Exhibit 99.1

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT, is made, entered into and effective as of the            day of               , 2011, by and among HOMESTEAD PROPERTY HOLDINGS, LLC and HOMESTEAD NURSING, LLC (hereinafter collectively, referred to as the “Borrower”), ADCARE HEALTH SYSTEMS, INC. (hereinafter referred to as the “Guarantor”) and Square 1 Bank, having its principal offices at 406 Blackwell Street, Suite 420, Durham, North Carolina 27701 (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 Guarantor 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 Guarantor, Lender, Borrower and Guarantor 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 HOMESTEAD PROPERTY HOLDINGS, LLC and HOMESTEAD NURSING, LLC, both duly organized and existing under the laws of the State of Georgia and authorized to transact business in the State of Arkansas.

“ Business Day ” shall mean a day on which Lender is open for the conduct of banking business at its office located at 406 Blackwell Street, Suite 420, Durham, North Carolina 27701.

“ Certificate of Deposit Collateral ” shall mean that certain Certificate of Deposit from Borrower in favor of Lender in the amount of $12,120.00.

“ 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, Certificate of Deposit 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.

“ 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.

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“ 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

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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 Mortgage 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.

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

“ Guarantor ” shall mean 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 $57,600.00.

“ 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 Square 1 Bank, having its principal offices at 406 Blackwell Street, Suite 420, Durham, North Carolina 27701, 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.

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“ 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 Guarantor 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.

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

“ 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.

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“ Property ” shall mean the real estate located in Lafayette County, Arkansas, 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. 03-037-452218611 issued by the RD on August 16, 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

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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 Guarantor 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 Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00) 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 $3,600,000.00 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 Arkansas, 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.

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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,

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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 1.00% per annum, adjustable quarterly with a 5.75% 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; provided, however, that the first annual renewal fee for this Loan shall be due December 31, 2012.

2.3.           Security for the Loan .  The Loan will be secured by the Collateral as described in the Security Instruments, and guaranteed by the Guarantor 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 406 Blackwell Street, Suite 420, Durham, North Carolina 27701, 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., Durham, NC time, on the date such payment is due, except if such

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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 Guarantor 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 Guarantor, 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

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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 Guarantor 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 Guarantor 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.

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3.9.           Operation and Management of the Facility .  The Facility shall be operated and managed by the Homestead 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 shall have applied for and shall provide evidence of same upon receipt to Lender that Borrower has obtained all licenses, permits, certificates and other governmental permission to own and operate the Facility with an effective date of September 1, 2011.

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 Guarantor 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 Guarantor.

3.13.         Title Insurance .  Lender shall have received a commitment and/or pro-forma policy from a title insurance company approved by Lender and authorized to do business in the State of Arkansas 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 and/or

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pro-forma, file number NCS-507393-ATL issued by First American Title Insurance Company, effective as of the date and time of recording of insured instrument, as same may be updated.  Such title insurance commitment and/or pro-forma 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 Arkansas 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 Guarantor 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 Arkansas law, both as amended from time to time, and regulations promulgated thereunder;

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(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 applied for with an effective date to be September 1, 2011 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

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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

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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 Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00), 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:

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(a)            Approximately $3,600,000.00 shall be disbursed upon appropriate application therefore to pay outstanding debt to Metro City Bank.

ARTICLE V

SECURITY INTEREST — COLLATERAL

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

(a)            Property Collateral;

(b)            Equipment Collateral;

(c)                                   Fixtures Collateral;

(d)                                  Certificate of Deposit Collateral;

(e)            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 Arkansas, Borrower shall deliver to Lender at the closing a Mortgage 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 LAFAYETTE COUNTY, ARKANSAS, together with corresponding UCC-1 financing statements in respect of the Fixtures Collateral.

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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 (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’s accounts receivable or working capital lender or a bailee thereof; (h) all books and records evidencing or relating to or associated with any of the foregoing; (i) all

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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, Homestead Property Holdings, LLC hereby represents, warrants and covenants to Lender as set forth in Sections 6.1 through 6.4, inclusive.

6.1.           Sale of Property Collateral .  Homestead Property Holdings, LLC 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 .  Homestead Property Holdings, LLC agrees 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 Homestead Property Holdings, LLC, 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 Guarantor (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

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hazardous than permitted by the policy.  In addition, if the Property Collateral is located within a special flood hazard area, Homestead Property Holdings, LLC 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.  Homestead Property Holdings, LLC shall pay all premiums and fees related to such title insurance.

6.3.           Good Title; No Existing Encumbrances .  Homestead Property Holdings, LLC owns 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 .  Homestead Property Holdings, LLC has the right to grant a security interest in the Property Collateral to Lender.  Homestead Property Holdings, LLC will pay all taxes and other charges against the Property Collateral.  Homestead Property Holdings, LLC 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.

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ARTICLE VII

REPRESENTATIONS, WARRANTIES, AND COVENANTS

APPLICABLE TO EQUIPMENT COLLATERAL AND FIXTURES COLLATERAL

With respect to the Equipment Collateral and Fixtures Collateral, Borrower hereby represents, warrants and covenants 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 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 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 agrees 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, unless with the prior written consent of Lender.

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7.3.           Good Title; No Existing Encumbrances .  Borrower owns 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 has the right to grant a security interest in the Equipment Collateral and Fixtures Collateral to Lender.  Borrower 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 Guarantor 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 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 Guarantor, 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

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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 Guarantor hereby represent and warrant to Lender as set forth in Sections 8.1 through 8.17, inclusive.

8.1.           Principal Business Activity .  Homestead Nursing, LLC is engaged in the business of operating a skilled nursing 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 Arkansas.  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 Guarantor have the power to make, deliver and perform under the Loan Documents to which they are a party, 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 Guarantor, legally binding upon it and enforceable against Borrower and Guarantor in accordance with their respective terms.  The undersigned officers, members or managers of Borrower and officer of Guarantor are duly authorized and empowered to execute, attest and deliver this

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Agreement and the remainder of the Loan Documents to which such entity is a party, for and on behalf of Borrower and Guarantor and to bind Borrower and Guarantor accordingly thereby.

8.4.           Financial Statements .  The balance sheets and income statements of Borrower and Guarantor 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 Guarantor , 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 Guarantor since the date of the balance sheet contained in such Financial Statements.  If, by the time of the Closing, the Borrower’s and/or Guarantor’s 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 Guarantor, nor is the Borrower or the Guarantor 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 Guarantor in

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violation of any order, judgment, or decree of any court, or any statute or governmental regulation to which such Borrower and Guarantor are subject.

8.6            Disclosure .  All information furnished or to be furnished by the Borrower and Guarantor 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 Guarantor 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 Guarantor 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 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 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 as to which the Facility and the property on which it is situated is required to comply and as to which the Facility and/or such property is not “grandfathered” or as to which application to the Facility

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and/or such property would be unconstitutional, illegal or not required by applicable law, and thereby would be exempted from such future compliance.

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 Guarantor know, threatened, before any court or administrative agency which might materially or adversely affect the financial condition or operations of Borrower and/or Guarantor.

8.11.         No Default .  Borrower and/or Guarantor 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 Guarantor 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 Guarantor 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 Guarantor 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.

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8.15.         Title .  Borrower has 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 Guarantor 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 members, managers and/or shareholders and directors of Borrower and/or Guarantor respectively, 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 Guarantor or the charter or by-laws of Borrower and/or Guarantor, 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 Guarantor are a party or by which they or their properties may be bound or affected; and neither Borrower nor Guarantor 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.

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ARTICLE IX

GENERAL AFFIRMATIVE COVENANTS

Borrower covenants and agrees 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 9.32, 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 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, 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 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

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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 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 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 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 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 regards to AdCare Health Systems, Inc., starting with the 2011 tax year, AdCare Health Systems, Inc. agrees to provide the Lender with an annual compiled 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.

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9.8.           Maintenance of Insurance .  In addition to and cumulative with any other requirements herein imposed on Borrower with respect to insurance, Borrower 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 unless with the prior written consent of Lender.  Borrower 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 hereby understands and agrees that if, at any time hereafter, Borrower elects to move their principal place of business, or if Borrower elects to change their respective name, identity or structure, Borrower will obtain Lender’s approval in writing at least thirty (30) days prior thereto.

9.10.         Waivers .  With respect to the Collateral Location, Borrower 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.

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9.11.         Compliance With Laws .  Borrower 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 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 certifies 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.

9.12.         Junior Financing .  Borrower shall not, without the prior written consent, of Lender incur any additional indebtedness relating to the 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 Mortgage and Security Agreement, and other Loan Documents, with respect to the Property Collateral, or any part thereof, other than the Mortgage and Security Agreement or other Loan Documents provided for herein.

9.13.         Right to Inspect .  Borrower 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 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 Facility with officers of such parties as designated by Lender, all at such times as Lender shall request.

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

9.15.         Conduct of Business .  Borrower 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 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.

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9.19.         Subordinations .  Borrower 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 will report to Lender: (i) any lawsuit or administrative proceeding in which Borrower is 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 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 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.

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9.23.         Purchase of Fixed Assets .  Borrower 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 purchasing machinery and equipment being replaced due to depreciation or obsolescence.

9.24.         Arms Length Transactions .  All of the Borrower’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 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 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.

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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 9 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 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.

9.32          Affirmative Fair Housing Marketing Plan . By signing this Agreement Term Loan Agreement, Borrower certifies to Lender that Borrower has prepared and provided an Affirmative Fair Housing Marketing Plan to the RD in accordance with RD Instruction 1901-E, section 1901.203(c).

ARTICLE X

NEGATIVE COVENANTS

Borrower covenants and agrees 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.

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10.1.         No Encumbrances .  Borrower will not create, incur, assume, or suffer to exist any mortgage and security agreement, indenture, deed of trust, pledge, assignment, lien, charge, encumbrance on, or security interest or security title of any kind on the 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, Mortgage and Security Agreement and/or Security Agreement covering such Collateral, is disclosed to Lender and is being contested by the Borrower in good faith and Borrower is 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

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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

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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 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 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 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 other than in the ordinary course of its business and on fair and reasonable

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terms no less favorable to such Borrower 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 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.

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10.15.     Purchase of Fixed Assets .  The Borrower 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 purchasing machinery and equipment being replaced due to depreciation or obsolescence.

10.16.     Liabilities of Third Parties .  Unless Lender provides prior written consent, Borrower 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.  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 except in connection with a Permitted Encumbrance.  No payments are to be made on the loans mentioned in this paragraph 10.16 unless the Term Loan in favor of Lender is current and in good standing.

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.

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

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11.2.    Misrepresentations .  Any certificate, statement, representation, warranty or audit heretofore or hereafter furnished by or on behalf of the Borrower or the Guarantor, 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 Guarantor, 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 Guarantor 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 Guarantor shall default on any other agreement, document or instrument to which Borrower or Guarantor are a party, which default shall cause a material adverse effect on the businesses of Borrower and Guarantor, the value of the Collateral, or Lender’s interest therein.

11.5.    Voluntary Bankruptcy .  Borrower or Guarantor 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

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or law pertaining to insolvency or debtor relief, whether state, Federal, or foreign, now or hereafter existing; Borrower or Guarantor shall enter into any agreement indicating their consent to, approval of, or acquiescence in, any such petition or proceeding; Borrower or any Guarantor shall apply for or permit the appointment by consent or acquiescence of a receiver, custodian or trustee of Borrower or any Guarantor for all or a substantial part of their property; Borrower or any Guarantor shall make an assignment for the benefit of creditors; or Borrower or Guarantor shall be unable or shall fail to pay their debts generally as such debts become due, or Borrower or Guarantor 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 Guarantor 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 Guarantor shall suffer or permit the involuntary appointment of a receiver, custodian or trustee of Borrower or Guarantor 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 Guarantor 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 Guarantor and the same is not dismissed within sixty (60) days of the application thereof.

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11.7          Permit/License Agreement .  Any default under or revocation of any applicable state permit or license to which Borrower is required to maintain in order to operate the Facility 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 Guarantor for damages for failure by Borrower and Guarantor 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 Guarantor.

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

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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 Furniture, Fixtures and Equipment 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 North Carolina, the State of Arkansas and the rights and remedies granted in this Agreement, Lender shall have all of the rights and remedies set forth in the

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Mortgage 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 Guarantor 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 Guarantor 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 Guarantor 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

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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

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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 .  No assignment hereof shall be made by Borrower 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

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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:

SQUARE 1 BANK

406 Blackwell Street, Ste. 420

Durham, NC 27701

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:

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3050 Peachtree Road, NW, Suite 355

Two Buckhead Plaza

Atlanta, Georgia 30305

with a copy to:

HOLT NEY ZATCOFF & WASSERMAN, LLP

100 Galleria Parkway, Suite 1800

Atlanta, Georgia 30339

Attn:  Gregory P. Youra, Esq.

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.

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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 Guarantor or as creating any similar relationship or entity, and Borrower and Guarantor 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 North Carolina, except and only to the

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extent of procedural matters related to the perfection and enforcement of Lender’s rights and remedies against the Premises, which matters shall be governed by the laws of the State of Arkansas.  However, in the event that the enforceability or validity of any provision of this Agreement is challenged or questioned, such provision shall be governed by which whichever applicable state or federal law would uphold or would enforce such challenged or questioned provision.  The loan transaction which is evidenced by the Note and this Agreement have been applied for, considered, approved and made, and all necessary loan documents have been accepted by Lender in the State of North Carolina.

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 406 Blackwell Street, Suite 420, Durham, North Carolina 27701 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 Guarantor 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 Guarantor waive any right which they have or may have under applicable UCC law or like Section to have Lender file UCC

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termination statements with respect to the Collateral, or any part thereof, and Borrower and Guarantor 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 Guarantor.

13.19.       Cure of Defaults by Lender .  If, hereafter, Borrower or any Guarantor 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 Guarantor hereby designate, appoint and empower Lender irrevocably as their attorney-in-fact, at Borrower’s and Guarantor’s cost and expense, to do in the name of Borrower and Guarantor 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 Guarantor to do so and Borrower and Guarantor 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 Guarantor 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 Guarantor to Lender upon Lender’s request.

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13.21. Prepayment Premium .    In the event of prepayment, in whole or in part, Borrower must give Lender at least twenty-one (21) days written notice and 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.

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(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 Guarantor.  All loan payments are due on the first (1 st ) day of each month, however; payments will not be

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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 Guarantor 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.

[REMAINDER OF PAGE INTENTIONALLY BLANK.]

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

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EXHIBIT “A”

1.1            ( Collateral Locations )

826 North Buchanan Street, Stamps, Arkansas 71860

EXHIBIT “B”

1.1            ( Facility/Land )

[SEE ATTACHED LEGAL DESCRIPTION]

EXHIBIT “C”

1.1            ( Permitted Encumbrances )

1.              Rights of residents of the facility on the land pursuant to terms of unrecorded residency agreements, if any.

2.              Loss arising from oil, gas or other minerals conveyed, retained, assigned or any other activity caused by the sub-surface rights or ownership, including, but not limited to the right of ingress or egress for said sub-surface purposes.

3.              General and special taxes for the year 2011 and subsequent years not yet due and payable.

4.              Survey prepared by Harold D. Rodgers, Jr., Arkansas Land Surveyor No. 1422 dated April 18, 2011 reveals the following:

a.              concrete walk on the north side of the property encroaches into ROW by 18.0 feet;

b.              concrete walk on the north side of the property encroaches into the ROW by 24.0 feet; and

c.              north side of building encroaches 25 foot platted building setback line by 22.6 feet.

5.              Credit Agreements with Gemino Healthcare Finance, LLC and/or The PrivateBank and Trust Company, an Illinois banking corporation for working capital financing and related security agreements.

EXHIBIT “D”

1.1            ( Term Note )

[Included in Loan Documents]

Exhibit 99.2

Square 1 Bank

TERM NOTE

FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one, promises to pay to the order Square 1 Bank or its successors or assigns at 406 Blackwell Street, Suite 420, Durham, North Carolina 27701, or such other place as the holder hereof may from time to time designate in writing, the principal sum of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00), 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 percent (1.00%) 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 five and 75/100ths percent (5.75%).  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 75/100ths percent (4.75%), is and shall be five and 75/100ths percent (5.75%).

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 $22,647.83 on December 1, 2011 and continuing on the same day of each and every month thereafter through and including October     , 2036.

(ii)            On October     , 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 may 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 first payment will be made to holder on December 31 st , 2012.

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 Mortgage and Security Agreement dated of even date herewith and filed in the Recorder’s Office of Lafayette County, Arkansas, and any and all amendments and replacements thereto, executed by the undersigned in favor of Square 1 Bank 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, the undersigned shall provide holder with at least twenty-one (21) days prior written notice of prepayment and 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.

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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 North Carolina, except and only to the extent of procedural matters related to the perfection and enforcement of Lender’s rights and remedies against the real and personal property collateral, which matters shall be governed by the laws of the State of Arkansas.  However, in the event that the enforceability or validity of any provision of this Agreement is challenged or questioned, such provision shall be governed by which whichever applicable state or federal law would uphold or would enforce such challenged or questioned provision.  The loan transaction which is evidenced by this Note has been applied for, considered, approved and made, and all necessary loan documents have been accepted by Lender in the State of North Carolina.

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

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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.

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Exhibit 99.3

PREPARED BY AND WHEN RECORDED RETURN TO:

Reid H. Harbin, Esq.

Harbin & Miller, LLC

3085 E. Shadowlawn Ave.

Atlanta, Georgia 30305

Tax Parcel ID No.:

MORTGAGE AND SECURITY AGREEMENT

This Mortgage and Security Agreement (the “Mortgage”), dated      day of             2011, between Homestead Property Holdings, LLC  (hereinafter referred to as “Mortgagor”) whose mailing address is 3050 Peachtree Road, NW, Suite 570, Two Buckhead Plaza, Atlanta, Georgia  30305, and Square 1 Bank, the address of which is 406 Blackwell Street, Suite 420, Durham, North Carolina 27701, (hereinafter “Mortgagee”).

W I T N E S S E T H:

MORTGAGOR HEREBY IRREVOCABLY GRANTS, BARGAINS, SELLS, TRANSFERS, ASSIGNS AND CONVEYS TO MORTGAGEE WITH WARRANTY COVENANTS:

All that certain property and all buildings and all other improvements now thereon or hereafter constructed thereon situated in the County of Lafayette, State of Arkansas, described in Exhibit “A” attached hereto and made a part hereof by reference, (commonly known as 826 North Buchanan Street, Stamps, Arkansas 71860) (the “Premises”);

TOGETHER WITH all of the following which, with the Premises, are herein collectively called the “Mortgaged Property”:

(a)           All appurtenances and all estate and rights of Mortgagor in and to the Premises;

(b)           All water and water rights, ditch and ditch rights, reservoir and reservoir rights, stock or interests in irrigation or ditch companies, royalties, minerals, oil and gas rights, lease or leasehold interests owned by Mortgagor, now or hereafter used or useful in connection with, appurtenant to or related to the Premises;

(c)           All right, title and interest of Mortgagor in and to all streets, roads and public places, opened or proposed, and all easements and rights of way, public or private, now or hereafter used in connection with the Premises;

(d)           All improvements, fixtures, equipment, furniture, inventory and other articles of personal property, and all rights therein, now owned or hereafter acquired by Mortgagor and affixed to, placed upon or used in connection with the Premises, and all replacements thereof and substitutions therefor (as further described in paragraph A.7); and

(e)           All awards, payments or other amounts, including interest thereon, which may be made with respect to the Mortgaged Property as a result of injury to or decrease in the value of the Mortgaged Property or as a result of the exercise of the power of condemnation or eminent domain.

(f)            All rights to the rents, issues and profits of the Mortgaged Property as well as the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities (provided, however, that the Mortgagor shall be entitled to the collect and retain the above until a Default has occurred hereunder).

FOR THE PURPOSE OF SECURING, in such order of priority as Mortgagee may elect, the full and prompt payment, observance and performance when due, of all present and future obligations and indebtedness of Mortgagor to Mortgagee, 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 Mortgage, and whether now or hereafter existing, or due or to become due, including without limitation, the following:

(a)           Obligations under Promissory Note . Payment of any and all amounts guaranteed by Mortgagor under that certain guarantee dated of even date (the “Guarantee”) in connection with and/or pursuant to the indebtedness evidenced by that certain Promissory Note from Homestead Property Holdings, LLC and Homestead Nursing, LLC of even date herewith, in the original principal sum of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00) (the “Note”) with a maturity date of October     , 2036, with interest thereon according to the provisions thereof, and all obligations of Mortgagor under, in connection with and/or pursuant to this Mortgage granted by Mortgagor as security for payment of the foregoing indebtedness; and

(b)           All Sums in Connection with Note and Mortgage .  All sums advanced or expenses or costs paid or incurred (including without limitation reasonable attorneys’ fees and

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other legal expenses) by Mortgagee pursuant to or in connection with the Note, Guarantee or this Mortgage, plus any interest on such sums, expenses or costs; and

(c)           Any Changes to Note .  Any extensions, amendments, modifications, changes, substitutions, restatements, renewals or increases or decreases to the Note and all other indebtedness secured by this Mortgage; and

(d)           Any Additional Loans .  Such additional sums with interest thereon as may be hereafter borrowed from Mortgagee, its successors or assigns, by the then record owner or owners of the Mortgaged Property when evidenced by another promissory note or notes, which are by the terms thereof secured by this Mortgage; and

(e)           Any and All Other Indebtedness .  All other indebtedness, obligations and liabilities of any kind, of Mortgagor to Mortgagee, now or hereafter existing, absolute or contingent, direct or indirect, joint and/or several, due or not due, secured or unsecured, arising by operation of law or otherwise including indebtedness, obligations and liabilities to Mortgagee of Mortgagor as a member of any partnership, syndicate or association or other group and whether incurred by Mortgagor 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 Mortgagor to pay Mortgagee, and including any judgments in connection with any of the foregoing.

This Mortgage shall secure all of such obligations up to the maximum principal amount of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00) and such amount may be advanced and repaid in whole or in part and again advanced and repaid in whole or in part from time to time without affecting the existence or priority of the lien of this Mortgage and this total shall limit only the total amount of principal which may be secured by this Mortgage at any one time.

A.            PROVISIONS RELATING TO THE MORTGAGED PROPERTY

A.1          Taxes and Governmental Claims and Other Liens .  Mortgagor agrees to pay or cause to be paid, prior to the date they would become delinquent if not paid, all taxes, assessments and governmental charges whatsoever levied upon or assessed or charged against the Mortgaged Property, including, without limitation, all water and sewer taxes, assessments and other charges, taxes, impositions and rents, if any.  Mortgagor shall give to Mortgagee a receipt or receipts, or certified copies thereof, evidencing every such payment by Mortgagor, not later than forty-five (45) days after such payment is made but not later than forty-five (45) days after such payment would become delinquent if not paid.  Mortgagor also agrees to promptly and faithfully pay, satisfy, and obtain the release of all other claims, liens, encumbrances, and contracts, affecting or purporting to affect the title to, or which may be or appear to be liens on, the Mortgaged Property or any part thereof, and all costs, charges, interest and penalties on account thereof, including, without limitation, the claims of all persons supplying labor or

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materials to the Mortgaged Property and to give Mortgagee, upon demand, evidence satisfactory to Mortgagee of the payment, satisfaction or release thereof.

A.2          Insurance .  Mortgagor agrees to keep the Mortgaged Property insured against loss or damage by fire and other casualty with extended coverage and against any other risks or hazards which in the opinion of Mortgagee 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, with the minimum amount of said insurance to be no less than the amount of the Note.  Mortgagor shall also carry insurance against the risk of rental or business interruption at the Premises, in an amount deemed satisfactory by Mortgagee.  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 Mortgagee.  Loss under all such insurance shall be payable to Mortgagee in accordance with this paragraph, and all such insurance policies shall be endorsed with a standard, non-contributory Mortgagee’s clause in favor of Mortgagee. Mortgagor shall also carry public liability insurance, in such form, amount and with such companies as Mortgagee may from time to time require, naming Mortgagee 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 Mortgagee.  All such insurance policies shall contain a provision requiring at least ten (10) days notice to Mortgagee prior to any cancellation or modification.  Mortgagor shall give Mortgagee satisfactory evidence of renewal of all such policies with premiums paid at least thirty (30) days before expiration.  Mortgagor 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 Mortgaged Property which would wholly or partially invalidate any insurance thereon.  Mortgagee 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 or absence of insurance contracts, solvency of insurers, or payment of losses, and Mortgagor hereby expressly assumes full responsibility therefor and all liability, if any, thereunder.  Effective upon any default hereunder, all of Mortgagor’s right, title and interest in and to all such policies and any unearned premiums paid thereon are hereby assigned to Mortgagee, which shall have the right, but not the obligation, to assign the same to any purchaser of the Mortgaged Property at any foreclosure sale or other disposition thereof.  The requirements of Mortgagee for insurance under the provisions of this paragraph may be modified or amended in whole or in part by Mortgagee, in its reasonable discretion, and Mortgagor agrees, upon any expiration of any existing policy or policies of insurance, to provide a replacement policy or policies which shall meet such amended or modified insurance standards.   In the event of a loss,  Mortgagor shall give immediate written notice to the insurance carrier and Mortgagee.  Mortgagor hereby appoints Mortgagee its attorney-in-fact for the purposes hereinafter set out, and authorizes and empowers Mortgagee, at Mortgagee’s option and in Mortgagee’s sole discretion as attorney-in-fact for Mortgagor, 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 Mortgagee’s expenses incurred in the collection of such proceeds.  Mortgagor understands and agrees that the power of attorney hereby granted to Mortgagee is a power coupled with an interest and is irrevocable until Mortgagee’s interest hereunder is terminated by the payment and performance of all of Mortgagor’s obligations and indebtedness secured hereby.  In the event of any insured damage to or destruction of the Mortgaged Property or any part

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thereof (herein called an “Insured Casualty”), if (A) in the reasonable judgment of Mortgagee, the Mortgaged Property can be restored within ten (10) months after insurance proceeds are made available to an economic unit not less valuable and not less useful than the same was prior to the Insured Casualty, and after such restoration will adequately secure the outstanding balance of the Indebtedness, and (B) no Event of Default (hereinafter defined) shall have occurred and be then continuing, then the proceeds of insurance may, in Mortgagee’s sole discretion, be applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to Insured Casualty, as provided below; and Mortgagor hereby covenants and agrees forthwith to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided, however, in any event Mortgagor shall pay all costs (and if required by Mortgagee, Mortgagor shall deposit the total thereof with Mortgagee in advance) of such restoring, repairing, replacing or rebuilding in excess of the net proceeds of insurance made available pursuant to the terms hereof.  Notwithstanding the above, the proceeds of insurance collected upon any Insured Casualty shall, at the option of Mortgagee, in its sole discretion, be applied to the payment of the Indebtedness, whether or not then due, or applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to the Insured Casualty, in the manner set forth below.  Any such application to the Indebtedness shall not be considered a voluntary prepayment requiring payment of the prepayment consideration provided in the Note, and shall not reduce or postpone any payments otherwise required pursuant to the Note, other than the final payment on the Note.  If proceeds of insurance, if any, are made available to Mortgagor for the restoring, repairing, replacing or rebuilding of the Mortgaged Property, Mortgagor hereby convenants to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with applicable law and plans and specifications approved in advance by Mortgagee.  If Mortgagor is entitled to reimbursement out of insurance proceeds held by Mortgagee, such proceeds shall be disbursed from time to time upon Mortgagee being furnished with (1) evidence satisfactory to it (which evidence may include inspection[s] of the work performed) that the restoration, repair, replacement and rebuilding covered by the disbursement has been completed in accordance with plans and specifications approved by Mortgagee, (2) evidence satisfactory to it of the estimated cost of completion of the restoration, repair, replacement and rebuilding, (3) funds, or, at Mortgagee’s option, assurances satisfactory to Mortgagee that such funds are available, sufficient in addition to the proceeds of insurance to complete the proposed restoration, repair, replacement and rebuilding, and (4) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Mortgagee may reasonably require and approve; and Mortgagee may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and approved by Mortgagee prior to commencement of work.  With respect to disbursements to be made by Mortgagee:  (A) no payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time:  (B) funds other than proceeds of insurance shall be disbursed prior to disbursement of such proceeds; and (C) at all times, the undisbursed balance of such proceeds remaining in the hands of Mortgagee, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Mortgagee by or on behalf of Mortgagor for that purpose, shall be at least sufficient in the reasonable

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judgment of Mortgagee to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien and the costs.  Any surplus which may remain out of insurance proceeds held by Mortgagee after payment of such costs of restoration, repair, replacement or rebuilding shall be paid to any party entitled thereto.  In no event shall Mortgagee assume any duty or obligation for the adequacy, form or content of any such plans and specifications, nor for the performance, quality or workmanship of any restoration, repair, replacement and rebuilding.  Notwithstanding anything to the contrary contained herein, the proceeds of insurance reimbursed to Mortgagor in accordance with the terms and provisions of this Mortgage shall be reduced by the reasonable costs (if any) incurred by Mortgagee in the adjustment and collection thereof and in the reasonable costs incurred by Mortgagee of paying out such proceeds (including, without limitation, reasonable attorney’s fees and costs paid to third parties for inspecting the restoration, repair, replacement and rebuilding and reviewing the plans and specifications therefor).  If the insurance proceeds are applied to the payment of the sums secured by this Mortgage, any such application of proceeds to principal shall be in such order as Mortgagee may determine and, if after so applying such insurance proceeds Mortgagee reasonably determines the remaining security to be inadequate to secure the remaining indebtedness, Mortgagor shall upon written demand from Mortgagee prepay on principal such an amount as will reduce the remaining indebtedness to a balance for which adequate security is present.

A.3          Condemnation and Other Awards .  If the Mortgaged Property 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 Mortgagor by virtue of its interest in the Mortgaged Property shall be, and by these presents is, assigned, transferred and set over unto, and to be held by Mortgagee subject to the lien and security interest of this Mortgage, and disbursed at Mortgagee’s option, (a) to hold all or any portion of such proceeds to be used to reimburse Mortgagor for the costs of reconstruction or repair of the Mortgaged Property, or (b) to apply all or any portion of such proceeds to the payment of the sums secured by this Mortgage, whether or not then due. In the event of a taking of the Mortgaged Property or any part thereof (herein called a “Condemnation”), if (A) in the reasonable judgment of Mortgagee, the Mortgaged Property can be restored within ten (10) months after the proceeds of the condemnation proceeds are made available to an economic unit not less valuable (including an assessment by Mortgagee of the impact of the termination of any Leases due to such Condemnation) and not less useful than the same was prior to the Condemnation, and after such restoration will adequately secure the outstanding balance of the Indebtedness, and (B) no Event of Default (hereinafter defined) shall have occurred and be then continuing, then the proceeds may, in Mortgagee’s sole discretion, be applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to the Condemnation, as provided below; and Mortgagor hereby covenants and agrees forthwith to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided, however, in any event Mortgagor shall pay all costs (and if required by Mortgagee, Mortgagor shall deposit the total thereof with Mortgagee in advance) of such restoring, repairing, replacing or rebuilding in excess of the net proceeds of the Condemnation made available pursuant to the terms hereof.  Notwithstanding the above, the proceeds collected upon any Condemnation shall, at the option of Mortgagee, in its sole discretion, be applied to the payment

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of the Indebtedness, whether or not then due, or applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to the Condemnation, in the manner set forth below.  Any such application to the Indebtedness shall not be considered a voluntary prepayment requiring payment of the prepayment consideration provided in the Note, and shall not reduce or postpone any payments otherwise required pursuant to the Note, other than the final payment on the Note.  If proceeds of the Condemnation, if any, are made available to Mortgagor for the restoring, repairing, replacing or rebuilding of the Mortgaged Property, Mortgagor hereby covenants to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with applicable law and plans and specifications approved in advance by Mortgagee.  If Mortgagor is entitled to reimbursement out of the proceeds of the Condemnation held by Mortgagee, such proceeds shall be disbursed from time to time upon Mortgagee being furnished with (1) evidence satisfactory to it (which evidence may include inspection[s] of the work performed) that the restoration, repair, replacement and rebuilding covered by the disbursement has been completed in accordance with plans and specifications approved by Mortgagee, (2) evidence satisfactory to it of the estimated cost of completion of the restoration, repair, replacement and rebuilding, (3) funds, or, at Mortgagee’s option, assurances satisfactory to Mortgagee that such funds are available, sufficient in addition to the proceeds of Condemnation to complete the proposed restoration, repair, replacement and rebuilding, and (4) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Mortgagee may reasonably require and approve; and Mortgagee may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and approved by Mortgagee prior to commencement of work.  With respect to disbursements to be made by Mortgagee:  (A) no payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time:  (B) funds other than proceeds of the Condemnation shall be disbursed prior to disbursement of such proceeds; and (C) at all times, the undisbursed balance of such proceeds remaining in the hands of Mortgagee, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Mortgagee by or on behalf of Mortgagor for that purpose, shall be at least sufficient in the reasonable judgment of Mortgagee to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien and the costs.  Any surplus which may remain out of the Condemnation proceeds held by Mortgagee after payment of such costs of restoration, repair, replacement or rebuilding shall be paid to any party entitled thereto.  In no event shall Mortgagee assume any duty or obligation for the adequacy, form or content of any such plans and specifications, nor for the performance, quality or workmanship of any restoration, repair, replacement and rebuilding.  Notwithstanding anything to the contrary contained herein, the proceeds of the Condemnation reimbursed to Mortgagor in accordance with the terms and provisions of this Mortgage shall be reduced by the reasonable costs (if any) incurred by Mortgagee in the adjustment and collection thereof and in the reasonable costs incurred by Mortgagee of paying out such proceeds (including, without limitation, reasonable attorney’s fees and costs paid to third parties for inspecting the restoration, repair, replacement and rebuilding and reviewing the plans and specifications therefor).  If the Condemnation proceeds are applied to the payment of the sums secured by this Mortgage, any such application of proceeds to

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principal shall be in such order as Mortgagee may determine and, if after so applying such proceeds Mortgagee reasonably determines the remaining security to be inadequate to secure the remaining indebtedness, Mortgagor shall upon written demand from Mortgagee prepay on principal such an amount as will reduce the remaining indebtedness to a balance for which adequate security is present.

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A.4          Condition of Mortgaged Property .

(a)           Mortgagor agrees to properly care for and keep the Mortgaged Property in good condition and repair.  Without the prior written consent of Mortgagee, Mortgagor agrees not to cause or permit any building or improvement which constitutes a part of the Premises to be removed, demolished or structurally altered, in whole or in part, or any fixture or article of personal property which constitutes a portion of the Mortgaged Property to be removed (other than in the ordinary course of Mortgagor’s business), damaged or destroyed.  Mortgagee consents to the removal and replacement of fixtures and articles of personal property if such articles of personal property are simultaneously replaced with fixtures and articles of equal or greater value, that are free and clear of all liens other than that of Mortgagee’s, and if the value of the Mortgaged Property is not diminished thereby.  Mortgagor agrees not to abandon the Premises or leave the Premises unprotected, unguarded, vacant or deserted, and not to cause or permit any waste to the buildings, improvements or fixtures constituting any portion of the Mortgaged Property.  Mortgagor agrees (i) to repair, restore and reconstruct in good and workmanlike manner to the condition required hereby any improvement which constitutes a part of the Mortgaged Property which may be damaged or destroyed, in accordance with the provisions of Paragraph A.2 hereof (provided however, Mortgagor shall not be required to so repair, restore or reconstruct if Mortgagee elects under Paragraph A.2 to retain the insurance proceeds and apply them to the sums secured by this Mortgage, and further provided, if Mortgagee elects to use such proceeds to reimburse Mortgagor for the costs of such repair, restoration or reconstruction, provided however, if such proceeds are not adequate, Mortgagor shall deposit with Mortgagee such additional funds as may be required to accomplish such repair, restoration or reconstruction);  (ii) not to permit any lien of mechanics or materialmen to attach to the Mortgaged Property, provided, however, that the filing of any such lien shall not constitute a default hereunder if Mortgagor shall provide an adequate bond with respect to any such lien, in accordance with applicable law or shall provide indemnification with respect to such lien with security therefor acceptable to Mortgagee in Mortgagee’s sole discretion; (iii) to comply with all laws, ordinances, regulations or governmental orders affecting the Mortgaged Property or requiring any alterations or improvements thereto; (iv) not to commit, suffer or permit any act with respect to the Mortgaged Property in violation of law or of any covenants, prior encumbrances, conditions or restrictions affecting the Mortgaged Property; (v) to make or cause to be made from time to time all needed or proper replacements, repairs and renewals; (vi) to perform all obligations and pay all amounts as and when required to protect Mortgagor’s interest in the Premises; and (vii) to do any other act or acts, all in a timely and proper manner which from the character or use of the Mortgaged Property may be reasonably necessary to protect and preserve the value of the Mortgaged Property.  Mortgagor covenants and agrees that the Mortgaged Property shall be used for a skilled nursing facility and for no other purpose without Mortgagee’s prior written consent.

(b)           Mortgagee may, during normal business hours and upon reasonable notice to Mortgagor, enter and inspect or protect the Mortgaged Property, in person or by agent, in such manner and to such extent as it may deem necessary.  In the event that Mortgagor fails to maintain the Mortgaged Property in the manner specified herein, Mortgagee may, at its option, undertake such repairs or maintenance, for the account of Mortgagor, as Mortgagee deems

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necessary.  The cost of any such repairs or maintenance undertaken by Mortgagee shall become immediately due and payable by Mortgagor to Mortgagee and Mortgagee shall be reimbursed therefor in accordance with the provisions of Paragraph B.2 hereof.  The right of Mortgagee to undertake such repairs or maintenance shall be optional, shall not impose any duties on Mortgagee, and shall not be deemed to cure any Default under this Mortgage for failure to maintain the Mortgaged Property in accordance with the covenants herein.

A.5          Alterations and Additions .  Mortgagor agrees that, as to any alteration, addition, construction or improvement to be made upon the Premises, all plans and specifications therefor shall be prepared by or on behalf of Mortgagor and shall be subject to Mortgagee’s written approval in advance of the commencement of work; once commenced, all work thereunder shall be prosecuted with due diligence; all construction thereof will be in substantial accordance with the plans and specifications so approved and will comply with all laws, ordinances or regulations made or promulgated by any governmental agency or other lawful authority and with the rules of the applicable Board of Fire Underwriters.  Should Mortgagor at any time fail to comply with any notice or demand by any governmental agency, which alleges a failure to comply with any such plan, specification, law, ordinance or regulation, such failure shall, at Mortgagee’s option, constitute a default hereunder.

A.6          Status of Title .  Mortgagor represents and warrants that it is the lawful owner of the Mortgaged Property in fee simple, subject to no liens or encumbrances, except for covenants, conditions, restrictions, easements and rights-of-way of record, if any.  Mortgagor represents and warrants that it has full right, power and authority to convey and mortgage the Mortgaged Property and to execute this Mortgage.  Mortgagor also agrees to protect, preserve and defend its interest in the Mortgaged Property and title thereto, including full performance of any prior claim or lien; to appear and defend this Mortgage in any action or proceeding affecting or purporting to affect the Mortgaged Property, the lien of this Mortgage thereon or any of the rights of Mortgagee hereunder, and to pay all costs and expenses incurred by Mortgagee in connection with any such action or proceeding, including, without limitation, reasonable attorneys’ fees, whether any such action or proceeding progresses to judgment and whether brought by or against Mortgagee, Mortgagor, or the Mortgaged Property.  Mortgagee shall be reimbursed for any such costs and expenses in accordance with the provisions of Paragraph B.2 hereof.  Mortgagee may, but shall not be under any obligation to, appear or intervene in any such action or proceeding and retain counsel therein and defend the same or otherwise take such action therein as it may deem advisable or may settle or compromise the same and, for any of such purposes, may expend and advance such sums of money as it may deem necessary, and Mortgagee shall be reimbursed therefor in accordance with the provisions of Paragraph B.2 hereof.

A.7          Personal Property Security Interest .

(a)           This Mortgage shall cover, and Mortgagor hereby grants to Mortgagee a security interest in, all property now or hereafter affixed or attached or incorporated upon the Mortgaged Property including without limitation all furnaces, heating equipment, air conditioners, fans, water heaters, pipes, ducts, wiring and electrical fixtures, conduits, plumbing, sinks, partitions, restroom fixtures, light fixtures, windows and window coverings, and floor,

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ceiling and wall coverings, and all replacements thereof and substitutions therefor, which, to the fullest extent permitted by law shall be deemed fixtures and a part of the real property.  In addition, this Mortgage shall cover, and Mortgagor hereby grants to Mortgagee a security interest in:  (i) all building materials, fixtures, equipment and other personal property to be incorporated into any improvements constructed on the Premises; (ii) all interest of Mortgagor in all goods, materials, supplies, fixtures, equipment, machinery, furniture and furnishing and other personal property which are now or hereafter affixed to, placed upon or used in connection with, the Premises, and all replacements thereof, and substitutions therefor; (iii) all interest of Mortgagor in all rents, issues and profits, as well as the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities, and insurance policies, insurance and condemnation awards and proceeds, tradenames, trademarks and service marks, arising from or related to the Premises and any other business conducted on the Premises; (iv) all of Mortgagor’s interest in and rights pursuant to any franchise or licensing agreement or other similar agreement with respect to the Premises but only to the extent such grant does not violate any such agreement; and (v) all books, records and files relating to, any of the foregoing.  The security interests hereby granted are first and prior liens on the property described.  To the extent any property covered by this Mortgage consists of rights in action or personal property covered by the Uniform Commercial Code, this Mortgage constitutes a Security Agreement and is intended to create a security interest in such property in favor of Mortgagee.  This Mortgage shall be self-operative with respect to such property, but Mortgagor agrees to execute and deliver on demand such security agreements, financing statements and other instruments as Mortgagee may request in order to manifest or perfect the lien hereof more specifically upon any of such property.  If the lien of this Mortgage on any property is subject to a prior security agreement covering such property, then in the event of any default hereunder, all the right, title and interest of Mortgagor in and to any and all deposits made in connection with the transaction whereby such prior security agreement was made is hereby assigned to Mortgagee, together with the benefit of any payments now or hereafter made in connection with such transactions.

(b)           Mortgagor agrees that all property of every nature and description, whether real or personal covered by this Mortgage, together with all personal property covered by any separate security interests granted to Mortgagee, are encumbered as one unit, and that upon default by Mortgagor under the Note, or under this Mortgage or any security agreement given pursuant to this paragraph, this Mortgage and such security interest, at Mortgagee’s option, may be foreclosed and the security sold in the same proceedings, and all of the Premises (both realty and personalty) may, at Mortgagee’s option, be sold as such in one unit as a going business.  The filing of any financing statement relating to any personal property or rights or interest generally or specifically described herein shall not be construed to diminish or alter any of Mortgagee’s rights or priorities hereunder.

A.8          Severability .  Should any term, provision, covenant or condition of this Mortgage be held to be void or invalid, the same shall not affect any other term, provision, covenant or condition of this Mortgage, but the remainder hereof shall be effective as though such term, provision, covenant or condition had not been contained herein.

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A.9          Usury Disclaimer .  Any provision contained herein or in the Note or in any other instrument now or hereafter evidencing, securing or otherwise relating to any indebtedness secured by this Mortgage to the contrary notwithstanding, neither Mortgagee nor the holder of any such indebtedness shall be entitled to receive or collect, nor shall Mortgagor 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, Mortgagee is then permitted to charge Mortgagor (herein the “Maximum Rate”) provided that the Maximum Rate shall be automatically increased or decreased as the case may be, without notice to Mortgagor 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 A.9 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 Mortgage, and each other instrument now or hereafter evidencing or relating to any indebtedness secured by this Mortgage shall be held subject to reduction to the maximum amount allowed under said applicable law as now or hereafter construed by the courts having jurisdiction, and any payment by Mortgagor over the Maximum Rate shall be applied to reduce the principal amount due and owing to Mortgagee.

A.10        Impounds .  Upon an Event of Default, Mortgagor shall, if requested by Mortgagee, deposit with Mortgagee or Mortgagee’s designee on each monthly payment date as set forth in the Note one-twelfth (1/12) of the reasonably estimated amount of real estate taxes assessed or to be assessed against the Mortgaged Property for the then current year, together with one-twelfth (1/12) of the reasonably estimated total of all insurance premiums required to be paid for the then current year, as estimated by Mortgagee, together with any extra amount necessary so that the next installments of real property taxes and insurance premiums may be paid from the deposit.  Such moneys shall at proper times be progressively returned to Mortgagor for use in the actual payment of said taxes and said insurance premiums or, at the sole election of Mortgagee, Mortgagee may use said moneys in actual payment of such taxes and premiums, but nothing in this paragraph shall release Mortgagor from its obligations to pay said taxes as the same become due and payable under the provisions hereof and to maintain in force all insurance policies as required hereby.  All impounds required under this paragraph shall be deposited in a non-interest bearing account of Mortgagee, to be withdrawn by Mortgagee at such times and in such amounts as shall be deemed appropriate by Mortgagee.  All amounts deposited under this paragraph are hereby assigned to Mortgagee as additional security for all indebtedness secured by this Mortgage, and so long as any Default as set forth herein including a default in the payment of any money or the performance of any covenant or obligation herein contained or secured hereby exists, then any deposits made by Mortgagor under this paragraph may, at the option of Mortgagee, be applied to the payment of principal and interest or other indebtedness secured hereby, in lieu of being applied to any of the purposes of this paragraph A.10 previously stated.

A.11        Environmental Representations and Warranties .  Mortgagor represents and warrants to Mortgagee that: (a) during the period of Mortgagor’s ownership of the Mortgaged Property, there has not been, nor will there be in the future, any use, generation, manufacture,

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storage, treatment, disposal, release, or threatened release of any hazardous waste or substance by any person or entity on, or about the Mortgaged Property; (b) Mortgagor has no knowledge of, or reason to believe that there has been, except as previously disclosed to and acknowledged by Mortgagee in writing, (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance by any prior owners or occupants of the Mortgaged Property or (ii) any actual or threatened litigation or claims of any kind by any person or entity relating to such matters; and (c) except as previously disclosed to and acknowledged by Mortgagor in writing, (i) neither Mortgagor nor any tenant, contractor, agent, or other authorized user of the Mortgaged Property shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, or about the Mortgaged Property and (ii) all such activity shall be conducted in full compliance with all applicable federal, state, and local laws, regulations and ordinances.  Mortgagor, at any time during usual business hours, authorizes Mortgagee and its agents to enter upon the Mortgaged Property to make such inspections and tests, including, without limitation, intrusive tests, at Mortgagor’s expense, as Mortgagee may deem appropriate to determine compliance with this section of the Mortgage and the absence of any hazardous waste or hazardous substance on or near the Mortgaged Property.  Any inspections or tests made by Mortgagee shall be for Mortgagee’s purposes only and shall not be construed to create any responsibility or liability on the part of Mortgagee.  Mortgagor hereby (a) releases and waives any future claims against Mortgagee for indemnity or contribution in the event Mortgagor becomes liable for cleanup or other costs associated therewith, and (b) agrees to indemnify and hold harmless Mortgagee against any and all claims, losses, liabilities, damages, penalties, and expenses, which Mortgagee may directly or indirectly sustain or suffer resulting from a breach of this section of the Mortgage or as a consequence of any use, generation, manufacture, storage, disposal, release, or threatened release occurring prior to Mortgagor’s ownership or interest in the Mortgaged Property, whether or not the same was or should have been known to Mortgagor.  The provisions of this paragraph of the Mortgage, including the obligation to indemnify, shall survive the payment of the indebtedness secured herein and the satisfaction and reconveyance of the lien of this Mortgage and shall not be affected by Mortgagee’s acquisition of any interest in the Mortgaged Property, whether by foreclosure or otherwise.  The terms “hazardous waste,” “disposal,” “release,” and “threatened release,” as used in this Mortgage shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”) the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation Act, 49 U.S.C. Section 6901 et seq., as amended, or other applicable state or federal laws, rules or regulations adopted pursuant to any of the foregoing.  The term “hazardous waste” and “hazardous substance” shall also include, without limitation, petroleum and petroleum by-products and asbestos.  Notwithstanding anything contained in this paragraph, Mortgagee acknowledges that the Borrower may use office supplies, cleaning substances, medical supplies and materials used in the ordinary course of operation for a nursing home facility and that such use is consistent with all Environmental Laws.

A.12        Time of the Essence .  Time of each payment and performance of each of Mortgagor’s obligations pursuant to the Note, this Mortgage, and each other instrument or

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obligation of Mortgagor secured by this Mortgage or given in connection with this Mortgage is specifically declared to be of the essence.

B.            GENERAL PROVISIONS .

B.1          Non-Waiver .  Mortgagee’s acceptance of any sum after the same is due shall not constitute a waiver of the right either to require prompt payment, when due, of all other sums hereby secured or to declare a Default as herein provided.  The acceptance by Mortgagee of any sum in an amount less than the sum then due shall be deemed an acceptance on account only and upon condition that it shall not constitute a waiver of the obligation of Mortgagor to pay the entire sum then due, and Mortgagor’s failure to pay said entire sum then due shall be and continue to be a default notwithstanding such acceptance of such amount on account, as aforesaid, and Mortgagee shall be at all times thereafter and until the entire sum then due shall have been paid, and notwithstanding the acceptance by Mortgagee thereafter of further sums on account, or otherwise, entitled to exercise all rights in this Mortgage conferred upon Mortgagee, upon the occurrence of a default, and the right to proceed with a sale under any notice of default and election to sell shall in no way be impaired, whether any of such amounts are received prior or subsequent to such notice.  Consent by Mortgagee to any transaction or action which is subject to consent or approval of Mortgagee hereunder shall not be deemed a waiver of the right to require such consent or approval to future or successive transactions or actions.

B.2          Substitute Performance by Mortgagee .  Should Mortgagor fail to pay or perform when required hereunder any obligation of Mortgagor hereunder, or if any action or proceeding is commenced which affects the Mortgaged Property or title thereto or the interest of Mortgagee therein, including but not limited to, eminent domain, insolvency, code enforcement, or arrangements or proceedings involving bankruptcy, insolvency or reorganization, Mortgagee may, but shall not be obligated to, without regard to the adequacy of its security and without prejudice to its right to declare a Default hereunder, make such appearances, disburse such sums or take such actions as Mortgagee reasonably deems necessary to protect Mortgagee’s interest, including, but not limited to disbursement of attorneys’ fees and entry upon the Mortgaged Property to make repairs without notice or demand to or upon Mortgagor.  Mortgagor hereby grants to Mortgagee an easement to enter upon the Property at any time, which easement shall continue for the duration of this Mortgage.  The payment by Mortgagee of any delinquent tax, assessment or governmental charge, or any lien or encumbrance which Mortgagee in good faith believes may be prior to the lien of this Mortgage, or any insurance premium for insurance which Mortgagor is obligated to provide hereunder but which Mortgagee in good faith believes has not been supplied, shall be conclusive between Mortgagor and Mortgagee as to the propriety and amount so paid.  Mortgagee shall be subrogated to all rights, equities and liens discharged by any such expenditure.  After any Default hereunder and whether or not any action is instituted to enforce any provision of this Mortgage or the Note, Mortgagor promises to pay to Mortgagee, as incurred, all reasonable sums incurred by Mortgagee for attorneys’ fees and costs to enforce this Mortgage or the Note or to defend any claims arising from this Mortgage or the Note.  Any amounts so paid pursuant to this Paragraph B.2, or the cost of such performance, together with all costs and expenses incurred by Mortgagee in connection with such payment or performance, and any amounts for which Mortgagor is specifically obligated to reimburse Mortgagee pursuant to

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provisions hereof, including reasonable attorneys’ fees and interest on all such amounts at the default rate, as described in the Note, from the date paid by Mortgagee until repaid to Mortgagee, shall be payable by Mortgagor to Mortgagee immediately upon notice to Mortgagor of the amount owing, without further demand, shall be secured by this Mortgage and shall be added to the judgment in any suit brought by Mortgagee against Mortgagor.  Failure to pay any such amount within ten (10) days after notice to Mortgagor of the amount owing shall constitute a Default hereunder and Mortgagee may, at its option, accelerate and demand full payment of all amounts secured hereby.

B.3          Powers of Mortgagee .  At any time or from time to time, without liability therefor and without notice, without affecting the personal liability of any person or entity for the payment of the indebtedness secured hereby and without affecting the lien of this Mortgage upon the Mortgaged Property for the full amount of all amounts secured hereby, Mortgagee may (a) release all or any part of the Mortgaged Property, (b) consent to the making of any map or plat thereof, (c) join in granting any easement thereon or in creating any covenants or conditions restricting use or occupancy thereof, or (d) join in any extension agreement or in any agreement subordinating the lien or charge hereof.

B.4          Certain Definitions .  The term “Mortgagee” means the original Mortgagee hereunder, its successors or assigns, and any future owner and holder, including pledgee, of the Note.  All obligations of each Mortgagor hereunder are joint and several, and this Mortgage in all its parts applies to and binds the heirs, personal representatives, administrators, executors, successors and assigns of all and each of the parties hereto.  If Mortgagor is two or more entities or persons, the term “Mortgagor” as used herein shall refer to them collectively, as well as individually.

B.5          Financial Statements and Other Disclosures .  Mortgagor represents and warrants to Mortgagee that all financial statements and credit applications delivered by Mortgagor to Mortgagee accurately reflect the financial condition and operations of Mortgagor at the times and for the periods therein stated.  So long as this Mortgage is in force and effect, Mortgagor agrees to deliver to Mortgagee, within 90 days after the end of each of Mortgagor’s fiscal years, an income statement on the use and operation of the Mortgaged Property, a complete and accurate copy of Mortgagor’s federal tax returns and financial statements, including a balance sheet, profit and loss statement and aging of accounts receivable and accounts payable, all schedules, all prepared in accordance with generally accepted accounting principles certified by an officer of the Mortgagor, showing the consolidated financial position of Mortgagor at the close of such fiscal year, and concurrently therewith a certificate of its Managing Member or chief financial officer to the effect that such officer is not aware of any condition or event which constitutes a default under this Mortgage or a default under any franchise agreement to which Mortgagor is a party, or under any notes or obligations or which, with the mere passage of time or notice, or both, would constitute a default under this Mortgage or a default under any such franchise agreement or under any notes or obligations of the Mortgagor.  Mortgagor hereby agrees to immediately notify Mortgagee in writing as to the existence of any notes payable by Mortgagor, or any related person or entity, to any franchisor for unpaid royalties or other unpaid obligations to such franchisor.

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B.6          Amendment .  No alteration, amendment or waiver of this Mortgage, or the Note shall be effective unless in writing and signed by the parties sought to be charged or bound thereby.

B.7          Governing Law .  This Mortgage will be governed by, construed and enforced in accordance with federal law and the laws of the State of North Carolina, except and only to the extent of procedural matters related to the creation, perfection, priority and enforcement of Mortgagee’s rights and remedies against the Mortgaged Property, which matters shall be governed by the laws of the State of Arkansas.  However, in the event that the enforceability or validity of any provision of this Mortgage is challenged or questioned, such provision shall be governed by whichever applicable state or federal law would uphold or would enforce such challenged or questioned provision.  The loan transaction which is evidenced by the Note and this Mortgage has been applied for, considered, approved and made, and all necessary loan documents have been accepted by Mortgagee in the State of North Carolina.

B.8          Statement Fee .  For any statement requested by Mortgagor regarding the obligations and indebtedness secured by this Mortgage, or regarding the amounts held in any impound or reserve fund established hereunder, Mortgagee may charge a reasonable fee, not to exceed any maximum amount provided by any applicable law at the time of the request therefor.

B.9          Notices .

(a)           All notices required or permitted to be given hereunder shall be delivered in person or by United States mail, postage prepaid, registered or certified with return receipt requested.  If any written notice is mailed, it shall be deemed effective on the earlier of actual receipt or on the third (3rd) calendar day following the date of mailing.  Notice given in person shall be effective only if, and when, received.  The addresses of the parties for delivery of notices shall be the addresses set forth above.

(b)           Any party may change its address for notice hereunder to any other location within the continental United States by giving ten (10) days notice to other parties in the manner set forth above.

B.10        Representations and Warranties of Mortgagor .  Mortgagor and each signatory who signs on Mortgagor’s behalf hereby represents and warrants as follows:

(a)           That this Mortgage, the Note and all other documents executed and delivered to Mortgagee in connection herewith were executed in accordance with the requirements of law and are valid, binding and enforceable in accordance with their terms.

(b)           That the execution of this Mortgage, the Note and any other document executed and delivered to Mortgagee in connection herewith, and the full and complete performance of the provisions hereof and thereof, will not result in any breach of, or constitute a default under any indenture, mortgage, bank loan or credit agreement or other agreement or

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instrument to which Mortgagor is a party or by which Mortgagor is bound, and will not result in the creation of any lien, charge or encumbrance (other than those in favor of Mortgagee) upon any property or assets of Mortgagor.

(c)           That as of the date of execution of this Mortgage, Mortgagor is the owner of the Mortgaged Property.

(d)           The improvements on the Premises, existing and proposed, and their intended use will, when completed, comply fully with all applicable environmental, air quality, zoning, planning, building, subdivision and other governmental laws and requirements.  Mortgagor specifically warrants that the existing improvements on each property listed on Exhibit “A” attached hereto and made a part hereof by reference, complies with all local zoning ordinances.

(e)           The Premises are composed of one or more whole tax parcels with a separate tax assessment, independent of any land or improvements not encumbered by this Mortgage.

(f)            There is no litigation pending or, to the best of Mortgagor’s knowledge, threatened against the Mortgaged Property.  There is no litigation pending or, to the best of Mortgagor’s knowledge, threatened against Mortgagor, which might, so far as Mortgagor can now reasonably foresee, have a material adverse effect on Mortgagor’s ability to repay the Note or to perform the provisions of this Mortgage or of any other document delivered to Mortgagee in connection herewith.  Mortgagor has disclosed all litigation pending and threatened against Mortgagor to Mortgagee in writing, and will disclose all future such litigation to Mortgagee in writing within thirty (30) days of its receipt of notice thereof.

(g)           The Mortgaged Property complies with all applicable subdivision laws, ordinances, regulations, rules and other requirements.

(h)           Mortgagor is not in default with respect to any existing indebtedness or obligation.

(i)            Mortgagor has the power and authority to enter into and perform all terms and conditions of this Mortgage, the Note, and all other documents executed in connection with this transaction, and to incur the obligations herein and therein provided for.

(j)            Unless previously disclosed to Mortgagee in writing, Mortgagor has not made any agreement or taken any action which may cause anyone to become entitled to a commission or finder’s fee as a result of the making of any loan to Mortgagor by Mortgagee.

These representations and warranties may be relied upon by Mortgagee with or without investigation by Mortgagee and they shall survive any such investigation, and shall continue and may be relied upon by Mortgagee until all obligations secured by this Mortgage have been paid in full.

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B.11        Extensions and Modifications .  From time to time, without affecting the obligation of Mortgagor or Mortgagor’s successors or assigns to pay the sums secured by this Mortgage and to observe the obligations of Mortgagor contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the indebtedness secured hereby, and without affecting the lien or priority of lien hereof on the Mortgaged Property, Mortgagee may, at Mortgagee’s option, without giving notice to or obtaining the consent of Mortgagor, Mortgagor’s successors or assigns or of any other lienholders or guarantors, and without liability on Mortgagee’s part, extend the time for payment of said indebtedness or any part thereof, reduce the payments thereon, release anyone liable on any of said indebtedness, accept a renewal note or notes therefor, modify the terms and time of payment of said indebtedness, release from this Mortgage any part of the Mortgaged Property, take or release other or additional security, reconvey any part of the Mortgaged Property, consent to the granting of any easement or dedication, join in any extension or subordination agreement and agree in writing with any person obligated to pay the same to modify the rate of interest or period of amortization of any indebtedness secured hereby or change the amount of the installments payable thereon.  Mortgagor shall pay Mortgagee a reasonable service charge, together with such title insurance premiums and attorneys’ fees as may be incurred by Mortgagee in connection with any such action.

B.12        Waiver by Mortgagor .  Mortgagor waives any requirement of presentment, demand for payment, notice of nonpayment or late payment, protest, notice of protest, notice of dishonor, and all other formalities.  Mortgagor waives and releases all right of appraisement, sale, and redemption allowed under any law or laws of the State of Arkansas, or the laws of any other state or jurisdiction, including particularly all right of redemption under Ark. Code Ann. § 18-49-106 or Ark. Code Ann. § 16-66-502.  Mortgagor waives all rights and/or privileges it might otherwise have to require Mortgagee to proceed against or to pursue any remedy available to Mortgagee in any particular manner or order as to any particular collateral, person or entity under any legal or equitable doctrine or principle including, without limitation, marshalling of assets and/or suretyship principles, and further agrees that Mortgagee may proceed against any or all of the assets encumbered hereby or by any other security document or instrument in the event of Default in such order and manner as Mortgagee in its sole discretion may determine.  Any Mortgagor that has signed this Mortgage as a surety or accommodation party, or that has subjected its property to this Mortgage to secure the indebtedness of another, hereby expressly waives any defense arising by reason of the cessation from any cause whatsoever of the liability of Mortgagor, and waives the benefit of any statutes of limitation affecting the enforcement hereof.

B.13        Corrections .  Mortgagor will, upon request of Mortgagee, promptly correct any defect, error or omission which may be discovered in the contents of this Mortgage or in the execution or acknowledgment hereof, and will execute, acknowledge and deliver such further documents and do such further acts as may be necessary or as may be reasonably requested by Mortgagee to carry out more effectively the purposes of this Mortgage, to subject to the liens and security interests hereby created any of Mortgagor’s properties, rights or interest covered or intended to be covered hereby, and to perfect and maintain such liens and security interests.

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B.14        Mortgagee Indemnification .  Mortgagor shall and does hereby agree to indemnify and to hold Mortgagee and Mortgagee’s affiliates and parent companies, and all of its and their respective officers, directors, employees and agents (the “Indemnified Parties”), harmless from and against all claims, demands, liabilities, losses or damages (including all related costs, expenses, and reasonable attorney’s fees) asserted against, imposed on or incurred by the Indemnified Parties in connection with or as a result of this Mortgage or the exercise of any rights or remedies under this Mortgage or by reason of any alleged obligations or undertakings of Mortgagee to perform or discharge any of the terms, covenants or agreements contained in this Mortgage.  Should Mortgagee incur any such liability, the amount thereof, together with interest thereon at the Default Rate stated in the Note, shall be secured hereby and Mortgagor shall reimburse the Mortgagee therefor immediately upon demand.

B.15        Late Payment Charge .  Mortgagor acknowledges that late payment to Mortgagee will cause Mortgagee to incur costs not contemplated by this Mortgage.  Such costs include, without limitation, processing and accounting charges.  Therefore, if any payment required by the Note or this Mortgage is not received by Mortgagee within ten (10) days after the due date, Mortgagee hereby may assess a late charge in the amount of five percent (5.0%) of the unpaid amount of the payment, or the maximum permitted by applicable law, whichever is less.

The parties agree that this late charge represents a reasonable sum considering all of the circumstances existing on the date of this Mortgage and represents a fair and reasonable estimate of the costs that Mortgagee will incur by reason of the late payment.  The parties further agree that proof of actual damages would be costly or inconvenient.  Acceptance of any late charge shall not constitute a waiver of the Default with respect to the overdue amount, and shall not prevent Mortgagee from exercising any of the other rights and remedies available to Mortgagee.

B.16        Exhibits .  All of the provisions in each of the attached Exhibits are incorporated herein by this reference for all purposes.

B.17        Acknowledgment of Notice.   THIS WRITTEN 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.

C.            DEFAULT PROVISIONS .

C.1          Events of Default .  Any of the following shall constitute a “Default” hereunder:

(a)           The failure of Mortgagor to pay any payment required under the Note or on any other indebtedness to Mortgagee or any payment required hereunder or under any other agreement securing the Note;

(b)           The filing of any petition, or the commencement of any case or proceeding, or the entry of any order for relief, under the Federal Bankruptcy Code or any other

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federal or state law relating to insolvency, bankruptcy, reorganization, or composition of debts by Mortgagor or any guarantor or endorser of the Note or any other obligation of Mortgagor to Mortgagee; or any adjudication that Mortgagor or any such guarantor or endorser is insolvent or bankrupt;

(c)           If Mortgagee, in good faith, believes that a substantial part of Mortgagor’s property is in danger of loss, misuse, seizure or confiscation;

(d)           (i) The filing of any petition or the commencement of any case or proceeding described in subparagraph C.1(b) above against Mortgagor or against any endorser or guarantor of the Note or any other obligation of Mortgagor to Mortgagee, unless such petition and the case or proceeding initiated thereby are dismissed within thirty (30) days from the date of such filing; the filing of an answer by Mortgagor or such endorser or guarantor admitting the allegations of any such petition; or (ii) the appointment of or the taking of possession by a custodian, trustee or receiver for all or any assets of Mortgagor or any such endorser or guarantor, unless such appointment is vacated or dismissed or such possession is terminated within thirty (30) days from the earlier of the date of such appointment or commencement of such possession, but not later than five (5) days before the proposed sale of any assets of Mortgagor or any such endorser or guarantor by such custodian, trustee or receiver;

(e)           The insolvency of Mortgagor or of any guarantor or endorser of the Note or any other obligation of Mortgagor to Mortgagee; or the execution by Mortgagor or any such guarantor or endorser of an assignment for the benefit of creditors; or the convening by Mortgagor or any such guarantor or endorser of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or composition of its debts; or the failure of Mortgagor or of any such guarantor or endorser to pay its debts as they mature; or if Mortgagor or any such guarantor or endorser is generally not paying its debts as they mature;

(f)            The admission in writing by Mortgagor or any endorser or guarantor of the Note or any other obligation of Mortgagor to Mortgagee that it is unable to pay its debts as they mature or that it is generally not paying its debts as they mature;

(g)           The liquidation, termination or dissolution of Mortgagor or any guarantor or endorser of the Note or any other obligation of Mortgagor to Mortgagee which are corporations, partnerships or joint ventures;

(h)           The sale, lease, exchange, conveyance or transfer, of any legal or equitable interest in and to the Mortgaged Property, or the agreement to do so; or the mortgage, assignment, pledge or encumbrance, either voluntarily or involuntarily, or the agreement to do so, without the prior written consent of Mortgagee being first obtained, or the levy, attachment, foreclosure, or seizure, of (i) any right, title or interest of Mortgagor or of any successor to Mortgagor, in and to the Mortgaged Property; or (ii) any material portion of the assets of Mortgagor or of any successor to Mortgagor;

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(i)            The falsity or misleading nature of any representation or warranty contained herein or any representation to Mortgagee concerning the financial condition or credit standing of either Mortgagor or any endorser or guarantor of the Note or any other obligation of Mortgagor to Mortgagee;

(j)            The failure of Mortgagor to make any deposit of funds required hereunder or under the Note within the time period provided herein or in the Note, or in the absence of such a provision, within five (5) days after written demand therefor from Mortgagee;

(k)           The existence of any encroachment upon the Premises which has occurred without the approval of Mortgagee and which is not removed or corrected within thirty (30) days after its creation, or if litigation to remove or correct such encroachment is not instigated by Mortgagor within such thirty (30) day period and thereafter diligently prosecuted;

(l)            The filing of any claim of lien against the Premises, any improvements thereon or any part thereof, or any interest or right made appurtenant thereto or the service on Mortgagee, as a disburser, of any notice to withhold funds and the continued maintenance of said claim of lien or notice to withhold for a period of ten (10) days without discharge or satisfaction thereof or provision therefor satisfactory to Mortgagee in its sole discretion, including the posting of a bond or indemnification satisfactory to Mortgagee;

(m)          The obtaining by any person of an order or decree in any court of competent jurisdiction enjoining the construction or development of any improvements needed for the operation of Mortgagor’s business on the Premises or enjoining or prohibiting Mortgagor or Mortgagee or both of them from performing any of their agreements or obligations with respect to this Mortgage, which proceedings are not discontinued and such decree is not vacated within fifteen (15) days after the granting thereof;

(n)           The demolition, destruction or substantial damage of the Mortgaged Property unless Mortgagor either (i) commences and completes restoration or rebuilding within a reasonable time, not to exceed ten (10) months, or (ii) prepays the Note, by the amount equal to the percentage of reduction of leasable or otherwise productive area of the Premises caused by such demolition, destruction or substantial damage; provided, however, that the loan to value ratio after giving effect to the demolition, destruction or substantial damage, the restoration or repair thereof and the prepayment as a result thereof shall not be greater than eighty percent (80%);

(o)           The failure of Mortgagor to perform any obligations constituting, set forth in, or relating to (a) this Mortgage, the Note, or any other obligation of Mortgagor to Mortgagee now existing or hereafter arising (b) any other agreement or indebtedness of Mortgagor to any affiliate of Mortgagee now existing or hereafter arising irrespective of whether Mortgagee or such affiliate elects pursuant to a provision thereof to declare immediately due and payable the entire unpaid principal sum together with all interest, or other balance thereon, plus any other sums due thereunder;

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(p)            If Mortgagor is a corporation, the sale, pledge, transfer or assignment by the shareholders of Mortgagor of any shares of the stock of Mortgagor without the prior written consent of Mortgagee, the merger or consolidation of Mortgagor with another company or entity, the liquidation of Mortgagor, the issuance of any new stock or warrants, or the transfer of issued and outstanding treasury stock or warrants of Mortgagor.  If Mortgagor is a corporation, the sale, pledge, transfer or assignment of any of the members of Mortgagor of any of their interest in Mortgagor, or the withdrawal or the admittance of any members into Mortgagor without the prior written consent of Mortgagee;

(q)            Any guaranty of the obligations and indebtedness secured by this Mortgage ceases to be effective, except pursuant to a written release from Mortgagee, or any guarantor denies liability thereunder or any default occurs under any such guaranty; or

C.2           Remedies Upon Default .  At any time after a Default hereunder, Mortgagee may, at its option, declare all indebtedness secured by this Mortgage immediately due and payable, and collectible without notice, regardless of maturity, and irrespective of whether Mortgagee exercises such option, and regardless of (i) Mortgagee’s delay in exercising such option, (ii) Mortgagee’s failure to exercise such option on the occasion of any prior Default or (iii) the adequacy of Mortgagee’s security, Mortgagee may, at its option and in its sole discretion, without prior notice or demand to or upon Mortgagor, do any one or more of the following:

(a)            Mortgagee may in person or by agent enter upon, take possession of, manage and operate the Mortgaged Property or any part thereof, make repairs and alterations, and do any acts which Mortgagee deems proper to protect the security hereof or to operate and maintain the Mortgaged Property and the business operated thereon; and either with or without taking possession, in its own name, sue for or otherwise collect and receive rents, issues, and profits as well as the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities including those past due and unpaid, and apply the same less costs and expenses of operation and collection, including reasonable attorneys’ fees, upon any indebtedness secured hereby, and in such order as Mortgagee may determine.  Upon request of Mortgagee, Mortgagor shall assemble and make available to Mortgagee at the Premises any of the Mortgaged Property which has been removed therefrom.  The entering upon and taking possession of the Mortgaged Property, the collection of any rents, issues and profits as well as the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities and the application thereof as aforesaid, shall not cure or waive any Default theretofore or thereafter occurring, or affect any notice of Default hereunder or invalidate any act done pursuant to any such notice.  Mortgagee or Mortgagee’s agent shall have access to the books and records used in the operation and maintenance of the Mortgaged Property and the business operated thereon and shall be liable to account only for those rents, issues and profits as well actually received by Mortgagee.  Mortgagee shall not be liable to Mortgagor, anyone claiming by, from, under or through Mortgagor or anyone having an interest in the Mortgaged Property by reason of anything done or undone by Mortgagee.  Nothing contained in this paragraph shall require Mortgagee to incur any expense or do any act.  If the rents, issues and profits of the Mortgaged Property and the business operated thereon are not sufficient to meet the costs of taking control of and managing the Mortgaged Property and collecting the rents, issues and

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profits, any funds expended by Mortgagee for such purposes shall become indebtedness of Mortgagor to Mortgagee secured by this Mortgage.  Such amounts, together with interest and attorneys’ fees if applicable as provided in Paragraph B.2. hereof, shall be immediately due and payable in accordance with the provisions of Paragraph B.2. hereof.  Notwithstanding Mortgagee’s continuance in possession or receipt and application of rents, issues or profits, Mortgagee shall be entitled to exercise every right provided for in this Mortgage or by law upon or after the occurrence of a default, including any right to exercise the power of sale.  Any of the actions referred to in this Paragraph may be taken by Mortgagee at such time as Mortgagee is so entitled, without regard to the adequacy of any security for the indebtedness hereby secured.

(b)            Mortgagee shall, without regard to the adequacy of any security for the indebtedness hereby secured, be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession of and protect the Mortgaged Property and the business operated thereon, and, in Mortgagee’s discretion, operate the same, in whole or in part, and collect the rents, issues and profits as well as the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities therefrom.

(c)            Mortgagee may bring an action in any court of competent jurisdiction to foreclose this Mortgage through judicial or non-judicial foreclosure, including statutory foreclosure under Ark. Code Ann. § 18-5-101 et seq. , with notice to Mortgagor as required under applicable law, or to enforce any of the covenants, agreements or other obligations contained in this Mortgage.

(d)            Mortgagee may elect to cause the Mortgaged Property or any part thereof to be sold as follows:

(i)             Mortgagee may cause any such sale or other disposition of personal property to be conducted immediately following the expiration of any grace period, if any, herein provided (or immediately upon the expiration of any applicable redemption period), and may cause any such sale of real property to be conducted as soon after foreclosure as is permitted by law, or Mortgagee may delay any such sale or other disposition for such period of time as Mortgagee deems to be in its best interest.  Should Mortgagee desire that more than one such sale or other disposition be conducted, Mortgagee may at its option, cause the same to be conducted simultaneously, or successively on the same day, or at such different days or times and in such order as Mortgagee may deem to be in its best interest.

(ii)            Should Mortgagee elect to cause any of the Mortgaged Property to be disposed of as personal property as permitted by subparagraph (i) above, it may dispose of any part thereof in any manner now or hereafter permitted by Article 9 of the Uniform Commercial Code or in accordance with any other right or remedy provided by applicable law.  Both Mortgagor and Mortgagee shall be eligible to purchase all or any part of such property at any such disposition.  Any such disposition may be either by public or private sale or other disposition as Mortgagee may elect in its sole discretion.  Mortgagee shall give Mortgagor at least ten (10) days’ prior written notice of the time and place of any public sale or other disposition of such property or of the time at or after which any private sale or any other intended

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disposition is to be made, and if such notice is sent to Mortgagor as provided in Paragraph B.10 hereof, it shall constitute reasonable notice to Mortgagor.

(iii)           At the foreclosure sale of the Mortgaged Property which is real property, the Mortgaged Property or any portion thereof specified by Mortgagee shall be sold at public auction to the highest bidder for cash in lawful money of the United States, subject, however, to the provisions of Paragraph C.6 hereof.  If the Mortgaged Property consists of several lots or parcels, it may be sold as a whole or in separate lots or parcels, if directed by Mortgagee.  Any person or entity,  including Mortgagee, may purchase at the sale.

(iv)           Mortgagee may, in any manner that it deems appropriate, apply the proceeds of any judicial foreclosure sale or sale made pursuant to the power of sale created hereby (to the extent permitted by applicable law)  or other disposition of any of the Mortgaged Property hereunder to payment of the following:  (1) the expenses of such sale or disposition, together with Mortgagee’s fees, costs and expenses and reasonable attorneys’ fees incurred by Mortgagee, and the actual cost of publishing, recording, mailing and posting notice; (2) the cost of any search and/or other evidence of title procured in connection therewith and revenue stamps on any deed or conveyance; (3) the payment of the Note secured by this Mortgage; (4) any or all other sums secured by this Mortgage; and (5) the remainder, if any, to the person or persons legally entitled thereto, in the order of their priority.

(e)            Mortgagee may take any other appropriate action permitted by applicable law.

C.3           Deficiency; Liabilities and Rights After Default .  To the extent permitted by law, Mortgagor shall be and remain liable for any deficiency remaining after sale either pursuant to the Uniform Commercial Code, judicial proceedings, or otherwise.  After Default or the occurrence of an event which after the passage of time or giving of notice, or both, could become a Default, Mortgagor shall pay Mortgagee’s reasonable attorneys’ fees, Mortgagee’s fees and its costs and expenses incurred as a result of said Default or other such event, and if suit is brought, all costs of suit, all of which sums shall be secured by this Mortgage.  Mortgagor’s statutory rights of reinstatement, if any, are expressly conditioned upon Mortgagor’s payment of all sums required under the applicable statute and performance of all required acts.

C.4           Right of Setoff .  In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, Mortgagee is hereby authorized by Mortgagor at any time or from time to time, without notice to Mortgagor, any guarantor or endorser of the Note or any other indebtedness or obligation secured by this Mortgage, or any other person, any such notice being hereby expressly waived, to set off any obligations or liabilities any time held or owing by Mortgagee to or for the credit or the account of Mortgagor or any such guarantor or endorser against the obligations and liabilities of Mortgagor or any such guarantor or endorser to Mortgagee, including, but not limited to, all claims of any nature or description arising out of or connected with this Mortgage, the Note or any other indebtedness or obligation secured by this Mortgage, irrespective of whether or not (a) Mortgagee shall have made any demand hereunder or (b) Mortgagee shall have declared the principal of and interest on

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the Note to be due and owing and although said obligations and liabilities, or any of them, shall be contingent and unmatured.

C.5           Foreclosure Procedure .  Mortgagor hereby expressly waives, to the extent permitted by law, any right which it may have to direct the order in which any of the Mortgaged Property shall be sold in the event of any sale or sales pursuant hereto.

C.6           Foreclosure Purchase .  Upon any sale of the Mortgaged Property, if the holder of the Note is a purchaser at such sale, it shall be entitled to use and apply all or any portion of the indebtedness then secured by this Mortgage for or in settlement or payment of all or any portion of the purchase price of the Mortgaged Property purchased.

C.7           Cumulative Remedies .  No remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other remedy herein or by law provided, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute.  Every power or remedy given by this Mortgage to Mortgagee, or to which it may be otherwise entitled, may be exercised from time to time and as often as may be deemed expedient by Mortgagee, and Mortgagee may pursue inconsistent remedies.  The unenforceability of any provision in this Mortgage shall not affect the enforceability of any other provision herein.  If there exists additional security for the performance of the obligations secured hereby, the Mortgagee, at its sole option, and without limiting or affecting any rights or remedies hereunder, may exercise any of the rights and remedies to which it may be entitled hereunder either concurrently with whatever other rights it may have in connection with such other security or in such order as it may determine.

C.8.  Marshalling of Assets .  Mortgagor agrees that all of the Mortgaged Property and all other collateral or security which may be granted to Mortgagee in connection with the obligations secured by this Mortgage constitutes equal security for all of the obligations secured hereby, and Mortgagor agrees that Mortgagee shall be entitled to sell, retain or otherwise deal with any or all of the Mortgaged Property and all other collateral or security, in any order or simultaneously as Mortgagee shall determine in its sole and absolute discretion, free of any requirement for the marshalling of assets or other restriction upon Mortgagee in dealing with the Mortgaged Property and all other collateral or security.

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IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the day and year set forth above.

On this day, before me, the undersigned, a Notary Public, duly commissioned, qualified and acting, within and for said County and State, appeared in person the within named Christopher F. Brogdon, to me personally well known, who stated that he is the Manager of Homestead Property Holdings, LLC, a Georgia limited liability company and was duly authorized in that capacity to execute the foregoing instrument for and in the name and behalf of said company, and further stated and acknowledged that he had so signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth.

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EXHIBIT A :

Legal Description

Exhibit 99.4

SQUARE 1 BANK

SECURITY AGREEMENT

This Security Agreement (hereinafter called “Agreement”) is between HOMESTEAD PROPERTY HOLDINGS, LLC and HOMESTEAD NURSING, LLC (collectively, hereinafter the “Debtor”) and SQUARE 1 BANK (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 Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00) (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: 826 North Buchanan Street, Stamps, Arkansas 71860.

(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: 826 North Buchanan Street, Stamps, Arkansas.

(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 Homestead Nursing, LLC will register or has registered the trade name “Homestead Manor Nursing Home” and will operate 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

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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.

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(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;

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(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 SQUARE 1 BANK or any entity owned or controlled, directly or indirectly, by SQUARE 1 BANK).

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

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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

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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

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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

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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 the rights and obligations of the parties hereunder shall in all respects be governed by, construed and enforced in accordance with federal law and the laws of the State of North Carolina, except and only to the extent of procedural matters related to the perfection and enforcement of Lender’s rights and remedies against the Property, which matters shall be governed by the laws of the state of Arkansas.  However, in the event that the enforceability or validity of any provision of this Agreement is challenged or questioned, such provision shall be governed by which whichever applicable state or federal law would uphold or would enforce such challenged or questioned provision.  The loan transaction which is evidenced by this Agreement has been applied for, considered, approved and made, and all necessary loan documents have been accepted by Lender in the State of North Carolina.

(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

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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.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date written below.

Dated:                        , 2011.

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SCHEDULE 1

(All Property)

This is Schedule 1 to the Security Agreement dated               , 2011 between SQUARE 1 BANK (“Secured Party”) and HOMESTEAD PROPERTY HOLDINGS, LLC and HOMESTEAD 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, together with all replacements thereof, all attachments, accessories, parts and tools belonging thereto or for use in connection therewith and proceeds therefrom.

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SCHEDULE 2

(Legal Description of Property)

This is Schedule 2 to the Security Agreement dated                 , 2011 between SQUARE 1 BANK (“Secured Party”) and HOMESTEAD PROPERTY HOLDINGS, LLC and HOMESTEAD NURSING, LLC(collectively, the “Debtor”).

826 North Street, Stamps, Arkansas 71860, a location legally described on attached Exhibit “A” .

Record owner of Property described in Exhibit “A”:  HOMESTEAD PROPERTY HOLDINGS, LLC

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EXHIBIT “A”

LEGAL DESCRIPTION

Exhibit 99.5

GUARANTY

1.              As an inducement for and in consideration of any loan(s), lease(s), or other financial accommodation(s) of even date herewith granted to Homestead Property Holdings, LLC and Homestead Nursing, LLC (hereinafter collectively called “Obligor”), by SQUARE 1 BANK  (hereinafter, together with its successors and assigns, called “Lender”), the undersigned, AdCare Health Systems, Inc., (hereinafter called “Guarantor”), hereby, jointly and severally if more than one, unconditionally guarantees the full and prompt payment, observance and performance when due, whether at the stated time, by acceleration or otherwise, of all obligations of Obligor to Lender, 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 Guaranty, and whether now or hereafter existing, or due or to become due, including without limitation, the following:

(a)            Any and all amounts owed by Obligor under, in connection with, and/or pursuant to the indebtedness evidenced by that certain Term Note of even date herewith, in the original aggregate principal sum of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00) (the “Note”), with interest thereon according to the provisions thereof, and all obligations of Obligor 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 Lender pursuant to or in connection with the Note or any agreements and other 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 Obligor to Lender, 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 Obligor to Lender as a member of any partnership, syndicate or association or other group and whether incurred by Obligor 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 Obligor to pay Lender.

2.              All of the obligations described in paragraph 1, above, shall be referred to hereafter as the “Liabilities”.  In the event any of the Liabilities shall not be paid or performed according to their terms, Guarantor, shall immediately pay, perform or cause the performance of the same, this Guaranty being a guarantee of full payment and performance and not of collectibility and in no way conditional or contingent.  This Guaranty is an absolute, unconditional and continuing guarantee the Guarantor being jointly and severally liable with the Obligor and is in no way conditioned upon any requirement that Lender first attempt to collect payment or seek performances of any of the Liabilities from Obligor or any other obligor or guarantor, or resort to any other security or other means of obtaining payment or performance of any of the Liabilities, or upon any other contingency whatsoever.

3.              Guarantor further agrees to pay all expenses (including reasonable attorneys’ fees and legal expenses) paid or incurred by Lender in endeavoring to collect the Liabilities, or any part thereof, and in enforcing or defending this Guaranty, whether or not a lawsuit is commenced.

4.              Guarantor represents and warrants that Guarantor is either financially interested in Obligor or will receive other material economic benefits as a result of any loan(s), leases(s) or other financial accommodation(s) made or granted to Obligor by Lender from time to time.  Guarantor further represents and warrants that Guarantor is willing to enter into this Guaranty as a material inducement to Lender to extend loan(s) or other financial accommodation(s), or to enter into lease(s), from time to time to or with Obligor, and acknowledges that Lender would not be willing to extend any such loan(s) or other financial accommodation(s) or enter into such lease(s) absent this Guaranty.  In any community property state, if Guarantor is married, Guarantor’s promise is made for the benefit of Guarantor’s marital community.

5.              Guarantor agrees that the occurrence of any of the following events shall constitute a default under this Guaranty:  (a) the failure of Guarantor to perform or observe any obligation under this Guaranty or (b) the death, incompetency, dissolution or insolvency of Obligor or Guarantor or any other guarantor of any of the Liabilities, or (c) the inability of Obligor or Guarantor or any other guarantor of any of the Liabilities to pay debts as they mature, or (d) an assignment by Obligor or Guarantor or any other guarantor of any of the Liabilities for the benefit of creditors, or (e) the institution of any proceeding by or against Obligor or Guarantor or any other guarantor of any of the Liabilities (under the Bankruptcy Code or otherwise) seeking to adjudicate it 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 itself or for all or a substantial part of its property unless such petition and the case or proceeding initiated thereby are dismissed within thirty (30) days from the date of such filing, or (f) the institution by Guarantor or any other person or entity of any liquidation, dissolution or reorganization proceedings with respect to Guarantor, or (g) the default by Obligor under any other agreement or document concerning or relating to the Liabilities, or (h) the default by Guarantor under the terms of any other obligation of Guarantor to Lender, or (i) any representation or warranty contained herein or in any other document delivered by or on behalf of Guarantor or Obligor to Lender shall be false or misleading in any material respect, or (j) there shall be a material default or event of default under any other agreement or document securing or guaranteeing any of the obligations secured by this Guaranty. Upon and after the occurrence of a default hereunder, the Liabilities shall be automatically accelerated and shall become immediately due and payable by Guarantor, or Guarantor’s successor or estate, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by Guarantor.

6.              Guarantor further agrees that this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time payment to or for the benefit of Lender of the Liabilities, or any part thereof, is rescinded or must otherwise be returned by Lender due to the insolvency, bankruptcy or reorganization of Obligor or otherwise, all as though such payment to or for the benefit of Lender had not been made.

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7.              Lender may, without demand or notice of any kind, at any time when any amount shall be due and payable hereunder by Guarantor, appropriate and apply toward the payment of such amount, and in such order of application as Lender may from time to time elect, any property, balances, credits, deposits, accounts, instruments or moneys of Guarantor in the possession or control of Lender for any purpose.

8.              This Guaranty shall be a continuing, absolute and unconditional guaranty of payment and performance and not of collectibility and shall remain in full force and effect as to Guarantor, subject to discontinuance only as follows:  Guarantor, or any person duly authorized and acting on behalf of Guarantor, may give written notice to Lender of discontinuance of this Guaranty, but no such notice shall be effective in any respect until it is actually received by Lender and no such notice shall affect or impair the obligations hereunder of Guarantor with respect to any Liabilities existing at the date of receipt of such notice by Lender (or any Liabilities required or permitted to be advanced by Lender on or after such date), or for renewals or extensions of such Liabilities made after Lender receives Guarantor’s notice, or any interest thereon or any expenses paid or incurred by Lender in endeavoring to collect such Liabilities, or any part thereof, or in enforcing this Guaranty against Guarantor.  Any such notice of discontinuance by or on behalf of any Guarantor shall not affect, impair or release the obligations hereunder of any other guarantor with respect to any of the Liabilities.

9.              Guarantor hereby agrees to provide Lender, upon filing, or as appropriate, a certified copy of Guarantor’s most recent federal tax return, and within ninety (90) days of its fiscal year end, a compiled financial statement prepared in accordance with generally accepted accounting principles, and concurrently therewith a certificate to the effect that such Guarantor is not aware of any condition or event which constitutes a default under this Guaranty, or under any notes or other obligations of Guarantor or which, with the mere passage of time or notice, or both, would constitute a default under this Guaranty.

10.            Lender may at any time and from time to time, without the consent of, or notice to, Guarantor, and without affecting, impairing or releasing the obligations of Guarantor hereunder, do any or all of the following:  (a) retain or obtain a security interest in any property to secure any of the Liabilities or any obligations hereunder, (b) retain or obtain the primary or secondary liability of any party or parties, in addition to Guarantor, with respect to any of the Liabilities, (c) renew, extend (including extensions beyond the original term), modify, alter, change the interest rate of, release or discharge any of the Liabilities, (d) settle, release or compromise any liability of any other guarantor of any of the Liabilities or any liability of any nature of any other party or parties with respect to the Liabilities or any security therefor, (e) accept partial payments of the Liabilities, (f) settle, release (by operation of law or otherwise), compound, compromise, collect or liquidate any of the Liabilities and any property securing any of the Liabilities, (g) consent to the transfer of any property securing any of the Liabilities, (h) resort to Guarantor for payment of any of the Liabilities, whether or not Lender shall have resorted to any property securing any of the Liabilities or any obligation hereunder or shall have proceeded against any other guarantor or any other party primarily or secondarily liable on any of the Liabilities, (i) make any other changes in its agreements with Obligor, and (j) stop lending money or extending other credit to Obligor.

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11.            Any amount received by Lender from whatsoever source and applied by it to the payment of the Liabilities may be applied in such order of application as Lender may from time to time elect.

12.            Guarantor is now adequately informed of Obligor’s financial condition, and Guarantor agrees to keep so informed.  Guarantor agrees that Lender has no obligation to provide Guarantor with any present or future information concerning the financial condition of Obligor.  Guarantor has not relied on financial information furnished by Lender in deciding to execute this Guaranty.

13.            Guarantor hereby agrees that any debt of Obligor to Guarantor is expressly subordinate to the right of Lender to payment of the Liabilities, and that Lender shall be entitled to full payment of all of the Liabilities prior to the exercise by Guarantor of any rights to payment or performance of any debt which the Obligor may owe Guarantor.  Guarantor assigns to Lender all rights Guarantor may have in any proceeding under the Federal Bankruptcy Code or any receivership or insolvency proceeding of Obligor, including all rights of Guarantor to be paid by Obligor.  This assignment does not prevent Lender from enforcing Guarantor’s obligations hereunder in any way.

14.            Guarantor hereby expressly waives: (a) notice of the acceptance of this Guaranty, (b) notice of the existence or creation of all or any of the Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever, (d) all diligence in collection or protection of or realization upon the Liabilities or any part thereof, any obligation hereunder, or any security for any of the foregoing, (e) all defenses based on suretyship or impairment of collateral, and (f) all events and circumstances which might otherwise constitute a defense or discharge of the obligations of Obligor, Guarantor or any other guarantor.  Guarantor shall not be released or discharged, either in whole or in part, by Lender’s failure to perfect, delay in perfection or failure to continue the perfection of any security interest in any property that secures any of the Liabilities or any obligation of Guarantor hereunder, or to protect the property covered by any such security interest.

15.            Lender may, without notice to Guarantor or Obligor of any kind, sell, assign, or transfer all or any of the Liabilities, and in such event each and every immediate and successive assignee, transferee, or holder of all or any of the Liabilities shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee, or holder, as fully as if such assignee, transferee or holder were herein by name specifically given such rights, powers and benefits.  Lender shall have an unimpaired right, prior and superior to that of any such assignee, transferee or holder, to enforce this Guaranty for the benefit of Lender as to so much of the Liabilities as it has not sold, assigned, or transferred.

16.            No delay on the part of Lender in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Lender of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.

17.            No action of Lender permitted hereunder shall in any way affect, impair or release this Guaranty.

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18.            For purposes of this Guaranty, Liabilities shall include all obligations of Obligor to Lender stated herein, notwithstanding any right or power of Obligor or anyone else to assert any claim or defense as to the payment or performance of such Liabilities, and no such claim or defense shall affect, impair or release the obligations of Guarantor hereunder.

19.            This Guaranty shall be binding upon Guarantor and the heirs, legal representatives, successors and assigns of Guarantor.  If more than one party shall execute this Guaranty, the term “Guarantor” shall mean all parties executing this Guaranty, and all such parties shall be jointly and severally obligated hereunder.

20.            As further consideration for the loan(s), lease(s), or other financial accommodation(s) by Lender to Obligor and as a material inducement to Lender to make or enter into the loan(s), lease(s), or other financial accommodation(s) and accept this Guaranty, and notwithstanding anything to the contrary contained in this Guaranty or any other document delivered in connection with this Guaranty, Guarantor hereby irrevocably waives, disclaims and relinquishes any and all claims, rights or remedies which Guarantor may now have or hereafter acquire against Obligor that arise in connection with this Guaranty and/or the performance by Guarantor hereunder, including without limitation any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right or remedy of Lender against Obligor or any security which Lender now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise.

21.            All notices pursuant to this Guaranty shall be in writing and shall be directed to the addresses set forth herein or such other address as may be specified in a notice given in accordance with the requirements of this paragraph.  Except as otherwise specifically provided herein, notices shall be deemed to be given three (3) days after mailing by certified or registered mail, return receipt requested, or one (1) business day after deposit with a recognized overnight courier, or when personally delivered to and received at the required address.

22.            In the event any provision contained in this Guaranty is invalid, illegal, or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.

23.           THE GUARANTOR HEREBY WAIVES THE RIGHT TO REQUIRE THE HOLDER OF THE OBLIGATIONS HEREBY GUARANTEED TO TAKE ACTION AGAINST THE DEBTOR AS PROVIDED IN O.C.G.A. § 10-7-24.

24.           THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF NORTH CAROLINA  AND/OR OHIO, EXCEPT AND ONLY TO THE EXTENT OF PROCEDURAL MATTERS RELATED TO THE PERFECTION AND ENFORCEMENT OF LENDER’S RIGHTS AND REMEDIES AGAINST THE REAL AND PERSONAL PROPERTY COLLATERAL, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARKANSAS.  HOWEVER, IN THE EVENT THAT THE ENFORCEABILITY OR VALIDITY OF ANY PROVISION OF THIS

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AGREEMENT IS CHALLENGED OR QUESTIONED, SUCH PROVISION SHALL BE GOVERNED BY WHICH WHICHEVER APPLICABLE STATE OR FEDERAL LAW WOULD UPHOLD OR WOULD ENFORCE SUCH CHALLENGED OR QUESTIONED PROVISION.  THE LOAN TRANSACTION WHICH IS EVIDENCED BY THIS AGREEMENT HAS BEEN APPLIED FOR, CONSIDERED, APPROVED AND MADE, AND ALL NECESSARY LOAN DOCUMENTS HAVE BEEN ACCEPTED BY LENDER IN THE STATE OF NORTH CAROLINA.

IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date written below.

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Exhibit 99.6

1.                GUARANTEE

Guarantor unconditionally guarantees payment to Lender of 100 % of all amounts owing under the Note including any costs, due under the Note when Lender makes written demand upon Guarantor. Lender is not required to seek payment from any other source before demanding payment from Guarantor. This Guarantee remains in effect until the Note is paid in full.

2.                NOTE

The “Note” is the promissory note dated October       , 2011 in the principal amount of Three Million Six Hundred Thousand and No/100 Dollars, from Borrower to Lender, including any assumptions, renewals, substitutions, o replacements of the note. The term “Note,” also includes any notes issued under the multi-note system and any assumptions, renewals, substitutions, or replacements of the notes.

According to the Paperwork Reduction Act of 1995, an agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0570-0017. The time required to complete this information collection is estimated to average 30 minutes per response including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

3.                DEFINITIONS

“Collateral” means any property taken as security for payment of the Note or any guarantee of the Note, whether tangible or intangible, including life insurance policies, inventory, and contract rights.

“Guarantor” also includes single and multiple Guarantors who sign this Guarantee.

“Loan” means the loan evidenced by the Note.

“Loan Documents” means the documents related to the Loan signed by Borrower, Guarantor, or any other guarantor, or anyone who pledges Collateral.

“RBS” means Rural Business Cooperative Service, an Agency of the United States Department of Agriculture, Rural Development.

4.                LENDER’S GENERAL POWERS

With RBS prior written consent, Lender may take any of the following actions at any time, without notice to the Guarantor, without Guarantor’s consent and without making demand upon Guarantor.

A.            Modify the terms of the Note or any other Loan Document except to increase the amounts due under the Note;

B.              Refrain from taking any action on the Note, the collateral, or any guarantee;

C.              Compromise or settle with the Borrower or any guarantor of the Note;

D.             Release any Borrower or any guarantor of the Note;

E.               Substitute or release any of the Collateral, whether or not Lender receives anything in return;

F.               Foreclose upon or otherwise obtain, and dispose of, any Collateral at public or private sale, with or without advertisement;

G.              Bid or buy at any sale of Collateral by Lender or any other lien holder, at any price Lender chooses; and

H.             Exercise any rights it has, including those in the Note and other Loan Documents.

These actions will not release or reduce the obligations of Guarantor or create any rights or claims against Lender.

5.                FEDERAL LAW

When RBS is the holder, the Note and this Guarantee will be construed and enforced under Federal law, including RBS regulations. Lender or RBS may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes,

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for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, RBS does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Guarantee, Guarantor may not claim or assert any local or state law against RBS to deny any obligation, defeat any claim of RBS, or preempt federal law.

6.                RIGHTS, NOTICES, AND DEFENSES THAT GUARANTOR WAIVES

To the extent permitted by law,

A.            Guarantor waives all rights to:

1)               Require presentment, protest, or demand upon Borrower;

2)               Redeem any Collateral before or after Lender disposes of it;

3)               Have any disposition of Collateral advertised; and

4)               Require a valuation of Collateral before or after Lender disposes of it.

B.              Guarantor waives any notice of:

1)           Any default under the Note;

2)           Presentment, dishonor, protest, or demand;

3)           Execution of the Note;

4)           Any action or inaction on the Note or Collateral, such as disbursements, payment, nonpayment, acceleration, intent to accelerate, assignment, collection activity, and incurring enforcement expenses;

5)           Any change in the financial condition or business operations of Borrower or any guarantor;

6)           Any changes in the terms of the Note or other Loan Documents, except increases in the amounts due under the Note; and

7)           The time or place of any sale of other disposition of Collateral.

C.              Guarantor waives defenses based upon any claim that:

1)           Lender failed to obtain any guarantee;

2)           Lender failed to obtain, perfect, or maintain a security interest in any property offered or taken as Collateral;

3)           Lender or others improperly valued or inspected the Collateral;

4)           The Collateral changed in value, or was neglected, lost, destroyed or underinsured;

5)           Lender impaired the Collateral;

6)           Lender did not dispose of any of the Collateral;

7)           Lender did not conduct a commercially reasonable sale;

8)           Lender did not obtain the fair market value of the Collateral;

9)           Lender did not make or perfect a claim upon the death or disability of Borrower or any guarantor of the Note;

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10)         Lender made errors or omissions in Loan Documents or administration of the Loan;

11)         The financial condition of Borrower or any guarantor was overstated or has adversely changed;

12)         Lender did not seek payment from the Borrower, any other guarantors, or any Collateral before demanding payment from Guarantor;

13)         Lender impaired Guarantor’s suretyship rights;

14)         Lender modified the Note terms, other than to increase amounts due under the Note. If Lender modifies the Note to increase the amounts due under the Note without Guarantor’s consent, Guarantor will not be liable for the increased amounts and related interest and expenses, but remains liable for all other amounts;

15)         Borrower has avoided liability on the Note; or

16)         Lender has taken an action allowed under the Note, this Guarantee, or other Loan Documents.

7.                DUTIES AS TO COLLATERAL

Guarantor will preserve the Collateral pledged by Guarantor to secure this Guarantee. Lender has no duty to preserve or dispose of any Collateral.

8.                SUCCESSORS AND ASSIGNS

Under this Guarantee, Guarantor includes heirs and successors, and Lender includes its successors and assigns.

9.                GENERAL PROVISIONS

A.            ENFORCEMENT EXPENSES. Guarantor promises to pay all expenses Lender incurs to enforce this Guarantee, including, but not limited to, attorney’s fees and costs.

B.              RBS NOT A CO-GUARANTOR. Guarantor’s liability will continue even if RBS pays Lender. RBS is not a co-guarantor with Guarantor. Guarantor has no right of contribution from RBS.

C.              SUBROGATION RIGHTS. Guarantor has no subrogation rights as to the Note or the Collateral until the Note is paid in full.

D.             JOINT AND SEVERAL LIABILITY. All individuals and entities signing as Guarantor are jointly and severally liable.

E.               DOCUMENT SIGNING. Guarantor 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.

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F.               FINANCIAL STATEMENTS. Guarantor must give Lender financial statements or other information requested by the Lender. Failure by the Guarantor to submit the requested information can result in the Lender taking appropriate action consistent with applicable State law.

G.              LENDER’S RIGHTS CUMULATIVE, NOT WAIVED. Lender may exercise any of its rights separately or together, as many times as it chooses. Lender may delay or forgo enforcing any of its rights without losing or impairing any of them.

H.             ORAL STATEMENTS NOT BINDING. Guarantor may not use an oral statement to contradict or alter the written terms of the Note or this Guarantee, or to raise a defense to this Guarantee.

I.                  SEVERABILITY. If any part of this Guarantee is found to be unenforceable, all other parts will remain in effect.

J.                 CONSIDERATION. The consideration for this Guarantee is the Loan or any accommodation by Lender as to the Loan.

10.          STATE-SPECIFIC PROVISIONS

TIME IS OF THE ESSENCE OF THIS GUARANTEE.

11.          GUARANTOR ACKNOWLEDGMENT OF TERMS

Guarantor acknowledges that Guarantor has read and understands the significance of all terms of the Note and this Guarantee, including all waivers.

12.          GUARANTOR ACKNOWLEDGEMENT OF FEDERAL DEBT

Guarantor acknowledges and agrees that any loss claim paid by the Agency on the Note shall be a Federal Debt owed by Guarantor up to the amount in paragraph 1. Guarantor agrees to immediately reimburse RBS for the loss claim. RBS may use all remedies available to it, including those under the Debt Collection Improvement Act, to recover the Federal Debt from the Guarantor. RBS’s right to collect from the Guarantor is independent of the Lender’s rights to collect under the Note and will not be affected by any release by the Lender. Any RBS collection under this paragraph does not need to be shared with the Lender.

13.          SIGNATURE(S)

By signing below, each individual or entity becomes obligated as Guarantor under this Guarantee.

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EXECUTED under seal as of the date above.

GUARANTOR :

ADCARE HEALTH SYSTEMS, INC., an Ohio corporation

CORPORATE ACKNOWLEDGMENT

On this day, before me, the undersigned, a Notary Public, duly commissioned, qualified and acting, within and for said County and State, appeared in person the within named Christopher F. Brogdon, to me personally well known, who stated that he is the Vice Chairman and Chief Acquisition Officer of ADCARE HEALTH SYSTEMS, INC., an Ohio corporation  and was duly authorized in that capacity to execute the foregoing instrument for and in the name and behalf of said corporation, and further stated and acknowledged that he had so signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth.

Exhibit 99.7

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this “Agreement”) made and entered into as of the          day of                           , 2011, by and among Homestead Property Holdings, LLC and Homestead Nursing, LLC  (collectively, “Borrower”), SQUARE 1 BANK (the “Lender”), and SQUARE 1 BANK (“Escrow Agent”);

W I T N E S S E T H:

WHEREAS, Borrower is the owner of those certain improvements known as 826 North Street, Stamps, Arkansas 71860  (together with all improvements now or hereafter located thereon, the “Property”) of Borrower located in Lafayette County, Arkansas and being more particularly described on Exhibit “A” attached hereto and by reference made a part hereof; and

WHEREAS, SQUARE 1 BANK has made a loan (the “Loan”) to Borrower in the amount of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00), evidenced by a term note made by Borrower to the order of SQUARE 1 BANK and secured by a Mortgage and Security Agreement given to SQUARE 1 BANK (such note and Mortgage and Security Agreement and any other documents evidencing, securing or relating to the Loan hereinafter referred to as the “Loan Documents”); and

WHEREAS, the Borrower shall complete certain capital improvements to the Property in the approximate amount of $300,000.00 the (“Renovations”); and

WHEREAS, to insure the completion of said Renovations, and as additional collateral for payment of the Loan, Lender and Borrower desire that Borrower and/or Lender shall deposit with Escrow Agent the sum of Three Hundred Thousand and 00/100 ($300,000.00) as of the date hereof (the “Escrow Fund”);

WHEREAS, Borrower, Lender and Escrow Agent desire to evidence their agreement with respect to the holding and disbursement of the Escrow Fund;

NOW, THEREFORE, in consideration of the covenants hereafter set forth, and other good and valuable considerations, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto do hereby agree as follows:

1.              Escrow Fund .  Escrow Agent does hereby acknowledge receipt of the Escrow Fund and does hereby agree to hold, and disburse the same in accordance with this Agreement.  Said Escrow Fund will be interest bearing.

2.              Disbursements of Escrow Fund for Work .  The Borrower shall be able to request and be entitled to receive a disbursement twice a calendar month from the Escrow Fund upon the completion of the Renovations (the “Work”) pertaining to any work within the Renovations, subject to satisfaction of the requirements set forth in this Paragraph 2.  Lender shall direct Escrow Agent in writing to make each such disbursement, subject to and in accordance with the following conditions and requirements:

A.             Request for Advance .  At such time as Borrower shall desire to obtain a

disbursement of any portion of the Escrow Funds, Borrower shall complete, execute and deliver to Lender and Escrow Agent a written request for an advance (“Draw Request”).

B.             Evidence of Progress of Work .  Said Draw Request shall be accompanied by evidence of work completion in form and content satisfactory to Lender, including but not limited to copies of all bills, invoices or statements for expenses for which the Draw Request is requested.

C.             Written Authorization of Disbursements .  Escrow Agent will not disburse Escrow Funds for Draw Requests without the express written consent of Lender.