , together with all improvements, buildings and fixtures located thereon and all easements and rights appurtenant to such real property (the “Real Property”);

(b) All tangible personal property (including all machinery, equipment, office equipment, fixtures, computer hardware and software (but only to the extent such hardware and software is used solely in connection with the operation of the Facilities and is not part of any network system employed by Seller and is further subject to any restrictions by the licensor on the assignment of such software), tools, supplies, spare parts and furniture) owned or leased by Seller and either located at the Facilities or used solely in connection with the operation of the Facilities and not any other facility which is owned or operated by Seller or any of its Affiliates, including the tangible personal property as specifically listed and described on Schedule 2.1(b) (the “Personal Property”);

(d) The Contracts that relate solely to the business and/or operations of the Facilities (and not any other facility of Seller that is owned or operated by Seller or any of its Affiliates) to which Seller is a party or by which Seller is bound, as specifically listed or described in Schedule 2.1(d) , but excluding the Excluded Contracts (collectively, but excluding the Excluded Contracts, the

“Assumed Contracts”);

(e) The financial, medical and other records for all Residents currently residing in the Facilities and all business and other books, customer lists, papers, logs, files and records (excluding the corporate records of Seller) relating specifically to the Real Property and the Personal Property or relating solely to the business and/or operations of the Facilities (excluding any such records relating to any other facility of Seller, the Excluded Assets, Liabilities not assumed by Purchaser, or the Facility Employees as identified in Section 2.2(f) ;

(f) All of Seller's right to the telephone numbers used by the Facilities and to the telephone listing in the local telephone directories as listed and described on Schedule 2.1(f) ;

(g) All Governmental Authorizations owned, held or utilized by Seller or the Facilities in connection with the ownership of the Transferred Assets and the operation of the Facilities, and all pending applications related to the Facilities or its operation, including the Permits listed on Schedule 2.1(g) (the “Permits”), in each case to the extent transferrable to Purchaser;

(h) All rights and claims under or pursuant to all warranties or product guarantees made by manufacturers, suppliers, vendors or contractors arising under or relating to the Real Property or Personal Property;

(i) All golf carts, vans, and other vehicles owned or leased by Seller and used in the operation of the Facilities as listed and described on Schedule 2.1(i) ; and

(j) The business of the Facilities as a "going concern" and goodwill.

2. Excluded Assets. The following assets of Seller are not included in the Transferred Assets and are not being transferred hereby (the “Excluded Assets”):

HNZW/512200_6.doc/2887-181

(a) All Employee Benefit Plans, including, without limitation, the assets thereof and any prepaid expenses related thereto;

(b) All books, records, files, and papers (whether in hard copy or computer format) (i) that are not used in, or that do not relate to or affect, the Facilities, including sales and promotional literature, manuals and data, sales and purchase correspondence, (2) that are not solely related to the business and/or operation of the Facilities and (3) that relate to the Excluded Assets or Liabilities not assumed by Purchaser;

(d) All cash, cash equivalents, securities and investments, and accounts receivable, notes receivable, premiums receivable, commissions receivable, and other rights to receive payments from customers or Residents or from others, including all trade accounts receivable representing amounts payable to Seller for services rendered to Residents prior to the Effective Time;

(e) Any Governmental Authorization that relates to or affects the Facilities but is not assignable or transferable;

(f) All personnel and employment records that relate to former or current employees of the Facilities, except to the extent that Laws require such records, or copies of such records, to remain at the Facilities, provided that copies of employment records relating to the Transferred Employees shall be provided to Purchaser;


(g)	Any insurance policies to which Seller is a party;

(h) Seller’s right to any of its trade names, trademarks or service marks (collectively, the “Marks”); and


(i)	Any other property of Seller not expressly described in Section 1.

3. Further Assurances. Seller hereby covenants and agrees that it will from time to time, at the request of Purchaser and without further consideration, take such additional actions and duly execute and deliver to Purchaser and its successors such additional instruments and documents as may be reasonably required in order to assign, transfer, and vest title to any of the Transferred Assets in or to Purchaser and its successors and assigns.

4. Benefit. This Bill of Sale shall inure to the benefit of Purchaser and its successors and assigns, and shall be binding upon, Seller and its successors and assigns.

5. No Modification to Purchase Agreement. This Bill of Sale is delivered pursuant to the Purchase Agreement, and is subject in all respects to the provisions thereof and is not meant to alter, enlarge, or otherwise modify the provisions of the Purchase Agreement. In the event of any inconsistency between the terms of this Bill of Sale and the Purchase Agreement, the terms of the Purchase Agreement shall govern.

6. Capitalized Terms. Any word whose initial letter is capitalized is a defined term. Unless such term is defined herein, it shall have the same meaning as that attributed to such term in the Purchase Agreement.

7. Schedules. Any reference to a “Schedule” herein shall refer to a Schedule to the Purchase Agreement.

IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed on its behalf, as of the date first written above.




	RIVERCHASE VILLAGE ADK, LLC By: Name: ______________________________ Title:

HNZW/512200_6.doc/2887-181

EXHIBIT B

FORM OF DEED


STATE OF ALABAMA )	Send tax notices to:

Omega Communities, LLC


JEFFERSON COUNTY )	_________________________

_________________________

Attn: ____________________

LIMTED WARRANTY DEED

KNOW ALL MEN BY THESE PRESENTS , that for and in consideration of ten and no/100 Dollars ($10.00) and other good and valuable consideration in hand paid to the undersigned RIVERCHASE VILLAGE ADK, LLC , a Georgia limited liability company (the “Grantor”), by OMEGA COMMUNITIES, LLC, a Florida limited liability company (the “Grantee”), the receipt of which is acknowledged, the said Grantor does GRANT, BARGAIN, SELL AND CONVEY unto the Grantee, its successors and assigns, that certain real estate situated in Jefferson County, Alabama, which real estate is described more particularly in Exhibit A attached hereto and made a part hereof (the “Property”).

TO HAVE AND TO HOLD unto Grantee, and Grantee’s successors and assigns, forever.

It is expressly understood and agreed that this Limited Warranty Deed is made subject to the matters described on Exhibit B attached hereto and made a part hereof (the “Exceptions”).

And Grantor, for Grantor, and Grantor’s successors and assigns, covenants with Grantee, and its successors and assigns, that Grantor is lawfully seized in fee simple of the Property; that the Property is free from all encumbrances except for the Exceptions; that Grantor has a good right to sell and convey the same as aforesaid; that Grantor and Grantor’s successors and assigns, shall warrant and defend the same to Grantee and its successors and assigns, forever, against the lawful claims and demands of all persons owning, holding or claiming by, through or under Grantor, other than persons claiming under the Exceptions.

Pursuant to the provisions of Ala. Code § 40-22-1 (1975), the following information is offered in lieu of submitting Form RT-1:



Grantor’s Name and Mailing Address:	Grantee’s Name and Mailing Address:

________________________________	________________________________
________________________________	________________________________
________________________________	________________________________
________________________________	________________________________



Property Address:	________________________________
Date of Sale:	________________________________
Total Purchase Price:	________________________________
The Purchase Price can be verified in:	Closing Statement Sales Contract Appraisal Bill of Sale Property Tax Bill or Assessment _______________________________

IN WITNESS WHEREOF , the Grantor, by its representative, who is authorized to execute this Limited Warranty Deed and to make this conveyance, has hereto set its signature and seal on the date of the acknowledgment of the Grantor’s signature below.

GRANTOR

RIVERCHASE VILLAGE ADK, LLC

By:___________________________

Name: ________________________

Its: ________________________

STATE OF ____________________ )

COUNTY OF __________________ )

I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that _______________________________, whose name as _________________________ of _________________, a _______________, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of said instrument, he/she, as such __________ and with full authority, executed the same voluntarily for and as the act of said ______________.

Given under my hand and official seal this the ________ day of _____________, 2015.

___________________________________

Notary Public

AFFIX SEAL

My commission expires: ____________________________

This instrument was prepared by:

Thomas C. Clark, III, Esq.

MAYNARD, COOPER & GALE, P.C.

1901 Sixth Avenue North

2400 Regions/Harbert Plaza

Birmingham, Alabama 35203‑2618

(205) 254‑1000

Exhibit A (to Limited Warranty Deed)

(Legal Description)

[To be inserted]

Exhibit B (to Limited Warranty Deed)

Exceptions


1.	Ad Valorem taxes for the year 2015 and subsequent years, which are a lien not yet due and payable.


2.	[Insert references to existing easements, restrictions, limitations, covenants, conditions of record and shown on title pro forma or survey].

HNZW/512200_6.doc/2887-181

EXHIBIT C

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”) is made as of ___________________, 2015, by and between, RIVERCHASE VILLAGE ADK, LLC , a Georgia limited liability company (“Seller”), and OMEGA COMMUNITIES, LLC , a Florida limited liability company (“Purchaser”).

RECITALS:

A. Seller owns and operates the congregate assisted living facility1851 Data Drive, Hoover, Alabama 35244 (the “Facilities”). The Facilities include a 125 bed congregate assisted living facility licensed by the Alabama Department of Public Health.

C. In connection with the acquisition, Seller agreed to assign to Purchaser, and Purchaser agreed to assume certain obligations arising under, the “Assumed Contracts” (as defined in Section 1 of the Purchase Agreement) and certain other liabilities, pursuant to the terms of this Agreement.

AGREEMENT:

Now, therefore, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows:

1. Assignment . Seller hereby grants, sells, bargains, conveys, transfers and assigns to Purchaser, its successors and assigns, all of Seller’s rights, titles and interests under, in and to those agreements specifically identified on Exhibit A attached hereto (collectively, “Assumed Contracts”).

2. Assumption of the Assumed Contracts. Purchaser hereby accepts the sale, bargain, conveyance, transfer and assignment by Seller to Purchaser, its successors and assigns, of all of Seller’s rights, titles and interests under, in and to the Assumed Contracts, and hereby assumes and agrees to perform and discharge all of Seller’s executory obligations arising under the Assumed Contracts on and after the date hereof (the “Assumed Contract Liabilities”).

3. Miscellaneous Provisions.

(a) Seller and Purchaser agree, at the other party’s request, whether on or after the date hereof, and without further consideration, that each shall execute and deliver any and all further instruments and documents, and take such further actions, as the other party may reasonably request or as may reasonably be required in order more effectively to vest in Purchaser all of Seller’s rights, titles and interests under, in and to each of the Assumed Contracts, and to evidence Purchaser’s assumption of the Assumed Contract Liabilities, or to otherwise carry out the provisions of this Agreement.

(b) All of the terms, provisions and conditions of this Agreement shall be binding on, and shall inure to and be enforceable by, the parties hereto and their respective successors and assigns.

(c) Any word whose initial letter is capitalized is a defined term. Unless such term is defined herein, it shall have the same meaning as that attributed to such term in the Purchase Agreement.

(d) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(e) In the event of any inconsistency between the terms of this Bill of Sale and the Purchase Agreement, the terms of the Purchase Agreement shall govern.

IN WITNESS WHEREOF , the parties hereto have duly executed this Agreement as of the date first above written.

SELLER:



	RIVERCHASE VILLAGE ADK, LLC By: ___________________________________ Name: _________________________________ Title:___________________________________ PURCHASER:
	OMEGA COMMUNITIES, LLC By: ___________________________________ Name: _________________________________ Title:__________________________________

SCHEDULE 2.1(a)

REAL PROPERTY

HNZW/512200_5.doc/2887-181

SCHEDULE 2.1(b)

PERSONAL PROPERTY

SCHEDULE 2.1(d)

ASSUMED CONTRACTS

SCHEDULE 2.1(f)

TELEPHONE NUMBERS AND LISTINGS

SCHEDULE 2.1(g)

PERMITS

SCHEDULE 2.1(i)

VEHICLES

SCHEDULE 4.7

ALLOCATIONS

[To be attached]

SCHEDULE 3.1(a)

DUE DILIGENCE DELIVERIES

SCHEDULE 4.6(b)

MATERIAL EQUIPMENT

SCHEDULE 4.7

FINANCIAL STATEMENTS

SCHEDULE 4.11(a)

FACILITY EMPLOYEES

SCHEDULE 4.11(b)

FACILITY EMPLOYEE BENEFIT PLANS

HNZW/512200_6.doc/2887-181

SCHEDULE 4.14

INSURANCE POLICIES

HNZW/512200_6.doc/2887-181

SCHEDULE 4.15

AFFILIATED TRANSACTIONS

HNZW/512200_6.doc/2887-181

SCHEDULE 4.18

RESIDENT AGREEMENTS AND RENT ROLL

{03233681.3}

HNZW/512200_6.doc/2887-181



	Exhibit 10.108

FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT

THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (this “First Amendment”) is made effective the 6th day of August, 2015 (the “Effective Date”), notwithstanding the actual date of execution, by and between RIVERCHASE VILLAGE ADK, LLC , a Georgia limited liability company (“Seller”) and OMEGA COMMUNITIES, LLC , a Florida limited liability company (“Purchaser”).

RECITALS

WHEREAS , Seller and Purchaser previously entered into that certain Asset Purchase Agreement dated June 11, 2015, for the sale and purchase of the real property described therein (the “Agreement”); and

WHEREAS , Seller and Purchaser acknowledge that it is in their mutual interest to enter into this Amendment to make certain changes to the Agreement as set forth below.

AGREEMENT

NOW, THEREFORE , in consideration of the foregoing recitals, the mutual covenants and conditions hereinafter contained, and other good and valuable consideration, the receipt of sufficiency of which are hereby acknowledged, the undersigned Seller and Purchaser do hereby covenant, declare, acknowledge and agree as follows:

1. All defined terms and words set forth in this First Amendment shall have the same meaning and definitions as set forth in the Agreement unless specifically provided otherwise in this First Amendment.

2. Section 2.3 is hereby deleted and replaced with the following:


(a)	Upon execution of this First Amendment, the Title Company is authorized and directed to release to Seller the $100,000.00 Initial Deposit being held in escrow by Title Company as of the Effective Date of this First Amendment (the “Released Earnest Money Deposit”) pursuant to wire transfer instructions to be provided by Seller to Title Company.


(b)	Within two (2) business days after the Effective Date of this First Amendment, Purchaser shall deliver to Title Company earnest money in the amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) (the “Additional Earnest Money Deposit”) to be held by Title Company in escrow in a non-interest bearing account.

(c)

If Purchaser wishes to extend the Closing Date from August 31, 2015 to September 30, 2015, Purchaser must (i) provide written notice to Seller on or before August 27, 2015 and (ii) deliver to the Title Company on or before August 31, 2015, an extension deposit in the amount of One Hundred Thousand and No/100 Dollars ($100,000.00) (the “Extension Deposit”) to be held in the Title Company in escrow in a non-interest bearing account.

(d)

The Released Earnest Money Deposit, the Additional Earnest Money Deposit and the Extension Deposit (if any) are collectively referred to as the “Earnest Money Deposit”. The parties agree that if the purchase of the Transferred Assets closes, the Earnest Money Deposit shall be applied to the Purchase Price as a credit to Purchaser at Closing. If the purchase of the Transferred Assets does not close on or before the Closing Date for any reason other than (i) Seller’s breach of this Agreement (not cured with in any applicable cure period) or (ii) a casualty or condemnation relating to the Facilities, the Released Earnest Money Deposit shall be retained by Seller and the Additional Earnest Money Deposit and the Extension Deposit (if any) shall be promptly disbursed to Seller. If the purchase of the Transferred Assets does not close on or before the Closing Date, as a result of Seller’s breach of this Agreement (not cured within applicable cure periods) or a casualty or condemnation relating to the Facilities, the Released Earnest Money Deposit shall be returned to the Title Company and the Earnest Money Deposit and the Extension Deposit (if any) shall be disbursed in accordance with the terms of this Agreement.

3. Section 2.4 is hereby deleted and replaced with the following:

The purchase price for the Transferred Assets (the “Purchase Price”) shall be an amount equal to Six Million Eight Hundred Fifty Thousand and No/100 Dollars (6,850,000.00).

4. Section 4.21 is hereby deleted and replaced with the following:

Except for Emory Relocation and Referral (“Purchaser’s Broker”) and Marcus & Millichap (“Seller’s Broker”; together with Purchaser’s Broker, collectively, the “Brokers”), no agent, broker, investment banker or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with the Closing. Seller hereby agrees to pay Seller’s Broker a commission fee equal to three percent (3%) of $6,750,000.00, which commission fees shall be deducted from the Seller’s proceeds at Closing. In addition, if the Closing occurs on or before the Closing Date, Seller shall pay Purchaser’s Broker a commission fee equal to Sixty-seven Thousand Five Hundred and N0/Dollars ($67,500.00), which commission fee shall be deducted from Seller’s proceeds at Closing.

5. Section 12.1(a) is hereby deleted in its entirety and replaced with the following:

“12.1(a) The Closing hereunder shall take place through an escrow closing by release of documents and funds held in escrow by the Title Company on or before August 31, 2015,” subject to Purchaser’s right to extend the Closing Date to September 30, 2015 as described in Section 2.3 above.

6. In the event of a conflict between the terms and provisions of this First Amendment and terms and provisions of the Agreement, the terms and provisions of this First Amendment shall prevail. Except as set forth herein, the terms and provisions of the Agreement shall remain in full force and effect.

7. This First Amendment may be executed in counterparts and by facsimile by the parties hereto and each shall be considered an original insofar as the parties hereto are concerned, and together said counterparts shall comprise one single document.

[Signatures on Following Page]

IN WITNESS WHEREOF , the undersigned parties have executed this First Amendment on the dates set forth immediately beneath their respective signatures, but effective as of the date first above written.



	SELLER:

	RIVERCHASE VILLAGE ADK, LLC,
	a Georgia limited liability company

	By:	/s/ Christopher F. Brogdon
	Name:	Christopher F. Brogdon
	Title:	Manager

	PURCHASER:

	OMEGA COMMUNITIES, LLC,
	a Florida limited liability company

	By:	/s/ James A. Taylor, Jr.
	Name:	James A. Taylor, Jr.
	Title:	COO

Exhibit 10.109

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT (this “ Lease ”) is entered into as of the 17 ^th day of July, 2015 (the “ Execution Date ”) by and among VALLEY RIVER PROPERTY HOLDINGS, LLC, a Georgia limited liability company (“ Prime Landlord ”), VALLEY RIVER NURSING, LLC, a Georgia limited liability company (“ Landlord ”) and HIGHLANDS OF FORT SMITH, LLC, a Delaware limited liability company (“ Tenant ”), for the improved real property described on Exhibit “A-1” (the “ Facility ”), and the “ Landlord Personal Property ” associated therewith described on Exhibit “A-2” (the Landlord Personal Property together with the Facility, being collectively the “ Premises ”), which are used as a licensed healthcare facility of the type described on Schedule 1 (the “ Business ”). Certain capitalized terms used in this Lease are defined on Exhibit “B” .

RECITALS

WHEREAS , Landlord is the tenant under that certain Facility Lease Agreement dated as of August 31, 2011 (the “ Prime Lease ”), pursuant to which Landlord leases the Premises from Prime Landlord, the owner of the Premises;

WHEREAS, Prime Landlord and Landlord are affiliated entities with common ownership;

WHEREAS , Landlord desires to sublease the Premises to Tenant, and Tenant desires to sublease the Premises from Landlord on the terms and conditions hereinafter set forth;

WHEREAS , Tenant and Landlord have entered into an Operations Transfer Agreement (the “ Transfer Agreement ”) as of the date hereof; and

WHEREAS , Affiliates of Landlord have subleased other facilities related to this transaction more particularly described in Schedule 1 (the “ Related Facilities ”) to Affiliates of Tenant (the “ Related Lease Affiliates ”) pursuant to subleases substantially similar to this Lease and dated January 16, 2015, as amended (as amended, the “ Related Leases ”). The Related Facilities and the Facility shall be referred to collectively herein as the “ Portfolio ”.

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 Lease is the Initial Term plus the Renewal Term (if any). A “ Lease Year ” is the twelve (12) month period commencing on the Commencement Date and each anniversary thereof during each year of the Term. Provided the Conditions Precedent set forth in Section 2 below have been satisfied or waived, the “ Initial Term ” commences on September 1, 2015 (the “ Commencement Date ”) and ends on April 30, 2022. The Term may be extended by Tenant for one (1) separate renewal term of five (5) years (“ Renewal Term ”) if: (a) at least one-hundred eighty (180) days prior to the end of the Initial Term, Tenant delivers to Landlord a “ Renewal

Notice ” indicating that Tenant desires to exercise its right to extend this Lease for the Renewal Term; (b) there is no then uncured Event of Default (as defined in Section 13 below) (i) as of the date Landlord receives the Renewal Notice (the “ Exercise Date ”), or (ii) on the last day of the Initial Term; and (c) all Related Lease Affiliates concurrently deliver appropriate Renewal Notices exercising the renewal options for all Related Leases. For purposes hereof, “ Termination Date ” shall mean the last day of the Initial Term or the Renewal Term (if any) or the earlier date on which this Lease may be terminated as provided herein. Upon receipt of a Renewal Notice, the Prime Lease shall be extended automatically to the last day of the Renewal Term.

2. Conditions Precedent .

2.1 Landlord’s Conditions Precedent . The duties and obligations of Landlord pursuant to the terms of this Lease are and shall expressly be conditioned upon the following (the “ Conditions Precedent ”), which may be waived, in whole or in part, by Landlord in writing:

(a) Satisfaction of all of the conditions set forth in Section 4.1 of the Transfer Agreement;

(b) Receipt by Tenant of adequate assurances that all licenses and other approvals required by the State of Arkansas to operate the Facility will be granted effective as of September 1, 2015; and

2.2 Tenant’s Conditions Precedent . The duties and obligations of Tenant pursuant to the terms of this Lease are and shall expressly be conditioned upon the following Conditions Precedent, which may be waived in whole or in part, by Tenant in writing:

(a) Satisfaction of all of the conditions set forth in Section 4.2 of the Transfer Agreement;

(b) Receipt by Tenant of adequate assurances that all licenses and other approvals required by the State of Arkansas to operate the Facility will be granted effective as of September 1, 2015;

(d) Delivery by Facility Mortgagee of a subordination, non-disturbance and attornment agreement in form and substance reasonably acceptable to Tenant;

(e) Delivery by Prime Landlord of the Recognition Agreement in the form set forth in Exhibit I attached hereto; and

(f) Completion and approval by Tenant in its sole discretion of Exhibit D to this Lease.

2.3 Failure of Conditions . If the Conditions Precedent shall not have been satisfied or waived by August 31, 2015, either party may terminate this Lease and the Transfer Agreement by written notice of termination (the “ Termination Notice ”) delivered to the other party by August 31, 2015 (the “ Failure of Conditions Termination Date ”). Upon termination of this Lease under the terms of this Section 2 , neither party hereto shall have any further claims or obligations under this Lease or the Transfer Agreement, except those obligations that expressly survive termination.

3. Rent . During the Term, Tenant shall pay in advance to Landlord on or before the 1 ^st day of each month after the Commencement Date the following amounts as Rent (as defined below):

3.1 Initial Term Base Rent . During the first Lease Year of the Initial Term, “Rent” shall be equal to Fifty Thousand and 00/100 Dollars ($50,000.00) per month. During each subsequent Lease Year of the Initial Term, “Rent” shall be equal to one-hundred three percent (103%) of the Rent due for the immediately preceding Lease Year.

3.2 Renewal Term Base Rent . During the Renewal Term, “Rent” shall be equal to one hundred three percent (103%) of the Rent due for the immediately preceding Lease Year.

3.3 Additional Rent . In the event a disbursement is made by Landlord for a Landlord Investment (as defined in Section 9.2(c) below) or a Capital Improvement Project (as defined in Section 9.2(f) below) during any month, Rent shall increase on the first day of the immediately succeeding calendar month by one-twelfth (1/12 ^th ) of the amount equal to the product of: (i) the amount disbursed for the Landlord Investment or Capital Improvement Project; and (ii) nine percent (9%) (the “ Annual Yield ”).

3.4 Absolute Net Lease . Except as expressly set forth herein and in the Transfer Agreement, all Rent payments shall be absolutely net to Landlord, free of any and all Taxes (as

defined below in Section 6 ), Other Charges (as defined below in Section 6 ), and Tenant’s operating or other expenses of any kind whatsoever, all of which shall be paid by Tenant. Except as expressly set forth herein and in the Transfer Agreement, (i) Tenant shall continue to perform its obligations under this Lease even if Tenant claims it has been damaged by Landlord, (ii) Tenant shall at all times remain obligated under this Lease without any right of set-off, counterclaim, abatement, deduction, reduction or defense of any kind (except as set forth in Sections 18 and 19 below) and (iii) Tenant’s sole right to recover damages against Landlord under this Lease shall be to prove such damages in a separate action. Pursuant to the Transfer Agreement, and notwithstanding anything herein to the contrary, Landlord and Tenant acknowledge and agree that Tenant may offset any recoupment of Medicare, Medicaid, or any other Losses (as that term is defined in the Transfer Agreement) against Rent; provided, that Tenant shall promptly notify Landlord of the offset and the reason therefor. Notwithstanding anything herein to the contrary, Landlord and Tenant hereby acknowledge and agree that Tenant’s obligations hereunder shall be conditioned upon the Prime Lease continuing to be in full force and effect for the Term of this Lease.

3.5 Payment Terms . All Rent and other payments to Landlord hereunder shall be paid by wire transfer in accordance with Landlord’s wire transfer instructions attached hereto as Exhibit “C” , or as otherwise directed by Landlord from time to time.

3 .6 Equitable Adjustment . As a condition to Tenant’s agreement to a Commencement Date of September 1, 2015, and notwithstanding anything to the contrary contained herein, Landlord and Tenant hereby agree to assess, in good faith and make a one-time equitable adjustment to Base Rent equal to the difference between the Facility’s 2014 professional liability and general liability insurance costs and projected costs for the first Lease Year of comparable or mutually acceptable insurance as further adjusted by anticipated Medicaid reimbursement rate increases solely from such added costs.

4. Security Deposit . Tenant shall deposit with Landlord and maintain during the Term a sum equal to the base Rent for the first month of Initial Term as a security deposit (the “ Security Deposit ”) which Landlord shall hold as security for the full and faithful performance by Tenant of every material term, provision, obligation and covenant under this Lease and subject to the terms and conditions of this Lease. The Security Deposit shall be paid to Landlord on the Commencement Date. The Security Deposit may be deposited by Landlord into an interest-bearing account, which interest shall accrue for the sole benefit of Landlord and not Tenant. The Security Deposit shall not be considered an advance payment of Rent (or of any other sum payable by Tenant under this Lease) or a measure of Landlord’s damages in case of a default by Tenant. The Security Deposit shall not be considered a trust fund, and Tenant expressly acknowledges and agrees that Landlord is not acting as a trustee or in any fiduciary capacity in controlling or using the Security Deposit. Unless required by law, Landlord shall have no obligation to maintain the Security Deposit separate and apart from Landlord’s general and/or other funds. If Tenant defaults in respect of any of the terms, provisions, covenants and conditions of this Lease (or if there is a default by any Related Lease Affiliate under any Related Lease), Landlord may, but shall not be required to, in addition to and not in lieu of any other rights and remedies available to Landlord, apply all or any part of the Security Deposit to the payment of any sum in default, or any other sum that Landlord may expend or be required to expend by reason of Tenant’s default, including but not limited to, any damages or

deficiency in reletting the Premises. Whenever, and as often as, Landlord has applied any portion of the Security Deposit to cure Tenant’s default hereunder, or under any Related Lease, Tenant shall, within ten (10) business days after Notice from Landlord, deposit additional money with Landlord sufficient to restore the Security Deposit to the full amount then required to be deposited with Landlord and Tenant’s failure to do so shall constitute an Event of Default without any further Notice. If Landlord transfers or assigns its interest under this Lease, Landlord shall assign the Security Deposit to the new landlord and thereafter Landlord shall have no further liability for the return of the Security Deposit, and Tenant agrees to look solely to the new landlord for the return of the Security Deposit, provided that Landlord and the new landlord execute an assignment of Security Deposit and provide Tenant with a copy of same. Tenant agrees that it will not assign or encumber or attempt to assign or encumber the Security Deposit. Landlord, its successors and assigns shall return the Security Deposit (within ten (10) business days following the Termination Date) to the last tenant in possession of the Premises at the last address for which Notice is to be given by such tenant and Landlord thereafter shall be relieved of any liability therefor, regardless of one or more assignments of this Lease or any such actual or attempted assignment or encumbrances of the Security Deposit.

5. Late Charges . The late payment of Rent or other amounts due under this Lease will cause Landlord to lose the use of such money and incur administrative and other expenses not contemplated under this Lease. While the exact amount of the foregoing is difficult to ascertain, the parties agree that as a reasonable estimate of fair compensation to Landlord, if Rent or any other amount is not paid within (a) five (5) days after the due date for such payment, then Tenant shall thereafter pay to Landlord on demand a late charge equal to three percent (3%) 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 five percent (5%) per annum (the “ Agreed Rate ”).

6. Taxes and Other Charges . At the commencement and at the expiration of the Term, all Taxes and Other Charges shall be prorated. Landlord shall promptly forward to Tenant copies of all bills and payment receipts for Taxes or Other Charges received by it. Subject to Landlord’s obligations to make payments from the impound deposits made by Tenant pursuant to Section 6.2 below, Tenant 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, and (b) “ Other Charges ”, consisting of any utilities and other costs and expenses of the Business or any portion of the Premises and all other charges, obligations or deposits assessed against any portion of the Premises during the Term. Tenant 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). Notwithstanding the foregoing, there shall be excluded from the definition of Taxes, and Tenant shall not be responsible for paying, any income taxes, gross receipts taxes, personal property taxes on the Landlord Personal Property, excess profit taxes, excise taxes, franchise taxes, capital stock taxes, transfer taxes or other taxes or assessments personal in nature to Landlord whether or not based in whole or in part on the Rent payable hereunder. Further, in no event shall Tenant be responsible for any assessments in connection with the initial development or construction of the Facility. Within ten (10) days of its receipt of Landlord’s written notice of payment, Tenant shall pay Landlord an amount equal to any Taxes or Penalty that Landlord at any

time is assessed or otherwise becomes responsible and for which Tenant is liable under this Lease. However, nothing in this Lease shall obligate Tenant to pay penalties incurred as a result of Landlord’s failure to timely forward bills to Tenant. Notwithstanding anything to the contrary contained herein, Tenant shall not be responsible for any Taxes or Other Charges which accrue prior to the Commencement Date, it being understood that any such Taxes or Other Charges shall be the responsibility of and shall be promptly paid by Landlord prior to delinquency.

6.1 Protests . Tenant 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 9.1 ), by appropriate proceedings sufficient to prevent its collection or other realization and the sale, forfeiture or loss of any portion of the Premises or Rent to satisfy it (so long as Tenant provides Landlord with reasonable security to assure the foregoing). Tenant shall diligently prosecute any such Protest at its sole cost and expense and pay such Taxes, Other Charges or Lien. Landlord and Prime Landlord shall cooperate fully in any Protest that involves an amount assessed against it.

6.2 Impound . If required by the Facility Mortgagee or upon Landlord’s written notice to Tenant during the Term, Landlord may require Tenant 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 Landlord in trust or as an agent of Tenant, but rather shall be applied to the payment of the related obligations. Provided that the impound deposits are then sufficient for payment of the applicable obligations, (a) the amounts held by Landlord shall be applied by Landlord directly to the payment of the related obligations in a timely fashion and prior to the imposition of any Penalty, and (b) if any Penalty results from Landlord’s failure to timely make any such payment, such Penalty shall be borne by Landlord. 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, Tenant shall within ten (10) days after demand deposit the deficiency with Landlord. If deposits are in excess of the actual obligation, the required monthly deposits for the ensuing Lease Year shall be reduced proportionately and any such excess at the end of the final Lease Year shall be refunded to Tenant within thirty (30) calendar days. Tenant shall forward to Landlord or its designee all Tax bills, bond and assessment statements as soon as they are received. If Landlord transfers this Lease, it shall transfer all such deposits to the transferee, and Landlord shall thereafter have no liability of any kind with respect thereto. Notwithstanding anything to the contrary contained herein, in no event shall funds impounded by Tenant for Taxes be used to pay any taxes accrued prior to the Commencement Date.

6.3 Tax Treatment; Reporting . Landlord and Tenant each acknowledges that each shall treat this transaction as a true lease for state law purposes and shall report this transaction as a lease for Federal income tax purposes. For Federal income tax purposes each shall report this Lease as a true lease with Landlord as the owner of the Premises and Tenant as the lessee of such Premises including: (a) treating Landlord 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) Tenant reporting its Rent payments as rent expense under Section 162 of the Code; and (c) Landlord reporting the Rent payments as rental income. For the avoidance of doubt,

nothing in this Lease shall be deemed to constitute a guaranty, warranty or representation by either Landlord or Tenant as to the actual treatment of this transaction for state law purposes and for federal income tax purposes.

7. Insurance . All insurance provided for in this Lease shall (i) name Landlord and Prime Landlord as additional insureds and, for the property insurance policies, Prime Landlord as the owner, (ii) be on an “occurrence” basis, or if claims made, include a provision whereby tail coverage costs are specified upon policy inception, (iii) cover all of Tenant’s operations at the Facility, (iv) provide that the insurer will endeavor to provide not less than ten (10) days prior written notice to Landlord before the policy may be canceled and (v) be primary and provide that any insurance with respect to any portion of the Premises maintained by Landlord is excess and noncontributing with Tenant’s insurance. The property policy(ies) shall also name the Landlord, Prime Landlord 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 Lease and showing the interest of Landlord and Facility Mortgagee shall be provided to Landlord 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 Landlord is provided with a certificate, it may demand that Tenant provide a complete copy of the related policy within ten (10) days of policy issuance. Tenant shall be permitted to keep all insurance required hereunder under blanket policies covering the Premises and other facilities owned or operated by Tenant or its Affiliates. During the Term, Tenant 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 or 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 Landlord and Tenant 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 eighteen (18) months, covering perils consistent with the requirements of Section 7(a) , and including either an agreed amount endorsement or a waiver of any co-insurance provisions, so as to prevent Tenant, Landlord and any other insured thereunder from being a co-insurer, and providing that any covered loss thereunder shall be payable to Tenant;

(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 in amounts required by the Facility Mortgagee (and Landlord agrees to negotiate the terms of such requirements with the Facility Mortgagee), but in no event greater than $1,000,000.00 per occurrence/$3,000,000.00 in the aggregate, naming Landlord 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 for medical directors with regard to their administrative duties provided to the Facility, with limits in amounts required by the Facility Mortgagee (and Landlord agrees to negotiate the terms of such requirements with the Facility Mortgagee), but in no event greater than $1,000,000.00 per occurrence/$3,000,000.00 in the aggregate, naming Landlord as an additional insured. If such coverage is purchased on a claims made basis, Tenant must show proof of the ability to purchase tail coverage to last through the statute of limitations, upon the Termination Date; and

(e) Workers’ Compensation and Employers Liability Insurance with respect to the Facility for injuries sustained by Tenant’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.

Notwithstanding anything to the contrary contained herein, if during the first Lease Year only the premiums for the policies required in subsections (c) and (d) above shall exceed the State of Arkansas’ maximum allowable premiums (for purposes of Medicaid reimbursement) (the “ Reimbursement Threshold ”), then any such excess premium over the Reimbursement Threshold shall be split equally between Landlord and Tenant, and Landlord’s share of such excess premium shall be reflected as an offset in the Rent then due from Tenant.

8. Use, Regulatory Compliance and Pre-Existing Conditions .

8.1 Permitted Use; Qualified Care . Except in the event of casualty or a Taking as provided in Sections 18 and 19 below, Tenant shall continuously use and occupy the Facility during the Term as a licensed facility engaged in the Business described on Schedule 1 with not less than the applicable number of beds shown on Schedule 1 , and for ancillary services relating thereto, which may include hospice, therapy, adult day care, home care and other healthcare services, but for no other purpose (collectively, the “ Permitted Use ”). Tenant 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, Tenant agrees not to transfer, move or otherwise take action that reduces licensed bed complement of the Facility and Tenant agrees not to take any of the licensed beds out of service or move the beds to a different location.

8.2 Regulatory Compliance . Tenant, 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 Business conducted thereon 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 certified for participation in Medicare and Medicaid (if applicable) throughout the Term and when it is returned to Landlord, all without any suspension, revocation, decertification or other material limitation. Further, Tenant shall not commit any act or omission that would in any material way violate any certificate of occupancy affecting the Facility, result in closure of the Business conducted at 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. All inspection fees, costs and charges associated with a change of such licensure or certification shall be borne solely by Landlord. Notwithstanding the foregoing or any other language to the contrary in this Lease, the parties understand and agree that certain deficiencies or situations of non-compliance with various regulatory requirements are likely to occur from time to time in the normal course of business. Such occurrences will not constitute a breach or default by Tenant under this Lease provided that: (i) Tenant diligently takes all reasonable actions in a timely manner to cure such deficiencies or situations of non-compliance and effectuates such cure to the extent the same can be practicably accomplished; (ii) the occurrences do not otherwise result in the loss of Tenant’s ability to operate the Facility for the Permitted Use; and (iii) no Event of Default exists with respect to the non-payment of Rent.

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

9.1 Acceptance “AS IS”; No Liens . Tenant acknowledges that its Affiliates are 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 Lease, has not relied on any representations or warranties, express or implied, of any kind from Landlord, other than as set forth in the Transfer Agreement. Tenant 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 subject to the initial Deferred Maintenance Items pursuant to Section 9.2(c)(B) below and the items set forth in Exhibit “D” attached hereto, accepts the Facility and the Premises on an “ AS IS ” basis and (except as set forth in the Transfer Agreement) 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 6.1 , Tenant 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 Lease shall require Tenant to keep the Premises free of liens that may be filed as a result of Prime Landlord’s or Landlord’s action or omissions.

Notwithstanding any other provisions of this Lease, Prime Landlord represents and warrants to Tenant that it has sufficient good and marketable title to the Premises, and Landlord represents and warrants to Tenant that it has a sufficient good and marketable leasehold estate in the Premises, to perform their respective obligations under this Lease.

9.2 Maintenance Obligations.

(a) Tenant’s Obligations Generally . Subject to the provisions of Section 6.1 of the Transfer Agreement and subsections (b) through (f) below, Tenant shall (i) keep and maintain the Premises and the Facility in good appearance, repair and condition and maintain proper housekeeping, (ii) 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 (iii) keep and maintain all Landlord and Tenant 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 Lease.

(b) Landlord’s Obligations . Landlord and Prime Landlord shall during the Term hereof be responsible for all utility lines from point of entry into the Premises to the public mains or distribution lines.

A. Change in Regulation . If during the Term any governmental authority implements a new regulation or changes its interpretation or enforcement of existing regulations (including any life safety, fire code or other laws or regulations) which necessitates repairs, renovations or other improvements to the Facility (each a “ Required

Improvement ” and collectively, the “ Required Improvements ”), Tenant shall bear the cost of such Required Improvements up to a maximum of $50,000.00 in any Lease Year. If the cost of the Required Improvements in any Lease Year exceeds $50,000.00, Landlord shall pay the amount exceeding $50,000.00 (such excess, the “ Landlord Investment ”); provided, however, Tenant shall pay the Annual Yield on the Landlord Investment in accordance with the terms and conditions of Section 3.3 above.

B. Deferred Maintenance . The parties acknowledge and agree that as of the Execution Date there are certain identified items of deferred maintenance at the Premises, as listed in Exhibit “E” attached hereto and made a part hereof (each a “ Deferred Maintenance Item ” and together, the “ Deferred Maintenance Items ”). The parties hereby agree that Landlord shall complete such Deferred Maintenance Items prior to the Commencement Date at Landlord’s sole expense. The parties hereby agree that Landlord shall either complete such Deferred Maintenance Items prior to the Commencement Date at Landlord’s sole expense or, at Tenant’s election, such funds shall be paid to Tenant to complete the Deferred Maintenance Items at the Facility.

(d) Licensing Survey Deficiency . If there is a cost required to be incurred to cure any deficiencies or violations of applicable regulation during the first Lease Year relating to the pre-Commencement Date operation or ownership of the Facility identified in any survey or re-licensing inspection by any governmental authority, which deficiencies or violations are required by any such governmental authority to be resolved as a condition to Tenant obtaining or maintaining any governmental approvals (a “ Licensing Survey Deficiency ”), then Landlord shall bear such cost and expenses relating to such Licensing Survey Deficiency (and Tenant shall have no obligation to pay the Annual Yield on such amount).

(e) Asbestos Containing Materials . To the extent any of Tenant’s repairs, maintenance or Alterations (as defined below), including any Required Improvement or Deferred Maintenance Item, require the abatement, removal, disposal or encapsulation of asbestos containing materials (“ ACM ”) at the Facility, Landlord shall bear all costs and expenses relating to such ACM (and Tenant shall have no obligation to pay the Annual Yield on such amount).

(f) Capital Improvement Projects . Landlord hereby agrees to consider and, subject to Landlord’s approval, to make available to Tenant on the terms and conditions set forth in this Section 9.2(f) funds for specified capital improvement projects (each a “ Capital Improvement Project ” and collectively, the “ Capital Improvement Projects ”). Tenant shall obtain Landlord’s prior written consent for all Capital Improvement Projects, which consent shall be given or withheld in Landlord’s sole discretion. As a condition precedent to any disbursement to Tenant for a Capital Improvement Project, Tenant shall provide to Landlord a written request describing in detail the Capital Improvement Project(s) for which funding is sought and such information concerning the details, plans, specifications, scope, cost and payment of such Capital Improvement Projects as required by Landlord including, without limitation, such lien waivers and releases from all parties furnishing materials and/or services for the Capital Improvement Projects and such other documents as Facility Mortgagee may require. Upon approval of the specified Capital Improvement Project by Landlord in its sole discretion and the completion and documentation of any such Capital

Improvement Project by Tenant, monthly Rent shall increase in accordance with the terms and conditions of Section 3.3 above.

9.3 Alterations by Tenant . Tenant 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 ($100,000.00) with respect to the Facility in any rolling twelve (12) month period shall require Landlord’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 Landlord subject to this Lease. Except as otherwise provided in Section 9.2 , 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 Tenant. All Alterations shall be done in a good and workmanlike manner in compliance with all applicable laws and the insurance required under this Lease.

9.4 Hazardous Materials . Tenant’s use of the Premises shall comply with all Hazardous Materials Laws, except for any items set forth on Exhibit “D” . If any Environmental Activities occur or are suspected to have occurred in violation of any Hazardous Materials Laws by Tenant during the Term or if Tenant has received notice of any Hazardous Materials Claim against any portion of the Premises as a result of Tenant’s acts or omissions during the Term, Tenant 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 Landlord’s approval of the remediation plan, remedy any such problem to the satisfaction of Landlord and all applicable governmental authorities, in accordance with all Hazardous Materials Laws and good business practices. During the Term, Tenant shall immediately advise Landlord in writing of: (a) any Environmental Activities in violation of any Hazardous Materials Laws; (b) any Hazardous Materials Claims against Tenant or any portion of the Premises; (c) any remedial action taken by Tenant 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) Tenant’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 Tenant, 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. Landlord shall have the right, and except for any items noted on Exhibit “D” at Tenant’s sole cost and expense (including, without limitation, Landlord’s reasonable attorneys’ fees and costs) and with counsel chosen by Landlord, 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. Landlord represents and warrants to Tenant that: (i) to Landlord’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 Date; and (ii) to Landlord’s knowledge, no Environmental Activities in violation of any Hazardous Materials Laws have occurred prior to the Commencement Date which have not been remedied in full. Notwithstanding anything to the contrary contained herein, in no event shall Tenant be responsible for conditions of the Premises in existence prior to the Commencement Date, and, if required by law, Landlord hereby agrees to remedy any such actual

or suspected problem through the removal of Hazardous Materials at Landlord’s sole cost and expense.

10. Tenant Property . Tenant shall obtain and install all items of furniture, fixtures, supplies and equipment not included as Landlord Personal Property as shall be necessary or reasonably appropriate to operate the Facility in compliance with this Lease (“ Tenant Personal Property ”, which collectively with the “ Tenant Intangible Property ” shall be referred to herein as “ Tenant Property ”.) As used herein, “ Tenant Intangible Property ” means all the following at any time owned by Tenant 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 Tenant’s use of any portion of the Premises, including licensed Medicaid beds (if applicable). Except as may be allowed under common law, Landlord shall have no lien or security interest in or to the Tenant Property, and any such common law lien or security interest of Landlord shall be automatically subordinate to the lien and security interest of any third party lender providing to Tenant a working capital line of credit for financing the Tenant Property (a “ Tenant Financing ”), whether such Tenant Financing exists as of the Commencement Date or future Tenant Financing, and no further instrument of subordination shall be required. Notwithstanding and in addition to the foregoing, with respect to a Tenant Financing, Landlord and Prime Landlord agree, at Tenant’s request, to execute such instruments as are reasonably requested by Tenant or Tenant’s lender providing the Tenant Financing to evidence Landlord’s and/or Prime Landlord’s waiver of any statutory landlord’s lien or similar lien, or other security interest on the Tenant Property.

11. Financial, Management and Regulatory Reports . Tenant shall provide Landlord with the reports listed in Exhibit “F” at the time described therein, and such other information about it or the operations of the Premises and Business as Landlord may reasonably request from time to time, including such information requested in connection with any financing of the Premises sought by Landlord. All financial information provided by Tenant 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 Tenant or any Related Lease Affiliate becomes subject to any reporting requirements of the Securities and Exchange Commission (“SEC”) during the Term, it shall concurrently deliver to Landlord such reports as are delivered pursuant to applicable securities laws. Similarly, should Landlord 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 Tenant, Tenant agrees to use its commercially reasonable efforts to deliver such reports, documentation and information within ten (10) days after Landlord’s request for the same.

12. Representations and Warranties . Each party represents and warrants to the other that: (a) this Lease 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 Lease within the state where the Facility is located; and (c) neither this Lease nor any other document executed or to be executed in connection herewith violates the terms of any other agreement of such party.

13. Events of Default . So long as there is no Event of Default, Tenant 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 Tenant or pursuant to Sections 18 or 19 . The occurrence of any of the following events will constitute an “ Event of Default ” on the part of Tenant, and there shall be no cure period therefor except as otherwise expressly provided:

(a) Tenant’s failure to pay (i) any Rent within five (5) business days after such Rent is due or (ii) any Taxes, Other Charges or other required payments when due; provided Tenant has received written information relating to such Taxes or Other Charges;

(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; provided, however, if any revocation, suspension or limitation is curable by Tenant it shall not constitute an Event of Default if Tenant promptly provides to Landlord, copies of any such notices and Tenant’s plan of correction and commences to cure such breach and thereafter diligently pursues such cure to the completion thereof or until a final adjudication by the relevant governmental agency with no opportunity for further appeal by Tenant; (ii) the closure of a material portion of the Business other than during a period of repair or reconstruction following damage or destruction thereto or a Taking (as hereinafter defined); (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; or (iv) the use of any portion of the Facility other than for the Permitted Use;

(c) Any material suspension, termination or restriction placed upon Tenant with respect to the Premises or the ability to admit residents or patients at the Facility (e.g., an admissions ban or non-payment for new admissions by Medicare or Medicaid resulting from an inspection survey, if applicable); provided, however, if any such material suspension or restriction is curable by Tenant it shall not constitute an Event of Default if Tenant promptly commences to cure such breach and thereafter diligently pursues such cure to the completion thereof or until a final adjudication by the relevant governmental agency with no opportunity for further appeal by Tenant;

(d) A material default by any Related Lease Affiliate under any Related Lease which is not cured within any applicable cure period specified therein;

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

(f) The failure to perform or comply with the provisions of Sections 7 or 17 ;

(g) (i) Tenant shall generally not pay its debts in accordance with specified payment terms 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 Tenant or the Facility, if within five (5) business days of such appointment Tenant does not inform Landlord in writing that it intends 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 Tenant 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 Tenant by any other party, unless Tenant within five (5) business days of such filing informs Landlord in writing of its

intent to cause such petition to be dismissed, such dismissal is diligently prosecuted and such petition is dismissed within ninety (90) days after filing; or

(h) The failure to perform or comply with any other provision of this Lease not requiring the payment of money unless (i) within five (5) business days of Tenant’s receipt of a notice of default from Landlord, Tenant gives Landlord notice of its intent to cure such default; and (ii) Tenant cures it either (x) within thirty (30) days after such notice from Landlord 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 Tenant and cure after such period will not have a material adverse effect upon the Premises or the Business, then such default shall not constitute an Event of Default if Tenant uses its reasonable 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 Landlord.

(i) The failure of Aria Health Consulting, LLC (“AHC”) to make any payment of principal or interest when due under that certain Promissory Note in the principal amount of $1,000,000.00 dated as of July 1, 2015 given by AHC in favor of AdCare Health Systems, Inc.

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

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

14.2 Remedies Cumulative; No Waiver . No right or remedy herein conferred upon or reserved to Landlord 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 Landlord to insist at any time upon the strict performance of any provision of this Lease 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 Tenant. Landlord’s receipt of and Tenant’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 Landlord of any provision of this Lease shall be effective unless expressed in a writing signed by it.

14.3 Performance of Tenant’s Obligations . If Tenant at any time shall fail to make any payment or perform any act on its part required to be made or performed under this Lease, then Landlord may, without waiving or releasing Tenant from any obligations or default hereunder, make such payment or perform such act for the account and at the expense of Tenant after delivering Tenant 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 Tenant. All sums so paid by Landlord and all necessary and 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 5 hereof) from the date of the making of such payment or the incurring of such costs and expenses, shall be payable by Tenant to Landlord upon Landlord’s written demand therefor.

15. Provisions on Termination .

15.1 Surrender of Possession . On the Termination Date, Tenant shall deliver to Landlord or its designee possession of (a) the Facility and associated Landlord Personal Property in a neat and clean condition and in as good a condition as existed on the Commencement Date, ordinary wear and tear excepted, (b) a fully operational, licensed and certified (if applicable) business at the Facility including, at Tenant’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 Facility to Landlord 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 Business and the Premises. Accordingly, except as required to secure accounts receivable financing with respect to the Facility, Tenant 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 Business or the Premises (except as may be required in connection with any Tenant Financing) nor shall Tenant commit or omit any act that would jeopardize the Business or any licensure or certification of the Facility. Tenant shall cooperate fully with Landlord or its designee in transferring or obtaining all necessary licenses and certifications for Landlord or its designee, and Tenant shall comply with all requests for an orderly transfer of the Business, Facility licenses, and Medicare and Medicaid certifications and possession at the time of its surrender of the Premises to Landlord or its designee. Subject to all applicable laws, Tenant hereby assigns, effective upon the Termination Date, all rights to operate the Facility to Landlord

or its designee, including all required licenses and permits and all rights to apply for or otherwise obtain them, and all other nonproprietary Tenant Intangible Property relating to any portion of the Premises. Notwithstanding the foregoing or any other language to the contrary in this Lease, Tenant shall not be obligated to assign (i) any national service contracts or other national vendor arrangements that apply to facilities other than the Facility, (ii) any proprietary or licensed software, computer programs or hardware, discs and/or similar technology personal to Tenant, (iii) Tenant’s employee pagers, manuals, training materials, policies, procedures and materials relating to the Facility, (iv) Tenant’s marketing studies, analysis and similar materials related to Tenant’s business conducted at the Premises and the market and potential market therefor, or (v) any proprietary marks, trade names or other intellectual property of Tenant and/or its Affiliates.

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

15.3 Management of Premises . Commencing on the Termination Date, Landlord or its designee, upon written notice to Tenant, may elect to assume the responsibilities and obligations for the management and operation of the Business, and Tenant agrees to reasonably cooperate to accomplish the transfer of such management and operation without interrupting the operation of the Business. Tenant agrees that Landlord or its designee may, pending the issuance of new licenses and certifications to Landlord or its designee, manage and operate the Business on a triple net basis, and shall be entitled to all revenues of the Business during such period, and to use any and all licenses, certifications or provider agreements issued to Tenant by any federal, state or other governmental authority for operation of the Business, if permitted by any such governmental authority, at no additional cost or liability to Tenant; provided that Landlord hereby agrees to indemnify and hold harmless Tenant against any losses, claims or damages resulting from Landlord’s or its designees use of Tenant’s license or provider agreements during such period. Tenant 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 Tenant 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. If Landlord or its designee exercises the right described above in this Section , the provisions of this Section shall be self-operative and shall constitute a management agreement between Tenant, on the one hand, and Landlord or its designee, on the other

hand, on the terms set forth above; provided, however, that upon the request of Landlord or its designee, the parties shall negotiate and enter into a separate management agreement on the terms set forth herein and to the extent on such other terms and provisions as may be reasonably agreed to by Landlord or its designee and Tenant.

15.4 Holding Over . If Tenant shall remain in possession of the Premises after the Termination Date, such possession shall be a month-to-month tenancy during which time Tenant 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 Lease Year, all additional charges accruing during the month and all other sums, if any, payable by Tenant pursuant to this Lease. Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the Termination Date, nor shall anything contained herein be deemed to limit Landlord’s remedies.

15.5 Survival . All representations, warranties, covenants and other obligations of Tenant and Landlord under this Lease shall survive the Termination Date.

16. Certain Landlord Rights .

16.1 Entry and Examination of Records . Landlord and its representatives may enter any portion of the Premises at any reasonable time after reasonable notice to Tenant to inspect the Premises for compliance or to exhibit the Premises for sale, lease 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 mechanic’s or materialman’s lien law. No such entry shall unreasonably interfere with residents, patients, patient care or the Tenant’s operation of the Facility. During normal business hours, Tenant will permit Landlord and its representatives, inspectors and consultants to examine all contracts, books and financial and other records (wherever kept) relating to Tenant’s operations of the Facility. Landlord acknowledges and agrees that any inspection or other entry onto the Premises by Landlord or its agents shall be subject to all laws and insurance requirements, including without limitation, the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (“ HIPAA ”) and any other security, health, safety or resident confidentiality requirements. Landlord acknowledges and agrees that neither Landlord nor its agents shall need access to, nor shall they use or disclose, any PHI of Tenant. In the event Landlord or its Agents, regardless as to whether the disclosure is inadvertent or otherwise, discovers any PHI, Landlord agrees to take reasonable steps to maintain and to require its Agents to maintain, the privacy and confidentiality of such PHI. The parties agree that the foregoing does not create, and is not intended to create, a “business associate” relationship between the parties as that term is defined by the Privacy Standards. “Protected health information” or “PHI” shall have the meaning defined by the Standards for Privacy of Individually Identifiable Health Information, 45 C.F.R. Part 160 and Subparts A and E of Part 164 (the “ Privacy Standards ”), as promulgated by the Department of Health and Human Services (“ HHS ”) pursuant to HIPAA. As used in this Lease, “Agents” means such party’s agents, contractors, subcontractors, directors, officers and employees.

16.2 Grant Liens . This Lease shall be subordinate to the right, title, and interest of any Facility Mortgagee. Tenant shall at any time hereafter, on demand of Prime Landlord or the

Facility Mortgagee, without expense to Tenant, execute any instruments which may reasonably be required by such party for the purpose of evidencing the subordination of this Lease to the lien or security of such party, so long as such instrument provides that the Facility Mortgagee shall recognize the rights of Tenant under this Lease so long as no Event of Default shall exist and further provided that Tenant’s occupancy and other rights hereunder shall not be disturbed if any such Person takes possession of the Premises through foreclosure proceeding or otherwise. If the holder of any of said instruments or deeds to secure debt shall hereafter succeed to the rights of Landlord under this Lease or to Prime Landlord under the Prime Lease, Tenant shall, at the option of such holder or a purchaser at any foreclosure or sale under power, attorn to and recognize such successor as Tenant’s landlord under this Lease, provided that such attornment shall be conditioned upon the Facility Mortgagee and Landlord executing and delivering to Tenant a commercially reasonable subordination, non-disturbance and attornment agreement. Notwithstanding the foregoing or any other language to the contrary in this Lease, with Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, the security interests and liens granted to Landlord in this Section 16.2 or elsewhere in this Agreement shall be subordinated to any first priority security interest granted in connection with accounts receivable financing secured by Tenant so long as (a) Tenant’s financiers execute an intercreditor agreement with the Facility Mortgagee in form and substance reasonably acceptable to Facility Mortgagee, and (b) no Event of Default exists hereunder.

16.3 Estoppel Certificates . Each party agrees, within ten (10) business days following written request by the other, to have an authorized representative execute, acknowledge and deliver to the other a written statement certifying (a) that this Lease, 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 the requesting party may reasonably request.

16.4 Conveyance Release . If Landlord or any successor owner shall transfer any portion of the Premises in accordance with this Lease and in connection therewith cause the successor owner to assume Landlord’s obligations hereunder in writing, they shall thereupon 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.

17. Assignment and Subletting . Except as otherwise expressly permitted in this Lease, without Landlord’s prior written consent, in its sole and absolute discretion, Tenant shall not assign this Lease, or Lease all or any part of the Premises, or permit the use of the Premises by any party other than Tenant. 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 Tenant or a merger or other combination by Tenant or a sale of all or substantially all of Tenant’s assets in lieu thereof shall be deemed an assignment or other transfer of this Lease. Notwithstanding the foregoing, Tenant may, without Landlord’s prior written consent, assign this Lease or sublet the Premises or any portion thereof to an Affiliate of Tenant if all of the following are first satisfied: (w) such Affiliate fully assumes Tenant’s obligations hereunder; (x) Tenant remains fully liable hereunder; (y) the use of the applicable portion of the Premises remains unchanged; and (z) Landlord in its reasonable discretion

shall have approved the form and content of all documents for such assignment or sublease and received an executed counterpart thereof. For the absence of doubt, Tenant shall be permitted to enter into a management agreement with an Affiliate of Tenant without obtaining Landlord’s consent thereto.

18. Damage by Fire or Other Casualty . Tenant shall promptly notify Landlord of any damage or destruction of any portion of the Premises (a “ Casualty ”) 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 Landlord 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 Landlord’s 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, Tenant shall provide the required additional funds; if they are more than sufficient, the surplus shall belong and be paid to Tenant. Except as expressly provided in the last sentence of this Section 18 , Tenant shall not have any right under this Lease, 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. If the Facility Mortgagee does not agree to release all of the insurance proceeds to reimburse Tenant and Landlord does not agree to reimburse Tenant up to the amount of such insurance proceeds in the event of a Casualty that renders the Facility unsuitable for its Permitted Use, Tenant shall have the right to terminate this Lease and remove the Facility from the Portfolio. Upon the removal of the Facility from the Portfolio, this Lease shall be of no further force or affect, except for any obligations or liability of any party hereunder that accrued on or prior to the date of the Casualty. In the event of a Casualty that does not render the Facility unsuitable for its Permitted Use, Tenant shall restore the Facility to substantially the same condition as existed immediately before the partial Casualty in accordance with the provisions of this Section 18 , and the Rent shall be reduced on a pro rata basis based upon the number of beds removed from service and otherwise taking into consideration all relevant factors affecting the Facility resulting from such partial Casualty.

19. Condemnation . Except as provided to the contrary in this Section 19 , this Lease shall not terminate and shall remain in full force and effect in the event of a taking or condemnation of the Premises (a “ Taking ”), or any portion thereof, and Tenant 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, Tenant may at its election made within thirty (30) days of the effective date of such Taking, terminate this Lease and remove the Facility from the Portfolio effective 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 “G” . Landlord alone shall be entitled to receive and retain any award for a taking or condemnation other than a temporary taking; provided, however, Tenant shall be entitled to submit its own claim in the event of any such taking or condemnation with respect to the value of Tenant’s leasehold interest in any portion of the Premises and/or the

relocation costs incurred by Tenant as a result thereof. In the event of a temporary taking of less than all or substantially all of the Premises, Tenant shall be entitled to receive and retain any and all awards for the temporary taking and the Rent due under this Lease shall be not be abated during the period of such temporary taking.

20. Indemnification .

20.1 Tenant Indemnification . Tenant agrees to protect, indemnify, defend and save harmless Landlord, its members, managers, Affiliates, directors, officers, shareholders, agents and employees (the “ Landlord Indemnified Parties ”) 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 third party suits, claims or demands, on account of any matter or thing, action or failure to act arising out of or in connection with Tenant’s occupancy of the Facility in accordance with this Lease, the Premises (arising after the Commencement Date) or the operations of Tenant on any portion of the Premises, including, without limitation, (a) the breach by Tenant of any of its representations, warranties, covenants or other obligations hereunder, (b) any Protest, (c) all Environmental Activities on any portion of the Premises by Tenant, Hazardous Materials Claims caused by Tenant or violations by Tenant of a Hazardous Materials Law with respect to any portion of the Premises (which occurred on or after the Commencement Date), 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 or in connection with this Lease or the related change in ownership inspection and audit (including any overpayment to any Medicare, Medicaid or other third party payor). Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord or any Landlord Indemnified Parties with counsel acceptable to Landlord and shall not, under any circumstances, compromise or otherwise dispose of any suit, action or proceeding without obtaining Landlord’s written consent. Landlord, at its election and sole cost and expense, shall have the right, but not the obligation, to participate in the defense of any claim for which Landlord or any Landlord Indemnified Parties are indemnified hereunder. If Tenant does not act promptly and completely to satisfy its obligations hereunder, Landlord may resist and defend any such claims or causes of action against Landlord or any Landlord Indemnified Party at Tenant’s sole cost.

20.2 Excluded Events . Notwithstanding anything herein to the contrary, Tenant shall have no obligation to indemnify, defend or hold harmless any person or entity with respect to the Excluded Events. “ Excluded Events ” shall include: (i) Landlord’s breach of its duty of maintenance as contained in Sections 9.2 (b) through (e) above; (ii) the acts or omissions of Prime Landlord, Landlord or their respective agents, employees, contractors, representatives, permittees, licensees, officers, directors or other lessees while on or about the Premises or surrounding areas, whether during an inspection, while performing repairs, or otherwise; (iii) for matters covered by workers compensation insurance; and (iv) matters described on Exhibit “D” attached hereto.

21. Disputes . If any party brings any action to interpret or enforce this Lease, 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.

EACH PARTY HEREBY WAIVES ANY RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER IN CONNECTION WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, INCLUDING RELATIONSHIP OF THE PARTIES, TENANT’S USE AND OCCUPANCY OF ANY PORTION OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE RELATING TO THE FOREGOING OR THE ENFORCEMENT OF ANY REMEDY.

22. Notices . All notices and demands, certificates, requests, consents, approvals and other similar instruments under this Lease shall be in writing and sent by personal delivery, U. S. certified or registered mail (return receipt requested, postage prepaid) or FedEx or similar generally recognized overnight carrier regularly providing proof of delivery, addressed as follows:



If to Tenant: c/o Aria Health Group, LLC 2 Office Park Circle, Suite 110 Birmingham, Alabama 35223-2512 Attention: President	If to Prime Landlord or Landlord: c/o AdCare Health Systems, Inc. Two Buckhead Plaza 3050 Peachtree Road NW, Suite 355 Atlanta, Georgia 30305 Attention: Chief Executive Officer
With copy to: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC 1800 Republic Centre 633 Chestnut Street Chattanooga, Tennessee 37450 Attention: Richard D. Faulkner, Jr.

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. Notwithstanding anything to the contrary contained herein, the Termination Notice set forth in Section 2.3 above may, in addition to the methods set forth in this Section 22 , be given by one party to the other either telephonically or via e-mail to the following addresses:



If to Tenant: blaine.brint@ariahg.com with a copy to rfaulkner@bakerdonelson.com	If to Prime Landlord or Landlord: bill.mcbride@adcarehealth.com with a copy to gyoura@hnzw.com

23. Compliance with Facility Mortgage Documents .

(a) If Landlord, Prime Landlord or an Affiliate of Landlord refinances the Facility, including with a loan that is insured by the United States Department of Housing and Urban Development (“ HUD ”), Tenant acknowledges and agrees that it shall execute and deliver any and all documentation required by a Facility Mortgagee or HUD in connection therewith to obtain the approval of this Lease; provided, however, Tenant shall not incur any material expense or suffer a material adverse economic impact as a result of such cooperation.

(b) Tenant acknowledges that any Facility Mortgage Documents executed by Landlord, Prime Landlord or an Affiliate of Landlord 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. Accordingly, and notwithstanding anything contained in this Lease to the contrary, Tenant agrees to comply with those certain Facility Mortgage Document covenants as more specifically set forth on Exhibit “H” attached hereto and made a part hereof, for so long as any Facility Mortgage encumbers the Premises or any portion thereof or interest therein. Tenant agrees that the requirements, expressly including, without limitation, insurance, affirmative financial, occupancy or other performance requirements or covenants, set forth on Exhibit “H” shall prevail to the extent of any conflict with any other express term of this Lease. If Landlord enters into any new Facility Mortgage that would result in a change to the requirements on Exhibit “H” or that would otherwise conflict with the terms and provisions of this Lease, the parties agree to cooperate to amend this Lease to so reflect such new requirements, provided that Landlord and Tenant shall not agree to any changes that would materially or adversely impact Tenant’s operation of the Facility pursuant to the terms of this Lease, including with respect to Tenant’s insurance or other costs.

(c) Landlord acknowledges that (i) the Facility Mortgage Documents shall include no liens on the Tenant Property and (ii) any Facility Mortgagee shall enter into an intercreditor agreement with any lender of Tenant requesting same.

24. Cooperation . Tenant agrees that should Landlord and Landlord’s Affiliates desire to consolidate all of their subleases with Tenant and Tenant’s Affiliates into one master Lease, Tenant shall cooperate with Landlord and Landlord’s Affiliates in so documenting such consolidation, provided, however, that such documentation does not result in any material cost to Tenant as a result of such cooperation.

25. Miscellaneous . This Lease 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 Lease should be deemed or construed to constitute an extension of credit by Landlord to Tenant, if a portion of any payment made to Landlord is deemed to violate any applicable laws regarding usury, such portion shall be held by Landlord to pay the future obligations of Tenant as such obligations arise and if Tenant discharges and performs all obligations hereunder, such funds will be reimbursed (without interest) to Tenant on the Termination Date. If any part of this Lease 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 Lease, 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 Lease, they shall mean “ calendar day ” or “ calendar days ” unless expressly provided to the contrary. The titles and headings in this Lease 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 Lease (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 Tenant 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 Lease. This Lease (a) contains the entire agreement of the parties (together with the Transfer Agreement) 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, 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 Arkansas, and (f) incorporates by this reference any Exhibits and Schedules attached hereto.

26. Relationship of Lease and Prime Lease . Landlord represents and warrants to Tenant that Landlord has the right, power and authority to execute and deliver this Lease and the right to sublease the Premises to Tenant as contemplated herein for the entire Term of this Lease. Landlord shall not terminate or permit the Prime Lease to be terminated, or modify or amend the Prime Lease. Landlord covenants and agrees to comply with the provisions of the Prime Lease in all respects. Landlord shall indemnify, defend and hold harmless Tenant and its members, managers, officers, owners and agents from and against any and all claims, losses, damages, expenses or liabilities arising out of the non-compliance of the Landlord with the terms and provisions of the Prime Lease. Prime Landlord hereby consents to this Lease and the covenants and provisions contained herein. In order to assure Tenant’s possession of the Premises upon the terms and conditions set forth in this Lease, Prime Landlord agrees to execute and deliver, prior to the Commencement Date, the Recognition Agreement in the form attached hereto as Exhibit “I” .

27. Incorporation by Reference . If any of the express provisions of this Lease shall conflict with any of the provisions of the Prime Lease, such conflict shall be resolved in every instance in favor of the express provisions of this Lease. Prime Landlord agrees that the Prime Lease shall be automatically amended to give full force and effect to Tenant’s rights under this Lease.

28. Prior Acts and Existing Conditions . Notwithstanding anything herein to the contrary, Tenant shall not be responsible for and Landlord and Prime Landlord hereby agree to indemnify and hold harmless Tenant against (i) any conditions existing at the Premises prior to the Commencement Date and (ii) any obligations or matters arising or accruing prior to the Commencement Date, including, without limitation, the Deferred Maintenance Items, injury to person or property and the release of Hazardous Materials at the Premises.

29. Quiet Enjoyment . Tenant, upon paying the Rent and all other charges herein provided, and for observing and keeping the covenants, agreements, terms and conditions of this Lease on its part to be performed, shall lawfully and quietly hold, occupy and enjoy the Premises during the Term, and shall enjoy its rights under this Lease without hindrance by Landlord or Prime Landlord or by any other person or persons.

30. Exhibits . The Parties acknowledge that all exhibits will not be attached at the time this Lease is executed. All exhibits shall be subject to the sole discretion of each Party.

31. Tail Coverage . On or before July 31, 2015, Landlord agrees to provide to Tenant evidence of the continuation of insurance for general liability and professional liability for claims which may be made as a result of Landlord’s operation of the Facility prior to the Commencement Date, with minimum limits equal to $500,000.00, and all such insurance policies shall name Tenant and Aria Health Group, LLC as additional insureds. All policies of insurance required pursuant to this Section 31 shall not expire until after the expiration of any applicable statute of limitations, including any tolling period. Landlord agrees to provide, not less than ten (10) days prior written notice of cancellation, non-renewal or amendment to any policy including, without limitation, any amendment that would reduce the scope or limit coverage or remove any endorsement to any policy or cause any policy to no longer be in full force and effect or fail to be renewed. Tenant acknowledges and agrees that Landlord may (i) provide self-insured continuation coverage and (ii) from time to time replace insurers as long as the required limits and deductibles stated herein remain unchanged.

Tenant acknowledges and agrees that the following terms and conditions shall apply to Landlord’s self-insured tail liability with regard to professional or general liability incidents which occurred prior to the Commencement Date, for which Tenant is indemnified as set forth in Section 7.13 of the Transfer Agreement: (i) such liability shall not be funded or supported by a letter of credit or other collateral, (ii) such liability, since not actual insurance coverage, shall not name Tenant or its affiliates as additional insureds, (iii) Landlord will not provide excess coverage and (iv) claims under such liability will not be limited to $500,000.00 and will be managed by Sedgwick Claims Management Services (“ Sedgwick ”) (or such other claims management services as may be chosen by Landlord). If a claim is reported, Landlord shall advise Tenant of such claim and Sedgwick shall (i) collect information to defend the claim, (ii) select legal counsel (if needed), (iii) evaluate the potential liability and (iv) recommend to Landlord and its parent company, AdCare Health

Systems, Inc. (“ ADK ”) a liability reserve amount. ADK will then recognize the potential liability on its balance sheet by creating a loss reserve and all settlements and/or judgments will be paid out of ADK’s general funds. ADK shall provide Tenant with evidence of such recognition of liability on its balance sheet. Any claims brought by Tenant or its affiliates relating to the operation of the Facility prior to the Commencement Date shall be brought in accordance with the Transfer Agreement.

[SIGNATURES ON NEXT PAGE]

IN WITNESS WHEREOF , this Lease has been executed by Prime Landlord, Landlord and Tenant as of the date first written above.



	PRIME LANDLORD:

	VALLEY RIVER PROPERTY HOLDINGS, LLC
	a Georgia limited liability company

	By:	/s/ William McBride
	Name:	William McBride
	Title:	Manager

	LANDLORD:

	VALLEY RIVER NURSING, LLC
	a Georgia limited liability company

	By:	/s/ William McBride
	Name:	William McBride
	Title:	Manager

	TENANT:

	HIGHLANDS OF FORT SMITH, LLC
	a Delaware limited liability company

	By:	/s/ R. Denny Barnett
	Name:	R. Denny Barnett
	Title:	Chief Manager

HNZW/522096_6doc/3583-1

INDEX OF EXHIBITS AND SCHEDULES

A-1 Legal Description

A-2 Landlord Personal Property

B Certain Definitions

C Landlord’s Wire Instructions

D As-Is Exceptions

E Deferred Maintenance Items

F Financial, Management and Regulatory Reports

G Fair Market Value Determination Process

H Facility Mortgagee Specific Requirements

I Form of Recognition Agreement

Schedule 1 Related Facilities

HNZW/522096_6doc/3583-1

EXHIBIT “A-1”

LEGAL DESCRIPTION

Address: 5301 Wheeler Avenue, Fort Smith, Arkansas 72901

The West half of the South Half of the North Half of the Northeast Quarter of the Southeast Quarter of Section 32, Township 8 North, Range 32 West, Fort Smith District, Sebastian County, Arkansas and all that part described us beginning at the Southwest corner of the above described tract: thence South 62.00 feet; thence Last 630.00 feet; thence North 62.00 feet; thence West 630.00 feet to the point of beginning.

Exhibit A-1

HNZW/522096_6.doc/3583-1

EXHIBIT “A-2”
LANDLORD PERSONAL PROPERTY

“Landlord Personal Property” means: (i) all personal property used in the operation or management of the Facility, including machinery, equipment, furniture, furnishings, beds, computers, signage, trade fixtures or other personal property and consumable inventory and supplies, including any and all such personal property replaced by Tenant or required by the state in which the Facility is located or any other governmental entity to operate the Facility, and (ii) all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans, and other plans and studies that relate to the Facility; provided, however, that Landlord Personal Property shall not include: any vehicles used in connection with the operation of the Facility.

Exhibit A-2

HNZW/522096_6.doc/3583-1

EXHIBIT “B”
CERTAIN DEFINITIONS

For purposes of this Lease, the following terms and words shall have the specified meanings:

“ Affiliate ” shall mean with respect to any Person, any other Person which Controls, is Controlled by or is under common Control with the first Person.

“ Control ” shall mean, as applied to any Person, the possession, directly or indirectly, of the power to direct the management and policies of that Person, whether through ownership, voting control, by contract or otherwise.

“ Environmental Activities ” shall mean the use, generation, transportation, handling, discharge, production, treatment, storage, release or disposal of any Hazardous Materials at any time to or from any portion of the Premises or located on or present on or under any portion of the Premises.

“ Facility Mortgage ” shall mean any mortgage, deed of trust or other security agreement or lien encumbering the Premises or any portion thereof and securing an indebtedness of Prime Landlord or any Affiliate of Prime Landlord or any ground, building or similar lease or other title retention agreement to which the Premises or any portion thereof is subject from time to time.

“ Facility Mortgagee ” shall mean the holder or beneficiary of a Facility Mortgage and any other rights of the lender, credit party or lessor under the applicable Facility Mortgage Documents.

“ Facility Mortgage Documents ” shall mean with respect to each Facility Mortgage and Facility Mortgagee, the applicable Facility Mortgage, loan or credit agreement, lease, note, collateral assignment instruments, guarantees, indemnity agreements and other documents or instruments evidencing, securing or otherwise relating to the loan made, credit extended, lease or other financing vehicle pursuant thereto.

“ Hazardous Materials ” shall mean (a) any petroleum products and/or by-products (including any fraction thereof), flammable substances, explosives, radioactive materials, hazardous or toxic wastes, substances or materials, known carcinogens or any other materials, contaminants or pollutants which pose a hazard to any portion of the Premises or to Persons on or about any portion of the Premises or cause any portion of the Premises to be in violation of any Hazardous Materials Laws; (b) asbestos in any form which is friable; (c) urea formaldehyde in foam insulation or any other form; (d) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million or any other more restrictive standard then prevailing; (e) medical wastes and biohazards not disposed of in accordance with applicable law; (f) radon gas; and (g) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of any portion of the Premises or the owners and/or occupants of property adjacent to or surrounding any portion of the Premises, including, without

Exhibit B

HNZW/522096_6.doc/3583-1

limitation, any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) as amended from time to time.

“ Hazardous Materials Claims ” shall mean any and all enforcement, clean up, removal or other governmental or regulatory actions or orders threatened, instituted or completed pursuant to any Hazardous Material Laws, together with all claims made or threatened by any third party against any portion of the Premises, Landlord or Tenant relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials.

“ Hazardous Materials Laws ” shall mean any laws, ordinances, regulations, rules, orders, guidelines or policies relating to the environment, health and safety, Environmental Activities, Hazardous Materials, air and water quality, waste disposal and other environmental matters.

“ Person ” shall mean any individual, partnership, association, corporation, limited liability company or other entity.

EXHIBIT “C”

LANDLORD’S WIRE INSTRUCTIONS

Exhibit C

HNZW/522096_6.doc/3583-1

EXHIBIT “D”
“AS-IS” EXCEPTIONS

[see attached – to be completed within fifteen (15) days following Commencement Date]

Exhibit D

HNZW/522096_6.doc/3583-1

EXHIBIT “E”

DEFERRED MAINTENANCE

Landlord shall complete, at its expense, the roofing project and the drainage project currently ongoing at the Facility. Additionally, Tenant shall have the right to request from Landlord up to $150,000.00 for additional deferred maintenance items at the Facility. Upon agreement of Landlord and Tenant, Landlord shall make sure funds available to Tenant (up to $150,000.00) to be used solely for deferred maintenance items at the Facility.

Exhibit E

HNZW/522096_6.doc/3583-1

EXHIBIT “F”

FINANCIAL, MANAGEMENT AND REGULATORY REPORTS



REPORT	DUE DATE
Monthly financial reports concerning the Business at the Facility consisting of: (1) a balance sheet; (2) a reasonably detailed income statement showing, among other things, gross revenues; (3) total patient days; (4) occupancy; and (5) payor mix.	Thirty (30) days after the end of each calendar month
Quarterly financial statements of Tenant.	Thirty-Five (35) days after the end of each of the first three quarters of the fiscal year of Tenant
If required by Facility Mortgagee or by regulatory authority, annual financial statements of Tenant audited by a reputable certified public accounting firm.	Seventy-Five (75) days after the fiscal year end of Tenant
Regulatory reports with respect to the Facility , as follows: (1) all federal, state and local licensing and reimbursement certification surveys, inspection and other reports received by Tenant as to any portion of the Premises and any portion of the Business, including state department of health licensing surveys; (2) Medicare and Medicaid certification surveys; and (3) life safety code reports.	Five (5) business days after receipt
Reports of regulatory violations , by written notice of the following: (1) any violation of any federal, state or local licensing or reimbursement certification statute or regulation, including Medicare or Medicaid; (2) any suspension, termination or restriction placed upon Tenant or any portion of the Premises, the operation of any portion of the Business or the ability to admit residents or patients; or (3) any violation of any other permit, approval or certification in connection with any portion of the Premises or any portion of the Business, by any federal, state or local authority, including Medicare or Medicaid.	Two (2) business days after receipt
Cost Reports	Fifteen (15) days after filing

Exhibit F

HNZW/522096_6.doc/3583-1

EXHIBIT “G”

FAIR MARKET VALUE

“ Fair Market Value ” means the fair market value of the Premises or applicable portion thereof on a specified date as agreed to by the parties, or failing such agreement within ten (10) days of such date, as established pursuant the following appraisal process. Each party shall within ten (10) days after written demand by the other party select one MAI Appraiser to participate in the determination of Fair Market Value. For all purposes under this Lease, the Fair Market Value shall be the fair market value of the Premises or applicable portion thereof unencumbered by this Lease. Within ten (10) days of such selection, the MAI Appraisers so selected by the parties shall select a third (3 ^rd ) MAI Appraiser. The three (3) selected MAI Appraisers shall each determine the Fair Market Value of the Premises or applicable portion thereof within thirty (30) days of the selection of the third appraiser. To the extent consistent with sound appraisal practices as then existing at the time of any such appraisal, and if requested by Landlord, such appraisal shall be made on a basis consistent with the basis on which the Premises or applicable portion thereof were appraised at the time of their acquisition by Landlord. Tenant shall pay the fees and expenses of any MAI Appraiser it retains pursuant to this Exhibit. Landlord shall pay the fees and expenses of any MAI Appraiser it retains pursuant to this Exhibit. Each party shall pay half the fees and expenses of the third MAI Appraiser selected by the respective MAI Appraisers selected by each of the parties.

If either party fails to select a MAI Appraiser within the time period set forth in the foregoing paragraph, the MAI Appraiser selected by the other party shall alone determine the fair market value of the Premises or applicable portion thereof in accordance with the provisions of this Exhibit and the Fair Market Value so determined shall be binding upon the parties. If the MAI Appraisers selected by the parties are unable to agree upon a third (3 ^rd ) MAI Appraiser within the time period set forth in the foregoing paragraph, either party shall have the right to apply to the presiding judge of the court of original trial jurisdiction in the county in which the Premises or applicable portion thereof are located to name the third (3 ^rd ) MAI Appraiser. The cost of such application to the presiding judge shall be equally shared by the parties.

Within five (5) days after completion of the third (3 ^rd ) MAI Appraiser’s appraisal, all three (3) MAI Appraisers shall meet and a majority of the MAI Appraisers shall attempt to determine the fair market value of the Premises or applicable portion thereof. If a majority are unable to determine the fair market value at such meeting, the three (3) appraisals shall be added together and their total divided by three (3). The resulting quotient shall be the Fair Market Value. If, however, either or both of the low appraisal or the high appraisal are more than ten percent (10%) lower or higher than the middle appraisal, any such lower or higher appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2), and the resulting quotient shall be such Fair Market Value. If both the lower appraisal and higher appraisal are disregarded as provided herein, the middle appraisal shall be such Fair Market Value. In any event, the result of the foregoing appraisal process shall be final and binding.

“ MAI Appraiser ” shall mean an appraiser licensed or otherwise qualified to do business in the state(s) where the Premises or applicable portion thereof are located and who has substantial experience in performing appraisals of facilities similar to the Premises or applicable portion thereof and is certified as a member of the American Institute of Real Estate Appraisers or certified as a SRPA by the Society of Real Estate Appraisers, or, if such organizations no longer exist or certify appraisers, such successor organization or such other organization as is approved by Landlord.

Exhibit G

HNZW/522096_6.doc/3583-1

EXHIBIT “H”

FACILITY MORTGAGEE SPECIFIC REQUIREMENTS

1. Mortgagee Reporting Requirements: No later than 45 days after the end of each fiscal quarter commencing with the fiscal quarter ending June 30, 2015, quarterly financial statements shall include: balance sheet, statement of income and expense, and statement of cash flows, and statement of payor mix, prepared in accordance with GAAP and certified by an officer or member of Tenant. Within 120 days after the end of each fiscal year commencing with the fiscal year ending December 31, 2015, annual financial statements of Tenant showing the results of operations of the Facility and consisting of a balance sheet, statement of income and expense, statement of cash flows and statement of payor mix, prepared in accordance with GAAP, certified by an officer of Operator, and accompanied by an audit report of a firm of independent certified public accountants acceptable to Lender. Each financial statement shall include a duly completed compliance certificate, dated the date of such financial statements and certified as true and correct by appropriate officers containing a computation of each of the financial covenants below and stating that Tenant has not become aware of any Default or Event of Default or, if there is any such Default or Event of Default describing it and the steps, if any, being taken to cure it.

2. Minimum EBTIDAR . It is a condition of this Agreement and the Loan that for each fiscal quarter commencing with the fiscal quarter ending June 30, 2015, the EBITDAR/Management Fee Adjusted for New Operator shall be not less than 450,000. “ EBITDAR/Management Fee Adjusted” means for any period, an amount equal to EBITDAR for Tenant for such period, except that the Net Income for Tenant used in calculating EBITDAR/Management Fee Adjusted for any period, shall be computed by taking into account management fees equal to the greater of Tenant’s actual management fees for such period or imputed management fees equal to 5% of such Tenant’s gross income for such period as determined in accordance with GAAP.

3. Minimum Fixed Charge Coverage Ratio . As of the end of each fiscal quarter, the ratio of the amount of the EBITDAR for Tenant for the 12-month period ending on the last day of such quarter, to the sum of the combined amounts of the following for the 12‑month period ending on the last day of such quarter: (A) Rental Expense for Operators, plus (B) Distributions for Tenant, other than any amounts which were treated as an expense for accounting purposes, shall not be less than 1.05 to 1.00. Notwithstanding the definition of “Net Income”, the Net Income used in calculating EBITDAR shall be computed by taking into account an imputed combined annual capital expenditures reserve allowance of $458 per licensed bed. Net Income used in calculating EBITDAR for the purpose of this Section for any period shall be computed by taking into account Tenant’s actual management fees for such period only and not taking into account any imputed management fees. Definitions for capitalized terms below:

Depreciation : With respect to any party, for any period, the total amounts added to depreciation, amortization, obsolescence, valuation and other proper reserves, as reflected on such party’s financial statements for such period and determined in accordance with GAAP.

EBITDAR : With respect to any party, for any period, the sum for such period of the following of or payable by such party, as the case may be: (i) net income (determined by GAPP and excluding gains from dispositions of assets, extraordinary gains and discounted operations gains), plus (ii) Interest Charges, plus (iii) federal and state income taxes, plus (iv) Depreciation, plus (v) Rental Expense.

Gross Revenues : In the case of each Facility, income and receipts from all sources, including, without limitation, with respect to such Facility, and in the case of such Facility, including, without limitation, all base rent, additional rent, security deposits and other amounts paid by tenants of the Facility.

Interest Charges : With respect to any party, for any period, the sum of: (i) all interest, charges and related expenses payable with respect to that period to a lender in connection with borrowed money or the deferred purchase price of assets that are treated as interest in accordance with GAAP, plus (ii) the portion of capitalized lease obligations (if any) with respect to that period that should be treated as interest in accordance

Exhibit H

HNZW/522096_6.doc/3583-1

with GAAP, plus (iii) all charges paid or payable (without duplication) during that period with respect to any hedging agreements.

Rental Expense : With respect to any party, for any period, the rental expense for real estate leased by such party as lessee for such period as determined in accordance with GAAP.

3. Casualty and Condemnation . The proceeds of any insurance policies collected or claims as a result of any loss or damage to any portion of any Facility resulting from fire, vandalism, malicious mischief or any other casualty or physical harm and any awards, judgments or claims resulting from the exercise of the power of condemnation or eminent domain shall be applied to reduce the outstanding balance of the Loan or to rebuild and restore such Facility, or to the restoration or repair of the property damaged, if approved by the Facility Mortgagee in its discretion.

4. Insurance :

(i) Insurance against loss or damage to its Facility by fire and other risks, written on an “all risk” special perils, 100% full replacement cost basis, without deduction for foundations and footings, and without co-insurance, and with not more than $10,000 deductible from the loss payable for any casualty.

(ii) Commercial general liability insurance, including coverage for elevators and escalators, if any, on its Facility and completed operations coverage for two years after any construction or repair at its Facility has been completed, on an occurrence basis, against claims for personal injury, including without limitation bodily injury, death or property damage occurring on, in or about its Facility and the adjoining streets, sidewalks and passageways, such insurance to afford immediate minimum protection to a limit of not less than $1,000,000 for one person and $3,000,000 per occurrence for personal injury or death and $500,000 per occurrence for damage to property.

(iii) Workers compensation insurance covering such Borrower, in accordance with the requirements of Arkansas law.

(iv) During the course of any construction or repair at its Facility, all risk builders risk course of construction insurance against all risks of physical loss, on a completed value basis, including collapse and transit coverage, with a deductible not to exceed $10,000, in nonreporting form, covering the total value of work performed and equipment, supplies and materials furnished, and containing the “permission to occupy” endorsement, and insuring all general contractors and subcontractors of any tier.

(v) Boiler and machinery insurance covering any pressure vessels, air tanks, boilers, machinery, pressure piping, heating, air conditioning and elevator equipment and escalator equipment located on its Facility, and insurance against loss of occupancy or use arising from any breakdown therein, all in such amounts as are satisfactory to Lender.

(vi) Business interruption, use and occupancy or rent loss insurance on its Facility covering loss of the use of its Facility caused by the perils covered by the policies described in (i), (iv) and (v) above, for a period of 12 months or such longer period as Lender shall require, in an amount not less than 100% of the Facilityed annual revenue from its Facility as determined by Lender, and written on a gross rental income, gross profits or extended period of indemnity form.

(vii) If all or any portion of its Facility is located in an area that has been identified by the Director of the Federal Emergency Management Agency as a special flood hazard area, flood insurance in an amount at least equal to the principal amount of the Loan or to the maximum amount of coverage allowed for the particular type of property under the National Flood Insurance Program, whichever is less.

(viii) Commercial general liability insurance covering any contractors performing work at its Facility, on an occurrence basis, against claims for personal injury, including without limitation bodily injury, death or property damage occurring on, in or about its Facility and the adjoining streets, sidewalks and

Exhibit H

passageways, such insurance to afford immediate minimum protection to a limit of not less than $1,000,000 for one person and $3,000,000 per occurrence for personal injury or death and $500,000 per occurrence for damage to property.

(ix) Workers compensation insurance covering any contractors performing work at its Facility, in accordance with the requirements of Arkansas law.

(x) Errors and omissions insurance covering any architects and engineers performing professional services with respect to its Facility, in the amount of $1,000,000 or such greater amount as Lender may require.

(xi) Such other insurance, and in such amounts, as may from time to time be required by Lender against the same or other hazards.


B.	All such policies of insurance shall be issued by companies, and in amounts in each company, and in a form, satisfactory to Lender and, without limitation on the generality of the foregoing, shall comply with the following provisions:

(i) All policies of insurance shall be issued by insurance companies having an AM Best’s Rating Guide Policy Rating of not less than A and Financial Rating of not less than VIII.

(ii) All policies of insurance required by paragraphs A(i), (iv), (v), (vi) and (vii) above shall name such Borrower as insured and Lender as an additional insured and shall have attached thereto a standard mortgagee’s loss payable endorsement for the benefit of Lender in form satisfactory to Lender, and all policies of insurance required by paragraphs A(ii), (iii), (viii), (ix) and (x) shall name such Borrower as insured and Lender as an additional named insured.

(iii) All policies of insurance shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of such Borrower or Lender which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of set-off, counterclaim or deductions against such Borrower, and shall provide that the amount payable for any loss shall not be reduced by reason of co-insurance.

(iv) All policies of insurance shall contain a provision that they will not be cancelled or amended, including any reduction in the scope or limits of coverage, without at least 30 days’ prior written notice to Lender.

Exhibit H

EXHIBIT “I”

FORM OF RECOGNITION AGREEMENT

THIS INSTRUMENT PREPARED BY

AND RETURN TO:

Richard D. Faulkner, Jr., Esq.

Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.

1800 Republic Centre

633 Chestnut Street

Chattanooga Tennessee 37450

THIS AGREEMENT is made as of the ____ day of _____________, 2015, between ____________________ Property Holdings, LLC, a Georgia limited liability company having an address at Two Buckhead Plaza, 3050 Peachtree Road NW, Suite 355, Atlanta, Georgia 30305 (“ Prime Landlord ”) and Highlands of _________________, LLC, a Delaware limited liability company having an address at 2 Office Park Circle, Suite 110, Birmingham, Alabama 35223-2512 _________________________ (“ Tenant ”).

RECITALS

(i) Prime Landlord is the owner of that certain property known as _____________, located in _____________________________, and more particularly described in Schedule A attached hereto (the “ Property ”); and

(ii) ____________________, a Georgia limited liability company (“ Landlord ”) has entered into a certain Facility Lease for the Property dated __________________ with Prime Landlord (“ Prime Lease ”); and

(iii) Landlord and Tenant have entered into a Sublease Agreement for the Property dated ________ (“ Sublease ”); and

(iv) Prime Landlord and Tenant desire to assure Tenant’s possession of the Property upon the terms and conditions set forth in the Sublease, irrespective of a termination or expiration of the Prime Lease, pursuant to the terms and conditions set forth below.

NOW, THEREFORE, it is agreed as follows:

1. Prime Landlord hereby consents to and approves the Sublease and all of the terms, covenants and provisions thereof, and agrees that the exercise by Tenant of any of the rights, remedies and options contained therein shall not constitute a default under the Prime Lease.

2. Prime Landlord warrants and represents as follows:

Exhibit I

HNZW/522096_6.doc/3583-1

a. that it is the owner of the Property;

b. that the Prime Lease is unmodified and is in full force and effect; and

c. that the term of the Prime Lease expires on _________________ and that Landlord is not in default under the Prime Lease nor has any event occurred which would after notice to Landlord and the passage of time become a default of Landlord under the Prime Lease.

3. For so long as the Sublease shall remain in full force and effect, and provided no Event of Default by Tenant then exists, after the receipt of notice thereof and the expiration of any applicable cure period, Prime Landlord shall not, in the exercise of any of the rights arising or which may arise out of the Prime Lease or of any instrument modifying or amending the same or entered into in substitution or replacement thereof, disturb or deprive Tenant in, or of, its possession or its rights to possession of the Property or of any interest, right or privilege granted to or inuring to the benefit of Tenant under the Sublease.

4. In the event of the termination of the Prime Lease by reentry, notice, conditional limitation, surrender, summary proceeding or other action or proceeding for any reason, including, without limitation, because Landlord has exercised an option to terminate the Prime Lease; by operation of law; by mutual agreement between Prime Landlord and Landlord; or otherwise, or, if the Prime Lease shall expire for any reason before any of the dates provided in the Sublease for the termination of the initial or renewal Terms of the Sublease, and if immediately prior to such surrender, termination or expiration the Sublease shall be in full force and effect and no Event of Default by Tenant then exists after the receipt of notice thereof and the expiration of any applicable cure period:

a. Tenant shall not be made a party in any removal or eviction action or proceeding nor shall Tenant be evicted or removed of its possession or its right of possession be disturbed or in any way interfered with; and

b. the Sublease shall continue as a direct lease between Prime Landlord and Tenant for the remainder of the term of the Sublease without the necessity of executing a new sublease, on the same terms and conditions as are in effect under the Sublease immediately preceding the termination of the Prime Lease.

1. Prime Landlord hereby waives and relinquishes any and all rights or remedies against Tenant, pursuant to any lien, statutory or otherwise, that it may have against the Tenant Property, as that term is defined in the Sublease.

2. Prime Landlord hereby acknowledges and agrees that any payment of rent or any other amount by Tenant (or any rent credited to Tenant as a result of an offset) pursuant to the terms of the Sublease shall satisfy all rent requirements under the Prime Lease.

Exhibit I

HNZW/522096_6.doc/3583-1

3. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and cannot be changed, modified, waived or canceled except by an agreement in writing executed by the party against whom enforcement of such modification, change, waiver or cancellation is sought.

4. Invalidation of any of the provisions contained in this Agreement, or of the application thereof to any person by judgment or court order shall in no way affect any of the other provisions hereof or the application thereof to any other person and the same shall remain in full force and effect.

5. This Agreement and the covenants herein contained shall run with the land and be binding upon Prime Landlord and its successors and assigns.

6. This Agreement may be executed in several counterparts, each of which shall be deemed an original. The signatures to this Agreement may be executed on separate pages, and when attached to this Agreement shall constitute one complete document.

7. This Agreement shall be interpreted in accordance with the laws of the State of Arkansas.

8. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns.

[remainder of page intentionally left blank]

Exhibit I

HNZW/522096_6.doc/3583-1

IN WITNESS WHEREOF, the parties have caused this instrument to be executed under seal effective as of the date first above written.

PRIME LANDLORD:

________________ PROPERTY HOLDINGS, LLC

Name: ________________________

Title: ________________________

TENANT:

HIGHLANDS OF ___________________, LLC

Name: ________________________

Title: ________________________

[[ADD ACKNOWLEDGMENT]]

Exhibit I

HNZW/522096_6.doc/3583-1

EXHIBIT A TO RECOGNITION AGREEMENT

Legal Description

Exhibit I

HNZW/522096_6.doc/3583-1

SCHEDULE 1

RELATED FACILITIES



Facility Name	Prime Landlord Affiliates	Landlord Affiliates	Tenant Affiliates	Address	Bed Number Facility Type
Homestead Manor Nursing Home	Homestead Property Holdings, LLC	Homestead Nursing, LLC	Highlands of Stamps, LLC	826 North Street Stamps, AR 71860-4522	104 bed SNF
Heritage Park Nursing Center	Park Heritage Property Holdings, LLC	Park Heritage Nursing, LLC	Highlands of Rogers Dixieland, LLC	1513 S. Dixieland Road Rogers 72758-4935	110 bed SNF
Stone County Nursing and Rehabilitation Center	Mt. V Property Holdings, LLC	Mountain View Nursing, LLC	Highlands of Mountain View SNF, LLC	706 Oak Grove Street Mountain View, AR 72560-8601	97 bed SNF
Stone County Residential Care Facility	Mountain Top Property Holdings, LLC	Mountain Top ALF, LLC	Highlands of Mountain View RCF, LLC	414 Massey Avenue Mountain View, AR 72560-6132	32 bed ALF
West Markham Sub Acute and Rehabilitation Center	Little Rock HC&R Property Holdings, LLC	Little Rock HC&R Nursing, LLC	Highlands of Little Rock West Markham, LLC	5720 West Markham Street Little Rock, AR 72205-3328	154 bed SNF
Woodland Hills Healthcare and Rehabilitation	Woodland Hills HC Property Holdings, LLC	Woodland Hills HC Nursing, LLC	Highlands of Little Rock Riley, LLC	8701 Riley Dr. Little Rock, AR 72205-6509	140 bed SNF
Northridge Healthcare and Rehabilitation	Northridge HC&R Property Holdings, LLC	Northridge HC&R Nursing, LLC	Highlands of Little Rock John Ashley, LLC	2501 John Ashley Dr. North Little Rock, AR 72114-1815	140 bed SNF
Cumberland Health and Rehabilitation Center	APH&R Property Holdings, LLC	APH&R Nursing, LLC	Highlands of Little Rock South Cumberland, LLC	1516 South Cumberland Street Little Rock, AR 72202-5065	120 bed SNF
River Valley Health and Rehabilitation Center	Mt. V Property Holdings, LLC	Valley River Nursing, LLC	Highlands of Fort Smith, LLC	5301 Wheeler Avenue, Fort Smith, AR 72901-8339	129 bed SNF

HNZW//3583-1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14(A) AND 15d-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, William McBride III, certify that:

1. I have reviewed this Form 10-Q for the quarter ended June 30, 2015 , of AdCare Health Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 13, 2015	/s/ William McBride III
		William McBride III
		Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF ACCOUNTING OFFICER

PURSUANT TO RULES 13a-14(A) AND 15d-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, Allan J. Rimland, certify that:

1. I have reviewed this Form 10-Q for the quarter ended June 30, 2015 of AdCare Health Systems, Inc.;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 13, 2015	/s/ Allan J. Rimland
		Allan J. Rimland
		President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AdCare Health Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William McBride III, Chief Executive Officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	August 13, 2015	/s/ William McBride III
		William McBride III
		Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AdCare Health Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Allan J. Rimland, President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted by § 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	August 13, 2015	/s/ Allan J. Rimland
		Allan J. Rimland
		President and Chief Financial Officer