ADCARE HEALTH SYSTEMS INC (Form: 10-Q, Received: 08/11/2011 17:07:35)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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)

Ohio

31-1332119

(State or Other Jurisdiction

of Incorporation)

(IRS Employer Identification Number)

5057 Troy Rd, Springfield, OH 45502-9032

(Address of principal executive offices)

(937) 964-8974

(Registrant’s telephone number)

(Former name, former address, or 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 x 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 (section 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 x 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 or “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 x

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

As of August 1, 2011: 9,441,236 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)	3
	Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2011 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 4.	Controls and Procedures	31
Part II.	Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 5.	Other Information	32
Item 6.	Exhibits	32
Signatures

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Part I. Financial Information

Item 1. Financial Statements

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	5,660,797		$	3,911,140
Restricted cash and cash equivalents	3,104,177			1,047,454
Accounts receivable:
Long-term care resident receivables, net	14,177,043			10,943,963
Management receivables, net	207,150			271,224
Prepaid expenses and other	919,700			1,243,663
Total current assets	24,068,867			17,417,444

Restricted cash and investments	3,640,201			3,099,936
Property and equipment, net	56,632,391			37,606,301
Intangibles, net	22,807,450			16,159,845
Goodwill	2,679,482			2,679,482
Escrow deposits for acquisitions	790,000			1,725,086
Lease deposits	1,694,105			1,670,282
Other assets	3,625,853			2,600,530
Total assets	$	115,938,349		$	82,958,906

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of notes payable and other debt	$	8,073,620		$	3,633,401
Accounts payable	5,785,768			3,411,772
Accrued expenses	10,592,303			9,664,325
Total current liabilities	24,451,691			16,709,498

Notes payable and other debt, net of current portion	72,423,116			47,210,995
Derivative liability	6,843,787			2,905,750
Other liabilities	1,452,405			1,267,429
Deferred tax liability	412,963			255,141
Total liabilities	105,583,962			68,348,813

Commitments and contingencies (Note 4)	—			—

Stockholders’ equity:
Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock and additional paid-in capital, no par value; 29,000,000 shares authorized; 8,518,601 and 8,349,197 shares issued and outstanding	27,860,173			26,611,870
Accumulated deficit	(17,711,036		)	(12,548,870		)
Total stockholders’ equity	10,149,137			14,063,000
Noncontrolling interest in subsidiaries	205,250			547,093
Total equity	10,354,387			14,610,093
Total liabilities and stockholders’ equity	$	115,938,349		$	82,958,906

See notes to consolidated financial statements

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenues:
Patient care revenues	$	34,323,137		$	5,700,272		$	65,335,661		$	11,567,059
Management revenues	486,183			523,941			983,523			1,031,672
Total revenues	34,809,320			6,224,213			66,319,184			12,598,731

Expenses:
Payroll and related payroll costs	19,102,771			3,965,010			37,218,583			8,025,974
Other operating expenses	11,692,223			2,157,949			22,175,069			4,191,674
Lease expense	1,946,868			138,339			3,849,591			289,490
Depreciation and amortization	709,774			233,410			1,360,967			475,974
Salary retirement and continuation costs	621,605			—			621,605			—
Total expenses	34,073,241			6,494,708			65,225,815			12,983,112

Income (Loss) from Operations	736,079			(270,495		)	1,093,369			(384,381		)

Other (Expense) Income:
Interest expense, net	(1,854,281		)	(298,240		)	(3,294,471		)	(585,460		)
Acquisition costs, net of gains	(622,120		)	807,789			357,219			1,633,778
Derivative loss	(2,588,171		)	—			(3,938,037		)	—
Loss on extinguishment of debt	(77,400		)	—			(77,400		)	—
Other income (expense)	(21,219		)	(33,595		)	586,947			(33,631		)
Total other (expense) income	(5,163,191		)	475,954			(6,365,742		)	1,014,687

(Loss) Income Before Income Taxes	(4,427,112		)	205,459			(5,272,373		)	630,306
Income Tax Expense	(135,265		)	(10,642		)	(231,636		)	(21,284		)
Net (Loss) Income	(4,562,377		)	194,817			(5,504,009		)	609,022
Net Loss (Income) Attributable to Noncontrolling Interests	165,507			(804,858		)	341,843			(809,562		)
Net Loss Attributable to AdCare Health Systems	$	(4,396,870	)	$	(610,041	)	$	(5,162,166	)	$	(200,540	)

Net Loss Per Share, Basic	$	(0.52	)	$	(0.11	)	$	(0.62	)	$	(0.04	)
Net Loss Per Share, Diluted	$	(0.52	)	$	(0.11	)	$	(0.62	)	$	(0.04	)

Weighted Average Common Shares Outstanding,
Basic	8,425,698			5,710,696			8,387,347			5,688,659
Diluted	8,425,698			5,710,696			8,387,347			5,688,659

See notes to consolidated financial statements

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net (loss) income	$	(5,504,009	)	$	609,022
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization	1,360,967			475,974
Warrants issued for services	297,370			6,417
Stock based compensation expense	466,505			425,153
Provision for leases in excess of cash	379,046			—
Amortization of deferred financing costs	407,908			9,362
Amortization of debt discounts	444,963			—
Derivative loss	3,938,037			—
Loss on debt extinguishment	77,400			—
Deferred tax expense	157,822			21,284
Loss on disposal of assets	126,015			1,303
Gain on acquisitions	(1,104,486		)	(1,805,740		)
Noncash acquisition costs	—			171,961
Provision for bad debts	341,452			3,624
Other noncash items	45,053			—
Changes in certain assets and liabilities, net of acquisitions:
Accounts receivable	(3,510,458		)	91,190
Prepaid expenses and other	259,019			(29,336		)
Other assets	(28,957		)	(104,547		)
Accounts payable and accrued expenses	3,343,271			(415,188		)
Other liabilities	(264,459		)	218,989
Net cash provided by (used in) operating activities	1,232,459			(320,532		)

Cash flows from investing activities:
Change in restricted cash and investments	(109,588		)	187,161
Escrow deposits for acquisitions	(790,000		)	(500,000		)
Acquisitions	(5,003,527		)	(500,000		)
Purchase of property and equipment	(1,942,907		)	(535,263		)
Net cash used in investing activities	(7,846,022		)	(1,348,102		)

Cash flows from financing activities:
Proceeds from debt	4,829,954			57,048
Proceeds from exercise of warrants/options	219,472			223,600
Debt issuance costs	(174,884		)	—
Change in line of credit	4,286,946			—
Repayment of notes payable	(798,268		)	(336,099		)
Net cash provided by (used in) financing activities	8,363,220			(55,451		)

Net Change in Cash	1,749,657			(1,724,085		)
Cash, Beginning	3,911,140			4,481,100
Cash, Ending	$	5,660,797		$	2,757,015

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	2,437,834		$	577,843
Supplemental Disclosure of Noncash Activities:
Noncash change in fair value of PP&E from acquisition	$	—		$	750,287
Acquisitions in exchange for debt	17,384,418			6,365,000
Warrants issued for financings costs	329,901			5,580,001
Other assets acquired in exchange for debt	3,426,778			—

See notes to consolidated financial statements.

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

							Common Stock
				Accumulated			and Additional		Noncontrolling
	Total			Deficit			Paid-in Capital		Interest

Balance, January 1, 2011:	$	14,610,093		$	(12,548,870	)	$	26,611,870	$	547,093

Nonemployee warrants for services	355,933			—			355,933		—
Nonemployee stock issuance for services	206,394			—			206,394		—
Stock based compensation expense	466,505			—			466,505		—
Exercises of options and warrants	219,471			—			219,471		—
Net loss	(5,504,009		)	(5,162,166		)	—		(341,843		)

Balance, June 30, 2011	$	10,354,387		$	(17,711,036	)	$	27,860,173	$	205,250

See notes to consolidated financial statements

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A DCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States. These statements include the accounts of AdCare Health Systems, Inc. (“AdCare”) and its subsidiaries (the “Company”, or “we”). The Company delivers skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries. All inter-company accounts and transactions were eliminated in the consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Annual Report”). In the opinion of the Company’s management, all adjustments considered for a fair presentation are included and are of a normal recurring nature. Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Certain prior year amounts have been reclassified to conform to the current year presentation.

Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and potentially dilutive securities, such as options, warrants, and non-vested shares outstanding during the period. Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. Due to the net losses attributable to the Company for the three and six months ended June 30, 2011 and 2010, no potentially dilutive securities have been included in the diluted earnings per share calculation because they would automatically result in anti-dilution.

Intangible Assets and Goodwill

There have been no required impairment adjustments to intangible assets and goodwill during the six months ended June 30, 2011 and 2010.

Intangible assets consist of the following:

	June 30, 2011							December 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Bed Licenses	$	14,399,307	$	—		$	14,399,307	$	7,309,307	$	—		$	7,309,307
Lease Rights	9,020,018		(611,875		)	8,408,143		9,020,018		(169,480		)	8,850,538
Totals	$	23,419,325	$	(611,875	)	$	22,807,450	$	16,329,325	$	(169,480	)	$	16,159,845

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible Assets and Goodwill (continued)

Amortization expense was approximately $442,000 for the six months ended June 30, 2011. Estimated amortization expense for each of the years ending December 31 is as follows:

2011 (remainder)	$	442,800
2012	884,790
2013	884,790
2014	884,790
2015	884,790
Thereafter	4,426,183
	$	8,408,143

Recently Issued and Adopted Accounting Pronouncements

In July 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-07, which is included in the Codification under ASC 954, “Health Care Entities.” This ASU requires health care entities to separately present bad debt expense related to patient care revenue as a reduction of patient care revenue (net of contractual allowances and discounts) on the statement of operations for which the ultimate collection of all or a portion of the amounts billed or billable cannot be determined at the time services are rendered. This ASU also requires certain qualitative disclosures about the Company’s policy for recognizing revenue and bad debt expense for patient care services. This ASU will be applied retrospectively effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the potential impact of the adoption but believes that the adoption will not have a material impact on the Company’s consolidated financial statements.

NOTE 2. LIQUIDITY AND PROFITABILITY

The Company had a net loss of approximately $5,162,000 and $201,000 for the six months ended June 30, 2011 and 2010, respectively, and had negative working capital of approximately $383,000 at June 30, 2011. The Company’s ability to achieve sustained profitable operations is dependent on continued growth in revenue and controlling costs.

Management’s plans with the objective of improving liquidity and profitability in the future encompass the following:

· increase existing facility occupancy;

· acquire skilled nursing properties that have not traditionally concentrated on providing Medicare and post-acute services, and once acquired, to optimize patient care, occupancy, and quality mix; and

· acquire existing cash flowing operations to expand the Company’s operations and branch out into other related areas of business.

Management believes that the actions that will be taken by the Company provide the opportunity for the Company to improve liquidity and achieve profitability. However, there can be no assurance that such events will occur.

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NOTE 3. SEGMENTS

The Company reports its operations in four segments: skilled nursing facilities (“SNF”), assisted living facilities (“ALF”), home based care (“Home Health”), and Management/Corporate (“Management/Corporate”). The SNF and ALF segments provide services to individuals needing long term care in a nursing home or assisted living setting and management of those facilities. The Home Health segment provides home health care services to patients while they are living in their own homes. The Management/Corporate segment engages in the management of facilities and accounting and IT services. We evaluate financial performance and allocate resources primarily based on segment operating income (loss). Segment operating results excludes interest expense and other non-operating income and expenses. The table below contains our segment information for the three and six months ended June 30, 2011 and 2010.

Amounts in 000’s

	SNF		ALF		Home Health			Management / Corporate			Total
Three months ended June 30, 2011
Net Revenues	$	31,462	$	2,410	$	451		$	486		$	34,809
Payroll & Related Costs	15,916		1,125		441			1,621			19,103
Other Operating Expenses	11,368		746		111			(533		)	11,692
Lease Expense	2,103		—		—			(156		)	1,947
Depreciation & Amortization	504		161		4			41			710
Salary Continuation Costs	—		—		—			621			621
Operating Income (Loss)	$	1,571	$	378	$	(105	)	$	(1,108	)	$	736

Three months ended June 30, 2010
Net Revenues	$	3,230	$	1,874	$	597		$	523		$	6,224
Payroll & Related Costs	1,680		957		458			870			3,965
Other Operating Expenses	1,279		643		110			126			2,158
Lease Expense	138		—		—			—			138
Depreciation & Amortization	81		122		5			25			233
Salary Continuation Costs	—		—		—			—			—
Operating Income (Loss)	$	52	$	152	$	24		$	(498	)	$	(270	)

Six months ended June 30, 2011
Net Revenues	$	59,653	$	4,751	$	932		$	983		$	66,319
Payroll & Related Costs	30,792		2,270		885			3,272			37,219
Other Operating Expenses	21,816		1,586		200			(1,427		)	22,175
Lease Expense	4,006		—		—			(156		)	3,850
Depreciation & Amortization	963		313		8			77			1,361
Salary Continuation Costs	—		—		—			621			621
Operating Income (Loss)	$	2,076	$	582	$	(161	)	$	(1,404	)	$	1,093
Total Assets	$	85,477	$	22,481	$	2,286		$	5,694		$	115,938

Six months ended June 30, 2010
Net Revenues	$	6,538	$	3,766	$	1,264		$	1,031		$	12,599
Payroll & Related Costs	3,418		1,839		976			1,793			8,026
Other Operating Expenses	2,522		1,277		211			182			4,192
Lease Expense	289		—		—			—			289
Depreciation & Amortization	161		253		9			53			476
Salary Continuation Costs	—		—		—			—			—
Operating Income (Loss)	$	148	$	397	$	68		$	(997	)	$	(384	)
Total Assets	$	7,847	$	22,978	$	2,450		$	9,253		$	42,528

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NOTE 4. COMMITMENTS AND CONTINGENCIES

Legal Matters

The skilled nursing business involves a significant risk of liability given 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, 2011, the Company does not have any material loss contingencies recorded based on management’s evaluation of the probability of loss from known claims.

Special Termination Benefits

For the six months ended June 30, 2011, the Company accrued certain salary retirement and continuation costs of approximately $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer. The benefits include wage continuation and fringe benefits to be paid out during the following 24 months.

NOTE 5. PROPERTY AND EQUIPMENT

	Estimated Useful Lives (Years)	June 30, 2011		December 31, 2010
Buildings and improvements	5-40	$	51,080,065	$	33,748,211
Equipment	2-10	5,179,480		3,954,391
Land	—	5,714,389		4,719,390
Furniture and fixtures	2-5	775,986		489,686
Construction in process	—	263,245		196,589
		63,013,165		43,108,267
Less: accumulated depreciation		6,380,774		5,501,966
Property and equipment, net		$	56,632,391	$	37,606,301

NOTE 6: RESTRICTED CASH AND INVESTMENTS

The following is a reconciliation of the Company’s various restricted cash, escrow deposits and investments as of the periods ending:

	June 30, 2011		December 31, 2010
HUD escrow deposits	$	289,231	$	336,993
Funds held in trust for residents	131,048		113,835
Self-restricted cash	183,898		596,626
Restricted accounts for other debt obligations	2,500,000		—
Total current portion	3,104,177		1,047,454
HUD reserves for capital improvements	1,110,158		1,035,851
Restricted investments for other debt obligations	2,530,043		2,064,085
Total noncurrent portion	3,640,201		3,099,936
Total restricted cash and investments	$	6,744,378	$	4,147,390

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NOTE 6: RESTRICTED CASH AND INVESTMENTS (continued)

During 2011, the Company was required to maintain new restricted cash and investment accounts as a result of new debt financing agreements (see Note 8).

NOTE 7. ACCRUED EXPENSES

Accrued expenses consist of the following:

	June 30, 2011		December 31, 2010
Accrued payroll related expenses	$	3,461,676	$	3,386,110
Accrued employee benefits	2,672,966		1,405,384
Real estate and other taxes	1,397,734		760,999
Third party overpayments and accrued cost report settlements	1,265,597		943,335
Other accrued expenses	1,794,330		3,168,497
Accrued expenses	$	10,592,303	$	9,664,325

NOTE 8. NOTES PAYABLE AND OTHER DEBT

Notes payable and other debt consists of the following:

	June 30, 2011		December 31, 2010
Lines of credit	$	6,237,078	$	1,950,132
Mortgage notes payable	52,145,404		32,378,012
Convertible debt, net of discount	14,315,562		9,379,761
Bonds payable, net of discount	6,170,918		6,165,553
Other debt	1,627,774		970,938
Total notes payable and other debt	80,496,736		50,844,396

Less current portion	8,073,620		3,633,401
Total notes payable and other debt, net of current portion	$	72,423,116	$	47,210,995

Lines of Credit

On February 25, 2011, AdCare joined five additional subsidiaries as additional borrowers in the Credit Agreement that was initially entered into on October 29, 2010, with Gemino Healthcare Finance, LLC (“Gemino”). The additional borrowers increased the amount of credit available to the Company and the maximum amount of the credit facility increased from $5,000,000 to $7,500,000. On April 26, 2011, the original terms of the agreement were modified to reduce the maximum amount of the credit facility to $5,500,000 and a new $2,000,000 revolving note was issued under an affiliated credit agreement by adding two additional subsidiaries. On June 2, 2011, AdCare joined two additional subsidiaries as additional borrowers in the credit agreement. The combined total maximum debt with Gemino remains at $7,500,000.

The Credit Agreement with Gemino contains various financial covenants and other restrictions, including a fixed charge coverage ratio and maximum loan turn days. The Company is required to maintain a fixed charge coverage ratio of 1.1:1, which was not met at June 30, 2011; therefore, the Company was not in compliance with this covenant. However, the Company received a waiver of compliance from Gemino on August 10, 2011.

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NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

Mortgage Notes

In February 2011, the Company refinanced the Mountain Trace facility through the issuance of a mortgage note payable to a financial institution for a total amount of $5,000,000 that matures in 2036, 80% of which is insured by the United States Department of Agriculture (the “USDA”). The USDA mortgage note requires monthly principal and interest payments of approximately $31,700 adjusted quarterly with a variable interest rate of prime plus 1.75% with a floor of 5.75%. Deferred financing costs incurred on the loan amounted to approximately $174,000 and are being amortized to interest expense over the life of the notes. In addition, the loan has an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loan has prepayment penalties of 10% through 2011 declining by 1% each year capped at 1% for the first ten years. The loan has certain financial covenants of which the Company was in compliance at June 30, 2011.

To complete the April 29, 2011 acquisition of Southland Care Center, the Company issued a secured promissory for $5,800,000. The note matures on April 30, 2012, accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be repaid without penalty with the principal amount due at maturity. The Company received net proceeds of approximately $5,723,000 net of legal and other financing costs. The note is secured by the Southland Care Center facility and guaranteed by AdCare. Subsequent to June 30, 2011, the Company refinanced this short term note with long term financing (see Note 12). As a result, this short term note is classified as long term because the Company has consummated the refinancing into a long term note.

To complete the April 29, 2011 acquisition of Autumn Breeze Healthcare Center, the Company issued a secured promissory note for $4,500,000. The note matures on April 30, 2012, accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be prepaid at any time without penalty with the principal amount due at maturity. The note is secured by the Autumn Breeze Healthcare Center facility. The Company received net proceeds of approximately $2,436,000 net of $2,000,000 held in a restricted trust account and $64,000 of legal and other financing costs. The Company plans to replace this short term financing with permanent long term financing prior to the maturity date.

To complete the May 31, 2011 acquisition of College Park Healthcare Center, the Company entered a business loan agreement for $2,840,000. The loan matures on May 1, 2031, accrues interest at the prime rate plus 2% with a minimum rate of 6.25% per annum and may be repaid without penalty with required monthly payments of principal and interest of approximately $21,000. The loan is secured by the College Park Healthcare Center facility and guaranteed by AdCare, and by Christopher Brogdon, Vice Chairman and Chief Acquisitions Officer of the Company, and his spouse. Additionally, the Company entered a short term loan agreement for $2,034,000. This loan matures on February 28, 2012, accrues interest at 10% with the principal amount due at maturity. This loan is secured by the College Park Healthcare Center facility as well as the facility known as Autumn Breeze Healthcare Center. From both of these loans, the Company received net proceeds of approximately $4,280,000 net of approximately $487,000 held in a restricted escrow account for required facility improvements and $107,000 of legal and other financing costs. Additionally, the Company has assigned certificates of deposit as additional collateral in the initial amount of $500,000. The Company will be required to pledge additional certificates of deposit over the next eight months until the loan is refinanced and on August 1, 2011 the Company pledged additional cash collateral of $500,000. This loan is also guaranteed by Christopher Brogdon, Vice Chairman and Chief Acquisition Officer of the Company and his spouse. The Company plans to replace this short term financing with permanent long term financing prior to the maturity date.

The Autumn Breeze Healthcare Center and College Park Healthcare Center short term notes above are due within one year but have been classified as long-term notes because the Company is in the process of refinancing these short-term obligations into long-term notes and has demonstrated the ability to consummate the current refinancing agreements.

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NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

Convertible Debt Issuance

On March 31, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) to sell and issue to the Purchasers an aggregate of $2,115,000 in principal amount of the Company’s Subordinated Convertible Notes (the “Notes”). On April 29, 2011, the Company issued an additional $1,783,700 in principal amount of the convertible debt issuance. On May 6, 2011, the Company issued an additional $610,000 in principal amount of the Notes. The total outstanding principal amount of the Notes is $4,508,700. Approximately $1,427,000 of the proceeds obtained was used to repay a short-term promissory note and related accrued interest. Net proceeds obtained, after issuance costs, was approximately $2,627,000.

The Notes bear a 10% interest per annum and are payable quarterly in cash in arrears beginning June 30, 2011. The Notes mature on March 31, 2014. Debt issuance costs of $559,100 are being amortized over the life of the Notes.

The Notes are convertible into shares of common stock of the Company at a conversion price of $5.30. The initial conversion price is subject to adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar events. The Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness.

Other Debt

On March 31, 2011, the Company issued a Promissory Note in the amount of $1,385,000. The promissory note bears interest at the rate of 12% and matures on July 1, 2011. The Company paid a commitment fee of 4%, or $55,400, in connection with the promissory note. Subsequent to March 31, 2011, the Company obtained additional proceeds from additional issuances of the Notes. A portion of the net proceeds obtained were used to repay this promissory note.

On June 10, 2011, Mountain Trace ADK, LLC, a wholly owned subsidiary of AdCare, entered into promissory notes in the aggregate principal amount of $1,000,000. The notes mature April 1, 2013, and bear interest at the per annum rate equal to 11% payable quarterly in arrears the first day of each January, April, July and October beginning July 1, 2011. The notes are subject to mandatory prepayment in the aggregate principal amount of $250,000 on each of October 1, 2011, April 1, 2012 and October 1, 2012. The notes may also be prepaid without penalty by providing fifteen days prior notice. The Company received proceeds of $895,000 net of legal and other financing costs. The Company plans to use the proceeds for general corporate purposes.

NOTE 9. ACQUISITIONS

Riverchase Village Extension

On April 9, 2010, Riverchase Village ADK, LLC (“Riverchase”) a wholly owned subsidiary of AdCare entered into a Purchase Agreement with CSC Enid Properties, LLC, an Oklahoma limited liability company controlled by a bank, to acquire the assets of Riverchase Village, a 105 bed assisted living facility located in Hoover, Alabama. The right to acquire Riverchase Village was assigned to Chris Brogdon, Vice Chairman and Chief Acquisition Officer of the Company, on June 22, 2010, and the transaction closed on June 25, 2010. As consideration for the assignment, Chris Brogdon granted the Company a one year option with a $100,000 exercise price to acquire Riverchase Village under the same terms and conditions as set forth in the Purchase Agreement. In addition, the Company entered into a five year management contract to manage Riverchase. In June 2011, the option to purchase was extended by one year.

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NOTE 9. ACQUISITIONS (continued)

Mountain Trace Acquisition

On December 30, 2010, Mountain Trace Nursing ADK, LLC, a wholly owned subsidiary of AdCare, completed the acquisition of the operations of and selected assets of 417 Mountain Trace LLC, a 106 bed skilled nursing facility located in Sylva, North Carolina, for a purchase price of approximately $6,200,000. This facility was acquired as part of the Company’s strategy to grow its presence outside of Ohio within the skilled nursing industry. Through an Operations Transfer Agreement, the Company obtained control of the facility effective January 1, 2011. In connection with the acquisition, the Company recognized a total gain of approximately $1,100,000 in the consolidated statement of operations. The transaction resulted in a bargain purchase because the seller was motivated to sell the facility in order to retire and restructure the composition of their facilities in the states in which they operate. The Company incurred approximately $125,000 for various acquisitions related costs that are reflected net of the gain on acquisition in the accompanying consolidated statement of operations.

The Company had paid $200,000 in earnest money upon entering the purchase agreement and an additional $50,000 to extend the closing date to December 30, 2010. To complete the acquisition, the AdCare issued a secured promissory note for $5,000,000. The note was to mature on June 30, 2011 and accrued interest at a fixed rate of 7% per annum and could be prepaid at any time without penalty. The Note was secured by the Mountain Trace facility and was guaranteed by AdCare and personally guaranteed by Chris Brogdon, Vice Chairman and Chief Acquisition Officer of the Company.

On February 11, 2011, the Company refinanced the short term note that was entered into for the Mountain Trace acquisition with a long term note. The new note is also for $5,000,000, has a term of 25 years and bears interest at prime rate of no less than 4% plus 1.75% (see Note 8).

The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value on the acquisition date:

Consideration Transferred:
Net proceeds from Loans	$	4,945,428
Cash from earnest money deposits	250,000
Cash	975,086
Total consideration transferred	$	6,170,514
Assets Acquired:
Land	320,000
Building	5,746,200
Equipment and Furnishings	148,800
Intangibles — Bed Licenses	1,060,000
Total identifiable net assets	7,275,000
Less: gain on bargain purchase	(1,104,486		)
Total consideration	$	6,170,514

Autumn Breeze, Southland and College Park Acquisitions

On April 29, 2011, Erin Property Holdings, LLC, a wholly owned subsidiary of the AdCare completed the acquisition of the operations of and selected assets of a skilled nursing facility from SPTIHS Properties Trust and Five Star Quality Care-GA, LLC. The property acquired is known as Southland Care Center, a 130 bed skilled nursing facility located in Dublin, Georgia. Also, on April 29, 2011, Mt Kenn Property Holdings, LLC, a wholly owned subsidiary of AdCare, completed the acquisition of the operations of and selected assets of a skilled nursing facility from SPTIHS Properties Trust and Five Star Quality Care-GA, LLC. The property acquired is known as Autumn Breeze Healthcare Center, a 109 bed skilled nursing facility located in Marietta, Georgia. On May 31, 2011, CP Property Holdings, LLC, a wholly owned subsidiary of the AdCare, completed the acquisition of the operations of and selected assets of a skilled nursing facility from SPTIHS Properties Trust and Five Star Quality Care-GA, LLC. The property acquired is known as College Park Healthcare Center, a 100 bed skilled nursing

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NOTE 9. ACQUISITIONS (continued)

Autumn Breeze, Southland and College Park Acquisitions (continued)

facility located in College Park, Georgia. The total purchase price for all three facilities was approximately $17,943,000 after final closing adjustments. These facilities were acquired as part of the Company’s strategy to grow its presence within the skilled nursing industry. The Company incurred approximately $497,000 for various acquisitions related costs that are reflected net of the gain on acquisition in the accompanying consolidated statement of operations. Acquisition costs include approximately $206,000 from the issuance of 36,337 shares of common stock with a per share market value of $5.68.

Through separate Operations Transfer Agreements, the Company obtained control of the Autumn Breeze and Southland Care Center facilities effective May 1, 2011. The Company had paid $500,000 in earnest money upon entering the purchase agreement and an additional $400,000 to extend the closing date to April 29, 2011. A final Operations Transfer Agreement allowed the Company to obtain control of the College Park Care Center facility effective June 1, 2011.

To complete the acquisition of Southland Care Center, the Company issued various notes (see Note 8) with the balance of the consideration transferred in cash. The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value on the acquisition date:

Consideration Transferred:
Net proceeds from Loans	$	12,438,990
Cash from earnest money deposits	900,000
Cash	4,603,527
Total consideration transferred	$	17,942,517
Assets Acquired:
Land	675,000
Building	11,011,017
Equipment and Furnishings	226,500
Intangibles — Bed Licenses	6,030,000
Total identifiable net assets	$	17,942,517

Pending Acquisitions

On March 14, 2011, the Company entered into a purchase agreement for the asset purchase of four skilled nursing facilities in Arkansas, the acquisition of a 10-year lease for one skilled nursing facility in Missouri and certain corporate office space all owned by a private seller. The five facilities have 506 beds in total (416 in Arkansas and 90 in Missouri). The purchase price is $20,000,000. The Company paid a $250,000 earnest money deposit upon signing the purchase agreement. The earnest money deposit is refundable subject to certain terms and conditions. If this transaction closes, then the Company would expect to obtain control of such facilities sometime in the third quarter of 2011.

On June 27, 2011, the Company entered into a purchase agreement for the asset purchase of two skilled nursing facilities located in North Carolina and South Carolina, the acquisition of lease agreements for nine skilled nursing facilities that are located in North Carolina, South Carolina, Tennessee and Virginia, and the acquisition of management agreements to manage four skilled nursing facilities located in Tennessee. The purchase price consists of $21,650,000 in cash, common stock of the Company with an aggregate value of $5,000,000, and a five-year promissory note in the principal amount of $3,217,000. The Company paid a $500,000 earnest money deposit upon signing the purchase agreement. The earnest money deposit is refundable subject to certain terms and conditions. If this transaction closes, then the Company would expect to obtain control of such facilities sometime in the fourth quarter of 2011.

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NOTE 9. ACQUISITIONS (continued)

Unaudited Pro forma Financial Information

Acquisitions have been included in the consolidated financial statements since the dates the Company gained effective control. For 2011, combined revenue for all acquisitions since gaining effective control is approximately $6,485,000 and resulted in an income from operations of approximately $327,000.

The following table represents pro forma results of consolidated operations as if all of the 2010 and 2011 acquisitions had occurred at the beginning of the earliest fiscal year being presented, after giving effect to certain adjustments.

	Six Months Ended June 30,
	2011		2010
Pro Forma Revenue	$	72,684,000	$	70,636,000
Pro Forma Operating Expenses	$	71,258,000	$	68,939,000
Pro Forma Income (Loss) from Operations	$	1,426,000	$	1,697,000

Revenue and operating expense assumptions used in the Company’s pro forma financial information primarily include those related to enhancement and efficiencies that were identified prior to the acquisition of the facilities and expected to occur under the Company’s more capable management of the operations of the facilities.

The forgoing pro forma information is not indicative of what the results of operations would have been if the acquisitions had actually occurred at the beginning of the periods presented and is not intended as a projection of future results or trends.

NOTE 10. SHARE-BASED COMPENSATION

Employee Common Stock Warrants & Options

The Company entered an employment agreement effective January 10, 2011, with Boyd Gentry, Chief Executive Officer. Terms of the agreement included equity compensation of a warrant to purchase up to 250,000 shares of common stock with an exercise price per share equal to $4.13 per share. One third of the warrants vested on January 10, 2011, and the remaining two thirds shall vest ratably on the day before each of the two subsequent anniversaries. The warrant is exercisable until the term expires in January, 2021. Using the Black Scholes option-pricing model, the fair value of the warrant was estimated at $2.72 per share and will be recognized as share-based compensation expense over the requisite service period of the award.

On June 3, 2011, the Company’s shareholders approved the 2011 Stock Option and Incentive Plan (“2011 Plan”) which provides for the granting of a maximum of 1,000,000 shares of common stock. The 2011 Plan is intended to further the growth and profitability of the Company by providing increased incentives to and encourage share ownership on the part of key employees, officers and directors of, and consultants and advisers who render services to the Company, and any future parent or subsidiary of the Company. The 2011 Plan permits the granting of stock options and restricted stock awards (collectively, “Awards”) to eligible participants. If an Award expires or is canceled without having been fully exercised or vested, the unvested or canceled shares will be available again for grants of Awards.

On June 3, 2011, the Company granted incentive stock options to select members of management. A total of 147,000 options were granted with an exercise price per share of $5.75. The options shall vest ratably on the day before each of the three subsequent anniversaries. The options are exercisable until the term expires in June, 2021. Using the Black Scholes option-pricing model, the fair value of the options was estimated at $3.83 per share and will be recognized as share-based compensation expense over the requisite service period of the award.

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NOTE 10. SHARE-BASED COMPENSATION (continued)

Nonemployee Common Stock Warrants

On March 31, 2011, the Company issued a promissory note up to a maximum of $5,500,000. In connection with this financing arrangement, the Company issued to the placement agent a warrant to purchase up to 250,000 shares of common stock with an exercise price per share equal to $5.30. The warrant is exercisable until the term expires in March, 2014. Using the Black Scholes option-pricing model, the fair value of the warrant was estimated at $1.32 per share and will be recognized as expense over the term of the related promissory note.

On May 1, 2011, the Company entered into a consulting agreement with Noble Finance. In connection with this agreement, the Company issued 50,000 warrants to Noble Finance to purchase common stock with an exercise price per share equal to $4.50. The warrants vest over an eight month period from May through December 2011. The warrants are exercisable until the term expires in May, 2016. Using the Black Scholes option-pricing model, the fair value of the warrants were estimated at $2.08 per share and will be recognized as expense over the term of the agreement.

NOTE 11. FAIR VALUE MEASUREMENTS

The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the six months ended June 30, 2011, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).

	Level 1:
	Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at June 30, 2011
Derivative Liability	$	—	$	—	$	6,843,787	$	6,843,787

Following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ended June 30, 2011:

	Derivative Liability
Beginning Balance	$	2,905,750
Additions	—
Total losses	3,938,037
Ending Balance	$	6,843,787

During 2010, the Company issued subordinated convertible notes in which it was determined that the conversion feature was required to be bifurcated from the debt host and accounted for separately as a derivative liability recorded at fair value. The Company estimates the fair value of the derivative liability using the Black-Scholes option-pricing model with changes in fair value being reported in the consolidated statement of operations.

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NOTE 12. SUBSEQUENT EVENTS

The Company has evaluated for disclosure all subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission.

Debt Financing

On July 27, 2011, the Company refinanced the $5,800,000 short-term mortgage note (see Note 8) obtained to acquire the Southland Care Center with two long-term notes with a financial institution: 1) a mortgage note for $5,000,000 (“SCC USDA Loan”) partially guaranteed at 70% by the USDA; and 2) a mortgage note for $800,000 (“SCC SBA Loan”) partially guaranteed at 75% by the U.S. Small Business Administration (“SBA”).

The SCC USDA Loan matures July 2036, accrued interest at the prime rate plus 1.5% (adjusted every calendar quarter) with a minimum rate of 6.0% and required monthly payments of principal and interest of approximately $33,000. The SCC USDA Loan is secured by the SCC facility and assets, is subject to prepayment penalties and certain financial covenants, and requires $250,000 of renovations to the SCC facility by July 2013, of which $125,000 was required to be deposited into a restricted reserve account. One-time origination and guaranty costs totaling $126,000 were incurred. In addition, there is a 0.25% USDA guarantee fee payable on December 31 of each year on the guaranteed portion of the outstanding balance of the note.

The SCC SBA Loan matures July 2036, accrues interest at the prime rate plus 2.25% (adjusted every calendar quarter) and requires monthly payments of principal and interest of approximately $5,000. The SSC SBA Loan is secured by the SSC facility and assets and is also subject to certain prepayment penalties.

Potential Acquisitions

Effective August 1, 2011, entities controlled by Chris Brogdon, Vice Chairman and Chief Acquisition Officer of the Company obtained control of five skilled nursing facilities in Oklahoma. The Company began providing certain administrative services to these facilities and is negotiating an option agreement that could provide the Company the exclusive rights to acquire the facilities in the future. If these agreements are executed, it is likely that the Company would have significant variable interests in the five facilities and would be required to consider consolidation of these entities as variable interest entities. Management will further consider the accounting impacts of this transaction in the third quarter of 2011.

Equity Activity

Subsequent to June 30, 2011, the Company has experienced a significant amount of exercise activity related to certain outstanding warrants. As of August 9, 2011, this exercise activity has resulted in approximately $2,189,000 in additional cash proceeds available to the Company from the issuance of 935,445 shares of common stock.

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

Special Note Regarding Forward Looking Statements

Certain statements in this report constitute “forward-looking statements.” These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Specifically, the actions of competitors and customers and our ability to execute the Company’s business plan, and our ability to increase revenues is dependent upon our ability to continue to expand our current business and to expand into new markets, general economic conditions, and other factors. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. You should read this Management’s Discussion and Analysis in conjunction with the financial statements and related notes included in this Form 10-Q (“Quarterly Report”) and included on Form 10-K for the year ended December 31, 2010 (“Annual Report”).

Overview

We are a Springfield, Ohio based owner and manager of retirement communities, assisted living facilities, nursing homes. We deliver skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries. As of June 30, 2011, we operated 31 facilities, comprised of 23 skilled nursing centers, seven assisted living residences and one independent living/senior housing facility, totaling approximately 2,900 units. Our communities are located in Alabama, Georgia, North Carolina and Ohio.

Facility History

	June 30,	December 31,
	2011	2010	2009
Cumulative number of facilities	31	27	14
Cumulative number of beds in service	2,888	2,493	824
Cumulative number of licensed beds	2,916	2,517	848

Facility Breakdown at June 30, 2011

	Number of	Number of Facilities
	Licensed Beds	Owned	Leased	Managed for Third Parties	Total
State
Alabama	411	2	—	1	3
Georgia	1,523	3	10	—	13
Ohio	876	8	1	5	14
North Carolina	106	1	—	—	1
Total	2,916	14	11	6	31

Facility Type
Skilled Nursing	2,532	8	11	4	23
Assisted Living	301	6	—	1	7
Independent Living	83	—	—	1	1
Total	2,916	14	11	6	31

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2011 Acquisitions

We have embarked on a strategy to grow our business through acquisitions and leases of senior care facilities and businesses providing services to those facilities. During 2009, we engaged a Chief Acquisition Officer with the primary purpose of identifying acquisition opportunities in the Midwestern and Southeastern United States. For a detailed discussion of acquisition activity through December 31, 2010, see the Management’s Discussion and Analysis included in the Annual Report.

Effective January 1, 2011, we acquired the operations of and selected assets of Mountain Trace, a 106 bed skilled nursing facility located in Sylva, North Carolina.

On April 29, 2011, we acquired the operations of and selected assets of Southland Care Center, a 130 bed skilled nursing facility located in Dublin, Georgia. Through an Operations Transfer Agreement, we obtained control of the facility effective May 1, 2011.

Also, on April 29, 2011, we acquired the operations of and selected assets of Autumn Breeze Healthcare Center, a 109 bed skilled nursing facility located in Marietta, Georgia. Through an Operations Transfer Agreement, we obtained control of the facility effective May 1, 2011.

Also, on May 31, 2011, we acquired the operations of and selected assets of College Park Healthcare Center, a 100 bed skilled nursing facility located in College Park, Georgia. Through an Operations Transfer Agreement, we obtained control of the facility effective June 1, 2011.

Pending Acquisitions

On March 14, 2011, the Company entered a purchase agreement for the asset purchase of four skilled nursing facilities in Arkansas, the acquisition of a 10-year lease for one skilled nursing facility in Missouri and certain corporate office space all owned by a private seller. The five facilities have 506 beds in total (416 in Arkansas and 90 in Missouri). The purchase price is $20,000,000. The Company paid a $250,000 earnest money deposit upon signing the purchase agreement, and an additional $100,000 on July 29, 2011. The earnest money deposit is refundable subject to certain terms and conditions. The Company is currently expecting to finalize Operations Transfer Agreements and effectively obtain control of these facilities sometime between September 1, 2011 and October 1, 2011.

On June 27, 2011, the Company entered into a purchase agreement with Epic Group Limited Partnership and certain of its affiliated entities, collectively as sellers, to: (a) purchase two skilled nursing facilities located in North Carolina and South Carolina, (b) acquire all of sellers’ right, title and interest in, and shall assume all of sellers’ obligations under, lease agreements with respect to nine skilled nursing facilities which are currently leased to sellers and which are located in North Carolina, South Carolina, Tennessee and Virginia, and (c) acquire all of sellers’ right, title and interest in, and shall assume all of sellers’ obligations under, the management agreements with respect to four skilled nursing facilities which are currently managed by sellers and which are located in Tennessee. The Company deposited $500,000 on June 30, 2011 into escrow to be held as earnest money, which may be returned if the purchase agreement is terminated under certain circumstances. The purchase price consists of: (i) $21,650,000 (including the deposit), subject to certain adjustments; (ii) a number of shares of the Company’s common stock with an aggregate value of $5,000,000, with each such share valued at the ten-day average closing price for the period ending on the last business day prior to the closing date; and (iii) a five-year promissory note in principal amount of $3,217,000 (subject to adjustment) to be issued at closing in favor of the sellers, which bears interest at an annual rate of 7%, with interest being payable monthly in arrears and principal payments being payable quarterly. The Company also shall assume at closing indebtedness under certain loans up to an aggregate amount of approximately $8,700,000. To the extent the indebtedness under such loans is less than such amount, then the principal amount of the promissory note shall increase on a dollar-for-dollar basis and the amount of the quarterly principal payments shall be adjusted accordingly. The closing of the transactions is expected to occur on October 1, 2011, subject to extension by the Company to November 1, 2011 or December 1, 2011. The closing of the transactions is subject to customary closing conditions and termination provisions.

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rights to acquire the facilities in the future. If these agreements are executed, it is likely that the Company would have significant variable interests in the five facilities and would be required to consider consolidation of these entities as variable interest entities. Management will further consider the accounting impacts of this transaction in the third quarter of 2011.

We are currently evaluating several acquisition opportunities, in addition to those described above, and we plan to continue to seek new opportunities to further our growth strategy. No assurances can be made that any of these opportunities will be determined to be appropriate or that they may be acquired on terms acceptable to us.

Segments

The Company reports its operations in four segments: SNF, ALF, Home Health, and Management/Corporate. The Company delivers skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries. The SNF and ALF segments provide services to individuals needing long term care in a nursing home or assisted living setting and management of those facilities. The Home Health segment provides home health care services to patients while they are living in their own homes. The Management/Corporate segment engages in the management of facilities and accounting and IT services. We evaluate financial performance and allocate resources primarily based on segment operating income (loss). Segment operating results excludes interest expense and other non-operating income and expenses. See Note 3 in the “Notes to Consolidated Financial Statements” section of Part I, Item 1 of this form 10-Q.

Skilled Nursing Facility Segment

We focus on two primary indicators in evaluating the financial performance in this segment. Those indicators are facility occupancy and patient mix. Facility occupancy is important as higher occupancy generally leads to higher revenue. In addition, concentrating on increasing the number of Medicare and commercial insurance covered admissions (“patient mix”) helps in increasing revenue. 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

	Three months ended June 30,				Six months ended June 30,
Skilled Nursing Facility	2011		2010		2011		2010
Legacy facilities	87.8	%	84.2	%	85.8	%	84.5	%
Recently acquired facilities	85.6	%	—		85.9	%	—
Consolidated total	86.5	%	84.2	%	85.9	%	84.5	%

We continue our work towards maximizing the number of patients covered by Medicare where our profit margins are typically higher.

Patient Mix

Three Months Ended June 30,

	Legacy Facilities				Recently Acquired Facilities			Total
	2011		2010		2011		2010	2011		2010
Medicare	16.5	%	11.3	%	14.3	%	—	14.5	%	11.3	%
Medicaid	63.8	%	63.8	%	77.2	%	—	75.9	%	63.8	%
Other	19.7	%	24.9	%	8.5	%	—	9.6	%	24.9	%
Total	100	%	100	%	100	%	—	100	%	100	%

Patient Mix

Six Months Ended June 30,

	Legacy Facilities				Recently Acquired Facilities			Total
	2011		2010		2011		2010	2011		2010
Medicare	16.1	%	12.1	%	14.9	%	—	15.0	%	12.1	%
Medicaid	64.8	%	65.9	%	77.4	%	—	76.1	%	65.9	%
Other	19.1	%	22.0	%	7.7	%	—	8.9	%	22.0	%
Total	100	%	100	%	100	%	—	100	%	100	%

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Medicare reimbursement rates and procedures are subject to change from time to time, which could materially impact our revenue. Medicare reimburses our skilled nursing facilities under a prospective payment system (“PPS”) for certain inpatient covered services. Under the PPS, facilities are paid a predetermined amount per patient, per day, based on the anticipated costs of treating patients. The amount to be paid is determined by classifying each patient into a resource utilization group (“RUG”) category that is based upon each patient’s acuity level. On July 29, 2011, the Centers for Medicare and Medicaid Services (“CMS”) announced a final rule reducing Medicare skilled nursing facility PPS payments in fiscal year 2012 by $3.87 billion, or 11.1% lower than payments for fiscal year 2011. CMS announced it is recalibrating the case-mix indexes (“CMIs”) for fiscal year 2012 to restore overall payments to their intended levels on a prospective basis. Each RUG group consists of CMIs that reflect a patient’s severity of illness and the services that a patient requires in the skilled nursing facility. In transitioning from the previous classification system to the new RUG-IV, CMS adjusted the CMIs for fiscal year 2011 based on forecasted utilization under this new classification system to establish parity in overall payments. The fiscal year 2011 recalibration of the CMIs will result in a reduction to skilled nursing facility payments of $4.47 billion, or 12.6%. However, this reduction would be partially offset by the fiscal year 2012 update to Medicare payments to skilled nursing facilities. The update, a 1.7% or $600 million increase, reflects a 2.7% market basket increase, reduced by a 1.0% multi-factor productivity (“MFP”) adjustment mandated by the Affordable Care Act. The combined MFP-adjusted market basket increase and the fiscal year 2012 recalibration will yield a net reduction of $3.87 billion, or 11.1%.

The State of Ohio has released several statements regarding Medicaid indicating that cuts in reimbursement to nursing homes are likely to be as high as 7%. At this time, we do not anticipate significant changes in reimbursement to nursing homes in Alabama, Georgia or North Carolina. For the six months ended June 30, 2011, Medicaid covered patients of our skilled nursing facilities comprised approximately 75.8% of our total skilled nursing facility patients.

Assisted Living Facility Segment

Similar to our skilled nursing segment, in our assisted living segment, we focus on facility occupancy and staffing.

	Average Occupancy
	Three months ended June 30,				Six months ended June 30,
Assisted Living Facilities	2011		2010		2011		2010
Total	75.3	%	87.4	%	73.9	%	84.1	%

Residents of our assisted living facilities rely on their personal investments and wealth to pay for their stay. Recent declines in market values of investments could limit their ability to pay for services or shorten the period of time for which they can pay privately for their stay. The depressed market for the sale of homes could limit their ability to sell their personal assets further reducing their ability to remain in our facilities. Furthermore, adult children who have recently become unemployed may decide to care for their parent at home so that their parent’s income may help offset some of their own financial burdens. We do not believe this is a trend and we believe facility occupancy will improve.

Home Based Care Segment

In addition to providing home health care services to patients in their homes, we are utilizing our Home Health services in our assisted living and independent living properties in Ohio to create cross selling opportunities. For the three months ended June 30, 2011, the percentage of our home health patients covered by Medicare has decreased 19.2% compared to the three months ended June 30, 2010. We are reviewing our current strategies to attempt to correct the downturn of results in this segment.

Management/Corporate Segment

We manage four skilled nursing facilities, one assisted living facility and one independent living campus for third party owners. Additionally, we provide accounting and IT services to others. Our contracts for these services are for either a fixed monthly fee or for a percentage of revenue generated by the managed facility. Depending on the type of contract, our revenues increase annually according to inflationary adjustments stipulated in our management agreements or they increase as the facility’s revenue increases for the contracts that are based on a percentage of revenue. This segment includes our corporate overhead expenses which are made up of salaries of senior management team members and various other corporate expenses including, but not limited to, corporate office operating expenses, audit fees, legal fees and board activities. Additionally, non cash charges for compensation expense related to warrants, restricted stock and stock options are included in corporate overhead.

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We don’t allocate these expenses to the divisions or separate them from management and development business for management review purposes.

Results of Operations

Comparison for the three months ended June 30, 2011 compared to the three months ended June 30, 2010

Patient Care Revenues - For the periods presented, total patient care revenues increased $28.6 million, or 502%.

Revenue in our SNF segment increased approximately $28,232,000 when compared to the three months ended June 30, 2010, primarily as a result of acquisitions that occurred after June 30, 2010. Additionally, revenue in our legacy properties (those that we owned and operated prior to our recent acquisitions which began in August, 2010) increased by approximately $494,300. This segment had a net income from operations of $1,571,000 which is $1,519,000 higher compared to the three months ended June 30, 2010 as a result of higher revenue due to acquisitions and increased occupancy and more residents covered by Medicare. We plan to increase facility occupancy and to increase the number of patients covered by Medicare. We expect to continue to implement and refine strategies to achieve these goals.

Revenue in our ALF segment increased approximately $536,000 when compared to the three months ended June 30, 2010, as a result of increased revenue from an acquisition. Revenue in our legacy properties (those that we owned and operated prior to our acquisition of Riverchase Village in June, 2010) increased by approximately $198,200. This segment had income from operations of $378,000 which is $226,000 more than 2010 as a result of increased occupancy and an annual increase in rates charged to residents of the facilities.

Revenue in our Home Health segment declined when compared to the same period in 2010, as a result of fewer patients and fewer patients covered by Medicare. The decline in revenues resulted in a loss from operations of approximately $105,000, compared with operating income of $24,000 for the same period in 2010.

Management Revenue - For the periods presented, management revenues decreased $37,000, or 7%, as a result of lower fees earned from our managed facilities. Net loss from operations was $1,108,000 due primarily to corporate overhead, costs for acquisitions and non cash charges for compensation expense related to warrants, restricted stock and employee stock options.

Payroll and Related Payroll Costs - For the periods presented, payroll and related payroll costs increased $15.2 million, or 382%, resulting primarily from the acquisition of 16 skilled nursing facilities and the variable interest entity. We also increased our corporate overhead structure and opened an accounting service center located in Roswell, Georgia during the second quarter of 2011. Annual employee wage adjustments also added to the increase.

Other Operating Expenses - For the periods presented, other operating costs increased $9.5 million, or 442%. The increase is directly related to the operations of the recently acquired skilled nursing facilities. Management/Corporate shows a credit due to the inclusion of eliminating entries.

Three Months ended June 30, 2011

	Legacy Facilities			Recently Acquired Facilities		Total
SNF	$	1,385,831		$	9,981,670	$	11,367,501
ALF	578,494			167,408		745,902
Home Health	111,142			—		111,142
Management/Corporate	(587,421		)	55,099		(532,322		)
Total Other Operating Expenses	$	1,488,046		$	10,204,177	$	11,692,223

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Lease Expense - For the periods presented, lease expenses increased $1.8 million. The lease expense increase resulted from the acquisition of ten leased facilities in Georgia.

	Three months ended June 30
	2011		2010
Lease Expense	$	1,946,868	$	138,339

Depreciation and Amortization - For the periods presented, depreciation and amortization increased $477,000. The depreciation increase is directly related to acquisition activity that was not included in the 2010 results as it occurred in later periods. In addition, the acquisitions resulted in financing costs and intangibles that are being amortized during the period (see tables presented below).

Retirement and Salary Continuation Costs - For the period ended June 2011, retirement and salary continuation costs were $622,000; there were no costs recorded in the comparative period. For the three months ended June 30, 2011, we accrued certain retirement and salary continuation costs of approximately $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer. The benefits include wage continuation and fringe benefits to be paid out during the following 24 months.

Interest Expense, net - For the periods presented, interest expense, net increased $1.6 million, or 522%. We have entered into numerous debt instruments in relation to our growth strategy for the acquisition of the facilities which began in the third quarter of 2010. In addition, several of the arrangements are short term in nature resulting in higher interest rates than previously experienced.

Acquisition Costs, net of Gains - For the period ended June 30, 2011, acquisition costs, net of gains was an expense of $622,000, compared to a net gain of $808,000 for the comparative period. For the period ended June 30, 2011, $547,000 of the total acquisition costs were legal fees and finder’s fees directly related to the purchase of Autumn Breeze Healthcare Center, Southland Care Center, and College Park Healthcare Center. Through separate Operations Transfer Agreements, the Company obtained control of the Autumn Breeze and Southland facilities effective May 1, 2011. A final Operations Transfer Agreement allowed the Company to obtain control of the College Park facility effective June 1, 2011. The remaining $75,000 of costs for the period were IT consulting expenses, acquisition expenses, and accounting costs related to the change of ownership requirements. The facilities were purchased at fair market value; therefore, there were no bargain purchase gains recognized. For the same time frame in 2010, the Company recognized a net gain of approximately $808,000 resulting from the purchase of Riverchase Village, the variable interest entity. The transaction resulted in a bargain purchase because the previous business was in foreclosure and the facility was being operated under receivership.

Derivative Loss - For the period ended June 2011, the derivative loss was $2.59 million, and there were no costs recorded in the comparative period. The derivative is a product of a debt instrument entered into during the third quarter of 2010. The expense associated with the derivative increases as the stock price climbs.

Loss on Debt Extinguishment - For the period ended June 2011, the loss on debt extinguishment was $77,000, and there were no costs recorded in the comparative period. On March 31, 2011, we issued a promissory note in the amount of $1,385,000. We paid a commitment fee of 4%, or $55,400, in connection with the promissory note. Subsequent to March 31, 2011, we obtained additional proceeds from issuance of convertible debt. A portion of the net proceeds obtained were used to repay this promissory note. At the time of repayment, we recorded the loss on debt extinguishment resulting from unamortized deferred financing costs.

Other Income/(Expense) - For the periods presented, other expenses decreased $12,000.

Income Tax Expense - For the periods presented, income tax expense increased $125,000. In the last two quarters of 2010, we acquired certain facilities which resulted in the recognition of indefinite lived intangible assets. Due to the nature of these assets and the tax treatment associated with it, we record a deferred tax liability which was not present in the June 2010 quarter. In addition, we recorded income taxes due of $73,800 related to estimates of current state income taxes payable during the quarter.

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Comparison for the six months ended June 30, 2011 compared to the six months ended June 30, 2010

Patient Care Revenues - For the periods presented, total patient care revenues increased $53.8 million, or 465%.

For the six months ended June 30, 2011, revenue in our SNF segment increased approximately $53,115,000 compared to the six months ended June 30, 2010, primarily as a result of acquisitions that occurred after June 30, 2010. Additionally, revenue in our legacy properties (those that we owned and operated prior to our recent acquisitions which began in August, 2010) increased by approximately $575,500. This segment had a net income from operations of $2,076,000, which is $1,928,000 greater than net income from operations for this segment for the six months ended June 30, 2010 as a result of higher revenue due to the acquisition of sixteen new facilities, as well as, increased occupancy and a greater number of residents covered by Medicare. We plan to increase facility occupancy and to increase the number of patients covered by Medicare. We expect to continue to implement and refine strategies to achieve these goals.

For the six months ended June 30, 2011, revenue in our ALF segment increased approximately $985,000 compared to the six months ended June 30, 2010, as a result of increased revenue from an acquisition. Additionally, revenue in our legacy properties (those that we owned and operated prior to our acquisition of Riverchase Village in June, 2010) increased by approximately $283,000. This segment had income from operations of $582,000, which is $185,000 greater than income from operations for the same period in 2010 as a result of acquisitions and increased occupancy and an annual increase in rates charged to residents of the facilities.

For the six months ended June 30, 2011, revenue in our Home Health segment declined when compared to the same period in 2010, as a result of fewer patients and fewer patients covered by Medicare. The decline in revenues for the six months ended June 30, 2011, resulted in a loss from operations of approximately $161,000, compared with operating income of $68,000 for the same period in 2010.

Management Revenues - For the periods presented, management revenues decreased $48,000, or 5%, as a result of lower fees earned from our managed facilities.

Payroll and Related Payroll Costs - For the periods presented, payroll and related payroll costs increased $29.2 million, or 364%, resulting primarily from the acquisition of 16 skilled nursing facilities and the variable interest entity. We also increased our corporate overhead structure and opened an accounting service center located in Roswell, Georgia during the second quarter of 2011. Adding to the increase was $48,300 in non cash compensation expense related to warrants and restricted stock issued to members of management and annual employee wage increases.

Other Operating Expense - For the periods presented, other operating costs increased $17.9 million, or 429%. The increase is directly related to the operations of the recently acquired skilled nursing facilities, as well as minor increases in other segments. Management/Corporate shows a credit due to the inclusion of eliminating entries.

Six Months ended June 30, 2011

	Legacy Facilities			Recently Acquired Facilities		Total
SNF	$	2,722,873		$	19,092,886	$	21,815,759
ALF	1,230,362			355,343		1,585,705
Home Health	199,861			—		199,861
Management/Corporate	(1,481,355		)	55,099		(1,426,256		)
Total Other Operating Expenses	$	2,671,741		$	19,503,328	$	22,175,069

Lease Expense - For the periods presented, lease expenses increased $3.6 million. The lease expense increase resulted from the acquisition of ten leased facilities in Georgia.

	Six months ended June 30
	2011		2010
Lease Expense	$	3,849,591	$	289,490

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Depreciation and Amortization - For the periods presented, depreciation and amortization increased $885,000. The depreciation increase is directly related to acquisition activity that was not included in the 2010 results as it occurred in later periods.

	June 30, 2011		June 30, 2010
Buildings and improvements	$	51,080,065	$	20,897,319
Equipment	5,179,480		3,373,902
Land	5,714,389		3,849,106
Furniture and fixtures	775,986		469,455
Construction in process	263,245		33,813
	$	63,013,165	$	28,623,595

In addition, the acquisitions resulted in financing costs and intangibles that are being amortized during the period.

	June 30, 2011					June 30, 2010
	Gross					Gross
	Carrying		Accumulated			Carrying	Accumulated
	Amount		Amortization			Amount	Amortization
Bed Licenses	$	14,399,307	$	—		1,189,307	—
Lease Rights	9,020,018		(611,875		)	—	—
Totals	$	23,419,325	$	(611,875	)	1,189,307	—

Retirement and Salary Continuation Costs - For the period ended June 2011, retirement and salary continuation costs were $622,000, and there were no costs recorded in the comparative period. We accrued retirement and salary continuation costs of approximately $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer. The benefits include wage continuation and fringe benefits to be paid out during the following 24 months.

Interest Expense, net - For the periods presented, interest expense, net increased $2.7 million, or 463%. We have entered into numerous debt instruments in relation to our growth strategy for the acquisition of the facilities which began in the third quarter of 2010. In addition, several of the arrangements are short term in nature resulting in higher interest rates than previously experienced.

	June 30, 2011		June 30, 2010
Lines of credit	$	6,237,078	$	57,048
Mortgage notes payable	52,145,404		16,804,087
Convertible debt, net of discount	14,315,562		—
Bonds payable, net of discount	6,170,918		6,365,000
Other debt	1,627,774		293,222
Total notes payable and other debt	$	80,496,736	$	23,519,357

Acquisition Costs, net of Gains - For the period ended June 30, 2011, acquisition costs, net of gains was a net gain of $357,000, compared to a net gain of $1,634,000 for the comparative period. The $357,200 acquisition costs, net of gains for the six months ended June 30, 2011, were the result of a $1,039,000 gain on the purchase of the Mountain Trace facility. The transaction resulted in a bargain purchase because the seller was motivated to sell the facility in order to retire and restructure the composition of their facilities in the states in which they operate. Through an Operations Transfer Agreement, the Company obtained control of the facility effective January 1, 2011. This net gain was offset by $547,000 of legal fees and finder’s fees directly related to the purchase of Autumn Breeze Healthcare Center, Southland Care Center, and College Park Healthcare Center. Through separate Operations Transfer Agreements, the Company obtained control of the Autumn Breeze Healthcare Center and Southland Care Center facilities effective May 1, 2011. A final Operations Transfer Agreement allowed the Company to obtain control of the College Park Healthcare Center facility effective June 1, 2011. The remaining $135,000 were

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IT consulting expenses, acquisition expenses, and accounting costs related to the change of ownership requirements. The facilities were purchased at fair market value; therefore there were no bargain purchase gains recognized. In comparison, in 2010 we acquired our partner’s 50% noncontrolling interest in three assisted living facilities. The combined purchase price for the acquisition was $500,000. As a result, we recognized a gain of approximately $826,000. We also recognized a net gain of approximately $808,000 resulting from the purchase of Riverchase Village, the variable interest entity. The transaction resulted in a bargain purchase because the previous business was in foreclosure and the facility was being operated under receivership.

Derivative Loss - For the period ended June 2011, the derivative loss was $3.9 million; there were no costs recorded in the comparative period. The derivative is a product of a debt instrument entered into during the third quarter of 2010. The expense associated with the derivative increases as the stock price climbs.

Loss on Debt Extinguishment - For the period ended June 2011, the loss on debt extinguishment was $77,000; there were no costs recorded in the comparative period. On March 31, 2011, we issued a promissory note in the amount of $1,385,000. We paid a commitment fee of 4%, or $55,400 in connection with the promissory note. Subsequent to March 31, 2011, we obtained additional proceeds from issuance of convertible debt. A portion of the net proceeds obtained were used to repay this promissory note. At the time of repayment, we recorded the loss on debt extinguishment resulting from unamortized deferred financing costs.

Other Income/(Expense) - For the period ended June 30, 2011, other income of $587,0000 was recorded, compared with other expense of $34,000 for the comparative period, a net change of $621,000. In the acquisition of five leased facilities in 2010, we purchased receivables and recorded them at the estimated value at the time of acquisition. We were able to collect substantially more of the receivables than expected by $632,000, resulting in the additional income for 2011.

Income Tax Expense - For the periods presented, income tax expense increased $210,000. The increase over prior year is primarily due to the acquisition of certain facilities which resulted in the recognition of indefinite lived intangible assets. Due to the nature of these assets and the tax treatment associated with it, we record a deferred tax liability which was not present in the June 2010 quarter. In addition, we generated taxable income through June 30, 2011. This income is offset at the federal level by loss carry forwards, however we will owe taxes in a number of states that we now operate in and have recorded $73,800 as an estimate of taxes due.

Critical Accounting Policies and Use of Estimates

There have been no significant changes during the three month period ended June 30, 2011 to the items that we disclosed as our critical accounting policies and use of estimates in our discussion and analysis of financial condition and results of operation contained in the Annual Report.

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Liquidity and Capital Resources

Overview

Our primary sources of liquidity have historically been derived from our cash flow from operations, our revolving credit facilities, and long term debt secured by our real property. We had a net working capital deficit as of June 30, 2011, of approximately $383,000 as compared to net working capital of approximately $708,000 for the six months ended June 30, 2010, a decrease of approximately $1,091,000. This decrease is primarily the result of cash used as part of our acquisition financing activities.

Some of our properties are financed with loans secured by the Department of Housing and Urban Development (“HUD”). These loans limit our use of the cash generated by the properties for purposes other than to fund the operations of the HUD financed property. In January and July each year, we are permitted to withdraw cash from these properties if a calculation of cash flow determines that the properties have generated cash in excess of what is needed to fund the expenses of the property in the short term. When the calculation indicates there is available cash, we withdraw the funds from the property and deposit them in an interest bearing checking account and hold them for future use in operations. Of our unrestricted cash balance of approximately $5,661,000, there was approximately $1,316,000 of cash that was subject to these requirements as of June 30, 2011

On March 31, 2011, we entered into a Purchase Agreement with certain accredited investors to sell and issue an aggregate of $2,115,000 in principal amount of Notes, which bear 10.0% interest per annum payable quarterly in cash in arrears beginning June 30, 2011. On April 29, 2011, we issued an additional $1,783,700 in principal amount of the Notes. On May 6, 2011, we issued an additional $610,000 in principal amount of the convertible debt issuance. Net proceeds obtained, after issuance costs, was approximately $2,170,000. The Notes mature on March 31, 2014. The Notes are convertible into shares of our common stock at a conversion price $5.30. The initial conversion price is subject to adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar events. The Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness.

On February 25, 2011, we joined five additional subsidiaries as additional borrowers in the Credit Agreement that was initially entered into on October 29, 2010, with Gemino. The additional borrowers increased the amount of credit available to us and the maximum amount of the credit facility increased from $5,000,000 to $7,500,000. On April 26, 2011, the original terms of the agreement were modified to reduce the maximum amount of the credit facility to $5,500,000 and a new $2,000,000 revolving note was issued under an affiliated credit agreement by adding two additional subsidiaries as borrowers. On June 2, 2011, we joined two additional subsidiaries as additional borrowers in the credit agreement. The combined total maximum debt with Gemino remains at $7,500,000.

In February 2011, we refinanced the Mountain Trace facility through the issuance of a mortgage note payable to a financial institution for a total amount of $5,000,000 that matures in 2036. The USDA mortgage note requires monthly principal and interest payments of approximately $31,700 adjusted quarterly with a variable interest rate of prime plus 1.75% with a floor of 5.75%. Deferred financing costs incurred on the loan amounted to approximately $174,000 and are being amortized to interest expense over the life of the note. In addition, the loan has an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loan has prepayment penalties of 10% through 2011 declining by 1% each year capped at 1% for the first ten years.

Also, on March 31, 2011, we issued a Promissory Note in the amount of $1,385,000. The promissory note bears interest at the rate of 12% and matures on July 1, 2011. We paid a commitment fee of 4% or $55,400 in connection with the promissory note. Of this amount, approximately $1,427,000 was used to repay a short-term promissory note and related accrued interest.

To complete the April 29, 2011 acquisition of Southland Care Center, we issued a secured promissory for $5,800,000. The note matures on April 30, 2012, accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be repaid without penalty with the principal amount due at maturity. The Company received net proceeds of approximately $5,723,000 net of legal and other financing costs. The note is secured by the Southland Care Center facility. Subsequent to June 30, 2011, the Company refinanced this short term note with long term financing.

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To complete the April 29, 2011 acquisition of Autumn Breeze Healthcare Center, we issued a secured promissory note for $4,500,000. The note matures on April 30, 2012, accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be prepaid at any time without penalty with the principal amount due at maturity. The note is secured by the facility. We received net proceeds of approximately $2,436,000, net of $2,000,000 held in a restricted trust account and $64,000 of legal and other financing costs. We plan to replace this short term financing with permanent long term financing prior to the maturity date.

To complete the May 31, 2011 acquisition of College Park Healthcare Center, we entered a loan agreement for $2,840,000. The loan matures on May 1, 2031, accrues interest at the prime rate plus 2% with a minimum rate of 6.25% per annum and may be repaid without penalty with required monthly payments of principal and interest of approximately $21,000. The loan is secured by the facility and guaranteed by Christopher Brogdon, Vice Chairman and Chief Acquisition Officer of the Company, and his spouse. Additionally, we entered a short term loan agreement for $2,034,000. This loan matures on February 28, 2012, accrues interest at 10% with the principal amount due at maturity. This loan is secured by the facility as well as the Autumn Breeze Healthcare Center facility. From both of these loans, we received net proceeds of approximately $4,280,000, net of approximately $487,000 held in a restricted escrow account for required facility improvements and $107,000 of legal and other financing costs. Additionally, we have assigned certificates of deposit as additional collateral in the initial amount of $500,000. We are required to pledge additional certificates of deposit over the next eight months until the loan is refinanced, and on August 1, 2011, we pledged additional cash collateral of $500,000. This loan is also guaranteed by Christopher Brogdon and his spouse. We plan to replace this short term financing with permanent long term financing prior to the maturity date.

On June 10, 2011, we entered into promissory notes in the aggregate principal amount of $1,000,000, which mature April 1, 2013, and bear interest at the per annum rate equal to 11%, payable quarterly in arrears the first day of each January, April, July and October beginning July 1, 2011. The notes are subject to mandatory prepayment in the aggregate principal amount of $250,000 on each of October 1, 2011, April 1, 2012 and October 1, 2012. The notes may also be prepaid without penalty by providing fifteen days prior notice. We received proceeds of $895,000 net of legal and other financing costs.

On July 27, 2011, we refinanced the $5,800,000 short-term mortgage note obtained to acquire the Southland Care Center with two long-term notes with a financial institution: 1) the SSC USDA Loan, which is for $5,000,000 partially guaranteed at 70% by the USDA; and 2) the SCC SBL Loan, which is for $800,000 partially guaranteed at 75% by the SBA. The SCC USDA Loan matures July 2036, accrued interest at the prime rate plus 1.5% (adjusted every calendar quarter) with a minimum rate of 6.0% and required monthly payments of principal and interest of approximately $33,000. The SCC USDA Loan is secured by the SCC facility and assets, is subject to prepayment penalties and certain financial covenants, and requires $250,000 of renovations to the SCC facility by July 2013, of which $125,000 was required to be deposited into a restricted reserve account. One-time origination and guaranty costs totaling $126,000 were incurred. In addition, there is a 0.25% USDA guarantee fee payable on December 31 of each year on the guaranteed portion of the outstanding balance of the note. The SCC SBA Loan matures July 2036, accrues interest at the prime rate plus 2.25% (adjusted every calendar quarter) and requires monthly payments of principal and interest of approximately $5,000. The SSC SBA Loan is secured by the SSC facility and assets and is also subject to certain prepayment penalties.

We plan to further improve liquidity by 1) refinancing debt where possible to obtain more favorable terms, 2) increasing facility occupancy and skilled mix, and 3) securing alternative capital, financing and investment sources, including cash proceeds from the exercise of our warrants to fund the our strategic business plan.

Statement of Cash Flows

Our cash requirements are satisfied primarily with cash generated from operating activities, financing activities and additional indebtedness. Our cash flow is dependent on our ability to collect accounts receivable in a timely manner. The majority of our revenue is from Medicaid and Medicare programs. These are reliable payment sources which make our likelihood of collection very high. However, the time it takes to receive payment on a claim from these sources can take up to several months.

Six months ended June 30, 2011

Net cash provided by operating activities for the six months ended June 30, 2011, was approximately $1,232,000 consisting primarily of our income from operations less the noncash gain on acquisitions, and changes in working capital, and noncash charges (primarily depreciation and amortization, the derivative loss, share-based compensation, difference between straight-

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line rent and rent paid, and amortization of debt discounts and related deferred financing costs); all primarily the result of routine operating activity.

Net cash used in investing activities for the six months ended June 30, 2011, was approximately $7,846,000. This is primarily the result of funding our acquisitions, including making escrow deposits.

Net cash provided by financing activities was approximately $8,363,000 for the six months ended June 30, 2011. This is primarily the result of increases in borrowings on the line of credit, proceeds from debt financings to fund our acquisitions, partially offset by repayments of existing debt obligations.

Six months ended June 30, 2010

Net cash used in operating activities for the six months ended June 30, 2010 was approximately $321,000 consisting primarily of our net loss from operations and changes in working capital partially offset by noncash charges all primarily the result of routine operating activity.

Net cash used in investing activities for the six months ended June 30, 2010 was approximately $1,348,000. This is primarily the result of escrow deposits for the acquisition of two facilities, the purchase of the remaining 50% noncontrolling interest in Community’s Hearth & Home and Hearth & Home of Urbana assisted living facilities, and the purchase of additional equipment partially offset by an increase in restricted cash due to routine payment into HUD required escrow accounts.

Net cash used in financing activities was approximately $55,000 for the six months ended June 30, 2010. This is primarily the result of routine principal payments on existing loans partially offset by $57,000 drawn from our line of credit and $224,000 received upon the exercise of warrants.

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Item 4. 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 Securities and Exchange Commission 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.

As required by Rule 13a-15(b) of Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as required by Rule 13a-15(e) of Rule 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

During the second quarter of 2011, AdCare’s regional accounting office began to provide accounting, human resources and payroll services to certain of our facilities. Additionally, we are in the process of implementing a new accounting software system that should be fully operational in the fourth quarter to provide more efficient access to information and more robust reporting. Other than the aforementioned, there has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that our services have resulted in injury or death to the residents of our facilities and claims related to employment, staffing requirements and commercial matters. Although we intend to vigorously defend ourselves in these matters, there can be no assurance that the outcomes of these matters will not have a material adverse effect on our results of operations and financial condition.

We operate in an industry that is extremely regulated. As such, in the ordinary course of business, we are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to direct regulatory oversight of state and federal regulatory agencies, our industry is frequently subject to the regulatory practices, which could subject us to civil, administrative or criminal fines, penalties or restitutionary relief, and reimbursement authorities could also seek the suspension or exclusion of the provider or individual from participation in their program. We believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving us, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations and cash flows.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, and trading price of our common stock. Please refer to our Annual Report for additional information concerning these and other uncertainties that could negatively impact the Company.

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Item 5. Other Information

The information set forth in Note 10 of the Notes to Consolidated Financial Statements included in Part I, Item 1, of this report regarding the issuances of (i) incentive stock options to select members of management on June 3, 2011, and (ii) warrants to Noble Finance on May 1, 2011 (collectively, the “Issuances”), is incorporated herein by reference. The Issuances were made without registration under the Securities Act of 1933, as amended, in reliance upon the exemption set forth in Section 4(2) thereof.

Item 6. Exhibits

The agreements included as exhibits to this 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.

Exhibit No.	Description	Method of Filing

3.1	Amended and Restated Articles of Incorporation.	Incorporated by reference from Exhibit 3.1 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) filed February 3, 2006.

3.2	Code of Regulations.	Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) filed February 3, 2006.

4.1	Form of Subordinated Convertable Note, issued April 29, 2011, by AdCare Health Systems, Inc.	Incorporated by reference to Exhibit 4.2 of the Registrant’s Form S-3 (File No. 333-175541).

4.2	Warrant to Purchase Shares of Common Stock, dated March 31, 2011, issued by AdCare Health Systems, Inc. to Cantone Research, Inc.	Incorporated by reference to Exhibit 4.3 of the Registrant’s Form S-3 (File No. 333-175541).

4.3	Registration Rights Agreement, dated April 29, 2011, by and among AdCare Health Systems, Inc. and the investors	Incorporated by reference to Exhibit 4.5 of the Registrant’s

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	named therein.	Form S-3 (File No. 333-175541).

4.4	Registration Rights Agreement, dated March 31, 2011, by and among AdCare Health Systems, Inc. and the investors named therein.	Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed April 6, 2011.

4.5	Form of Subordinated Convertible Note, issued March 31, 2011, by AdCare Health Systems, Inc.	Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed April 6, 2011.

10.1	Term Note, dated July 27, 2011, made by Erin Property Holdings, LLC, in favor of Bank of America, with respect to the USDA Loan.	Filed herewith.

10.2	Note, dated July 27, 2011, made by Erin Property Holdings, LLC, in favor of Bank of America, with respect to the SBA Loan.	Filed herewith.

10.3	Term Loan Agreement, dated July 27, 2011, among Erin Property Holdings, LLC, Erin Nursing, LLC, AdCare Health Systems, Inc. and Bank of Atlanta, with respect to the USDA Loan.	Filed herewith.

10.4	Loan Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Filed herewith.

10.5	Deed to Secure Debt and Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Filed herewith.

10.6	Deed to Secure Debt and Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Filed herewith.

10.7	Assignment of Leases and Rents, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Filed herewith.

10.8	Assignment of Leases and Rents, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Filed herewith.

10.9	Indemnity Agreement Regarding Hazardous Materials, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Filed herewith.

10.10	Indemnity Agreement Regarding Hazardous Materials, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Filed herewith.

10.11	Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC and Bank of Atlanta, with respect to the USDA Loan.	Filed herewith.

10.12	Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC and Bank of Atlanta, with respect to the SBA Loan.	Filed herewith.

10.13	Guaranty, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the USDA Loan.	Filed herewith.

10.14	Guaranty, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan.	Filed herewith.

10.15	Unconditional Guarantee Business and Industry Guarantee Loan Program, dated July 27, 2011, made by Erin Nursing,	Filed herewith.

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	LLC, with respect to the USDA Loan.

10.16	Unconditional Guarantee Business and Industry Guarantee Loan Program, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan.	Filed herewith.

10.17	Unconditional Guarantee, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the SBA Loan.	Filed herewith.

10.18	Unconditional Guarantee, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the SBA Loan.	Filed herewith.

10.19	Escrow Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Bank of Atlanta, and Bank of Atlanta as Escrow Agent, with respect to the USDA Loan and the SBA Loan.	Filed herewith.

10.20	Purchase and Sale Agreement, dated March 14, 2011, between KMJ Management, LLC, Pinnacle Healthcare, LLC, and Arkansas ADK, LLC.	Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K/A filed April 1, 2011.

10.21	Securities Purchase Agreement, dated March 31, 2011, by and among AdCare Health Systems, Inc. and the investors named therein.	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 6, 2011.

10.22	Form of Lock-Up Agreement, dated March 31, 2011.	Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed April 6, 2011.

10.23	Promissory Note, dated March 31, 2011, between AdCare Health Systems, Inc. and Anthony Cantone.	Filed herewith.

10.24	Promissory Note dated April 29, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC, and Regions Bank.	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 5, 2011.

10.25	Deed to Secure Debt, Assignment of Rents and Security Agreement, dated April 29, 2011, made by Erin Property Holdings, LLC.	Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed May 5, 2011.

10.26	Promissory Note, dated April 29, 2011 between Mt. Kenn Property Holdings, LLC, Mt. Kenn Nursing, LLC, and Regions Bank.	Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed

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		May 5, 2011.

10.27	Deed to Secure Debt, Assignment of Rents and Security Agreement dated April 29, 2011, made by Mt. Kenn Property Holdings, LLC.	Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed May 5, 2011.

10.28	Business Loan Agreement, dated May 25, 2011, between CP Property Holdings, LLC, CP Nursing, LLC, and The Bank of Las Vegas.	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 6, 2011.

10.29	Loan Agreement, dated May 27, 2011, between CP Property Holdings, LLC, CP Nursing, LLC, and Apax Capital, LLC.	Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed June 6, 2011.

10.30	Form of Promissory Note, issued by Mount Trace Nursing ADK, LLC.	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 16, 2011.

10.31	Amendment, dated June 22, 2011, between Hearth & Home of Ohio, Inc. and Christopher F. Brogdon.	Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed June 22, 2011.

10.32	Purchase and Sale Agreement, dated June 27, 2011, among AdCare Health Systems, Inc., AdCare Property Holdings, LLC, Epic Group Limited Partnership and its affiliates signatory thereto.	Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed June 27, 2011.

10.33	Amended and Restated Warrant Agreement, dated February 15, 2010, but first fully executed and delivered on June 27, 2011, between AdCare Health Systems, Inc. and Continental Stock Transfer & Trust Company.	Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed June 27, 2011.

10.34	Guaranty, dated May 26, 2011, made by Christopher F. Brogdon.	Filed herewith.

10.35	Guaranty, dated May 26, 2011, made by Connie B. Brogdon.	Filed herewith.

10.36	Operations Transfer Agreement, dated May 1, 2011, between Five Star Quality Care-GA, LLC and Erin Nursing, LLC.	Filed herewith.

10.37	Operations Transfer Agreement, dated June 1, 2011, between Five Star Quality Care-GA, LLC and CP Nursing, LLC.	Filed herewith.

10.38	Operations Transfer Agreement, dated May 1, 2011, between Five Star Quality Care-GA, LLC and Mt. Kenn Nursing, LLC.	Filed herewith.

10.39	Commercial Guaranty, dated May 25, 2011,made by Christopher F. Brogdon.	Filed herewith.

10.40	Commercial Guaranty, dated May 25, 2011,made by Connie B. Brogdon.	Filed herewith.

10.41	Joinder Agreement, Third Amendment and Supplement to Credit Agreement, dated June 2, 2011, among ADK Georgia,	Filed herewith.

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	LLC, ADK Powder Springs Operator, LLC, ADK Lumber City Operator, LLC, ADK Jeffersonville Operator, LLC, ADK LaGrange Operator, LLC, ADK Thomasville Operator, LLC, ADK Oceanside Operator, LLC, ADK Savannah Beach Operator, LLC, ADK Thunderbolt Operator, LLC, Attalla Nursing ADK, LLC, Mountain Trace Nursing ADK, LLC, MT. Kenn Nursing, LLC, Erin Nursing, LLC, AdCare Operations, LLC, and Gemino Healthcare Finance, LLC.

10.42	Loan Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan #47671350-10.	Filed herewith.

10.43	Securities Purchase Agreement dated April 29, 2011, by and among AdCare Health Systems, Inc. and the investors named therein.	Incorporated by reference to Exhibit 10.2 of the Registrant’s Form S-3 (File No. 333-175541).

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, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010, (ii) Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, (iv) Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2011 and (i) the Notes to Consolidated Financial Statements.	Filed herewith.

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SIGNATURES

In accordance with the requirements of the Exchange Act, 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 11, 2011	/s/Boyd P. Gentry
		Boyd P. Gentry
		Chief Executive Officer
		(Principal Executive Officer)

Date:	August 11, 2011	/s/Martin D. Brew
		Martin D. Brew
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

Bank of Atlanta

$5,000,000.00

July 27, 2011

TERM NOTE

FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one, promises to pay to the order Bank of Atlanta or its successors or assigns at 1970 Satellite Blvd., Duluth, Georgia 30097, or such other place as the holder hereof may from time to time designate in writing, the principal sum of Five Million and No/100 Dollars ($5,000,000.00), plus interest on the unpaid principal balance at the rate specified below. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days.

For the period commencing on the date hereof and continuing through and until the Maturity Date (hereinafter defined) interest on the principal balance hereof, or portions thereof, outstanding from time to time shall accrue at the rate per annum equal to one and 50/100ths percent (1.50%) plus the prime interest rate (hereinafter referred to as the “Prime”) quoted or published from time to time in the Money Rates section of the Wall Street Journal, or if no such rate is published in the Wall Street Journal, then the nearest comparable published rate, as determined by the holder of this Note. The interest rate shall be adjusted every calendar quarter hereafter upon any change in the Prime to the appropriate percentage above the Prime in effect on such date. At no time shall the interest rate be less than six and 00/100ths percent (6.00%). Accordingly, the rate of interest in effect as of the date hereof, and remaining in effect until and unless a calendar quarter change occurs to the Prime and Prime is at least four and one-half percent (4.50%), is and shall be six and 00/100ths (6.00%) percent per annum.

The repayment of this note shall be as follows:

(i)		Equal monthly installments of principal and interest based on a twenty-five (25) year amortization schedule will be due and payable each in the amount of 32,512.68 on September 1, 2011 and continuing on the same day of each and every month thereafter through and including July 27, 2036.

(ii)		On July 27, 2036 (the “Maturity Date”), the entire outstanding principal balance of the indebtedness hereby evidenced, together with all accrued but unpaid interest thereon, and all other sums due to holder hereunder shall be due and payable in full.

Payments, when made, shall be applied in a manner and order according to the sole discretion of the holder of this Note. The Note shall be re-amortized on an annual basis.

If any payment required to be paid by this Note is not paid in full within ten (10) days after its scheduled due date, the holder hereof may assess a late charge in the amount of five percent (5%) of the unpaid amount of the payment, or the maximum permitted by applicable law, whichever is less.

The undersigned shall pay the holder of this Note an annual renewal fee of .25/100ths percent (.25%) of the USDA guaranteed portion of the outstanding principal balance of this Note on December 31st of each year.

The undersigned and all guarantors and endorsers of this Note waive presentment, demand, protest and notice of non-payment and each of the undersigned is bound as a principal and not as a surety. The undersigned and all guarantors and endorsers hereof agree to any extensions of time of payment and partial payment, before, at or after maturity, without notice. This Note shall bear interest at the rate of five points (5.00%) per annum above the interest rate otherwise payable under the terms of this Note after maturity or in the event of default until paid in full.

This Note and any extensions or renewals hereof is secured by (i) that certain Deed to Secure and Security Agreement and Fixture Filing dated of even date herewith and recorded in the Office of the Laurens County Clerk of Superior Court, Georgia, and any and all amendments and replacements thereto, executed by the undersigned in favor of Bank of Atlanta and (ii) other security.

Failure to make any payment when due, or any default under any encumbrance or agreement securing this Note, or any default in any document executed simultaneously herewith in connection with the loan, shall cause the entire remaining unpaid balance of principal and interest to be declared immediately due and payable at the option of the holder of this Note.

In the event holder shall employ counsel to collect this obligation or to administer, protect or foreclose the security given in connection herewith, the undersigned, jointly and severally if more than one, agrees to pay reasonable attorney’s fees for services of such counsel, whether or not suit is brought, plus costs incurred in connection therewith.

In the event of prepayment, in whole or in part, a prepayment penalty rate shall be assessed as follows.

1. If the prepayment occurs on or before the first anniversary date of the loan, the prepayment penalty will equal ten percent (10%) of the principal amount prepaid.

2. If the prepayment occurs after the first anniversary date, but on or before the second anniversary date, the prepayment penalty will equal nine percent (9%) of the principal amount prepaid.

3. If the prepayment occurs after the second anniversary date, but on or before the third anniversary date, the prepayment penalty will equal eight percent (8%) of the principal amount prepaid.

4. If the prepayment occurs after the third anniversary date, but on or before the fourth anniversary date of this Note, the prepayment penalty will equal seven percent (7%) of the principal amount prepaid.

5. If the prepayment occurs after the fourth anniversary date, but on or before the fifth anniversary date, the prepayment premium will equal six percent (6%) of the principal amount prepaid.

6. If the prepayment occurs after the fifth anniversary date, but on or before the sixth anniversary date, the prepayment premium will equal five percent (5%) of the principal amount prepaid.

7. If the prepayment occurs after the sixth anniversary date, but on or before the seventh anniversary date, the prepayment premium will equal four percent (4%) of the principal amount prepaid.

8. If the prepayment occurs after the seventh anniversary date, but on or before the eighth anniversary date, the prepayment premium will equal three percent (3%) of the principal amount prepaid.

9. If the prepayment occurs after the eighth anniversary date, but on or before the ninth anniversary date, the prepayment premium will equal two percent (2%) of the principal amount prepaid.

10. If the prepayment occurs after the ninth anniversary date, but on or before the tenth anniversary date, the prepayment premium will equal one percent (1%) of the principal amount prepaid.

A prepayment penalty shall not apply if the prepayment occurs after the tenth anniversary date.

This Promissory Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

If the Note is mutilated, lost, stolen or destroyed, then upon surrender thereof (if mutilated) or receipt of evidence and indemnity (if lost, stolen or destroyed) the undersigned shall execute and deliver a new note of like tenor, which shall show all payments which have been made on account of the principal hereof.

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

ERIN PROPERTY HOLDINGS, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager

Exhibit 10.2

U.S. Small Business Administration

NOTE

SBA Loan #	47671350-10

SBA Loan Name	Erin Nursing, LLC

Date	July 27, 2011

Loan Amount	$800,000.00

Interest Rate	Wall Street Journal Prime Rate +2.25% (variable)

Borrower	Erin Property Holdings, LLC

Operating Company	Erin Nursing, LLC

Lender	BANK OF ATLANTA

1. PROMISE TO PAY:

In return for the Loan, Borrower promises to pay to the order of Lender the amount of Eight Hundred Thousand and No/100 Dollars ($800,000.00) interest on the unpaid principal balance, and all other amounts required by this Note.

2. DEFINITIONS:

“Collateral” means any property taken as security for payment of this Note or any guarantee of this Note.

“Guarantor” means each person or entity that signs a guarantee of payment of this Note.

“Loan” means the loan evidenced by this Note.

“Loan Documents” means the documents related to this loan signed by Borrower, any Guarantor, or anyone who pledges collateral.

“SBA” means the Small Business Administration, an Agency of the United States of America.

3. PAYMENT TERMS:

Borrower must make all payments at the place Lender designates. The payment terms for this Note are:

1. Maturity : This Note will mature in 25 years from date of Note.

2. Repayment Terms : Lender must insert onto SBA Note, Form 147, to be executed by Borrower, the following terms, without modification. Lender must complete all blank terms on the Note at time of closing.

The interest rate on this Note will fluctuate. The initial interest rate is 5.50% per year. This initial rate is the prime rate in effect on the first business day of the month in which SBA received the loan application, plus 2.25%. The initial interest rate must remain in effect until the first change period begins.

Borrower must pay principal and interest payments of $4,921.00 every month, beginning two months from the month this Note is dated; payments must be made on the first calendar day in the months they are due.

Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal.

The interest rate will be adjusted every calendar quarter (the “change period”).

The “Prime Rate” is the prime rate in effect on the first business day of the month (as published in the Wall Street Journal) in which SBA received the application, or any interest rate change occurs. Base Rates will be rounded to two decimal places with .004 being rounded down and .005 being rounded up.

The adjusted interest rate will be 2.25% above the Prime Rate. Lender will adjust the interest rate on the first calendar day of each change period. The change in interest rate is effective on that day whether or not Lender gives Borrower notice of the change.

Lender must adjust the payment amount at least annually as needed to amortize principal over the remaining term of the note.

If SBA purchases the guaranteed portion of the unpaid principal balance, the interest rate becomes fixed at the rate in effect at the time of the earliest uncured payment default. If there is no uncured payment default, the rate becomes fixed at the rate in effect at the time of purchase.

Loan Prepayment:

Notwithstanding any provision in this Note to the contrary:

Borrower may prepay this Note. Borrower may prepay 20% or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20% and the Loan has been sold on the secondary market, Borrower must:

a. Give Lender written notice;

b. Pay all accrued interest; and

c. If the prepayment is received less than 21 days from the date Lender receives the notice, pay an amount equal to 21 days’ interest from the date lender receives the notice, less any interest accrued during the 21 days and paid under subparagraph b., above.

If Borrower does not prepay within 30 days from the date Lender receives the notice, Borrower must give Lender a new notice.

Subsidy Recoupment Fee. When in any one of the first three years from the date of initial disbursement Borrower voluntarily prepays more than 25% of the outstanding principal balance of the loan, Borrower must pay to Lender on behalf of SBA a prepayment fee for that year as follows:

a. During the first year after the date on which the loan is first disbursed, 5% of the total prepayment amount;

b. During the second year after the date on which the loan is first disbursed, 3% of the total prepayment amount; and

c. During the third year after the date on which the loan is first disbursed, 1% of the total prepayment amount.

All remaining principal and accrued interest is due and payable 25 years from date of Note.

Late Charge: If a payment on this Note is more than 10 days late, Lender may charge Borrower a late fee of up to 5.00% of the unpaid portion of the regularly scheduled payment.

4. EFAULT:

Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower or Operating Company:

A. Fails to do anything required by this Note and other Loan Documents;

B. Defaults on any other loan with Lender;

C. Does not preserve, or account to Lender’s satisfaction for, any of the Collateral or its proceeds;

D. Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;

E. Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;

F. Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect Borrower’s ability to pay this Note;

G. Fails to pay any taxes when due;

H. Becomes the subject of a proceeding under any bankruptcy or insolvency law;

I. Has a receiver or liquidator appointed for any part of their business or property;

J. Makes an assignment for the benefit of creditors;

K. Has any adverse change in financial condition or business operation that Lender believes may materially affect Borrower’s ability to pay this Note;

L. Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent; or

M. Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower’s ability to pay this Note.

5. LENDER’S RIGHTS IF THERE IS A DEFAULT:

Without notice or demand and without giving up any of its rights, Lender may:

A. Require immediate payment of all amounts owing under this Note;

B. Collect all amounts owing from any Borrower or Guarantor;

C. File suit and obtain judgment;

D. Take possession of any Collateral; or

E. Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.

6. LENDER’S GENERAL POWERS:

Without notice and without Borrower’s consent, Lender may:

A. Bid on or buy the Collateral at its sale or the sale of another lienholder, at any price it chooses;

B. Incur expenses to collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and reasonable attorney’s fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance;

C. Release anyone obligated to pay this Note;

D. Compromise, release, renew, extend or substitute any of the Collateral; and

E. Take any action necessary to protect the Collateral or collect amounts owing on this Note.

7. WHEN FEDERAL LAW APPLIES:

When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

8. SUCCESSORS AND ASSIGNS:

Under this Note, Borrower and Operating Company include the successors of each, and Lender includes its successors and assigns.

9. GENERAL PROVISIONS:

A. All individuals and entities signing this Note are jointly and severally liable.

B. Borrower waives all suretyship defenses.

C. Borrower must sign all documents necessary at any time to comply with the Loan Documents and to enable Lender to acquire, perfect, or maintain Lender’s liens on Collateral.

D. Lender may exercise any of its rights separately or together, as many times and in any order it chooses. Lender may delay or forgo enforcing any of its rights without giving up any of them.

E. Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.

F. If any part of this Note is unenforceable, all other parts remain in effect.

G. To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor. Borrower also waives any defenses based upon any claim that Lender did not obtain any guarantee; did not obtain, perfect, or maintain a lien upon Collateral; impaired Collateral; or did not obtain the fair market value of Collateral at a sale.

10. STATE-SPECIFIC PROVISIONS:

Time is of the essence of this Note.

11. BORROWER’S NAME(S) AND SIGNATURE(S):

By signing below, each individual or entity becomes obligated under this Note as Borrower.

Erin Property Holdings, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager
(Corporate Seal)

Exhibit 10.3

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT, is made, entered into and effective as of the 27 th day of July, 2011, by and among ERIN PROPERTY HOLDINGS, LLC (hereinafter referred to as the “Borrower”), Erin Nursing, LLC and AdCare Health Systems, Inc. (hereinafter referred to as the “Guarantors”) and Bank of Atlanta, having its principal offices at 1970 Satellite Blvd, Duluth, GA 30097 (the “Lender”).

W I T N E S S E T H :

WHEREAS, Borrower has applied to Lender for financing of the type or types more particularly described hereinbelow; and

WHEREAS, Lender is willing to extend financing to Borrower in accordance with the terms hereof upon the execution of this Agreement by Borrower, provided that Borrower and Guarantors are in compliance with all of the terms and provisions of this Agreement and have fulfilled all conditions precedent to Lender’s obligations herein contained;

NOW, THEREFORE, in consideration of the sum of $100.00, the foregoing premises and for other good and valuable consideration, the sufficiency and receipt of all of which are acknowledged by Borrower and Guarantors, Lender, Borrower and Guarantors agree as follows:

ARTICLE I

DEFINITIONS, TERMS AND REFERENCES

1.1. Certain Definitions . In addition to such other terms as elsewhere defined herein, as used in this Agreement and in any exhibits, the following terms shall have the following meanings, unless the context requires otherwise:

“ Agreement ” shall mean this Term Loan Agreement, as amended or supplemented from time to time.

“ Banking Day ” means a day, other than Saturday or Sunday, when the Lender is open to the public for ordinary banking business.

“ Bankruptcy Code ” shall mean Title 11 of the United States Code, as amended from time to time.

“ Borrower ” shall mean ERIN PROPERTY HOLDINGS, LLC, duly organized and existing under the laws of the State of Georgia.

“ Business Day ” shall mean a day on which Lender is open for the conduct of banking business at its office located at 1970 Satellite Blvd, Duluth, GA 30097.

“ Closing Date ” shall mean the date of the execution of this Agreement and the date on which the Term Loan is made pursuant hereto.

“ Collateral ” shall mean the Furniture, Fixtures, Equipment and Property Collateral all defined herein, and in which Lender has, or is to have, a shared first security interest pursuant hereto, as security for payment of the Term Note.

“ Collateral Locations ” shall mean those locations set forth and described on Exhibit “A” attached hereto.

“ Deed to Secure Debt and Security Agreement ” shall mean that certain Deed to Secure Debt and Security Agreement of even date herewith from Borrower in favor of or for the benefit of Lender.

“ Default Condition ” shall mean the occurrence of any event which, after satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of

Default.

“ Equipment Collateral ” shall mean all equipment and machinery of the Borrower, whether now owned or hereafter acquired, together with all furniture, furnishings, improvements, equipment, tools and personal property of every kind of the Borrower, together with all accessories, parts, components, attachments, repairs, replacements, modifications, renewals, additions, improvements, upgrades and accessions of, to or upon such items of equipment and/or machinery.

“ Event of Default ” shall mean any of the events or conditions described in Article XI, provided that any requirement for the giving of notice or the lapse of time, or both, has been satisfied.

“ Executive Office ” shall mean the offices of Borrower located at 3050 Peachtree Road, NW, Suite 355, Two Buckhead Plaza, Atlanta, Georgia 30305 (“Borrower’s Address”).

“ Facility ” shall mean all of the real property and improvements now existing or hereafter constructed on those tracts of land more particularly described in Exhibit “B” upon which Borrower operates the business and which are used as collateral for this loan wherever such may be located.

“ Financial Statements ” shall mean the individual and consolidated balance sheet and statement of change in financial position of Borrower and the income statements of Borrower.

“ Fiscal Year ” shall mean the fiscal year of Borrower which shall be the twelve (12) month period ending December 31 in each year, or such other period as the Borrower may designate and Lender may approve in writing. Fiscal quarter shall mean the corresponding fiscal quarters within such Fiscal Year.

“ Fixtures Collateral ” shall mean all buildings, structures and improvements of every nature

whatsoever now or hereafter situated on the Land as described in Exhibit “B” (as such term is hereinafter defined), and all furniture, fixtures and equipment of the Borrower of every nature now or hereafter located, on or upon, or intended to be used in connection with, the Land as described in Exhibit “B” or the improvements thereon, including, but not by way of limitation, those for the purposes of operating the Facility; supplying or distributing heating, cooling, electricity, gas, water, air and light; and all related machinery and equipment; all plumbing; and all like personal property and fixtures of every kind and character now or at any time hereafter located in or upon the Land as described in Exhibit “B” or the improvements thereon, or which may now or hereafter be used or obtained in connection therewith, including all extensions, additions, improvements, betterments, after-acquired property, renewals, replacements and substitutions, or proceeds from a permitted sale or any of the foregoing, and all the right, title and interest of Borrower in any such fixtures, machinery, equipment, appliances and personal property subject to or covered by any prior security agreement, conditional sales contract, chattel Deed to Secure Debt and Security Agreement or similar lien or claim, together with the benefit of any deposits or payments now or hereafter made by Borrower or on behalf of Borrower, or any improvements thereon or any part thereof or are now or hereafter acquired by Borrower; and all equipment and fixtures constituting proceeds acquired with cash proceeds of any of the property described herein, and all other interest of every kind and character in all of the real, personal, and mixed properties described herein that Borrower may now own or at any time hereafter acquire, all of which are hereby declared and shall be deemed to be fixtures and accessions to the Land as described in Exhibit “B”, as between the parties hereto and all persons claiming by, through or under them.

“ Funding ” shall mean the act of Lender disbursing money to Borrower or for the benefit of

Borrower under and pursuant to the terms of this Agreement and Term Note.

“ GAAP ” means, as in effect from time to time, generally accepted accounting principles consistently applied.

“ Guarantors ” shall mean Erin Nursing, LLC and AdCare Health Systems, Inc. and its respective successors and permitted assigns.

“ Guaranty Fee ” shall mean a fee payable to the USDA Rural Development at the Closing in the amount of $80,000.00.

“ Indebtedness ” means any (i) obligations for borrowed money, (ii) obligations whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired, and (iii) the amount of any other obligation (including obligations under financing leases) which would be shown as a liability on a balance sheet prepared in accordance with GAAP.

“ Land ” shall mean all those certain tracts, pieces and parcels of land described on Exhibit “B” attached hereto.

“ Lender ” shall mean Bank of Atlanta, having its principal offices at 1970 Satellite Blvd, Duluth, GA 30097, and its successors and assigns.

“ Liabilities ” shall have the meaning given in accordance with generally accepted accounting principles consistently applied.

“ Lien ” shall mean any voluntary or involuntary mortgage and security agreement, security deed, deed of trust, lien, mortgage, pledge, assignment, security interest, title retention agreement, financing lease, levy, execution, encumbrance of any kind, including those contemplated by or

permitted in this Agreement and the other Loan Documents.

“ Loan Documents ” shall mean, collectively, this Agreement, the Term Note, any financing statements, deeds to secure debt, or mortgages covering portions of the Collateral, security agreement, guaranty agreement, and any and all other documents, instruments, certificates and agreements executed and/or delivered by Borrower and/or Guarantors in connection herewith, or any one, more, or all of the foregoing, as the context shall require.

“ Loan Obligations ” shall mean all advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from Borrower to Lender as it relates to this Term Loan of any kind or nature, present or future, whether or not evidenced by any note or term note, guaranty or other instrument, whether arising under this Agreement or under any of the other Loan Documents, and whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys fees and all other sums chargeable to Borrower under this Agreement or any of the other Loan Documents.

“ Permitted Encumbrances ” shall mean those security interests, liens and encumbrances, if any, set forth and described on Exhibit “C” attached hereto, pertaining to the type of Collateral involved, as shown thereon.

“ Person ” means any person, firm, corporation, partnership, trust or other entity.

“ Property ” shall mean the real estate located in Laurens County, Georgia, more particularly described in Exhibit “B” attached hereto.

“ Property Collateral ” shall mean the Land and all of the interest of Borrower in all

easements, rights-of-way, licenses, operating agreements, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, oil and gas and other minerals, flowers, shrubs, trees, timber and other emblements now or hereafter located on the Land or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditament and appurtenances, reversion and reversions, remainder and remainders, whatsoever, in any way belonging, relating or appertaining to the Land or any part thereof, or that hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Borrower.

“ RD ” shall mean the USDA Rural Development, an agency of the United States Department of Agriculture, and any successor department, agency or instrumentality authorized to administer the Business and Industrial Guaranteed Loan Program.

“ RD Guarantee ” shall mean the guarantee backed by the full faith and credit of the United States provided by RD of a specified percentage of the outstanding amount of the Loan pursuant to the RD Guaranty Commitment.

“ RD Guarantee Commitment ” shall mean that certain Conditional Commitment for Guarantee case no. 10-087-177336336 issued by the RD on May 9, 2011.

“ Security Instruments ” shall mean the following security documents executed by Borrower to Lender, each being dated of even date herewith, as security for the Term Loan: the Deed to Secure and Security Agreement, the Uniform Commercial Code Financing Statements and Security Agreement.

“ Soft Costs ” shall mean all costs, expenses and fees incurred by Lender, Borrower and Guarantors in preparing and documenting this Agreement and all documents and instruments

related thereto, together with the Lender Origination Fee, the Guaranty Fee, the Underwriting Fee and all other loan related fees and costs, including but not limited to filing and recording fees, costs of appraisals, surveys, environmental studies or reports, insurance and attorneys fees.

“ Term Loan ” shall mean Five Million and No/100 Dollars ($5,000,000.00) term loan made by Lender to Borrower which is evidenced by the Term Note described immediately hereafter and as pursuant to this Agreement.

“ Term Note ” shall mean the term promissory note of Borrower in favor of the Lender dated of even date herewith, as amended or supplemented from time to time, in the principal amount of $5,000,000.00 together with any renewals or extensions thereof, in whole or in part. The Term Note shall be substantially in the form of Exhibit “D” attached hereto. Repayment schedule as to the Term Note is attached hereto as Exhibit “M”.

“ UCC ” shall mean the Uniform Commercial Code Secured Transactions of Georgia, as in effect on the date hereof, or as hereafter amended.

1.2. Use of Defined Terms . All terms defined in this Agreement and the exhibits shall have the same defined meanings when used in any other Loan Documents, unless the context shall require otherwise. All of the aforementioned recitals and definitions are incorporated by this reference and made a part of this Agreement.

1.3. Accounting Terms . All accounting terms not specifically defined herein shall have the meanings generally attributed to such terms under generally accepted accounting principles consistently applied.

1.4. UCC Terms . The terms “instruments” and “equipment”, as and when used in the Loan Documents, shall have the same meanings given such terms under the UCC.

1.5. Terminology . All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of articles and sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to articles, sections, subsections, paragraphs, clauses, subclauses or exhibits shall refer to the corresponding article, section, subsection, paragraph, clause, subclause of, or exhibit attached to, this Agreement, unless specific reference is made to the articles, sections or other subdivisions divisions of, or exhibit to, another document or instrument.

1.6. Exhibits . All exhibits attached hereto are by reference made a part hereof.

ARTICLE II

THE LOAN

2.1. The Loan . Borrower has agreed to borrow from Lender, and Lender has agreed to make the Loan to Borrower, subject to Borrower’s compliance with and observance of the terms, conditions, covenants and provisions of this Agreement, the Term Note, and the other Loan Documents, and Borrower has made the covenants, representations, and warranties herein and therein as a material inducement to Lender to make the Loan.

2.2. Term and Interest Rate . The Term Loan shall be evidenced by the Note described in Exhibit “D” attached hereto. The Term Note shall be amortized over twenty-five (25) years. The rate of interest as set forth in the Term Note cannot be changed more often than quarterly, and must rise and fall with the selected prime rate, all as more particularly set forth in Exhibit “D”. The Lender shall amortize the principal over the term of the Term Loan as set forth in Exhibit “D”, and make an adjustment of payment installments only by the amount of rise or fall resulting

from the interest rate change. The interest rate on the loan evidenced by the Term Note will be the Prime Rate plus 1.50% per annum, adjustable quarterly with a 6.00% floor. The Prime Rate will be the prime rate, as quoted or published from time to time in the Money Rates section of The Wall Street Journal or the nearest comparable rate if no such prime rate is quoted, as determined by the holder of the Note. Interest shall be calculated on the actual basis of a year of 360 days. Moreover, the Borrower shall be responsible for the annual renewal fee on the USDA guaranteed portion of the Term Note of ¼ of 1%. The amount of the annual renewal fee will be determined by multiplying the fee rate of ¼ of 1% by the outstanding principal guaranteed by the USDA as of December 31 st of each year. The annual renewal fee will be due to the Lender as of December 31 st of each year.

2.3. Security for the Loan . The Loan will be secured by the Collateral as described in the Security Instruments, and guaranteed by the Guarantors pursuant to the Guaranty.

2.4. Repayment of Loan . Each payment of the Loan Obligations shall be paid directly to the Lender in lawful money of the United States of America at the Lender’s main office located at 1970 Satellite Blvd, Duluth, GA 30097, or such other place as the Lender shall designate in writing to the Borrower. Each such payment shall be paid in immediately available funds by 2:00 p.m., Duluth, GA time, on the date such payment is due, except if such date is not a Banking/Business Day such payment shall then be due on the first Banking/Business Day after such date, but interest shall continue to accrue until the date payment is received. Any payment received after 2:00 p.m., Eastern standard time, shall be deemed to have been received on the immediately following Banking/Business Day for all purposes, including, without limitation, the accrual of interest on principal.

ARTICLE III

CONDITIONS PRECEDENT

Unless waived in writing by Lender at or prior to the execution and delivery of this Agreement, the conditions set forth in Sections 3.1 through 3.19 shall constitute express conditions precedent to any obligation of Lender hereunder.

3.1. Compliance . Borrower and Guarantors shall have performed and complied with all terms and conditions required by this Agreement to be performed or complied with by it prior to or at the date of any Funding by Lender and shall have executed and delivered to Lender the Term Note.

3.2. Board Resolutions and Incumbency Certificate . Lender shall have received certificates from the Board of Directors, or whomever is authorized to act on behalf of the Borrower and Guarantors, certifying to Lender that appropriate consents and resolutions have been entered into by its Board of Directors or Members incident hereto and that the officers and the members and managers of the company whose signatures appear hereinbelow, on the other Loan Documents, and on any and all other documents, instruments and agreements executed in connection herewith, and the officers executing the same, are duly authorized by Borrower and by its Boards of Directors or Members of such companies to execute and deliver this Agreement, the other Loan Documents and such other documents, instruments and agreements, and to bind such companies accordingly thereby, all in form and substance substantially similar to those board resolutions set forth and described on Exhibit “E” attached hereto.

3.3. Certificate of Good Standing . Lender shall have received a current certificate of good standing with respect to the Borrower and Guarantors from the Secretary of State of the state

of incorporation/organization.

3.4. Articles of Incorporation/ Organization and By-Laws/ Operating Agreement . Lender shall have received copies of the articles of organization/ articles of incorporation and by-laws/ operating agreement of the Borrower and/or Guarantors as in effect on the date hereof, certified as to truth and accuracy by the officers/members/managers of the Borrower.

3.5. Loan Documents . Lender shall have received all the other Loan Documents duly executed in form and substance acceptable to Lender.

3.6. Insurance Certificate . Lender shall have received a certificate in respect of all insurance required hereunder, in form and substance acceptable to Lender.

3.7. Financing Statements . Lender shall have received Uniform Commercial Code Financing Statements in respect of the Collateral, duly executed by the owner thereof and in form and substance acceptable to Lender.

3.8. Opinion of Counsel . Lender shall have received an opinion of counsel satisfactory to it from independent legal counsel in substantially the form of Exhibit “F” attached hereto.

3.9. Operation and Management of the Facility . The Facility shall be operated and managed by the Erin Nursing, LLC. The operation and management of the Facility shall not be transferred to any other party; the transfer of such responsibility in violation of the foregoing in this sentence shall constitute an Event of Default, the same as if such event had been described and contained in Article XII of this Agreement.

3.10. Licenses and Permits . Borrower and/or Guarantors shall have received and shall provide evidence of same to Lender that Borrower has obtained all licenses, permits, certificates and other governmental permission to own and operate the Facility.

3.11. Appraisals . Lender shall have received an appraisal by an appraiser approved by Lender for the Facility and Collateral in an amount acceptable to the Lender.

3.12. Receipt of Evidence of Tax Payments . Lender shall have received evidence, in form and substance acceptable to Lender, that Borrower and Guarantors have paid all federal, state and local income taxes, that all amounts required to be withheld from employees’ wage payments have been withheld and have been paid to the proper governmental agency, and that no judgment or tax lien is in existence with respect to Borrower and Guarantors.

3.13. Title Insurance . Lender shall have received a commitment from a title insurance company approved by Lender and authorized to do business in the State of Georgia to issue a title insurance policy with respect to the Property Collateral, and the total amount shall be the appraised value of the Property Collateral, with no exceptions other than those approved by Lender and those shown on the commitment for title insurance, file number 11-44(a), issued by Chicago Title Insurance Company, effective 5:00 p.m. July 5, 2011, as same may be updated. Such title insurance commitment shall recite that Lender shall have a first priority lien on the Property Collateral.

3.14. Survey Requirements . Lender shall require an “as built” survey for the Property, prepared by a registered land surveyor or registered professional engineer, in accordance with Georgia law, as appropriate.

3.15. Zoning, Building Codes and OSHA Requirements . If required, Lender shall have received evidence with respect to the Facility that the same is not in violation of any zoning, building, sanitary or Occupational Safety and Health Administration rules, requirements or laws.

3.16. Guaranty . Lender shall have received a Guaranty substantially in the form as shown

on Exhibit “G” hereof from the Guarantors named therein.

3.17. Environmental Matters . With respect to the Property Collateral, Lender shall have received from the Borrower, the form FmHA 1940-20 Request for Environmental Information as executed by the Borrower.

Borrower covenants and agrees that all Property Collateral or interests in real property pledged as collateral security for the Loan are free of any substantial amounts of waste or debris, and are free from any material amounts of contamination, including:

(a) (1) “Any Hazardous Waste,” as defined by the Resource Conservation and Recovery Act of 1976 or any “Hazardous Substance” as defined in Georgia law, both as amended from time to time, and regulations promulgated thereunder;

(2) “Any Hazardous Substance” as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1989, as amended from time to time, and regulations promulgated thereunder;

(3) Any substance, the presence of which on the real property is prohibited by any law similar to those set forth in this section; and

(4) Any material which, under federal, state or local law, statute, ordinance or regulation, or court administrative order or decree, or private agreement, requires special handling in collection, storage, treatment or disposal.

(b) Borrower has not filed any notice under any federal or state law indicating past or present treatment, storage or disposal of a hazardous waste, substance or constituent, or other substance into the environment. None of the operations of Borrower is the subject of federal or state litigation or proceedings, or of any investigation evaluating whether any remedial action

involving a material expenditure is needed to respond to any improper treatment, storage, recycling, disposal or release into the environmental of any hazardous or toxic substance, waste or constituent. None of the operations of Borrower is subject to any judicial or administrative proceeding alleging the violation of any federal, state or local environmental, health or safety statute, or regulation. Borrower does not transport any hazardous wastes, substances or constituents.

(c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property Collateral pledged as collateral security for the Loan, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been, to the knowledge of the Borrower, duly obtained or filed.

(d) Borrower will take and continue to take prompt action to remedy all environmental pollution and contamination, hazardous waste disposal and other environmental clean-up problems, if any, whether or not such clean-up problems have resulted from the order or request of a municipal, state, federal, administrative or judicial authority, or otherwise. Borrower will not violate any applicable municipal ordinance, state or federal statute, administrative rule or regulation, or order or judgment of any court with respect to environmental pollution or contamination, hazardous waste disposal or any other environmental matter.

(e) Borrower will indemnify and hold Lender, its officers, directors, employees, representatives, agents and affiliates harmless against, and promptly pay on demand or reimburse each of them with respect to, any and all claims, demands, causes of action, loss, damage, liabilities, costs and expenses of any and every kind or nature whatsoever asserted against or incurred by any of them by reason of or arising out of or in any way related to (i) the breach of any

representation or warranty as set forth regarding Environmental Laws, or (ii) the failure of Borrower to perform any obligation herein required to be performed pursuant to Environmental Laws. The provisions of this section shall survive the final payment of the Loan and the termination of this Agreement, and shall continue thereafter in full force and effect.

(f) Notwithstanding anything contained in this paragraph to the contrary, any covenants of Borrower concerning any environmental matter addressed herein shall not be applicable to any condition which is first created or introduced after a foreclosure, conveyance or other transfer of title of the Property Collateral pledged as collateral security for the Loan.

(g) Notwithstanding anything contained in this paragraph to the contrary, Borrower may make use of or have office supplies, cleaning substances, medical supplies and materials used in the ordinary course of operation for a senior living facility provided that such use is consistent with applicable Environmental Laws.

3.18. Continuing Compliance . At the time of the Term Loan, there shall not exist any event, condition or act which constitutes an Event of Default hereunder or any condition, event or act which with notice, lapse of time or both would constitute such Event of Default. There would not exist any such event, condition, or act immediately after the disbursement, were it to be made.

3.19. Miscellaneous . Lender shall have received such other documents, certificates, instruments and agreements as shall be required hereunder or provided for herein or as Lender or Lender’s counsel may reasonably require in connection herewith.

ARTICLE IV

FINANCING

4.1. Term Loan . Lender agrees to make a term loan to Borrower in the principal amount

of Five Million and No/100 Dollars ($5,000,000.00), which shall be repayable with interest in accordance with the terms of the Term Note.

4.2. Use of Proceeds . Borrower agrees that the proceeds of the Term Loan shall be disbursed as follows:

(a) Approximately $5,000,000.00 shall be disbursed upon appropriate application therefore to pay outstanding debt to Regions Bank.

ARTICLE V

SECURITY INTEREST — COLLATERAL

5.1. Collateral . To secure the prompt payment and performance to Lender of the Loan Obligations, Borrower and/or Guarantors hereby grant to Lender a continuing shared first security interest in and lien upon all of the following property and interests in property of Borrower and/or Guarantors, whether now owned or existing or hereafter created, acquired or arising and wheresoever located, namely the:

(a) Property Collateral;

(b) Equipment Collateral;

(d) All products and/or proceeds of any and all of the foregoing, including, without limitation, insurance proceeds and Lender shall record UCC-1 financing statements covering such Collateral in the applicable recording offices.

5.2. Security Instruments . With respect to the Property Collateral and Fixtures Collateral located within the State of Georgia, Borrower and/or Guarantors shall deliver to Lender at the

closing a Deed to Secure Debt and Security Agreement in the form as shown on Exhibit “H” attached hereto, duly executed, which shall be filed in the Recorder’s office of LAURENS COUNTY, GEORGIA, together with corresponding UCC-1 financing statements in respect of the Fixtures Collateral.

With respect to the Fixtures Collateral and Equipment Collateral Borrower shall deliver to Lender at the Closing a Security Agreement in the form as shown on Exhibit “I” attached hereto, duly executed, and Lender shall record UCC-1 financing statements covering such Collateral in the applicable recording offices.

5.3 Excluded Business Assets . Notwithstanding anything contained in the Term Loan Agreement and Loan Documents to the contrary, “Collateral” as defined in the Term Loan Agreement and Loan Documents expressly excludes all of Borrower’s and Erin Nursing, LLC’s (a) accounts, (b) payment intangibles, (c) instruments, chattel paper (including electronic chattel paper), documents, letter-of-credit rights, supporting obligations, and commercial tort claims, in each case to the extent arising out of, relating to or given in exchange for or settlement of or to evidence the obligation to pay any account or payment intangible; (d) all general intangibles (including, but not limited to, contract rights and trademarks, copyrights, patents and other intellectual property) that arise out of or relate to any account or payment intangible or from which any account or payment intangible arises; (e) all remedies, guarantees and collateral evidencing, securing or otherwise relating to or associated with any account or payment intangible, including, but not limited to, all rights of enforcement and collection; (f) all commercial lockboxes, governmental lockboxes, collection accounts and other deposit accounts into which collections or other proceeds of collateral or advances are deposited, and all checks or

instruments from time to time representing or evidencing the same; (g) all cash, currency and other monies at any time in the possession or under the control of Borrower or a bailee of Borrower; (h) all books and records evidencing or relating to or associated with any of the foregoing; (i) all information and data compiled or derived with respect to any of the foregoing (other than any such information and data subject to legal restrictions of patient confidentiality); and (j) all collections, accessions, receipts and proceeds derived from any of the foregoing” (such items (a) through (j) above being the “Accounts”).

ARTICLE VI

REPRESENTATIONS, WARRANTIES, AND COVENANTS

APPLICABLE TO PROPERTY COLLATERAL

With respect to the Property Collateral, Borrower and/or Guarantors hereby represent, warrant and covenant to Lender as set forth in Sections 6.1 through 6.4, inclusive.

6.1. Sale of Property Collateral . Borrower and/or Guarantors will not sell, further lease, exchange, or otherwise dispose of any of the Property Collateral without the prior written consent of Lender.

6.2. Insurance . Borrower and/or Guarantors agree that it will obtain and maintain insurance on the Property Collateral with such company and in such amounts and against such risks as Lender may reasonably request, with loss payable to Lender as its interests may appear. Such insurance coverage shall not be canceled by Borrower or Guarantors, unless with the prior written consent of Lender. Such insurance policy or policies shall contain the “New York Standard Mortgagee Clause”, stating in effect, that the interest of Lender shall not be invalidated by (i) any

act or neglect of Borrower or Guarantors (including arson or a related act); (ii) by foreclosure or other proceedings relating to the Property Collateral; (iii) by any change in the title or ownership of the property; or (iv) the occupation of the premises for purposes more hazardous than permitted by the policy. In addition, if the Property Collateral is located within a special flood hazard area, Borrower and/or Guarantors will obtain and maintain federal flood insurance (including mud slide and soil erosion protection) if eligible, in amounts of coverage equal to the lesser of (i) the outstanding balance of the Term Loan; (ii) the insurable value of the property; or (iii) the maximum limit of coverage available.

In addition, and as referenced in Section 3.13 , Lender shall receive a title insurance policy on the Property Collateral naming Lender as insured as soon as the same shall issue after recordation of all Security Instruments related to the transactions contemplated herein. Borrower shall pay all premiums and fees related to such title insurance.

6.3. Good Title; No Existing Encumbrances . Borrower or Guarantors own the Property Collateral free and clear of any and all prior security interests, liens or encumbrances thereon other than any Permitted Encumbrances, and no financing statements or other evidence of the grant of a security interest respecting the Property Collateral exist on the public records as of the date hereof other than any evidencing the Permitted Encumbrances.

6.4. Right to Grant Security Interest; No Further Encumbrances . Borrower or Guarantors have the right to grant a security interest in the Property Collateral to Lender. Borrower and/or Guarantors will pay all taxes and other charges against the Property Collateral. Borrower and/or Guarantors will not use the Property Collateral illegally or allow the Property Collateral to

be encumbered, except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances.

ARTICLE VII

REPRESENTATIONS, WARRANTIES, AND COVENANTS

APPLICABLE TO EQUIPMENT COLLATERAL AND FIXTURES COLLATERAL

With respect to the Equipment Collateral and Fixtures Collateral, Borrower and/or Guarantors hereby represent, warrant and covenant to Lender as set forth in Sections 7.1 through 7.5, inclusive.

7.1. Sale of Equipment Collateral and Fixtures Collateral . Except as permitted herein and elsewhere in this Agreement, Borrower and/or Guarantors will not sell, lease, exchange, or otherwise dispose of any of the Equipment Collateral and Furniture, Fixtures and Equipment Collateral without the prior written consent of Lender; provided, however, that with notice to but without the necessity of consent of Lender, from time to time hereafter, in the ordinary course of business, Borrower and/or Guarantors may sell, exchange or otherwise dispose of portions of its Furniture, Fixtures and Equipment Collateral which are obsolete, worn out or unsuitable for continued use, if the Furniture, Fixtures and Equipment Collateral is replaced promptly with equipment constituting Furniture, Fixtures and Equipment Collateral having a market value equal to or greater than the Furniture, Fixtures and Equipment Collateral so disposed of and in which Lender shall obtain and have a first priority security interest pursuant hereto.

7.2. Insurance . Borrower and/or Guarantors agree that they will obtain and maintain insurance on the Furniture, Fixtures and Equipment Collateral with such companies and in such amounts and against such risks as Lender may reasonably request, with loss payable to Lender as its

interests may appear. Such insurance coverage shall not be canceled by Borrower and/or Guarantors, unless with the prior written consent of Lender.

7.3. Good Title; No Existing Encumbrances . Borrower and/or Guarantors own the Furniture, Fixtures and Equipment Collateral free and clear of any prior security interest, lien or encumbrance, and no financing statements or other evidences of the grant of a security interest respecting the Furniture, Fixtures and Equipment Collateral exist on the public records as of the date hereof other than any evidencing the Permitted Encumbrances, and other than financing statements that will be paid off and canceled of record, with proceeds of this Loan.

7.4. Right to Grant Security Interest; No Further Encumbrances . Borrower and/or Guarantors have the right to grant a security interest in the Equipment Collateral and Fixtures Collateral to Lender. Borrower and/or Guarantors will pay all taxes and other charges against the Furniture, Fixtures and Equipment Collateral, and will not use the Furniture, Fixtures and Equipment Collateral illegally or allow the same to be encumbered, except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances. Nothing herein, however, shall prevent Borrower and/or Guarantors from leasing any Equipment required in the operation of the Facilities.

7.5. Location . As of the date hereof, the Equipment Collateral and Fixtures Collateral are located only at the Collateral Locations, and Borrower and/or Guarantors hereby covenants with Lender not to move any portion of the Furniture, Fixtures and Equipment Collateral without at least thirty (30) days prior written notice to Lender; provided, however, that nothing contained herein shall be deemed to prohibit Borrower and/or Guarantors, without notice to or the consent of Lender, from transferring temporarily (for periods not to exceed thirty (30) days in any event) any Furniture,

Fixtures and Equipment Collateral from a Collateral Location to another location at any time or from time to time hereafter for the limited repairing, refurbishing or overhauling such equipment in the ordinary course of business.

ARTICLE VIII

GENERAL REPRESENTATIONS AND WARRANTIES

In order to induce Lender to enter into this Agreement, Borrower and Guarantors hereby represent and warrant to Lender as set forth in Sections 8.1 through 8.17, inclusive.

8.1. Principal Business Activity . Borrower and/or Guarantors are engaged in the business of operating a nursing home facility.

8.2. Company Existence and Qualification . The Borrower is organized and validly existing under the laws of the State of Georgia and authorized to do business in the State of Georgia. Borrower’s principal place of business, chief executive office and office where it keeps principally all of its books and records are located at the Executive Office.

8.3. Power and Authority; Validity and Binding Effect . Borrower and/or Guarantors have the power to make, deliver and perform under the Loan Documents, and Borrower has the right to borrow hereunder, and all of the foregoing parties have taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of the Loan Documents. This Agreement constitutes, and the remainder of Loan Documents, when executed and delivered for value received, will constitute, the valid obligations of Borrower and Guarantors, legally binding upon it and enforceable against Borrower and Guarantors in accordance with their respective terms. The undersigned officers, members or managers of Borrower and Guarantors are duly authorized

and empowered to execute, attest and deliver this Agreement and the remainder of the Loan Documents for and on behalf of Borrower and Guarantors and to bind Borrower and Guarantors accordingly thereby.

8.4. Financial Statements . The balance sheets and income statements of Borrower and Guarantors were submitted to Lender in connection herewith, copies of which are attached hereto as Exhibit “J”, are true and complete and accurately and fairly represent the financial condition of the Borrower and Guarantors , the results of operations and the transactions in the equity accounts as of the date and for the periods referred to therein, and have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved. There are no material Liabilities, direct or indirect, fixed or contingent, as of the date of such Financial Statements which are not reflected therein or in the note thereto. There has been no material adverse change in the financial condition, operations, or prospects of the Borrower and/or Guarantors since the date of the balance sheet contained in such Financial Statements. If, by the time of the Closing, the Borrower and/or Guarantors’ Financial Statements are more than ninety (90) days old, the Lender may require current Financial Statements which shall be submitted to the RD.

8.5. Pending Matters . No action or investigation is pending or threatened before or by a federal, state, or municipal or other governmental department, commission, board, bureau, agency or instrumentality which might result in any material adverse change in the financial condition, operations, or prospects of the Borrower or either of the Guarantors, nor is the Borrower or the Guarantors in violation of any agreement, the violation of which might reasonably be expected to have a materially adverse effect on their business or assets, nor is the Borrower or the Guarantors in violation of any order, judgment, or decree of any court, or any statute or governmental regulation

to which such Borrower and Guarantors are subject.

8.6 Disclosure . All information furnished or to be furnished by the Borrower and Guarantors to the Lender in connection with the Loan or any of the Loan Documents, is, or will be at the time the same is furnished, accurate and correct in all material respects and complete insofar as completeness may be necessary to provide the Lender a true and accurate knowledge of the subject matter. Borrower and/or Guarantors have no knowledge of any liability of any nature, whether accrued, absolute, contingent or otherwise, which singularly or in the aggregate could have a materially adverse effect upon the economic condition of Borrower, the Guarantors or the Facility.

8.7. ERISA . Borrower is in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

8.8. Proceedings Pending . There are no proceedings pending or, to the best of the Borrower’s or Guarantors’ knowledge, threatened, to acquire any part of the Property Collateral by any power of condemnation or eminent domain, or to enjoin or similarly prevent or restrict the use of the Property or the operation of the Facility in any manner.

8.9. Compliance with Applicable Laws . The Facility and the property on which it is situated comply with all applicable laws, ordinances, rules and regulations, including, without limitation, the Americans with Disabilities Act and regulations thereunder, and all laws, ordinances, rules and regulations relating to zoning, building codes, setback requirements and environmental matters.

8.10. No Material Litigation . Except as set forth on Exhibit “K” attached hereto, there are no proceedings pending or, so far as Borrower and the Guarantors know, threatened, before any court or administrative agency which might materially or adversely affect the financial condition or

operations of Borrower and/or Guarantors.

8.11. No Default . Borrower and/or Guarantors are not in default in the payment of any of its material obligations, and there exists no event, condition or act which constitutes an Event of Default as defined herein, and no condition, event, or act which with notice or lapse of time would constitute such event of default.

8.12. Taxes . Borrower or Guarantors have filed or caused to be filed all tax returns required to be filed by them, if any, and have paid all taxes shown to be due and payable on said returns or on any assessments made.

8.13. Adverse Contracts . Except as set forth on Exhibit “L” attached hereto, neither Borrower nor Guarantors are a party to any contract or agreement, or subject to any charge, corporate restriction, judgment, decree or order which materially and adversely affects their businesses, property, assets, operations or condition, financial or otherwise.

8.14. Insolvency . After giving effect to the execution and delivery of the Loan Documents and the making of any disbursements under the Term Note, neither Borrower nor Guarantors will be “Insolvent” within the meaning of such term as defined in Section 101(26) of the Bankruptcy Code, or be unable to pay its debts generally as such debts become due.

8.15. Title . Borrower and/or Guarantors have good and marketable title to all the Collateral, subject to no material lien of any kind except as otherwise disclosed in writing to Lender, and except for the Permitted Encumbrances.

8.16. No Violations . The execution, delivery and performance by Borrower and Guarantors of this Agreement and the other Loan Documents has been duly authorized by all necessary corporate actions and does not and will not require any additional consent or approval of

the shareholders and directors of Borrower and/or Guarantors and will not violate any provision of any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower and/or Guarantors or the charter or by-laws of Borrower and/or Guarantors, or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower and/or Guarantors are a party or by which they or their properties may be bound or affected; and neither Borrower nor Guarantors are in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument.

8.17. Continuing Representations . These representations shall be considered to have been made again at and as of the date of each advance made under the Term Note and shall be true and correct as of that date.

ARTICLE IX

GENERAL AFFIRMATIVE COVENANTS

Borrower and Erin Nursing, LLC covenant and agree with Lender that from and after the date hereof, and as long as the Term Loan remains outstanding, that they will comply with the covenants set forth in Sections 9.1 through 9.31, inclusive.

9.1. Payment of Loan/Performance of Loan Obligations . Duly and punctually pay or cause to be paid the principal and interest of the Term Note in accordance with its terms and duly and punctually pay and perform or cause to be paid or performed all Loan Obligations hereunder and under the other Loan Documents.

9.2. Maintenance of Existence . The Borrower and/or Erin Nursing, LLC shall maintain

in the state of its incorporation/organization, and, in each jurisdiction in which the character of the property owned by them or in which the transaction of their business makes qualification necessary, its existence.

9.3. Use of Proceeds . Borrower will use the net proceeds of the Term Loan only for the purposes set forth in Section 4.2 in the conduct of the business in which it is presently engaged, or in which it presently proposes to engage.

9.4. Accrual and Payment of Taxes . The Borrower and/or Erin Nursing, LLC, during each Fiscal Year, shall accrue all current tax liabilities of all kinds, all required withholding of income taxes of employees, all required old age and unemployment contributions, and all required payments to employee benefit plans, and pay the same when they become due.

9.5. Payment of Taxes and Obligations . Borrower and/or Erin Nursing, LLC will pay and discharge promptly all taxes, assessments and other governmental charges and claims levied or imposed upon it or its property, or any part thereof, provided, however, that it shall have the right in good faith to contest any such taxes, assessments, charges or claims, and, pending the outcome of such contest, to delay or refuse payment thereof provided that adequate funded reserves are established by it to pay and discharge any such taxes, assessments, charges and claims. Borrower and/or Erin Nursing, LLC shall, on an annual basis not later than sixty (60) days after timely filing each tax year, provide reasonable evidence to Lender that all income and withholding taxes, sales and use taxes and property taxes have been paid.

9.6. Records Respecting Collateral . Adequate records of Borrower and Erin Nursing, LLC with respect to the Collateral will be kept at the Executive Office (subject to being changed pursuant to Section 10.11 ) and will not be removed from such address without the prior written

consent of Lender.

9.7. Financial and Other Information . The Borrower and Erin Nursing, LLC shall provide or cause to be provided to Lender, the following Financial Statements and information on a continuing basis and as Lender may require from time to time:

(a) Financial Statements . Within ninety (90) days after the end of the Accounting Year of Borrower, compiled financial statements of Borrower and Erin Nursing, LLC which are prepared by and certified by a officer of Borrower as true and correct will be prepared in accordance with GAAP, and include a balance sheet, a profit and loss statement, and a cash flow statement showing the result of operations for the Fiscal Year, a reconciliation of surplus, and the reviewer’s notes. In regard to AdCare Health Systems, Inc., starting with the 2011 tax year, the AdCare Health Systems, Inc. agrees to provide the Lender with an annual financial statement along with the just ended year’s tax return from an independent certified public accountant that is satisfactory to the Lender. The audited statement is to be provided within ninety (90) days after the end of each calendar year. A copy of the corporate tax return should be provided to the Lender within thirty (30) days after same has been timely filed.

9.8. Maintenance of Insurance . In addition to and cumulative with any other requirements herein imposed on Borrower with respect to insurance, Borrower and/or Erin Nursing, LLC shall maintain insurance with responsible insurance companies on such of its properties and employees, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, but in any event to include loss, damage, flood, windstorm, fire, theft, extended coverage, workers compensation and products liability, business interruption insurance and loss of business income insurance in amounts satisfactory to Lender,

which such insurance shall not be canceled by Borrower and/or Erin Nursing, LLC unless with the prior written consent of Lender. Borrower and/or Erin Nursing, LLC shall file with Lender, upon its request, a detailed list of such insurance then in effect stating the names of the insurance companies, the amounts and rates of insurance, the date of expiration thereof, the properties and risks covered thereby and the insured with respect thereto, and, within thirty (30) days after notice in writing from Lender, obtain such additional insurance as Lender may reasonably request.

9.9. Change of Principal Place of Business . Borrower and/or Erin Nursing, LLC hereby understand and agree that if, at any time hereafter, Borrower and/or Erin Nursing, LLC elect to move their principal place of business, or if Borrower or Erin Nursing, LLC elect to change their respective name, identity or structure, Borrower and/or Erin Nursing, LLC will obtain Lender’s approval in writing at least thirty (30) days prior thereto.

9.10. Waivers . With respect to the Collateral Location, Borrower and/or Erin Nursing, LLC will obtain such waivers of lien, estoppel certificates or subordination agreements as Lender may reasonably require to ensure the priority of its security interest in that portion of the Collateral situated at such locations.

9.11. Compliance With Laws . Borrower and Erin Nursing, LLC shall comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including, without limitation, all applicable environmental laws and cause the Borrower and the Erin Nursing, LLC to pay all taxes, assessments, charges, claims for labor, supplies, rent and other obligations which, if unpaid, might give rise to a Lien against the Collateral, except Liens to the extent permitted in Section 10.1 of this Agreement. The Borrower and Erin Nursing, LLC certify that the Facility is accessible to the public in compliance with the Americans with Disabilities Act.

The noncompliance with the aforesaid shall be construed to constitute a material adverse effect upon the business or credit of Borrower and/or Erin Nursing, LLC.

9.12. Junior Financing . Borrower and/or Erin Nursing, LLC shall not, without the prior written consent, of Lender incur any additional indebtedness relating to the Facility or Collateral or create or permit to be created or to remain, any mortgage and security agreement, deed of trust, pledge, lien, lease, encumbrance or charge on, or conditional sale or other title retention agreement whether prior to or subordinate to the liens of the Deed to Secure Debt and Security Agreement, and other Loan Documents, with respect to the Facility, or any part thereof, other than the Deed to Secure Debt and Security Agreement or other Loan Documents provided for herein. Lender acknowledges a shared first lien on all Collateral pursuant to the certain $800,000.00 SBA loan from Lender to Borrower of even date.

9.13. Right to Inspect . Borrower and/or Erin Nursing, LLC shall permit, and cause to permit, persons designated by Lender to inspect any and all of the properties and books and records of the Borrower and/or Erin Nursing, LLC and to make extractions therefrom pertaining to the Facility, and to permit Lender to make copies of and to discuss the affairs of the Borrower and the Erin Nursing, LLC and the Facility with officers of such parties as designated by Lender, all at such times as Lender shall request.

9.14. Notice of Loss . Borrower and/or Erin Nursing, LLC shall immediately notify the Lender of any event causing a loss or depreciation in value of either Borrower’s or Erin Nursing, LLC’s assets in excess of $100,000.00 and the amount of such loss or depreciation, except Borrower and Erin Nursing, LLC shall not be required to notify Lender of depreciation in building and equipment resulting from ordinary use thereof.

9.15. Conduct of Business . Borrower and/or Erin Nursing, LLC shall cause the operation of the Facility to be conducted at all times in a prudent manner in compliance with applicable laws and regulations relating thereto and cause all licenses, permits, certificates, and any other agreements necessary for the use and operation of the Facility to remain in effect.

9.16. Condition of Properties . Borrower and/or Erin Nursing, LLC shall keep all buildings, improvements, machinery and equipment located on or used or useful in connection with the respective Facility in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needed and proper repairs, renewals, replacements, additions and improvements thereto to keep the same in good operating condition.

9.17. Inventory, Fixtures and Equipment . Borrower shall maintain, or cause to be maintained, sufficient inventory, fixtures and equipment of types and quantities at the Facility necessary to enable the Borrower adequately to perform operations at such Facility.

9.18. Certificate . Upon Lender’s written request, furnish Lender with a certificate stating that Borrower has complied with and is in compliance with all terms, covenants and conditions of the Loan Documents and there exists no Default or Event of Default or, if such is not the case, that one or more specified events have occurred, and that the representations and warranties contained herein are true with the same effect as though made on the date of such certificate.

9.19. Subordinations . Borrower and/or Erin Nursing, LLC shall provide Lender with a subordination agreement, in a form satisfactory to Lender, from any party whom Borrower is or hereafter becomes indebted for money borrowed, subordinating its respective right of payment and claim of such indebtedness and any future advances thereon to the claims of Lender in respect of the Term Note so long as any amount remains unpaid on the Term Note. Such subordination

agreement shall provide, among other things, that no principal or interest on any such indebtedness shall be repaid unless and until there is no outstanding balance due and payable on the Term Note.

9.20. Litigation; Default Conditions and Events of Default . Upon its receipt of notice or knowledge thereof, Borrower and all Erin Nursing, LLC will report to Lender: (i) any lawsuit or administrative proceeding in which Borrower or the Erin Nursing, LLC are a defendant wherein the amount of damages claimed exceeds $50,000.00; or (ii) the existence and nature of any Default Condition or Event of Default hereunder.

9.21. Execution of Other Documents . Borrower and Erin Nursing, LLC will, upon demand by Lender, promptly execute all such additional agreements, contracts, indentures, documents and instruments in connection with this Agreement as Lender, in its sole discretion, may reasonably consider necessary.

9.22. Litigation and Attorneys Fees . Borrower and Erin Nursing, LLC will pay promptly to Lender without demand, reasonable attorneys fees and all costs and other expenses paid or incurred by Lender in collecting or compromising the Term Loan or in enforcing or exercising its rights or remedies created by, connected with or provided in this Agreement or any other agreement or instrument required by Lender in connection with the Term Loan, whether or not suit is filed.

9.23. Purchase of Fixed Assets . Borrower and/or Erin Nursing, LLC will not purchase additional fixed assets costing in the aggregate more than $150,000.00 in any 12 month calendar year without the prior approval of the Lender. This prohibition does not apply upon the Borrower and/or Erin Nursing, LLC purchasing machinery and equipment being replaced due to depreciation or obsolescence.

9.24. Arms Length Transactions . All of the Borrower and Erin Nursing, LLC’s

transactions will be at arms length and competitive with any of the officers, employees, directors, or their spouses and family members that may buy, sell, or trade to it. The same will apply to any entity that they may be stockholder, director, or own any interest in, as well as a spouse or family member.

9.25. Further Assurances . Borrower and Erin Nursing, LLC shall duly execute and/or deliver (or cause to be duly executed and/or delivered) to Lender any instrument, invoice, document, document of title, warehouse receipt, bill of lading, order, financial statement, assignment, waiver, consent or other writing which may be reasonably necessary to Lender to carry out the terms of this Agreement and any of the other Loan Documents and to perfect its security interest in and facilitate the collection of the Collateral, the proceeds thereof, and any other property at any time constituting security to Lender. Borrower and Erin Nursing, LLC shall perform or cause to be performed such acts as Lender may request to establish and maintain for Lender a valid and perfected security interest in and security title to the Collateral, free and clear of any liens, encumbrances or security interests other than in favor of Lender.

9.26. Debt to be Borrower’s Debt . All debt to be repaid from loan proceeds is debt of Borrower and not debt of any other entity.

9.27. Tangible Balance Sheet-Equity . The Borrower shall maintain a minimum Tangible Balance Sheet-Equity equal to ten (10%) percent of total assets prior to issuance of the RD Loan Note Guarantee. The Borrower shall have Tangible Net Worth of ten (10%) for the life of the Loan.

9.28. Maximum Debt to Net Worth. The Borrower’s debt to net worth shall not exceed 10 to 1 as defined by GAAP.

9.29. RD Guaranty Commitment . The Borrower agrees that it shall comply with each and every provision of that certain Conditional Commitment for Guarantee as issued by the RD.

9.30. Employee Reports . The Borrower and Erin Nursing, LLC shall submit a report annually to the Lender and RD as of December 31, indicating the total number permanent, part-time and seasonal employees.

9.31. Current Ratio. Borrower shall maintain a current ratio of not less than 1.0 to 1.0 , as defined by GAAP.

ARTICLE X

NEGATIVE COVENANTS

Borrower and Erin Nursing, LLC covenant and agree with Lender that from and after the date hereof and so long as any amount remains unpaid on the Term Loan, it will not, without the prior written consent of Lender, do any of the things or acts set forth in Sections 10.1 through 10.17, inclusive.

10.1. No Encumbrances . Borrower and/or Erin Nursing, LLC will not create, incur, assume, or suffer to exist any Deed to Security Debt and Security Agreement, mortgage, deed of trust, pledge, assignment, lien, charge, encumbrance on, or security interest or security title of any kind on the Land and/or Collateral described in Section 5.1 of this Term Loan Agreement or on any of their personal property except for: (i) liens for taxes not yet due or being contested as permitted by this Agreement; (ii) liens at any time existing in favor of the Lender; (iii) any Permitted Encumbrances; (iv) inchoate Liens arising by operation of law for the purchase of labor, services, materials, equipment or supplies, provided payment shall not be delinquent and, if such Lien is a

lien upon the Collateral, which Lien is fully subordinate to the applicable deed, Deed to Secure Debt and Security Agreement and/or Security Agreement covering such Collateral, is disclosed to Lender and is being contested by the Borrower and/or Erin Nursing, LLC in good faith and Borrower and Erin Nursing, LLC are diligently pursuing such contest to completion, and adequate reserves, as determined by Lender, are being maintained therefore; and (v) liens incurred in the ordinary course of business in connection with workmen’s compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for money borrowed or for credit received in respect of property acquired) entered into the ordinary course of business as presently conducted or to secure obligations for surety or appeal bonds.

10.2. Distributions/Bonuses . The Borrower will not, without Lender’s and RD’s prior written consent, make any bonuses to any officers or shareholders of the Borrower, or authorize or make any other distribution to officers. Notwithstanding the foregoing, the Borrower shall be permitted to pay bonuses or make distributions; provided that such bonuses and distributions will be limited to an amount that, when taken, will not adversely affect the repayment ability of the Borrower, shall be payable only if the Borrower has made a profit in the year prior to the year in which the dividend is being declared, all debts are paid current and all loan covenants and ratios are being met and will continue to be met on the annual statement, in accordance with GAAP, after the bonuses and distributions are paid, and prior written consent of Lender is obtained. This is not intended to apply to distributions/dividend payments to cover personal tax liability resulting from the profitability of the business.

10.3. Compensation of Officers and Owners . Salaries and compensation of officers,

owners or shareholders shall be limited to an amount that, when taken, will not adversely affect the repayment ability of the Borrower. This amount may not be increased year to year unless (1) an after tax profit was made in the preceding fiscal year; (2) the Borrower is and will remain in compliance with covenants of the Term Loan Agreement, Lender’s Agreement, and Conditional Commitment; (3) all of the Borrower’s debts are paid to a current status; and (4) prior written concurrence of the Lender is obtained.

10.4. Merger, Sale, Assignments, Etc. The Borrower will not liquidate or dissolve or otherwise terminate its legal status or enter into any consolidation, merger, partnership, reorganization or other combination, or convey, or sell, assign, lease or otherwise dispose of all or the greater part of its assets or businesses (now owned or hereafter acquired) (whether in one transaction or in a series of transactions), or permit the Borrower to sell, assign, lease or otherwise dispose of, all or the greater part of the assets or business of another, or made any substantial change in the basic type of business conducted by it as of the date hereof, without the prior written consent of the Lender, which may be granted or refused by Lender in Lender’s sole discretion. The Borrower shall conduct and carry on the business of the Borrower in substantially the same field of activity as has been originally planned and as documented in the loan application to the Lender and Rural Development. This shall include no acquisition of affiliated companies or expansion of the Borrower, without the written consent of the Lender and Rural Development.

10.5. Disposition of Assets . The Borrower and/or Erin Nursing, LLC will not sell, lease, transfer or otherwise dispose of Collateral, unless any such disposition shall be in the ordinary course of business for a full and fair consideration, which in no event shall include a transfer for full or partial satisfaction of a preexisting debt.

10.6. Change in Business . The Borrower and/or Erin Nursing, LLC will not make any material change in the nature of its business as it is being conducted as of the date hereof.

10.7. Changes in Accounting . The Borrower and/or Erin Nursing, LLC will not change its methods of accounting, unless such change is permitted by GAAP, and provided such change does not have the effect of curing or preventing what would otherwise be an Event of Default or default had such change not taken place.

10.8. ERISA Funding and Termination . Permit (a) the funding requirements of ERISA with respect to any employee plan to be less than the minimum required by ERISA at any time, or (b) any employee plan to be subject to involuntary termination proceedings at any time.

10.9. Transactions with Affiliates . Enter into any transaction with any Person affiliated with such Borrower or Erin Nursing, LLC other than in the ordinary course of its business and on fair and reasonable terms no less favorable to such Borrower and Erin Nursing, LLC than those they would obtain in a comparable arms-length transaction with a Person not an affiliate.

10.10. Change of Use . Alter or change the use of the Facility or enter into any lease or management agreement for the Facility other than the leases and management agreements in place as of the date of this Agreement, unless Borrower first notifies Lender and provides Lender a copy of the proposed lease or management agreement, obtains Lender’s written consent and obtains and provides Lender with a subordination agreement in form satisfactory to Lender from such lessee or manager subordinating to all rights of Lender.

10.11. Place of Business . Change its chief executive offices or open any new place of business without first giving Lender at least thirty (30) days prior written notice thereof and promptly providing Lender such information as Lender may request in connection therewith.

10.12. No Advances . Borrower shall not, during the life of the Term Loan, make any advances or loans to any officer, owner, stockholder, director and/or affiliate of the Borrower or to the Erin Nursing, LLC or affiliates, during this Term Loan, without Lender’s prior written consent. If such advances are permitted by Lender, same must be subordinate to the Term Loan and repayment can only be made if Borrower is in compliance with all terms and conditions contained in this Agreement.

10.13. No Sale or Disposition of Business Collateral . Sell or otherwise dispose of collateral described in Section 5.1 of this Agreement, other than as permitted herein and by RD regulations.

10.14. Change of Ownership . Change ownership without obtaining the Lender and RD’s consent and complying with all applicable RD regulations.

10.15. Purchase of Fixed Assets . The Borrower and/or Erin Nursing, LLC shall not make purchases of fixed assets in excess of $150,000.00 annually, without the prior written consent of the Lender. This prohibition does not apply upon the Borrower and/or Erin Nursing, LLC purchasing machinery and equipment being replaced due to depreciation or obsolescence.

10.16. Liabilities of Third Parties . Borrower and Erin Nursing, LLC will refrain from assuming any liabilities or obligations of any third parties, including but not limited to the shareholders, officers, members or directors of the Borrower and/or Erin Nursing, LLC. Loans from shareholders, owners, members, officers or affiliates must be subordinated to the Term Loan or converted to stock. The Borrower will refrain from co-signing or endorsing liabilities or obligations or indebtedness of other persons or entities during the life of this Term Loan.

10.17. Sale of Stock . The Borrower will not sell, transfer or issue any additional shares of the company’s stock or membership interests.

ARTICLE XI

EVENTS OF DEFAULT

The occurrence of any events or conditions described in Sections 11.1 through 11.7 shall constitute an Event of Default hereunder, provided that the requirements for the giving of notice; if any, and the lapse of time provided have been satisfied.

12.1. Term Note . Borrower shall fail to make any payments of principal of or interest on the Term Note when due.

11.2. Misrepresentations . Any certificate, statement, representation, warranty or audit heretofore or hereafter furnished by or on behalf of the Borrower or the Guarantors, pursuant to or in connection with this Agreement or otherwise (including, without limitation, representations and warranties contained herein or in any Loan Documents) or as an inducement to Lender to extend any credit to or to enter into this or any other agreement with the Borrower, in connection with this Term Loan, proves to have been false in any material respect at the time when the facts therein set forth were stated or certified, or proves to have omitted any substantial contingent or unliquidated liability or claim against the Borrower or the Guarantors, or on the date of execution of this Agreement there shall have been any material adverse change in any of the facts previously disclosed by any such certificate, statement, representation, warranty or audit, which change shall not have been disclosed to Lender in writing at or prior to the time of such execution.

11.3. Covenants . Borrower or Guarantors shall fail to perform, keep or observe any other term, provision, condition covenant, undertaking, warranty or representation contained in this Agreement or in the other Loan Documents, which is required to be performed, kept or observed.

11.4. Other Debts . Borrower or Guarantors shall default on any other agreement,

document or instrument to which Borrower or Guarantors are a party, which default shall cause a material adverse effect on the businesses of Borrower and Guarantors, the value of the Collateral, or Lender’s interest therein.

11.5. Voluntary Bankruptcy . Borrower or Guarantors shall file a voluntary petition in bankruptcy or a voluntary petition or answer seeking liquidation, reorganization, arrangement, re-adjustment of their debts, or for any other relief under the Bankruptcy Code, or under any other act or law pertaining to insolvency or debtor relief, whether state, Federal, or foreign, now or hereafter existing; Borrower or Guarantors shall enter into any agreement indicating their consent to, approval of, or acquiescence in, any such petition or proceeding; Borrower or any Guarantors shall apply for or permit the appointment by consent or acquiescence of a receiver, custodian or trustee of Borrower or any Guarantors for all or a substantial part of their property; Borrower or any Guarantors shall make an assignment for the benefit of creditors; or Borrower or any Guarantors shall be unable or shall fail to pay their debts generally as such debts become due, or Borrower or any Guarantors shall admit, in writing, their inability or failure to pay debts generally as such debts become due.

11.6. Involuntary Bankruptcy . There shall have been filed against Borrower or any Guarantors an involuntary petition in bankruptcy or seeking liquidation, reorganization, arrangement, readjustment of debts or any other relief under the Bankruptcy Code, or under any other act or law pertaining to insolvency or debtor relief, whether State, Federal or foreign, now or hereafter existing, and such petition is not dismissed within sixty (60) days after the entry of filing thereof; Borrower or any Guarantors shall suffer or permit the involuntary appointment of a receiver, custodian or trustee of Borrower or any Guarantors for all or a substantial part of their

property and such appointment is not dismissed within sixty (60) days after such appointment was first made; or Borrower or any Guarantors shall suffer or permit the issuance of a warrant of attachment, execution or similar process against all or any substantial part of the property of Borrower or any Guarantors and the same is not dismissed within sixty (60) days of the application thereof.

11.7 Permit/License Agreement . Any default under any applicable state permit or license agreement to which Borrower is a party shall be considered a default hereunder.

ARTICLE XII

REMEDIES

Upon the occurrence or existence of any Event of Default, or at any time thereafter, without prejudice to the rights of Lender to enforce its claims against Borrower and Guarantors for damages for failure by Borrower and Guarantors to fulfill any of their obligations hereunder, subject only to prior receipt by Lender of payment in full of the Term Loan in a form acceptable to Lender, Lender shall have all of the rights and remedies described in Sections 12.1 through 12.4, inclusive, and it may exercise any one, more, or all of such remedies, in its sole discretion, without thereby waiving any of the others.

12.1. Acceleration of the Term Loan . Lender, at its option, may declare the Term Loan to be immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of nonpayment or any other notice required by law relative thereto, all of which are hereby expressly waived by Borrower and Guarantors.

12.2. Remedies of a Secured Party . As it relates to the personal property collateral defined herein, Lender shall thereupon have the rights and remedies of a secured party under the

UCC in effect on the date thereof (regardless of whether the same has been enacted in the jurisdiction where the rights or remedies are asserted), including, without limitation, the right to take possession of any of the Collateral, subject to the UCC, or the proceeds thereof, to sell or otherwise dispose of the same, and to apply the proceeds therefrom to the Term Loan in such order and manner as Lender, in its sole discretion, may elect. Lender shall give Borrower written notice of the time and place of any public sale of the Collateral or the time after which any other intended disposition thereof is to be made. The requirement of sending reasonable notice shall be met if such notice is given to Borrower pursuant to Section 13.8 at least five (5) days before such disposition. Expenses of retaking, holding, insuring, preserving, protecting, preparing for sale or selling or the like with respect to the Collateral shall include, in any event, reasonable attorneys fees and other legally recoverable collection expenses, all of which shall constitute obligations of Borrower.

12.3. Repossession of the Collateral . As it relates to the personal property collateral defined herein, Lender may take the Collateral or any portion thereof into its possession, by such means (without breach of the peace) and through agents or otherwise as it may elect (and, in connection therewith, demand that Borrower assemble the Collateral at a place or places and in such manner as Lender shall prescribe), and sell, lease or otherwise dispose of the Collateral or any portion thereof in its then condition or following any commercially reasonable preparation or processing, which disposition may be by public or private proceedings, by one or more contracts, as a unit or in parcels, at any time and place and on any terms, so long as the same are commercially reasonable.

12.4. Other and Additional Remedies . In addition to the rights and remedies of a secured

party under the laws of the State of Georgia and the rights and remedies granted in this Agreement, Lender shall have all of the rights and remedies set forth in the Deed to Secure Debt and Security Agreement, the Security Agreement, and in all of the other Loan Documents, which rights and remedies may be exercised successively or concurrently.

ARTICLE XIII

MISCELLANEOUS

13.1. Waiver . No remedy conferred upon, or reserved to, the Lender in this Agreement or any of the other Loan Documents is intended to be exclusive of any other remedy or remedies, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity. Exercise or omission to exercise any right of the Lender shall not affect any subsequent right of Lender to exercise the same. No course of dealing between Borrower and the Guarantors and Lender or any delay on the Lender’s part in exercising any rights shall operate as a waiver of any of the Lender’s rights. No waiver of any Default under this Agreement or any of the other Loan Documents shall extend to or shall affect any subsequent or other then existing Default or shall impair any rights, remedies or powers of Lender. Except for any defense which would constitute a compulsory counterclaim, Borrower and the Guarantors hereby agree that any and all causes of action and claims which they may ever have against the Lender shall not be raised by Borrower and the Guarantors as a defense or counterclaim in any suit or proceeding brought by Lender against them for collection of the Loan Obligations or enforcement of this Agreement, but shall instead be brought, if at all, by a separate suit or proceeding.

13.2. Costs and Expenses . Borrower will bear all taxes, fees and reasonable expenses

(including reasonable fees and expenses of counsel for Lender) in connection with the preparation of this Agreement and the other Loan Documents, and in connection with any modifications thereto and the recording of any of the Loan Documents. If, at any time, a Default occurs or Lender becomes a party to any suit or proceeding in order to protect its interests or priority in any collateral for any of the Loan Obligations or its rights under this Agreement or any of the Loan Documents, or if Lender is made a party to any suit or proceeding by virtue of the Term Loan, this Agreement or any collateral for any Loan Obligations and as a result of any of the foregoing, the Lender employs counsel to advise or provide other representation with respect to this Agreement, or to collect the balance of the Loan Obligations, or to take any action in or with respect to any suit or proceeding relating to this Agreement, any of the other Loan Documents, any collateral for any of the Loan Obligations, or to protect, collect, or liquidate any of the security for the Loan Obligations, or attempt to enforce any security interest or lien granted to the Lender by any of the Loan Documents, then in any such events, all of the reasonable attorney’s fees arising from such services, including fees on appeal and in any bankruptcy proceedings, and any reasonable expenses, costs and charges relating thereto shall constitute additional obligations of Borrower to the Lender payable on demand of the Lender. Without limiting the foregoing, Borrower shall pay or reimburse the Lender for all recording and filing fees, revenue or documentary stamps or taxes, intangibles taxes, and other expenses and charges payable in connection with this Agreement, any of the Loan Documents, the Loan Obligations, or the filing of any financing statements or other instruments required to effectuate the purposes of this Agreement.

13.3. Performance of Lender . At its option, upon Borrower’s failure to do so, the Lender may make any payment or do any act on the Borrower’s behalf that the Borrower or others are

required to do to remain in compliance with this Agreement or any of the other Loan Documents, and Borrower agrees to reimburse the Lender, on demand, for any payment made or expense reasonably incurred by Lender pursuant to the foregoing authorization, including, without limitation, reasonable attorneys’ fees.

13.4. Headings . The headings of the Sections of this Agreement are for convenience of reference only, are not to be considered a part hereof, and shall not limit or otherwise affect any of the terms hereof.

13.5. Survival of Covenants . All covenants, agreements, representations and warranties made herein and in certificates or reports delivered pursuant hereto shall be deemed to have been material and relied on by Lender, notwithstanding any investigation made by or on behalf of Lender, and shall survive the execution and delivery to Lender of the Term Note and this Agreement.

13.6. No Assignment by Borrower or Guarantors . No assignment hereof shall be made by Borrower or Guarantors without the prior written consent of Lender.

13.7. Severability . If any provision of any of the Loan Documents or the application thereof to any party thereto shall be invalid or unenforceable to any extent, the remainder of such Loan Documents and the application of such provisions to any other party thereto shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

13.8. Notices . Any and all notices, elections or demands permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving such notice, election or demand, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail,

postage prepaid, certified with return receipt required, and shall be deemed to have been received on the earlier of the date shown on the receipt or three (3) business days after the postmarked date thereof, or upon being deposited with an overnight delivery service requiring proof of delivery, to the other party at the address of such other party set forth below or such other address within the continental United States as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any such notice, election, demand or request must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a partner or any officer, partnership, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been given shall also constitute receipt. Any such notice, election, demand, request or response shall be addressed as follows:

If given to Lender, shall be addressed as follows:

Bank of Atlanta

1970 Satellite Blvd

Duluth, GA 30097

with a copy to:

HARBIN & MILLER, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

Attn: Reid H. Harbin, Esq.

and, if given to Borrower, shall be addressed as follows:

ERIN PROPERTY HOLDINGS, LLC

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

13.9. Benefits . All of the terms and provisions of this Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. No Person other than Borrower or Lender shall be entitled to rely upon this Agreement or be entitled to the benefits of this Agreement.

13.10. Participation . Borrower acknowledges that Lender may, at its option, sell participation interests in the Term Loan to other participating banks. Borrower agrees with each present and future participant in the Term Loan that if an Event of Default should occur, each present and future participant shall have all of the rights and remedies of Lender with respect to any deposit due from any participant agreement with Lender, and the execution by the Borrower of this Agreement, regardless of the order of execution, shall evidence an agreement between the Borrower and said participant in accordance with the terms of this Section. The Lender will maintain a minimum of five (5%) percent of the total loan amount of the Term Loan. The remaining unguaranteed portion can only be sold through participation with other lenders and no part of the guaranteed or unguaranteed loan can be sold to the applicant or anyone having an interest in the applicant.

13.11. Supersedes Prior Agreements; Counterparts . This Agreement and the instruments referred to herein supersede and incorporate all representations, promises, and statements, oral or written, made by Lender in connection with the Term Loan. This Agreement may not be varied, altered, or amended except by a written instrument executed by an authorized officer of the Lender and the RD. This Agreement may be executed in any number of counterparts, each of which, when

executed and delivered, shall be an original, but such counterparts shall together constitute one and the same instrument.

13.12. Time of the Essence . Time is of the essence in this Agreement and the other Loan Documents.

13.13. Interpretation . No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision.

13.14. Lender Not a Joint Venturer . Neither this Agreement nor any agreements, instruments, documents or transactions contemplated hereby (including the Loan Documents) shall in any respect be interpreted, deemed or construed as making Lender a partner or joint venturer with Borrower or Guarantors or as creating any similar relationship or entity, and Borrower and Guarantors agree that they will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving Lender.

13.15. Jurisdiction . This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

13.16. Acceptance . This Agreement, together with the other Loan Documents, shall not become effective unless and until delivered to Lender at its office located at 1970 Satellite Blvd, Duluth, GA 30097 and accepted in writing by Lender thereafter at such office as evidenced by its execution hereof (notice of which delivery and acceptance are hereby waived by Borrower).

13.17. Payment on Non-Business Days . Whenever any payment to be made hereunder or under the Term Note shall be stated to be due on a Saturday, Sunday or a public holiday, such

payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest hereunder or under the Term Note.

13.18. Waiver of Rights . Borrower and Guarantors hereby waive all rights which they have or may have regarding, without limitation, the right to notice and to a judicial hearing prior to seizure of any Collateral by Lender. In addition, Borrower and Guarantors waive any right which they have or may have under applicable UCC law or like Section to have Lender file UCC termination statements with respect to the Collateral, or any part thereof, and Borrower and Guarantors further agree that Lender shall not be required to file such UCC termination statements unless and until the Term Note has been paid in full; provided, however, that after such event, Lender will file UCC termination statements promptly upon request by Borrower or Guarantors.

13.19. Cure of Defaults by Lender . If, hereafter, Borrower or any Guarantors defaults in the performance of any duty or obligation to Lender hereunder, Lender may, at its option, but without obligation, cure such default and any costs, fees and expenses incurred by Lender in connection therewith including, without limitation, for the purchase of insurance, the payment of taxes and the removal or settlement of liens and claims, shall be deemed to be advances against the Term Note, whether or not this creates an over-advance thereunder, and shall be payable in accordance with its terms.

13.20. Attorney-in-Fact . Borrower and Guarantors hereby designate, appoint and empower Lender irrevocably as their attorney-in-fact, at Borrower’s and Guarantors’ cost and expense, to do in the name of Borrower and Guarantors any and all actions which Lender may deem necessary or advisable to carry out the terms hereof upon the failure, refusal or inability of Borrower or Guarantors to do so and Borrower and Guarantors hereby agree to indemnify and hold Lender

harmless from any costs, damages, expenses or liabilities arising against or incurred by Lender in connection therewith. Without limitation, Borrower and Guarantors specifically authorize all federal, state and municipal authorities to furnish reports of examinations, records and other information relating to the conditioned affairs of Borrower and Guarantors to Lender upon Lender’s request.

13.21. Prepayment Premium . In the event of prepayment, in whole or in part, a prepayment penalty rate shall be assessed as follows:

(a) If the prepayment occurs on or before the first anniversary date of this Agreement, the prepayment penalty will equal ten percent (10%) of the principal amount prepaid.

(b) If the prepayment occurs after the first anniversary date, but on or before the second anniversary date, the prepayment penalty will equal nine percent (9%) of the principal amount prepaid.

(c) If the prepayment occurs after the second anniversary date, but on or before the third anniversary date, the prepayment penalty will equal eight percent (8%) of the principal amount prepaid.

(d) If the prepayment occurs after the third anniversary date, but on or before the fourth anniversary date of this Note, the prepayment penalty will equal seven percent (7%) of the principal amount prepaid.

(e) If the prepayment occurs after the fourth anniversary date, but on or before the fifth anniversary date, the prepayment premium will equal six percent (6%) of the principal amount prepaid.

(f) If the prepayment occurs after the fifth anniversary date, but on or before the sixth anniversary date, the prepayment premium will equal five percent (5%) of the principal amount prepaid.

(g) If the prepayment occurs after the sixth anniversary date, but on or before the seventh anniversary date, the prepayment premium will equal four percent (4%) of the principal amount prepaid.

(h) If the prepayment occurs after the seventh anniversary date, but on or before the eighth anniversary date, the prepayment premium will equal three percent (3%) of the principal amount prepaid.

(i) If the prepayment occurs after the eighth anniversary date, but on or before the ninth anniversary date, the prepayment premium will equal two percent (2%) of the principal amount prepaid.

(j) If the prepayment occurs after the ninth anniversary date, but on or before the tenth anniversary date, the prepayment premium will equal one percent (1%) of the principal amount prepaid.

A prepayment premium shall not apply if the prepayment occurs after the tenth anniversary date.

13.22. Modifications/Amendments. Any amendments, adjustments, or waivers of the covenants and terms of this Agreement shall require the approval and concurrence of the Rural Development and the Lender.

13.23 Notice and Opportunity to Cure. Notwithstanding any other provision to the contrary contained in this Agreement or in any of the other Loan Documents, upon the occurrence of a monetary default or a monetary Event of Default under any of the Loan

Documents, Lender shall not be required to send written notice to Borrower and/or Guarantors. All loan payments are due on the first (1 st ) day of each month, however; payments will not be considered late until the eleventh (11 th ) day of each month. In the event the default does not involve the payment of money by Borrower to Lender, Borrower and Guarantors shall have thirty (30) days following receipt of such notice to fully cure such default. In the event the default is cured within such period, it shall be as if no default had occurred.

In all events when Lender takes any action to accelerate, or direct payment to the Lender from persons owing money to Borrower, or exercise any right to setoff, Lender shall within a reasonable time after such action provide written notice thereof to the Borrower.

The notices and opportunity to cure provided for in this section shall be deemed incorporated into each of the Loan Documents, and shall take priority over and supersede any conflicting provision in any of the other Loan Documents.

13.24 Conflicts In the event there is any conflict between this Agreement and the USDA Conditional Commitment for Guarantee, the USDA Conditional Commitment for Guarantee shall control.

13.25 Multiple Signature Pages This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, Borrower, Guarantors and Lender each have set their hands and seals, as of the day and year first above written.

	BORROWER :

	ERIN PROPERTY HOLDINGS, LLC


	By:	(L.S.)
Witness	Chris Brogdon, Manager

	LENDER :

	Bank of Atlanta

	BY:
Witness	Thomas L. Dorman, Sr. Vice President

	[BANK SEAL]

	GUARANTORS :

	Erin Nursing, LLC


	By:	(L.S.)
Witness	Chris Brogdon, Manager

	AdCare Health Systems, Inc.


	By:
Witness	Chris Brogdon
	Vice Chairman and Chief Acquisition Officer

TABLE OF EXHIBITS

EXHIBIT	DESCRIPTION OF EXHIBIT	SECTION

A	Collateral Locations	1.1

B	Facility/Land	1.1

C	Permitted Encumbrances	1.1

D	Term Note	1.1

E	Board Resolutions	3.2

F	Opinion of Counsel	3.8

G	Guaranties	3.16

H	Deed to Secure Debt and Security Agreement	5.2

I	Security Agreement	5.2

J	Financial Statements	8.4

K	Material Litigation	8.11

L	Adverse Contracts	8.14

M	Repayment Schedule	1.1

EXHIBIT “A”

1.1 ( Collateral Locations )

606 Simmons St., Dublin, Laurens County, Georgia 30121

EXHIBIT “B”

1.1 ( Facility/Land )

[SEE ATTACHED LEGAL DESCRIPTION]

EXHIBIT “C”

1.1 ( Permitted Encumbrances )

1. All ad valorem real property taxes for the calendar year 2011, and all years subsequent thereto, and those taxes and special assessments that become due or payable subsequent to Date of Policy , which are liens not yet due or payable.

2. This policy insures the location of the boundary lines of the subject property as shown on the survey referenced below, but does not insure the engineering calculations used in computing the exact acreage contained herein.

3. Right-of-Way Easement from Mrs. Hortense Wong Collier and Mrs. Virdie Rooks to Georgia Power Company, filed October 19, 1943, and recorded at Deed Book 91, page 507, Laurens County, Georgia Records, as shown and located on ALTA/ACSM Survey for Erin Nursing, LLC, prepared by LandPro Surveying and Mapping, bearing the certification of James H. Rader, G.R.L.S. No. 3033, dated January 26, 2011.

4. Right-of-Way Easement from Mayme Dudley to Georgia Power Company, dated May 31, 1966, filed June 9, 1966, recorded at Deed Book 243, page 241, Laurens County, Georgia Records, as shown and located on ALTA/ACSM Survey for Erin Nursing, LLC, prepared by LandPro Surveying and Mapping, bearing the certification of James H. Rader, G.R.L.S. No. 3033, dated January 26, 2011.

5. Long Branch Interceptor Sewer Easement from Laurens Convalescent Center, Inc. to the City of Dublin, dated November 5, 1992, filed November 24, 1992, and recorded at Deed Book 681, page 293, Laurens County, Georgia Records, as shown and located on ALTA/ACSM Survey for Erin Nursing, LLC, prepared by LandPro Surveying and Mapping, bearing the certification of James H. Rader, G.R.L.S. No. 3033, dated January 26, 2011.

6. The following matters as shown by ALTA/ACSM Survey for Erin Nursing, LLC, prepared by LandPro Surveying and Mapping, bearing the certification of James H. Rader, G.R.L.S. No. 3033, dated January 26, 2011:

a. Rights of upper and lower riparian owners in and to the waters of Long Branch Creek crossing subject property, free from diminution or pollution;

b. Encroachment of driveway, appurtenant to subject property, across the easterly portion of the southerly property line;

c. Overhead electric lines and poles located throughout subject property;

d. Encroachment of fence, appurtenant to subject property, across the southerly property line.

7. Rights of patients under patient care agreements.

8. Shared first lien position Deeds to Secure Debt from Erin Property Holdings, LLC to Bank of Atlanta, dated July , 2011, and recorded at Deed Book , page , Laurens County, Georgia Records, to secure an $800,000.00 indebtedness and a $5,000,000.00 indebtedness.

9. Pari Passu Agreement by and between Erin Property Holdings, LLC. and Bank of Atlanta, dated July , 2011, and recorded at Deed Book , page , Laurens County, Georgia Records.

10. Credit Agreement with Gemino Healthcare Finance, LLC for working capital financing and related security agreements.

EXHIBIT “D”

1.1 ( Term Note )

[Included in Loan Documents]

EXHIBIT “E”

3.2 ( Board Resolutions )

[Included in Loan Documents]

EXHIBIT “F”

3.8 ( Opinion of Counsel )

[Included in Loan Documents]

EXHIBIT “G”

3.16 ( Guaranties )

[Included in Loan Documents]

EXHIBIT “H”

5.2 ( Deed to Secure Debt and Security Agreement )

[Included in Loan Documents]

EXHIBIT “I”

5.2 ( Security Agreement )

[Included in Loan Documents]

EXHIBIT “J”

8.4 ( Financial Statements )

[On File with Bank]

EXHIBIT “K”

8.11 ( Material Litigation )

NONE.

EXHIBIT “L”

8.14 ( Adverse Contracts )

NONE.

EXHIBIT “M”

1.1 ( Repayment Schedule )

[On File with Bank]

Exhibit 10.4

LOAN AGREEMENT

THIS LOAN AGREEMENT, made and entered into this 27 th day of July, 2011, by and between ERIN PROPERTY HOLDINGS, LLC (the “Borrower”) and BANK OF ATLANTA (“Lender”).

W I T N E S S E T H :

WHEREAS, Borrower desires financing on certain real property and business assets located thereon in Laurens County, Georgia, more particularly described in Exhibit “A” attached hereto and by this reference made a part hereof (“Property”);

WHEREAS, of even date herewith, Lender and Borrower entered into that certain loan wherein the Lender agreed to provide a loan (the “Loan”) to Borrower for up Eight Hundred Thousand and No/100 Dollars ($800,000.00) to pay outstanding debt and for working capital; and

WHEREAS, in order to loan funds to Borrower, Lender enters into this Loan Agreement with Borrower for the purposes herein contained; and

WHEREAS, the loan made hereunder will be secured in part by a shared first security interest in the Property and a shared first lien position on furniture, fixtures and equipment located at the Property, or wherever located.

NOW, THEREFORE, for and in consideration of the premises, the sum of Ten ($10.00) Dollars and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

AMOUNT AND TERMS OF LOAN

1.1 RECITALS. Each of the above recitals are hereby incorporated into and made a part of this Agreement by this reference.

1.2 LOAN AND NOTE. The term “Loan” herein shall refer to the indebtedness of Borrower to Lender evidenced by a Note in the original principal amount Eight Hundred Thousand and No/100 Dollars ($800,000.00) in form satisfactory to Lender (the “Note”).

ARTICLE II

CONDITION OF LENDING

2.1 CONDITIONS PRECEDENT TO THE LOAN. As a condition precedent to Lender making the Loan, the Borrower shall deliver to Lender on or before the date of the Loan closing, the following, in form and substance satisfactory to Lender:

(a) The Note;

(b) Deed to Secure Debt and Security Agreement;

(d) Evidence satisfactory to Lender of ownership of the Collateral by Borrower free and clear of encumbrances of any kind;

(e) Unconditional Corporate Guarantees from Erin Nursing, LLC and AdCare Health Systems, Inc. (collectively, the “Guarantors”);

(f) Such other documents as reasonably may be required by the Lender or Lender’s counsel.

The Loan documents as provided above (collectively, the “Loan Documents”), when prepared, shall set forth the matters contained in the Loan Agreement and contain such other provisions as are deemed necessary or desirable by Lender. The form and substance of all such documents must be satisfactory to Lender prior to disbursement by Lender of any of the proceeds of the Loan.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF BORROWER

The Borrower represents and warrants to, and agrees with the Lender as follows:

3.1 POWER AND AUTHORIZATION.

(a) The Borrower and/or Guarantors have authorized the execution and delivery of the Note and all other documents contemplated by this Loan Agreement, and such execution and delivery will not violate any law, or any other agreement to which Borrower and/or Guarantors are a party.

(b) This Loan Agreement constitutes, and upon execution and delivery thereof, the Note, the Deed to Secure Debt and Security Agreement and the ancillary documents will constitute, legal, valid and binding obligations of the Borrower and/or Guarantor enforceable against the Borrower and/or Guarantors.

3.2 FINANCIAL CONDITION. The reports and financial statements of Borrower and Guarantors submitted to Lender in connection with the Loan have been prepared from Borrower’s or Guarantors’ books and records in accordance with generally accepted accounting principles and practices, consistently applied, and fairly reflect the financial condition of Borrower and Guarantors for the periods therein defined. No material adverse changes have since occurred.

Except as disclosed in the aforesaid reports and financial statements, Borrower:

(a) Has not incurred any debts, liabilities or other obligations nor committed to incur any debts, liabilities or obligations;

(b) Has no liabilities, direct or contingent;

(c) Has made no investments in, advances to, or guaranties or obligations of any other company, person, firm, corporation, or other entity;

(d) Is not subject to any judgment, nor are there any liens, encumbrances or security interests outstanding against Borrower or any of its properties.

3.3 LITIGATION. There is no litigation, proceeding, claim or dispute pending or threatened against Borrower, the adverse determination of which would materially affect Borrower’s ability to repay the loan or otherwise perform hereunder.

ARTICLE IV

COVENANTS BY BORROWER

Until all the obligations of Borrower under this Agreement have been performed and paid in full, Borrower covenants and agrees as follows:

4.1 INSURANCE. Borrower shall maintain or require Guarantors to maintain insurance on the Collateral (hereinafter defined) as described in Article VII hereof in such amounts and against such hazards and liabilities as is customarily maintained by other companies in the same geographical area operating similar businesses or as may be otherwise requested by the Lender. All such policies of insurance shall be in form and substance and with insurance companies satisfactory to Lender, and Borrower shall deliver evidence thereof to Lender upon request. Further, upon request, Lender shall be designated as loss payee or as mortgagee under any such policies, as its interests may appear.

4.2 MAINTENANCE OF BUSINESS AND CORPORATE EXISTENCE. Borrower shall comply with all valid and applicable statutes, ordinances, rules and regulations and shall keep in force and effect all licenses, permits, bonds and franchises necessary for the proper conduct of its business.

4.3 ADVERSE CHANGES AND LITIGATION. Borrower shall immediately inform Lender of any material adverse change in its financial condition, or the financial condition of Guarantors, and shall promptly inform Lender of any litigation or threatened litigation or of the occurrence of any other event or circumstance which might substantially affect the financial condition or business of Borrower or Guarantors.

4.4 MANAGEMENT AND OWNERSHIP. No material adverse change shall be made without the prior written consent of Lender in the management or ownership of Borrower,

or in the manner in which its business is conducted. Said consent shall not be unreasonably withheld by Lender.

4.5 FINANCIAL STATEMENTS. Within one hundred twenty (120) days of Borrower’s fiscal year end, Borrower and Guarantors shall furnish to Lender a copy of their compiled financial statement. Borrower’s and Guarantors’ financial statements shall contain a balance sheet, profit and loss statement and aging of accounts receivable and accounts payable, all in reasonable detail, prepared in accordance with generally accepted accounting principles, consistently applied. Each set of financial statements shall be prepared by a certified public accountant or accountants acceptable to Lender and certified by a duly authorized officer of Borrower to be correct and accurate. Borrower and Guarantor shall also furnish a copy of its income tax returns, and such other or additional financial information as Lender may from time to time request. Borrower shall also furnish evidence of payment of real estate taxes on the Property to Lender on an annual basis.

4.6 OTHER DEBTS. Other than the loan from Lender of even date herein in the principal amount of $800,000.00 and that certain $5,000,000.00 USDA loan from Bank of Atlanta, the Borrower shall not directly or indirectly incur, create, assume or permit to exist any obligation for payment of borrowed money, excepting only unsecured current liabilities incurred in the ordinary course of business and obligations contemplated by this Agreement, without the express written consent of Lender, which consent shall not be unreasonably withheld. Further, Borrower shall not guarantee the obligations of any person or entity, excepting only obligations contemplated by this Agreement. Lender acknowledges that certain credit agreement with Gemino Healthcare Finance, LLC for working capital financing.

4.7 SALE OF COLLATERAL. Borrower shall not sell, lease, transfer or otherwise dispose of any of the Collateral as described in ARTICLE VII hereof, other than in the ordinary course of Borrower’s business. If Borrower should desire to sell any of the Collateral, a release price therefor will be determined at the sole discretion of Lender, and upon the sale of that Collateral, the release price will be paid over by Borrower to Lender and applied by Lender to payments due on the Note, in inverse order of the due dates, and Lender shall thereupon release its lien or security interest upon the Collateral sold.

4.8 BULK SALE. The Borrower shall not, without the prior written consent of the Lender, sell, transfer or convey all or any part of its interest in its assets to another entity.

4.9 ENCUMBRANCES. Borrower shall not incur or permit to exist nor allow Guarantors to incur or permit to exist any encumbrance, pledge or lien upon or against any of the Collateral, except:

(a) Liens or security interests required or expressly contemplated or permitted by this Agreement;

(b) Liens for taxes, assessments and other governmental charges not yet due and liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due; and

4.10 TAXES. Borrower shall pay promptly, when due, all taxes, assessments and governmental charges or levies imposed upon the Borrower or upon the income or any property of the Borrower, as well as all claims of any kind (including claims for labor, material, supplies or rent) which, if unpaid, might become a lien upon any or all of the Collateral.

4.11 EXAMINATION OF RECORDS. Borrower shall permit any representative of Lender to examine and to audit any or all of Borrower’s books and records and to copy portions thereof, and to visit and inspect any of the Collateral upon receipt of reasonable notification and request.

ARTICLE V

EVENTS OF DEFAULT

The occurrence of any one or more of the following shall constitute an “Event of Default”:

(a) Nonpayment, when due, of any principal, accrued interest, premium, fee or other charge due under the Note.

(b) Default by Borrower in the due observance or performance of any term, covenant, condition or agreement on its part to be performed under this Loan Agreement, the Note, or under any other document contemplated by this Loan Agreement.

(1) Make a general assignment for the benefit of its creditors;

(2) File a voluntary petition in bankruptcy;

(3) Be adjudicated as bankrupt or insolvent;

(4) File any petition or answer seeking, consenting to, or acquiescing in, reorganization, arrangement, composition, liquidation, dissolution or similar relief, under any present or future statute, law or regulation;

(5) File an answer admitting or failing to deny the material allegations of the petition against it for any such relief;

(6) Admit in writing its inability to pay its debts as they mature;

(7) Discontinue business; or

(8) Be unable to pay debts as they become due.

(d) Borrower fails to have vacated or set aside within thirty (30) days of its entry any court order appointing a receiver or trustee for all or a substantial portion of the Borrower’s property.

(e) Any warranty, representation or statements made or furnished to Lender by Borrower in connection with the Loan or in connection with this Agreement (including any warranty, representation or statement in the application of Borrower for the Loan or in any accompanying financial statements) or to induce Lender to make the Loan, proves to be untrue, misleading or false in any material respect.

(f) Borrower suffers or permits any lien, encumbrance or security interest to attach to any of its property, except as herein otherwise expressly permitted, or if any judgment shall be entered against Borrower or any attachment shall be made against any property of Borrower, which judgment or attachment shall remain undischarged, unbonded, or undismissed for a period of ten (10) days.

(g) Borrower defaults in the payment of any principal or interest on any obligation to Lender or to any other creditor.

(h) Borrower shall sell, lease, or otherwise transfer or convey any of the Collateral, or any interest therein without Lender’s prior written approval, except as herein otherwise expressly permitted.

(i) Borrower defaults under or causes to be revoked any state or county permit or license.

ARTICLE VI

REMEDIES ON EVENT OF DEFAULT

6.1 DECLARE NOTE DUE. Upon the occurrence of any Event of Default as defined in this Agreement, the Note, the Deed to Secure Debt and Security Agreement or any other document contemplated by this Agreement, then in any such event, Lender at its option, may declare the entire unpaid balance of the Note to be forthwith due and payable, and thereupon such balance shall become so due and payable without presentment, protest or further demand or notice of any kind, all of which are hereby expressly waived, and Borrower will forthwith pay to Lender the entire principal of and interest accrued on the Note.

6.2 OTHER REMEDIES. Upon the occurrence or discovery of an Event of Default, the Lender shall, in addition to its option to declare the entire unpaid amount of the Note due and payable, at its option:

(a) Move to protect its rights and remedies as a secured party under the Deed to Secure Debt and Security Agreement, by extrajudicial authority as set forth in that instrument, by action at law or equity, or by any other lawful remedy to enforce payment.

(b) Apply the proceeds from any disposition of the Collateral to the satisfaction of the following items in the order in which they are listed:

(1) The expenses of taking, preserving, insuring, repairing, holding and selling the Collateral, including any legal costs and attorney’s fees. If any of the Note shall be referred to an attorney for collection, Borrower and all others liable on the Note, jointly and severally agree to pay reasonable attorney’s fees and all costs of collection.

(2) The unpaid amount of any interest due on the Note, and all other expenses of Lender.

(3) The unpaid principal amounts of the Note.

(4) Any other indebtedness of Borrower to Lender.

(5) The remainder, if any, to Borrower, it being understood and agreed that if the proceeds realized from the disposition of the Collateral shall fail to satisfy items (1) through (4) above, Borrower shall forthwith pay any such deficiency to Lender upon demand.

(c) Exercise any and all rights of setoff which Lender may have against any account, fund or property of any kind, tangible or intangible, belonging to Borrower and which shall be in Lender’s possession or under Lender’s control.

ARTICLE VII

COLLATERAL

Borrower’s obligation for payment of the Note shall be collateralized by the following (the “Collateral”):

7.1 DEED TO SECURE DEBT AND SECURITY AGREEMENT. A first Deed to Secure Debt and Security Agreement on property located at 606 Simmons St., Dublin, Laurens County, Georgia 30121.

7.2 UCC FINANCING STATEMENTS. A shared first security interest on all Borrower’s furniture, fixtures and equipment located at the Property or wherever located.

ARTICLE VIII

MISCELLANEOUS

8.1 CLOSING. The Lender shall not be obligated to make the Loan or advance any funds until Borrower has fully met all requirements herein set forth to be met by Borrower, and until Borrower has paid to Lender and any other parties entitled thereto, all fees and other charges due in connection with the Loan.

8.2 AMENDMENTS. No amendment of any provisions of this Loan Agreement, nor consent to any departure of Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

8.3 NOTICES. All notices and other communications provided for hereunder shall be in writing and mailed or telegraphed or delivered.

If to Borrower:

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

If to Lender:

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

8.4 GOVERNING LAW AND PARTIES BOUND. This Agreement and Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

8.5 ATTORNEY’S FEES AND EXPENSES. If Lender shall incur any cost or expense, including, without limitation, reasonable attorney’s fees, in connection with this Agreement, the Note or the Loan, in any manner whatsoever, direct or indirect, whether with regard to the collection of amounts due, protection of Collateral, defense of Lender or otherwise, upon demand by Lender, Borrower shall pay the same or shall reimburse Lender therefor in full.

8.6 ASSIGNMENT BY BORROWER. No commitment issued by Lender to Borrower for the Loan nor any of Borrower’s rights hereunder shall be assignable by Borrower without the prior written consent of Lender.

8.7 NO WAIVER: REMEDIES. No failure on the part of the Lender, and no delay in exercising any right under this Loan Agreement, shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Loan Agreement preclude any other or further exercise thereof or the exercise of any other right.

8.8 SEVERABILITY. In the event that any clause or provisions of this Loan Agreement or any document or instrument contemplated by this Agreement shall be held to be invalid by any court of competent jurisdiction, the invalidity of such clause or provision shall not affect any of the remaining portions or provisions of this Loan Agreement.

8.9 TIME. Time is of the essence of this Agreement.

8.10 INTEREST. Interest shall be calculated on the basis of an actual 365 day year.

8.11 SBA LOAN. The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small

business owners. If the United States is seeking to enforce this document, then under SBA regulations:

a) When SBA is the holder of the Note, this document and all documents evidencing or securing this Loan will be construed in accordance with federal law.

b) Lender or SBA may use local or state procedures for purposes such as filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does not waive any federal immunity from local or state control, penalty, tax or liability. No Borrower or Guarantor may claim or assert against SBA any local or state law to deny any obligation of Borrower, or defeat any claim of SBA with respect to this Loan.

Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured by this instrument.

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

	BORROWER:


Signed, sealed and delivered in the presence of:	ERIN PROPERTY HOLDINGS, LLC


/s/ ILLEGIBLE	By:	/s/ Chris Brogdon		(L.S.)
Witness		Chris Brogdon, Manager

/ s / Damaris Marriaga
Notary Public

	LENDER:

Signed, sealed and delivered in the presence of:	BANK OF ATLANTA

/s/ ILLEGIBLE	By:	/s/ Thomas L. Dorman
Witness		Name:	Thomas L. Dorman
		Title:	S.V.P.
/s/ Karen Rivers
Notary Public	(Bank Seal)

The undersigned hereby expressly agree and consent to all of the terms and conditions contained herein and further agree to be bound by all of the terms and conditions contained herein. This 27 th day of July, 2011.

GUARANTORS:


Erin Nursing, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager

AdCare Health Systems, Inc.


By:	/s/ Chris Brogdon
Chris Brogdon
Vice Chairman and Chief Acquisition Officer

[CORPORATE SEAL]

EXHIBIT “A”

LEGAL DESCRIPTION

Exhibit 10.5

RETURN TO:

Reid H. Harbin, Esq.

Harbin & Miller, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

DEED TO SECURE DEBT AND SECURITY AGREEMENT

THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT (hereinafter referred to as this “Deed”) is made and entered into this 27 th day of July, 2011, by and ERIN PROPERTY HOLDINGS, LLC, party of the first part, as grantor, whose address is 3050 Peachtree Road, NW, Suite 355, Two Buckhead Plaza, Atlanta, Georgia 30305 (hereinafter referred to as “Borrower”), and BANK OF ATLANTA, party of the second part, as grantee, whose address is 1970 Satellite Blvd., Duluth, Georgia 30097 (hereinafter referred to as “Lender”);

W I T N E S S E T H :

THAT FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, and in order to secure the indebtedness and other obligations of Borrower hereinafter set forth, Borrower does hereby grant, bargain, sell, convey, assign, transfer, pledge and set over unto Lender and the successors, successors-in-title, and assigns of Lender all of the following described land and interests in land, estates, easements, rights, improvements, personal property, fixtures, equipment, furniture, furnishings, appliances and appurtenances (hereinafter referred to collectively as the “Premises”):

(a) All those certain tracts, pieces or parcels of land more particularly described in Exhibit “A” (commonly known as 606 Simmons St., Dublin, Laurens County, Georgia 30121) attached hereto and by this reference made a part hereof (hereinafter referred to as the “Land”).

(b) All of Borrower’s right, title and interest in and into all buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land, and all gas and electric fixtures, radiators, heaters, engines and machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures, carpeting and other floor coverings, fire extinguishers and any other safety equipment required by governmental regulation or law, washers, dryers, water heaters, mirrors, mantels, air conditioning apparatus, refrigerating plants, refrigerators, cooking apparatus and appurtenances, window screens, awning and storm sashes, which are or shall be attached to said buildings, structures or improvements and all other furnishings, furniture, fixtures, machinery, equipment, appliances, vehicles (excluding Borrower’s personal automobiles, if any), building supplies and materials, books and records, chattels, farm products, consumer goods and personal property of every kind and nature whatsoever now or hereafter owned by Borrower and located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of the Premises, including all extensions, additions, improvements, betterments, after-acquired property, renewals, replacements and substitutions, or proceeds from a permitted sale of any of the foregoing, and all the right, title and interest of Borrower in any such furnishings, furniture, fixtures, machinery, equipment, appliances, vehicles and personal property subject to or covered by any prior security agreement, conditional sales contract, chattel mortgage or similar lien or claim, together with the benefit of any deposits or payments now or hereafter made by Borrower or on behalf of Borrower, to the extent assignable all tradenames, trademarks, servicemarks, logos and goodwill related thereto which in any way now or hereafter belong, relate or appertain to the Premises or any part thereof or are now or hereafter acquired by Borrower; and all equipment, fixtures, farm products and consumer goods constituting proceeds acquired with cash proceeds of any of the property described hereinabove, all of which are hereby declared and shall be deemed to be fixtures and accessions to the Land and a part of the Premises as between the parties hereto and all persons claiming by, through or under them, and which shall be deemed to be a portion of the security for the indebtedness herein described and to be secured by this Deed. The location of the above described collateral is also the location of the Land.

(c) All of Borrower’s right, title and interest in all; easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, minerals, flowers, shrubs, crops, trees, timber and other emblements now or hereafter located on the Land or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances, reversion and reversions, remainder and remainders, whatsoever, in any way belonging, relating or appertaining to the Premises or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Borrower.

(d) All income, rents, issues, profits and revenues of the Premises from time to time accruing (including without limitation all payments under leases or tenancies, proceeds of insurance, condemnation payments, tenant security deposits whether held by Borrower or in a trust account, and escrow funds), and all the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of Borrower of, in and to the same; reserving only the right to Borrower to collect expend, apply and otherwise deal with the same so long as Borrower is not in Default, as defined in 2.01 hereunder.

TO HAVE AND TO HOLD the Premises and all parts, rights, members and appurtenances thereof, to the use, benefit and behoof of Lender and the successors and assigns of Lender, IN FEE SIMPLE forever; and Borrower covenants that Borrower is lawfully seized and possessed of the Premises as aforesaid, and has good right to convey the same, that the same are unencumbered except for those matters (hereinafter referred to as the “Permitted Encumbrances”) expressly set forth in Exhibit “B” attached hereto and by this reference made a part hereof, and that Borrower does warrant and will forever defend the title thereto against the claims of all person whomsoever, except as to the Permitted Encumbrances.

This Deed is intended to operate and is to be construed as a deed passing the title to the Premises to Lender and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage, and is given to secure the payment of the following described indebtedness (hereinafter referred to collectively as the “Indebtedness”):

(a) The debt evidenced by that certain promissory note (hereinafter referred to as the “Note”) dated of even date herein, made by Borrower to the order of Lender in the principal face amount of Five Million and No/100 Dollars ($5,000,000.00), with the final payment being due on or before July 27, 2036; together with any and all renewals, modifications, consolidations and extensions of the indebtedness evidenced by the Note;

(b) Any and all additional advances made by Lender to protect or preserve the Premises or the security interest created hereby on the Premises, or for taxes, assessments or insurance premiums as hereinafter provided or for performance of any of Borrower’s obligations hereunder or for any other purpose provided herein (whether or not the original Borrower remains the owner of the Premises at the time of such advances).

Should the Indebtedness be paid according to the tenor and effect thereof when the same shall become due and payable, and should Borrower perform all covenants herein contained in a timely manner, then this Deed shall be canceled and surrendered.

Borrower hereby further covenants and agrees with Lender as follows:

ARTICLE I

1.01 Payment of Indebtedness . Borrower and/or Borrower shall pay the Note according to the tenor thereof and the remainder of the Indebtedness promptly as the same shall become due.

1.02 Taxes, Liens and Other Charges .

(a) Borrower, unless being contested in good faith, shall pay, on or before the due date thereof, all taxes, assessments, levies, license fees, permit fees and all other charges (in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen) of every character whatsoever (including all penalties and interest thereof) now or hereafter levied, assessed, confirmed or imposed on, or in respect of, or which may be a lien upon, the Premises, or any part thereof, or any estate, right or interest therein, or upon the rents, issues, income or profits thereof, and shall submit to Lender such evidence of the due and punctual payment of all such taxes,

assessments and other fees and charges as Lender may require in writing. Notwithstanding the above, the Borrower shall pay in full the above taxes, assessments, levies, fees and charges within sixty (60) days of delinquency.

(b) Borrower, unless being contested in good faith, shall pay, on or before the due date thereof, all taxes, assessments, charges, expenses, costs and fees which may now or hereafter be levied upon, or assessed or charged against, or incurred in connection with, the Note, the other Indebtedness, this Deed or any other instrument now or hereafter evidencing, securing or otherwise relating to the Indebtedness, and shall submit to Lender such evidence of the due and punctual payment of all such taxes, assessments, charges, expenses, costs and fees as Lender may require in writing. Notwithstanding the above, the Borrower shall pay in full the above taxes, assessments, levies, fees and charges within sixty (60) days of delinquency.

(c) Borrower shall pay, on or before the due date thereof: all premiums on policies of insurance covering, affecting or relating to the Premises, as required pursuant to Paragraph 1.03. Borrower shall submit to Lender such evidence of the due and punctual payment of all such premiums, rentals and other sums as Lender may require in writing.

(d) In the event of the passage of any state, federal, municipal or other governmental law, order, rule or regulation, subsequent to the date hereof, in any manner changing or modifying the laws now in force governing the taxation of deeds to secure debt or security agreements or debts secured thereby or the manner of collecting such taxes so as to adversely affect Lender, Borrower will pay any such tax on or before the due date thereof. If Borrower fails to make such prompt payment or if, in the opinion of Lender, any such state, federal, municipal, or other governmental law, order, rule or regulation prohibits Borrower from making such payment or would penalize Lender if Borrower makes such payment or if, in the opinion of Lender, the making of such payment might result in the imposition of interest beyond the maximum amount permitted by applicable law, then the entire balance of the Indebtedness and all interest accrued thereon shall, at the option of Lender, become immediately due and payable 90 days from such written notice from Lender.

1.03 Insurance .

Borrower agrees to keep the Premises insured against loss or damage by fire and other casualty with extended coverage and against any other risks or hazards which in the reasonable opinion of Lender should be insured against, and in any case against all risks which persons, engaged in the same business as is carried on at the Premises, customarily insure against, in an amount acceptable to Lender with endorsements for vandalism and malicious mischief. Borrower shall also carry insurance against the risk of rental or business interruption at the Premises, in an amount reasonably acceptable to Lender, not to exceed 12 months. All of such insurance shall be placed with a company or companies and in such form and with such endorsements as may be approved or required by Lender. Loss under all such insurance shall be payable to Lender in accordance with this paragraph, and all such insurance policies shall be endorsed with a standard, non-contributory mortgagee’s clause in favor of Lender. Borrower shall also carry public liability insurance, in such form, amount and with such companies as Lender may from time to time reasonably require, naming Lender as an additional insured. The

policy or policies evidencing all insurance referred to in this paragraph and receipts for the payments of premiums thereon shall be delivered to and held by Lender. All such insurance policies shall contain a provision requiring at least ten (10) days notice to Lender prior to any cancellation or modification. Borrower shall give Lender satisfactory evidence of renewal of all such policies with premiums paid at least thirty (30) days before expiration. Borrower agrees to pay all premiums on such insurance as they become due, and will not permit any condition to exist on or with respect to the Premises which would wholly or partially invalidate any insurance thereon. Lender shall not by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any such insurance, incur any liability for the form or legal sufficiency of insurance contracts, solvency of insurers, or payment of losses, and Borrower hereby expressly assumes full responsibility therefor and all liability, if any, thereunder. Effective upon the acceleration of the indebtedness evidenced hereby, by reason of any default hereunder, all of Borrower’s right, title and interest in and to all such policies and any unearned premiums paid thereon are hereby assigned to Lender, who shall have the right, but not the obligation, to assign the same to any purchaser of the Premises at any judicial foreclosure sale or any sale pursuant to the power of sale created hereby. The requirements of Borrower for insurance under the provisions of this paragraph may be modified or amended in whole or in part by Lender, in its reasonable discretion, and Borrower agrees, upon any expiration of any existing policy or policies of insurance, to provide a replacement policy or polices which shall meet such amended or modified insurance standards. In the event of loss, Borrower shall give immediate written notice to the insurance carrier and Lender. Borrower hereby authorizes Lender to make proof of loss, to adjust and prosecute any action arising from such insurance policies, to collect and receive insurance proceeds, and to deduct therefrom Lender’s actual expenses incurred in the collection of such proceeds. Borrower understands and agrees that the power of attorney hereby granted to Lender is a power coupled with an interest and is irrevocable until Lender’s interest hereunder is terminated by the payment and performance of all of Borrower’s obligations and indebtedness secured hereby. Borrower further authorizes Lender, (a) to hold the balance of such proceeds to be used to reimburse Borrower for the costs of reconstruction or repair of the Premises as provided in Paragraph 1.05(a)(iii) below, or (b) to apply the balance of such proceeds to the payment of the sums secured by this Deed to Secure Debt and Security Agreement, whether or not then due, in accordance with the terms hereby.

1.04 Monthly Deposits . Upon Default, at the option of Lender and further to secure the payment of the taxes and assessments referred to in Paragraph 1.02 and the premiums on the insurance referred to in Paragraph 1.03, Borrower shall deposit with Lender, on the due date of each installment under the Note, such amounts as, in the reasonable estimation of Lender, shall be necessary to pay such charges as they become due; said deposits to be held by Lender, free of interest, and free of any liens or claims on the part of creditors of Borrower and as part of the security of Lender, and to be used by Lender to pay current taxes and assessments and insurance premiums on the Premises as the same accrue and are payable. Payment from said sums for said purposes shall be made by Lender in a timely fashion for any proper purpose. Said deposits shall not be, nor be deemed to be, trust funds but may be commingled with the general funds of Lender. If said deposits are insufficient to pay the taxes and assessments and insurance premiums in full as the same become payable, Borrower will deposit, upon written request, with Lender such additional sum or sums as may be required in order for Lender to pay such taxes and assessments and insurance premiums in full. Upon any default in the provisions of this Deed or the Note, or any

instrument evidencing, securing or in any way related to the Indebtedness, Lender may, at its option, apply any money in the fund resulting from said deposits to the payment of the Indebtedness in such manner as it may elect.

1.05 Condemnation . (a) Immediately upon its obtaining knowledge of the institution or the threatened institution of any proceeding for the condemnation of the Premises or any part thereof, Borrower shall notify Lender of such fact. Borrower shall then, if requested by Lender, file or defend its rights thereunder and prosecute same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Lender for disposition pursuant to the terms of this Deed to Secure Debt and Security Agreement. Borrower may be the nominal party in such proceeding but Lender shall be entitled to participate in and to control same and to be represented therein by counsel of its own choice, and Borrower will deliver, or cause to be delivered, to Lender such instruments as may be requested by it from time to time to permit such participation. If the Premises or any part thereof is taken or diminished in value, or if a consent settlement is entered, by or under threat of such proceeding, the award or settlement payable to Borrower by virtue of its interest in the Premises shall be, and by these presents is, assigned, transferred and set over unto Lender to be held by it, in trust, subject to the lien and security interest of this Deed to Secure Debt and Security Agreement, and disbursed as follows:

(i) If (1) all of the Premises is taken, (2) so much of the Premises is taken, or the Premises is so diminished in value, that the remainder thereof cannot (in Lender’s reasonable judgment) continue to be operated profitably for the purpose for which it was being used immediately prior to such taking or diminution, (3) an event of default hereunder shall have occurred, or (4) the Premises is partially taken or diminished in value and (in Lender’s reasonable judgment) need not be rebuilt, restored or repaired in any manner, then in any such event the entirety of the sums so paid to Lender shall be applied by it in the order recited in subparagraph 1.05(b) hereinbelow; or

(ii) If (1) only a portion of the Premises is taken and the portion remaining can (in Lender’s reasonable judgment), with rebuilding, restoration or repair, be profitably operated for the purpose for which it was being used immediately prior to such taking or diminution, and (2) none of the other facts recited in subparagraph 1.05(a)(i) hereinabove exists, Lender may elect, in its reasonable discretion, to require Borrower to repair, restore or rebuild the Premises to its condition existing immediately prior to such taking or diminution in value to the extent reasonably possible, in accordance with the provisions of Paragraph 1.05(a)(iii).

(iii) In the event Lender elects to require repair, restoration or rebuilding as provided herein, Borrower shall deposit with Lender any funds which may be required for such repair, restoration or rebuilding in excess of the net funds received in respect of the taking or diminution in value or the net insurance proceeds received, which funds shall be deposited with Lender and held and disbursed by it, together with the net funds received in respect of the taking or diminution in value or the net insurance proceeds received, in accordance with usual practices of Lender or other Lenders making construction loans. In the event Lender elects to require or permit the repair, restoration or rebuilding hereunder, within forty-five (45) days after notice to Borrower of such

election Borrower shall deliver to Lender plans and specifications for such rebuilding, restoration or repair reasonably acceptable to Lender, which acceptance shall be evidenced by Lender’s written consent thereto, and Borrower shall thereafter commence the rebuilding, restoration or repair and complete same, all in substantial accordance with the plans and specifications and within six (6) months after the date of the damage or destruction. In the event Lender elects to require rebuilding, restoration or repair hereunder and Borrower fails to comply with the requirements of this Deed to Secure Debt and Security Agreement with respect thereto, Lender may accelerate payment of the indebtedness secured hereby and demand immediate payment of all of such indebtedness, and may apply the net funds received in respect of the taking or diminution in value, or the net insurance proceeds received, to the payment of such indebtedness in the order provided herein.

(b) All net proceeds received by Lender with respect to a taking or a diminution in value of the Premises, and all net insurance proceeds received in the event of an insured casualty, in the event such proceeds are to be applied to the indebtedness secured hereby in accordance with the terms hereof, shall be applied in the following order of priority:

(i) First, to reimburse Lender all costs and expenses, including reasonable attorneys’ fees, actually incurred in connection with collection of the said proceeds without regard to statutory presumption;

(ii) Thereafter, the balance, if any, shall be applied to the payment of (a) the Note; (b) any or all other sums secured hereby; and (c) the remainder, if any, to the person or persons legally entitled thereto, in the order of their priority and if none, Borrower.

1.06 Care of Premises .

(a) Borrower will keep the buildings, parking areas, roads and walkways, recreational facilities, landscaping and all other improvements of any kind now or hereafter erected on the Land or any part thereof in good condition and repair, will not commit or suffer any waste and will not do or, to the extent within its control, suffer to be done anything which would or could increase the risk of fire or other hazard to the Premises or any other part thereof or which would or could, to the extent within its control, result in the cancellation of any insurance policy carried with respect to the Premises.

(b) Borrower will not remove, demolish or alter the structural character of any improvement located on the Land without the written consent of Lender.

(c) If the Premises or any part thereof is damaged by fire or other cause, Borrower will give immediate written notice thereof to Lender.

(d) Lender or its representative is hereby authorized to enter upon and inspect the Premises without interfering with operations at any time upon advance verbal notice during normal business hours.

(e) Borrower will promptly comply with all present and future laws, ordinances, rules and regulations of any governmental authority affecting the Premises or any part thereof in all material respects.

(f) If all or any part of the Premises shall be damaged by fire or other casualty, Borrower will promptly restore the Premises to the equivalent of its original condition; and if a part of the Premises shall be damaged through condemnation, Borrower will promptly restore, repair or alter the remaining portions of the Premises in a manner reasonably satisfactory to Lender. Notwithstanding the foregoing, Borrower shall not be obligated so to restore, repair or alter unless in each instance, Lender agrees to make available to Borrower (pursuant to a procedure satisfactory to Lender) any net insurance or condemnation proceeds actually received by Lender hereunder in connection with such casualty loss or condemnation, to the extent such proceeds are required to defray the expense of such restoration, repair or alteration; provided, however, that the insufficiency of any such insurance or condemnation proceeds to defray the entire expense of restoration, repair or alteration shall in no way relieve Borrower of its obligation to restore, repair or alter. In the event all or any portion of the Premises shall be damaged or destroyed by fire or other casualty or by condemnation, Borrower shall promptly deposit with Lender a sum equal to the amount by which the estimated cost of the restoration of the Premises (as determined by Lender in its good faith judgment) exceeds the actual net insurance or condemnation proceeds with respect to such damage or destruction.

1.07 Leases, Contracts, Etc.

(a) As additional collateral and further security for the Indebtedness, Borrower does hereby assign to Lender all of Borrower’s right, title, and interest, to the extent assignable, any and all tenant leases, tenant contracts, rental agreements, franchise agreements, management contracts, construction contracts, and other contracts, licenses and permits now or hereafter affecting the Premises, or any part thereof, and Borrower agrees to execute and deliver to Lender such additional instruments, in form and substance reasonably satisfactory to Lender, as may hereafter be requested by Lender further to evidence and confirm said assignment; provided, however, that acceptance of any such assignment shall not be construed as a consent by Lender to any lease, tenant contract, rental agreement, franchise agreement, management contract, construction contract, or other contract, license or permit, or to impose upon Lender any obligation with respect thereto. Without first obtaining on each occasion the written approval of Lender, Borrower shall not cancel any such tenant lease, tenant contract, rental agreement, franchise agreement, management contract, construction contract, or other contract, license or permit, or to impose upon Lender any obligation with respect thereto. Without first obtaining on each occasion the written approval of Lender, Borrower shall not cancel any such tenant lease, tenant contract, rental agreement, franchise agreement, management contract, construction contract or other contract, license or permit, or modify any of said instruments, or accept, or permit to be made, any prepayment of any installment of rent fees thereunder (except for security deposits and the usual prepayments for room reservations. Borrower shall faithfully keep and perform, or cause to be kept and performed, all of the covenants, conditions and agreements contained in each of said instruments, now or hereafter existing, on the part of Borrower to be kept and performed and shall at all time do all things necessary to compel performance by each other party to said instruments of all obligations,

covenants and agreements by such other party to be performed thereunder. Lender acknowledges that the Premises are to be utilized as a nursing home facility.

(b) Borrower shall not execute any assignment of the income, rents, issues or profits, or any part thereof, from the Premises unless Lender shall first consent to such assignment and unless such assignment shall expressly provide that it is subordinate to the assignment contained in this Deed and any assignment executed pursuant hereto or concerning the Indebtedness.

(e) Notwithstanding any other provisions of this Deed, Borrower shall not hereafter enter into any tenant lease, tenant contract, rental agreement, franchise agreement, management contract or other contract, license or permit affecting the Premises, or any part thereof, without the prior written consent of Lender and except upon the following conditions; (i) each such instrument shall contain a provision that the rights of the parties thereunder are expressly subordinate to all of the rights and title of Lender under this Deed; (ii) any such instrument shall contain a provision whereby the parties thereunder expressly recognize and agree that, notwithstanding such subordination, Lender may sell the Premises in the manner provided in Article II, and thereby, at the option of Lender, sell the same subject to such instrument, and (iii) at or prior to the time of execution of any such instrument, Borrower shall, as a condition to such execution, procure from the other party or parties thereto an agreement in favor of Lender, in form and substance reasonably satisfactory to Lender, under which such party or parties agree to be bound by the provisions of Article II, regarding the manner in which Lender may foreclosure or exercise the power of sale under this Deed.

1.08 Security Agreement .

Borrower hereby grants to Lender a security interest in all of the Property which constitutes personal property or fixtures. In addition to its rights hereunder or otherwise, Lender shall have all of the rights of a secured party under the Uniform Commercial Code of Georgia, or under the Uniform Commercial Code in force in any other state to the extent the same is applicable law.

With respect to the machinery, apparatus, equipment, fittings, fixtures, building supplies and materials, articles of personal property, chattels, farm products and consumer goods referred to or described in this Deed, or in any way connected with the use and enjoyment of the Premises, this Deed is hereby made and declared to be a security agreement as a part of the Premises, in compliance with the provisions of the Uniform Commercial Code as enacted in the State of Georgia. Upon request by Lender, at any time and from time to time, a financing statement or statements reciting this Deed to be a security agreement affecting all of such property shall be executed by Borrower and Lender and appropriately filed. The remedies for any violation of the covenants, terms and conditions of the security agreement contained in this Deed shall be (i) as prescribed herein, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory consequences now or hereafter enacted and specified in said Uniform Commercial Code, all at Lender’s reasonable election. Borrower and Lender agree that the filing of any such financing statement or statements in the records normally having to do with personal property shall not in any way affect the agreement of Borrower and Lender that, other than accounts, accounts receivable, general intangibles and inventory, everything used in connection with the production of income from the Premises or adapted for use therein or which is described or reflected in this Deed, is, and

at all times and for all purposes and in all proceedings, both legal or equitable, shall be, regarded as part of the real estate conveyed hereby regardless of whether (i) any such item is physically attached to the improvements, (ii) serial numbers are used for the better identification of certain items capable of being thus identified in an exhibit to this Deed, or (iii) any such item is referred to or reflected in any such financing statement or statements so filed at any time. Similarly, the mention in any such financing statement or statements of the rights in and to (i) the proceeds of any fire and/or hazard insurance policy, or (ii) any award in eminent domain proceedings for a taking or for loss of value, or (iii) Borrower’s interest as lessor in any present or future lease or rights to income growing out of the use and/or occupancy of the Premises, whether pursuant to lease or otherwise, shall not in any way alter any of the rights of Lender as determined by this Deed or affect the priority of Lender’s security interest granted hereby or by any other recorded document, it being understood and agreed that such mention in such financing statement or statements is solely for the protection of Lender in the event any court shall at any time hold with respect to the foregoing clauses (i), (ii) or (iii) of this sentence, that notice of Lender’s priority of interest, to be effective against a particular class of persons, must be filed in the Uniform Commercial Code records.

1.09 Further Assurances; After-Acquired Property . At any time, and from time to time, upon request by Lender, Borrower will make, execute and deliver, or cause to be made, executed and delivered, to Lender and, where appropriate, cause to be recorded and/or filed and from time to time thereafter to be re-recorded and/or refiled at such time and in such offices or places as shall be deemed desirable by Lender, any and all such other and further deeds to secure debt, mortgages, deeds of trust, security agreements, financing statements, continuation statements, instrument of further assurance, certificates and other documents as may, in the reasonable opinion of Lender, be necessary or desirable in order to effectuate, complete or perfect, or to continue and preserve (i) the obligation of Borrower under the Note and under this Deed and (ii) the security interest created by this Deed as a first and prior security interest upon and security title in and to all of the Premises, whether now owned or hereafter acquired by Borrower. Upon any failure by Borrower so to do, Lender may make, execute, record, file, re-record and/or re-file any and all such deeds to secure debt, security agreements, financing statements, continuation statements, instruments, certificates and documents for and in the name of Borrower, and Borrower hereby irrevocably appoints Lender the agent and attorney-in-fact of Borrower so to do. The security title of this Deed and the security interest created hereby will automatically attach, without further act, to all after-acquired property attached to and/or used in the operation of the Premises or any part thereof.

1.10 Expenses . Borrower will pay or reimburse Lender, upon demand therefore, for all reasonable attorney’s fees actually incurred, costs and expenses actually incurred without regard to statutory presumption, by Lender in any suit, action, legal proceeding or dispute of any kind in which Lender is made a party or appears as party plaintiff or defendant, affecting the Indebtedness, this Deed or the interest created herein, or the Premises, including, but not limited to, the exercise of the power of sale contained in this Deed, any condemnation action involving the Premises or any action to protect the security hereof, and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Deed.

1.11 Estoppel Affidavit . Borrower, upon twenty (20) days’ prior written notice, shall furnish Lender a written statement, duly acknowledged, setting forth the unpaid principal of, and interest on, the Indebtedness, stating whether or not any offsets or defenses exist against the

Indebtedness, or any portion thereof, and, if such offsets or defenses exist, stating in detail the specific acts relating to each such offset or defense.

1.12 Subrogation . To the full extent of the Indebtedness, Lender is hereby subrogated to the liens, claims and demands, and to the rights of the owners and holders of each and every lien, claim, demand and other encumbrance on the Premises which is paid or satisfied, in whole or in part, out of the proceeds of the Indebtedness, and the respective liens, claims, demands and other encumbrances shall be, and each of them is hereby, preserved and shall pass to and be held by Lender as additional collateral and further security for the Indebtedness, to the same extent they would have been preserved and would have been passed to and held by Lender had they been duly and legally assigned, transferred, set over and delivered unto Lender by assignment, notwithstanding the fact that any instrument providing public notice of the same may be satisfied and canceled of record.

1.13 Books, Records, Accounts and Annual Reports . Borrower shall keep and maintain or shall cause to be kept and maintained, at Borrower’s cost and expense and in accordance with generally accepted accounting principles, proper and accurate books, records and accounts reflecting all items of income and expense in connection with the operation of the Premises and in connection with any services, equipment or furnishings provided in connection with the operation of the Premises. Lender, by Lender’s agents, accountants and attorneys, shall have the right upon prior verbal notice to Borrower from time to time to examine such books, records and accounts at the office of Borrower or such other person or entity maintaining such books, records and accounts, to make copies or extracts thereof as Lender shall desire and to discuss Borrower’s affairs, finances and accounts with Borrower and with the officers and principals of Borrower, at such reasonable times during normal business hours as may be requested by Lender. Borrower will furnish to Lender annually within ninety (90) days after the end of Borrower’s fiscal year a compiled financial statement containing a profit and loss statement and all supporting schedules covering the operation of the Property certified by an officer of Borrower and a certified public accountant acceptable to Lender to be true and accurate in all material respects, in reasonable detail, prepared in accordance with generally accepted accounting standards consistently applied, and, at any time, Lender shall have the right to reasonably request complied statements certified by Borrower’s principal financial or accounting officer, covering such financial matters as Lender may reasonably request from Borrower, to be furnished to Lender within forty-five (45) days after such request by Lender. The compiled statements shall include, without limitation, monthly operating statements with respect to the Premises.

1.14 Limit of Validity . If from any circumstances whatsoever, fulfillment of any provision of this Deed or the note, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then, ipso facto , the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Deed or under the Note that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. The provisions of this Paragraph 1.14 shall control every other provision of this Deed and of the Note.

1.15 Use and Management of Premises . Borrower shall at all times operate the Premises as described in Exhibit “C” attached hereto and by this reference made a part hereof. Borrower shall not be permitted to alter or change the use of the Premises or to abandon the Premises without the prior written consent of Lender.

1.16 Conveyance of Premises . Borrower hereby acknowledges to Lender that (i) the identity and expertise of Borrower were and continue to be material circumstances upon which Lender has relied in connection with, and which constitute valuable consideration to Lender for, the extending to Borrower of the Indebtedness evidenced by the Note and (ii) any change in such identity or expertise could materially impair or jeopardize the security for the payment of the Note granted to Lender by this Deed. Borrower therefore covenants and agrees with Lender, as part of the consideration for the extending to Borrower of the indebtedness evidenced by the Note, that Borrower shall not encumber, pledge, convey, transfer or assign any or all of its interest in the Premises (or any interest in or all of the interest in Borrower if Borrower is a corporation, partnership or some other entity) without the prior written consent of Lender. If Borrower does so encumber, pledge, convey, transfer or assign any or all of its interest in the Premises (or in Borrower) without the prior written consent of Lender, then Lender may, at Lender’s option, declare the Indebtedness to be immediately due and payable.

1.17 Acquisition of Collateral . Borrower shall not acquire any portion of the personal property covered by this Deed subject to any security interest, conditional sales contract, title retention arrangement or other charge or lien taking precedence over the security title and lien of this Deed.

1.18 Junior Financing . Borrower shall not without the prior written consent of Lender incur any additional indebtedness or create or permit to be created or to remain, any mortgage, pledge, lien, lease, encumbrance or charge on, or conditional sale or other title retention agreement, whether prior or subordinate to the liens of this Deed with respect to the Premises or any part thereof or income therefrom other than the Deed, purchase money security interests incurred in the ordinary course of business herein and the Permitted Encumbrances. Notwithstanding the above, the Lender acknowledges a shared first lien position with a $800,000.00 SBA loan from Lender of even date.

1.19 Hazardous Materials .

(a) Borrower represents, warrants and agrees that, to its knowledge, (i) neither Borrower nor, to the best knowledge of Borrower, any other person has used or installed any Hazardous Material (as hereinafter defined) on, from or affecting the Premises or received any written notice from any governmental agency, entity or other person with regard to Hazardous Materials on, from or affecting the Premises; (ii) neither Borrower nor, to the best knowledge of Borrower, any other person has violated any applicable Environmental Laws (as hereinafter defined) relating to or affecting the Premises or any other property owned by Borrower; (iii) to the best of Borrower’s knowledge, the Premises are presently in compliance with all Environmental Laws, and there are no facts or circumstances presently existing upon or under the Premises, or relating to the Premises, which may violate any applicable Environmental Laws, and there is not now pending or, to the best knowledge of the Borrower, threatened any action, suit, investigation or proceeding against

Borrower or the Premises (or against any other party relating to the Premises) seeking to enforce any right or remedy under any of the Environmental Laws; (iv) the Premises Property shall be kept free of Hazardous Materials, and shall not be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce, or process Hazardous Materials to the extent within Borrower’s control; (v) Borrower shall not cause or permit the installation of Hazardous Materials in, on, over or under the Premises or a Release (as hereinafter defined) of Hazardous Materials onto or from the Premises or suffer the presence of Hazardous Materials in, on, over or under the Premises to the extent within Borrower’s control; (vi) Borrower shall comply with, and ensure compliance by all other parties with, all applicable Environmental Laws relating to or affecting the Premises to the extent within Borrower’s control, and Borrower shall keep the Premises free and clear of any liens imposed pursuant to any applicable Environmental Laws, all at Borrower’s sole cost and expense; (vii) Borrower has obtained and will at all times continue to obtain and/or maintain all licenses, permits and/or other governmental or regulatory actions necessary to comply with the Environmental Laws (the “Permits”) and Borrower is and will continue to be and at all times remain in full compliance with the terms and provisions of the Permits; (viii) there has been no Release of any Hazardous Materials on or form the Premises, whether or not such Release emanated from the land or any contiguous real estate; and (ix) Borrower shall immediately give Lender oral and written notice in the event that Borrower receives any notice from any governmental agency, entity, or any other party with regard to Hazardous Materials on, from or affecting the Premises and Borrower shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all Hazardous Materials on, from or affecting the Premises in accordance with all applicable Environmental Laws.

(b) For purposes of this Deed: (i) “Hazardous Material” or “Hazardous Materials” means and includes petroleum products and gas products, flammable explosives, radioactive materials, asbestos or any material containing asbestos, polychlorinated biphenyls, and/or any hazardous, toxic or dangerous waste, substance or material defined as such, or as a Hazardous Substance or any similar term, by, in or for the purposes of the Environmental Laws, including, without limitation Section 101(14) of CERCLA (as hereinafter defined); (ii) “Release” shall have the meaning given such term, or any similar term, in the Environmental Laws, including, without limitation, Section 101(22) of CERCLA; and (iii) “Environmental Law” or “Environmental Laws” shall mean any “Super Fund” or Super Lien” law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Materials as may now or at any time hereafter be in effect, including, without limitation, the following, as the same may be amended or replaced from time to time, and all regulations promulgated thereunder or in connection therewith: the Super Fund Amendments and Reauthorization Act of 1986 (“SARA”); the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”); the Clean Air Act (“CAA”); the Clean Water Act (“CWA”); the Toxic Substances Control Act (“TSCA”); the Solid Waste Disposal Act (“SWDA”), as amended by the Resource Conservation and Recovery Act (“RCRA”); the Hazardous Waste Management System; and the Occupational Safety and Health Act of 1970 (“OSHA”). The obligations and liabilities of Borrower under this Paragraph 2.04 shall survive the exercise of power of sale under or foreclosure of this Deed, the delivery of a deed in lieu of foreclosure, the cancellation or release of record of this Deed, and/or the payment and cancellation of the Note.

ARTICLE II

2.01 The occurrence of any one or more of the following shall constitute an “Event of Default” or “Default” (either term having the same meaning):

(a) Nonpayment, when due, of any principal, accrued interest, premium, fee or other charge due under the Note.

(b) Default by Borrower in the due observance or performance of any term, covenant, condition or agreement on its part to be performed under this Deed to Secure Debt and Security Agreement, the Note, or under any other document contemplated by this Deed to Secure Debt and Security Agreement.

(1) Make a general assignment for the benefit of its creditors;

(2) File a voluntary petition in bankruptcy;

(3) Be adjudicated as bankrupt or insolvent;

(5) File an answer admitting or failing to deny the material allegations of the petition against it for any such relief;

(6) Admit in writing its inability to pay its debts as they mature;

(7) Discontinue business; or

(8) Be unable to pay debts as they become due.

(d) Borrower fails to have vacated or set aside within thirty (30) days of its entry any court order appointing a receiver or trustee for all or a substantial portion of the Borrower’s property.

(g) Borrower defaults in the payment of any principal or interest on any obligation to Lender or to any other creditor.

(i) The Premises are subject to actual or threatened waste or any part thereof is removed, demolished or altered without the prior written consent of Lender; or

(j) Borrower or any endorser or guarantor of the Note (if a corporation) is liquidated or dissolved or its charter expires or is revoked, or Borrower or such endorser or guarantor (if a partnership or business association) is dissolved or partitioned, or Borrower or such endorser or guarantor (if a trust) is terminated or expires, or Borrower or such endorser or guarantor (if an individual) dies.

(k) The filing of any federal tax lien or claim of lien for labor or material is filed of record against Borrower or Premises and same not being removed by payment in full or bond within thirty (30) days from the date of recording.

2.02 Acceleration of Maturity . If a Default shall have occurred, then the entire Indebtedness shall, at the option of Lender, immediately become due and payable without notice or demand, time being of the essence of this Deed; and no omission on the part of Lender to exercise such option when entitled to do so shall be construed as a waiver of such right.

2.03 Right to Enter and Take Possession .

(a) If a Default shall have occurred, Borrower, upon demand of Lender, shall forthwith surrender to Lender the actual possession of the Premises and if, and to the extent, permitted by law, Lender itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Premises without the appointment of a receiver, or an application therefore, and may exclude Borrower and its agents and employees wholly therefrom, and may have joint access with Borrower to the books, papers and accounts of Borrower.

(b) If Borrower shall for any reason fail to surrender or deliver the Premises or any part thereof after such demand by Lender, Lender may obtain a judgment or decree conferring upon Lender the right to immediate possession of the Premises to Lender, and Borrower hereby

specifically covenants and agrees that Borrower will not oppose, contest or otherwise hinder or delay Lender in any action or proceeding by Lender to obtain such judgment or decree. Borrower will pay to Lender upon demand, all reasonable expenses actually incurred of obtaining such judgment or decree, including reasonable compensation to Lender, its attorneys and agents, and all such expenses and compensation shall, until paid, become part of the Indebtedness and shall be secured by this Deed.

(c) Upon every such entering upon or taking possession, Lender may hold, store, use, operate, manage and control the Premises and conduct the business thereof, and, from time to time (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (ii) insure or keep the Premises insured; (iii) manage and operate the Premises and exercise all the rights and powers of Borrower to the same extent as Borrower could in its own name or otherwise act with respect to the same; and (iv) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to Lender, all as Lender from time to time may determine to be in its best interest. Lender may collect and receive all the income, rents, issues, profits and revenues from the Premises, including those past due as well as those accruing thereafter, and Lender may apply any monies and proceeds received by Lender, in whatever order or priority Lender in its sole discretion may determine, to the payment of (i) all expenses of taking, holding, managing and operating the Premises (including compensation for the services of all persons employed for such purposes); (ii) the cost of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions; (iii) the cost of such insurance; (iv) such taxes, assessments and other similar charges as Lender may at its option pay; (v) other proper charges upon the Premises or any part thereof; (vi) the reasonable compensation, expenses and disbursements of the attorneys and agents of Lender; (vii) accrued interest; (viii) deposits required in Paragraph 1.04 and other sums required to be paid under this Deed; or (ix) overdue installments of principal. Anything in this Paragraph 2.03 to the contrary notwithstanding, Lender shall not be obligated to discharge or perform the duties of a landlord to any tenant or incur any liability as the result of any exercise by Lender of its rights under this Deed, and Lender shall be liable to account only for the rents, incomes, issues, profits and revenues actually received by Lender.

(d) In the event that all such interest, deposits and principal installments and other sums due under any of the terms, covenants, conditions and agreements of this Deed shall be paid and all Defaults shall be cured, and as a result thereof Lender surrenders possession of the Premises to Borrower, the same right of taking possession shall continue to exist if any subsequent Default shall occur.

2.04 Performance by Lender . If Borrower shall Default in the payment, performance or observance of any term, covenant or condition of this Deed, Lender may, at its option, pay, perform or observe the same, and all payments made or costs or expenses actually incurred by Lender in connection therewith shall be secured hereby and shall be, repaid by Borrower to Lender with interest thereon at the default rate provided in the Note. Lender shall be the sole judge of the necessity for any such actions and of the amounts to be paid. Lender is hereby empowered to enter and to authorize others to enter upon the Premises or any part thereof for the purpose of performing

or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower.

2.05 Receiver . If a Default shall have occurred, Lender, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Indebtedness or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Premises and to collect and apply the incomes, rents, issues, profits and revenues thereof. The receiver shall have all of the rights and powers permitted under the laws of the State of Georgia. Borrower will pay to Lender upon demand all reasonable expenses, including receiver’s fees, attorney’s fees, costs and agent’s compensation actually incurred, incurred pursuant to the provisions of this Paragraph 2.05, and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Deed.

2.06 Enforcement .

(a) If a Default shall have occurred, Lender, at its option, may sell the Premises or any part of the Premises at one or more public sale or sales before the door of the courthouse of the county in which the Land or any part of the Land is situated, to the highest bidder for cash, in order to pay the Indebtedness, and all expenses of sale and of all proceedings in connection therewith, including reasonable attorney’s fees actually incurred, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff’s sales are advertised in said county. At any such public sale, Lender may execute and deliver to the purchaser a conveyance of the Premises or any part of the Premises in fee simple, with full warranties of title and to this end, Borrower hereby constitutes and appoints Lender the agent and attorney-in-fact of Borrower to make such sale and conveyance, and thereby to divest Borrower of all right, title and equity that Borrower may have in and to the Premises and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Borrower. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Indebtedness and shall not be exhausted by one exercise thereof but may be exercised until full payment of all of the Indebtedness. In the event of any sale under this Deed by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceeding or otherwise, the Premises may be sold as an entirety or in separate parcels and in such manner or order as Lender in its sole discretion may elect, and if Lender so elects, Lender may sell the personal property covered by this Deed at one or more separate sales in any manner permitted by the Uniform Commercial Code of the State of Georgia, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Premises are sold or the Indebtedness is paid in full. If the Indebtedness is now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Lender may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Lender may determine.

(b) If a Default shall have occurred, Lender may, in addition to and not in abrogation of the rights covered under Subparagraph 2.06(a), either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to enforce payment of the Note or the performance of any term, covenant, condition or agreement of this Deed or any other right and (ii) to pursue any other remedy available to it, all as Lender in its sole discretion shall elect.

2.07 Purchase by Lender . Upon any foreclosure sale or sales of all or any portion of the Premises under the power herein granted, Lender may bid for and purchase the Premises and shall be entitled to apply all or any part of the Indebtedness as a credit to the purchase price.

2.08 Application of Proceeds of Sale . In the event of a foreclosure or sale of all or any portion of the Premises under the power herein granted, the proceeds of said sale shall be applied, in whatever order Lender in its sole discretion may decide, to the expenses of such sale and of all proceedings in connection therewith, including reasonable attorney’s fees actually incurred, to insurance premiums, liens, assessments, taxes and charges including utility charges advanced by Lender, to payment of the outstanding principal balance of the Indebtedness, or to the accrued interest on all of the foregoing; and the remainder, if any, shall be paid to Borrower, or to the person or entity lawfully entitled thereto.

2.09 Borrower as Tenant Holding Over . In the event of any such foreclosure sale or sales under the power herein granted, Borrower shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over.

2.10 Waiver of Appraisement, Valuation, Etc. Borrower agrees, to the full extent permitted by law, that in case of a Default on the part of Borrower hereunder, neither Borrower nor anyone claiming through or under Borrower will set up, claim or seek to take advantage of any moratorium, reinstatement, forbearance, appraisement, valuation, stay, extension, homestead, exemption or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed, or the absolute sale of the Premises, or the delivery of possession thereof immediately after such sale to the purchaser at such sale, and Borrower, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets subject to the security interest of this Deed marshalled upon any foreclosure or sale under the power herein granted.

2.11 Waiver of Redemption, Notice, Marshalling, Etc. Borrower hereby waives and releases (a) all benefit that might accrue to Borrower by virtue of any present or future law exempting the Premises, or any part of the proceeds arising from any sale thereof, from attachment, levy or sale on execution, or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption of extension of term for payment (b) unless specifically required herein, all notices of Borrower default or of Lender’s election to exercise, or Lender’s actual exercise, of any option or remedy under the Note, the Guaranty or the Security Documents, and (c) any right to have the Premises marshalled.

2.12 Leases . Lender, at its option, is authorized to foreclose this Deed subject to the rights of any tenants of the Premises, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Borrower, a defense to any proceedings instituted by Lender to collect the Indebtedness.

2.13 Discontinuance of Proceedings . In case Lender shall have proceeded to enforce any right, power or remedy under this Deed by foreclosure, entry or otherwise or in the event Lender commences advertising of the intended exercise of the sale under power provided hereunder, and such proceeding or advertisement shall have been withdrawn, discontinued or abandoned for any reason, or shall have been determined adversely to Lender, then in every such case (i) Borrower and Lender shall be restored to their former positions and rights, (ii) all rights, powers and remedies of Lender shall continue as if no such proceeding had been taken, (iii) each and every Default declared or occurring prior or subsequent to such withdrawal, discontinuance or abandonment shall and shall be deemed to be a continuing Default and (iv) neither this Deed, nor the Note, nor the Indebtedness, nor any other instrument concerned therewith, shall be or shall be deemed to have been reinstated or otherwise affected by such withdrawal, discontinuance or abandonment; and Borrower hereby expressly waives the benefit of any statute or rule of law now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the above.

2.14 Remedies Cumulative . No right, power or remedy conferred upon reserved to Lender by this Deed is intended to be exclusive of any other right, power and remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law, in equity or by statute.

2.15 Waiver .

(a) No delay or omission by Lender or by any holder of the Note to exercise any right, power or remedy accruing upon any breach or Default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such breach or Default, or acquiescence therein, and every right, power and remedy given by this Deed to Lender may be exercised from time to time and as often as may be deemed expedient by Lender. No consent or waiver, expressed or implied, by Lender to or of any breach or Default by Borrower in the performance of the obligations of Borrower hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or Default in the performance of the same or any other obligations by Borrower hereunder. Failure on the part of Lender to complain of any act or failure to act or to declare a Default, irrespective of how long such failure continues, shall not constitute a waiver by Lender of its rights hereunder or impair any rights, powers or remedies of Lender hereunder.

(b) No act or omission by Lender shall release, discharge, modify, change or otherwise affect the original liability under the Note, this Deed or any other obligation of Borrower or any subsequent purchaser of the Premises or any part thereof, or any maker, co-signer, endorser, surety or guarantor, or preclude Lender from exercising any right, power or privilege herein granted or intended to be granted in the event of any Default then made or of any subsequent Default, or alter the security title, security interest or lien of this Deed except as expressly provided in an instrument or instruments executed by Lender. Without limiting the generality of the foregoing, Lender may:

(i) grant forbearance or an extension of time for the payment of all or any portion of the Indebtedness; (ii) take other or additional security for the payment of the Indebtedness; (iii) waive or fail to exercise any right granted hereunder or in the Note; (iv) consent to the granting of any easement or other right affecting the Premises; (vii) make or consent to any agreement subordinating the security title, security interest or lien hereof; or (viii) take or omit to take any action whatsoever with respect to the Note, this Deed, the Premises or any document or instrument evidencing, securing or in any way related to the Indebtedness; all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Lender from exercising any such right, power of privilege or affecting the security title, security interest or lien of this Deed. In the event of the sale or transfer by operation of law or otherwise of all of any part of the Premises, Lender, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Premises or the Indebtedness, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing and/or discharging any liabilities, obligations or undertakings.

2.16 Suits to Protect the Premises . Lender shall have the power to institute and maintain such suits and proceedings as it may deem expedient (i) to prevent any impairment of the Premises by any acts which may be unlawful or constitute a Default under this Deed, (ii) to preserve or protect its interest in the Premises and in the incomes, rents, issues, profits and revenues arising therefrom, and (iii) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order would impair the security hereunder or be prejudicial to the interest of Lender.

2.17 Proofs of Claim . In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Borrower, its creditors or its property, Lender, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Lender allowed in such proceedings for the entire amount of the Indebtedness at the date of the institution of such proceedings and for any additional amount of the Indebtedness after such date.

2.18 Waiver of Borrower’s Rights to Judicial Hearing and Non-Statutory Notice . BY EXECUTION OF THIS DEED AND BY INITIALING THIS PARAGRAPH 2.18, BORROWER EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT OF LENDER TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTE AND ANY OTHER INDEBTEDNESS AND THE POWER OF ATTORNEY GIVEN HEREIN TO LENDER TO SELL THE PREMISES BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY BORROWER WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED: (B) WAIVES ANY AND ALL RIGHTS WHICH B0RROWER MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY LENDER OF ANY RIGHT OR REMEDY HEREIN

PROVIDED TO LENDER, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALLING FORBEARANCE, APPRAISEMENT VALUATION, STAY EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS: (C) ACKNOWLEDGES THAT BORROWER HAS READ THIS DEED AND ANY AND ALL QUESTIONS OF BORROWER REGARDING THE LEGAL EFFECT OF THIS DEED AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO BORROWER, AND BORROWER HAS CONSULTED WITH COUNSEL OF BORROWER’S CHOICE PRIOR TO EXECUTING THIS DEED AND INITIALING THIS PARAGRAPH 2.18; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF BORROWER HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY BORROWER AS PART OF A BARGAINED FOR LOAN TRANSACTION AND THAT THIS DEED IS VALID AND ENFORCEABLE BY LENDER AGAINST BORROWER IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.

INITIALED BY BORROWER: CB

ARTICLE III

3.01 Successors and Assigns . This Deed shall inure to the benefit of and be binding upon Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns. Whenever a reference is made in this Deed to “Borrower” or “Lender” such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors, successors-in-title and assigns of Borrower and Lender, as the case may be. The provisions of this paragraph 3.01 are subject to the restrictions on transfer contained in Paragraph 1.16.

3.02 Terminology . All personal pronouns used in this Deed whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Titles of articles and paragraphs are for convenience only and neither limit nor amplify the provisions of this Deed, and all references herein to articles, paragraphs or subparagraphs shall refer to the corresponding articles, paragraphs or subparagraphs of this Deed unless specific reference is made to articles, paragraphs or subparagraphs of another document or instrument.

3.03 Severability . If any provisions of this Deed or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Deed and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

3.04 Applicable Law . This Deed will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

3.05 Notices . Any and all notices, elections, demands, requests and responses thereto permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail, postage prepaid, certified with return receipt requested (the delivery date being the date of the confirmed return receipt requested), or upon being deposited with an overnight commercial delivery service requiring proof of delivery, to the other party or parties at the address of such other party or parties set forth below or at such other address within the continental United States as such other party or parties may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any such notice, election, demand or request must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a party or to any officer, partner, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been received shall also constitute receipt. Any such notice, election, demand, request or response, if given to Lender, shall be addressed as follows:

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

with a copy to:

HARBIN & MILLER, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

Attn: Reid H. Harbin, Esq.

and, if given to Borrower, shall be addressed as follows:

ERIN PROPERTY HOLDINGS, LLC

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

3.06 Replacement of Note . Upon receipt of evidence reasonably satisfactory to Borrower of the loss, theft, destruction or mutilation of the Note, and in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Borrower or, in the case of any such mutilation, upon surrender and cancellation of the Note, Borrower will execute and deliver, in lieu thereof, a replacement Note, identical in form and substance to the Note and dated as of the date of the Note and upon such execution and delivery all references in this Deed to the Note shall be deemed to refer to such replacement Note.

3.07 Assignment . This Deed is assignable by Lender, and any assignment hereof by Lender shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Lender.

3.08 Time is of the Essence . Time is of the essence with respect to each and every covenant, agreement and obligation of Borrower under this Deed, the Note and any and all other instruments now or hereafter evidencing, securing or otherwise relating to the Indebtedness.

3.09 Attorney’s Fees . Whenever the term “attorney’s fees” is used herein, said term shall be deemed to mean only reasonable attorney’s fees actually incurred, including, without limitation, reasonable out-of-pocket expenses actually incurred therewith.

3.10 Further Stipulations . The covenants, agreements and provisions, if any, set forth in Exhibit “D” attached hereto are hereby made a part of this Deed. In the event of any conflict between such further stipulations and any of the printed provisions of this Deed, such further stipulations shall be deemed to control.

IN WITNESS WHEREOF, Borrower has executed this Deed under seal, as of the day and year first above written.

Signed, sealed and delivered in the presence of:	BORROWER:


/s/ illegible	ERIN PROPERTY HOLDINGS, LLC
Witness

/s/ Damaris Marriaga	By:	/s/ Chris Brogdon	(L.S.)
Notary Public (affix seal and commission expiration date)		Chris Brogdon, Manager

EXHIBIT “A”

(LEGAL DESCRIPTION)

EXHIBIT “B”

(TITLE EXCEPTIONS)

a. Rights of upper and lower riparian owners in and to the waters of Long Branch Creek crossing subject property, free from diminution or pollution;

b. Encroachment of driveway, appurtenant to subject property, across the easterly portion of the southerly property line;

c. Overhead electric lines and poles located throughout subject property;

d. Encroachment of fence, appurtenant to subject property, across the southerly property line.

7. Rights of patients under patient care agreements.

8. Deed to Secure Debt from Erin Property Holdings, LLC to Bank of Atlanta, dated July , 2011, and recorded at Deed Book , page , Laurens County, Georgia Records, to secure an $800,000.00 indebtedness (shared lien position).

9. Pari Passu Agreement by and between Erin Property Holdings, LLC. and Bank of Atlanta, dated July , 2011, and recorded at Deed Book , page , Laurens County, Georgia Records.

10. Credit Agreement with Gemino Healthcare Finance, LLC for working capital financing and related security agreements.

EXHIBIT “C”

(USE OF PREMISES)

Borrower shall at all times operate the Premises as a nursing home facility.

EXHIBIT “D”

NONE

Exhibit 10.6

RETURN TO:

Reid H. Harbin, Esq.

Harbin & Miller, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

DEED TO SECURE DEBT AND SECURITY AGREEMENT

W I T N E S S E T H :

(a) The debt evidenced by that certain promissory note (hereinafter referred to as the “Note”) dated of even date herein, made by Borrower to the order of Lender in the principal face amount of Eight Hundred Thousand and No/100 Dollars ($800,000.00), with the final payment being due on or before July 27, 2036; together with any and all renewals, modifications, consolidations and extensions of the indebtedness evidenced by the Note;

Borrower hereby further covenants and agrees with Lender as follows:

ARTICLE I

1.01 Payment of Indebtedness . Borrower and/or Borrower shall pay the Note according to the tenor thereof and the remainder of the Indebtedness promptly as the same shall become due.

1.02 Taxes, Liens and Other Charges .

1.03 Insurance .

1.06 Care of Premises .

(b) Borrower will not remove, demolish or alter the structural character of any improvement located on the Land without the written consent of Lender.

(c) If the Premises or any part thereof is damaged by fire or other cause, Borrower will give immediate written notice thereof to Lender.

(d) Lender or its representative is hereby authorized to enter upon and inspect the Premises without interfering with operations at any time upon advance verbal notice during normal business hours.

1.07 Leases, Contracts, Etc.

covenants and agreements by such other party to be performed thereunder. Lender acknowledges that the Premises are to be utilized as a nursing home facility.

1.08 Security Agreement .

1.09 Further Assurances; After-Acquired Property . At any time, and from time to time, upon request by Lender, Borrower will make, execute and deliver, or cause to be made, executed and delivered, to Lender and, where appropriate, cause to be recorded and/or filed and from time to time thereafter to be re-recorded and/or refiled at such time and in such offices or places as shall be deemed desirable by Lender, any and all such other and further deeds to secure debt, mortgages, deeds of trust, security agreements, financing statements, continuation statements, instrument of further assurance, certificates and other documents as may, in the reasonable opinion of Lender, be necessary or desirable in order to effectuate, complete or perfect, or to continue and preserve (i) the obligation of Borrower under the Note and under this Deed and (ii) the security interest created by this Deed as a first and prior security interest upon and security title in and to all of the Premises, whether now owned or hereafter acquired by Borrower. Upon any failure by Borrower so to do, Lender may make, execute, record, file, re-record and/or refile any and all such deeds to secure debt, security agreements, financing statements, continuation statements, instruments, certificates and documents for and in the name of Borrower, and Borrower hereby irrevocably appoints Lender the agent and attorney-in-fact of Borrower so to do. The security title of this Deed and the security interest created hereby will automatically attach, without further act, to all after-acquired property attached to and/or used in the operation of the Premises or any part thereof.

1.11 Estoppel Affidavit . Borrower, upon twenty (20) days’ prior written notice, shall furnish Lender a written statement, duly acknowledged, setting forth the unpaid principal of, and

interest on, the Indebtedness, stating whether or not any offsets or defenses exist against the Indebtedness, or any portion thereof, and, if such offsets or defenses exist, stating in detail the specific acts relating to each such offset or defense.

1.13 Books, Records, Accounts and Annual Reports . Borrower shall keep and maintain or shall cause to be kept and maintained, at Borrower’s cost and expense and in accordance with generally accepted accounting principles, proper and accurate books, records and accounts reflecting all items of income and expense in connection with the operation of the Premises and in connection with any services, equipment or furnishings provided in connection with the operation of the Premises. Lender, by Lender’s agents, accountants and attorneys, shall have the right upon prior verbal notice to Borrower from time to time to examine such books, records and accounts at the office of Borrower or such other person or entity maintaining such books, records and accounts, to make copies or extracts thereof as Lender shall desire and to discuss Borrower’s affairs, finances and accounts with Borrower and with the officers and principals of Borrower, at such reasonable times during normal business hours as may be requested by Lender. Borrower will furnish to Lender annually within one hundred twenty (120) days after the end of Borrower’s fiscal year a compiled financial statement containing a profit and loss statement and all supporting schedules covering the operation of the Property certified by an officer of Borrower and a certified public accountant acceptable to Lender to be true and accurate in all material respects, in reasonable detail, prepared in accordance with generally accepted accounting standards consistently applied, and, at any time, Lender shall have the right to reasonably request complied statements certified by Borrower’s principal financial or accounting officer, covering such financial matters as Lender may reasonably request from Borrower, to be furnished to Lender within forty-five (45) days after such request by Lender. The compiled statements shall include, without limitation, monthly operating statements with respect to the Premises.

1.19 Hazardous Materials .

ARTICLE II

2.01 The occurrence of any one or more of the following shall constitute an “Event of Default” or “Default” (either term having the same meaning):

(a) Nonpayment, when due, of any principal, accrued interest, premium, fee or other charge due under the Note.

(1) Make a general assignment for the benefit of its creditors;

(2) File a voluntary petition in bankruptcy;

(3) Be adjudicated as bankrupt or insolvent;

(5) File an answer admitting or failing to deny the material allegations of the petition against it for any such relief;

(6) Admit in writing its inability to pay its debts as they mature;

(7) Discontinue business; or

(8) Be unable to pay debts as they become due.

(d) Borrower fails to have vacated or set aside within thirty (30) days of its entry any court order appointing a receiver or trustee for all or a substantial portion of the Borrower’s property.

(g) Borrower defaults in the payment of any principal or interest on any obligation to Lender or to any other creditor.

(i) The Premises are subject to actual or threatened waste or any part thereof is removed, demolished or altered without the prior written consent of Lender; or

2.03 Right to Enter and Take Possession .

or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower.

2.06 Enforcement .

2.15 Waiver .

INITIALED BY BORROWER:

/s/ ILLEGIBLE

ARTICLE III

3.04 Applicable Law . This Deed will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

with a copy to:

HARBIN & MILLER, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

Attn: Reid H. Harbin, Esq.

and, if given to Borrower, shall be addressed as follows:

ERIN PROPERTY HOLDINGS, LLC

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

3.07 Assignment . This Deed is assignable by Lender, and any assignment hereof by Lender shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Lender.

IN WITNESS WHEREOF, Borrower has executed this Deed under seal, as of the day and year first above written.

Signed, sealed and delivered	BORROWER:
in the presence of:


/s/ ILLEGIBLE	ERIN PROPERTY HOLDINGS, LLC
Witness

/s/ Damaris Marriaga	By:	/s/ Chris Brogdon	(L.S.)
Notary Public (affix seal and		Chris Brogdon, Manager
commission expiration date)

EXHIBIT “A”

(LEGAL DESCRIPTION)

EXHIBIT “B”

(TITLE EXCEPTIONS)

a. Rights of upper and lower riparian owners in and to the waters of Long Branch Creek crossing subject property, free from diminution or pollution;

b. Encroachment of driveway, appurtenant to subject property, across the easterly portion of the southerly property line;

c. Overhead electric lines and poles located throughout subject property;

d. Encroachment of fence, appurtenant to subject property, across the southerly property line.

7. Rights of patients under patient care agreements.

8. Deed to Secure Debt from Erin Property Holdings, LLC to Bank of Atlanta, dated July , 2011, and recorded at Deed Book , page , Laurens County, Georgia Records, to secure a $5,000,000.00 indebtedness (shared lien position).

9. Pari Passu Agreement by and between Erin Property Holdings, LLC. and Bank of Atlanta, dated July , 2011, and recorded at Deed Book , page , Laurens County, Georgia Records.

EXHIBIT “C”

(USE OF PREMISES)

Borrower shall at all times operate the Premises as a nursing home facility.

EXHIBIT “D”

SBA LOAN

The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations:

a) When SBA is the holder of the Note, this document and all documents evidencing or securing this Loan will be construed in accordance with federal law.

Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured by this instrument.

Exhibit 10.7

WHEN RECORDED RETURN TO:

Reid H. Harbin, Esq.

Harbin & Miller, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

ASSIGNMENT OF LEASES AND RENTS

THIS ASSIGNMENT, made and entered into as of this 27 th day of July, 2011, between ERIN PROPERTY HOLDINGS, LLC, a limited liability company duly organized, existing and in good standing under the laws of the State of Georgia, whose mailing address is 3050 Peachtree Road, NW, Suite 355, Two Buckhead Plaza, Atlanta, Georgia 30305 (hereinafter referred to as “Borrower”), and BANK OF ATLANTA, the address of which is 1970 Satellite Blvd., Duluth, Georgia 30097 (hereinafter referred to as “Lender”);

W I T N E S S E T H:

THAT FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable considerations, the receipt and sufficiency whereof are hereby acknowledged, and in order to secure the indebtedness and other obligations of Borrower hereinafter set forth, Borrower does hereby grant, transfer and assign to Lender, its successors, successors-in-title and assigns, all of Borrower’s right, title and interest in, to and under any and all of those leases and rental agreements now existing and hereafter made, including any and all extensions, renewals and modifications thereof, and all security deposits and other refundable and non-refundable deposits paid by the tenants thereunder (said leases and rental agreements are hereinafter referred to collectively as the “Leases”, and the tenants and lessees thereunder are hereinafter referred to collectively as “Tenants” or individually as “Tenant” as the context requires), which Leases cover or shall cover portions of certain real property described in Exhibit “A” (commonly known as 606 Simmons St., Dublin, Laurens County, Georgia 30121) attached hereto and by this reference made a part hereof and/or the improvements thereon (said real property and improvements hereinafter collectively referred to as the “Premises”); together

with all of Borrower’s right, title and interest in and to all rents, issues and profits from the Leases and from the Premises.

TO HAVE AND TO HOLD unto Lender, its successors and assigns, forever, subject to and upon the terms and conditions set forth herein.

This Assignment is made for the purpose of securing (a) the full and prompt payment when due, whether by acceleration or otherwise, with such interest as may accrue thereon, either before or after maturity thereof, of that certain Note dated of even date herewith, made by Borrower to the order of Lender in the principal face amount of Five Million and No/100 Dollars ($5,000,000.00), (hereinafter referred to as the “Note”), together with any renewals, modifications, consolidations and extensions thereof and amendments thereto and all advances of principal thereunder, (b) the full amount and prompt payment and performance of any and all obligations of Borrower to Lender under the terms of the Deed to Secure Debt and Security Agreement from Borrower to Lender, dated of even date herewith and securing the indebtedness evidenced by the Note (hereinafter referred to as the “Security Instrument”), (c) the full and prompt payment and performance of all obligations of Borrower to Lender under the terms of that certain Loan Agreement of even date herewith (hereinafter referred to as the “Loan Agreement”), and (d) the full and prompt payment and performance of any and all other obligations of Borrower to Lender under any other instruments now or hereafter evidencing, securing, or otherwise relating to the indebtedness evidenced by the Note (the Note, Security Instrument, the Loan Agreement, and said other instruments are hereinafter referred to collectively as the “Loan Documents,” and said indebtedness is hereinafter referred to as the “Indebtedness”).

ARTICLE I.

WARRANTIES AND COVENANTS

1.1. Warranties of Borrower . To the extent that there are Leases, Borrower hereby warrants and represents as follows:

(a) Borrower is the sole holder of the landlord’s interest under the Leases, is entitled to receive the rents, issues and profits from the Leases and from the Premises, and has good right to sell, assign, transfer and set over the same and to grant to and confer upon Lender the rights, interests, powers, and authorities herein granted and conferred;

(b) Borrower has made no assignment other than this Assignment of any of the rights of Borrower under any of the Leases or with respect to any of said rents, issues or profits;

(c) Borrower has neither done any act nor omitted to do any act which might prevent Lender from, or limit Lender in, acting under any of the provisions of this Assignment;

(d) All Leases provide for rental to be paid monthly, in advance, and Borrower has not accepted payment of rental under any of the Leases for more than one (1) month in advance of the due date thereof;

(e) So far as is known to Borrower, there exists no default or event of default or any state of facts which would, with the passage of time or the giving of notice, or both, constitute a default or event of default on the part of Borrower or by any Tenant under the terms of any of the Leases;

(f) Neither the execution and delivery of this Assignment or any of the Leases, the performance of each and every covenant of Borrower under this Assignment and the Leases, nor the meeting of each and every condition contained in this Assignment, conflicts with, or constitutes a breach or default under any agreement, indenture or other instrument to which Borrower is a party, or any law, ordinance, administrative regulation or court decree which is applicable to Borrower;

(g) No action has been brought or, so far as is known to Borrower, is threatened, which would interfere in any way with the right of Borrower to execute this Assignment and perform all of Borrower’s obligations contained in this Assignment and in the Leases;

(h) The Leases are valid, enforceable and in full force and effect; and

(i) All security deposits and other deposits (whether refundable or non-refundable pursuant to the terms of the Leases) are held by Borrower in a segregated account and have been received and applied for the uses and purposes designated in the Leases.

1.2. Covenants of Borrower . Borrower hereby covenants and agrees as follows:

(a) Borrower shall (i) fulfill, perform and observe each and every condition and covenant of landlord or lessor contained in each of the Leases; (ii) give prompt notice to Lender of any claim of default under any of the Leases, whether given by the Tenant to Borrower, or given by Borrower to the Tenant, together with a complete copy of any such notice; (iii) at no cost or expense to Lender, enforce, short of termination, the performance and observance of each and every covenant and condition of each of the Leases, to be performed or observed by the Tenant thereunder; and (iv) appear in and defend any action arising out of, or in any manner connected with, any of the Leases, or the obligations or liabilities of Borrower as the landlord thereunder, or of the Tenant or any guarantor thereunder;

(b) Borrower shall not, without the prior written consent of Lender, (i) modify any of the Leases; (ii) terminate the term or accept the surrender of any of the Leases; (iii) waive or release the Tenant from the performance or observance by the Tenant of any obligation or condition of any of the Leases; (iv) permit the prepayment of any rents under any of the Leases for more than one (1) month prior to the accrual thereof; (v) give any consent to any assignment or sublease by the Tenant under any of the Leases; or (vi) assign its interest in, to or under the

Leases or the rents, issues and profits from the Leases and from the Premises to any person or entity other than Lender;

(c) Borrower shall not, without the prior written consent of Lender, enter into any Lease unless the Tenant thereunder shall have been approved in writing by Lender and said Lease is in form and content satisfactory to and approved in writing by Lender;

(d) Borrower shall protect, indemnify and save harmless Lender from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys’ fees and expenses) imposed upon or incurred by Lender by reason of this Assignment and any claim or demand whatsoever which may be asserted against Lender by reason of any alleged obligation or undertaking to be performed or discharged by Lender under this Assignment. In the event Lender incurs any liability, loss or damage by reason of this Assignment, or in the defense of any claim or demand arising out of or in connection with this Assignment, the amount of such liability, loss or damage shall be added to the Indebtedness, shall bear interest at the rate of Default Interest specified in the Note from the date incurred until paid and shall be payable on demand;

(e) Borrower shall authorize and direct, and does hereby authorize and direct each and every present and future Tenant of the whole or any part of the Premises to pay all rental to Lender upon receipt of written demand from Lender to so pay the same;

(f) The warranties and representations of Borrower made in Paragraph 1.01 hereof and the covenants and agreements of Borrower made in this Paragraph apply to each Lease in effect as of the time of execution of this Assignment, and shall apply to each Lease hereafter made at the time each such future Lease becomes effective.

(g) At the request of Lender, Borrower immediately shall deliver to Lender evidence that all security deposits and other deposits (whether refundable or non-refundable) paid by Tenants under the Leases have been placed in a separate account in accordance with applicable law.

1.3. Covenants of Lender . Lender, by its acceptance of this Assignment, hereby covenants and agrees with Borrower as follows:

(a) Although this Assignment constitutes a present and current assignment of all rents, issues and profits from the Premises, so long as there shall exist no Default, Lender shall not demand that such rents, issues and profits be paid directly to Lender, and Borrower shall have the right to collect, but no more than one (1) month prior to accrual, all such rents, issues and profits from the Premises (including, but not by way of limitation, all rental payments under the Leases); and

(b) Upon the payment in full of the Indebtedness, as evidenced by the recording or filing of an instrument of satisfaction or full release of the Security Instrument without the recording of another security instrument in favor of Lender affecting the Premises, this Assignment shall be terminated and released of record by Lender and shall thereupon be of no further force or effect.

ARTICLE II.

DEFAULT

2.1. Default . The term, “Default,” wherever used in this Assignment, shall mean any one or more of the following events:

(a) The occurrence of any “Default” under any of the Loan Documents;

(b) The failure by Borrower duly and fully to comply with any covenant, condition or agreement of this Assignment; or

2.2. Remedies . Upon the occurrence of any Default, Lender may at its option, with or without notice or demand of any kind, exercise any or all of the following remedies:

(a) Declare any part or all of the Indebtedness to be due and payable, whereupon the same shall become immediately due and payable;

(b) Perform any and all obligations of Borrower under any or all of the Leases or this Assignment and exercise any and all rights of Borrower herein or therein as fully as Borrower himself could do, including, without limitation of the generality of the foregoing: enforcing, modifying, extending or terminating any or all of the Leases; collecting, modifying, compromising, waiving or increasing any or all the rents payable thereunder; and obtaining new tenants and entering into new leases on the Premises on any terms and conditions deemed desirable by Lender; and, to the extent Lender shall incur any costs in connection with the performance of any such obligations of Borrower, including costs of litigation, then all such costs shall become a part of the Indebtedness, shall bear interest from the incurring thereof at the rate of Default Interest specified in the Note, and shall be due and payable on demand;

(c) In Borrower’s or Lender’s name, institute any legal or equitable action which Lender in its sole discretion deems desirable to collect and receive any or all of the rents, issues and profits assigned herein;

(d) Collect the rents, issues and profits and any other sums due under the Leases and with respect to the Premises, and apply the same in such order as Lender in its sole discretion may elect against (i) all costs and expenses, including reasonable attorneys’ fees, incurred in connection with the operation of the Premises, the performance of Borrower’s obligations under the Leases and collection of the rents thereunder; (ii) all the costs and expenses, including

reasonable attorneys’ fees, incurred in the collection of any or all of the Indebtedness, including all costs, expenses and attorneys’ fees incurred in seeking to realize on or to protect or preserve Lender’s interest in any other collateral securing any or all of the Indebtedness; and (iii) any or all unpaid principal and interest on the Indebtedness.

Lender shall have the full right to exercise any or all of the foregoing remedies without regard to the adequacy of security for any or all of the Indebtedness, and with or without the commencement of any legal or equitable action or the appointment of any receiver or trustee, and shall have full right to enter upon, take possession of, use and operate all or any portion of the Premises which Lender in its sole discretion deems desirable to effectuate any or all of the foregoing remedies.

ARTICLE III.

GENERAL PROVISIONS

3.1. Successors and Assigns . This Assignment shall inure to the benefit of and be binding upon Borrower and Lender and their respective heirs, executors, legal representatives, successors and assigns. Whenever a reference is made in this Assignment to “Borrower” or “Lender”, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of Borrower or Lender.

3.2. Terminology . All personal pronouns used in this Assignment, whether used in the masculine, feminine or neuter gender, shall include all other genders, and the singular shall include the plural, and vice versa. Titles of articles are for convenience only and neither limit nor amplify the provisions of this Assignment.

3.3. Severability . If any provision of this Assignment or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Assignment and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

3.4. Applicable Law . This Assignment will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

3.5. No Third Party Beneficiaries . This Assignment is made solely for the benefit of Lender and its assigns. No Tenant under any of the Leases nor any other person shall have standing to bring any action against Lender as the result of this Assignment, or to assume that Lender will exercise any remedies provided herein, and no person other than Lender shall under any circumstances be deemed to be a beneficiary of any provision of this Assignment.

3.6. No Oral Modifications . Neither this Assignment nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.

3.7. Cumulative Remedies . The remedies herein provided shall be in addition to and not in substitution for the rights and remedies vested in Lender in or by any of the Loan Documents or in law or equity, all of which rights and remedies are specifically reserved by Lender. The

remedies herein provided or otherwise available to Lender shall be cumulative and may be exercised concurrently. The failure to exercise any of the remedies herein provided shall not constitute a waiver thereof, nor shall use of any of the remedies herein provided prevent the subsequent or concurrent resort to any other remedy or remedies. It is intended that this clause shall be broadly construed so that all remedies herein provided or otherwise available to Lender shall continue to be each and all available to Lender until the Indebtedness shall have been paid in full.

3.8. Cross-Default . A Default by Borrower under this Assignment shall constitute a Default under the other Loan Documents.

3.9. Counterparts . This Assignment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties or signatories hereto may execute this Assignment by signing any such counterpart.

3.10. Further Assurance . At any time and from time to time, upon request by Lender, Borrower will make, execute and deliver, or cause to be made, executed and delivered, to Lender and, where appropriate, cause to be recorded and/or refiled at such time and in such offices and places as shall be deemed desirable by Lender, any and all such other and further assignments, deeds to secure debt, mortgages, deeds of trust, security agreements, financing statements, continuation statements, instruments of further assurance, certificates and other documents as may, in the opinion of Lender, be necessary or desirable in order to effectuate, complete or perfect, or to continue and preserve (a) the obligations of Borrower under this Assignment and (b) the security interest created by this Assignment as a first and prior security interest upon the Leases and the rents, issues and profits from the Premises. Upon any failure by Borrower so to do, Lender may make, execute, record, file, re-record and/or refile any and all such assignments, deeds to secure debt, mortgages, deeds of trust, security agreements, financing statements, continuation statements, instruments, certificates, and documents for and in the name of Borrower, and Borrower hereby irrevocably appoints Lender the agent and attorney-in-fact of Borrower so to do.

3.11. Notices . Any and all notices, elections or demands permitted or required to be made under this Assignment shall be in writing, signed by the party giving such notice, election or demand and shall be delivered personally, or sent by overnight courier service by a company regularly engaged in the business of delivering business packages (such as Federal Express or Purolator), or sent by registered or certified United States mail, postage prepaid, to the other party at the address set forth below, or at such other address within the continental United States of America as may have theretofore been designated in writing. The effective date of such notice, election or demand shall be the date of personal delivery or, if sent by overnight courier then the date of delivery as evidenced by the courier’s receipt, or, if mailed, then the date of postmark. For the purposes of this Assignment:

The Address of Lender is:

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

The Address of Borrower is:

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

3.12. Modifications, etc . Borrower hereby consents and agrees that Lender may at any time, and from time to time, without notice to or further consent from Borrower, either with or without consideration, surrender any property or other security of any kind or nature whatsoever held by it or by any person, firm or corporation on its behalf or for its account, securing the Indebtedness; substitute for any collateral so held by it, other collateral of like kind, or of any kind; agree to modification of the terms of the Note or the Loan Documents; extend or renew the Note or any of the Loan Documents for any period; grant releases, compromises and indulgences with respect to the Note or the Loan Documents to any persons or entities now or hereafter liable thereunder or hereunder; release any guarantor or endorser of the Note, the Security Instrument, the Loan Agreement, or any other Loan Document; or take or fail to take any action of any type whatsoever, and no such action which Lender shall take or fail to take in connection with the Loan Documents, or any of them, or any security for the payment of the Indebtedness or for the performance of any obligations or undertakings of Borrower, nor any course of dealing with Borrower or any other person, shall release Borrower’s obligations hereunder, affect this Assignment in any way or afford Borrower any recourse against Lender. The provisions of this Assignment shall extend and be applicable to all renewals, amendments, extensions, consolidations and modifications of the Loan Documents and the Leases, and any and all references herein to the Loan Documents or the Leases shall be deemed to include any such renewal, amendments, extension, consolidation or modifications thereof.

IN WITNESS WHEREOF, Borrower has executed this Assignment under seal, as of the day and year first above written.

	BORROWER:

Signed, sealed and delivered in the presence of:	ERIN PROPERTY HOLDINGS, LLC


/s/ illegible	By:	/s/ Chris Brogdon	(L.S.)
Witness		Chris Brogdon, Manager


/s/ Damaris Marriaga
Notary Public (affix seal and commission expiration date)

Exhibit 10.8

WHEN RECORDED RETURN TO:

Reid H. Harbin, Esq.

Harbin & Miller, LLC

3085 E. Shadowlawn Avenue

Atlanta, Georgia 30305

ASSIGNMENT OF LEASES AND RENTS

THIS ASSIGNMENT, made and entered into as of this 27 th day of July, 2011, between ERIN PROPERTY HOLDINGS, LLC, a limited liability company duly organized, existing and in good standing under the laws of the State of Georgia, whose mailing address is 3050 Peachtree Road, NW, Suite 570, Two Buckhead Plaza, Atlanta, Georgia 30305 (hereinafter referred to as “Borrower”), and BANK OF ATLANTA, the address of which is 1970 Satellite Blvd., Duluth, Georgia 30097 (hereinafter referred to as “Lender”);

W I T N E S S E T H:

with all of Borrower’s right, title and interest in and to all rents, issues and profits from the Leases and from the Premises.

TO HAVE AND TO HOLD unto Lender, its successors and assigns, forever, subject to and upon the terms and conditions set forth herein.

This Assignment is made for the purpose of securing (a) the full and prompt payment when due, whether by acceleration or otherwise, with such interest as may accrue thereon, either before or after maturity thereof, of that certain Note dated of even date herewith, made by Borrower to the order of Lender in the principal face amount of Eight Hundred Thousand and No/100 Dollars ($800,000.00), (hereinafter referred to as the “Note”), together with any renewals, modifications, consolidations and extensions thereof and amendments thereto and all advances of principal thereunder, (b) the full amount and prompt payment and performance of any and all obligations of Borrower to Lender under the terms of the Deed to Secure Debt and Security Agreement from Borrower to Lender, dated of even date herewith and securing the indebtedness evidenced by the Note (hereinafter referred to as the “Security Instrument”), (c) the full and prompt payment and performance of all obligations of Borrower to Lender under the terms of that certain Loan Agreement of even date herewith (hereinafter referred to as the “Loan Agreement”), and (d) the full and prompt payment and performance of any and all other obligations of Borrower to Lender under any other instruments now or hereafter evidencing, securing, or otherwise relating to the indebtedness evidenced by the Note (the Note, Security Instrument, the Loan Agreement, and said other instruments are hereinafter referred to collectively as the “Loan Documents,” and said indebtedness is hereinafter referred to as the “Indebtedness”).

ARTICLE I.

WARRANTIES AND COVENANTS

1.1. Warranties of Borrower . To the extent that there are Leases, Borrower hereby warrants and represents as follows:

(b) Borrower has made no assignment other than this Assignment of any of the rights of Borrower under any of the Leases or with respect to any of said rents, issues or profits;

(c) Borrower has neither done any act nor omitted to do any act which might prevent Lender from, or limit Lender in, acting under any of the provisions of this Assignment;

(h) The Leases are valid, enforceable and in full force and effect; and

1.2. Covenants of Borrower . Borrower hereby covenants and agrees as follows:

Leases or the rents, issues and profits from the Leases and from the Premises to any person or entity other than Lender;

1.3. Covenants of Lender . Lender, by its acceptance of this Assignment, hereby covenants and agrees with Borrower as follows:

ARTICLE II.

DEFAULT

2.1. Default . The term, “Default,” wherever used in this Assignment, shall mean any one or more of the following events:

(a) The occurrence of any “Default” under any of the Loan Documents;

(b) The failure by Borrower duly and fully to comply with any covenant, condition or agreement of this Assignment; or

2.2. Remedies . Upon the occurrence of any Default, Lender may at its option, with or without notice or demand of any kind, exercise any or all of the following remedies:

(a) Declare any part or all of the Indebtedness to be due and payable, whereupon the same shall become immediately due and payable;

ARTICLE III.

GENERAL PROVISIONS

3.4. Applicable Law . This Assignment will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

3.8. Cross-Default . A Default by Borrower under this Assignment shall constitute a Default under the other Loan Documents.

The Address of Lender is:

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

The Address of Borrower is:

3050 Peachtree Road, NW, Suite 570

Two Buckhead Plaza

Atlanta, Georgia 30305

3.13. SBA Loan . The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations:

a) When SBA is the holder of the Note, this document and all documents evidencing or securing this Loan will be construed in accordance with federal law.

Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured by this instrument.

IN WITNESS WHEREOF, Borrower has executed this Assignment under seal, as of the day and year first above written.

	BORROWER:

Signed, sealed and delivered in the presence of:	ERIN PROPERTY HOLDINGS, LLC


/s/ ILLEGIBLE	By:	/s/ Chris Brogdon	(L.S.)
Witness		Chris Brogdon, Manager


/s/ Damaris Marriaga
Notary Public (affix seal and commission expiration date)

Exhibit 10.9

INDEMNITY AGREEMENT
REGARDING HAZARDOUS MATERIALS

THIS INDEMNITY AGREEMENT (the “Agreement”) is made as of the 27 th day of July, 2011, by ERIN PROPERTY HOLDINGS, LLC (the “Borrower”) for the benefit of BANK OF ATLANTA (“Lender”).

W I T N E S S E T H:

WHEREAS, Borrower is the owner of certain real property located in Laurens County, Georgia, more particularly described in Exhibit “A” attached hereto and incorporated herein by this reference (the “Land”); (the Land, together with all improvements now or hereafter located in, on or under the Land, collectively, the “Premises”); WHEREAS, Lender has made and Borrower has accepted a loan up to the amount of Five Million and No/100 Dollars ($5,000,000.00) (the “Loan”) which Loan is evidenced by that certain Term Note of even date from Borrower to Lender (the “Note”) and secured by, among other things, that certain Deed to Secure Debt and Security Agreement of even date from Borrower to Lender conveying the Premises and to be recorded in the public records of the aforesaid county (together with all amendments, modifications, consolidations, increases, supplements and extensions thereof, collectively, the “Deed”);

WHEREAS, as a condition to making the Loan, Lender requires Borrower to provide certain indemnities concerning existing and future Hazardous Materials (as defined in Exhibit “B” attached hereto and incorporated herein by this reference) and any other hazardous or toxic materials, wastes and substance which are defined, determined or identified as such in the Environmental Laws (as defined in Exhibit “B” ), whether now existing or hereafter enacted or promulgated, or any judicial or administrative interpretation of such Environmental Laws;

WHEREAS, to induce Lender to consummate the above described transaction and to lend the indicated amount to Borrower, Borrower has agreed to enter into this Agreement;

NOW, THEREFORE, in consideration of the sum of Ten and No/100 ($10.00) Dollars cash in hand paid, the Premises, the Loan, and other good valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged, Lender and Borrower hereby agree as follows:

1. Borrower covenants and agrees, at Borrower’s sole cost and expense, to indemnify, protect and save Lender harmless against and from any and all liens, damages, losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses of any kind or of any nature whatsoever (including, without limitation, attorneys’ and experts’ fees and disbursements) which may at any time be imposed upon, incurred by or asserted or awarded against Lender or the Premises and arising directly or indirectly from or out of: (A) any Hazardous Materials on, in, under or affecting all or any portion of the Premises, any surrounding areas, or any other property owned by Borrower, regardless of whether or not caused by or within the control of Borrower; (B) the violation of any Environmental Laws relating to or affecting the Premises or the Borrower,

whether or not caused by or within the control of Borrower; (C) the failure of Borrower to comply fully with the terms and conditions of this Agreement; (D) the violation of any Environmental Laws in connection with other property of Borrower which gives or may give rise to any rights whatsoever in any party with respect to the Premises by virtue of any Environmental Law(s); or (E) the enforcement of this Agreement, or the assertion by Borrower of any defense to its obligations hereunder whether any of such matters arise before or after sale under power or foreclosure of the Deed or other taking of title to all or any portion of the Premises by Lender, including, without limitation, (i) the costs of removal of any and all Hazardous Materials from all or any portion of the Premises or any surrounding areas, (ii) additional costs required to take necessary precautions to protect against the discharge, spillage, emission, leakage, seepage or Release of Hazardous Materials on, in, under or affecting the Premises or into the air, any body of water, any other public domain or any surrounding areas, and (iii) costs incurred to comply with the Environmental Laws in connection with all or any portion of the Premises or any surrounding areas. Lender’s rights under this Agreement shall be in addition to all rights of Lender under the Deed to Secure Debt and Security Agreement, the Note, or under any other documents or instruments evidencing or securing the Loan (the Deed to Secure Debt and Security Agreement, the Note and such other documents or instruments, as amended or modified from time to time, the “Loan Documents”), and payments by Borrower under this Agreement shall not reduce Borrower’s obligations and liabilities under any of the Loan Documents.

2. The liabilities of Borrower under this Agreement shall in no way be limited or impaired by, and Borrower hereby consents to and agrees to be bound by, any amendment or modification of the provisions of the Loan Documents to or with Lender by Borrower or any person who succeeds Borrower as owner of the Premises. In addition, notwithstanding any terms of any of the Loan Documents to the contrary, the liability of Borrower under this Agreement shall in no way be limited or impaired by: (i) any extensions of time for performance required by any of the Loan Documents; (ii) any sale, assignment or foreclosure of the Note or Deed or any sale or transfer of all or part of the Premises; (iii) any exculpatory provision in any of the Loan Documents limiting Lender’s recourse to property encumbered by the Deed or to any other security, or limiting Lender’s rights to a deficiency judgment against Borrower; (iv) the accuracy or inaccuracy of the representations and warranties made by Borrower under any of the Loan Documents; (v) the release of Borrower or any other person from performance or observance of any of the agreements, covenants, terms or conditions contained in the Loan Documents by operation of law, Lender’s voluntary act, or otherwise; (vi) the release or substitution, in whole or in part, of any security for the Note; or (vii) Lender’s failure to record the Deed or file any UCC-1 financing statements (or Lender’s improper recording or filing of any thereof) or to otherwise perfect, protect, secure or insure any security interest or lien given as security for the Note; and, in any such case, whether with or without notice to Borrower and with or without consideration.

3. Borrower waives any right or claim of right to cause a marshalling of Borrower’s assets or to cause Lender to proceed against any of the security for the Loan before proceeding under this Agreement against Borrower or to proceed against Borrower in any particular order; Borrower agrees that any payments required to be made hereunder shall become due on demand; Borrower expressly waives and relinquishes all rights and remedies (including any rights of subrogation) accorded by applicable law to indemnitors or guarantors.

4. No delay on Lender’s part in exercising any right, power or privilege under any of the Loan Documents shall operate as a waiver of any privilege, power or right hereunder.

5. Any one or more of Borrower or any other party liable upon or in respect of this Agreement or the Loan may be released without affecting the liability of any party not so released.

6. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. Said counterparts shall constitute but one and the same instrument and shall be binding upon each of the undersigned individually as fully and completely as if all had signed but one instrument so that the joint and several liability of each of the undersigned hereunder shall be unaffected by the failure of any of the undersigned to execute any or all of said counterparts.

7. All notices hereunder shall be in writing and shall be deemed to have been sufficiently given or served for all purposes on the date of actual delivery or on the date deposited in the United States Mail, registered or certified, return receipt requested, or with overnight commercial delivery service requiring proof of delivery, to the parties as follows:

AS TO LENDER:

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

with a copy to:

Harbin & Miller, LLC

3085 E. Shadowlawn Ave.

Atlanta, Georgia 30305

Attention: Reid H. Harbin, Esq.

AS TO BORROWER:

ERIN PROPERTY HOLDINGS, LLC

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

8. No provision of this Agreement may be changed, waived, discharged or terminated orally, by telephone or by any other means except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.

9. Except as herein provided, this Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, personal representatives, successors and assigns. Notwithstanding the foregoing, Borrower, without the prior written consent of Lender in each instance, may not assign, transfer or set over to another, in whole or in part, all or any part of its benefits, rights, duties and obligations hereunder, including, but not limited to, performance of and compliance with conditions hereof.

10. Notwithstanding anything contained in this Agreement to the contrary, any covenants of Borrower concerning any environmental matter addressed herein shall not be applicable to any condition which is first created or introduced after a foreclosure, conveyance or other transfer of title of the Premises pledged as collateral security for the Loan.

11. Notwithstanding anything contained in this Agreement to the contrary, Borrower may make use of or have office supplies, cleaning substances, medical supplies and materials used in the ordinary course of operation for a senior living facility provided that such use is consistent with applicable Environmental Laws.

12. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

IN WITNESS WHEREOF, Borrower has caused this Agreement to be executed under seal as of the day and year first written above.

BORROWER :

ERIN PROPERTY HOLDINGS, LLC

By:	/s/ Chris Brogdon	(L.S.)
	Chris Brogdon, Manager

EXHIBIT “A”

LEGAL DESCRIPTION

EXHIBIT “B”

“Hazardous Material” or “Hazardous Materials” means and includes petroleum products, flammable explosives, radioactive materials, asbestos or any material containing asbestos, polychlorinated biphenyls, and/or any hazardous, toxic or dangerous waste, substance or material defined as such or defined as a Hazardous Substance or any similar term, by, in or for the purposes of the Environmental Laws, including, without limitation section 101(14) of CERCLA (hereinafter defined); (ii) “Release” shall have the meaning given such term, or any similar term, in the Environmental Laws, including, without limitation, Section 101(22) of CERCLA; and (iii) “Environmental Law” or “Environmental Laws” shall mean any “Super Fund” or “Super Lien” law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Materials as may now or at any time hereafter be in effect, including, without limitation, the following, as same may be amended or replaced from time to time, and all regulations promulgated thereunder or in connection therewith: the Super Fund Amendments and Reauthorization Act of 1986 (“SARA”); The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”); The Clean Air Act (“CAA”); the Clean Water Act (“CWA”); The Toxic Substances Control Act (“TSCA”); The Solid Waste Disposal Act (“SWDA”), as amended by the Resource Conservation and Recovery Act (“RCRA”); the Hazardous Waste Management System; and the Occupational Safety and Health Act of 1970 (“OSHA”).

Exhibit 10.10

INDEMNITY AGREEMENT
REGARDING HAZARDOUS MATERIALS

THIS INDEMNITY AGREEMENT (the “Agreement”) is made as of the 27 th day of July, 2011, by ERIN PROPERTY HOLDINGS, LLC (the “Borrower”) for the benefit of BANK OF ATLANTA (“Lender”).

W I T N E S S E T H:

WHEREAS, Borrower is the owner of certain real property located in Laurens County, Georgia, more particularly described in Exhibit “A” attached hereto and incorporated herein by this reference (the “Land”); (the Land, together with all improvements now or hereafter located in, on or under the Land, collectively, the “Premises”); WHEREAS, Lender has made and Borrower has accepted a loan up to the amount of Eight Hundred Thousand and No/100 Dollars ($800,000.00) (the “Loan”) which Loan is evidenced by that certain Term Note of even date from Borrower to Lender (the “Note”) and secured by, among other things, that certain Deed to Secure Debt and Security Agreement of even date from Borrower to Lender conveying the Premises and to be recorded in the public records of the aforesaid county (together with all amendments, modifications, consolidations, increases, supplements and extensions thereof, collectively, the “Deed”);

WHEREAS, to induce Lender to consummate the above described transaction and to lend the indicated amount to Borrower, Borrower has agreed to enter into this Agreement;

4. No delay on Lender’s part in exercising any right, power or privilege under any of the Loan Documents shall operate as a waiver of any privilege, power or right hereunder.

5. Any one or more of Borrower or any other party liable upon or in respect of this Agreement or the Loan may be released without affecting the liability of any party not so released.

AS TO LENDER:

BANK OF ATLANTA

Attn: Thomas Dorman

1970 Satellite Blvd.

Duluth, Georgia 30097

with a copy to:

Harbin & Miller, LLC

3085 E. Shadowlawn Ave.

Atlanta, Georgia 30305

Attention: Reid H. Harbin, Esq.

AS TO BORROWER:

ERIN PROPERTY HOLDINGS, LLC

3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

12. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

IN WITNESS WHEREOF, Borrower has caused this Agreement to be executed under seal as of the day and year first written above.

BORROWER :

ERIN PROPERTY HOLDINGS, LLC

By:	/s/ Chris Brogdon	(L.S.)
	Chris Brogdon, Manager

EXHIBIT “A”

LEGAL DESCRIPTION

EXHIBIT “B”

Exhibit 10.11

BANK OF ATLANTA

SECURITY AGREEMENT

This Security Agreement (hereinafter called “Agreement”) is between ERIN PROPERTY HOLDINGS, LLC and ERIN NURSING, LLC (collectively, hereinafter the “Debtor”) and BANK OF ATLANTA (hereinafter called “Secured Party”).

1. Grant of Security Interest. Subject to the terms and conditions of this Agreement, Debtor, for consideration, and to secure the full and prompt payment, observance and performance when due of all present and future obligations and indebtedness of Debtor to Secured Party, whether at the stated time, by acceleration or otherwise, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, whether or not of the same or similar class or of like kind to any indebtedness incurred contemporaneously with the execution of this Agreement, and whether now or hereafter existing, or due or to become due, and whether such indebtedness from time to time is reduced and thereafter increased, or entirely extinguished and thereafter reincurred, including without limitation, the following:

(a) Any and all amounts owed by Debtor under, in connection with, and/or pursuant to the indebtedness evidenced by that certain Term Note of even date herewith, in the original principal sum of Five Million and No/100 Dollars ($5,000,000.00) (the “Note”), with interest thereon according to the provisions thereof, and all obligations thereunder, in connection therewith and/or pursuant to any and all agreements and other documents in connection therewith; and

(b) All sums advanced or expenses or costs paid or incurred (including without limitation reasonable attorneys’ fees and other legal expenses) by Secured Party pursuant to or in connection with the Note or any other agreements and documents in connection therewith plus applicable interest on such sums, expenses or costs; and

(c) Any extensions, modifications, changes, substitutions, restatements, renewals or increases or decreases of any or all of the indebtedness referenced above; and

(d) Any and all other indebtedness, obligations and liabilities of any kind, of Debtor to Secured Party, now or hereafter existing, absolute or contingent, joint and/or several, due or not due, secured or unsecured, arising by operation of law or otherwise, direct or indirect, including without limitation indebtedness, obligations and liabilities of Debtor to Secured Party as a manager of any partnership, syndicate or association or other group and whether incurred by Debtor as principal, surety, endorser, guarantor, accommodation party or otherwise, and any obligations which give rise to an equitable remedy for breach of performance if such breach gives rise to an obligation by Debtor to pay Secured Party;

Debtor hereby grants to Secured Party a security interest in the collateral described in Schedule 1 to this Agreement and made a part hereof and the proceeds of such collateral (hereinafter collectively called the “Collateral”).

2. Representations, Warranties and Covenants of Debtor. Debtor expressly represents, warrants and covenants as follows:

(a) The address appearing with Debtor’s signature below is the address of Debtor’s chief executive office or, if Debtor has no place of business, Debtor’s residence. If the Collateral is not located at Debtor’s address appearing below, it will be located at: 606 Simmons St., Dublin, Laurens County, Georgia 30121 or wherever located.

(b) If Debtor does not keep the records concerning the Collateral and concerning general intangibles, mobile goods and contract rights at the address appearing below, these records will be located at: 606 Simmons St., Dublin, Laurens County, Georgia 30121 or wherever located.

(c) Debtor will give Secured Party sixty (60) days prior written notice of any change in (i) Debtor’s chief executive office (or, if Debtor has no place of business, Debtor’s residence), the location of the Collateral or the location of the records described above, or (ii) the ownership of Debtor’s business, (iii) the principals responsible for the management of Debtor’s business, (iv) Debtor’s corporate structure or identity, or (v) Debtor’s name or trade name, or prior to commencing to use an assumed name not set forth in this Agreement. Lender acknowledges that Erin Nursing, LLC has registered the trade name “Southland Care Center” and is operating the business under such name.

(d) If any of the Collateral is to be or has been attached to real estate, the legal description of the real estate is attached to this Agreement as Schedule 2 and made a part hereof.

(e) If Debtor does not have a record interest in the real estate described above, the record owner is indicated on the attached Schedule 2.

(f) Without the prior written consent of Secured Party, Debtor will not move, sell, lease, permit any encumbrance on or otherwise dispose of the Collateral, other than its inventory in the ordinary course of its business. Debtor represents and warrants that Debtor is the sole owner of the Collateral, free and clear of all liens, charges, interests, and encumbrances, other than in favor of Secured Party, that no other person or other entity has any interest in the Collateral whatsoever, and that Debtor will defend same against all adverse claims and demands.

(g) Debtor will keep the Collateral insured by such companies, in such amounts and against such risks as shall be acceptable to Secured Party, with loss payable and additional insured clauses in favor of Secured Party as are satisfactory to Secured Party. Debtor will deposit such insurance policies with Secured Party. Debtor hereby assigns to Secured Party and grants to Secured Party a security interest in any return of unearned premium due upon cancellation of any such insurance and directs the insurer thereunder to pay to Secured Party all amounts so due. All amounts received by Secured

Party in payment of insurance losses or return of unearned premium may, at Secured Party’s option, be applied to the indebtedness by Secured Party, or all or any part thereof may be used for the purpose of repairing, replacing or restoring the Collateral. If Debtor fails to maintain satisfactory insurance, Secured Party shall have the option, but not the obligation, to obtain such insurance in such amounts as Secured Party deems necessary, and Debtor agrees to repay, with interest at the highest rate applicable to any indebtedness which this Agreement secures, all amounts so expended by Secured Party.

(h) Debtor represents and warrants to Secured Party that all financial statements and credit applications delivered by Debtor to Secured Party accurately reflect the financial condition and operations of Debtor at the times and for the periods therein stated. So long as this Agreement is in force and effect, Debtor agrees to deliver to Secured Party within 90 days after the end of each of Debtor’s fiscal years, a complete and accurate copy of Debtor’s compiled financial statements, including consolidated statements of cash flow, and a consolidated balance sheet and statement of income, together with all schedules, showing the consolidated financial position of Debtor at the close of such fiscal year, and concurrently therewith a certificate of its Manager or chief financial officer to the effect that such officer is not aware of any condition or event which constitutes a default under this Agreement or under any notes or other obligations of Debtor or which, with the mere passage of time or notice, or both, would constitute a default under this Agreement or a default under any such franchise agreement or under any notes or other obligations of Debtor.

(i) Secured Party shall not be deemed to have waived any of its rights in any Collateral unless such waiver is in writing and signed by an authorized representative of Secured Party. No delay or omission by Secured Party in exercising any of Secured Party’s rights shall operate as a waiver thereof or of any other rights. Secured Party shall have, in addition to all other rights and remedies provided by this Agreement or applicable law, the rights and remedies of a secured party under the Uniform Commercial Code.

(j) Debtor will maintain the Collateral in good condition and repair and will pay promptly all taxes, levies, and encumbrances and all repair, maintenance and preservation costs pertaining to the Collateral. If Debtor fails to make such payments, Secured Party shall have the option, but not the obligation, to pay the same and Debtor agrees to repay, with interest at the highest rate applicable to any indebtedness which this Agreement secures, all amounts so expended by Secured Party. Debtor will at any time and from time to time, upon request of Secured Party, give any representative of Secured Party access during normal business hours to inspect the Collateral or the books and records thereof.

(k) Debtor agrees to pay on demand, all expenses, including reasonable attorney fees and expenses, incurred by Secured Party in protecting or enforcing its rights in the Collateral or otherwise under this Agreement. After deducting all said expenses, the remainder of any proceeds of sale or other disposition of the Collateral shall be applied to the indebtedness due Secured Party in such order of preference as Secured Party shall determine.

(l) Debtor hereby agrees to faithfully preserve and protect Secured Party’s security interest in the Collateral at all times, and further agrees to execute and deliver, from time to time, any and all further, or other, documents, instruments, continuation statements and perform or refrain from performing such acts, as Secured Party may reasonably request to effect the purposes of this Agreement and to secure to Secured Party the benefits of all the rights, authorities and remedies conferred upon Secured Party by the terms of this Agreement. Debtor shall permit, or cause to be permitted, at Debtor’s expense, representatives of Secured Party to inspect and make copies of the books and records of Debtor relating to the Collateral at any reasonable time during normal business hours upon prior written notice.

3. Defaults. The occurrence of any of the following events shall constitute a default (hereinafter called “Default”) hereunder:

(a) The failure of Debtor to make any payment on any indebtedness to Secured Party whether pursuant to the Note or any other obligation to Secured Party, or a default in any provision of the Note or any other agreement or document secured hereby or any other encumbrance or agreement securing the Note, which is not cured within any applicable cure period;

(b) The breach of or failure to perform promptly any obligation or covenant set forth in this Agreement, or the breach or the failure to perform promptly any obligation or covenant set forth in the Note or any other agreement secured hereby or securing the Note, which is not cured within any applicable cure period;

(c) The suspension of business, insolvency, failure generally to pay debts as they became due, or the commission of any act constituting or resulting in a business failure, in each case on the part of Debtor’s business; the concealment or removal of any substantial portion of Debtor’s property with the intent to hinder, delay or defraud any one or more creditors, or the making of any other transfer which is fraudulent or otherwise voidable under the Bankruptcy Code or other applicable federal or state law; the existence or creation of any lien, including without limitation any tax or judgment lien, upon the Collateral or any substantial part of Debtor’s property; an assignment for the benefit of creditors; the commencement of any proceedings by or against Debtor (under the Bankruptcy Code or otherwise) seeking to adjudicate if bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or seeking the appointment of a receiver, trustee or custodian for Debtor or for the Collateral or a substantial part of the property of Debtor; or the institution by Debtor or any other person or entity of any liquidation, dissolution or reorganization proceedings with respect to Debtor;

(d) The failure to effectively and promptly discharge, stay or indemnify against, to Secured Party’s satisfaction, any lien or attachment against any of Debtor’s property or the Collateral;

(e) Any representation or warranty contained herein or in any other document delivered by or on behalf of Debtor to Secured Party shall be false or misleading when made;

(f) If Secured Party, in good faith, believes the prospect of payment secured by this Agreement is impaired, or believes that any of the Collateral is in danger of loss, misuse, seizure or confiscation;

(g) Any guaranty of the obligations described herein ceases to be effective, except pursuant to a written release from Secured Party, or any guarantor denies liability thereunder, or one of the events described in Paragraph 3(c) hereof occurs with respect to any guarantor, or any default occurs under any such guaranty;

(h) If Debtor is a corporation, the occurrence of any of the following without the Secured Party’s written consent: the sale, pledge or assignment by the shareholders of Debtor of any shares of stock of Debtor; the merger or consolidation of Debtor with another company or entity; the change of the Debtor’s name; the liquidation of Debtor; or the issuance by Debtor of any new stock or warrants, or the transfer of issued and outstanding treasury stock or warrants of Debtor. If Debtor is a limited liability company, the sale, pledge, transfer or assignment of any of the Managers or members of Debtor of any of their interest in Debtor, or the withdrawal or the admittance of any Managers into Debtor without the prior written consent of Secured Party. If Debtor is a partnership or joint venture, the occurrence of any of the following without Secured Party’s written consent: the sale, pledge, transfer or assignment by any of the partners or joint ventures of Debtor of any of their partnership or joint venture interest in Debtor; the withdrawal of any general partner(s) or joint venturer(s); or the admittance of any additional partner(s) or joint venturer(s) into Debtor;

(i) The occurrence of any default, after the expiration of all cure periods, if any, or event of default under any other document or agreement securing or guaranteeing any of the obligations secured by the Agreement; or the occurrence of any default, after the expiration of all cure periods, if any or event of default due to any material indebtedness or obligation of Debtor to any third party that causes such third party to declare such indebtedness or other obligation due prior to its scheduled date of maturity; or

(j) The occurrence of any default, after the expiration of all cure periods, if any, or event of default under or with respect to any obligation of Debtor to any affiliate of Secured Party (for the purposes of this subparagraph, “affiliate” is defined as BANK OF ATLANTA or any entity owned or controlled, directly or indirectly, by BANK OF ATLANTA).

4. Remedies.

(a) Upon the occurrence of any default under this Agreement, after the expiration of all cure periods, if any, Secured Party is authorized in its discretion to declare any or all of the indebtedness to be immediately due and payable without demand

or notice to Debtor, and may exercise any one or more of the rights and remedies granted pursuant to this Agreement or given to a secured party under applicable law, including without limitation the Uniform Commercial Code, such rights and remedies to include without limitation the right to take possession and sell, lease or otherwise dispose of the Collateral. If reasonable notice of any disposition of Collateral or other enforcement is required, such requirement will be met if such notice is mailed, postage pre-paid, to the address of Debtor shown below Debtor’s signature on this Agreement at least fifteen (15) days prior to the time of disposition or other enforcement. Debtor agrees that upon demand by Secured Party after default, Debtor will promptly assemble the Collateral and make the Collateral available to Secured Party at a place convenient to Secured Party.

(b) Debtor agrees that all of the Collateral and all of the other security which may be granted to Secured Party in connection with the obligations secured hereby constitute equal security for all of the obligations secured hereby, and agrees that Secured Party shall be entitled to sell, retain or otherwise deal with any or all of the Collateral, in any order or simultaneously as Secured Party shall determine in its sole and absolute discretion, free of any requirement for the marshaling of assets or other restriction upon Secured Party in dealing with the Collateral or such other security.

(c) Upon the occurrence of any default under this Agreement, after the expiration of all cure periods, if any, Debtor hereby irrevocably constitute and appoints Secured Party (and any employee or agent of Secured Party) as Debtor’s true and lawful attorney-in-fact with full power of substitution, in Secured Party’s name or Debtor’s name or otherwise, for Secured Party’s sole use and benefit, at Debtor’s cost and expense, to exercise the following powers with respect to the Collateral:

1. To demand, sue for collection, receive, and give acquittance for any and all monies due or owing with respect to the Collateral;

2. To receive, take, endorse Debtor’s name on, assign and deliver any checks, notes, drafts, documents or other instruments taken or received by Secured Party in connection with the Collateral;

3. To settle, compromise, prosecute, or defend any action or proceeding with respect to the Collateral;

4. To sell, transfer, assign or otherwise deal in or with the Collateral or the proceeds thereof, as fully as if Secured Party were the absolute owner thereof;

5. To sign Debtor’s name to and file financing statements or such other documents and instruments as Secured Party may deem appropriate; and

6. To take any and all action that Secured Party deems necessary or proper to preserve its interest in the Collateral, including without limitation, the payment of debts of Debtor that might impair the Collateral or Secured Party’s security interest therein, the purchase of insurance on the Collateral, the repair or safeguard of the Collateral, or the payment of taxes thereon; and

7. To notify account debtors of Secured Party’s security interest in Debtor’s accounts and to instruct them to make payment directly to Secured Party.

(d) Debtor agrees that the powers of attorney granted herein are coupled with an interest and shall be irrevocable until full, final and irrevocable payment and performance of the indebtedness secured hereby; and that neither Secured Party nor any officer, director, employee or agent of Secured Party shall be liable for any act or omission, or for any mistake or error of judgment, in connection with any such powers.

(e) Notwithstanding the foregoing, Secured Party shall be under no duty to exercise any such powers, or to collect any amount due on the Collateral, to realize on the Collateral, to keep the Collateral, to make any presentment, demand or notice of protest in connection with the Collateral, or to perform any other act relating to the enforcement, collection or protection of the Collateral.

(f) This Agreement shall not prejudice the right of Secured Party at its option to enforce the collection of any indebtedness secured hereby or any other instrument executed in connection with this transaction, by suit or in any other lawful manner. No right or remedy is intended to be exclusive of any other right or remedy, but every such right or remedy shall be cumulative to every other right or remedy herein or conferred in any other agreement or document for the benefit of Secured Party, or now or hereafter existing at law or in equity.

(g) Any action or proceeding to enforce this Agreement may be taken by Secured Party either in Debtor’s name or in Secured Party’s name, as Secured Party may deem necessary.

(h) All rights of marshaling of assets of Debtor, including any such right with respect to the Collateral, are hereby waived by Debtor.

5. Remedies Cumulative; Delay Not Waiver .

(a) No right, power or remedy herein conferred upon or reserved to Secured Party hereunder is intended to be exclusive of any other right, power or remedy, and every such right, power and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right, power and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Resort to any or all security now or hereafter held by Secured Party, may be taken concurrently or successively and in one or several consolidated or independent judicial actions or lawfully taken non-judicial proceedings, or both.

(b) No delay or omission of Secured Party to exercise any right or power accruing upon the occurrence and during the continuance of any default as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such default or

an acquiescence therein; and every power and remedy given by this Agreement may be exercised from time to time, and as often as shall be deemed expedient, by Secured Party.

6. Further Assurances; Certain Waivers .

(a) Debtor agrees that, from time to time, at the expense of Debtor, Debtor shall promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect the assignment and security interest granted or intended to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Debtor shall: (i) if any Collateral shall be evidenced by a promissory note or other instrument, deliver and pledge to Secured Party such note or instrument duly endorsed (without recourse) and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party; and (ii) execute and file such financing statements or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be reasonably necessary or desirable, or as Secured Party may reasonably request, in order to perfect and preserve the assignments and security interests granted or purported to be granted hereby.

(b) Debtor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Debtor where permitted by law. Copies of any such statement or amendment thereto shall promptly be delivered to Debtor.

(c) Debtor shall pay all filing, registration and recording fees or re-filing, re-registration and re-recording fees, and all reasonable expenses incident to the execution and acknowledgment of this Agreement, any assurance, and all federal, state, county and municipal stamp taxes and other taxes, duties, imports, assessments and charges arising out of or in connection with the execution and delivery of this Agreement, any agreement supplemental hereto and any instruments of further assurance.

(d) Debtor hereby waives, to the maximum extent permitted by law (i) all rights under any law limiting remedies, including recovery of a deficiency, under an obligation secured by a security deed on real property if the real property is sold under a power of sale contained in the security deed, and all defenses based on any loss whether as a result of any such sale or otherwise; (ii) all rights under any law to require Secured Party to pursue any other person, any security which Secured Party may hold, or any other remedy before proceeding against Debtor; (iii) all rights to participate in any security held by Secured Party until the obligations have been paid in full; and (iv) all rights to require Secured Party to give any notices of any kind including, without limitation, notices of nonpayment, nonperformance, protest, dishonor, default, delinquency or acceleration, or to make any presentments, demands or protests, except as expressly provided in this Agreement. Secured Party shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to this Agreement conducted in a commercially reasonable manner. Debtor hereby waives any claims

against Secured Party arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have obtained at a public sale or was less than the aggregate amount of the obligations, even if Secured Party accepts the first offer received and does not offer the Collateral to more than one offeree, provided that such private sale is conducted in a commercially reasonable manner.

7. Miscellaneous.

(a) This Agreement and the security interest in the Collateral created hereby shall terminate when the obligations and indebtedness hereunder have been fully, finally and irrevocably paid and all other obligations of Debtor to Secured Party have been performed in full. Prior to such termination, this shall be a continuing agreement.

(b) This Agreement and Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Georgia.

(c) DEBTOR AND SECURED PARTY BY ACCEPTANCE OF THIS AGREEMENT, EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION UNDER OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, AND IN NO EVENT SHALL SECURED PARTY BE LIABLE FOR PUNITIVE OR CONSEQUENTIAL DAMAGES.

(d) This Agreement shall inure to the benefit of Secured Party, its successors and assigns and to any other holder who derives from Secured Party title to or an interest in the indebtedness which this Agreement secures, and shall be binding upon Debtor, its successors and assigns.

(e) In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had not been included.

(f) Any provision to the contrary notwithstanding contained herein or in the Note or in any other instrument now or hereafter evidencing, securing or otherwise relating to any secured indebtedness, neither Secured Party nor any other holder of the secured indebtedness shall be entitled to receive or collect, nor shall Debtor be obligated to pay, interest on any of the secured indebtedness in excess of the maximum rate of interest at the particular time in question, if any, which, under applicable law, may be charged to Debtor (herein the “Maximum Rate”), provided that the Maximum Rate shall be automatically increased or decreased, as the case may be, without notice to Debtor from time to time as of the effective time of each change in the Maximum Rate, and if any provision herein or in the Note or in such other instrument shall ever be construed or held to permit the collection or to require the payment of any amount of interest in excess of that permitted by applicable law, the provisions of this paragraph shall control and

shall override any contrary or inconsistent provision herein or in the Note or in such other instrument. The intention of the parties being to conform strictly to the usury limitations under applicable law, the Note, this Agreement, and each other instrument now or hereafter evidencing or relating to any secured indebtedness shall be held subject to reduction to the amount allowed under said applicable law as now or hereafter construed by the courts having jurisdiction.

(g) All notices pursuant to this Security Agreement shall be in writing and shall be directed to the addresses set forth below or such other address as may be specified in writing, by certified or registered mail, return receipt requested by the party to which or whom notices are to be given. Notices shall be deemed to be given three (3) days after mailing by depositing same in any United States post office station or letter box in a post-paid envelope.

(h) The singular used herein shall include the plural.

(i) If more than one party shall execute this Agreement as “Debtor”, the term “Debtor” shall mean all such parties executing this Agreement, and all such parties shall be jointly and severally obligated hereunder.

(j) A photocopy or other reproduction of this Agreement or of any financing statement is sufficient as a financing statement and may be filed as a financing statement in any government office.

(k) THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date written below.

Dated: July 27, 2011.

DEBTOR:

ERIN PROPERTY HOLDINGS, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager

ERIN NURSING, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager

Addresses of Debtor: 3050 Peachtree Road, NW, Suite 355 Two Buckhead Plaza Atlanta, Georgia 30305

SCHEDULE 1

(All Property)

This is Schedule 1 to the Security Agreement dated , 2011 between BANK OF ATLANTA (“Secured Party”) and ERIN PROPERTY HOLDINGS, LLC and ERIN NURSING, LLC (collectively, the “Debtor”).

Debtor hereby grants to Secured Party a security interest in all of the following:

All equipment and machinery, including power driven machinery and equipment, furniture and fixtures now owned or hereafter acquired and wherever located, together with all replacements thereof, all attachments, accessories, parts and tools belonging thereto or for use in connection therewith and proceeds therefrom.

DEBTOR:

ERIN PROPERTY HOLDINGS, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager

ERIN NURSING, LLC


By:	/s/ Chris Brogdon	(L.S.)
Chris Brogdon, Manager

Addresses of Debtor:

3050 Peachtree Road, NW, Suite 355
Two Buckhead Plaza
Atlanta, Georgia 30305

SCHEDULE 2

(Legal Description of Property)

This is Schedule 2 to the Security Agreement dated , 2011 between BANK OF ATLANTA (“Secured Party”) and ERIN PROPERTY HOLDINGS, LLC and ERIN NURSING, LLC (collectively, the “Debtor”).

606 Simmons St., Dublin, Laurens County, Georgia 30121, a location legally described on attached Exhibit “A” .

Record owner of Property described in Exhibits “A”: ERIN PROPERTY HOLDINGS, LLC

EXHIBIT “A”

LEGAL DESCRIPTION

Exhibit 10.12

BANK OF ATLANTA

SECURITY AGREEMENT

(a) Any and all amounts owed by Debtor under, in connection with, and/or pursuant to the indebtedness evidenced by that certain Term Note of even date herewith, in the original principal sum of Eight Hundred Thousand and No/100 Dollars ($800,000.00) (the “Note”), with interest thereon according to the provisions thereof, and all obligations thereunder, in connection therewith and/or pursuant to any and all agreements and other documents in connection therewith; and

(c) Any extensions, modifications, changes, substitutions, restatements, renewals or increases or decreases of any or all of the indebtedness referenced above; and

2. Representations, Warranties and Covenants of Debtor. Debtor expressly represents, warrants and covenants as follows:

(d) If any of the Collateral is to be or has been attached to real estate, the legal description of the real estate is attached to this Agreement as Schedule 2 and made a part hereof.

(e) If Debtor does not have a record interest in the real estate described above, the record owner is indicated on the attached Schedule 2.

(h) Debtor represents and warrants to Secured Party that all financial statements and credit applications delivered by Debtor to Secured Party accurately reflect the financial condition and operations of Debtor at the times and for the periods therein stated. So long as this Agreement is in force and effect, Debtor agrees to deliver to Secured Party within 120 days after the end of each of Debtor’s fiscal years, a complete and accurate copy of Debtor’s compiled financial statements, including consolidated statements of cash flow, and a consolidated balance sheet and statement of income, together with all schedules, showing the consolidated financial position of Debtor at the close of such fiscal year, and concurrently therewith a certificate of its Manager or chief financial officer to the effect that such officer is not aware of any condition or event which constitutes a default under this Agreement or under any notes or other obligations of Debtor or which, with the mere passage of time or notice, or both, would constitute a default under this Agreement or a default under any such franchise agreement or under any notes or other obligations of Debtor.