ADCARE HEALTH SYSTEMS INC (Form: 10-Q, Received: 11/09/2011 16:52:18)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

For the transition period from to

Commission File Number 001-33135

AdCare Health Systems, Inc.

(Exact name of registrant as specified in its charter)

Ohio

31-1332119

(State or Other Jurisdiction

of Incorporation)

(IRS Employer Identification Number)

5057 Troy Rd, Springfield, OH 45502-9032

(Address of principal executive offices)

(937) 964-8974

(Registrant’s telephone number)

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

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

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

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

Large accelerated filer o		Accelerated filer o

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

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

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

As of September 30, 2011: 12,169,852 shares of common stock with no par value were outstanding

Table of Contents

AdCare Health Systems, Inc.

Form 10-Q

Table of Content s

		Page Number
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2011 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 4.	Controls and Procedures	39
Part II.	Other Information
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
Signatures		49

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	10,049,883		$	3,911,140
Restricted cash and cash equivalents	3,313,000			1,047,454
Accounts receivable:
Long-term care resident receivables, net	18,708,063			10,943,963
Management receivables, net	189,534			271,224
Prepaid expenses and other	1,312,394			1,243,663
Total current assets	33,572,874			17,417,444

Restricted cash and investments	4,455,568			3,099,936
Property and equipment, net	83,802,347			37,606,301
Intangibles, net	26,336,253			16,159,845
Goodwill	2,679,482			2,679,482
Escrow deposits for acquisitions	700,000			1,725,086
Lease deposits	2,193,442			1,670,282
Other assets	4,545,571			2,600,530
Total assets	$	158,285,537		$	82,958,906

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of notes payable and other debt	$	11,078,424		$	3,633,401
Accounts payable	10,094,939			3,411,772
Accrued expenses	11,798,044			9,664,325
Total current liabilities	32,971,407			16,709,498

Notes payable and other debt, net of current portion	101,148,162			47,210,995
Derivative liability	2,057,152			2,905,750
Other liabilities	1,641,269			1,267,429
Deferred tax liability	491,294			255,141
Total liabilities	138,309,284			68,348,813

Commitments and contingencies (Note 4)	—			—

Stockholders’ equity:
Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock and additional paid-in capital, no par value; 29,000,000 shares authorized; 12,169,852 and 8,766,657 shares issued and outstanding	34,701,655			26,611,870
Accumulated deficit	(14,183,047		)	(12,548,870		)
Total stockholders’ equity	20,518,608			14,063,000
Noncontrolling interest in subsidiaries	(542,355		)	547,093
Total equity	19,976,253			14,610,093
Total liabilities and stockholders’ equity	$	158,285,537		$	82,958,906

See notes to consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues:
Patient care revenues	$	40,543,732		$	12,741,701		$	105,879,393		$	24,308,760
Management revenues	328,731			532,985			1,312,254			1,564,657
Total revenues	40,872,463			13,274,686			107,191,647			25,873,417

Expenses:
Payroll and related payroll costs	21,963,988			8,243,065			59,182,571			16,269,039
Other operating expenses	14,372,765			4,618,960			36,547,834			8,810,591
Lease expense	1,981,332			869,400			5,830,923			1,158,933
Depreciation and amortization	840,116			303,190			2,201,083			779,164
Salary retirement and continuation costs	—			—			621,605			—
Total expenses	39,158,201			14,034,615			104,384,016			27,017,727

Income (Loss) from Operations	1,714,262			(759,929		)	2,807,631			(1,144,310		)

Other Income (Expense):
Interest expense, net	(2,230,211		)	(420,448		)	(5,524,682		)	(1,005,908		)
Acquisition costs, net of gains	(1,146,651		)	(402,850		)	(789,432		)	1,226,854
Derivative gain	4,744,694			—			806,657			—
Loss on extinguishment of debt	(58,440		)	—			(135,840		)	—
Other income (expense)	(28,846		)	(49,795		)	558,101			(79,352		)
Total other income (expense)	1,280,546			(873,093		)	(5,085,196		)	141,594

Income (Loss) Before Income Taxes	2,994,808			(1,633,022		)	(2,277,565		)	(1,002,716		)
Income Tax Expense	(214,424		)	(10,641		)	(446,060		)	(31,925		)
Net Income (Loss)	2,780,384			(1,643,663		)	(2,723,625		)	(1,034,641		)
Net Loss (Income) Attributable to Noncontrolling Interests	747,605			143,899			1,089,448			(665,663		)
Net Income (Loss) Attributable to AdCare Health Systems	$	3,527,989		$	(1,499,764	)	$	(1,634,177	)	$	(1,700,304	)

Net Income (Loss) Per Share, Basic	$	0.33		$	(0.18	)	$	(0.17	)	$	(0.25	)
Net Income (Loss) Per Share, Diluted	$	0.29		$	(0.18	)	$	(0.17	)	$	(0.25	)

Weighted Average Common Shares Outstanding,
Basic	10,738,093			8,321,768			9,450,507			6,754,786
Diluted	12,689,231			8,321,768			9,450,507			6,754,786

See notes to consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(2,723,625	)	$	(1,034,641	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	2,201,082			779,164
Warrants issued for services	162,496			9,626
Stock based compensation expense	578,969			637,705
Provision for leases in excess of cash	558,069			—
Amortization of deferred financing costs	599,318			37,674
Amortization of debt discounts	663,279			—
Derivative gain	(806,657		)	—
Loss on debt extinguishment	135,840			—
Deferred tax expense	236,153			31,925
Loss on disposal of assets	126,015			1,303
Gain on acquisitions	(1,104,486		)	(1,805,740		)
Noncash acquisition costs	206,394			171,961
Provision for bad debts	585,404			17,806
Other noncash items	58,638			—
Changes in certain assets and liabilities, net of acquisitions:
Accounts receivable	(8,267,814		)	(1,451,473		)
Prepaid expenses and other	(166,147		)	(173,162		)
Other assets	(524,813		)	(806,378		)
Accounts payable and accrued expenses	8,775,946			2,591,366
Other liabilities	(264,458		)	(95,504		)
Net cash provided by (used in) operating activities	1,029,603			(1,088,368		)

Cash flows from investing activities:
Change in restricted cash and investments	546,222			158,716
Escrow deposits for acquisitions	(990,000		)	(2,735,301		)
Acquisitions	(10,059,914		)	(3,730,747		)
Purchase of property and equipment	(2,732,034		)	(692,492		)
Net cash used in investing activities	(13,235,726		)	(6,999,824		)

Cash flows from financing activities:
Proceeds from debt	7,312,954			3,096,015
Proceeds from exercise of warrants/options	6,797,758			331,100
Debt issuance costs	(388,389		)	—
Change in line of credit	5,770,283			—
Proceed from public stock offering	—			6,109,725
Repayment of notes payable	(1,147,740		)	(475,034		)
Net cash provided by financing activities	18,344,866			9,061,806

Net Change in Cash	6,138,743			973,614
Cash, Beginning	3,911,140			4,481,100
Cash, Ending	$	10,049,883		$	5,454,714

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for income taxes	$	197,000		—
Cash paid during the period for interest	$	4,246,116		$	997,343
Supplemental Disclosure of Noncash Activities:
Noncash change in fair value of PP&E from acquisition	$	—		$	750,287
Acquisitions in exchange for debt	48,825,540			6,365,000
Warrants issued for financings costs	329,901			—
Other assets acquired in exchange for debt	5,062,656			—

See notes to consolidated financial statements.

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

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

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

Nonemployee warrants for services	394,981			—			394,981		—
Nonemployee stock issuance for services	206,394			—			206,394		—
Stock based compensation expense	578,969			—			578,969		—
Exercises of options and warrants	6,797,757			—			6,797,757		—
Stock issued from debt conversion	111,684						111,684
Net loss	(2,723,625		)	(1,634,177		)	—		(1,089,448		)

Balance, September 30, 2011	$	19,976,253		$	(14,183,047	)	$	34,701,655	$	(542,355	)

See notes to consolidated financial statements

Table of Contents

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Earnings per Share

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted by the impact of the assumed issuance of convertible shares and the weighted-average number of common shares outstanding includes potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive. Potentially dilutive securities from option, warrants and non-vested shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. Potentially dilutive securities from convertible debt are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance.

For the nine months ending September 30, 2011 and the three and nine month periods ending September 30, 2010, no potentially dilutive securities were included in the diluted earnings per share calculation because to do so would be anti-dilutive. The following table provides a reconciliation of net income (loss) and the number of common shares used in the computation of diluted earnings per share:

	Three Months Ended September 30,
	2011					2010
	Income (loss)		Shares (1)	Per Share		Income (loss)			Shares (1)	Per Share
Net income (loss) attributable to AdCare Health Systems	$	3,527,989	10,738,093	$	0.33	$	(1,499,764	)	8,321,768	$	(0.18	)
Effect from options, warrants and non-vested shares	—		1,057,905			—			—
Effect from assumed issuance of convertible shares (2)	159,309		893,233			—			—
Diluted net income (loss)	$	3,687,298	12,689,231	$	0.29	$	(1,499,764	)	8,321,768	$	(0.18	)

Table of Contents

Earnings per Share (continued)

	Nine Months Ended September 30,
	2011							2010
	Income (loss)			Shares (1)	Per Share			Income (loss)			Shares (1)	Per Share
Net income (loss) attributable to AdCare Health Systems	$	(1,634,177	)	9,450,507	$	(0.17	)	$	(1,700,304	)	6,754,786	$	(0.25	)
Effect from options, warrants and non-vested shares	—			—				—			—
Effect from assumed issuance of convertible shares	—			—				—			—
Diluted net income (loss)	$	(1,634,177	)	9,450,507	$	(0.17	)	$	(1,700,304	)	6,754,786	$	(0.25	)

(1) - The weighted average shares outstanding includes retroactive adjustments from the stock dividend (see Note 13).

(2) - The impacts of the conversion of the 2010 convertible note were excluded as the impact would be anti-dilutive.

Intangible Assets and Goodwill

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

Intangible assets consist of the following:

	September 30, 2011							December 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Bed Licenses	$	18,149,307	$	—		$	18,149,307	$	7,309,307	$	—		$	7,309,307
Lease Rights	9,020,018		(833,072		)	8,186,946		9,020,018		(169,480		)	8,850,538
Totals	$	27,169,325	$	(833,072	)	$	26,336,253	$	16,329,325	$	(169,480	)	$	16,159,845

Amortization expense was approximately $663,600 for the nine months ended September 30, 2011. Estimated amortization expense for each of the years ending December 31 is as follows:

2011 (remainder)	$	221,200
2012	884,800
2013	884,800
2014	884,800
2015	884,800
Thereafter	4,426,546
	$	8,186,946

Table of Contents

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued and Adopted Accounting Pronouncements

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

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, (“ASU 2011-08”), which amends the guidance in ASC 350-20, Intangibles — Goodwill and Other. Under ASU 2011-08, entities have the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for the Company’s fiscal year beginning January 1, 2012, with early adoption permitted. Although ASU 2011-08 will change our accounting policy for our review for impairment, the adoption of this ASU will not impact the Company’s consolidated financial statements.

NOTE 2. LIQUIDITY AND PROFITABILITY

The Company had a net loss of approximately $2.7 million and $1.0 million for the nine months ended September 30, 2011 and 2010, respectively, and had working capital of approximately $601,000 at September 30, 2011. The Company’s ability to achieve sustained profitable operations is dependent on continued growth in revenues and controlling operating costs.

Management’s plans to improve liquidity and profitability in the future include the following:

· increase existing facility occupancy;

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

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

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

Table of Contents

NOTE 3. SEGMENTS

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

Amounts in 000’s

	SNF		ALF			Home Health			Management / Corporate			Eliminations			Total
Three months ended September 30, 2011
Net Revenues	$	38,174	$	2,519		$	351		$	2,348		$	(2,520	)	$	40,872
Payroll and Related Costs	18,459		1,134			356			2,071			(56		)	21,964
Other Operating Expenses	14,373		751			141			1,173			(2,065		)	14,373
Lease Expense	2,372		56			10			45			(502		)	1,981
Depreciation & Amortization	632		158			4			46			—			840
Salary Continuation Costs	—		—			—			—			—			—
Operating Income (Loss)	$	2,338	$	420		$	(160	)	$	(987	)	$	103		$	1,714

Three months ended September 30, 2010
Net Revenues	$	9,942	$	2,231		$	568		$	1,552		$	(1,018	)	$	13,275
Payroll and Related Costs	5,566		1,151			479			1,380			(333		)	8,243
Other Operating Expenses	2,990		1,136			113			1,065			(685		)	4,619
Lease Expense	870		—			—			—			—			870
Depreciation & Amortization	102		161			5			35						303
Salary Continuation Costs	—		—			—			—			—			—
Operating Income (Loss)	$	414	$	(217	)	$	(29	)	$	(928	)	—			$	(760	)

Nine months ended September 30, 2011
Net Revenues	$	98,028	$	7,382		$	1,283		$	7,646		$	(7,147	)	$	107,192
Payroll and Related Costs	49,395		3,405			1,119			6,312			(1,049		)	59,182
Other Operating Expenses	36,099		2,335			442			3,059			(5,387		)	36,548
Lease Expense	6,358		167			30			90			(814		)	5,831
Depreciation & Amortization	1,595		471			13			122			—			2,201
Salary Continuation Costs	—		—			—			622			—			622
Operating Income (Loss)	$	4,581	$	1,004		$	(321	)	$	(2,559	)	$	103		$	2,808
Total Assets	$	104,547	$	21,113		$	1,002		$	31,624		—			$	158,286

Nine months ended September 30, 2010
Net Revenues	$	16,480	$	5,997		$	1,832		$	3,566		$	(2,002	)	$	25,873
Payroll and Related Costs	8,984		2,989			1,455			3,631			(790		)	16,269
Other Operating Expenses	4,842		3,008			359			1,813			(1,212		)	8,810
Lease Expense	1,159		—			—			—			—			1,159
Depreciation & Amortization	263		414			14			88			—			779
Salary Continuation Costs	—		—			—			—			—			—
Operating Income (Loss)	$	1,232	$	(414	)	$	4		$	(1,966	)	—			$	(1,144	)
Total Assets	$	15,195	$	22,504		$	2,392		$	9,097		—			$	49,188

Table of Contents

NOTE 4. COMMITMENTS AND CONTINGENCIES

Legal Matters

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

In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payer. A violation may provide the basis for exclusion from federally funded healthcare programs. As of September 30, 2011, the Company does not have any material loss contingencies recorded based on management’s evaluation of the probability of loss from known claims.

Special Termination Benefits

At June 30, 2011, the Company accrued certain salary retirement and continuation costs of $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer. The benefits include wage continuation and fringe benefits which are to be paid out to these former employees over a 24-month period beginning June 30, 2011. The remaining accrued balance as of September 30, 2011 is $508,122.

NOTE 5. PROPERTY AND EQUIPMENT

	Estimated Useful Lives (Years)	September 30, 2011		December 31, 2010
Buildings and improvements	5-40	$	76,508,117	$	33,748,211
Equipment	2-10	6,294,503		4,444,077
Land	—	7,345,588		4,719,390
Construction in process	—	654,061		196,589
		90,802,269		43,108,267
Less: accumulated depreciation		6,999,922		5,501,966
Property and equipment, net		$	83,802,347	$	37,606,301

NOTE 6: RESTRICTED CASH AND INVESTMENTS

	September 30, 2011		December 31, 2010
HUD escrow deposits	$	260,745	$	336,993
Funds held in trust for residents	51,463		113,835
Self-restricted cash	792		596,626
Restricted accounts for other debt obligations	3,000,000		—
Total current portion	3,313,000		1,047,454
HUD and other reserves for capital improvements	2,514,077		1,035,851
Restricted investments for other debt obligations	1,941,491		2,064,085
Total noncurrent portion	4,455,568		3,099,936
Total restricted cash and investments	$	7,768,568	$	4,147,390

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

Table of Contents

NOTE 7. ACCRUED EXPENSES

	September 30, 2011		December 31, 2010
Accrued payroll related expenses	$	3,899,117	$	3,386,110
Accrued employee benefits	2,816,578		1,405,384
Real estate and other taxes	1,434,659		760,999
Third party overpayments and accrued cost report settlements	53,763		943,335
Other accrued expenses	3,593,927		3,168,497
Accrued expenses	$	11,798,044	$	9,664,325

NOTE 8. NOTES PAYABLE AND OTHER DEBT

	September 30, 2011		December 31, 2010
Lines of credit	$	7,720,415	$	1,950,132
Mortgage notes payable	82,263,087		32,378,012
Convertible debt, net of discount	14,466,781		9,379,761
Bonds payable, net of discount	6,173,600		6,165,553
Other debt	1,602,703		970,938
Total notes payable and other debt	112,226,586		50,844,396

Less current portion	11,078,424		3,633,401
Total notes payable and other debt, net of current portion	$	101,148,162	$	47,210,995

Lines of Credit

Gemino Healthcare Finance

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

The Credit Agreement with Gemino contains various financial covenants and other restrictions, including a fixed charge coverage ratio and maximum loan turn days. The Company is required to maintain a fixed charge coverage ratio of 1.1:1, which was not met at September 30, 2011; therefore, the Company was not in compliance with this covenant. However, the Company received a waiver of compliance from Gemino on November 8, 2011.

Private Bank

On September 30, 2011, Benton Nursing, LLC, Park Heritage Nursing, LLC and Valley River Nursing, LLC, each wholly owned subsidiaries of AdCare, entered into a Loan and Security Agreement with Private Bank and Trust Company (“Private Bank”) in an aggregate principal amount of $2,000,000. The loan is revolving and will be used to fund the working capital requirements of the three facilities.

The loan matures on September 29, 2012. Interest accrues on the principal balance at an annual rate equal to the greater of: (i) the floating per annum rate of interest most recently announced by Private Bank as its prime plus one percent (1.0%); or (ii) six percent (6.0%). Interest on the loan is payable in equal monthly installments beginning on November 1, 2011, and continuing until maturity.

Table of Contents

NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

Pre-payment is permitted, if any such pre-payment includes the payment of all accrued and unpaid interest on the loan. The loan is secured by a first priority security interest on all assets of the borrowers, and the Company has guaranteed the loan.

The agreement with Private Bank contains various financial covenants and other restrictions, including a fixed charge coverage ratio and a minimum quarterly EBITDAR. The Company is required to maintain a fixed charge coverage ratio of 1.01:1, beginning in the fourth quarter.

Mortgage Notes

Mountain Trace

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

Southland Care Center

To complete the April 29, 2011 acquisition of the senior living facility located in Dublin, Georgia, known as the Southland Care Center, the Company issued a secured promissory note for $5,800,000 with a maturity date of April 30, 2012. The note accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be repaid without penalty with the principal amount due at maturity. The Company received net proceeds of approximately $5,723,000 net of legal and other financing costs. The note is secured by the Southland Care Center and guaranteed by AdCare.

On July 27, 2011, the Company refinanced the short-term note with long-term financing, consisting of: (i) a Term Note in favor of Bank of Atlanta for an aggregate principal amount of $5,000,000, under the provisions of the USDA Renewal Development Guarantee program (the “SCC USDA Loan”); and (ii) a Note in favor of Bank of Atlanta for an aggregate principal amount of $800,000, under the guidelines of the U.S. Small Business Administration (“SBA”) 7(a) Loan Program (the “SCC SBA Loan” and, together with the SCC USDA Loan, the “SCC Secured Loans”). The proceeds of the SCC Secured Loans were used to repay in its entirety the debt incurred to fund its April 2011 acquisition.

Each of the SCC Secured Loans mature on July 27, 2036. Interest on the SCC USDA Loan and the SCC SBA Loan accrues on the principal balance thereof at an annual variable rate equal to the published Wall Street Journal prime rate plus 1.5% (for the SCC USDA Loan) and 2.25% (for the SCC SBA Loan). The interest rate of the SCC Secured Loans shall be adjusted every calendar quarter. At no time shall the annual interest rate for the SCC USDA Loan be less than 6.0%.

The SCC Secured Loans are payable in equal monthly installments of principal and interest based on a twenty-five (25) year amortization schedule. With respect to the SCC USDA Loan, $32,513 was payable on September 1, 2011, and is payable monthly through maturity. With respect to the SCC SBA Loan, $4,921 is payable every month beginning two months from the month the SCC SBA Loan is dated. The SCC Secured Loans are re-amortized at least annually to amortize the principal over the remaining term.

The SCC USDA Loan has a prepayment penalty of 10% for any prepayment made prior to the first anniversary of the date of the SCC USDA Loan, which penalty is reduced by 1% each year until the tenth anniversary of such date, after which there is no prepayment penalty. Under the SCC SBA Loan, a prepayment fee is incurred if more than 25% of the outstanding principal balance is prepaid in any one of the first three years after the date of the SCC SBA

Table of Contents

NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

Loan as follows: (i) 5% of the total prepayment amount for prepayment made during the first year; (ii) 3% of the total prepayment amount for prepayment made during the second year; and (iii) 1% of the total prepayment amount for prepayment made during the third year. The SCC USDA Loan is subject to certain financial covenants.

The SCC USDA Loan requires $250,000 of renovations to the Southland Care Center by July 2013, of which $125,000 was required to be deposited into a restricted reserve account. One-time origination and guaranty costs totaling $126,000 were incurred. In addition, the SCC USDA Loan has an annual renewal fee equal to.25% of the SCC USDA guaranteed portion of the outstanding principal balance of the SCC USDA Loan as of December 31 of each year.

The SCC Secured Loans are secured by a first mortgage on the real property and improvements of the Southland Care Center. The USDA has conditionally guaranteed 70% of all amounts owing under the SCC USDA Loan, and the SBA has conditionally guaranteed 75% of all amounts owing under the SCC SBA Loan. In addition, AdCare has guaranteed the SCC Secured Loans.

Autumn Breeze Healthcare Center

To complete the April 29, 2011 acquisition of the skilled nursing facility located in Marietta, Georgia, known as the Autumn Breeze Healthcare Center, Mt. Kenn Property Holdings, LLC, a wholly owned subsidiary of AdCare (“Mt. Kenn Property”), issued a secured promissory note for $4,500,000. The note matures on April 30, 2012, accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be prepaid at any time without penalty. The note is secured by the Autumn Breeze Healthcare Center. The Company received net proceeds of $2,436,000, net of $2,000,000 held in a restricted trust account and $64,000 of legal and other financing costs.

The Autumn Breeze Healthcare Center short-term note is due within one year but has been classified as long-term notes because the Company is in the process of refinancing this short-term obligation into a long-term note and has demonstrated the ability to consummate the current refinancing agreement.

College Park Healthcare Center

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

On September 6, 2011, the Company refinanced a portion of the debt with respect to the College Park Healthcare Center. To this end, CP Property Holdings, LLC (“CP Property”), a wholly owned subsidiary of AdCare, entered into a Loan Agreement (the “CP Loan Agreement”) with the Economic Development Corporation of Fulton County (the “CDC”), an economic development corporation working with the SBA, pursuant to the SBA’s 504 Loan Program. Pursuant to the CP Loan Agreement, CP Property issued a Promissory Note in favor of the CDC in an aggregate principal amount of $2,034,000 (the “CP SBA Loan”). The funding of the CP SBA Loan occurred on October 12, 2011 (the “CP Funding Date”).

Table of Contents

NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

The CP SBA Loan matures on October 1, 2031 (the “CP Maturity Date”). Interest on the CP SBA Loan accrues on the principal balance thereof, beginning on the CP Funding Date, at an annual fixed rate, which rate was determined on the CP Funding Date. The CP SBA Loan is payable in equal monthly installments of principal and interest based on a twenty (20) year amortization schedule through maturity.

CP Property is permitted, upon 45 days prior written notice to the CDC, to prepay the CP SBA Loan in full (along with any other fees and expenses due and payable under the CP SBA Loan); however, partial prepayments are not permitted. The CP SBA Loan has a prepayment premium for any prepayment made during the first ten years of such loan. In the event prepayment occurs during the first ten years of the CP SBA Loan, the prepayment premium is equal to the prepayment amount multiplied by the interest rate on the CP SBA Loan multiplied by a predetermined factor based on the year of prepayment. In the event the CP SBA Loan is prepaid during the first year of the loan, the predetermined factor is 1.00, and for each subsequent year thereafter (through year ten), the predetermined factor is reduced by ten percent (10%).

The CP SBA Loan has: (i) an annual fee payable to the agent servicing such loan equal to one-tenth of one percent (1/10 of 1%) of the outstanding balance of the CP SBA Loan; (ii) an annual fee payable to the CDC equal to one percent (1%) of the outstanding balance of the CP SBA Loan; and (iii) an annual, ongoing guarantee fee payable to the SBA equal to seven hundred forth nine one thousandths of one percent (0.749 of 1%) of the outstanding balance of the CP SBA Loan ((i) through (iii) collectively, the “CP Annual Fees”). Each of the CP Annual Fees is recalculated every five years.

The CP SBA Loan is secured by: (i) a second deed to secure debt on the real property and improvements of College Park Healthcare Center (subject only to a prior lien held by The Bank of Las Vegas); (ii) a first priority security interest on all equipment of CP Property and CP Nursing, LLC, a wholly owned subsidiary of AdCare and operator of the College Park Healthcare Center, used or useful in their businesses and any products and/or proceeds thereof; and (iii) and an assignment of all CP Property’s right, title and interest in, to and under all existing and future leases and rental agreements with respect to the College Park Healthcare Center. The SBA has guaranteed all amounts owing under the CP SBA Loan. In addition, AdCare has guaranteed the CP SBA Loan.

Homestead Manor, River Valley Center, Bentonville Manor and Heritage Park Center

On September 1, 2011, certain wholly owned subsidiaries of AdCare acquired (the “Pinnacle Acquisition”)- four skilled nursing facilities located in Arkansas, known as Homestead Manor; River Valley Center; Bentonville Manor; and Heritage Park Center; along with the home office property located at 7 Halsted Circle, Rogers, Arkansas (the “Pinnacle Home Office”). In connection with the Pinnacle Acquisition, (a) Homestead Property Holdings, LLC, a wholly owned subsidiary of AdCare (“Homestead Property”), entered into a Loan Agreement with Metro City Bank for an aggregate principal amount of $3,600,000 (the “Metro Bank Loan”); (b) Benton Property Holdings, LLC (“Benton Property”), Park Heritage Property Holdings, LLC (“Park Heritage Property”) and Valley River Property Holdings, LLC (“Valley River Property,” each wholly owned subsidiaries of AdCare, entered into a Loan Agreement with Private Bank, pursuant to which Benton Property, Park Heritage Property and Valley River Property jointly and severally issued a Promissory Note in favor of Private Bank for an aggregate principal amount of $11,800,000 (the “Private Bank Loan”); and (c) Benton Property, Valley River Property, Homestead Property, Park Heritage Property and Home Office Property Holdings, LLC, a wholly owned subsidiary of AdCare (“Home Office Property”), jointly and severally issued a Promissory Note in favor of KMJ Management, LLC, the seller of the Pinnacle Acquisition (the “Pinnacle Seller”), for an aggregate principal amount of $2,400,000 (the “Pinnacle Seller Loan”). The proceeds of the Metro Bank Loan, the Private Bank Loan and the Pinnacle Seller Loan (collectively, the “Pinnacle Credit Facilities”) were used to fund the purchase price of the Pinnacle Acquisition.

The Metro Bank Loan matures on December 1, 2011. Interest on the Metro Bank Loan accrues on the principal balance thereof at a fixed annual rate of 6.0% and is payable monthly, commencing on October 1, 2011 and ending on December 1, 2011. The entire outstanding principal balance of the Metro Bank Loan, together with all accrued but unpaid interest thereon, is payable on December 1, 2011. The Metro Bank Loan is secured by a first mortgage

Table of Contents

NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

on the real property and improvements constituting Homestead Manor and a certificate of deposit with Metro City Bank for $1,000,000 as additional security. The Company received net proceeds of approximately $3,220,000 net of approximately $300,000 held in a restricted escrow account for required facility improvements and $80,000 of legal and other financing costs. AdCare and Christopher F. Brogdon, Vice Chairman and Chief Acquisition Officer of the Company, have guaranteed the Metro Bank Loan. Subsequent to September 30, 2011, the Company refinanced the Metro Bank Loan. (See Note 15.)

The Private Bank Loan matures on September 1, 2016. Interest accrues on the principal balance at an annual variable rate equal to the greater of: (i) the per annum rate of interest equal to LIBOR plus 3.50%; or (ii) 6.0%. The interest rate of the loan is adjusted monthly and the loan is to be repaid in equal monthly installments of principal and interest based on a twenty (20) year amortization schedule. Principal payments of $20,335 are payable on October 1, 2011, and on the same day of each month thereafter through and including the maturity date. Any prepayment of the loan is subject to the following prepayment premiums: (a) 5% of the total prepayment amount for prepayment made prior to September 1, 2012; (b) 4% of the total prepayment amount for prepayment made on or after September 1, 2012, but prior to September 1, 2013; (c) 3% of the total prepayment amount for prepayment made on or after September 1, 2013, but prior to September 1, 2014; and (d) 2% of the total prepayment amount for prepayment made on or after September 1, 2014, but prior to September 1, 2015. The prepayment premiums shall not apply in the event that the entire outstanding principal amount of the Private Bank Loan is prepaid in whole from the proceeds of a loan insured, guaranteed or extended by any agency of the United States of America. The loan is secured by a first mortgage on the real property and improvements of Bentonville Manor, Heritage Park Center and River Valley Center, and AdCare has guaranteed the loan. The Company received net proceeds of approximately $11,362,000, net of approximately $380,000 held in a restricted escrow account for required facility improvements and $58,000 of legal and other financing costs. The Company paid approximately $120,000 in additional financing fees.

Interest on the principal amount of the Pinnacle Seller Loan accrues at a fixed annual rate of 7.0%. Principal payments under the Pinnacle Seller Loan of $250,000 plus accrued interest are due and payable quarterly, beginning on December 1, 2011, and continuing until all principal and accrued interest is paid in full. The loan is secured by a second mortgage on Bentonville Manor, Heritage Park Center and River Valley Center and title to the Pinnacle Home Office.

The Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center, Grand Lake Villa (“Oklahoma VIE’s”)

On August 1, 2011, certain consolidated variable interest entities acquired five skilled nursing facilities in Oklahoma. The transactions were primarily funded by an interim short-term loan in the amount of $6,640,000 from Metro City Bank for all facilities excluding Grand Lake Villa. The Oklahoma VIEs, excluding Grand Lake Villa, received net proceeds of approximately $6,359,000 for the acquisition, net of restricted collateral accounts of $238,000 and $43,000 of financing costs. The interim financing was subsequently refinanced by USDA guaranteed permanent financing on September 1, 2011. At such time, the $238,000 restricted amounts were paid as additional financing costs. The permanent financing was also provided by Metro City Bank with an 80% guarantee of principal provided by the USDA and matures on September 1, 2036. These loans accrue interest at a variable rate of prime plus 1.5% with a floor of 5.5% adjusted quarterly. Required monthly payments of principal and interest of approximately $41,000 are required beginning October 1, 2011. The loan is subject to certain financial covenants.

The Grand Lake Villa facility acquired was funded by permanent financing provided by the Bank of Atlanta for $3,200,000 with an 80% guarantee of principal provided by the USDA and matures on August 1, 2036. The loan accrues interest at a variable rate of prime plus 1.75% with a floor of 5.75% adjusted quarterly. Required monthly payments of principal and interest of $20,308 was required beginning September 1, 2011 with a balloon payment due at maturity. Net proceeds obtained were approximately $3,100,000 net of $100,000 loan fees. The loan is subject to certain financial covenants.

In addition, on July 28, 2011 Oklahoma Operating, LCC (and entity controlled by Christopher Brogdon) entered into a promissory note with Oklahoma Financial, LLC, a lender controlled by Cantone Research, Inc. The amount of the note is $2,800,000. Net proceeds from the note were $2,483,000 net of costs of $391,000. The note accrues interest at 10% and matures on July 15, 2013. Interest is payable quarterly with the total principal due at maturity.

Table of Contents

NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)

In the event the principal is not paid in full at maturity, contingent payment requirements exist. From and after July 15, 2013, a semiannual payment is required in the amount equal or greater to $108,000 or 35% of the aggregate cash flow of the owners for the preceding six month period. If the payments are not made in an amount of at least $108,000, the amount of the shortfall will continue as an obligation.

Convertible Debt Issuance

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

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

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

Other Debt

Promissory Note Issued March 31, 2011

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

Mountain Trace Promissory Notes

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

NOTE 9. ACQUISITIONS

Summary of 2011 Acquisitions

During the nine months ended September 30, 2011, the Company has acquired a total of 13 skilled nursing facilities as described further below and a number of pending acquisitions are in process. For the nine months ending September 30, 2011, the Company has incurred a total of approximately $1,894,000 of acquisition costs that are presented net of bargain purchase gains in the “Other Income” section of the Consolidated Statements of Operations. Acquisition costs include non-cash charges of $206,000 from the issuance of 36,337 shares of common stock with a per share market value of $5.68.

Table of Contents

NOTE 9. ACQUISITIONS (continued)

Mountain Trace

On December 30, 2010, Mountain Trace Nursing ADK, LLC, a wholly owned subsidiary of AdCare, completed the acquisition of Mountain Trace, a skilled nursing facility located in Sylva, North Carolina, for a purchase price of $6,200,000. The Company obtained control of the facility effective January 1, 2011. In connection with the acquisition, the Company recognized a total gain of approximately $1,100,000, as the transaction resulted in a bargain purchase because the seller was motivated to sell the facility in order to retire and restructure the composition of their facilities in certain of the states in which they operate.

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

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

Autumn Breeze Healthcare Center, Southland Care Center and College Park Healthcare Center

On April 29, 2011, Erin Property acquired the Southland Care Center, a skilled nursing facility located in Dublin, Georgia. In addition, on April 29, 2011, Mt. Kenn Property acquired the Autumn Breeze Healthcare Center, a skilled nursing facility located in Marietta, Georgia. On May 31, 2011, CP Property acquired the College Park Healthcare Center, a skilled nursing facility located in College Park, Georgia. The total purchase price for all three facilities was $17,943,000 after final closing adjustments.

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

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

Table of Contents

NOTE 9. ACQUISITIONS (continued)

The Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center, and Grand Lake Villa (“Oklahoma VIE’s”)

On August 1, 2011, five skilled nursing facilities located in Oklahoma, were purchased for an aggregate purchase price of $11,250,000 by companies owned and operated by Christopher Brogdon, the Company’s Vice Chairman and Chief Acquisition Officer, and others. These facilities are known as the Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center and Grand Lake Villa.

Even though the Company does not have any equity interest in these facilities, the Company determined that it is a variable interest entity as the ownership entity does not have sufficient equity at risk under the Variable Interest Entities accounting pronouncements (See Note 10). Given the related party relationship with Christopher Brogdon, the common shareholder and other variable interests, the Company determined that it is the primary beneficiary and consolidation of the facilities is required. The Company initially consolidated the Oklahoma VIE’s on August 1, 2011, the date of acquisition and initial operations.

To complete the acquisition, the Oklahoma VIE’s issued various notes (see Note 8) with the balance of the consideration transferred in cash. The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value as recorded by the Company on the acquisition date:

Consideration Transferred:
Net proceeds from Loans	$	9,459,017
Cash from earnest money deposits	200,000
Cash at closing	1,559,538
Total consideration transferred	$	11,218,555
Assets Acquired:
Land	660,658
Building	7,958,092
Equipment and Furnishings	846,250
Bed Licenses	1,785,000
Total assets acquired	11,250,000
Liabilities Assumed:
Real estate taxes	(31,445		)
Total identifiable net assets	$	11,218,555

The estimated fair values of the assets acquired are provisional and are based on the information that was available as of the acquisition date. The Company believes that the information provides a reasonable basis for estimating the fair values of the assets acquired but the Company is awaiting additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to changes and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation before December 31, 2011.

Homestead Manor, River Valley Center, Benton Manor and Heritage Park Center

On September 1, 2011, certain wholly owned subsidiaries of AdCare completed the Pinnacle Acquisition, pursuant to that certain Purchase and Sale Agreement, by and between the Pinnacle Seller and Arkansas ADK, LLC, a wholly owned subsidiary of AdCare (“Arkansas ADK”), dated March 14, 2011 and amended as of July 1, 2011 (as so amended, the “Pinnacle Purchase Agreement”). Pursuant to the Pinnacle Purchase Agreement, such subsidiaries acquired certain land, buildings, improvements, furniture, fixtures and equipment comprising: (i) Homestead Manor; (ii) River Valley Center; (iii) Bentonville Manor; (iv) Heritage Park Center; and (v) the Pinnacle Home Office, for an aggregate adjusted purchase price of $19,448,955. Additionally, if within twelve months following September 1, 2011 the Pinnacle Seller delivers documents satisfactory to authorize Rose Missouri Nursing, LLC (“Rose Nursing”), a wholly owned subsidiary of AdCare, to become the tenant and/or operator of the skilled nursing facility located in Cassville, Missouri (the “Leased Facility”), then Rose Nursing is required to pay to the Pinnacle Seller an additional $500,000 and Rose Nursing shall become the tenant and/or operator of the Leased Facility. Subsequent to September 30, 2011, Rose Nursing became the tenant and operator of the Leased Facility. (See Note 15.)

Table of Contents

NOTE 9. ACQUISITIONS (continued)

Through an Operations Transfer Agreement, the Company obtained control of the four facilities and the Home Office effective September 1, 2011.

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

Consideration Transferred:
Net proceeds from Loans	$	14,582,106
Seller note	2,400,000
Cash from earnest money deposits	350,000
Cash	2,116,849
Total consideration transferred	$	19,448,955
Assets Acquired:
Land	1,010,100
Building	16,228,500
Equipment and Furnishings	296,400
Intangibles — Bed Licenses	1,965,000
Total assets acquired	19,500,000
Liabilities Assumed:
Real estate taxes	(51,045		)
Total identifiable net assets	$	19,448,955

Potential Acquisitions

North Carolina, South Carolina, Tennessee and Virginia

On June 27, 2011, the Company entered into a purchase agreement for the asset purchase of two skilled nursing facilities located in North Carolina and South Carolina, the acquisition of lease agreements for nine skilled nursing facilities that are located in North Carolina, South Carolina, Tennessee and Virginia, and the acquisition of management agreements to manage four skilled nursing facilities located in Tennessee. The purchase price consists of $21,650,000 in cash, common stock of the Company with an aggregate value of $5,000,000, and a five-year promissory note in the principal amount of $3,217,000. The Company paid a $500,000 earnest money deposit upon signing the purchase agreement. The earnest money deposit is refundable subject to certain terms and conditions. If this transaction closes, the Company expects to obtain control of such facilities by the end of the first quarter of 2012.

Eaglewood Care Center and Eaglewood Village

On August 15, 2011, a wholly-owned subsidiary of AdCare entered into a purchase agreement to acquire Woodland Manor (also known as Eaglewood Care Center), a skilled nursing facility, and Eaglewood Village, an assisted living facility located in Springfield, Ohio, for an aggregate purchase price of $13.5 million. The Company deposited $200,000 into escrow to be held as earnest money.

The closing of the purchase of Eaglewood Care Center and Eaglewood Village is expected to occur on December 1, 2011. AdCare may extend the closing until January 1, 2012 or February 1, 2012, with a payment of an additional $50,000 in earnest money.

Table of Contents

NOTE 9. ACQUISITIONS (continued)

Subsequent to September 30, 2011, the purchase agreement was amended to reduce the purchase price, increase the amount of cash payable at closing and reduce the principal amount of the seller financing. (See Note 13.)

Stone County Nursing and Rehabilitation and Stone County Residential Care Facility

On August 15, 2011, a wholly-owned subsidiary of AdCare entered into a purchase agreement to acquire the Stone County Nursing and Rehabilitation Facility, a skilled nursing facility, and Stone County Residential Care Facility, a skilled nursing facility/assisted living facility, both located in Mountain View, Arkansas, for a purchase price of an aggregate of $4.2 million. AdCare has deposited $200,000 into escrow to be held as earnest money.

The closing of the purchase of Stone County Nursing and Rehabilitation Facility and Stone County Residential Care Facility is expected to occur on December 1, 2011. AdCare may extend the closing subject to payment of an additional $50,000 in earnest money.

Unaudited Pro forma Financial Information

Acquisitions have been included in the consolidated financial statements since the dates the Company gained effective control. For 2011, combined revenue for all acquisitions since gaining effective control is approximately $16,455,000 and resulted in an income from operations of approximately $1,027,000.

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

	Nine Months Ended September 30,
	2011		2010
Pro Forma Revenue	$	133,261,655	$	126,183,714
Pro Forma Operating Expenses	$	128,250,197	$	125,254,104
Pro Forma Income from Operations	$	5,011,458	$	926,610

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

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

NOTE 10. VARIABLE INTEREST ENTITIES

Riverchase Village (VIE) Extension

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

Table of Contents

NOTE 10. VARIABLE INTEREST ENTITIES (continued)

Oklahoma Facilities (VIE’s)

In August, 2011, the Company began providing certain administrative services to the Oklahoma VIE Facilities. The Company is currently negotiating an option agreement that would give the Company the option to acquire the Oklahoma VIE Facilities from the Oklahoma VIEs, subject to approval by the Company’s Board of Directors.

On August 1, 2011, the Oklahoma VIEs (which are owned and controlled by Christopher Brogdon, Vice Chairman and Chief Acquisition Officer of the Company) purchased the Oklahoma VIE Facilities (five skilled nursing facilities located in Oklahoma known as the Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center and Grand Lake Villa). Even though the Company does not have any equity interest in the Oklahoma VIE Facilities, the Company determined that these facilities constitute a variable interest entity, as the ownership entity does not have sufficient equity at risk under the Variable Interest Entities accounting pronouncements. Given the related party relationship with the common shareholder, the Company determined that it is the primary beneficiary of the Oklahoma VIE Facilities and that consolidation of the Oklahoma VIE Facilities is required. As such, the Company initially consolidated the Oklahoma VIE Facilities on August 1, 2011, the date of their acquisition by the Oklahoma VIEs and initial operations. As the primary beneficiary of the Oklahoma VIE Facilities, the Company has included the assets, liabilities and results of operations of the Oklahoma VIE Facilities in the Company’s consolidated financial statements beginning August 1, 2011. As the Company does not have any equity interest in the Oklahoma VIE Facilities, the other equity holder’s 100% interest is reflected in “Net Loss (Income) Attributable to Noncontrolling Interests” in the consolidated statement of operations and “Noncontrolling interest in subsidiaries” in the consolidated balance sheet.

The following summarizes the carrying amounts of the facility’s assets and liabilities included in the consolidated balance sheet at September 30, 2011:

Oklahoma Facilities - Assets and Liabilities:

(Amounts in 000’s)	September 30, 2011
Cash	$	469
Accounts receivable	606
Intangibles	1,785
Property and equipment, net	9,422
Other assets	633
Total assets	$	12,915

Accounts Payable	$	435
Accrued expenses	448
Notes payable	12,618
Noncontrolling interest	(586		)
Total liabilities	$	12,915

NOTE 11. SHARE-BASED COMPENSATION

Employee Common Stock Warrants & Options

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

Table of Contents

NOTE 11. SHARE-BASED COMPENSATION (continued)

Employee Common Stock Warrants & Options (continued)

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

On June 3, 2011, the Company granted incentive stock options to certain members of management pursuant to the 2011 plan. A total of 147,000 options were granted with an exercise price per share of $5.75. The options vest ratably on the day before each of the three subsequent anniversaries. The options are exercisable until the term expires in June, 2016. The fair value of the options was estimated at $3.18 per share and is being recognized as share-based compensation expense over the requisite service period of the awards. Subsequently, 25,000 shares have forfeited prior to vesting.

On August 26, 2011, the Company granted incentive stock options to certain members of management pursuant to the 2011 plan. A total of 130,000 options were granted with an exercise price per share of $4.96. Subsequently, 50,000 shares have forfeited prior to vesting. The options vest ratably on the day before each of the three subsequent anniversaries. The options are exercisable until the term expires in August, 2016. The fair value of the options was estimated at $2.63 per share and is being recognized as share-based compensation expense over the requisite service period of the awards.

Nonemployee Common Stock Warrants

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

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

NOTE 12. FAIR VALUE MEASUREMENTS

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

	Level 1: Quoted Prices in		Level 2:		Level 3:
	Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total at September 30, 2011
Derivative Liability	$	—	$	—	$	2,057,152	$	2,057,152

Table of Contents

NOTE 12. FAIR VALUE MEASUREMENTS (continued)

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

	Derivative Liability
Beginning Balance	$	2,905,750
Gains included in loss on debt extinguishment	41,941
Derivative gain	806,657
Ending Balance	$	2,057,152

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

NOTE 13. STOCK DIVIDEND

On August 31, 2011, the Company’s Board of Directors declared a 5% stock dividend, issued on October 14, 2011 (see Note 15) to stockholders of record at the close of business on September 30, 2011. As a result of the payment of the stock dividend, the number of outstanding shares of common stock increased by 579,516 as of September 30, 2011. As the Company is in a deficit position, there is no recorded impact to the reported amounts of stockholders’ equity in the accompanying consolidated balance sheet. As the stock dividend was declared before the release of the accompanying consolidated financial statements, all references to the number of common shares and per-share amounts are restated based on the increased number of shares giving retroactive effect to the stock dividend to prior period reported amounts.

NOTE 14. WARRANT CALL

On August 17, 2011, the Company gave notice that it was exercising its option to call for redemption of the outstanding: (i) warrants to purchase shares of common stock, sold in the Company’s initial public offering in November 2006 (the “IPO Warrants”); and (ii) warrants to purchase shares of common stock sold in a private placement in December 2009 (the “Private Placement Warrants” and, together with the IPO Warrants, the “Warrants”). Registered holders of the Warrants had until September 19, 2011 (the “Call Exercise Period”) to exercise each Warrant for 1.05 shares of common stock at a price of $2.38 per share. On September 14, 2011, the Company announced that it extended the last day of the Call Exercise Period to September 26, 2011. Any Warrants not exercised by the registered holders thereof within the Call Exercise Period automatically expired on the last day of the Call Exercise Period, and AdCare remitted to the registered holders of such expired Warrants the sum of ten cents ($.10) per underlying share of common stock.

In connection with the warrant call, 2,759,174 Warrants were exercised by the holders thereof and the Company issued 2,897,149 shares of common stock. The Company received aggregate net proceeds of $6.3 million upon such exercises including issuance costs of approximately $0.6 million. On September 26, 2011, the remaining 29,376 warrants expired requiring the Company to pay the aggregate call amount of approximately $3,000.

Table of Contents

NOTE 15. SUBSEQUENT EVENTS

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

Mortgage Notes

College Park Healthcare Center

The funding of the CP SBA Loan occurred on October 12, 2011, the CP Funding Date. Interest on the CP SBA Loan accrues on the principal balance thereof, beginning on the CP Funding Date, at an annual fixed rate of 2.80737%, which rate was determined on the CP Funding Date. CP Property used the proceeds of the CP SBA Loan to repay in its entirety the debt incurred by CP Property and payable to Apax Capital, LLC, which debt was used to partially fund CP Property’s acquisition in May 2011 of the College Park Healthcare Center.

Homestead Manor

On October 14, 2011, the Company refinanced the Metro Bank Loan. To this end, Homestead Property and Homestead Nursing, LLC, the operator of Homestead Manor and a wholly owned subsidiary of AdCare (“Homestead Nursing”), issued a Term Note in favor of Square 1 Bank for an aggregate principal amount of $3,600,000, under the provisions of the USDA Rural Development Guarantee program (the “Homestead USDA Loan”). Homestead Property used the proceeds of the Homestead USDA Loan to repay the debt it incurred to fund its acquisition of Homestead Manor, which debt had been guaranteed by AdCare.

The Homestead USDA Loan matures on October 14, 2036 (the “Homestead Maturity Date”). Interest on the Homestead USDA Loan accrues on the principal balance thereof at an annual variable rate equal to the published Wall Street Journal prime rate plus 1.0%, and the interest rate of the Homestead USDA Loan shall be adjusted every calendar quarter. At no time shall the annual interest rate for the Homestead USDA Loan be less than 5.75%.

The Homestead USDA Loan shall be repaid in equal monthly installments of principal and interest based on a twenty-five (25) year amortization schedule. The amount of $25,648 payable on December 1, 2011, and on the same day of each month thereafter through and including the Homestead Maturity Date. The Homestead USDA Loan is to be re-amortized annually so as to amortize the principal over the remaining term thereof.

The Homestead USDA Loan has a prepayment penalty of 10% for any prepayment made prior to the first anniversary of the date of the Homestead USDA Loan, which penalty is reduced by 1% each year thereafter until the tenth anniversary of such date, after which there is no prepayment penalty. The Homestead USDA Loan had one-time origination and guaranty fees totaling $93,600 and an annual renewal fee payable by Homestead Property and Homestead Nursing in an amount equal to .25% of the USDA guaranteed portion of the outstanding principal balance of the Homestead USDA Loan as of December 31 of each year, beginning December 31, 2012.

The Homestead USDA Loan is secured by a first mortgage on the real property and improvements of Homestead Property (including Homestead Manor), a first priority security interest on all furnishings, fixtures, equipment and inventory associated with Homestead Manor, and an assignment of all rents paid under any and all leases and rental agreements, existing now or in the future, with respect to the real property. The USDA has conditionally guaranteed 80% of all amounts owing under the Homestead USDA Loan, and AdCare has unconditionally guaranteed all amounts owing under the Homestead USDA Loan.

In addition, in connection with obtaining the Homestead USDA Loan, Homestead Property and Homestead Nursing entered into an Escrow Agreement with Square 1 Bank, as both lender and escrow agent pursuant to which Homestead Property and Homestead Nursing deposited $300,000 into an escrow account. These escrow funds will be used to complete certain ongoing capital improvements being made to Homestead Manor.

Table of Contents

NOTE 15. SUBSEQUENT EVENTS (continued)

Acquisitions

Red Rose Lease

Pursuant to the Pinnacle Purchase Agreement and subject to the satisfaction of certain conditions, Rose Nursing was required to become the tenant and/or operator of the Leased Facility, a 90 bed skilled nursing located in Cassville, Missouri. On October 31, 2011, Rose Nursing entered into an Assignment of Lease and Landlord’s Consent (the “Assignment Agreement”) with Cassville Real Estate, Inc. (f/k/a/ Cassville Manor, Inc.), the landlord of the Leased Facility (“Cassville”), and KMJ Enterprises Cassville, LLC, and an affiliate of KMJ (“KMJ Enterprises”), pursuant to which KMJ Enterprises assigned to Rose Nursing its interest, as tenant, in and to the Red Rose Facility under that certain Lease, dated December 1, 1983, as amended pursuant to that certain Amendment and Extension to Lease Agreement effective September 27, 1999 and as assigned pursuant to that certain Lease Assumption Agreement and Guaranty effective January 1, 2003 (as assigned and amended, the “Lease”). Additionally, on November 1, 2011, Rose Nursing entered into an Operations Transfer Agreement (the “OTA”) with KMJ, pursuant to which KMJ assigned to Rose Nursing all of its right, title and interest in and to certain assets located at, and held by KMJ for use in connection with the operation of, the Red Rose Facility.

As a result of entering into the Assignment Agreement and OTA, Rose Nursing became the tenant and operator, respectively, of the Leased Facility, and in connection therewith paid to KMJ Enterprises: (i) the amount of $500,000 pursuant to the Pinnacle Purchase Agreement; and (ii) the amount of $13,500, which represents the amount paid by KMJ Enterprises to Cassville as a security deposit under the Lease, the rights to which were assigned by KMJ Enterprises to Rose Nursing pursuant to the Assignment Agreement. The term of the Lease expires on September 30, 2014.

Each of the Company, Christopher F. Brogdon, the Company’s Vice Chairman and Chief Acquisition Officer, and his spouse has jointly, severally and unconditionally guaranteed all amounts owing by Rose Nursing under the Lease and the full, prompt and complete performance by Rose Nursing of all covenants, conditions and provisions contained in the Lease.

Potential Acquisitions

Eaglewood Care Center and Eaglewood Village

On August 15, 2011, a wholly-owned subsidiary of AdCare entered into a purchase agreement to acquire Woodland Manor (also known as Eaglewood Care Center), a skilled nursing facility, and Eaglewood Village, an assisted living facility located in Springfield, Ohio, for an aggregate purchase price of $13.5 million. Subsequent to September 30, 2011, the purchase agreement was amended to reduce the purchase price, increase the amount of cash payable at closing and reduce the principal amount of the seller financing.

Oklahoma First Commercial Bank

On October 14, 2011, AdCare Property Holdings entered into an Amendment and Assignment of Purchase and Sale Agreement, effective September 30, 2011, with First Commercial Bank and Brogdon Family pursuant to which AdCare Property Holdings assumed all of Brogdon Family’s rights under that certain Purchase and Sale Agreement, made and entered into as of May 5, 2011, by and between First Commercial Bank and Brogdon Family, as amended by that certain First Amendment to Purchase and Sale Agreement, made and entered into as of June 13, 2011, by and between First Commercial Bank and Brogdon Family (as so amended and assigned to AdCare Property Holdings, the “Oklahoma Purchase Agreement”). Pursuant to the Oklahoma Purchase Agreement, and subject to the satisfaction or waiver of the conditions set forth therein, AdCare Property Holdings will acquire land, buildings, improvements, furniture, fixtures, operating agreements and equipment comprising five skilled nursing facilities located in Oklahoma: Edwards Redeemer Nursing Center, Harrah Nursing Center, Northwest Nursing Center, McLoud Nursing Center and Meeker Nursing Center for an aggregate purchase price of $16 million.

Table of Contents

NOTE 15. SUBSEQUENT EVENTS (continued)

Potential Acquisitions (continued)

AdCare Property Holdings deposited $200,000 into escrow to be held as earnest money.

The closing is expected to occur no later than four months after the date AdCare Property Holdings files its application for a certificate of need with the Oklahoma State Department of Health.

Equity Activity

On October 14, 2011, a 5% stock dividend was paid to stockholders of record at the close of business on September 30, 2011. As a result of the payment of the stock dividend, the number of outstanding shares of common stock increased by approximately 579,500.

Table of Contents

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

Special Note Regarding Forward Looking Statements

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

Overview

We are an owner and manager of retirement communities, assisted living facilities, and nursing homes. We deliver skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries. As of September 30, 2011, we operated 40 facilities, comprised of 32 skilled nursing centers, seven assisted living residences and one independent living/senior housing facility, totaling approximately 3,600 beds/units. Our facilities are located in Arkansas, Alabama, Georgia, North Carolina, Ohio and Oklahoma (via VIE).

Facility History

	September 30,	December 31,
	2011	2010	2009
Cumulative number of facilities	40	27	14
Cumulative number of operational beds	3,579	2,428	852

Facility Breakdown at September 30, 2011

	Number of	Number of Facilities
State	Operational Beds/Units	Owned	VIE	Leased	Managed for Third Parties	Total
Arkansas	402	4	—	—	—	4
Alabama	408	2	1	—	—	3
Georgia	1,497	3	—	10	—	13
North Carolina	106	1	—	—	—	1
Ohio	852	8	—	1	5	14
Oklahoma (VIE)	314	—	5	—	—	5
Total	3,579	18	6	11	5	40

Facility Type
Skilled Nursing	3,196	12	5	11	4	32
Assisted Living	300	6	1	—	0	7
Independent Living	83	—	—	—	1	1
Total	3,579	18	6	11	5	40

Table of Contents

2011 Acquisitions

We have embarked on a strategy to grow our business through acquisitions and leases of senior care facilities. For a detailed discussion of acquisition activity through December 31, 2010, see the Management’s Discussion and Analysis included in the Annual Report.

The facilities acquired during the nine months ended September 30, 2011 are as follows:

· Effective January 1, 2011, we acquired Mountain Trace, a 106 bed skilled nursing facility located in Sylva, North Carolina.

· On April 29, 2011, we acquired Southland Care Center, a 126 bed skilled nursing facility located in Dublin, Georgia. Through an Operations Transfer Agreement, we obtained control of the facility effective May 1, 2011.

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

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

· On August 1, 2011, we acquired (through a VIE subject to pending agreement — see Note 10) The Living Center, a 50 bed nursing facility; Kenwood Manor, a 45 bed nursing facility; Enid Senior Care, a 102 bed nursing facility; Betty Ann Nursing Center, a 60 bed nursing facility; and Grand Lake Villa, a 100 bed nursing facility, all located in Oklahoma.

· On September 1, 2011, we acquired Homestead Manor, a 94 bed skilled nursing facility located in Stamps, Arkansas; River Valley Center, a 117 bed skilled nursing facility located in Fort Smith, Arkansas; Bentonville Manor, a 95 bed skilled nursing facility located in Bentonville, Arkansas; and Heritage Park, a 93 bed nursing facility located in Benton, Arkansas.

Potential Acquisitions

Existing purchase agreements to acquire facilities are as follows:

· North Carolina, South Carolina, Tennessee and Virginia

On June 27, 2011, the Company entered into a purchase agreement for the asset purchase of two skilled nursing facilities located in North Carolina and South Carolina, the acquisition of lease agreements for nine skilled nursing facilities that are located in North Carolina, South Carolina, Tennessee and Virginia, and the acquisition of management agreements to manage four skilled nursing facilities located in Tennessee. The purchase price consists of $21,650,000 in cash, common stock of the Company with an aggregate value of $5,000,000, and a five-year promissory note in the principal amount of $3,217,000. If this transaction closes, the Company expects to obtain control of such facilities by the end of the first quarter of 2012.

· Eaglewood Care Center and Eaglewood Village

On August 15, 2011, the Company entered into a purchase agreement to acquire Woodland Manor (also known as Eaglewood Care Center), a skilled nursing facility, and Eaglewood Village, an assisted living facility located in Springfield, Ohio, for an aggregate purchase price of $13.5 million. Subsequent to September 30, 2011, the purchase agreement was amended to reduce the purchase price, increase the amount of cash payable at closing and reduce the principal amount of the seller financing. The closing of the purchase of the Eaglewood Care Center and Eaglewood Village is expected to occur on December 1, 2011.

Table of Contents

· Stone County Nursing and Rehabilitation and Stone County Residential Care Facility

On August 15, 2011, a wholly owned subsidiary of AdCare entered into a purchase agreement to acquire the Stone County Nursing and Rehabilitation Facility, a skilled nursing facility, and Stone County Residential Care Facility, a skilled nursing facility/assisted living facility, both located in Mountain View, Arkansas, for a purchase price of an aggregate of $4.2 million. AdCare has deposited $200,000 into escrow to be held as earnest money. The closing of the purchase of the Stone County Nursing and Rehabilitation Facility and Stone County Residential Care Facility is expected to occur on December 1, 2011.

· Oklahoma First Commercial Bank

On October 14, 2011 AdCare Property Holdings entered into an agreement with First Commercial Bank and Brogdon Family, pursuant to which the Company assumed all of Brogdon Family’s rights under a purchase and sale agreement entered into as of May 5, 2011, by and between First Commercial Bank and Brogdon Family, as amended as of June 13, 2011. AdCare plans to acquire five skilled nursing facilities located in Oklahoma for an aggregate purchase price of $16 million. The closing is expected to occur no later than four months after the date AdCare Property Holdings files its application for a certificate of need with the Oklahoma State Department of Health.

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

Segments

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

Skilled Nursing

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

“Same Facilities” results represent those owned and leased facilities we began to operate prior to October 1, 2010.

“Recently Acquired Facilities” results represents those owned and leased facilities we began to operate subsequent to October 1, 2010.

Average Occupancy

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Same Facilities	85.5	%	84.1	%	85.8	%	83.5	%
Recently Acquired Facilities	85.3	%	n/a		86.7	%	n/a
Total	85.4	%	84.1	%	86.2	%	83.5	%

Table of Contents

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

Patient Mix

Three Months Ended September 30,

	Same Facilities				Recently Acquired Facilities			Total
	2011		2010		2011		2010	2011		2010
Medicare	16.3	%	11.8	%	11.5	%	n/a	13.6	%	11.8	%
Medicaid	71.9	%	77.5	%	79.6	%	n/a	76.3	%	77.5	%
Other	11.8	%	10.7	%	8.9	%	n/a	10.1	%	10.7	%
Total	100.0	%	100.0	%	100.0	%	n/a	100.0	%	100.0	%

Nine Months Ended September 30,

	Same Facilities				Recently Acquired Facilities			Total
	2011		2010		2011		2010	2011		2010
Medicare	16.6	%	12.4	%	12.3	%	n/a	14.5	%	12.4	%
Medicaid	72.7	%	74.0	%	79.8	%	n/a	76.2	%	74.0	%
Other	10.7	%	13.6	%	7.9	%	n/a	9.3	%	13.6	%
Total	100.0	%	100.0	%	100.0	%	n/a	100.0	%	100.0	%

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

The State of Ohio has released several statements regarding Medicaid indicating that cuts in reimbursement to nursing homes are likely to be as high as 7%. At this time, we do not anticipate significant changes in reimbursement to nursing homes in Alabama, Arkansas, Georgia, North Carolina or Oklahoma.

Assisted Living

We focus on facility occupancy and staffing in our ALF segment.

	Average Occupancy
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Total	77.5	%	72.0	%	75.9	%	79.1	%

Residents of our assisted living facilities rely on their personal investments and wealth to pay for their stay. Recent declines in market values of investments could limit their ability to pay for services or shorten the period of time for which they can pay privately for their stay. The current depressed market for the sale of homes could limit their ability to sell their personal assets further reducing their ability to remain in our facilities. Furthermore, adult children who have recently become unemployed

Table of Contents

may decide to care for their parent at home so that their parent’s income may help offset some of their own financial burdens. We do not believe this is a trend and we believe facility occupancy will improve.

Home Health Care

In addition to providing home health care services to patients in their homes, we are utilizing our Home Health services in our assisted living and independent living properties in Ohio. For the three months ended September 30, 2011, the percentage of our home health patients covered by Medicare has decreased 14.8% compared to the three months ended September 30, 2010. We are reviewing our current strategies to attempt to correct the downturn of results in this segment.

Management/Corporate

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

Results of Operations

	Total Patient Care Revenues
	Three Months Ended September 30,						Nine Months Ended September 30,
Skilled Nursing	2011			2010			2011		2010
Same Facilities	$	17,598,000		$	9,942,000		$	52,130,000	$	16,480,000
Recently Acquired Facilities	$	20,576,000		n/a			$	45,898,000	n/a
Total	$	38,174,000		$	9,942,000		$	98,028,000	$	16,480,000

	Three Months Ended September 30,						Nine Months Ended September 30,
Assisted Living	2011			2010			2011		2010
Total	$		2,520,000	$		2,231,000	$	7,382,000	$	5,997,000

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

Patient Care Revenues - For the periods presented, total patient care revenues increased $28 million, or 218%.

Revenue in our SNF segment increased approximately $28,232,000 when compared to the three months ended September 30, 2010, primarily as a result of acquisitions that occurred after September 30, 2010. This segment had a net income from operations of $2,338,000 which is $1,924,000 higher compared to the three months ended September 30, 2010 as a result of higher revenue due to acquisitions, increased occupancy and more residents covered by Medicare. We plan to increase facility occupancy and to increase the number of patients covered by Medicare. We expect to continue to implement and refine strategies designed to achieve these goals.

Revenue in our ALF segment increased approximately $288,000 when compared to the three months ended September 30, 2010, as a result of increased census and levels of care. This segment had income from operations of $411,000 which is $627,000 more than the same period in 2010 from increased occupancy and an annual increase in rates charged to residents of the facilities.

Table of Contents

Revenue in our Home Health segment declined when compared to the same period in 2010, as a result of fewer patients and fewer patients covered by Medicare. The decline in revenues resulted in a loss from operations of approximately $160,000, compared with operating loss of $29,000 for the same period in 2010.

Management Revenue - For the periods presented, management revenues (net of eliminations) decreased $204,000, or 38%, as a result of fewer managed facilities.

Payroll and Related Payroll Costs - For the periods presented, payroll and related payroll costs increased $13.8 million, or 168%, resulting primarily from the acquisition of 16 skilled nursing facilities and six variable interest entities. We also increased our corporate overhead structure and opened an accounting service center located in Roswell, Georgia during the second quarter of 2011.

Other Operating Expenses - For the periods presented, other operating costs increased $9.7 million, or 210%. The increase is primarily attributable to the operations of the recently acquired skilled nursing facilities.

Three Months Ended September 30, 2011

	Same Facilities		Recently Acquired Facilities		Total
SNF Other Operating Expenses	$	6,993,000	$	5,488,000	$	12,481,000
ALF Other Operating Expenses	594,000		—		594,000
Home Health Other Operating Expenses	125,000		—		125,000
Management/Corporate Other Operating Expenses	967,000		206,000		1,173,000
Total Other Operating Expenses	$	8,679,000	$	5,694,000	$	14,373,000

Infrastructure Costs - Company management separately identifies certain costs, which the company has incurred that we believe are directly related to the growth of the company. These “infrastructure costs” include, but are not limited to, additional management and staff necessary to support our operational teams in our newly acquired facilities, including those in states that we have not previously operated. These costs are included on the Statement of Operations under both Payroll and Related Costs, and under Other Operating Expenses. Infrastructure costs are estimated as $514,000 for the three months ending September 30, 2011. These are newly identified expenses and therefore there are no comparable costs for the same period of 2010.

Lease Expense - For the periods presented, lease expenses increased $1.1 million. The lease expense increase resulted from the acquisitions of ten leased facilities in Georgia. We recorded lease expense for the third quarter of 2011 on all ten facilities, but only had lease expense during the third quarter of 2010. Five of the facilities were acquired in August of 2010, three facilities were acquired in September of 2010, and the remaining two were acquired during the fourth quarter of 2010.

	Three Months Ended September 30
	2011		2010
Lease Expense	$	1,981,000	$	869,400

Depreciation and Amortization - For the periods presented, depreciation and amortization increased $537,000. The depreciation increase is directly related to acquisition activity that was not included in the 2010 results as it occurred in later periods. In addition, the acquisitions resulted in financing costs and intangibles that are being amortized during the period (see tables presented below).

Interest Expense, net - For the periods presented, interest expense, net increased $1.8 million, or 430%. We have entered into numerous debt instruments in relation to our growth strategy for the acquisition of the facilities which began in the third quarter of 2010. In addition, several of the arrangements are short term in nature resulting in higher interest rates than previously experienced.

Acquisition Costs, net of Gains - For the period ended September 30, 2011, acquisition costs, net of gains was an expense of $1,146,700, compared to a net loss of $402,900 for the comparative period. For the period ended September 30, 2011,

Table of Contents

$990,300 of the total acquisition costs were legal fees directly related to the August Oklahoma VIE transaction and September 1, 2011 Pinnacle Acquisition in Arkansas. The remaining $156,400 of costs for the period were IT consulting expenses, acquisition expenses, and accounting costs related to the change of ownership requirements. The facilities were purchased at fair market value; therefore, there were no bargain purchase gains recognized. For the same period in 2010, the Company recognized a net loss of approximately $402,900 resulting from acquisition costs related to the lease of ten facilities in Georgia. The Company began operating five of the ten facilities on August 1, 2010 and three additional facilities on September 1, 2010. The remaining two facilities were a fourth quarter transaction.

Derivative Gain/Loss - For the period ended September 2011, the derivative gain was $4.74 million, and there were no costs recorded in the comparative period. The derivative is a product of a debt instrument entered into during the third quarter of 2010. The expense associated with the derivative increases as the stock price climbs, and conversely decreases as the stock price declines. The price of the common stock of the Company declined during the three-month period ended September 30, 2011.

Loss on Debt Extinguishment - For the period ended September 2011, the loss on debt extinguishment was $58,400 and there were no costs recorded in the comparative period. In June 2011, we recorded a $13,100 loss on debt extinguishment resulting from unamortized deferred financing costs related to a $75,000 conversion of debt. In August 2011, the refinance of Erin Property resulted in a $45,300 loss on debt extinguishment related to the unamortized deferred financing costs for the interim financing that was refinanced.

Other Income/(Expense) - For the periods presented, other expenses decreased $21,000. .

Income Tax Expense - For the periods presented, income tax expense increased $204,000. In the last two quarters of 2010, we acquired certain facilities which resulted in the recognition of indefinite lived intangible assets. Due to the nature of these assets and the tax treatment associated with it, we record a deferred tax liability which was not present in the September 2010 quarter. In addition, we generated taxable income for the three months ended September 30, 2011. This income is offset at the federal level by loss carry forwards, however we owe taxes in a number of states in which we operate.

Comparison for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010

Patient Care Revenues - For the periods presented, total patient care revenues increased $81.6 million, or 336%.

For the nine months ended September 30, 2011, revenue in our SNF segment increased approximately $81,548,000 compared to the nine months ended September 30, 2010, primarily as a result of acquisitions that occurred after September 30, 2010. This segment had a net income from operations of $4,581,000, which is $3,349,000 greater than net income from operations for this segment for the nine months ended September 30, 2010 as a result of higher revenue due to the acquisition of sixteen new facilities and five variable interest entities, as well as, increased occupancy and a greater number of residents covered by Medicare.

For the nine months ended September 30, 2011, revenue in our ALF segment increased approximately $1,385,000 compared to the nine months ended September 30, 2010, from increased revenue from a VIE acquisition. This segment had income from operations of $1,004,000, which is $1,418,000 greater than income from operations for the same period in 2010 because of the acquisition and an annual increase in rates charged to residents of the facilities.

For the nine-month period ended September 30, 2011, revenue in our Home Health segment declined compared to the same period in 2010, as a result of fewer patients and fewer patients covered by Medicare. The decline in revenues for the nine months ended September 30, 2011, resulted in a loss from operations of approximately $321,000, compared with operating income of $4,000 for the same period in 2010.

Management Revenues - For the periods presented, management revenues (net of eliminations) decreased $252,000, or 16%, as a result of fewer managed facilities.

Table of Contents

Payroll and Related Payroll Costs - For the periods presented, payroll and related payroll costs increased $42.9 million, or 264%, resulting primarily from the acquisition of 16 skilled nursing facilities and five variable interest entities. We also increased our corporate overhead structure and opened an accounting service center located in Roswell, Georgia during the second quarter of 2011.

Other Operating Expense - For the periods presented, other operating costs increased $27.7 million, or 315%. The increase is directly related to the operations of the recently acquired skilled nursing facilities, as well as minor increases in other segments.

Nine Months Ended September 30, 2011

	Same Facilities		Recently Acquired Facilities		Total
SNF Other Operating Expenses	$	19,888,000	$	11,359,000	$	31,247,000
ALF Other Operating Expenses	1,881,000		n/a		1,881,000
Home Health Other Operating Expenses	361,000		n/a		361,000
Management/Corporate Other Operating Expenses	2,799,000		260,000		3,059,000
Total Other Operating Expenses	$	24,929,000	$	11,619,000	$	36,548,000

Infrastructure Costs - Company management separately identifies certain costs, which the company has incurred that we believe are directly related to the growth of the company. These “infrastructure costs” include, but are not limited to, additional management and staff necessary to support our operational teams in our newly acquired facilities, including those in states that we have not previously operated. These costs are included on the Statement of Operations under both Payroll and Related Costs, and under Other Operating Expenses. Infrastructure costs are estimated as $939,000 for the nine months ending September 30, 2011. These are newly identified expenses and therefore there are no comparable costs for the same period of 2010.

Lease Expense - For the periods presented, lease expenses increased $4.7 million. The lease expense increase resulted from the acquisition of ten leased facilities in Georgia.

	Nine Months Ended September 30
	2011		2010
Lease Expense	$	5,830,900	$	1,158,900

Depreciation and Amortization - For the periods presented, depreciation and amortization increased $1,422,000. The depreciation increase is directly related to acquisition activity that was not included in the 2010 results. In addition, the acquisitions resulted in financing costs and intangibles that are being amortized during the period.

Table of Contents

Retirement and Salary Continuation Costs - For the period ended June 2011, we accrued retirement and salary continuation costs of approximately $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer.

Interest Expense, net - For the periods presented, interest expense, net increased $4.5 million, or 449%. We have entered into numerous debt instruments in relation to our growth strategy for the acquisition of the facilities which began in the third quarter of 2010. In addition, several of the arrangements are short term in nature resulting in higher interest rates than previously experienced.

Acquisition Costs, net of Gains - For the period ended September 30, 2011, acquisition costs, net of gains was a net loss of $789,400, compared to a net gain of $1,226,900 for the comparative period. The $789,400 acquisition costs, net of gains for the nine months ended September 30, 2011, were the result of a $1,039,000 gain on the purchase of the Mountain Trace facility. The transaction resulted in a bargain purchase because the seller was motivated to sell the facility. This net gain was offset by $1,537,200 of legal fees and finder’s fees directly related to the purchase of Autumn Breeze Healthcare Center, Southland Care Center, and College Park Healthcare Center. Additional acquisition costs resulted from the Oklahoma VIE transaction and the Pinnacle Acquisition. The remaining $291,600 were IT consulting expenses, acquisition expenses, and accounting costs related to the change of ownership requirements. The facilities were purchased at fair market value; therefore there were no bargain purchase gains recognized. In comparison, in the same period of 2010 we acquired our partner’s 50% noncontrolling interest in three assisted living facilities. The combined purchase price for the acquisition was $500,000. As a result, we recognized a gain of approximately $826,000. We also recognized a net gain of approximately $808,000 resulting from the purchase of Riverchase Village. The gains were offset by $407,000 of acquisition costs related to the lease of ten facilities in Georgia.

Derivative Gain/Loss - For the period ended September 2011, the derivative gain was $807,000; there were no costs recorded in the comparative period. The derivative is a product of a debt instrument entered into during the third quarter of 2010. The expense associated with the derivative increases as the stock price climbs, and conversely decreases as the stock price declines. The price of the common stock of the Company declined during the-nine month period ended September 30, 2011.

Loss on Debt Extinguishment - For the period ended September 2011, the loss on debt extinguishment was $136,000; there were no costs recorded in the comparative period. In March 2011, we issued a promissory note in the amount of $1,385,000 and paid a commitment fee of $55,400. Subsequent to March 31, 2011, we repaid this promissory note, and recorded a loss on debt extinguishment resulting from unamortized deferred financing costs. In June 2011, we recorded a $13,100 loss on debt extinguishment resulting from unamortized deferred financing costs related to a $75,000 conversion of debt. In August 2011, the refinance of Erin Property resulted in a $45,300 loss on debt extinguishment related to the unamortized deferred financing costs for the interim financing that was refinanced.

Other Income/(Expense) - For the period ended September 30, 2011, other income of $558,000 was recorded, compared with other expense of $79,000 for the comparative period, a net change of $637,000. In the acquisition of five leased facilities in 2010, we purchased receivables and recorded them at the estimated value at the time of acquisition. We collected substantially more of the receivables than expected by $632,000, resulting in the additional income for 2011.

Income Tax Expense - For the periods presented, income tax expense increased $414,000. The increase over prior year is partly due to the acquisition of certain facilities which resulted in the recognition of indefinite lived intangible assets. Due to the nature of these assets and the tax treatment associated with it, we record a deferred tax liability which was not present in the September 2010 quarter. In addition, we generated taxable income through September 30, 2011. This income is offset at the federal level by loss carry forwards, however we owe taxes in a number of states that we operate.

Table of Contents

Critical Accounting Policies and Use of Estimates

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

Table of Contents

Liquidity and Capital Resources

Overview

Our primary sources of liquidity have historically been derived from our cash flow from operations, our revolving credit facilities, long-term debt secured by our real property and proceeds from stock activity.

Since 2010, we have financed the majority of our facility acquisitions primarily through bridge and permanent financings secured by the acquired facility, unsecured corporate obligations, and cash generated from operations.

We believe our current cash balances, our cash flow from operations and the revolving line of credit facilities currently in place will be sufficient to cover our operating needs for at least the next twelve months. We may in the future seek to raise additional capital to fund our growth, capital renovations, operations and for other activities associated with our business; however, such additional capital may not be available on acceptable terms, on a timely basis, or at all.

Some of our properties are financed with loans secured by the Department of Housing and Urban Development (“HUD”). These loans limit our use of the cash generated by the properties for purposes other than to fund the operations of the HUD financed property. In January and July each year, we are permitted to withdraw cash from these properties if a calculation of cash flow determines that the properties have generated cash in excess of what is needed to fund the expenses of the property in the short term. When the calculation indicates there is available cash, we withdraw the funds from the property and deposit them in an interest bearing checking account and hold them for future use in operations. Of our unrestricted cash balance of approximately $10,050,000, there was approximately $1,606,000 of cash that was subject to these requirements as of September 30, 2011.

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

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Net cash provided by (used in) operating activities	$	1,030		$	(1,088	)
Net cash used in investing activities	(13,236		)	(7,000		)
Net cash provided by financing activities	18,345			9,062
Net change in cash and cash equivalents	6,139			974
Cash and cash equivalents at beginning of period	3,911			4,481
Cash and cash equivalents at end of period	$	10,050		$	5,455

Nine months ended September 30, 2011

Net cash provided by operating activities for the nine months ended September 30, 2011, was approximately $1,030,000 consisting primarily of our income from operations less the noncash gain on acquisitions, and changes in working capital, and noncash charges (primarily depreciation and amortization, the derivative loss, share-based compensation, difference between straight-line rent and rent paid, and amortization of debt discounts and related deferred financing costs); all primarily the result of routine operating activity.

Net cash used in investing activities for the nine months ended September 30, 2011, was approximately $13,236,000. This is primarily the result of funding our acquisitions, including making escrow deposits.

Net cash provided by financing activities was approximately $18,345,000 for the nine months ended September 30, 2011. This is primarily the result of cash proceeds received from warrant exercises, increases in borrowings on the line of credit, proceeds from debt financings to fund our acquisitions, partially offset by repayments of existing debt obligations.

Table of Contents

Nine months ended September 30, 2010

Net cash used in operating activities for the nine months ended September 30, 2010 was approximately $1,088,000 consisting primarily of our net loss from operations and changes in working capital partially offset by noncash charges, all primarily the result of routine operating activity.

Net cash used in investing activities for the nine months ended September 30, 2010 was approximately $7,000,000. This is primarily the result of escrow deposits for the acquisition of two facilities, the purchase of the remaining 50% noncontrolling interest in Community’s Hearth & Home and Hearth & Home of Urbana assisted living facilities, and the purchase of additional equipment partially offset by a decrease in restricted cash due to proceeds received from HUD required escrow accounts.

Net cash provided by financing activities was approximately $9,062,000 for the nine months ended September 30, 2010. This is primarily the result of increases in borrowings on the line of credit, proceeds from debt financings to fund our acquisitions, partially offset by repayments of existing debt obligations.

Item 4. Controls and Procedures

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

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

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

Part II. Other Information

Item 1. Legal Proceedings

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

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

Table of Contents

determinations in legal proceedings or governmental investigations against or involving us, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations and cash flows.

Item 1A. Risk Factors

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

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

On August 17, 2011, the Company gave notice that it was exercising its option to call for redemption the outstanding IPO Warrants and Private Placement Warrants. Registered holders of the Warrants had until September 19, 2011 to exercise each Warrant for 1.05 shares of common stock at a price of $2.38 per share. On September 14, 2011, the Company announced that it extended the last day of the Call Exercise Period to September 26, 2011. Any Warrants not exercised by the registered holders thereof within the Call Exercise Period automatically expired on the last day of the Call Exercise Period, and AdCare remitted to the registered holders of such expired Warrants the sum of ten cents ($.10) per underlying share of common stock.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Warrants Redeemed	Average Price Paid Per Underlying Share of Common Stock			Total Number Warrants Redeemed as Part of Publicly Announced Plans or Programs	Maximum Number of Warrants that May Yet Be Redeemed Under the Plans or Programs
July 1, 2011 to July 31, 2011	—	—			—	—
August 1, 2011 to August 31, 2011	—	—			—	—
September 1, 2011 to September 30, 2011	29,326	$	0.10	(1)	29,326	—
Total	29,326	$	0.10	(1)	29,326	—

(1) Each warrant redeemed had 1.05 underlying shares of common stock, and each such share was redeemed for $0.10. The aggregate amount paid in redemption of all expired warrants was approximately $3,000.

Item 5. Other Information

The information set forth in Note 11 of the Notes to Consolidated Financial Statements included in Part I, Item 1, of this report regarding the issuances of incentive stock options to certain members of management on August 26, 2011, is incorporated herein by reference. The issuances were made without registration under the Securities Act of 1933, as amended, in reliance upon the exemption set forth in Section 4(2) thereof.

The information set forth in Note 8 and Note 10 of this report captioned “The Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center, Grand Lake Village” and “Oklahoma VIE Facilities” respectively, is incorporated herein by reference.

Table of Contents

Item 6. Exhibits

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

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

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

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

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

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

Exhibit No.	Description	Method of Filing
2.1	Purchase and Sale Agreement, dated as of August 15, 2011, among Eaglewood Villa, Ltd., Woodland Manor, Ltd. and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K/A filed August 19, 2011.

2.2	Purchase and Sale Agreement, dated as of August 15, 2011, among White River Health Systems, Inc. and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K/A filed August 19, 2011.

2.3	Purchase and Sale Agreement, made and entered into as of March 14, 2011, by and between KMJ Management, LLC and Arkansas ADK, LLC.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed March 29, 2011.

2.4	Amendment, made and entered into as July 1, 2011, by and between KMJ Management, LLC and Arkansas ADK, LLC.	Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

2.5	Amendment to Purchase and Sale Agreement, dated as of October 19, 2011, among Eaglewood Villa, Ltd., Woodland Manor, Ltd. and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed October 25, 2011.

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

3.2	Code of Regulations.	Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement Form SB

Table of Contents

		(Registration No. 333-131542) filed February 3, 2006.

3.3	Amendment to Amended and Restated Articles of Incorporation.	Filed herewith.

10.1	Term Note, dated July 27, 2011, made by Erin Property Holdings, LLC, in favor of Bank of America, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.2	Note, dated July 27, 2011, made by Erin Property Holdings, LLC, in favor of Bank of America, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.3	Term Loan Agreement, dated July 27, 2011, among Erin Property Holdings, LLC, Erin Nursing, LLC, AdCare Health Systems, Inc. and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.4	Loan Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.5	Deed to Secure Debt and Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.6	Deed to Secure Debt and Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.7	Assignment of Leases and Rents, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.8	Assignment of Leases and Rents, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.9	Indemnity Agreement Regarding Hazardous Materials, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.10	Indemnity Agreement Regarding Hazardous Materials, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.11	Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC and Bank of	Incorporated by reference from Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for

Table of Contents

	Atlanta, with respect to the USDA Loan.	the quarter ended June 30, 2011.

10.12	Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.13	Guaranty, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.14	Guaranty, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.15	Unconditional Guarantee Business and Industry Guarantee Loan Program, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.16	Unconditional Guarantee Business and Industry Guarantee Loan Program, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.17	Unconditional Guarantee, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.18	Unconditional Guarantee, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.19	Escrow Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Bank of Atlanta, and Bank of Atlanta as Escrow Agent, with respect to the USDA Loan and the SBA Loan.	Incorporated by reference from Exhibit 10.19 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.20	Loan Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan #47671350-10.	Incorporated by reference from Exhibit 10.42 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.21	Loan Agreement, made and entered into September 1, 2011, by and between Homestead Property Holdings, LLC and Metro City Bank.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.22	Promissory Note, dated September 1, 2011, issued by Homestead Property Holdings, LLC, in favor of Metro City Bank, in the amount of $3,600,000.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.23	Mortgage and Security Agreement, dated September 1, 2011, between Homestead Property Holdings, LLC and Metro City	Incorporated by reference from Exhibit 99.3 to the Registrant’s

Table of Contents

	Bank.	Current Report on Form 8-K filed September 7, 2011.

10.24	Security Agreement, dated September 1, 2011, between Homestead Property Holdings, LLC and Homestead Nursing, LLC, as the debtor, and Metro City Bank, as the secured party.	Incorporated by reference from Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.25	Guaranty, dated as of September 1, 2011, issued by Homestead Nursing, LLC in favor of Metro City Bank.	Incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.26	Guaranty, dated as of September 1, 2011, issued by AdCare Health Systems, Inc. in favor of Metro City Bank.	Incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.27	Guaranty, dated as of September 1, 2011, issued by Christopher F. Brogdon in favor of Metro City Bank.	Incorporated by reference from Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.28	Loan Agreement, dated as of September 1, 2011, by and among Benton Property Holdings, LLC; Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, as borrowers, and The PrivateBank and Trust Company, as lender.	Incorporated by reference from Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.29	Promissory Note, dated September 1, 2011, issued by Benton Property Holdings, LLC; Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, in favor of The PrivateBank and Trust Company, in the amount of $11,800,000.	Incorporated by reference from Exhibit 99.9 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.30	Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of September 1, 2011, executed by Benton Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.10 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.31	Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of September 1, 2011, executed by Park Heritage Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.11 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.32	Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of September 1, 2011, executed by Valley River Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.12 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.33	Guaranty of Payment and Performance, dated as of September 1, 2011, issued by AdCare Health Systems, Inc.; Benton Nursing, LLC; Park Heritage Nursing, LLC; and Valley River Nursing, LLC in favor of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.13 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.34	Secured Promissory Note, dated August 31, 2011, issued by Benton Property Holdings, LLC; Valley River Property Holdings, LLC; Homestead Property Holdings, LLC; Park	Incorporated by reference from Exhibit 99.14 to the Registrant’s Current Report on Form 8-K filed

Table of Contents

	Heritage Property Holdings, LLC and Home Office Property Holdings, LLC, in favor of KMJ Management, LLC (d/b/a Pinnacle Healthcare, LLC), in the amount of $2,400,000.	September 7, 2011.

10.35	Mortgage, made and entered into as of August 31, 2011, by and between Benton Property Holdings, LLC and KMJ Management, LLC.	Incorporated by reference from Exhibit 99.15 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.36	Mortgage, made and entered into as of August 31, 2011, by and between Park Heritage Property Holdings, LLC and KMJ Management, LLC.	Incorporated by reference from Exhibit 99.16 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.37	Mortgage, made and entered into as of August 31, 2011, by and between Valley River Property Holdings, LLC and KMJ Management, LLC.	Incorporated by reference from Exhibit 99.17 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.38	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Benton Property Holdings, LLC.	Incorporated by reference from Exhibit 99.18 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.39	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Valley River Property Holdings, LLC.	Incorporated by reference from Exhibit 99.19 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.40	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Homestead Property Holdings, LLC.	Incorporated by reference from Exhibit 99.20 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.41	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Park Heritage Property Holdings, LLC.	Incorporated by reference from Exhibit 99.21 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.42	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Home Office Property Holdings, LLC.	Incorporated by reference from Exhibit 99.22 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.43	Loan Agreement, dated September 6, 2011, by and between CP Property Holdings, LLC; CP Nursing, LLC; and Economic Development Corporation of Fulton County.	Filed herewith.

10.44	Promissory Note, dated September 6, 2011, issued by CP Property Holdings, LLC, in favor of Economic Development Corporation of Fulton County, in the amount of $2,034,000.	Filed herewith.

Table of Contents

10.45	Deed to Secure Debt and Security Agreement, made an entered into September 6, 2011, by and between CP Property Holdings, LLC and Economic Development Corporation of Fulton County.	Filed herewith.

10.46	Security Agreement, made and entered into as of September 6, 2011, between CP Property Holdings, LLC and CP Nursing, LLC, as grantors, and Economic Development Corporation of Fulton County, as the secured party.	Filed herewith.

10.47	Unconditional Guarantee, dated September 6, 2011, issued by Adcare Health Systems, Inc. in favor of Economic Development Corporation of Fulton County.	Filed herewith.

10.48	Unconditional Guarantee, dated September 6, 2011, issued by CP Nursing, LLC in favor of Economic Development Corporation of Fulton County.	Filed herewith.

10.49	Unconditional Guarantee, dated September 6, 2011, issued by Hearth and Home of Ohio, Inc. in favor of Economic Development Corporation of Fulton County.	Filed herewith.

10.50	Loan Agreement, dated as of September 30, 2011, by and among Benton Nursing, LLC, Park Heritage Nursing, LLC and Valley River Nursing, LLC, as borrowers, and The PrivateBank and Trust Company, as lender.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 6, 2011.

10.51	Promissory Note, dated September 30, 2011, issued by Benton Nursing, LLC, Park Heritage Nursing, LLC and Valley River Nursing, LLC, in favor of The PrivateBank and Trust Company, in the amount of $2,000,000.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed October 6, 2011.

10.52	Guaranty of Payment and Performance, dated September 30, 2011, executed by AdCare Health Systems, Inc., Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, in favor of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed October 6, 2011.

10.53	Term Loan Agreement, dated as of October 14, 2011, by and among Homestead Property Holdings, LLC and Homestead Nursing, LLC, as borrowers; AdCare Health Systems, Inc., as guarantor; and Square 1 Bank, as lender.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.54	Term Note, dated October 14, 2011, issued by Homestead Property Holdings, LLC and Homestead Nursing, LLC, in favor of Square 1 Bank, in the amount of $3,600,000.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.55	Mortgage and Security Agreement, dated October 14, 2011, by and between Homestead Property Holdings, LLC and Square 1 Bank.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

Table of Contents

10.56	Security Agreement, dated October 14, 2011, by and between Homestead Property Holdings, LLC and Homestead Nursing, LLC, as debtors, and Square 1 Bank, as the secured party.	Incorporated by reference from Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.57	Guaranty, dated October 14, 2011, issued by AdCare Health Systems, Inc. in favor of Square 1 Bank.	Incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.58	United States Department of Agriculture Rural Development, Unconditional Guarantee, Business and Industry Guaranteed Loan Program, on Form RD 4279-14, dated October 13, 2011, issued by AdCare Health Systems, Inc. in favor of Square 1 Bank.	Incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.59	Escrow Agreement, dated October 14, 2011, by and among Homestead Property Holdings, LLC and Homestead Nursing, LLC, as borrowers, and Square 1 Bank, as both lender and escrow agent.	Incorporated by reference from Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.60	Purchase and Sale Agreement, made and entered into as of May 5, 2011, by and between First Commercial Bank and Brogdon Family, LLC.	Incorporated by reference from Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.61	First Amendment to Purchase and Sale Agreement, made and entered into as of June 13, 2011, by and between First Commercial Bank and Brogdon Family, LLC.	Incorporated by reference from Exhibit 99.9 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.62	Amendment and Assignment of Purchase and Sale Agreement, made and entered into as of September 30, 2011, by and among First Commercial Bank, Brogdon Family, LLC and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 99.10 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.63	Guaranty of AdCare Health Systems, Inc., dated August 31, 2011, issued in favor of KMJ Management, LLC	Filed herewith.

10.64	Assignment of Lease and Landlord’s Consent, made and entered into as of October 31, 2011, by and among Cassville Real Estate, Inc. (f/k/a Cassville Manor, Inc.), KMJ Enterprises Cassville, LLC and Rose Missouri Nursing, LLC.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed November 4, 2011.

10.65	Operations Transfer Agreement, dated as of November 1, 2011, by and between KMJ Management, LLC (d/b/a Pinnacle Healthcare, LLC) and Rose Missouri Nursing, LLC.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed November 4, 2011.

10.66	Guaranty of Lease, made as of November 1, 2011, issued by each of AdCare Health Systems, Inc., Christopher F. Brogdon and Connie B. Brogdon in favor of Cassville Real Estate, Inc.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed November 4, 2011.

31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith.

Table of Contents

31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith.

32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act.	Filed herewith.

32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act.	Filed herewith.

101	The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended September 30, 2011 and 2010, (ii) Consolidated Balance Sheets as of September, 2011 and December 31, 2010, (iii) Consolidated Statements of Cash Flows for the six months ended September 30, 2011 and 2010, (iv) Consolidated Statements of Stockholders’ Equity for the six months ended September 30, 2011 and (i) the Notes to Consolidated Financial Statements.	Filed herewith.

Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.

		AdCare Health Systems, Inc.
		(Registrant)

Date:	November 9, 2011	/s/Boyd P. Gentry
		Boyd P. Gentry
		Chief Executive Officer
		(Principal Executive Officer)

Date:	November 9, 2011	/s/Martin D. Brew
		Martin D. Brew
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Table of Contents

EXHIBIT INDEX

Exhibit No.	Description	Method of Filing

2.1	Purchase and Sale Agreement, dated as of August 15, 2011, among Eaglewood Villa, Ltd., Woodland Manor, Ltd. and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K/A filed August 19, 2011.

2.2	Purchase and Sale Agreement, dated as of August 15, 2011, among White River Health Systems, Inc. and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K/A filed August 19, 2011.

2.3	Purchase and Sale Agreement, made and entered into as of March 14, 2011, by and between KMJ Management, LLC and Arkansas ADK, LLC.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed March 29, 2011.

2.4	Amendment, made and entered into as July 1, 2011, by and between KMJ Management, LLC and Arkansas ADK, LLC.	Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

2.5	Amendment to Purchase and Sale Agreement, dated as of October 19, 2011, among Eaglewood Villa, Ltd., Woodland Manor, Ltd. and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed October 25, 2011.

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

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

3.3	Amendment to Amended and Restated Articles of Incorporation.	Filed herewith.

10.1	Term Note, dated July 27, 2011, made by Erin Property Holdings, LLC, in favor of Bank of America, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.2	Note, dated July 27, 2011, made by Erin Property Holdings, LLC, in favor of Bank of America, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.3	Term Loan Agreement, dated July 27, 2011, among Erin Property Holdings, LLC, Erin Nursing, LLC, AdCare Health Systems, Inc. and Bank of Atlanta, with respect to the USDA	Incorporated by reference from Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for

Table of Contents

	Loan.	the quarter ended June 30, 2011.

10.4	Loan Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.5	Deed to Secure Debt and Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.6	Deed to Secure Debt and Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.7	Assignment of Leases and Rents, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.8	Assignment of Leases and Rents, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.9	Indemnity Agreement Regarding Hazardous Materials, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.10	Indemnity Agreement Regarding Hazardous Materials, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.11	Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC and Bank of Atlanta, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.12	Security Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Erin Nursing, LLC and Bank of Atlanta, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.13	Guaranty, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.14	Guaranty, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.15	Unconditional Guarantee Business and Industry Guarantee Loan Program, dated July 27, 2011, made by Erin Nursing,	Incorporated by reference from Exhibit 10.15 to the Registrant’s

Table of Contents

	LLC, with respect to the USDA Loan.	Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.16	Unconditional Guarantee Business and Industry Guarantee Loan Program, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan.	Incorporated by reference from Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.17	Unconditional Guarantee, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.18	Unconditional Guarantee, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the SBA Loan.	Incorporated by reference from Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.19	Escrow Agreement, dated July 27, 2011, between Erin Property Holdings, LLC, Bank of Atlanta, and Bank of Atlanta as Escrow Agent, with respect to the USDA Loan and the SBA Loan.	Incorporated by reference from Exhibit 10.19 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.20	Loan Agreement, dated July 27, 2011, between Erin Property Holdings, LLC and Bank of Atlanta, with respect to the SBA Loan #47671350-10.	Incorporated by reference from Exhibit 10.42 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

10.21	Loan Agreement, made and entered into September 1, 2011, by and between Homestead Property Holdings, LLC and Metro City Bank.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.22	Promissory Note, dated September 1, 2011, issued by Homestead Property Holdings, LLC, in favor of Metro City Bank, in the amount of $3,600,000.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.23	Mortgage and Security Agreement, dated September 1, 2011, between Homestead Property Holdings, LLC and Metro City Bank.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.24	Security Agreement, dated September 1, 2011, between Homestead Property Holdings, LLC and Homestead Nursing, LLC, as the debtor, and Metro City Bank, as the secured party.	Incorporated by reference from Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.25	Guaranty, dated as of September 1, 2011, issued by Homestead Nursing, LLC in favor of Metro City Bank.	Incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.26	Guaranty, dated as of September 1, 2011, issued by AdCare Health Systems, Inc. in favor of Metro City Bank.	Incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

Table of Contents

10.27	Guaranty, dated as of September 1, 2011, issued by Christopher F. Brogdon in favor of Metro City Bank.	Incorporated by reference from Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.28	Loan Agreement, dated as of September 1, 2011, by and among Benton Property Holdings, LLC; Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, as borrowers, and The PrivateBank and Trust Company, as lender.	Incorporated by reference from Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.29	Promissory Note, dated September 1, 2011, issued by Benton Property Holdings, LLC; Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, in favor of The PrivateBank and Trust Company, in the amount of $11,800,000.	Incorporated by reference from Exhibit 99.9 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.30	Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of September 1, 2011, executed by Benton Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.10 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.31	Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of September 1, 2011, executed by Park Heritage Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.11 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.32	Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of September 1, 2011, executed by Valley River Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.12 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.33	Guaranty of Payment and Performance, dated as of September 1, 2011, issued by AdCare Health Systems, Inc.; Benton Nursing, LLC; Park Heritage Nursing, LLC; and Valley River Nursing, LLC in favor of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.13 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.34	Secured Promissory Note, dated August 31, 2011, issued by Benton Property Holdings, LLC; Valley River Property Holdings, LLC; Homestead Property Holdings, LLC; Park Heritage Property Holdings, LLC and Home Office Property Holdings, LLC, in favor of KMJ Management, LLC (d/b/a Pinnacle Healthcare, LLC), in the amount of $2,400,000.	Incorporated by reference from Exhibit 99.14 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.35	Mortgage, made and entered into as of August 31, 2011, by and between Benton Property Holdings, LLC and KMJ Management, LLC.	Incorporated by reference from Exhibit 99.15 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.36	Mortgage, made and entered into as of August 31, 2011, by and between Park Heritage Property Holdings, LLC and KMJ Management, LLC.	Incorporated by reference from Exhibit 99.16 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.37	Mortgage, made and entered into as of August 31, 2011, by and between Valley River Property Holdings, LLC and KMJ Management, LLC.	Incorporated by reference from Exhibit 99.17 to the Registrant’s Current Report on Form 8-K filed

Table of Contents

		September 7, 2011.

10.38	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Benton Property Holdings, LLC.	Incorporated by reference from Exhibit 99.18 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.39	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Valley River Property Holdings, LLC.	Incorporated by reference from Exhibit 99.19 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.40	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Homestead Property Holdings, LLC.	Incorporated by reference from Exhibit 99.20 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.41	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Park Heritage Property Holdings, LLC.	Incorporated by reference from Exhibit 99.21 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.42	Pledge and Security Agreement with Power of Sale, entered into and executed as of August 31, 2011, by and between AdCare Property Holdings, LLC and KMJ Management, LLC, with respect to one hundred percent (100%) of the ownership interest in Home Office Property Holdings, LLC.	Incorporated by reference from Exhibit 99.22 to the Registrant’s Current Report on Form 8-K filed September 7, 2011.

10.43	Loan Agreement, dated September 6, 2011, by and between CP Property Holdings, LLC; CP Nursing, LLC; and Economic Development Corporation of Fulton County.	Filed herewith.

10.44	Promissory Note, dated September 6, 2011, issued by CP Property Holdings, LLC, in favor of Economic Development Corporation of Fulton County, in the amount of $2,034,000.	Filed herewith.

10.45	Deed to Secure Debt and Security Agreement, made an entered into September 6, 2011, by and between CP Property Holdings, LLC and Economic Development Corporation of Fulton County.	Filed herewith.

10.46	Security Agreement, made and entered into as of September 6, 2011, between CP Property Holdings, LLC and CP Nursing, LLC, as grantors, and Economic Development Corporation of Fulton County, as the secured party.	Filed herewith.

10.47	Unconditional Guarantee, dated September 6, 2011, issued by Adcare Health Systems, Inc. in favor of Economic Development Corporation of Fulton County.	Filed herewith.

10.48	Unconditional Guarantee, dated September 6, 2011, issued by CP Nursing, LLC in favor of Economic Development	Filed herewith.

Table of Contents

	Corporation of Fulton County.

10.49	Unconditional Guarantee, dated September 6, 2011, issued by Hearth and Home of Ohio, Inc. in favor of Economic Development Corporation of Fulton County.	Filed herewith.

10.50	Loan Agreement, dated as of September 30, 2011, by and among Benton Nursing, LLC, Park Heritage Nursing, LLC and Valley River Nursing, LLC, as borrowers, and The PrivateBank and Trust Company, as lender.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 6, 2011.

10.51	Promissory Note, dated September 30, 2011, issued by Benton Nursing, LLC, Park Heritage Nursing, LLC and Valley River Nursing, LLC, in favor of The PrivateBank and Trust Company, in the amount of $2,000,000.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed October 6, 2011.

10.52	Guaranty of Payment and Performance, dated September 30, 2011, executed by AdCare Health Systems, Inc., Benton Property Holdings, LLC, Park Heritage Property Holdings, LLC and Valley River Property Holdings, LLC, in favor of The PrivateBank and Trust Company.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed October 6, 2011.

10.53	Term Loan Agreement, dated as of October 14, 2011, by and among Homestead Property Holdings, LLC and Homestead Nursing, LLC, as borrowers; AdCare Health Systems, Inc., as guarantor; and Square 1 Bank, as lender.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.54	Term Note, dated October 14, 2011, issued by Homestead Property Holdings, LLC and Homestead Nursing, LLC, in favor of Square 1 Bank, in the amount of $3,600,000.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.55	Mortgage and Security Agreement, dated October 14, 2011, by and between Homestead Property Holdings, LLC and Square 1 Bank.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.56	Security Agreement, dated October 14, 2011, by and between Homestead Property Holdings, LLC and Homestead Nursing, LLC, as debtors, and Square 1 Bank, as the secured party.	Incorporated by reference from Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.57	Guaranty, dated October 14, 2011, issued by AdCare Health Systems, Inc. in favor of Square 1 Bank.	Incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.58	United States Department of Agriculture Rural Development, Unconditional Guarantee, Business and Industry Guaranteed Loan Program, on Form RD 4279-14, dated October 13, 2011, issued by AdCare Health Systems, Inc. in favor of Square 1 Bank.	Incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

Table of Contents

10.59	Escrow Agreement, dated October 14, 2011, by and among Homestead Property Holdings, LLC and Homestead Nursing, LLC, as borrowers, and Square 1 Bank, as both lender and escrow agent.	Incorporated by reference from Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.60	Purchase and Sale Agreement, made and entered into as of May 5, 2011, by and between First Commercial Bank and Brogdon Family, LLC.	Incorporated by reference from Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.61	First Amendment to Purchase and Sale Agreement, made and entered into as of June 13, 2011, by and between First Commercial Bank and Brogdon Family, LLC.	Incorporated by reference from Exhibit 99.9 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.62	Amendment and Assignment of Purchase and Sale Agreement, made and entered into as of September 30, 2011, by and among First Commercial Bank, Brogdon Family, LLC and AdCare Property Holdings, LLC.	Incorporated by reference from Exhibit 99.10 to the Registrant’s Current Report on Form 8-K filed October 20, 2011.

10.63	Guaranty of AdCare Health Systems, Inc., dated August 31, 2011, issued in favor of KMJ Management, LLC	Filed herewith.

10.64	Assignment of Lease and Landlord’s Consent, made and entered into as of October 31, 2011, by and among Cassville Real Estate, Inc. (f/k/a Cassville Manor, Inc.), KMJ Enterprises Cassville, LLC and Rose Missouri Nursing, LLC.	Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed November 4, 2011.

10.65	Operations Transfer Agreement, dated as of November 1, 2011, by and between KMJ Management, LLC (d/b/a Pinnacle Healthcare, LLC) and Rose Missouri Nursing, LLC.	Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed November 4, 2011.

10.66	Guaranty of Lease, made as of November 1, 2011, issued by each of AdCare Health Systems, Inc., Christopher F. Brogdon and Connie B. Brogdon in favor of Cassville Real Estate, Inc.	Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed November 4, 2011.

31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith.

31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith.

32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act.	Filed herewith.

32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act.	Filed herewith.

101	The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended September 30, 2011 and 2010, (ii) Consolidated Balance Sheets as of September, 2011 and December 31, 2010, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, (iv) Consolidated Statements of	Filed herewith.

Table of Contents

Stockholders’ Equity for the nine months ended September 30, 2011 and (i) the Notes to Consolidated Financial Statements.

Exhibit 3.3

DATE:

DOCUMENT ID

DESCRIPTION

FILING

EXPED

PENALTY.

CERT

COPY

06/16/2010

201016601542

DOMESTIC/AMENDMENT TO ARTICLES
(AMD)

37,650.00

.00

Receipt

This is not a bill. Please do not remit payment.

CARLILE, PATCHEN & MURPHY LLP
MICHELLE CARRION

366 E. BROAD ST.

COLUMBUS, OH 43215

STATE OF OHIO

CERTIFICATE

Ohio Secretary of State, Jennifer Brunner

801461

It is hereby certified that the Secretary of State of Ohio has custody of the business records for

ADCARE HEALTH SYSTEMS, INC.

and, that said business records show the filing and recording of:

Document(s)		Document No(s):
DOMESTIC/AMENDMENT TO ARTICLES		201016601542

			Witness my hand and the seal of the Secretary of State at Columbus, Ohio this 15th day of June, A.D. 2010.
United States of America
State of Ohio
Office of the Secretary of State			Ohio Secretary of State

From: Unknown

Date: 6/16/2010 11:33:31 AM

www.state.oh.us/sos e-mail: busserv@sos.state.oh.us	Ohio Secretary of State Central Ohio: (614) 466-3910 Toll Free: 1-877-SOS-FILE (1-877-767-3453)	Expedite this Form: (Select one) [ILLEGIBLE]
		o Yes	PO Box 1390 Columbus, OH 43216
		*Requires an additional fee of $1.00*
		x No	PO Box 1028 Columbus, OH 43216

Certificate of Amendment by
Shareholders or Members
(Domestic)
Filing Fee $50.00

RECEIVED
JUN 15 2010
SECRETARY OF STATE

(CHECK ONLY ONE (1) BOX)

(1) Domestic for Profit

o Amended
(122-AMAP)

[ILLEGIBLE]

x Amendment
(125-AMDS)

(2) Domestic Non-Profit

o Amended
(126-AMAN)

o Amendment
(128-AMD)

Complete the general information in this section for the box checked above.

Name of Corporation	ADCARE HEALTH SYSTEMS, INC.

Charter Number	601461

Name of Officer	J. SCOTT CUNNINGHAM

Title	CHIEF FINANCIAL OFFICER

x Please check if additional provisions attached.

The above named Ohio corporation, does hereby certify that:

x A meeting of the	x shareholders	o directors ( non-profit amended articles only )

o members was duly called and held on	June 4, 2010
	(Date)

at which meeting a quorum was present in person or by proxy, based upon the quorum present, an affirmative vote was cast which entitled them to exercise 95% of the voting power of the corporation.

o in a writing signed by all of the o shareholders o directors ( non-profit amended articles only )

o members who would be entitled to the notice of a meeting or such other proportion not less than a majority as the articles of regulations or bylaws permit.

Clause applies if amended box is checked.

Resolved, that the following amended articles of Incorporations be and the same are hereby adopted to supercede and take the place of the existing articles of Incorporation and all amendments thereto.

This fax was received by GFI FAXmaker fax server. For more information, visit http://www.gfi.com

All of the following Information must be completed if an amended box is checked.

If an amendment box is checked, complete the areas that apply.

FIRST:	The name of the corporation is:

SECOND:	The place in the State of Ohio where its principal office is located is in the City of:


	(city, village or township)	(country)

THIRD:	The purposes of the corporation are as follows:



FOURTH:	The number of shares which the corporation is authorized to have outstanding is: 30,000,000
(Does not apply to box (2))

078198.001

Doc #851379.1

REQUIRED	/s/ J. Scott Cunningham	6/14/10
Must be authenticated	J. Scott Cunningham, Chief Financial Officer	Date
(signed) by an authorized representative
(See Instructions)

	Authorized Representative	Date


	Authorized Representative	Date

541

Last Revised: May 2002

ADDENDUM

CERTIFICATE OF AMENDMENT

ARTICLES OF INCORPORATION

ADCARE HEALTH SYSTEMS, INC.

FOURTH (continued):

,divided into two classes consisting of (1) 29,000,000 shares, no par value, common, and (2) 1,000,000 shares of Serial Preferred, which Serial Preferred Shares may be issued for any purpose and for such consideration as may be fixed from time to time by the Board of Directors without further approval from the shareholders except where required by law.

Exhibit 10.43

CDC/SBC LOAN AGREEMENT

THIS AGREEMENT dated September 6, 2011, by and between CP Property Holdings, LLC (hereinafter the “Borrower” and/or the “SBC”), CP Nursing, LLC (hereinafter “Operating Company” and/or “Guarantor”) and Economic Development Corporation of Fulton County (hereinafter the “Lender” and/or the “CDC”);

W I T N E S S E T H :

WHEREAS, the Borrower has applied to the Lender for a Loan for the purpose of purchase of real estate located at 1765 Temple Avenue, College Park, GA 30337, (hereinafter the “Acquisition Assets”); and

WHEREAS, the Lender is willing to sell a debenture (hereafter the “Debenture”), to the duly appointed SBA Central Servicing Agent, the proceeds of which debenture will be used to make such a Loan to the Borrower on the terms and conditions hereinafter set forth.

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:

ARTICLE I

THE LOAN

SECTION 1.01: THE LOAN, NOTE AND RATE

Subject to the terms and conditions of this Agreement and the Authorization and Debenture Guaranty Agreement of the U.S. Small Business Administration (hereafter the “SBA”), the Lender hereby agrees to lend to the Borrower, and the Borrower hereby agrees to borrow from the Lender and repay the Lender or its assigns, the amount of Two Million Thirty Four Thousand and No/100 Dollars ($2,034,000.00) (hereafter the “Loan”). The obligation of the Borrower to repay the Loan shall be evidenced by the Promissory Note (hereafter the “Note”) of the Borrower in a form satisfactory to the Lender dated the date on which the Loan is made (hereafter the “Closing Date”) payable to the order of the Lender for the amount of the Loan with interest on the unpaid principal as determined at the time when the Debenture of the Lender is sold as per the SBA Authorization and Debenture Guaranty Agreement No. 48203750-01(hereinafter the “SBA Authorization”).

SECTION 1.02: THE TERM AND REPAYMENT

The term of this Loan shall be 20 years. The Note shall be repayable in equal monthly installments. The first monthly installment shall be due and payable in accordance with the terms of the SBA Authorization and Debenture sale date. All payments shall be applied first to interest and then to principal. All payments will be made promptly to Lender at its address specified at the beginning of this Agreement, or at such other address as it may designate in writing.

SECTION 1.03: PURPOSE OF THE LOAN:

The purpose of the Loan is for purchase of real estate located at 1765 Temple Avenue, College Park, GA 30337, as set forth in the SBA Authorization. The Borrower agrees that it will apply the funds received by it under this Agreement in accordance with the use of Loan proceeds specified in the SBA Authorization, as amended. The Borrower further agrees that no application of any funds received from the Lender hereunder shall be made in violation of the Small Business Investment Act of 1958, as amended, or the Regulations promulgated thereunder.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

The Borrower represents and covenants the following:

SECTION 2.01: DULY ORGANIZED

If the Borrower is a corporation or Limited Liability Company, it is duly organized, validly existing and in good standing under the laws of the State of Ohio, qualified to do business in the State of Georgia, and has been empowered power to enter into this Agreement and to borrow hereunder.

If the Borrower is a partnership, it is duly organized, validly existing and in good standing under the laws of the State of Georgia, qualified to do business in the State of Georgia, and has the authority to enter into this Agreement and to borrow hereunder.

SECTION 2.02: DULY AUTHORIZED

The making and performance by the Borrower of this Agreement, and the execution and delivery of the Note, and any Security Agreements and Instruments have been duly authorized by all of the necessary corporate or partnership action and will not violate any law, rule, regulation, order, writ, judgment, decree, determination, or award presently in effect having applicability to the Borrower or any provision of the Borrower’s Certificate of Incorporation or Bylaws and/or Partnership Agreement or result in a breach of or constitute a default under any indenture of bank loan or credit agreement or any other agreement or instrument to which the Borrower is a party or by which it or its property may be bound or affected.

SECTION 2.03: LEGALLY BINDING INSTRUMENTS

When this Agreement is executed by the Borrower and the Lender, and when the Note is executed and delivered by the Borrower for value, each instrument shall constitute the legal, valid, and binding obligation of the Borrower in accordance with its terms. Any Security Agreements and Instruments, Financing Statements, Deeds to Secure Debt and Security Agreements, and other liens on chattel or real estate shall constitute legal, valid, and binding liens free and clear of all prior liens and encumbrances except as provided for hereinabove or on the face of said documents.

SECTION 2.04: NO LEGAL SUITS

There are no legal actions, suits, or proceedings pending or, to the knowledge of the Borrower, threatened against the Borrower before any court or administrative agency which if determined adversely to the Borrower, would have a material adverse effect on the financial condition or business of the Borrower.

SECTION 2.05: NO LEGAL AUTHORIZATION NEEDED

No authorization, consent or approval, or any formal exemption of any governmental body, regulatory authorities (federal, state, or local) or mortgagee, creditor, or third party is or was necessary to the valid execution and delivery by the Borrower of this Agreement, the Note, or any Security Agreement, Financing Statement or Deed to Secured Debt and Security Agreement except as provided for under Section 3.09 herein.

SECTION 2.06: TAXES ARE PAID

The Borrower has filed all tax returns which are required and has paid or made provisions for the payment of all taxes which have or may become due pursuant to said returns or pursuant to any assessments levied against the Borrower or its personal or real property by any taxing agency, federal, state, or local. No tax liability has been asserted by the Internal Revenue Service or other taxing agency, federal, state or local for taxes materially in excess of those already provided for, and the Borrower knows of no basis for any deficiency assessment.

SECTION 2.07: NO ADVERSE CHANGE

The Borrower certifies that there has been no unremedied substantial adverse change since the date of the Borrower’s original loan application made in conjunction with this transaction in the financial condition, organization, operation, business prospects, fixed properties, or personnel of the Borrower.

SECTION 2.08: EQUITY INJECTION

The Borrower warrants and represents that it has injected funds equal to or in excess of that required under the terms of the SBA Authorization for land, building, machinery, equipment or property in cash or kind into the project.

ARTICLE III

CONDITIONS OF LENDING

The obligation of the Lender to make the loan shall be subject to the fulfillment at the time of closing of each of the following conditions:

SECTION 3.01: EXECUTION OF SBA LOAN AUTHORIZATION

The Borrower shall have executed and delivered to the Lender the SBA Authorization. This

Loan Agreement will automatically be amended to include each and every term and condition of the SBA Authorization, as may be amended from time to time. In the event of any conflict between the terms of the SBA Authorization and this Loan Agreement, the SBA Authorization shall control.

SECTION 3.02: EXECUTION AND DELIVERY OF NOTE AND LOAN AGREEMENT

The Borrower shall have executed and delivered to Lender this Loan Agreement and the Note in a form satisfactory to Lender and its legal counsel.

SECTION 3.03: EXECUTION AND DELIVERY OF SECURITY AGREEMENT AND DEED TO SECURE DEBT AND SECURITY AGREEMENT

The Borrower shall have executed and delivered to the Lender a Security Agreement and Financing Statement in form satisfactory to Lender, giving the Lender security in all its chattel and personal property as may be required by Lender or the SBA, and as set forth in the SBA Authorization. The Borrower also shall have executed and delivered to Lender a Deed to Secure Debt and Security Agreement as may be required (hereafter the “Deed”) in form satisfactory to Lender upon and against the real estate described in the SBA Authorization. Said Security Agreement, Financing Statements, and Deed shall be free and clear of all prior liens and encumbrances except as provided for in accordance with the SBA Authorization. Said Security Agreement, Financing Statements, and Deed are to secure payment of principal of the Note, the interest thereon, and any other sums payable by the Borrower hereunder. Borrower and/or Guarantors hereunder shall assign or cause to be assigned to Lender as additional collateral hereunder all issued treasury and/or outstanding shares of stock of Borrower, as required by Lender or the SBA Authorization.

SECTION 3.04: EXECUTION AND CERTIFICATION OF CORPORATE/PARTNERSHIP RESOLUTION

The Borrower shall have executed and delivered to Lender a duly certified copy of the Resolution of the Board of Directors authorizing the execution and delivery by Borrower of this Agreement, the Note, Security Agreement and Deed. In the case of Partnerships, Borrower will provide Lender with appropriate Partnership Resolutions giving necessary effect to this paragraph.

SECTION 3.05: CORPORATE/PARTNERSHIP PAPERS

The Borrower shall have delivered to the Lender copies of the Borrower’s Certificate of Incorporation, Articles of Incorporation, Bylaws, and Certificate of Existence, or in the case of a Partnership, a copy of Borrower’s Partnership Agreement and/or Statement of Partnership.

SECTION 3.06: EXECUTION OF CSA AGREEMENT

The Borrower shall have executed and delivered to the Lender the Central Servicing Agent Agreement (SBA Form 1506) in a form satisfactory to the Lender’s legal counsel.

SECTION 3.07: PERSONAL GUARANTIES

The Lender shall have received duly executed personal guaranty agreements from all parties as required in the SBA Authorization.

SECTION 3.08: TITLE INSURANCE

The Borrower shall have secured mortgagee title insurance in the form and issued by companies satisfactory to the Lender, in the amount of the Loan, insuring the Lender and secured by a Deed to Secure Debt and Security Agreement subject only to exceptions approved in the SBA Authorization. The mortgagee title policy shall show no delinquent taxes or assessments affecting the real property or any part thereof on the date of closing except as approved by the Lender.

SECTION 3.09: APPROVAL OF OTHERS

The Borrower shall have secured all necessary approvals and consents required with respect to this transaction by any third party mortgagor, lessor/lessee, creditor, or any other party having any financial interest in the Borrower.

SECTION 3.10: OPINION OF COUNSEL

The Lender shall have received the Opinion of Counsel to the Borrower that the Representations and Warranties are true and accurate on and as of the Closing Date and the conditions of the Loan have been duly satisfied as of the Closing Date.

ARTICLE IV

AFFIRMATIVE COVENANTS OF THE BORROWER

The Borrower agrees to comply with the following covenants from the date hereof until the Lender has been fully repaid with interest unless the Lender or its assigns shall otherwise consent in writing:

SECTION 4.01: PAYMENT OF THE LOAN

The Borrower agrees to pay punctually the principal and interest on the Note according to its terms and conditions and to pay punctually any other amounts that may become due and payable to the Lender under or pursuant to the terms of this Agreement, the Note, or the SBA Authorization.

SECTION 4.02: PAYMENT OF OTHER INDEBTEDNESS

The Borrower agrees to pay punctually the principal and interest on any other indebtedness now or hereafter at anytime owing by the Borrower to the Lender or any other lender, and shall not increase such indebtedness beyond the current existing amount without the express written consent of the Lender and the SBA.

SECTION 4.03: PAYMENT OF EQUITY INJECTION

Where applicable, the Borrower agrees to pay punctually the principal and interest due on a promissory note evidencing debt for the Equity Injection. Such payment shall not be made at a rate greater than or for a shorter term than the Note evidencing such debt in accordance with the SBA Authorization.

SECTION 4.04: PAYMENT OF LENDER’S FEES

In consideration of the Lender’s expenses associated with processing and servicing this Loan, the Borrower agrees to pay to the Lender a processing fee of 1-1/2% of the Debenture amount at Loan closing, together with an annual servicing fee of 1.00% to be paid to the CDC and an ongoing guarantee fee of 0.749% to be paid to the U.S. Small Business Administration, each such fee based upon the unpaid Loan balance as determined at inception and redetermined at the beginning of each five year anniversary date of the Loan, payable on a monthly basis.

SECTION 4.05: CENTRAL SERVICING AGENT

The Borrower agrees to use the services of the institution appointed by the SBA as the Central Servicing Agent (hereafter the “CSA”) as agent for the Lender. In consideration of the CSA’s expenses associated with the origination and servicing of the Loan, the Borrower agrees to pay monthly to the CSA a combined servicing charge in the form of monthly fee, calculated at a rate of 0.10% of the outstanding principal balance of the loan determined at five (5) year intervals. This percentage remains constant throughout the life of the Debenture. Such charge shall be included in the monthly loan installment as determined by the CSA.

SECTION 4.06: MAINTAIN AND INSURE THE PROPERTY

The Borrower agrees at all times to maintain the property provided as security for this Loan in such condition and repair that the Lender’s security for this Loan will be adequately protected. The Borrower also agrees to maintain during the term of the Loan adequate hazard insurance policies providing hazard and extended coverage and such other hazards coverage as may be deemed appropriate by Lender in amounts at least equal to 100% of the replacement cost as to real estate improvements and 100% of the replacement cost of machinery and equipment, and in form sufficient to prevent the Borrower from becoming a co-insurer and issued by companies satisfactory to the Lender with acceptable loss payee clauses in favor of the Lender. The Borrower further agrees to purchase and maintain Federal Flood Insurance on the collateral, if applicable. Such insurance shall be in an amount equal to the lesser of: (i) the amount of the loan; (ii) the insurable value of the property; (iii) the maximum limit of coverage available. The Borrower further agrees to maintain adequate liability and workers, compensation insurance in amounts and form satisfactory to Lender.

SECTION 4.07: PAY ALL TAXES

The Borrower agrees to duly pay and discharge all taxes, assessments, and governmental charges upon it or against its properties, including the collateral for this Loan, prior to the date on which the penalties attach thereto, except that the Borrower shall not be required to pay any such

tax, assessment, or governmental charge which is being contested by it in good faith and by appropriate proceedings.

SECTION 4.08: MAINTAIN EXISTENCE

The Borrower agrees to maintain its corporate or partnership existence, rights, privileges, and franchises within the State of Georgia, and qualifying and remain qualified as a domestic or foreign business entity in each jurisdiction in which its present or future operations or its business ownership of property require such qualification.

SECTION 4.09: PROVIDE FINANCIAL INFORMATION

The Borrower agrees to maintain adequate records and books of account in which complete entries will be made reflecting all of its business and financial transactions, such entries to be made in accordance with generally accepted principals of good accounting practice consistently applied in the case of financial transactions.

In addition, the Borrower agrees to deliver to the Lender for the 12 month reporting period ending December 31, 2011, and annually thereafter, copies of the Borrower’s and SBC’s financial statements within one hundred twenty (120) days of the close of the required reporting period. Borrower’s failure to deliver to Lender the required financial statements within the required time period may result, at Lender’s option, in an assessed penalty to the Borrower of one half of one percent (1/2 of 1.00%) of the outstanding balance of the loan calculated on the last date of the reporting period.

The Borrower further agrees to provide information and execute and deliver any and all additional documents and instruments as may be reasonably requested by the Lender, its assigns or legal counsel, or the CSA, including, but not limited to:

(a) Executing the SBA Form 159 - “Compensation Agreement” if required;

(b) Displaying the SBA Form 722 - “Equal Opportunity Poster”;

The Borrower further agrees to provide written notice to the Lender of any public hearing or meeting before any administration or other public agency which may in any manner affect the chattel, personal property, or real estate securing the Loan.

SECTION 4.10: RIGHT TO INSPECTION

The Borrower agrees to grant the Lender, until the Note has been fully repaid with interest, the right at all reasonable hours to inspect the chattel, personal property, and real estate used to secure the Loan; and the Borrower further agrees to provide the Lender free access to the Borrower’s premises for the purpose of such inspection to determine the condition of the chattel, personal property, and real estate.

SECTION 4.11: NULL AND VOID COVENANTS

The Borrower agrees that in the event that any provision of the Loan Agreement or any other instrument executed at closing or the application thereof to any reason to be unenforceable by a court of competent jurisdiction, the remainder of such agreement shall nevertheless remain in full force and effect, and to this end, the provisions of all covenants, conditions, and agreements described herein are deemed separate.

SECTION 4.12: EXPENSES AND CLOSING COSTS

The Borrower agrees to pay all fees, expenses, and charges in respect to the Loan or its making or transfer to the Lender in any way connected therewith including, but not limited to, the fees and out-of-pocket expenses of local counsel employed by the Lender, title insurance costs, survey costs, recording and filing fees, mortgage taxes, intangible tax, documentary stamp, and any other such taxes, fees, and expenses payable in connection with this transaction and/or with the enforcement of the Loan Agreement and Note.

SECTION 4.13: INDEMNIFICATION

The Borrower agrees to indemnify and save the Lender or its assigns harmless against any and all liability with respect to, or resulting from, any delay in discharging any obligation of the Borrower.

SECTION 4.14: EXPENSES OF COLLECTION OR ENFORCEMENT

The Borrower agrees, if at any time the Borrower defaults on any provision of the Loan Agreement, to pay the Lender or its Assigns, in addition to any other amounts that may be due from the Borrower, an amount equal to the costs and expenses of collection, enforcement, correction, or waiver of the default incurred by the Lender or its Assigns in such collection, enforcement, correction, or waiver of default.

SECTION 4.15: COST OVERRUNS

In the event of any cost overruns on the project, Borrower agrees to provide such additional funds as may be needed to complete the project. In the event these funds are borrowed, they will be secured by security interests inferior to those given to Lender pursuant to this Loan Agreement and the SBA Authorization.

SECTION 4.16: CONFORMITY WITH 13 CFR 108/SBA AUTHORIZATION AND DEBENTURE GUARANTY

The Borrower agrees to at all times be in conformity with the provisions of Title 13, Code of Federal Regulations, part 108 and each and every requirement of the SBA Authorization.

SECTION 4.17: JOBS CERTIFICATION

The Borrower certifies that as a result of this project it will use its best efforts to create or retain 135 full-time equivalent jobs within 2 years of project completion.

ARTICLE V

NEGATIVE COVENANTS OF THE BORROWER

The Borrower covenants and agrees that from the date hereof until payment in full of the Note, unless the Lender or its assigns shall otherwise consent in writing, it will not enter into any agreement or other commitment, the performance of which would constitute a breach of any of the covenants contained in this Loan Agreement.

SECTION 5.01: ENCUMBER THE ASSETS

The Borrower will neither create nor suffer to exist any mortgage pledge, lien, charge, or encumbrance, including liens arising from judgments on the Acquisition Assets except as provided by the SBA Authorization

SECTION 5.02: SELL THE ACQUISITION ASSETS

The Borrower will not sell, convey, or suffer to be conveyed, lease, assign, transfer, or otherwise dispose of the Acquisition Assets unless approved in writing by the Lender.

SECTION 5.03: CHANGE OWNERSHIP

The principals of the Borrower will not permit, without the written permission of the Lender, any material change in the ownership, structure, control, or operation of the Borrower, including but not limited to: (i) merger into or consolidation with any other person, firm, partnership or corporation; (ii) authorization, issuance, or reclassification of any shares of its capital stock having ordinary voting power for the election of the Board of Directors or other governing body of the Borrower; (iii) changing the nature of its business as carried on at the date hereof; (iv) substantial distribution, liquidation, or other disposal of the Borrower’s assets to the stockholders; (v) or in the case of a partnership, any change in ownership of any or all of the partnership interests.

SECTION 5.04: FIXED ASSET LIMITATION

The Borrower agrees that until payment in full of the indebtedness evidenced by the Note, Borrower will not, in any fiscal year, without the prior written consent of the Holder of the note,

make or incur any expenditures for the acquisition of or improvement or addition to, any real property, machinery, equipment fixtures or furniture, by purchase or by lease purchase agreement or option.

ARTICLE VI

EVENTS OF DEFAULT

The entire unpaid principal of the Note, and the interest then accrued thereon, shall become and be immediately due and payable upon the written demand of the Lender or its assigns without any other notice or demand of any kind or any presentment or protest if any one of the following events (hereafter an “Event of Default”) shall occur and be continuing at the time of such demand, whether voluntarily or involuntarily, without limitation, occurring or brought about by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body, provided, however, that such sum shall not be then payable if Borrower’s payments have been waived or the time for making Borrower’s payments have been extended by the Lender and the SBA.

SECTION 6.01: NONPAYMENT OF LOAN

If the Borrower shall fail to make payment when due of any installment of principal on the Note or interest accrued thereon.

SECTION 6.02: NONPAYMENT OF ANY OTHER INDEBTEDNESS

If default shall be made in the payment when due of any installment of principal or of interest accrued on any of Borrower’s other indebtedness as referred to in Section 4.02 above.

SECTION 6.03: INCORRECT REPRESENTATION OR WARRANTY

If any representation or warranty contained in, or made in connection with the execution and delivery of this Loan Agreement or in any certificate furnished pursuant hereto which shall prove to have been incorrect when made in any material respect.

SECTION 6.04: DEFAULT IN COVENANTS

If Borrower shall default in the performance of any other term, covenant, or agreement contained in this Loan Agreement or in the SBA Authorization, or any other loan document which shall control in the event of any conflict between it and this Agreement.

SECTION 6.05: VOLUNTARY INSOLVENCY

If Borrower shall become insolvent or shall cease to pay its debts as they mature or shall voluntarily file a petition seeking reorganization of or the appointment of a receiver, trustee, or

liquidation for the Borrower or substantial portion of its assets or to effect a plan or other arrangement with creditors or shall be adjudicated bankrupt or shall make a voluntary assignment for the benefit of creditors.

SECTION 6.06: INVOLUNTARY INSOLVENCY

If any involuntary petition shall be filed against the Borrower under any bankruptcy, insolvency, or similar law or seeking the reorganization of or the appointment of any receiver, trustee, or liquidator for the Borrower, or of a substantial part of the Borrower or a writ or warrant of attachment or similar process shall be issued against a substantial part of the property of the Borrower, and such petition shall not be dismissed or such writ or warrant of attachment or similar process shall not be released or bonded within thirty (30) days after filing or levy.

SECTION 6.07: SBA “504” NOTE DEFAULTS

If Borrower defaults under any terms and provisions of SBA “504” Note (SBA Form 1505).

SECTION 6.08: CHANGE OF OWNERSHIP/CONTROL

If Borrower effects a change of ownership or control of Borrower’s personal, corporate or partnership entity or business without the prior written consent of the Lender.

SECTION 6.09: OWNERSHIP IN LENDER

If Borrower or any affiliate thereof should acquire, directly or indirectly, in excess of ten (10%) percent ownership or interest in Lender.

ARTICLE VII

MISCELLANEOUS

SECTION 7.01: WAIVER OF NOTICE

No failure or delay on the part of the Lender in exercising any right, power, or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. No modification or waiver of any provision of the Loan Agreement or of the Note, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and then such waiver or consent shall be effective only in the specific instance and for the specific purpose which given.

SECTION 7.02: AMENDMENTS

The Borrower and the Lender, or its assigns, hereby expressly reserve all rights to amend any provisions of this Agreement, to consent to or waive any departure from the provision of the Loan Agreement, to amend or consent to or waive departure from the provisions of the Note, provided, however, that all such amendments be in writing and executed by the Lender or its

assigns, the Borrower.

SECTION 7.03: NOTICES

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

If given to Lender, shall be addressed as follows:

	Economic Development Corporation of Fulton County
	5534 Old National Highway
	College Pard, GA 30349

with a copy to:	Barbara A. Chakales, LLC
	Attn: Barbara A. Chakales
	300 Colonial Center Parkway, Suite 100
	Roswell, Georgia 30076

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

	CP Property Holdings, LLC
	3050 Peachtree Road, Suite 355
	Atlanta, GA 30305

	CP Nursing, LLC
	3050 Peachtree Road, Suite 355
	Atlanta, GA 30305

SECTION 7.04: PAYMENTS

The Borrower will make payments to the Lender in accordance with the terms and conditions and instructions contained in the Central Servicing Agent Agreement (SBA Form 1506).

SECTION 7.05: SURVIVAL OF REPRESENTATIONS AND WARRANTIES

All agreements, representations and warranties made by the Borrower herein or in any other documents or certificate delivered to the Lender in connection with the transactions contemplated by this Agreement shall survive the delivery of this Agreement, the Note and Security Agreements hereunder and shall continue in full force and effect so long as the Note is outstanding.

SECTION 7.06: SUCCESSORS AND ASSIGNS

This Agreement shall be binding upon the Borrower, its successors, and assigns except that the Borrower may not assign or transfer its rights without prior written consent of the SBA. This Agreement shall inure to the benefit of the Lender, its successors, and assigns, and, except as otherwise expressly provided in particular provisions hereof, all subsequent Holders of the Note.

SECTION 7.07: COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

SECTION 7.08: GOVERNING LAW

This Agreement and the Note and Security Agreements, Financing Statements, and Deed shall be deemed contracts made under the laws of the State of Georgia, and for all purposes shall be construed in accordance with the laws of said state.

SECTION 7.09: ARTICLE AND SECTION HEADINGS

Article and Section headings used in this Agreement are for convenience only and shall not affect the construction of the Agreement.

SECTION 7.10: MISCELLANEOUS

Borrower/SBC shall provide no loans to officers, shareholders, directors or employees. SBC will declare no dividends, capital distributions, or other capital withdrawals without prior written consent of Lender.

By execution of this document Borrower certifies that Borrower and SBC will comply with the following provisions: (a) Borrower must lease 100% of the rentable property to Operating Company; (b) Operating Company may sublease up to 49% of the rentable property; (c) Borrower will not use Loan proceeds to improve or renovate any of the rentable property to be sub-leased.

IN WITNESS WHEREOF, the parties hereto have each caused this Loan Agreement to be duly executed as of the day and year first written above.

	LENDER :

	Economic Development Corporation of Fulton
	County

[illegible]	BY:	/s/ Eugene Merriday	(L.S.)
Witness		Eugene Merriday

	TITLE: Executive Director

	[CORPORATE SEAL]

	BORROWER :

	CP Property Holdings, LLC

[illegible]	BY:	/s/ Christopher Brogdon	(L.S.)
Witness		CHRISTOPHER BROGDON

	TITLE: Manager


	OPERATING COMPANY :

	CP Nursing, LLC

[illegible]	BY:	/s/ Christopher Brogdon	(L.S.)
Witness		CHRISTOPHER BROGDON

	TITLE: Manager

Exhibit 10.44

U.S. Small Business Administration

U.S. Small Business Administration

NOTE

(CDC/504 LOANS)

SBA Loan #		48203750-01
SBA Loan Name		College Park Healthcare
Date		SEPTEMBER 6, 2011
Loan Amount		$2,034,000.00
Borrower		CP Property Holdings, LLC
Operating Company		CP Nursing, LLC
CDC		Economic Development Corporation of Fulton County

Funding Date: October 12, 2011	* Interest Rate: %

First Payments Due: November 1, 2011	* P&I Amount: $

Note Maturity Date: October 1, 2031	* Monthly Payment: $


	(* blank at signing)

1. PROMISE TO PAY:

In return for the Loan, Borrower promises to pay to the order of CDC the amount of Two Million Thirty Four Thousand and No/100 Dollars, interest on the unpaid principal balance, the fees specified in the Servicing Agent Agreement, and all other amounts required by this Note.

2. DEFINITIONS:

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

“Debenture” means the debenture issued by CDC to fund the Loan.

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

“Loan” means the loan evidenced by this Note.

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

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

“Servicing Agent Agreement” means the agreement between the Borrower and the CDC that, among other things, appoints a servicing agent (“Servicing Agent”) for this Note.

3. INTEREST RATE AND PAYMENTS:

The terms of the Debenture sale will establish the interest rate, P&I amount, and Monthly Payment for this Note. Borrower acknowledges that these terms are unknown when Borrower signs this Note.

A. Once established, the interest rate is fixed. Interest begins to accrue on the Funding Date.

B. Monthly Payments are due on the first business day of each month, beginning on the First Payment Date and continuing until the Note Maturity Date, when all unpaid amounts will be due. Borrower must pay at the place and by the method the Servicing Agent or CDC designates. The Monthly Payment includes the monthly principal and interest installment (P & I Amount), and the monthly fees in the Servicing Agent Agreement. The Servicing Agent will apply regular Monthly Payments in the following order: 1) monthly fees, 2) accrued interest, and 3) principal.

4. LATE-PAYMENT FEE:

CDC charges a late fee if the Servicing Agent receives a Monthly Payment after the fifteenth day of the month when it is due. The late fee is five percent of the payment amount, or $100.00, whichever is greater. The late fee is in addition to the regular Monthly Payment.

5. RIGHT TO PREPAY:

Borrower may prepay this Note in full on a specific date each month set by the Servicing Agent. Borrower may not make partial prepayments. Borrower must give CDC at least 45 days’ prior written notice. When it receives the notice, CDC will give Borrower prepayment instructions. At least 10 days before the payment date, Borrower must wire a non-refundable deposit of $1,000 to the Servicing Agent. The Servicing Agent will apply the deposit to the prepayment if Borrower prepays. In any prepayment, Borrower must pay the sum of all of the following amounts due and owing through the date of the next semi-annual Debenture payment:

A. Principal balance;

B. Interest;

C. SBA guarantee fees;

D. Servicing agent fees;

E. CDC servicing fees;

F. Late fees;

G. Expenses incurred by CDC for which Borrower is responsible; and

H. Any prepayment premium.

6. PREPAYMENT PREMIUM:

If Borrower prepays during the first half of the Note term, Borrower must pay a prepayment premium. The formula for the prepayment premium is specified in the Debenture and may be obtained from CDC.

7. DEFAULT:

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

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

B. Defaults on any other loan made or guaranteed by SBA;

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

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

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

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

G. Fails to pay any taxes when due;

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

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

J. Makes an assignment for the benefit of creditors;

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

L. Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without CDC’s prior written consent, except for ownership changes of up to 5 percent beginning six months after the Loan closes; or

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

8. CDC’S RIGHTS IF THERE IS A DEFAULT:

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

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

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

C. File suit and obtain judgment;

D. Take possession of any Collateral; or

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

9. CDC’S GENERAL POWERS:

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

A. Bid or buy at any sale of Collateral by Lender or another lienholder, at any price it chooses;

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

C. Release anyone obligated to pay this Note;

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

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

10. FEDERAL LAW:

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

11. SUCCESSORS AND ASSIGNS:

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

12. GENERAL PROVISIONS:

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

B. Borrower authorizes CDC, the Servicing Agent, or SBA to complete any blank terms in this Note and any other Loan Documents. The completed terms will bind Borrower as if they were completed prior to this Note being signed.

C. Borrower waives all suretyship defenses.

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

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

F. Borrower may not use an oral statement to contradict or alter the written terms of, or raise a defense to, this Note.

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

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

13. STATE-SPECIFIC PROVISIONS:

Time is of the essence of this Note.

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

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

IN WITNESS WHEREOF, CP Property Holdings, LLC has executed this Note under seal this 6 th day of September, 2011.

	BORROWER :

	CP Property Holdings, LLC

	BY:	/s/ Christopher Brogdon
		CHRISTOPHER BROGDON

	TITLE: Manager

ASSIGNMENT: CDC assigns this Note to SBA.

Economic Development Corporation of Fulton County

By:

/s/ Eugene Merriday

Date: 9/6,2011

Typed Name: Eugene Merriday , authorized officer of CDC.

Exhibit 10.45

	THIS INSTRUMENT PREPARED BY :

	BARBARA A. CHAKALES
	BARBARA A. CHAKALES, LLC
	300 Colonial Center Parkway, Suite 100
	Roswell, Georgia 30076
	(678) 353-3343
	File No.: 9720-22

DEED TO SECURE DEBT AND SECURITY AGREEMENT

THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT (hereinafter referred to as this “Deed”) is made and entered into this day of , 2011, by and between CP Property Holdings, LLC, whose address is 3050 Peachtree Road, Suite 355, Atlanta, GA 30305, party of the first part, as grantor (hereinafter referred to as “Borrower”), and Economic Development Corporation of Fulton County, whose address is 5534 Old National Highway, College Pard, GA 30349, party of the second part, as grantee (hereinafter referred to as “Lender”);

W I T N E S S E T H :

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

(a) All those certain tracts, pieces or parcels of land more particularly described in Exhibit “A” attached hereto and by this reference made a part hereof (hereinafter referred to as the “Land”).

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

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

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

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

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

(a) The debt evidenced by that certain promissory note (hereinafter referred to as the “Note”) dated of even date herein, made by CP Property Holdings, LLC to the order of Lender in the principal face amount of Two Million Thirty Four Thousand and No/100 Dollars ($2,034,000.00), with the final payment being due on or before OCTOBER 1, 2031, together with any and all renewals, modifications, consolidations and extensions of the indebtedness evidenced by the Note;

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

(c) Any and all other indebtedness now owing or which may hereafter be owing by Borrower to Lender, now existing or hereafter coming into existence, however and whenever incurred or evidenced, whether express or implied, direct or indirect, absolute or contingent, or due or to become due, and all renewals, modifications, consolidations and extensions thereof.

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

Borrower hereby further covenants and agrees with Lender as follows:

ARTICLE I

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

1.02 Taxes, Liens and Other Charges .

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

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

(c) Borrower shall pay, on or before the due date thereof: (i) all premiums on policies of insurance covering, affecting or relating to the Premises, as required pursuant to Paragraph 1.03; (ii) all premiums on life insurance policies, if any, collaterally assigned or to be collaterally assigned to Lender; (iii) all premiums for mortgage insurance, if this Deed and the Note are so insured; and (iv) all ground rentals, other lease rentals and other sums, if any, owing by Borrower and becoming due under any lease or rental contract affecting the Premises. Borrower shall submit to Lender such evidence of the due and punctual payment of all such premiums, rentals and other sums as Lender may require in writing.

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

1.03 Insurance .

(a) Borrower shall procure for, deliver to and maintain for the benefit of Lender during the term of this Deed, original paid up insurance policies of such insurance companies, in such amounts, in such form and substance, and with such expiration dates as are acceptable to Lender and containing non-contributory standard mortgagee clauses, their equivalent or a satisfactory mortgagee loss payable endorsement in favor of Lender, providing the following types of insurance covering the Premises and in the interest and liabilities incident to the ownership, possession and operation thereof: (i) insurance against loss or damage by fire, lightning, windstorm, hail,

explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief and against such other hazard as, under good insurance practices, from time to time are insured against for properties of similar character and location, the amount of which insurance shall be not less than the greater of (A) the balance of the Indebtedness or (B) one hundred percent (100%) of the full replacement cost of the Premises without deduction for depreciation, and which policies of insurance shall contain satisfactory replacement cost endorsements; (ii) when obtainable from the United States of America or any agency or instrumentality thereof, war risk insurance in the maximum amount available up to an amount equal to the replacement cost of the Premises; (iii) such other insurance on the Premises or any replacements or substitutions therefore and in such amounts as may from time to time be reasonably required by Lender against other insurable casualties which at the time are commonly insured against in the case of properties of similar character and location due regard being given to the height and type of the improvements, their construction, location, use and occupancy, or any replacements or substitutions therefore.

(b) Lender is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies maintained pursuant to this Paragraph 1.03, and to collect and receive the proceeds from any such policy or policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly to Lender, instead of to Borrower and Lender jointly. In the event any insurance company fails to disburse directly and solely to Lender but disburses instead either solely to Borrower or to Borrower and Lender jointly, Borrower agrees immediately to endorse and transfer such proceeds to Lender. Upon the failure of Borrower to endorse and transfer such proceeds as aforesaid, Lender may execute such endorsements or transfers for and in the name of Borrower and Borrower hereby irrevocably appoints Lender as Borrower’s agent and attorney-in-fact so to do. After deducting from said insurance proceeds all of its expenses incurred in the collection and administration of such sums, including reasonable attorney’s fees actually incurred, Lender may apply the net proceeds or any part thereof, at its option; (i) to the payment of the Indebtedness, whether or not due and in whatever order Lender elects; (ii) to the repair and/or restoration of the Premises, and/or (iii) for any other purposes or objects for which Lender is entitled to advance funds under this Deed, all without affecting the security interest created by this Deed; and any balance of such monies then remaining shall be paid to Borrower or the person or entity lawfully entitled thereto. Lender shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure.

(c) At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Paragraph 1.03, a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender. Borrower shall deliver to Lender receipts evidencing the payment for all such insurance policies and renewals or replacements. The delivery of any insurance policies hereunder shall constitute an assignment of all unearned premiums as further security hereunder. In the event of the foreclosure of this Deed or any other transfer of title to the Premises in extinguishment or partial extinguishment of the Indebtedness, all right, title and interest of Borrower in and to all insurance policies then in force shall pass to the purchaser or to Lender, as the case may be, and Lender is hereby irrevocably appointed by Borrower as attorney- in-fact for Borrower to assign any such policy to said purchaser or to Lender, as the case may be, without accounting to Borrower for any unearned premiums thereon.

1.04 Monthly Deposits . Upon Default, at the option of Lender and further to secure the payment of the taxes and assessments referred to in Paragraph 1.02 and the premiums on the insurance referred to in Paragraph 1.03, Borrower shall deposit with Lender, on the due date of each installment under the Note, such amounts as, in the estimation of Lender, shall be necessary to pay such charges as they become due; said deposits to be held by Lender, free of interest, and free of any liens or claims on the part of creditors of Borrower and as part of the security of Lender, and to be used by Lender to pay current taxes and assessments and insurance premiums on the Premises as the same accrue and are payable. Payment from said sums for said purposes shall be made by Lender at its discretion and may be made even though such payments will benefit subsequent owners of the Premises. Said deposits shall not be, nor be deemed to be, trust funds but may be commingled with the general funds of Lender. If said deposits are insufficient to pay the taxes and assessments and insurance premiums in full as the same become payable, Borrower will deposit with Lender such additional sum or sums as may be required in order for Lender to pay such taxes and assessments and insurance premiums in full. Upon any default in the provisions of this Deed or the Note, or any instrument evidencing, securing or in any way related to the Indebtedness, Lender may, at its option, apply any money in the fund resulting from said deposits to the payment of the Indebtedness in such manner as it may elect.

1.05 Condemnation . If all or any material portion (“material portion” to be reasonably determined by Lender) of the Premises shall be damaged or taken through condemnation (which terms when used in this Deed shall include any damage or taking by any governmental or quasi-governmental authority and any transfer by private sale in lieu thereof), either temporarily or permanently, then the entire Indebtedness shall, at the option of Lender, immediately become due and payable. Borrower, immediately upon obtaining knowledge of the institution, or the proposed, contemplated or threatened institution, of any action or proceeding for the taking through condemnation of the Premises or any part thereof will notify Lender, and Lender is hereby authorized, at its option, to commence, appear in and prosecute, through counsel selected by Lender, in its own or in Borrower’s name, any action or proceeding relating to any condemnation, and to settle or compromise any claim in connection therewith. All such compensation, awards, damages, claims, rights of action and proceeds and the right thereto are hereby assigned by Borrower to Lender, and Lender is authorized, at its option, to collect and receive all such compensation, awards or damages and to give proper receipts and acquattances therefor without any obligation to question the amount of any such compensation, awards or damages. After deducting from said condemnation proceeds all of its expenses incurred in the collection and administration of such sums, including reasonable attorney’s fees actually incurred, Lender may apply the net proceeds or any part thereof, at its option, (i) to the payment of the Indebtedness, whether or not due and in whatever order Lender elects, (ii) to the repair and/or restoration of the Premises and/or (iii) for any other purposes or objects for which Lender is entitled to advance funds under this Deed, all without affecting the security interest created by this Deed, and any balance of such monies then remaining shall be paid to Borrower or any other person or entity lawfully entitled thereto. Borrower agrees to execute such further assignments of any compensation, awards, damages, claims, rights of action and proceeds as Lender may require. If prior to the receipt by Lender of such award or proceeds, the Premises shall have been sold on foreclosure of this Deed, or under the power of sale herein granted, Lender shall have the right to receive such award or proceeds to the extent of any unpaid Indebtedness following such sale, with legal interest thereon, whether or not a

deficiency judgment on this Deed or the Note shall have been sought or recovered, and to the extent of reasonable counsel fees, costs and disbursements actually incurred by Lender in connection with the collection of such award or proceeds.

1.06 Care of Premises .

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

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

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

(d) Lender or its representative is hereby authorized to enter upon and inspect the Premises at any time during normal business hours.

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

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

1.07 Leases, Contracts, Etc.

(a) As additional collateral and further security for the Indebtedness, Borrower does hereby assign to Lender Borrower’s interest in any and all leases, tenant contracts, rental agreements,

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

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

(c) Borrower shall furnish to Lender, within ten (10) days after a request by Lender to do so, a sworn statement setting forth the names of all lessees and tenants of the Premises, the terms of their respective leases, tenant contracts or rental agreements, the space occupied, and the rentals payable thereunder, and stating whether any defaults, off-sets or defenses exist under or in connection with any of said leases, tenant contracts or rental agreements. Any and all leases, tenant contracts and rental agreements affecting the Premises shall provide for giving by the lessees or tenants thereunder of certificates with respect to the status of such lease, tenant contracts or rental agreements, and Borrower shall exercise Borrower’s right to request such certificates within five (5) days of any demand therefore by Lender.

(d) Each lease, tenant contract and rental agreement pertaining to the Premises, or any part thereof, shall provide that, in the event of the enforcement by Lender of the remedies provided by law or by this Deed, the lessee or tenant thereunder will, upon request of Lender or any other person or entity succeeding to the interest of Lender as a result of such enforcement, automatically become the lessee or tenant of Lender or said successor-in-interest, without change in the terms or other provisions of said lease, tenant contract or rental agreement; provided, however, that neither Lender nor any such successor-in-interest shall be bound by (i) any payment of rental or additional rental for more than one (1) month in advance, except prepayments in the nature of security for the

performance by said lessee or tenant of its obligations under said lease, tenant contract or rental agreement (and then only if such prepayments have been deposited with and are under the control of Lender); or (ii) any amendment or modification of said lease, tenant contract or rental agreement made without the express written consent of Lender or said successor in interest. Each lease, tenant contract and rental agreement pertaining to the Premises shall also provide that, upon request by said successor in interest, the lessee or tenant thereunder shall deliver an instrument or instruments confirming such attornment.

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

1.08 Security Agreement .

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

With respect to the equipment and fixtures referred to or described in this Deed, or in any way connected with the use and enjoyment of the Premises, this Deed is hereby made and declared to be a security agreement as a part of the Premises, in compliance with the provisions of the Uniform Commercial Code as enacted in the State of Georgia. Upon request by Lender, at any time and from time to time, a financing statement or statements reciting this Deed to be a security agreement affecting all of such property shall be executed by Borrower and Lender and appropriately filed. The remedies for any violation of the covenants, terms and conditions of the security agreement contained in this Deed shall be (i) as prescribed herein, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory consequences now or hereafter enacted and specified in said Uniform Commercial Code, all at Lender’s sole election. Borrower and Lender agree that the filing of any such financing statement or statements in the records normally having to do with personal property shall not in any way affect the agreement of Borrower and Lender that everything used in connection with the production of income from the Premises or adapted for use therein or which is described or reflected in this Deed, is, and at all times and for all purposes and in all proceedings, both legal or equitable, shall be, regarded as part of the real estate conveyed hereby regardless of whether (i) any such item is physically attached to the improvements, (ii) serial numbers are used for the better identification of certain items capable of

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

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

1.10 Expenses . Borrower will pay or reimburse Lender, upon demand therefore, for all reasonable attorney’s fees actually incurred, costs and expenses actually incurred by Lender in any suit, action, legal proceeding or dispute of any kind in which Lender is made a party or appears as party plaintiff or defendant, affecting the Indebtedness, this Deed or the interest created herein, or the Premises, including, but not limited to, the exercise of the power of sale contained in this Deed, any condemnation action involving the Premises or any action to protect the security hereof, and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Deed.

1.11 Estoppel Affidavit . Borrower, upon ten (10) days’ prior written notice, shall furnish Lender a written statement, duly acknowledged, setting forth the unpaid principal of, and interest on, the Indebtedness, stating whether or not any offsets or defenses exist against the Indebtedness, or any portion thereof, and, if such offsets or defenses exist, stating in detail the specific acts relating to each such offset or defense.

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

1.13 Books, Records, Accounts and Annual Reports . Borrower shall keep and maintain or shall cause to be kept and maintained, at Borrower’s cost and expense and in accordance with generally accepted accounting principles, proper and accurate books, records and accounts reflecting all items of income and expense in connection with the operation of the Premises and in connection with any services, equipment or furnishings provided in connection with the operation of the Premises. Lender, by Lender’s agents, accountants and attorneys, shall have the right from time to time to examine such books, records and accounts at the office of Borrower or such other person or entity maintaining such books, records and accounts, to make copies or extracts thereof as Lender shall desire and to discuss Borrower’s affairs, finances and accounts with Borrower and with the officers and principals of Borrower, at such reasonable times as may be requested by Lender. Borrower will furnish to Lender annually within one hundred twenty (120) days after the end of Borrower’s fiscal year a financial statement (audited if requested by Lender) for the Premises for such fiscal year prepared by an independent certified public accountant satisfactory to Lender containing a profit and loss statement and all supporting schedules covering the operation of the Premises, in reasonable detail, prepared in accordance with generally accepted accounting standards consistently applied and accompanied by the unqualified opinion and certification of such independent certified public accountant (and if audited, who shall have examined and certified the accuracy of such audit); and Borrower will furnish to Lender, at any time within thirty (30) days after demand by Lender, unaudited statements, certified by Borrower’s principal financial or accounting officer, covering such financial matters as Lender may reasonably request, including, without limitation, monthly operating statements with respect to the Premises.

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

1.15 No Default Affidavits . At Lender’s request, all payments under the Note or hereunder shall be accompanied by the affidavit of Borrower or a principal financial or accounting officer of Borrower, dated within five (5) days of delivery of such payment to Lender, swearing that he knows of no Default (as hereinafter defined), nor of any circumstance which after notice or lapse

of time or both would constitute a Default, which has occurred and is continuing or, if any such Default has occurred and is continuing, specifying the nature and period of existence thereof and the action Borrower has taken or proposes to take with respect thereto and, except as otherwise specified, stating that Borrower has fulfilled all of Borrower’s obligations under this Deed which are required to be fulfilled on or prior to the date of such affidavit.

1.16 Use and Management of Premises . Borrower shall at all times operate the Premises as a healthcare facility. Borrower shall not be permitted to alter or change the use of the Premises or to abandon the Premises without the prior written consent of Lender.

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

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

1.19 Junior Financing . Borrower shall not without the prior written consent of Lender incur any additional indebtedness or create or permit to be created or to remain, any mortgage, pledge, lien, lease, encumbrance or charge on, or conditional sale or other title retention agreement, whether prior or subordinate to the liens of this Deed with respect to the Premises or any part thereof or income therefrom other than the Deed herein and the Permitted Encumbrances.

1.20 Hazardous Materials .

(a) Borrower represents, warrants and agrees that (i) neither Borrower nor, to the best knowledge of Borrower, any other person has used or installed any Hazardous Material (as hereinafter defined) on, from or affecting the Premises or received any notice from any governmental agency, entity or other person with regard to Hazardous Materials on, from or affecting the Premises; (ii) neither Borrower nor, to the best knowledge of Borrower, any other person has violated any applicable Environmental Laws (as hereinafter defined) relating to or affecting the Premises or any other property owned by Borrower; (iii) the Premises are presently in compliance with all Environmental Laws, and there are no facts or circumstances presently existing upon or under the Premises, or relating to the Premises, which may violate any applicable

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

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

ARTICLE II

2.01 Default . The terms “Default” or “Defaults”, wherever used in this Deed, shall mean any one or more of the following events:

(a) Failure by Borrower to pay as and when due and payable any portion of the Indebtedness; or

(b) Failure by Borrower duly to observe or perform any other term, covenant, condition or agreement of this Deed; or

(c) Failure by Borrower duly to observe or perform any term, covenant, condition or agreement in any loan agreement, assignment of lease or any other agreement now or hereafter evidencing, securing or otherwise relating to the Note or this Deed or the Indebtedness; or

(d) The occurrence of a default or event of default under any loan agreement, assignment of leases or any other agreement now or hereafter evidencing, securing or otherwise related to the Note or this Deed or the Indebtedness; or

(e) Any warranty of Borrower contained in this Deed, or in any loan agreement, assignment of leases or any other agreement now or hereafter evidencing or securing or otherwise relating to the Note or this Deed or the Indebtedness which proves to be untrue or misleading in any material respect; or

(f) The filing by Borrower or any endorser or guarantor of the Note of a voluntary petition in bankruptcy or the filing by Borrower or any such endorser or guarantor of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief for itself under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, or Borrower’s or any such endorser’s or guarantor’s seeking or consenting to or acquiescing in the appointment of any trustee, receiver or Liquidator of Borrower, such endorser or guarantor, or of all or any substantial part of the Premises or of any other property or assets of Borrower, such endorser or guarantor, or of any or all of the income, rents, issues, profits or revenues thereof, or the making by Borrower, or any such endorser or guarantor, of any general assignment for the benefit of creditors, or the admission in writing by Borrower, or for any such endorser or guarantor, of its inability to pay its debts generally as they become due or the commission by Borrower or any such endorser or guarantor of an act of bankruptcy; or

(g) The filing of a petition against Borrower, or any endorser or guarantor of the Note, seeking any reorganization arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, or the appointment of any trustee, receiver or liquidator of Borrower, or of any such endorser or guarantor or of all of the income, rents, issues, profits or revenues thereof unless such petition shall be dismissed within thirty (30) days after such filing, but in any event prior to the entry of an order, judgment or decree approving such petition; or

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

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

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

Upon the occurrence of any Event of Default as defined in this Agreement and any of the Loan Documents, (i) Lender shall give written notice to Borrower of a monetary default hereunder, and Borrower shall have a period of ten (10) days thereafter to cure such monetary default, and (ii) Lender shall give written notice to Borrower of a non-monetary default hereunder and Borrower shall have a period of thirty (30) days thereafter to cure such non-monetary default (provided, however, that the Lender shall have no obligation to provide more than three (3) written default notices to the Borrower, within any given calendar year).

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

2.03 Right to Enter and Take Possession .

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

(b) If Borrower shall for any reason fail to surrender or deliver the Premises or any part thereof after such demand by Lender, Lender may obtain a judgment or decree conferring upon Lender the right to immediate possession of the Premises to Lender, and Borrower hereby specifically covenants and agrees that Borrower will not oppose, contest or otherwise hinder or delay Lender in any action or proceeding by Lender to obtain such judgment or decree. Borrower will pay to Lender upon demand, all reasonable expenses actually incurred of obtaining such judgment or decree, including reasonable compensation to Lender, its attorneys and agents, and all such expenses and compensation shall, until paid, become part of the Indebtedness and shall be secured by this Deed.

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

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

2.04 Performance by Lender . If Borrower shall Default in the payment, performance or observance of any term, covenant or condition of this Deed, Lender may, at its option, pay, perform or observe the same, and all payments made or costs or expenses incurred by Lender in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Borrower to Lender with interest thereon at the default rate provided in the Note. Lender shall be the sole judge of the necessity for any such actions and of the amounts to be paid. Lender is hereby empowered to enter and to authorize others to enter upon the Premises or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower.

2.05 Receiver . If a Default shall have occurred, Lender, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Indebtedness or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Premises and to collect and apply the incomes, rents, issues, profits and revenues thereof. The receiver shall have

all of the rights and powers permitted under the laws of the State of Georgia. Borrower will pay to Lender upon demand all reasonable expenses, including receiver’s fees, attorney’s fees, costs and agent’s compensation actually incurred, incurred pursuant to the provisions of this Paragraph 2.05, and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Deed.

2.06 Enforcement .

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

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

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

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

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

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

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

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

2.13 Discontinuance of Proceedings . In case Lender shall have proceeded to enforce any right, power or remedy under this Deed by foreclosure, entry or otherwise or in the event Lender

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

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

2.15 Waiver .

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

(b) No act or omission by Lender shall release, discharge, modify, change or otherwise affect the original liability under the Note, this Deed or any other obligation of Borrower or any subsequent purchaser of the Premises or any part thereof, or any maker, co-signer, endorser, surety or guarantor, or preclude Lender from exercising any right, power or privilege herein granted or intended to be granted in the event of any Default then made or of any subsequent Default, or alter the security title, security interest or lien of this Deed except as expressly provided in an instrument or instruments executed by Lender. Without limiting the generality of the foregoing, Lender may: (i) grant forbearance or an extension of time for the payment of all or any portion of the Indebtedness; (ii) take other or additional security for the payment of the Indebtedness; (iii) waive or fail to exercise any right granted hereunder or in the Note; (iv) consent to the granting of any easement or other right affecting the Premises; (vii) make or consent to any agreement subordinating the security title, security interest or lien hereof; or (viii) take or omit to take any action whatsoever with respect to the Note, this Deed, the Premises or any document or instrument evidencing, securing or in any way related to the Indebtedness; all without releasing, discharging,

modifying, changing or affecting any such liability, or precluding Lender from exercising any such right, power of privilege or affecting the security title, security interest or lien of this Deed. In the event of the sale or transfer by operation of law or otherwise of all of any part of the Premises, Lender, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Premises or the Indebtedness, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing and/or discharging any liabilities, obligations or undertakings.

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

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

2.18 Waiver of Borrower’s Rights to Judicial Hearing and Non-Statutory Notice . BY EXECUTION OF THIS DEED AND BY INITIALING THIS PARAGRAPH 2.18, BORROWER EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT OF LENDER TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTE AND ANY OTHER INDEBTEDNESS AND THE POWER OF ATTORNEY GIVEN HEREIN TO LENDER TO SELL THE PREMISES BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY BORROWER WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED: (B) WAIVES ANY AND ALL RIGHTS WHICH BORROWER MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY LENDER OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO LENDER, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALLING FORBEARANCE, APPRAISEMENT VALUATION, STAY EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS: (C) ACKNOWLEDGES THAT BORROWER HAS READ THIS DEED AND ANY AND ALL QUESTIONS OF BORROWER REGARDING

THE LEGAL EFFECT OF THIS DEED AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO BORROWER, AND BORROWER HAS CONSULTED WITH COUNSEL OF BORROWER’S CHOICE PRIOR TO EXECUTING THIS DEED AND INITIALING THIS PARAGRAPH 2.18; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF BORROWER HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY BORROWER AS PART OF A BARGAINED FOR LOAN TRANSACTION AND THAT THIS DEED IS VALID AND ENFORCEABLE BY LENDER AGAINST BORROWER IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.

INITIALED BY BORROWER:

/s/CB

ARTICLE III

3.01 Successors and Assigns . This Deed shall inure to the benefit of and be binding upon Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns. Whenever a reference is made in this Deed to “Borrower” or “Lender” such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors, successors-in-title and assigns of Borrower and Lender, as the case may be. The provisions of this paragraph 3.01 are subject to the restrictions on transfer contained in Paragraph 1.17.

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

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

3.04 Applicable Law . This Deed shall be interpreted, construed and enforced according to the laws of the State of Georgia.

3.05 Notices . Any and all notices, elections or demands permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving such notice, election or demand, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail, postage prepaid, certified with return receipt required, and shall be deemed to have been received on the earlier of the date shown on the receipt or three (3) business days after the postmarked

date thereof, or upon being deposited with an overnight delivery service requiring proof of

delivery, to the other party at the address of such other party set forth below or such other address within the continental United States as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any such notice, election, demand or request must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a partner or any officer, partnership, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been given shall also constitute receipt. Any such notice, election, demand, request or response shall be addressed as follows:

If given to Lender, shall be addressed as follows:

	Economic Development Corporation of Fulton County
	5534 Old National Highway
	College Pard, GA 30349

with a copy to:	Barbara A. Chakales, LLC
	300 Colonial Center Parkway, Suite 100
	Roswell, Georgia 30076
	Attn: Barbara A. Chakales

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

	CP Property Holdings, LLC
	3050 Peachtree Road, Suite 355
	Atlanta, GA 30305

with a copy to:
	Ellen W. Smith
	Holt Ney Zatcoff & Wasserman, LLP
	100 Galleria Parkway, Suite 1800
	Atlanta, GA 30339-5960

3.06 Replacement of Note . Upon receipt of evidence reasonably satisfactory to Borrower of the loss, theft, destruction or mutilation of the Note, and in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Borrower or, in the case of any such mutilation, upon surrender and cancellation of the Note, Borrower will execute and deliver, in lieu thereof, a replacement Note, identical in form and substance to the Note and dated as of the date of the Note and upon such execution and delivery all references in this Deed to the Note shall be deemed to refer to such replacement Note.

3.07 Assignment . This Deed is assignable by Lender, and any assignment hereof by Lender shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Lender.

3.08 Time is of the Essence . Time is of the essence with respect to each and every covenant, agreement and obligation of Borrower under this Deed, the Note and any and all other instruments now or hereafter evidencing, securing or otherwise relating to the Indebtedness.

3.09 Further Stipulations . The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations:

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

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

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

IN WITNESS WHEREOF, Borrower has executed this Deed under seal, as of the day and year first above written.

	BORROWER :

Signed, sealed and delivered	CP Property Holdings, LLC
in the presence of:

[illegible]	BY:	/s/ Christopher Brogdon	(L.S.)
Witness		CHRISTOPHER BROGDON

/s/ Ellen W. Smith	TITLE: Manager
Notary Public

Exhibit 10.46

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”) is made and entered into as of the day of , 2011, by and among CP Property Holdings, LLC (the “Borrower”), whose mailing address is 3050 Peachtree Road NW, Suite 355, Atlanta, GA 30305, and CP Nursing, LLC (the “Operating Company”), whose mailing address is 3050 Peachtree Road NW, Suite 355 Atlanta, GA 30305 (Borrower and Operating Company collectively referred to as the “Grantor”), and Economic Development Corporation of Fulton County with an office located at 5534 Old National Highway, College Park, GA 30349 (the “Lender”).

W I T N E S S E T H :

That for good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the Grantor hereby agrees with Lender as follows:

1. Definitions . Reference is hereby made to that certain Loan Agreement being dated of even date hereof, (the “Loan Agreement”) by and between Grantor and Lender and (i) that certain Note in the amount of Two Million Thirty Four Thousand and No/100 Dollars ($2,034,000.00) of Borrower in favor of Lender of even date herewith (the foregoing obligation of Borrower described above is hereinafter referred to as the “Note”). All terms used in this Security Agreement which are defined in the Note and the Loan Agreement or in Article 9 of the Uniform Commercial Code (the “Code”) of Georgia and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

2. Grant of Security Interest . As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to Lender, and grants to Lender a continuing security interest in, the following, whether now owned or hereafter acquired by Grantor and howsoever its interest therein may arise or appear, whether by ownership, lease, security interest, claim or otherwise, (the “Collateral”):

(a) All equipment of the Grantor, used or useful in the Borrower’s business, whether now owned or hereafter acquired or arising, including, but not limited to, items listed on Exhibit “A” attached hereto and by this reference made a part hereof (Collectively the “Equipment”). Some of the foregoing are or may become fixtures affixed to the real property described herein;

(b) All products and/or proceeds (“Proceeds”) of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Lender is the loss payee thereof), any indemnity, warranty, or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, and including, without limitation, all monies due or to become due in connection with any of the Collateral, guaranties and security for the payment of such monies, the right of stoppage in transit, and all returned or repossessed goods arising from a sale or lease thereof. (Although proceeds are covered, Lender does not authorize the sale or other transfer of any of the Collateral or the transfer of any interest in the Collateral, except for the sale of goods in the ordinary course of Grantor’s business).

3. Security for Obligations . The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the “Obligations”):

(a) The full and prompt payment, when due, of the indebtedness (and interest thereon) evidenced and to be evidenced by the Notes, and any and all renewals, modifications, and extensions of said Notes, in whole or in part;

(b) The prompt payment and performance of any and all other present and future indebtedness, liabilities and obligations of Grantor to Lender of every kind, character, and description, whether now existing or hereafter created or arising, whether absolute or matured or unmatured, direct or indirect, primary or secondary, and including without limitation, all future advances by Lender to the Grantor.

4. Representations and Warranties . The Grantor represents and warrants as follows:

(a) The Borrower is a limited liability company organized under the laws of the State of Georgia. The Borrower’s mailing address is 3050 Peachtree Road, Suite 355, Atlanta, GA 30305 and its tax identification number is [ ]; The Operating Company is a limited liability company organized under the laws of the State of Georgia; the Operating Company’s mailing address is 3050 Peachtree Road, Suite 355, Atlanta, GA 30305 and its tax identification number is [ ].

(b) “CP Property Holdings, LLC” is the correct legal name of the Borrower indicated on the public record of the Borrower’s jurisdiction of organization that shows the Borrower to be organized; ) “CP Nursing, LLC” is the correct legal name of the Operating Company indicated on the public record of the Operating Company’s jurisdiction of organization that shows the Operating Company to be organized

(d) Exhibit “B” also correctly sets forth the principal offices of Grantor over the last five years and all other locations in which tangible assets of the Grantor (including inventory, equipment, books and records) have been located in the last five years.

(e) (i) Except as otherwise specifically mentioned in Exhibit “C”, hereto attached, the Grantor owns the Collateral free and clear of any lien, security interest or other charge or encumbrance except for the security interest created by this Agreement.

(ii) Except for the financing statements filed in favor of Lender relating to this Agreement, and except for any financing statements filed with respect to the security interests mentioned in Exhibit “C”, hereto attached, no other financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office.

(f) The exercise by Lender of its rights and remedies hereunder will not contravene any law

or governmental regulation or any contractual restriction binding on or affecting the Grantor or any of its properties and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties.

(g) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body is required either for the grant by the Grantor of the security interest created hereby in the Collateral or of the exercise by Lender of its rights and remedies hereunder.

(h) This Agreement creates a valid security interest in favor of the Lender in the Collateral. The taking possession by the Lender of all equipment constituting Collateral from time to time, and the filing of financing statement(s) with the State of Georgia, will perfect and establish the priority of the Lender’s security interest hereunder in the Collateral, subject to no other liens and encumbrances, except as otherwise specifically disclosed in Exhibit “C”. Except as set forth in this Section 4(i), no action is necessary or desirable to perfect or otherwise protect such security interest.

5. Covenants as to the Collateral . So long as any of the Obligations shall remain outstanding, unless Lender shall otherwise consent in writing:

(a) Further Assurances . The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that Lender deems necessary or desirable or that Lender may request in order (i) to perfect and protect the security interest created or purported to be created hereby; (ii) to enable Lender to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including, without limitation: (A) executing and filing such financing or continuation statements, or amendments thereto, as Lender deems necessary or desirable or that Lender may request in order to perfect and preserve the security interest created or purported to be created hereby; and (B) furnishing to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail.

(b) Location of Equipment . The Grantor will keep all of the Equipment, both now owned and hereafter acquired, at 1765 Temple Avenue, College Park, GA 30337, or at such other location or locations to which Lender shall consent in writing in advance of placing Equipment at such location(s).

(c) Taxes . The Grantor will pay promptly before delinquent all property and other taxes, assessments, and governmental charges or levies imposed upon, and all claims (including claims for labor, materials, and supplies) against, the Collateral, except to the extent the validity thereof is being contested diligently and in good faith by proper proceedings satisfactory to the Lender.

(d) Insurance . The Grantor will, at its own expense, maintain insurance with respect to the Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Lender from time to time.

(e) Transfers and other Liens. Without the prior consent of Lender, the Grantor will not (i)

sell, assign (by operation of law or otherwise), exchange, or otherwise dispose of any of the Collateral; or (ii) create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral except for the security interest created by this Agreement, and except for any security interest specifically disclosed in “Exhibit “C”, attached hereto provided, however, that Grantor shall have the right to replace Equipment by new equipment of value equal to or greater than the value of the replaced Equipment and Grantor may dispose of Equipment which is obsolete and has no value to Grantor or the operation of its business.

(f) Damage to Collateral . The Grantor will promptly furnish to the Lender a statement respecting any material loss or damage to any of the tangible Collateral.

6. Covenants of the Grantor . So long as any of the obligations shall remain outstanding, unless Lender shall otherwise consent in writing:

(a) The Grantor shall not merge or consolidate into, or transfer any of the Collateral to any other Person.

(b) The Grantor shall not change its name unless it has given the Lender thirty (30) days’ prior written notice thereof and executed or authorized, at the request o the Lender, such additional financing statements to be filed in such jurisdictions as the Lender may deem necessary or desirable in its sole discretion.

(c) The Grantor shall, at any time and from time to time, whether or not the Official Text of Revised Article 9, 2000 Revision, of the Uniform Commercial Code promulgated by the American Law Institute and the National Conference of Commissioners on Uniform State Laws or a version thereof (“Uniform Revised Article 9”) has been adopted in any particular jurisdiction, take such steps as the Lender may reasonably request for the Lender (i) to obtain an acknowledgment, in form and substance reasonably satisfactory to the Lender, of any bailee having possession of any of the Collateral, stating that the bailee holds possession of such Collateral on behalf of the Lender, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights, or electronic chattel paper (as such terms are defined by Revised Article 9 with corresponding provisions thereof defining what constitutes “control” for such items of Collateral), with any agreements establishing control to be in form and substance reasonably satisfactory to the Lender, and (iii) otherwise to insure the continued perfection and priority of the Lender’s security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation of or following the effectiveness of Revised Article 9 in any jurisdiction. If the Grantor shall at any time, whether or not Uniform Revised Article 9 has been adopted in any particular jurisdiction, acquire a “commercial tort claim” (as such term is defined in Revised Article 9) [with a claim for damages in excess of $1,000,000], the Grantor, as the case may be, shall promptly notify the Lender thereof in writing, providing a reasonable description and summary thereof, and shall execute a supplement to this Security Agreement granting a security interest in such commercial tort claim to the Lender.

7. Additional Provisions Concerning the Collateral . (a) The Grantor hereby authorizes Lender its counsel or its representative, at any time and from time to time, to file without the

signature of the Grantor, as permitted by law, financing statements and amendments that describe the collateral covered by such financing statements as “all assets of the Grantor”, “all personal property of the Grantor” or words of similar effect, in such jurisdictions as the Agent may deem necessary or desirable in order to perfect the security interests granted by the Grantor under this Security Agreement.

(b) The Grantor hereby irrevocably appoints Lender the Grantor’s attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender’s discretion, to take any action and to execute any instrument which Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to obtain and adjust insurance required to be paid to Lender pursuant to Section 5(d) hereof; (ii) to ask, demand, collect, sue for, recover, compound, receive, and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iii) to receive, endorse, and collect any checks, drafts or other instruments, documents, and chattel paper in connection with clause (i) or (ii) above; and (iv) to file any claims or take any action or institute any proceeding which Lender may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Lender with respect to any of the Collateral. Grantor hereby ratifies and approves all acts of said attorney; and so long as the attorney acts in good faith it shall have no liability to Grantor for any act or omission as such attorney.

(c) If the Grantor fails to perform any agreement contained herein, Lender may itself perform, or cause performance of, such agreement or obligation, and the costs and expenses of Lender incurred in connection therewith shall be payable by the Grantor under Section 9 hereof, and shall be fully secured hereby.

(d) The powers conferred on Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

(e) Anything herein to the contrary notwithstanding, (i) the Grantor shall remain liable under any contracts and agreements relating to the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by Lender of any of its rights hereunder shall not release the Grantor from any of its obligations under the contracts and agreements relating to the Collateral; and (iii) Lender shall not have any obligation or liability by reason of this Agreement under any contracts and agreements relating to the Collateral, nor shall Lender be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

8. Default . The occurrence of any one or more of the following events shall constitute an event of default (an “Event of Default”) under this Agreement: (a) failure of the Grantor to pay any of the Grantor’s Obligations and when due and payable, after giving effect to any applicable grace period; (b) failure of the Grantor to perform, observe, or comply with any of the provisions of this

Agreement or of any of the other Loan Documents, after giving effect to any applicable grace period; (c) the occurrence of an Event of Default (as defined therein) under any of the other Loan Documents; (d) any information contained in any financial statement, application, schedule, report, or any other document given by the Grantor or by any other person in connection with the Grantor’s Liabilities, with the Collateral, or with any of the Loan Documents is not in all respects true and accurate or the Grantor or such other person omitted to state any material fact or any fact necessary to make such information not misleading; (e) the Grantor is generally not paying debts as such debts become due; (f) the filing of any petition for relief under any provision of the Federal Bankruptcy Code or any similar state law is brought by or against the Grantor; (g) an application for the appointment of a receiver for, the making of a general assignment for the benefit of creditors by or the insolvency of, the Grantor; (h) the dissolution, merger, consolidation, or reorganization of the Grantor; (i) suspension of the operation of the Grantor’s present business; (j) the determination in good faith by the Lender that a material adverse change has occurred in the financial condition of the Grantor from the condition set forth in the most recent financial statement of the Grantor heretofore furnished to the Lender, or from the financial condition of the Grantor as heretofore most recently disclosed to the Lender in any other manner; (k) the determination in good faith by the Lender that the prospect of payment of any of the Grantor’s Obligations impaired for any reason; or (l) any amendment to or termination of a financing statement naming the Grantor as debtor and the Lender as secured party, or any correction statement with respect thereto, is filed in any jurisdiction by any party other than the Lender or its counsel without the prior written consent of the Lender.

9. Remedies Upon Default . If an Event of Default shall have occurred:

(a) Lender may exercise in respect of the Collateral, in addition to its rights and remedies provided for herein or otherwise available to itself, all the rights and remedies of a secured party under the Code (whether or not the Code applies to the affected Collateral), and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of Lender forthwith, assemble all or part of the Collateral as directed by Lender and make it available to Lender at a place to be designated by Lender which is reasonably convenient to Lender; and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at Lender’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Lender may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least five (5) days’ notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(b) Any cash held by Lender as Collateral and all cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied as follows:

(i) First, to the repayment of the reasonable costs and expenses, including reasonable attorneys’ fees and legal expenses, incurred by Lender in connection with (A) the

administration of this Agreement, (B) the retaking, custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon any Collateral, (C) the exercise or enforcement of any of the rights of Lender hereunder, or (D) the failure of the Grantor to perform or observe any of the provisions hereof;

(ii) Second, to the reimbursement of Lender for the amount of any obligations of the Grantor paid or discharged by Lender pursuant to the provisions of this Agreement, and of any expenses of Lender payable by the Grantor hereunder;

(iii) Third, to the satisfaction of the Obligations, in such order as Lender shall elect;

(iv) Fourth, to the payment of any other amounts required by applicable law (including, without limitation, Section 9-615(a)(3) of the Code or any successor or similar, applicable statutory provision); and

(v) Fifth, the surplus proceeds, if any, to the Grantor or to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

(c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all the amount to which Lender is legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at such rate(s) as shall be fixed by instrument(s) evidencing the Obligation(s) with respect to which such deficiency exists, together with the costs of collection and the reasonable fees of any attorneys employed by Lender to collect such deficiency.

10. Rights and Duties of Lender, Etc. Lender undertakes, as to this Agreement, to exercise only such duties as are specifically set forth in this Agreement and to exercise such of the rights, powers and remedies as are vested in it by this Agreement or by law.

11. Indemnity and Expenses . (a) The Grantor agrees to indemnify Lender from and against any and all claims, losses, and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses, or liabilities resulting solely and directly from Lender’s gross negligence or willful misconduct.

(b) The Grantor will upon demand pay to Lender the amount of any and all costs and expenses, including the fees and disbursements of the Lender’s counsel and of any experts and agents, which Lender may incur in connection with (i) the administration of this Agreement (Excluding the salary of Lender’s employees and Lender’s normal and usual overhead expenses); (ii) the custody, preservation, use, or operation of, or sale of, collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of Lender hereunder; or (iv) the failure by the Grantor to perform or observe any of the provisions hereof, except expenses resulting solely and directly from Lender’s gross negligence or willful misconduct.

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

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

If given to Lender, shall be addressed as follows:

Economic Development Corporation of Fulton County

5534 Old National Highway

College Pard, GA 30349

with a copy to:

BARBARA A. CHAKALES

BARBARA A. CHAKALES, LLC

300 Colonial Center Parkway, Suite 100

Roswell, Georgia 30076

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

CP Property Holdings, LLC

3050 Peachtree Road, Suite 355

Atlanta, GA 30305

and, if given to Operating Company, shall be addressed as follows:

CP Nursing, LLC

3050 Peachtree Road, Suite 355

Atlanta, GA 30305

13. Security Interest Absolute . All rights of Lender, all security interests and all obligations of the Grantor hereunder shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Guaranty, or any other agreement or instrument relating thereto; (ii) any change in the time, manner, or place of payment of, or in any other term in respect of, all or any of the Obligations or any other amendment or waiver of or consent to any departure from this Agreement, any guaranty, or any other agreement or instrument relating thereto; (iii) any increase in, addition to, or exchange, release, or non-perfection of, any other collateral, or any release or

amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Grantor in respect of the obligations or this Agreement; or (v) the absence of any action on the part of Lender to obtain payment or performance of the Obligations from the Grantor or any other party.

14. Miscellaneous . (a) No amendment of any provision of this Security Agreement shall be effective unless it is in writing and signed by the Grantor and Lender, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

(b) No failure on the part of Lender to exercise, and no delay in exercising, any right hereunder or under any other instrument or document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of Lender provided herein and the other instruments and documents are cumulative and are in addition to, and exclusive of, any rights or remedies provided by law. The rights of Lender under any Guaranty between the parties, any guaranty, any other instrument which now or hereafter evidences or secures all or part of the Obligations, or any related document against any party thereto are not conditional or contingent on any attempt by Lender to exercise any of its rights under any other such instrument or document against such party or against any other party.

(c) Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

(d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full of all of the Obligations, (ii) be binding on the Grantor and its successors and permitted assigns and shall inure, together with all rights and remedies of Lender hereunder, to the benefit of its Lender and successors, transferees, and assigns. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of Lender.

(e) Upon the satisfaction in full of all of the Obligations, Lender will, upon the Grantor’s request and at the Grantor’s expense, (i) return to the Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof; and (ii) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence termination of the security interest herein granted.

(f) This Agreement shall be governed by and construed in accordance with the statutes and laws of the state of Georgia, except as required by mandatory provisions of law and except to the extent that the validity or perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of Georgia.

15. Special Provisions . If any Rider, initialed by the parties, is attached hereto, the provisions of such Rider are made a part hereof by reference as fully and particularly as if set out herein verbatim. Should there be any conflict in the provisions hereof and the provisions contained in such Rider, the provisions of such Rider shall control.

16. The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations:

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

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

IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the day and year first above written.

	BORROWER:
	CP Property Holdings, LLC


[illegible]	BY:	/s/ Christopher Brogdon	(L.S.)
Witness	CHRISTOPHER BROGDON ,

	TITLE: Manager


	OPERATING COMPANY:

	CP Nursing, LLC


[illegible]	BY:	/s/ Christopher Brogdon	(L.S.)
Witness		CHRISTOPHER BROGDON

	TITLE: Manager

EXHIBIT “A” TO SECURITY AGREEMENT

List of Collateral

EXHIBIT “B” TO SECURITY AGREEMENT

The following are all names and tradenames that the Grantor has used within the last five years:

1. CP Property Holdings, LLC

2. College Park Healthcare

3. CP Nursing, LLC

The following are the chief executive offices of the Grantor over the last five years.

1. 3050 Peachtree Road Atlanta, GA 30305

The following are the locations of tangible assets of the Grantor over the last five years.

1. 1765 Temple Avenue, College Park, GA 30337

2. 3050 Peachtree Road Atlanta, GA 30305

EXHIBIT “C” TO SECURITY AGREEMENT

There are no other liens upon, security interests in, or claims to any of the Collateral, except as follows:

Deed to Secure Debt from CP Property Holdings, LLC to The Bank of Las Vegas dated , recorded at Deed Book , page Fulton County records in the original principal amount of $2,840,000.00.

Security Agreement and UCC Financing Statement evidencing CP Property Holdings, LLC as Debtor and The Bank of Las Vegas as Secured Party securing a loan in the original principal amount of $2,840,000.00.

Exhibit 10.47

U.S. Small Business Administration

U.S. Small Business Administration

UNCONDITIONAL GUARANTEE

SBA Loan #	48203750-01
SBA Loan Name	College Park Healthcare
Guarantor	AdCare Health Systems, Inc.
Borrower	CP Property Holdings, LLC
Lender	Economic Development Corporation of Fulton County
Date	2011
Note Amount	$2,034,000.00

1. GUARANTEE:

Guarantor unconditionally guarantees payment to Lender of all amounts owing under the Note. This Guarantee remains in effect until the Note is paid in full. Guarantor must pay all amounts 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.

2. NOTE:

The “Note” is the promissory note dated of even date in the principal amount of Two Million Thirty Four Thousand and No/100 Dollars, from Borrower to Lender. It includes any assumption, renewal, substitution, or replacement of the Note, and multiple notes under a line of credit.

3. DEFINITIONS:

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

“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.

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

4. LENDER’S GENERAL POWERS:

Lender may take any of the following actions at any time, without notice, 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. Release any Borrower or any guarantor of the Note;

D. Compromise or settle with the 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 lienholder, at any price Lender chooses; and

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

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

5. FEDERAL LAW:

When SBA is the holder, the Note and this Guarantee will be construed and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Guarantee, Guarantor may not claim or assert any local or state law against SBA to deny any obligation, defeat any claim of SBA, 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 or 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;
10)		The financial condition of Borrower or any guarantor was overstated or has adversely changed;
11)		Lender made errors or omissions in Loan Documents or administration of the Loan;
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. SBA NOT A CO-GUARANTOR. Guarantor’s liability will continue even if SBA pays Lender. SBA is not a co-guarantor with Guarantor. Guarantor has no right of contribution from SBA.

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 singing 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.

F. FINANCIAL STATEMENTS. Guarantor must give Lender financial statements as Lender requires.

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 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 Guaranty.

The Guarantor hereby waives the right to require the Holder of the obligations hereby guaranteed to take action against the Debtor as provided for in O.C.G.A. § 10-7-24.

11. GUARANTOR ACKNOWLEDGEMENT 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 NAME(S) AND SIGNATURE(S):

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

IN WITNESS WHEREOF, GUARANTOR has executed this Guaranty under seal as of the 6 th day of September, 2011.

GUARANTOR :

Adcare Health Systems, Inc


BY:	/s/ Christopher Brogdon	(L.S.)
	CHRISTOPHER BROGDON

TITLE: Vice Chairman, Chief Acquisition Officer

Exhibit 10.48

U.S. Small Business Administration

U.S. Small Business Administration

UNCONDITIONAL GUARANTEE

SBA Loan #	48203750-01
SBA Loan Name	College Park Healthcare
Guarantor	CP Nursing, LLC
Borrower	CP Property Holdings, LLC
Lender	Economic Development Corporation of Fulton County
Date	2011
Note Amount	$2,034,000.00

1. GUARANTEE:

2. NOTE:

3. DEFINITIONS:

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

“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.

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

4. LENDER’S GENERAL POWERS:

Lender may take any of the following actions at any time, without notice, 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. Release any Borrower or any guarantor of the Note;

D. Compromise or settle with the 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 lienholder, at any price Lender chooses; and

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

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

5. 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;

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 or 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;
10)		The financial condition of Borrower or any guarantor was overstated or has adversely changed;
11)		Lender made errors or omissions in Loan Documents or administration of the Loan;
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.