ADCARE HEALTH SYSTEMS INC (Form: 8-K, Received: 03/15/2012 16:41:16)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): March 9, 2012

AdCare Health Systems, Inc.

(Exact Name of Registrant as Specified in Charter)

Ohio		001-33135		31-1332119
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

5057 Troy Road

Springfield, OH 45502-9032

(Address of Principal Executive Offices)

(937) 964-8974

(Registrant’s telephone number, including area code)

Not applicable.

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

Quail Creek Purchase

On March 12, 2012, AdCare Property Holdings, LLC (“AdCare Holdings”), a wholly owned subsidiary of AdCare Health Systems, Inc. (the “Company”), entered into a Purchase and Sale Agreement (the “Quail Creek Purchase Agreement”) with Westlake Nursing Home Limited (the “Quail Creek Seller”) to acquire certain land, buildings, improvements, furniture, fixtures, vehicles, operating agreements and equipment comprising a 118 bed skilled nursing facility located in Oklahoma City, Oklahoma, for an aggregate purchase price of $5,800,000, subject to the terms and conditions of the Quail Creek Purchase Agreement (the “Quail Creek Purchase”). Upon not less than three business days’ notice to the Quail Creek Seller, AdCare Holdings may assign its right and liabilities under the Quail Creek Purchase Agreement to one or more entities which are owned or controlled directly by AdCare Holdings.

Pursuant to the Quail Creek Purchase Agreement, AdCare Holdings deposited $25,000 (the “Quail Creek Deposit”) into escrow to be held as earnest money. Upon consummation of the Quail Creek Purchase, the Quail Creek Deposit will be retained by the Quail Creek Seller and applied against the purchase price therefor.

The closing of the Quail Creek Purchase is expected to occur on April 15, 2012. AdCare Holdings may extend the closing until May 15, 2012, subject to AdCare Holdings’ payment of an additional $25,000 in earnest money (which shall be held and disbursed as part of the Quail Creek Deposit) and as otherwise permitted under the terms of the Quail Creek Purchase Agreement. The closing of the Quail Creek Purchase is subject to customary closing conditions, indemnification provisions and termination provisions.

Tulsa Purchase

On March 14, 2012, AdCare Holdings entered into a Purchase and Sale Agreement (the “Tulsa Purchase Agreement”) with F & F Ventures, LLC and Tulsa Christian Care, Inc., d/b/a Companions Specialized Care Center (collectively, the “Tulsa Seller”) to acquire certain land, buildings, improvements, furniture, fixtures, operating agreements and equipment comprising a 121 bed skilled nursing facility located in Tulsa, Oklahoma for an aggregate purchase price of $5,750,000, subject to the terms and conditions of the Tulsa Purchase Agreement (the “Tulsa Purchase”). The purchase price consists of a $5,000,000 cash payment and the issuance of shares of the Company’s common stock with an aggregate value of $750,000, with such shares valued at the average closing price of the Company’s common stock for the ten-day period ending on the last business day prior to the closing of the Tulsa Purchase. Upon not less than three business days’ notice to the Tulsa Seller, AdCare Holdings may assign its right and liabilities under the Tulsa Purchase Agreement to one or more entities which are owned or controlled directly by AdCare Holdings.

Pursuant to the Tulsa Purchase Agreement, AdCare Holdings will deposit $150,000 (the “Tulsa Deposit”) into escrow to be held as earnest money. Upon consummation of the Tulsa Purchase, the Tulsa Deposit will be retained by the Tulsa Seller and applied against the purchase price therefor.

The closing of the Tulsa Purchase is expected to occur on May 30, 2012. AdCare Holdings may extend the closing until June 30, 2012 upon written notice to the Tulsa Sellers. The closing of the Tulsa Purchase is subject to customary closing conditions, indemnification provisions and termination provisions.

PrivateBank Loan Modification

On March 9, 2012, the Company and certain of its wholly owned subsidiaries, on the one hand, and The PrivateBank and Trust Company (“PrivateBank”), on the other hand, entered into a Modification Agreement (“Modification Agreement”) which amends that certain Loan and Security Agreement (“Loan Agreement”), dated as of September 30, 2011, between certain of the Company’s wholly owned subsidiaries and PrivateBank. The Modification Agreement amends the Loan Agreement to: (i) include Homestead Nursing, LLC, Woodland Manor Nursing, LLC and Mountain View Nursing, LLC, each a wholly owned subsidiary of the Company, as additional borrowers under the Loan Agreement; (ii) include Homestead Property Holdings, LLC, Woodland Manor Property Holdings, LLC and Mt. V Property Holdings, LLC, each a wholly owned subsidiary of the Company, as additional guarantors under the Loan Agreement; and (iii) change the loan maturity date from September 29, 2012 to March 8, 2013. The Loan Agreement did not change the maximum amount that may be borrowed under the Loan Agreement by the borrowers, which remains at $2,000,000.

The foregoing descriptions of the Quail Creek Purchase Agreement, Tulsa Purchase Agreement and the Modification Agreement are qualified in their entirety by reference thereto, copies of which are attached hereto as Exhibit 2.1, Exhibit 2.2 and Exhibit 99.2, respectively, and are incorporated herein by reference.

Item 1.02 Termination of a Material Definitive Agreement.

On March 9, 2012, AdCare Holdings terminated that certain previously announced Purchase and Sale Agreement (as subsequently amended, the “Agreement”) between AdCare Holdings, Epic Group Limited Partnership (“Epic”) and each of its affiliated entities signatory thereto (Epic, along with such affiliates, the “Epic Sellers”), which contemplated the acquisition by AdCare Holdings from the Epic Sellers of certain land, buildings, improvements, furniture, fixtures, operating agreements and equipment comprising skilled nursing facilities located in North Carolina, South Carolina, Tennessee and Virginia.

AdCare Holdings exercised its right to terminate the Agreement after certain required consents contemplated by the Agreement were not obtained. As a result of the termination of the Agreement, the money previously deposited by AdCare Holdings into escrow to be held as earnest money has been returned to AdCare Holdings, and it incurred no penalties as a result of the termination.

Item 2.03 Creation of a Direct Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 of this Current Report on Form 8-K with respect to the Modification Agreement is incorporated herein by this reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits .

2.1 Purchase and Sale Agreement, dated March 12, 2012, by and between Westlake Nursing Home Limited and AdCare Property Holdings, LLC.

2.2 Purchase and Sale Agreement, dated March 14, 2012, by and between F & F Ventures, LLC, Tulsa Christian Care, Inc., d/b/a/ Companions Specialized Care Center and AdCare Property Holdings, LLC.

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

99.2 Modification Agreement, dated as of March 9, 2012, by and among Benton Nursing, LLC, Park Heritage Nursing, LLC, Valley River Nursing, LLC, Homestead Nursing, LLC, Woodland Manor Nursing, LLC, Mountain View Nursing, LLC, AdCare Health Systems, Inc. and the PrivateBank and Trust Company.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: March 15, 2012	ADCARE HEALTH SYSTEMS, INC.


	/s/ Martin D. Brew
	Martin D. Brew
	Chief Financial Officer

EXHIBIT INDEX

2.1 Purchase and Sale Agreement, dated March 12, 2012, by and between Westlake Nursing Home Limited and AdCare Property Holdings, LLC.

2.2 Purchase and Sale Agreement, dated March 14, 2012, by and between F & F Ventures, LLC, Tulsa Christian Care, Inc., d/b/a/ Companions Specialized Care Center and AdCare Property Holdings, LLC.

Exhibit 2.1

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT is made and entered into as of March 12, 2012 (the “ Effective Date ”) by and between WESTLAKE NURSING HOME LIMITED , an Oklahoma Limited Partnership (“ Seller ”) and ADCARE PROPERTY HOLDINGS, LLC, an Ohio limited liability company or its permitted assigns (“ Purchaser ”).

WITNESSETH :

WHEREAS, Seller owns certain land, buildings, improvements, furniture, fixtures and equipment comprising the one hundred eighteen (118) bed skilled nursing facility located at 13500 Brandon Place, Oklahoma, City, Oklahoma (commonly known as “Quail Creek Nursing Home”) and incorporated herein by reference (the “ Facility ”); and

WHEREAS, Seller (either directly or through its affiliated entities) operates the Facility and owns various equipment, inventories and other assets related to the operation of the Facility; and

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

WHEREAS , at or prior to the Closing, the operator of the Facility and Purchaser (or its designee) are entering into that certain Operations Transfer Agreement (the “ OTA ”), to further provide for a smooth and orderly transition of the operations of the Facility from such operator to Purchaser (or its designee) on the Closing Date (as hereinafter defined), a copy of the form of which OTA is attached hereto as Exhibit “D” ; and

WHEREAS, at or prior to the Closing, the operator of the Facility and Purchaser (or its designee) are entering into that certain management agreement (the “Management Agreement”) for the Facility, substantially in the form attached hereto as Exhibit “C”.

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

ARTICLE 1
DEFINITIONS

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

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

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

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

“ Closing Date ” shall mean April 15, 2012 or, if extended by Purchaser pursuant to Section 2.2 hereof, May 15, 2012, as the case may be.

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

“ Deposit ” shall mean the amount of Twenty-Five Thousand and 00/100s Dollars ($25,000.00), plus any additional amount deposited by Purchaser pursuant to Section 2.2 hereof.

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

“ Escrow Agent ” shall mean Hughes and White as agent for the Title Company.

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

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

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

“ HIPAA ” shall mean the Health Insurance Portability and Accountability Act of 1996, as it may be amended from time to time.

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

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

“ Inspection Period ” shall mean the period beginning on the Effective Date and expiring at 5:00 p.m. eastern time on the forty-fifth day of the Effective Date.

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

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

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

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

“ Purchase Price ” shall mean Five Million Eight Hundred Thousand and 00/100s Dollars ($5,800,000.00).

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

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

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

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

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

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

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

“ Vehicles ” shall mean the passenger van owned by Seller and located at the Facility.

ARTICLE 2
PURCHASE AND SALE; CLOSING

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

2.2 Closing . If the closing conditions in Section 4 and Section 5 are satisfied, the purchase and sale of the Properties shall be consummated on the Closing Date by the release of the documents and funds held in escrow by the Escrow Agent. Purchaser shall have the right to extend the Closing Date to May 15, 2012 upon (i) written notice to Seller and (ii) delivery of $25,000 to Escrow Agent, which amount shall be held and disbursed as part of the Deposit.

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

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

(b) Assumption of Indebtedness. At the Closing, Purchaser shall assume approximately $2,800,000.00 of indebtedness secured by a first priority mortgage on the Facility (hereinafter the amount of such indebtedness assumed by Purchaser is referred to as the “Assumed Indebtedness”).

(c) Cash Consideration . The difference between the Purchase Price of Five Million Eight Hundred Thousand and 00/100s Dollars ($5,800,000.00) (including the Deposit), subject to adjustment as provided in Article 9 and the Assumed Indebtedness, shall be deposited into escrow with the Escrow Agent by wire transfer of immediately available funds and released to Seller at the Closing.

(d) Independent Consideration . Seller and Purchaser acknowledge and agree that if the Deposit is to be returned to Purchaser pursuant to any of the provisions of this Agreement, the Escrow Agent shall retain One Hundred and 00/100s Dollars ($100.00) from the Deposit and shall pay such amount to Seller as independent consideration paid by Purchaser to Seller for Seller’s execution and delivery of this Agreement.

2.4 Duties of Escrow Agent .

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

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

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

ARTICLE 3
DILIGENCE

3.1 Inspections and Other Diligence Activities .

(a) Property Inspections . During the Inspection Period and thereafter until the Closing or the earlier termination of this Agreement, Seller shall permit Purchaser and its representatives to conduct non-invasive physical inspections of the Properties; provided , however , Purchaser shall not be permitted to perform any environmental investigations or invasive testing which are beyond the scope of typical so-called “Phase I” investigation without Seller’s prior written consent, which consent shall not be unreasonably withheld or delayed. Except for the administrators of the Facility (whom Purchaser may contact), Purchaser shall not contact any employees or any residents of the Facility without Seller’s prior written consent prior to the expiration of the Inspection Period. All such inspections shall be performed in a manner consistent with this Agreement and so as to minimize any interference or disruptions to the residents or the operations of the Facility. Purchaser shall notify Seller at least one (a) Business Day prior to entering the Facility for the purpose of making any such inspections. For purposes of the preceding sentence only, notice may be given by e-mail or by telephone to Ron Lusk at 2146733434

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

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

3.2 Termination of Agreement . If the results of the inspections performed by or on behalf of Purchaser pursuant to Section 3.1 shall be unsatisfactory to Purchaser in any respect, Purchaser shall have the right to terminate this Agreement at any time prior to the expiration of the Inspection Period by giving written notice thereof to Seller, in which event the Escrow Agent shall return the Deposit to Purchaser and neither party shall have any further rights or obligations hereunder, except the Surviving Obligations.

3.3 Title and Survey . Within five (5) Business Days following the Effective Date, Seller shall deliver to Purchaser copies of the most recent title policies and surveys of the Real Properties that are in Seller’s possession or control (if any). Purchaser shall have the right to obtain new or updated title commitments and/or surveys for the Real Properties and Purchaser shall provide copies of any such updates to Seller within two (2) Business Days after its receipt thereof. At least five (5) Business Days prior to the expiration of the Inspection Period, Purchaser shall give Seller notice of any title exceptions or other matters set forth on Seller’s title policies or surveys or any updates thereof as to which Purchaser objects in its sole and absolute discretion. Seller shall have the right, but not the obligation, to remove, satisfy or otherwise cure any such exception or other matter as to which Purchaser so objects, Seller is unable or unwilling to take such actions as may be required to cure such objections, Seller shall give Purchaser notice thereof; it being understood and agreed that the failure of Seller to give such notice within three (3) Business Days after its receipt of Purchaser’s notice of objection shall be deemed an election by Seller not to remedy such matters. If Seller shall be unable or unwilling to remove any title defects to which Purchaser has so objected, Purchaser shall elect either (a) to terminate this Agreement (in whole but not in part) or (b) to proceed to Closing notwithstanding such title defect without any abatement or reduction in the Purchase Price on account thereof. Purchaser shall make any such election by written notice to Seller given on or prior to the expiration of the Inspection Period; provided , however , if Seller commences to cure a title defect and then elects not to complete such cure, Purchaser shall have the right to terminate this Agreement by written notice to Seller within three (3) Business Days after Seller notifies Purchaser thereof. The failure of Purchaser to give such notice shall be deemed an election by Purchaser to proceed to Closing in accordance with clause (b) above. If Purchaser terminates this Agreement in accordance with this Section 3.3 , Escrow Agent shall return the Deposit to Purchaser and neither party shall have any further rights or obligations hereunder, except with respect to the Surviving Obligations.

3.4 Confidentiality, Etc. Purchaser shall not disclose or otherwise use any data or other information concerning the Facility for any purpose other than for evaluating the Facility in the course of its due diligence as provided herein, and Purchaser shall keep all such data and information strictly confidential. Nothing herein shall prohibit Purchaser, upon execution of this Agreement, from issuing a press release generally describing the transactions contemplated hereunder, provided that such press release shall not disclose the identity of the Facility or the identity of Seller. Notwithstanding the foregoing, Seller acknowledges that Purchaser may disclose (i) such data and information by furnishing copies thereof to third party consultants in the normal course of Purchaser’s due diligence provided that such consultants agree to be abide bound the terms and conditions of this Section 3.4 and/or (ii) the terms of this Agreement as may be required for any regulatory filings. Purchaser shall indemnify, defend and hold harmless Seller from and against any loss, claim, damage or expense which Seller may incur as a result of any breach by Purchaser or any third party of the terms and conditions of this Section 3.4 . This Section 3.4 shall survive any termination of this Agreement.

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

ARTICLE 4
CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE

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

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

(a) Deed . A limited warranty deed with respect to the Real Property at the Facility, in proper statutory form for recording, duly executed and acknowledged by Seller and substantially in the form of Exhibit “E” attached hereto and made a part hereof;

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

(c) Assignment . An assignment and assumption agreement, duly executed by Seller, with respect to Seller’s right, title and interest in and to all Intangible Property at the Facility and substantially in the form of Exhibit “G” attached hereto;

(d) FIRPTA . A so-called “FIRPTA” affidavit pursuant to Section 1445 of the Tax Code, duly executed by Seller, in the form of Exhibit “H” attached hereto;

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

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

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

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

(i) Vehicle Titles . The signed titles to the vehicles.

4.2 [Intentionally Omitted]

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

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

4.5 Condition of Property . The Facility shall, on the Closing Date, be in substantially the same condition as it was on the Effective Date, normal wear and tear excepted; provided , however , if a casualty or condemnation occurs with respect to the Facility, Article 10 shall govern the rights and obligations of the parties hereunder.

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

4.7 OTA and Management Agreement . Seller and Purchaser (or its designee) shall have entered into the OTA and the Management Agreement, which shall be in full force and effect, and the consummation of the transactions contemplated by the OTA and the Management Agreement shall occur simultaneously with the Closing under this Agreement.

4.8 No Material Adverse Change . From the Effective Date through the Closing Date, there shall not be (i) a material adverse financial change involving or related to the Properties or the Facility; (ii) a material adverse change in the operation of the Facility; (iii) a material adverse change in the condition of the Property or the Facility; or (iv) any actual or threatened action, suit or investigation by or before any court or governmental body involving the Seller, Property, or Facility. For purposes hereof, “material adverse change” shall include but not be limited to, a decrease in the census of the Facility of ten percent (10%) or more.

ARTICLE 5
CONDITIONS TO SELLER’S OBLIGATION TO CLOSE

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

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

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

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

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

5.5 OTA and Management Agreement . Seller and Purchaser (or its designee) shall have entered into the OTA and Management Agreement which shall be in full force and effect, and the consummation of the transactions contemplated by the OTA and the Management Agreement shall occur simultaneously with the Closing under this Agreement.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLER

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

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

(b) Action . Seller has taken (or will have taken prior to Closing) all necessary action to authorize the execution, delivery and performance of this Agreement and the OTA, and upon the execution and delivery of this Agreement, the OTA and/or any document to be delivered by Seller hereunder or thereunder, this Agreement, the OTA and such document shall constitute the valid and binding obligations and agreements of Seller, enforceable against Seller in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

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

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

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

(f) Residents . Attached hereto as Schedule 1 is an accurate and complete list showing the names of all residents at the Facility as of the Effective Date.

(g) Covered Entity . Seller is a “covered entity” for HIPAA purposes.

(h) Hazardous Substances . To Seller’s knowledge, Seller has not unlawfully used, generated, transported, treated, constructed, deposited, stored, disposed, placed or located at, on, under or from the Property any flammable explosives, radioactive materials, hazardous or toxic substances, materials or wastes, pollutants or contaminants defined, listed or regulated by any applicable local, state or federal environmental laws in material violation of any such environmental laws where such violation could reasonably be expected to have an material adverse effect on the Facility.

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

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

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

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER

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

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

of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

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

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

(e) Covered Entity . Purchaser is a “covered entity” for HIPAA purposes.

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

ARTICLE 8
COVENANTS

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

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

(b) Operation of Property . To continue to own and operate the Facility which it owns or operates in a good and businesslike fashion consistent with past practices; provided , however , notwithstanding anything to the contrary contained in this Article 8 or elsewhere in this Agreement, it is expressly understood and agreed that Seller shall not have any obligation to make any capital expenditure with respect to the Facility.

(c) Contracts . Within five (5) days prior to the end of the Inspection Period, Purchaser shall notify Seller in writing which (if any) Contracts Purchaser shall assume. If Purchaser fails to provide such notice, Purchaser shall not assume any Contracts. Notwithstanding the provisions of this Section 8.1(c), if any of the Contracts cannot be terminated as of the Closing Date either because a longer notification period is required or because they cannot be terminated without a penalty, Seller shall notify Purchaser at least ten (10) days prior to the end of the Inspection Period and Purchaser shall either (i) elect to terminate this Agreement and receive the Deposit or (ii) assume the Contracts identified in Seller’s notice as of the Closing Date.

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

ARTICLE 9
APPORTIONMENTS

9.1 Real Property Apportionments .

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

(i) fixed charges or other amounts paid or payable by or on behalf of residents under the Resident Agreements;

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

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

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

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

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

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

directly to the applicable utility provider. If all such readings cannot be obtained as of the Closing Date, then, at the Closing, the charges for any unread utilities shall be prorated based upon the per diem charges using the most recent period for which such readings are available. Seller and Purchaser agree to make such final recalculations within ninety (90) days after the Closing Date.

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

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

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

9.2 Closing Costs .

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

(b) Seller’s Closing Costs . Seller shall pay in connection with the consummation of the Closing, all charges incurred by the Seller in connection with this Agreement (including, without limitation, the fees and expenses for the Seller’s attorneys and other consultants).

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

ARTICLE 10
DAMAGE TO OR CONDEMNATION OF PROPERTY

10.1 Casualty . If, prior to the Closing, all or any material part of the Facility is destroyed or materially damaged by fire or other casualty, Seller shall promptly notify Purchaser of such fact. In such event, Purchaser shall have the right to terminate this Agreement (in whole but not in part) by giving notice thereof to Seller not later than ten (10) days after receiving Seller’s notice (and, if necessary, the Closing Date shall be extended until the second Business

Day after the expiration of such ten-day period). If Purchaser elects to terminate this Agreement as aforesaid, the Deposit shall be paid to Purchaser, whereupon, this Agreement shall terminate and be of no further force and effect and no party shall have any rights or obligations hereunder except for the Surviving Obligations. If less than a material part of the Facility shall be affected or if Purchaser shall not elect to terminate this Agreement as aforesaid, there shall be no abatement of the Purchase Price and the Seller shall assign to Purchaser at the Closing all of Seller’s right, title and interest in and to the proceeds, if any, under such Seller’s insurance policies covering such Property with respect to such damage or destruction and there shall be credited against the Purchase Price the amount of any applicable deductible.

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

ARTICLE 11
INDEMNIFICATION AND DEFAULT

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

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

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

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

ARTICLE 12
MISCELLANEOUS

12.1 Single Transaction . The transaction contemplated by this Agreement is a single purchase and sale transaction with respect to all of the Properties. Under no circumstances shall Seller have any obligation to sell less than all of the Properties to Purchaser, and under no circumstances shall Purchaser have an obligation to purchase less than all of the Properties from Seller. Any termination of this Agreement shall operate to terminate this Agreement as to all of the Properties simultaneously.

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

12.3 Notices .

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

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

if to Seller, to:	Westlake Nursing Home Limited
	325 N. St. Paul Street, Suite 4400
	Dallas, TX 75201

	Attn: Ron Lusk
	Facsimile No.: 214-722-1391

with a copy to:


	Attn:
	Facsimile No.

If to Purchaser, to:	AdCare Property Holdings, LLC
	Two Buckhead Plaza
	3050 Peachtree Road NW, Suite 355
	Atlanta, Georgia 30305
	Attn: Christopher F. Brogdon
	Facsimile No. (404) 842-1899

with a copy to:	Gregory P. Youra, Esq.
	Holt Ney Zatcoff & Wasserman, LLP
	100 Galleria Pkwy, Suite 1800
	Atlanta, Georgia 30339
	Facsimile: (770) 956-1490

If to Escrow Agent, to:	Gregory D. Hughes
	Hughes and White
	Shadowood Office Park
	2110 Powers Ferry Road, Suite 440
	Atlanta, Georgia 30339
	Facsimile No.: (770) 955-0049

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

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

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

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

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

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

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

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

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

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

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

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

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

12.16 Post-closing Audit .

(a) Promptly following the Closing Date, and in no event later than fifteen (15) days following the Closing Date, and at any time thereafter as ADK may request, Seller shall provide to ADK and its accounting advisors such financial information (the “Financial Information”) related to the business, assets and properties of the Seller purchased by Purchaser pursuant to this Agreement (the “Purchased Business”) as ADK may request in order to enable ADK to determine whether it is or would be required to include separate financial statements of the Purchased Business for any periods prior to Closing in the reports filed by ADK with the SEC under the Securities Exchange Act of 1934, as amended (the “1934 Act”), or in a registration statement filed by ADK with the SEC under the 1933 Act, in accordance with Regulation S X (“Regulation S-X”) promulgated by the SEC (the “Requirement Financial Statements”). Seller will provide to ADK reasonable access to the records of the Seller regarding the Purchased Business, and Seller’s accounting staff and firm(s) will be available to address any questions of ADK and ADK’s accounting advisors pertaining to the Financial Information or the Required Financial Statements.

(b) If ADK determines that its is required or advisable to file with the SEC the Required Financial Statements, then Seller shall cooperate fully with ADK and its accounting advisors, and Seller’s shall use their commercially reasonable efforts, to cause the Required Financial Statements to be prepared so as to enable ADK to file them with the SEC no later than the deadline therefore under the 1934 Act and Form 8-K promulgated by the SEC thereunder, including, without limitation: (i) preparing the Required Financial Statements in accordance with Regulation S-X; (ii) causing the auditors selected to audit the Required Financial Statements to consent to the inclusion of such financial statements in ADK’s filings with the SEC under the 1934 Act and the 1933 Act, including providing such auditors with reasonable and customary representation letters in connection therewith; (iii) causing Seller’s counsel to respond to requests for information made by ADK or its accounting advisors; and (iv) providing such financial information (including accountant work papers) related to the Purchased Business and other assistance to ADK and its accounting advisors as ADK reasonably deems to be necessary to enable ADK to prepare and file the Required Financial Statements in accordance with the 1934 Act and Regulation S-X.

(c) In the event that the SEC makes any review or inquiry to ADK with respect to financial information of the Purchased Business, including any such inquiry regarding the Required Financial Statements, as promptly as practicable after being notified by ADK of such review or inquiry, Seller will provide such reasonable cooperation and assistance as may be required by ADK in responding to such review or inquiry.

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

[Remainder of page intentionally left blank; Signature page follows.]

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

	SELLER:

	/s/ Ron Lusk
	Ron Lusk
	President


	PURCHASER:

	ADCARE PROPERTY HOLDINGS, LLC,
	an Ohio limited liability company

	By:	/s/ Christopher F. Brogdon
		Christopher F. Brogdon,
		Vice Chairman and Chief Acquisition Officer

Exhibit 2.2

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT is made and entered into as of March 14, 2012 (the “ Effective Date ”) by and between F & F VENTURES, LLC , an Oklahoma limited liability company and TULSA CHRISTIAN CARE, INC., d.b.a. COMPANIONS SPECIALIZED CARE CENTER combined (“ Seller ”) and ADCARE PROPERTY HOLDINGS, LLC, an Ohio limited liability company or its permitted assigns (“ Purchaser ”).

WITNESSETH :

WHEREAS, Seller owns certain land, buildings, improvements, furniture, fixtures and equipment comprising the one hundred twenty-one (121) bed skilled nursing facility located at 6201 East 36 th Street, Tulsa, Oklahoma, 74135 (commonly known as “Tulsa Christian Care d.b.a. Companions Specialized Care Center”) as more specifically described on Exhibit “A” attached hereto and incorporated herein by reference (the “ Facility ”); and

WHEREAS, Seller (either directly or through its affiliated entities) operates the Facility and owns various equipment, inventories and other assets related to the operation of the Facility; and

WHEREAS , at or prior to the Closing, the operator of each of the Facility and Purchaser (or its designee) are entering into that certain Operations Transfer Agreement (the “ OTA ”), to further provide for a smooth and orderly transition of the operations of the Facility from such operator to Purchaser (or its designee) on the Closing Date (as hereinafter defined), a copy of the form of which OTA is attached hereto as Exhibit “B” .

ARTICLE 1
DEFINITIONS

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

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

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

“ Capital Improvement Escrow Deposit ” shall mean the amount of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) to be deposited by Purchaser with Seller and disbursed in accordance with Section 2.3 hereof.

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

“ Closing Date ” shall mean May 30, 2012 or, if extended by Purchaser pursuant to Section 2.2 hereof, June 30, 2012, as the case may be.

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

“ Escrow Agent ” shall mean Hughes and White as agent for the Title Company.

“ HIPAA ” shall mean the Health Insurance Portability and Accountability Act of 1996, as it may be amended from time to time.

objects, conditions, wastes, or combinations of them which are now or become listed, defined or regulated in any manner by any Environmental Law.

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

“ Inspection Period ” shall mean the period beginning on the Effective Date and expiring at 5:00 p.m. eastern time on the forty-fifth day of the Effective Date.

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

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

“ Management Agreement ” shall mean the management to be entered into between Purchaser and Seller effective as of April 1, 2012 substantially in the form attached hereto as Exhibit “C”.

“ Purchase Price ” shall mean Five Million Seven Hundred Fifty Thousand and 00/100s Dollars ($5,750,000.00).

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

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

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

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

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

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

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

“ Vehicles ” shall mean the following vehicles owned by Seller: .

ARTICLE 2
PURCHASE AND SALE; CLOSING

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

2.2 Closing . If the closing conditions in Section 4 and Section 5 are satisfied, the purchase and sale of the Properties shall be consummated on the Closing Date by the release of the documents and funds held in escrow by the Escrow Agent. Purchaser shall have the right to extend the Closing Date to June 30, 2012 upon written notice to Seller.

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

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

(b) Cash Consideration . The sum of Five Million and 00/100s Dollars ($5,000,000.00) minus the Remaining Balance (as defined in Section 2.4 below) of the Capital Improvement Escrow Deposit, subject to adjustment as provided in Article 9 , shall be deposited into escrow with the Escrow Agent by wire transfer of immediately available funds and released to Seller at the Closing.

(c) ADK Stock . At the Closing, ADK, the ultimate parent company of Purchaser, shall issue shares of common stock of ADK (the “ ADK Stock ”) to Seller equal to that number of shares of ADK Stock determined by dividing SEVEN HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($750,000.00) by the ten (10) day average preceding closing price of a share of ADK Stock on the American Stock Exchange as of the last business day prior to the Closing Date (the “ Stock Consideration ”).

2.4 Disbursement of Capital Improvement Escrow Deposit . From the Effective Date through the Closing Date or earlier termination of this Agreement, Seller may make disbursements from the Capital Improvement Escrow Deposit for the sole purpose of making capital improvements to the Facility. Within three (3) business days of making such a disbursement, Seller shall provide to Purchaser commercially reasonable written verification of such expenditures (including invoices and evidence of payment of such invoices). At the Closing or earlier termination of this Agreement, the amount remaining of the Capital Improvement Escrow Deposit (the “ Remaining Balance ”) shall be applied as a credit against the cash portion of the Purchase Price or returned to Purchaser as provided herein.

2.5 Management Agreement. On or before April 1, 2012, Purchaser and Seller shall have executed and delivered the Management Agreement.

ARTICLE 3
DILIGENCE

3.1 Inspections and Other Diligence Activities .

contractors pursuant to this Agreement. Purchaser’s obligations under this Section 3.1(c) shall survive the Closing or any earlier termination of this Agreement.

3.2 Termination of Agreement . If the results of the inspections performed by or on behalf of Purchaser pursuant to Section 3.1 shall be unsatisfactory to Purchaser in any respect, Purchaser shall have the right to terminate this Agreement at any time prior to the expiration of the Inspection Period by giving written notice thereof to Seller in which event, the Seller shall return to Purchaser the Remaining Balance of the Capital Improvement Escrow Deposit and neither party shall have any further rights or obligations hereunder, except the Surviving Obligations.

3.3 Title and Survey . Within five (5) Business Days following the Effective Date, Seller shall deliver to Purchaser copies of the most recent title policies and surveys of the Real Properties that are in Seller’s possession or control (if any). Purchaser shall have the right to obtain new or updated title commitments and/or surveys for the Real Properties and Purchaser shall provide copies of any such updates to Seller within two (2) Business Days after its receipt thereof. At least five (5) Business Days prior to the expiration of the Inspection Period, Purchaser shall give Seller notice of any title exceptions or other matters set forth on Seller’s title policies or surveys or any updates thereof as to which Purchaser objects in its sole and absolute discretion. Seller shall have the right, but not the obligation, to remove, satisfy or otherwise cure any such exception or other matter as to which Purchaser so objects, Seller is unable or unwilling to take such actions as may be required to cure such objections, Seller shall give Purchaser notice thereof; it being understood and agreed that the failure of Seller to give such notice within three (3) Business Days after its receipt of Purchaser’s notice of objection shall be deemed an election by Seller not to remedy such matters. If Seller shall be unable or unwilling to remove any title defects to which Purchaser has so objected, Purchaser shall elect either (a) to terminate this Agreement (in whole but not in part) or (b) to proceed to Closing notwithstanding such title defect without any abatement or reduction in the Purchase Price on account thereof. Purchaser shall make any such election by written notice to Seller given on or prior to the expiration of the Inspection Period; provided , however , if Seller commences to cure a title defect and then elects not to complete such cure, Purchaser shall have the right to terminate this Agreement by written notice to Seller within three (3) Business Days after Seller notifies Purchaser thereof. The failure of Purchaser to give such notice shall be deemed an election by Purchaser to proceed to Closing in accordance with clause (b) above. If Purchaser terminates this Agreement in accordance with this Section 3.3 , Seller shall return the Remaining Balance of the Capital Improvement Escrow Deposit to Purchaser and neither party shall have any further rights or obligations hereunder, except with respect to the Surviving Obligations.

3.4 Confidentiality, Etc. Purchaser shall not disclose or otherwise use any data or other information concerning the Facility for any purpose other than for evaluating the Facility in the course of its due diligence as provided herein, and Purchaser shall keep all such data and information strictly confidential. Nothing herein shall prohibit Purchaser, upon execution of this Agreement, from issuing a press release generally describing the transactions contemplated hereunder, provided that such press release shall not disclose the identity of the Facility or the identity of Seller. Notwithstanding the foregoing, Seller acknowledges that Purchaser may disclose (i) such data and information by furnishing copies thereof to third party consultants in the normal course of Purchaser’s due diligence provided that such consultants agree to be abide

bound the terms and conditions of this Section 3.4 and/or (ii) the terms of this Agreement as may be required for any regulatory filings. Purchaser shall indemnify, defend and hold harmless Seller from and against any loss, claim, damage or expense which Seller may incur as a result of any breach by Purchaser or any third party of the terms and conditions of this Section 3.4 . This Section 3.4 shall survive any termination of this Agreement.

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

ARTICLE 4
CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE

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

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

(a) Deed . A special warranty deed with respect to the Real Property on which the Facility is located, in proper statutory form for recording, duly executed and acknowledged by Seller and substantially in the form of Exhibit “D” attached hereto and made a part hereof;

(d) FIRPTA . A so-called “FIRPTA” affidavit pursuant to Section 1445 of the Tax Code, duly executed by Seller, in the form of Exhibit “G” attached hereto;

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

exceptions for parties-in-possession (other than the residents under Resident Agreements) or mechanic’s liens.

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

(i) Vehicle Titles . The signed titles to the vehicles.

4.2 Licenses and Permits, Etc. Purchaser shall have obtained all necessary licenses, certificates, permits and approvals (or assurances reasonably satisfactory to Purchaser that all such necessary licenses, certificates, permits and approvals shall be issued retroactively as of the Closing Date) from all Federal, state and local regulatory agencies required to acquire, own, lease, manage and operate the Facility in the manner currently operated.

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

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

4.5 Condition of Property . The Facility shall, on the Closing Date, be in substantially the same condition as it was on the Effective Date, normal wear and tear excepted; provided , however , if a casualty or condemnation occurs with respect to the Facility, Article 10 shall govern the rights and obligations of the parties hereunder.

4.7 OTA . Seller and Purchaser (or its designee) shall have entered into the OTA, the OTA shall be in full force and effect, and the consummation of the transactions contemplated by the OTA shall occur simultaneously with the Closing under this Agreement.

ARTICLE 5
CONDITIONS TO SELLER’S OBLIGATION TO CLOSE

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

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

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

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

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

5.5 OTA . Seller and Purchaser (or its designee) shall have entered into the OTA, the OTA shall be in full force and effect, and the consummation of the transactions contemplated by the OTA shall occur simultaneously with the Closing under this Agreement.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLER

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

(a) Status and Authority . Seller is a Sub Chapter “S” and an L.L.C. duly formed, validly existing and in good standing under the laws of its state of formation, and has all requisite power and authority under the laws of such state and their charter documents to enter into and perform their obligations under this Agreement and the OTA and to consummate the transactions contemplated hereby and thereby.

bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

(f) Residents . Attached hereto as Schedule 1 is an accurate and complete list showing the names of all residents at the Facility as of the Effective Date.

(g) Covered Entity . Seller is a “covered entity” for HIPAA purposes.

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

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

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

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER

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

(b) Action of Purchaser, Etc. Purchaser has taken (or will have taken prior to Closing) all necessary action to authorize the execution, delivery and performance of this Agreement and the OTA, and upon the execution and delivery of this Agreement, the OTA and/or any document to be delivered by Purchaser hereunder or thereunder, this Agreement, the OTA and such documents shall constitute the valid and binding obligations and agreements of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

(e) Covered Entity . Purchaser is a “covered entity” for HIPAA purposes.

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

ARTICLE 8
COVENANTS

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

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

(b) Operation of Property . Subject to the Management Agreement, to continue to own and operate the Facility which it owns or operates in a good and businesslike fashion consistent with past practices.

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

ARTICLE 9
APPORTIONMENTS

9.1 Real Property Apportionments .

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

(i) fixed charges or other amounts paid or payable by or on behalf of residents under the Resident Agreements;

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

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

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

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

(b) Utilities . Seller shall endeavor to obtain readings of any water, gas, electric or other utility meters located at the Facility as of the Closing Date, so that all such utilities are transferred over to Purchaser’s own accounts as of the Closing Date, and either Seller or Purchaser, as applicable, shall pay all such invoices related to such party’s period of ownership directly to the applicable utility provider. If all such readings cannot be obtained as of the Closing Date, then, at the Closing, the charges for any unread utilities shall be prorated based upon the per diem charges using the most recent period for which such readings are available. Seller and Purchaser agree to make such final recalculations within ninety (90) days after the Closing Date.

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

9.2 Closing Costs .

(a) Purchaser’s Closing Costs . Purchaser shall pay the following costs in connection with the consummation of the Closing: (i) the premium charges for Purchaser’s title policies and all of the charges for any endorsements thereto; (ii) all of the charges and transfer taxes for recording the deed (in an amount not to exceed $10,000.00); and (iii) all other charges incurred by Purchaser in connection with this Agreement (including, without limitation, the fees and expenses of Purchaser’s attorneys and other consultants).

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

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

ARTICLE 10
DAMAGE TO OR CONDEMNATION OF PROPERTY

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

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

ARTICLE 11
INDEMNIFICATION AND DEFAULT

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

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

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

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

ARTICLE 12
MISCELLANEOUS

12.1 Single Transaction . The transaction contemplated by this Agreement is a single purchase and sale transaction with respect to all of the Properties. Under no circumstances shall Seller have any obligation to sell less than all of the Properties to Purchaser, and under no circumstances shall Purchaser have an obligation to purchase less than all of the Properties from Seller. Any termination of this Agreement shall operate to terminate this Agreement as to all of the Properties simultaneously.

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

12.3 Notices .

if to Seller, to:	G. Perry Farmer, Jr.
	10810 East 45 th St,, Ste#300
	Tulsa, Oklahoma 74146
	email: perry@c4llc.com
	Facsimile No.: (918) 627-6856

with a copy to:	Tim Posey
	10810 East 45 th St,, Ste#300
	Tulsa, Oklahoma 74146
	email: tim@c4llc.com
	Facsimile No.: (918) 627-6856


If to Purchaser, to:	AdCare Property Holdings, LLC
	Two Buckhead Plaza
	3050 Peachtree Road NW, Suite 355
	Atlanta, Georgia 30305
	Attn: Christopher F. Brogdon
	Facsimile No. (404) 842-1899

with a copy to:	Gregory P. Youra, Esq.
	Holt Ney Zatcoff & Wasserman, LLP
	100 Galleria Pkwy, Suite 1800
	Atlanta, Georgia 30339
	Facsimile: (770) 956-1490

If to Escrow Agent, to:	Gregory D. Hughes
	Hughes and White
	Shadowood Office Park
	2110 Powers Ferry Road, Suite 440
	Atlanta, Georgia 30339
	Facsimile No.: (770) 955-0049

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

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

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

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

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

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

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

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

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

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

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

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

12.16 Post-closing Audit .

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

[Remainder of page intentionally left blank; Signature page follows.]

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

	SELLER:

	/s/ G. Perry Farmer, Jr.
	G. Perry Farmer, Jr.
	Owner F&F Ventures, L.L.C
	Owner Tulsa Christian Care, Inc, d.b.a. Companions
	Specialized Care Center


	PURCHASER:

	ADCARE PROPERTY HOLDINGS, LLC,
	an Ohio limited liability company

	By:	/s/ Christopher F. Brogdon
		Christopher F. Brogdon,
		Vice Chairman and Chief Acquisition
		Officer

Exhibit 99.2

MODIFICATION AGREEMENT

THIS MODIFICATION AGREEMENT dated as of March 9, 2012 (this “ Agreement ” ), is entered into by and among —

BENTON NURSING, LLC , a Georgia limited liability company ( “ Borrower 1 ” ), PARK HERITAGE NURSING, LLC , a Georgia limited liability company ( “ Borrower 2 ” ), and VALLEY RIVER NURSING, LLC , a Georgia limited liability company ( “ Borrower 3 ” ) (the “ Original Borrowers ” ), and

HOMESTEAD NURSING, LLC , a Georgia limited liability company ( “ Borrower 4 ” ), WOODLAND MANOR NURSING, LLC , a Georgia limited liability company ( “ Borrower 5 ” ), and MOUNTAIN VIEW NURSING, LLC , a Georgia limited liability company ( “ Borrower 6 ” ) (the “ New Borrowers ” and together with the Original Borrowers, the “ Borrowers ” ), and

ADCARE HEALTH SYSTEMS, INC., an Ohio corporation ( “ AdCare ” ), and

BENTON PROPERTY HOLDINGS, LLC , a Georgia limited liability company ( “ Owner 1 ” ), PARK HERITAGE PROPERTY HOLDINGS, LLC , a Georgia limited liability company ( “ Owner 2 ” ), and VALLEY RIVER PROPERTY HOLDINGS, LLC , a Georgia limited liability company ( “ Owner 3 ” ) (the “ Original Owners ” and together with AdCare, the “ Original Guarantors ” ), and

HOMESTEAD PROPERTY HOLDINGS, LLC , a Georgia limited liability company ( “ Owner 4 ” ), WOODLAND MANOR PROPERTY HOLDINGS, LLC , a Georgia limited liability company ( “ Owner 5 ” ), and MT. V PROPERTY HOLDINGS, LLC , a Georgia limited liability company ( “ Owner 6 ” ) (the “ New Guarantors ” and together with the Original Guarantors, the “ Guarantors ” ) (the Borrowers and the Guarantors being sometimes referred to herein collectively as the “ Borrower/Guarantor Parties ” ), and

THE PRIVATEBANK AND TRUST COMPANY , an Illinois banking corporation (the “ Lender ” ).

RECITALS

A. The following documents (collectively, the “ Documents ” ) were heretofore entered into by the parties indicated below:

(i) Loan and Security Agreement dated as of September 30, 2011 (the “ Loan Agreement ” ), by and among the Original Borrowers and the Lender.

(ii) Promissory Note dated September 30, 2011 (the “ Note ” ), from the Original Borrowers to the Lender in the principal amount of $2,000,000.

(iii) Guaranty of Payment and Performance dated as of September 30, 2011, by the Original Guarantors to and for the benefit of the Lender.

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

AGREEMENTS

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

Section 1 . Recitals Part of Agreement; Defined Terms .

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

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

Section 3 . Addition of New Borrowers .

(a) Each New Borrower is hereby added as a Borrower under the Loan Agreement and the Note. Each New Borrower hereby joins in the Loan Agreement and the Note, and agrees to be bound and obligated under the Loan Agreement and the Note with the other parties thereto, and hereby joins in all of the representations, warranties, covenants and grants of security interests by the Borrowers which are contained therein, and other provisions by which the Borrowers are bound which are contained therein, all with the same effect as if each New Borrower had executed the Loan Agreement and the Note as of September 30, 2011, except that all representations and warranties relating to the New Borrowers which are contained in this Agreement or are added by this Agreement to the Documents, shall be effective as of the date of this Agreement. All references in the Documents to the Borrowers under the Loan Agreement and the Note shall be deemed to include a reference to the New Borrowers. All of the Documents are hereby modified and amended to incorporate the foregoing provisions of this paragraph.

(b) The following new defined terms are hereby added to Section 1.1 of the Loan Agreement effective as of the date of this Agreement::

Borrower 4 : Homestead Nursing, LLC, a Georgia limited liability company.

Borrower 5 : Woodland Manor Nursing, LLC, a Georgia limited liability company.

Borrower 6 : Mountain View Nursing, LLC, a Georgia limited liability company.

Owner 4 : Homestead Property Holdings, LLC, a Georgia limited liability company.

Owner 5 : Woodland Manor Property Holdings, LLC, a Georgia limited liability company.

Owner 6 : Mt. V Property Holdings, LLC, a Georgia limited liability company.

(c) The definitions of the following terms in Section 1.1 of the Loan Agreement are hereby modified and amended in their entirety to read as follows effective as of the date of this Agreement, with the existing definitions of such terms to continue to be effective for periods prior to the date of this Agreement:

Borrowers : Borrower 1 through Borrower 6.

Facility : Skilled nursing facilities which are operated by Borrowers in the Projects, described, and numbered for purposes of this Agreement, as follows:

Borrower	Facility Name and Number	Location	Beds
Borrower 1	Bentonville Manor Nursing Home, Facility 1	224 South Main Street Bentonville, Benton County, Arkansas	95
Borrower 2	Heritage Park Nursing Center, Facility 2	1513 South Dixieland Road, Rogers, Benton County, Arkansas	110
Borrower 3	River Valley Health and Rehabilitation Center, Facility 3	5301 Wheeler Avenue Fort Smith, Sebastian County, Arkansas	117
Borrower 4	Homestead Manor Nursing Home, Facility 4	826 North Street, Stamps, Lafayette County, Arkansas	104
Borrower 5	Woodland Manor, formerly known as Eaglewood Care Center, Facility 5	2000 Villa Road, Springfield, Clark County, Ohio	99 in service, 113 total
Borrower 6	Stone County Nursing and Rehabilitation Center, Facility 6	706 Oak Grove Street, Mountain View, Stone County, Arkansas	96 in service, 97 total

Land : One of the six parcels of real estate described in Exhibit A to this Agreement, each owned by an Owner as specified therein, together with all

improvements presently located thereon and all easements and other rights appurtenant thereto.

Leases : The following:

(i) Leases by Owner 1, Owner 2, Owner 3 and Owner 4 of their Projects to Borrower 1, Borrower 2, Borrower 3 and Borrower 4, respectively, each dated as of August 31, 2011.

(ii) A Lease by Owner 5 of its Project to Borrower 5, dated as of December 29, 2011.

(iii) A Lease by Owner 6 of its Project to Borrower 6, dated as of November 30, 2011.

Owner Loans : The following:

(i) The loan by Lender to Owner 1, Owner 2 and Owner 3 in the original principal amount of $11,800,000 under a Loan Agreement by and among Owner 1, Owner 2 and Owner 3 and Lender dated as of September 1, 2011, as from time to time modified, amended, restated, increased, renewed and extended.

(ii) The loan by Lender to Owner 4 in the original principal amount of $4,800,000 under a Loan Agreement by and between Owner 4 and Lender dated as of December 30, 2011, as from time to time modified, amended, restated, increased, renewed and extended.

Owners : Owner 1 through Owner 6.

Seller Note : The promissory note dated August 31, 2011, from Owner 1 through Owner 4 and others to KMJ Management, LLC d/b/a Pinnacle Healthcare, LLC, in the principal amount of $2,400,000, including any modification, amendment, restatement, increase, renewal, extension or refinancing thereof.

State : The States of Arkansas and Ohio.

(d) All references in the Documents to the “Owner Loan” shall be deemed to be a reference to the “Owner Loans” as defined in paragraph (c) of this Section, and all of the Documents are hereby modified and amended accordingly.

(e) Exhibit A to the Loan Agreement is hereby modified and amended in its entirety to be as attached to this Agreement effective as of the date of this Agreement, with the existing Exhibit A to the Loan Agreement to continue to be effective for periods prior to the date of this Agreement.

(f) The first sentence in Section 2.1(a) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the

existing first sentence in Section 2.1(a) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

Each Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the State in which its Facility is located.

(g) The first sentence in Section 2.1(b) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing first sentence in Section 2.1(b) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

Each Owner is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the State in which its Project is located.

(h) The sentence in Section 2.1(i) of the Loan Agreement which references environmental site assessments is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing sentence to continue be effective for periods prior to the date of this Agreement:

The environmental site assessments referred to above are as follows:

(i) In the case of Borrower 1’s Facility, a Phase 1 Environmental Site Assessment Report dated May 31, 2011, prepared by Partner Engineering and Science, Inc.

(ii) In the case of Borrower 2’s Facility, a Phase 1 Environmental Site Assessment Report dated May 31, 2011, prepared by Partner Engineering and Science, Inc.

(iii) In the case of Borrower 3’s Facility, a Phase 1 Environmental Site Assessment Report dated May 31, 2011, prepared by Partner Engineering and Science, Inc.

(iv) In the case of Borrower 4’s Facility, a Phase 1 Environmental Site Assessment Report dated May 31, 2011, prepared by Partner Engineering and Science, Inc.

(v) In the case of Borrower 5’s Facility, a Phase I Environmental Site Assessment dated December 23, 2011, prepared by Environmental Corporation of America.

(vi) In the case of Borrower 6’s Facility, a Phase 1 Environmental Site Assessment Report dated November 18, 2011, prepared by Partner Engineering and Science, Inc.

(i) Section 2.1(u) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing Section 2.1(u) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

(u) Subject to the provisions of Section 7.7(b) of this Agreement, each Facility has all necessary licenses, permits and certifications required by any applicable governmental authority to operate and maintain a skilled nursing facility therein with its current number of beds in service, and participates in the Medicare and Medicaid programs. Each Borrower has complied and will comply with all applicable requirements of the United States of America, the State in which its Facility is located and all applicable local governments, and of its agencies and instrumentalities, necessary to operate and maintain its Facility as such a facility. All utilities necessary for use, operation and occupancy of each Project and each Facility are available to such Project and such Facility. All requirements for unrestricted use of each Project and each Facility as a skilled nursing facility under the rules and regulations of all departments and agencies of the State of in which such Project and Facility are located having jurisdiction over such Project or such Facility, have been and will continue to be fulfilled. All building, zoning, safety, health, fire, water district, sewerage and environmental protection agency and any other permits or licenses which are required by any governmental authority for use, occupancy and operation of each Project and each Facility as a skilled nursing facility have been obtained and are and will be maintained in full force and effect. Neither any Borrower, any Owner, any Facility, any Project nor any Guarantor is subject to any corporate integrity agreement, compliance agreement or other agreement with any governmental authority or agency governing the operation of any Project or any Facility or the operations of any Borrower, any Owner or any Guarantor.

(j) Section 3.4(b)(iv) of the Loan Agreement is hereby modified and amended by deleting the phrase “in the State of Arkansas” effective as of the date of this Agreement, with the existing Section 3.4(b)(iv) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement.

(k) Section 7.16(b) of the Loan Agreement is hereby modified and amended in its entirety to read as follows:

(b) It is a condition of this Agreement and the Loan that each Owner shall not at any time have outstanding any indebtedness or obligations, secured or unsecured, direct or indirect, absolute or contingent, including any guaranty, other than the following: (i) obligations to Lender; (ii) obligations under interest rate protection agreements to which Lender is a party; (iii) obligations, other than borrowings, incurred in the ordinary course of the ownership of its Project; (iv) obligations under its Lease; (v) obligations under the Seller Note as in effect on September 1, 2011, provided that the Seller Note is subordinated to the Owner Loan and the mortgages and assignments of rents securing the Owner Loan under a subordination agreement acceptable to Lender; and (vi) obligations under

mortgage financing for its Project, provided that the terms and conditions of such mortgage financing do not restrict such Owner from being a Guarantor of the Loan provided for in this Agreement.

(l) The address for notices to the New Borrowers shall be the address for notices to the Borrowers set forth in Section 12.11 of the Loan Agreement, and the Loan Agreement is hereby modified and amended accordingly.

(m) The Borrowers hereby represent and warrant to the Lender as follows:

(i) The nature of each New Borrower entity and the State in which it is organized are as stated in the first paragraph of this Agreement. The organizational numbers of the New Borrowers in such States are as follows:

Borrower		Organizational Number
Borrower 4		11036039
Borrower 5		11070717
Borrower 6		11064313

(ii) The address of each New Borrower’s chief executive office is 5057 Troy Road, Springfield, Ohio 45502.

(iii) Each New Borrower has no place of business other than the chief executive office referred to in (ii) above, at the address for notices set forth in Section 12.11 of the Loan Agreement, and at its Facility.

Section 3 . Addition of Guarantors .

(a) Each New Guarantor is hereby added as a Guarantor under the Guaranty. Each New Guarantor hereby joins in the Guaranty, and agrees to be bound and obligated under the Guaranty with the other parties thereto, and hereby joins in all of the representations, warranties, covenants and other provisions by which the Guarantors are bound which are contained therein, all with the same effect as if each New Guarantor had executed the Guaranty as of September 30, 2011, except that all representations and warranties relating to the New Guarantors which contained in this Agreement or are added by this Agreement to the Documents, shall be effective as of the date of this Agreement. All references in the Documents to the Guarantors under the Guaranty shall be deemed to include a reference to the New Guarantors. All of the Documents are hereby modified and amended to incorporate the foregoing provisions of this paragraph.

(b) The first sentence in Section 3(a) of the Guaranty is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing first sentence in Section 3(a) of the Guaranty to continue to be effective for periods prior to the date of this Agreement:

(c) The address for notices to the New Guarantors shall be the address for notices to the other Owners set forth in Section 23 of the Guaranty, and the Guaranty is hereby modified and amended accordingly.

Section 4 . Addition of Operations Transfer Agreements .

(a) The following new defined terms are hereby added to Section 1.1 of the Loan Agreement effective as of the date of this Agreement:

Old Operators/Facility 1 through Facility 4 : KMJ Management, LLC d/b/a Pinnacle Healthcare, LLC, KMJ Enterprises Bentonville Manor, LLC, KMJ Enterprises Heritage Park, LLC, KMJ Enterprises Homestead, LLC, and KMJ Enterprises Fort Smith RC, LLC, each an Arkansas limited liability company.

Old Operator/Facility 5 : Woodland Manor, Ltd., an Ohio limited liability company.

Old Operator/Facility 6 : White River Health System, Inc., an Arkansas non-profit corporation

Operations Transfer Agreement : Each of the Operations Transfer Agreement/Facility 1 through Facility 4, the Operations Transfer Agreement/Facility 5, and the Operations Transfer Agreement/Facility 6.

Operations Transfer Agreement/Facility 1 through Facility 4 : The Operations Transfer Agreement dated as of August 31, 2011, by and among Old Operators/Facility 1 through Facility 4 and Borrower 1 through Borrower 4 and others.

Operations Transfer Agreement/Facility 5 : The Operations Transfer Agreement dated as of December 30, 2011, by and between Old Operator/Facility 5 and Borrower 5.

Operations Transfer Agreement/Facility 6 : The Operations Transfer Agreement dated as of November 30, 2011, by and between Old Operator/Facility 6 and Borrower 6.

(b) Effective as of the date of this Agreement, the section heading of Section 7.1 of the Loan Agreement is hereby modified and amended to read “Fixtures and Personal Property; Concerning the Leases and Operations Transfer Agreements”, and Section 7.1 of the Loan Agreement is hereby modified and amended by adding the following new paragraph (d) thereto, with the existing Section 7.1 of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

(d) Each Borrower shall comply with its Operations Transfer Agreement. Each Borrower shall at all times duly perform and observe all of the terms, provisions, conditions and agreements on its part to be performed and observed under its Operations Transfer Agreement, and shall not suffer or permit

any Default or Event or Default on the part of such Borrower to exist thereunder. Without the prior written consent of Lender, which may be given or withheld in its sole and absolute discretion, each Borrower shall not agree or consent to, or suffer or permit, any modification, amendment or termination of its Operations Transfer Agreement, except that a termination of any Operations Transfer Agreement after the time that neither any Borrower nor any Old Operator has any remaining unperformed obligations thereunder shall not require Lender’s prior written consent.. Each Borrower shall promptly furnish to Lender copies of all notices of default and other material documents and communications sent or received by such Borrower under or relating to its Operations Transfer Agreement.

(c) Section 7.7(b) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing Section 7.7(b) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

(b) The following provisions shall apply notwithstanding any other provisions of this Agreement:

(i) In the case of each of Facility 1 through 4, at the time such Facility was purchased by the Borrower which is the operator of such Facility, the State of Arkansas license for the operation of such Facility and the Medicare and Medicaid certifications for such Facility were held by the Old Operator of such Facility. Pending the receipt of such license and Medicare and Medicaid certifications by each of Borrower 1 through Borrower 4, (A) the Old Operator of its Facility retained the existing license and Medicare and Medicaid certifications for such Borrower’s Facility, and (B) such Borrower operated its Facility under the license and Medicare and Medicaid certifications of the Old Operator of such Facility under the Operations Transfer Agreement/Facility 1 through Facility 4. Prior to March 9, 2012, such licenses and Medicare and Medicaid certifications were issued to Borrower 1 through Borrower 4, and the arrangements described above under the Operations Transfer Agreement/Facility 1 through Facility 4 terminated as to such Borrowers and such Borrowers operate their Facility under their own licenses and Medicare and Medicaid certifications.

(ii) At the time Facility 5 was purchased by Borrower 5, the State of Ohio license for the operation of Facility 5 and the Medicare and Medicaid certifications for Facility 5 were held by Old Operator/Facility 5. Pending the receipt of such license and Medicare and Medicaid certifications by Borrower 5, (A) Old Operator/Facility 5 was to retain the existing license and Medicare and Medicaid certifications for Facility 5, and (ii) Borrower 5 was to operate Facility 5 under the license and Medicare and Medicaid certifications of Old Operator/Facility 5 under the Operations Transfer Agreement/Facility 5. Prior to March 9, 2012, such

license was issued to Borrower 5, and the arrangements described above under the Operations Transfer Agreement/Facility 5 with respect to such license terminated and Borrower 5 operates Facility 5 under its own license. It is a condition of this Agreement and the Loan that no later than June 30, 2012, Borrower 5 shall have obtained Medicare and Medicaid certifications for Facility 5, and pending receipt of such Medicare and Medicaid certifications, Borrower 5 shall continue to operate Facility 5 under the Medicare and Medicaid certifications of Old Operator/Facility 5 under the Operations Transfer Agreement/Facility 5. Upon the issuance of such Medicare and Medicaid certifications to Borrower 5, the arrangements described above under the Operations Transfer Agreement/Facility 5 with respect to Medicare and Medicaid certifications shall terminate as to Borrower 5 and Borrower 5 shall thereafter operate Facility 5 under its own Medicare and Medicaid certifications. Borrowers represent and warrant to Lender that the Operations Transfer Agreement/Facility 5 is in full force and effect and that no Defaults or Events of Default on the part of Borrower 5 or Old Operator/Facility 5 have occurred and are continuing thereunder.

(iii) At the time Facility 6 was purchased by Borrower 6, the State of Arkansas license for the operation of Facility 6 and the Medicare and Medicaid certifications for Facility 6 were held by Old Operator/Facility 6. Pending the receipt of such license and Medicare and Medicaid certifications by Borrower 6, (A) Old Operator/Facility 6 was to retain the existing license and Medicare and Medicaid certifications for Facility 6, and (ii) Borrower 6 was to operate Facility 6 under the license and Medicare and Medicaid certifications of Old Operator/Facility 6 under the Operations Transfer Agreement/Facility 6. Prior to March 9, 2012, such license was issued to Borrower 6, and the arrangements described above under the Operations Transfer Agreement/Facility 6 with respect to such license terminated and Borrower 6 operates Facility 6 under its own license. It is a condition of this Agreement and the Loan that no later than June 30, 2012, Borrower 6 shall have obtained Medicare and Medicaid certifications for Facility 6, and pending receipt of such Medicare and Medicaid certifications, Borrower 6 shall continue to operate Facility 6 under the Operations Transfer Agreement/Facility 6. Upon the issuance of such Medicare and Medicaid certifications to Borrower 6, the arrangements described above under the Operations Transfer Agreement/Facility 6 with respect to Medicare and Medicaid certifications shall terminate as to Borrower 6 and Borrower 6 shall thereafter operate Facility 6 under its own Medicare and Medicaid certifications. Borrowers represent and warrant to Lender that the Operations Transfer Agreement/Facility 6 is in full force and effect and that no Defaults or Events of Default on the part of Borrower 6 or Old Operator/Facility 6 have occurred and are continuing thereunder.

(d) Section 7.9(b) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing Section 7.9(b) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

(b) Each Borrower shall not at any time have outstanding any indebtedness or obligations, secured or unsecured, direct or indirect, absolute or contingent, including any guaranty, other than the following: (i) obligations to Lender; (ii) obligations under interest rate protection agreements to which Lender is a party; (iii) obligations, other than borrowings, incurred in the ordinary course of the ownership and operation of its Facility; (iv) obligations under its Lease; (v) obligations under its Operations Transfer Agreement; and (vi) in the case of Borrower 4 and Borrower 6, obligations as guarantor or co-borrower under mortgage financing for the Project in which its Facility is located, provided that such financing is not secured by any assets of Borrower 4 or Borrower 6 which are a part of the Collateral for the Loan, other than property which under applicable law is or may become a fixture, as the case may be, and provided that such financing does not contain restrictions which would be violated by Borrower 4 or Borrower 6, as the case may be, undertaking its obligations under this Agreement and the other Loan Documents.

(e) Section 8.1(b) of the Loan Agreement is hereby modified and amended by (i) deleting the word “and” at the end of subparagraph (vi) thereof, (ii) re-designating subparagraph “(vii)” thereof to be subparagraph “(viii)”, and (iii) adding the following new subparagraph (vii) thereto:

(vii) Without limitation on the generality of the foregoing, such Borrower’s Operations Transfer Agreement, all rights of such Borrower under its Operations Transfer Agreement, and all amounts from time to time payable to such Borrower under its Operations Transfer Agreement; and

(f) Section 8.1(b) of the Loan Agreement is hereby modified and amended by adding the following new paragraph at the end thereof:

Reference is made to Section 7.7(b) of this Agreement. In the case of each Borrower and its Facility, until such time as the Medicare and Medicaid certifications for such Facility are issued to such Borrower, Accounts for services rendered by such Borrower may be in the name of the Old Operator of such Facility, in which case such Old Operator is obligated by the provisions of the Operations Transfer Agreement for such Facility to pay collections on such Accounts to such Borrower. In order to further secure the Loan, Borrowers shall cause Old Operators to grant direct security interests to Lender in such Accounts and related collateral pursuant to agreements in a form acceptable to Lender.

(g) Section 10.1(n) of the Loan Agreement is hereby modified and amended in its entirety to read as follows effective as of the date of this Agreement, with the existing Section

10.1(n) of the Loan Agreement to continue to be effective for periods prior to the date of this Agreement:

(n) The occurrence of any Default or Event of Default on the part of any Borrower under its Lease, or on the part of any Borrower under any Operations Transfer Agreement, or on the part of any Old Operator under any Operations Transfer Agreement if such Default or Event of Default has a material adverse effect on the security for the Loan, or the termination of any Operations Transfer Agreement, other than any termination of any Operations Transfer Agreement after the time that neither any Borrower nor any Old Operator has any remaining unperformed obligations thereunder.

Section 5 . Addition of Letter of Credit .

(a) For purposes of this Agreement, the following terms shall have the respective meanings set forth below in this paragraph (a). Each of such defined terms is hereby added to Section 1.1 of the Loan Agreement.

Application : An Application for Irrevocable Standby Letter of Credit from Borrowers to Lender.

Letter of Credit : An Irrevocable Standby Letter of Credit in the Letter of Credit Amount, to be issued by Lender in favor one or more commercial insurance companies as beneficiary, for the account of one or more of Borrowers or AdCare.

Letter of Credit Amount : $100,000, it being understood that the Letter of Credit Amount is a part of the Loan Amount and not in addition to the Loan Amount.

Letter of Credit Documents : The following: (i) the Master Letter of Credit Agreement dated as of February 14, 2012, from Borrowers to Lender, and (ii) any Application for the issuance of a Letter of Credit executed by Borrowers in favor of Lender.

Each of the Letter of Credit Documents shall be a Loan Document, and all references in the Documents to the “Loan Documents”, including, without limitation, in the definition of the term “Loan Documents” in Section 1.1 of the Loan Agreement and Section 1 of the Note, shall be deemed to include a reference to the Letter of Credit Documents.

(b) The definitions of the following terms in Section 1.1 of the Loan Agreement are hereby modified and amended in their entirety to read as follows effective as of the date of this Agreement, with the existing definitions of such terms to continue to be effective for periods prior to the date of this Agreement:

Loan : The loan to be made pursuant to this Agreement, including, without limitation, the issuance of any Letter of Credit.

Loan Amount : $2,000,000, which includes the $100,000 Letter of Credit Amount.

Loan Documents : This Agreement, the documents specified in Article 4 hereof, the Letter of Credit Documents and any other instruments evidencing, securing or guarantying obligations of any party under the Loan, and any Hedging Agreements to which Lender is a party.

Loan Proceeds : All amounts advanced as part of the Loan, whether advanced directly to Borrowers or otherwise, it being understood that any amount drawn on the Letter of Credit shall constitute Loan Proceeds.

(c) Subject to all of the terms and conditions contained herein and in the Loan Agreement, on or about the date of this Agreement, the Lender shall issue the Letter of Credit pursuant to the Letter of Credit Documents, including an Application executed and delivered by the Borrowers to the Lender. The Letter of Credit shall be in the Letter of Credit Amount, and shall be in a form acceptable to the Lender.

(d) The Lender shall not be obligated to issue the Letter of Credit unless and until each of the following conditions have been satisfied:

(i) No Default or Event of Default shall have occurred and be continuing under any of the Loan Documents (including the Letter of Credit Documents).

(ii) The Lender shall have received executed copies of the Letter of Credit Documents in form and content acceptable to the Lender.

(iii) The Borrowers shall have paid the first annual fee for the Letter of Credit to the Lenders as provided in paragraph (g) of this Section.

(iv) The aggregate principal balance outstanding on the Loan plus the face amount of the Letter of Credit when issued shall not exceed the Availability.

(e) Any amounts drawn on any Letter of Credit shall be evidenced by the Letter of Credit Documents and the Note and shall be deemed to be amounts disbursed and outstanding thereunder as of the date such amounts are drawn. Notwithstanding anything to the contrary contained in the Loan Agreement or the Note, amounts drawn on any Letter of Credit shall bear interest at the rate provided in the Letter of Credit Documents, and shall be payable by the Borrowers on the terms provided in the Letter of Credit Documents.

(f) The Letter of Credit Documents shall be secured by the security interests created under the Loan Agreement, and the obligations of the Borrowers under the Letter of Credit Documents shall be guaranteed by the Guarantors pursuant to the Guaranty. For the avoidance of doubt, the security interests created in Sections 3.4(f), 4.2(b), 7.8(b) and 8.1 of the Loan Agreement shall secure the reimbursement by the Borrowers of all amounts drawn on any Letter of Credit and the payment and performance of all of the obligations of the Borrowers under the Letter of Credit Documents.

(g) The Borrowers shall pay a non-refundable annual letter of credit fee to the Lender in advance on the date of the issuance of any Letter of Credit, and on each anniversary thereof, in an amount equal to 2.5% of the face amount of such Letter of Credit.

(h) The Borrowers hereby covenant and agree with the Lender that the Borrowers shall promptly pay any amount due under the Letter of Credit Documents as and when the same shall become due and payable.

(i) Each of the Letter of Credit Documents shall be subject to the provisions of Sections 12.2 and 12.3 of the Loan Agreement, which Sections are hereby incorporated into and made of part of each of the Letter of Credit Documents.

(j) If any Letter of Credit has not been presented for a draw pursuant to its terms, such Letter of Credit shall terminate upon the earlier to occur of the stated expiry date thereof or the date such Letter of Credit is returned to the Lender for cancellation. Except as provided in paragraph (k) of this Section, in no event shall the Lender be required to release the liens and security interests created by the Loan Agreement and the other Loan Documents prior to the time that all Letters of Credit have so terminated.

(k) If at a time when a Letter of Credit is outstanding, the Maturity Date of the Loan and the Note occurs and is not extended, or the obligation of the Lender to make additional cash disbursements on the Loan (other than by paying draws on Letters of Credit) under the Loan Agreement otherwise terminates, the Borrowers shall immediately deposit into an interest-bearing cash collateral deposit account in the name of the Borrowers held by the Lender (the “ L/C Cash Collateral Account ” ), an amount equal to the then face amount of such Letter of Credit (a “ Deposit ” ). The Borrowers acknowledge and agree that the L/C Cash Collateral Account and amounts on deposit therein will be subject to the security interests in the Borrowers’ Deposit Accounts (as defined in the Code) and amounts on deposit therein which are created under Section 3.4(f) of the Loan Agreement. The failure of the Borrowers to make any Deposit as provided above shall constitute an Event of Default under the Loan Agreement, and upon or at any time after the occurrence of such Event of Default, the Lender may exercise any or all of its remedies under the Loan Documents and under applicable law. Provided that the Borrowers have made any required Deposit as provided above, and the Lender no longer has any obligation to make any additional cash disbursements on the Loan (other than by paying draws on Letters of Credit), and the Loan has otherwise been paid in full, and no Default or Event of Default under this Agreement has occurred and is continuing, the Lender shall release the liens and security interests created by the Loan Agreement and the other Loan Documents, other than the security interest in the L/C Cash Collateral Account. Provided that no Default or Event of Default under the Loan Agreement has occurred and is continuing, the Lender shall release the L/C Cash Collateral Account at such time as the Lender no longer has any liability under any Letter of Credit and all obligations to the Lender under the Loan Agreement and the other Loan Documents have been fully paid and performed.

(l) All of the Documents are hereby modified and amended to incorporate the foregoing provisions of this Section.

Section 6 . Amendments to Loan Agreement Concerning Letter of Credit . Without limitation on the provisions of Section 5 of this Agreement, the Loan Agreement is hereby modified and amended as follows:

(a) The first sentence in Section 3.1 of the Loan Agreement is hereby modified and amended in its entirety to read as follows:

On the terms of and subject to the conditions of this Agreement, Lender agrees to make advances on the Loan at such times as Borrowers may from time to time request until, but not including, the Maturity Date, and in such amounts as Borrowers may from time to time request, provided, however, that at any time, the aggregate principal balance outstanding on the Loan plus the combined face amount of all outstanding Letters of Credit, shall not exceed the Availability.

(b) Section 3.3 of the Loan Agreement is hereby modified and amended in its entirety to read as follows:

3.3 Principal Payments; Maturity Date .

(a) Prior to the Maturity Date, principal payments, if any, shall be made as provided in the Note.

(b) In the event the outstanding principal balance of the Loan together with the combined face amount of all outstanding Letters of Credit at any time exceeds the Availability, Borrowers shall make such repayments of the Loan as shall be necessary to eliminate such excess. In the event that at any time there is no principal balance outstanding on the Loan and the combined face amount of all outstanding Letters of Credit exceeds the Availability, then Borrowers shall immediately deposit the amount of such excess in a cash collateral account as security for the Loan in the name of one or more of Borrowers with Lender, and shall maintain such amount on deposit in such cash collateral account so long as and to the extent that the combined face amount of all outstanding Letters of Credit exceeds the Availability.

(c) The entire principal balance of the Note and all accrued and unpaid interest thereon shall be due, if not sooner paid, on the Maturity Date.

7.4 Excess Indebtedness . Reference is made to Section 3.3(b) of the Loan Agreement for provisions relating to payment and cash collateralization of amounts of the principal balance of the Loan and the combined face amount of all outstanding Letters of Credit which at any time exceed the Availability.

(d) Section 10.1(a) of the Loan Agreement is hereby modified and amended in its entirety to read as follows:

(a) Borrowers fail to (i) pay any installment of principal or interest payable pursuant to the Note on the date when due, (ii) reimburse to Lender any amount drawn on any Letter of Credit when required by the Letter of Credit Documents, or (iii) pay any other amount payable to Lender under the Note, any

Letter of Credit Document, this Agreement or any of the other Loan Documents when any such payment is due in accordance with the terms hereof or thereof;

Section 7 . Amendments to Note Concerning Letter of Credit . Without limitation on the provisions of Section 5 of this Agreement, the Note is hereby modified and amended as follows:

(a) Section 3.2 of the Note is hereby modified and amended in its entirety to read as follows:

3.2 Application of Payments . Prior to the occurrence of an Event of Default, all payments and prepayments on account of the indebtedness evidenced by this Note (including, without limitation, reimbursements of amounts drawn on any Letter of Credit) shall be applied as follows: (a) first, to fees, expenses, costs and other similar amounts then due and payable to the Lender, including, without limitation any prepayment premium, exit fee or late charges due hereunder, (b) second, to accrued and unpaid interest on the principal balance of this Note and the Letter of Credit Documents, (c) third, to the payment of principal due in the month in which the payment or prepayment is made, (d) fourth, to any escrows, impounds or other amounts which may then be due and payable under the Loan Documents, (e) fifth, to all other amounts then due to the Lender under the Loan Agreement or under any of the other Loan Documents, other than the unpaid principal balance of this Note and the Letter of Credit Documents, and (f) last, to the unpaid principal balance of this Note and the Letter of Credit Documents, in the inverse order of maturity of any required payments of principal. Any prepayment on account of the indebtedness evidenced by this Note shall not extend or postpone the due date or reduce the amount of any subsequent monthly payment of principal and interest due hereunder. After an Event of Default has occurred and is continuing and uncured, payments may be applied by the Lender to amounts owed hereunder and under the Loan Documents in such order as the Lender shall determine, in its sole discretion.

(b) Section 5(a) of the Note is hereby modified and amended in its entirety to read as follows:

(a) The failure by the Borrowers to (i) pay any installment of principal or interest payable pursuant to this Note on the date when due, (ii) reimburse to the Lender any amount drawn on any Letter of Credit when required by the Letter of Credit Documents, or (iii) pay any other amount payable to the Lender under this Note, any Letter of Credit Document, the Loan Agreement or any of the other Loan Documents on the date when any such payment is due in accordance with the terms hereof or thereof; or

Section 8 . Amendments to Guaranty Concerning Letter of Credit . Without limitation on the provisions of Section 5 of this Agreement, Section 1 of the Guaranty is hereby modified and amended in its entirety to read as follows:

1. Guaranty of Payment . Each Guarantor hereby unconditionally, absolutely and irrevocably guarantees, jointly and severally, the punctual payment and performance when due, whether at stated maturity or by acceleration or otherwise, of the indebtedness and other obligations of the Borrowers to the Lender evidenced by the Note and the Letter of Credit Documents and any other amounts that may become owing by any one or more of the Borrowers under the Loan Documents (such indebtedness, obligations and other amounts are hereinafter referred to as the “ Payment Obligations ” ). This Guaranty is a present and continuing guaranty of payment and not of collectability, and the Lender shall not be required to prosecute collection, enforcement or other remedies against any Borrower, any Guarantor, or any other guarantor of the Payment Obligations, or to enforce or resort to any collateral for the repayment of the Payment Obligations or other rights or remedies pertaining thereto, before calling on any Guarantor for payment. If for any reason the Borrowers shall fail or be unable to pay, punctually and fully, any of the Payment Obligations, the Guarantors shall jointly and severally pay such obligations to the Lender in full immediately upon demand. One or more successive actions may be brought against the Guarantors, or any of them, as often as the Lender deems advisable, until all of the Payment Obligations are paid and performed in full. The Payment Obligations and the Performance Obligations (as defined below) are referred to herein as the “ Guaranteed Obligations ” .

Section 9 . Extension of Maturity Date . The maturity date of the Loan and the Note is hereby extended from September 29, 2012, to March 8, 2013, and all of the Documents are hereby modified and amended accordingly. Without limitation on the generality of the foregoing provisions of this Section, the date “September 29, 2012” is hereby changed to “March 8, 2013” each time it appears in the Documents in reference to the maturity date of the Loan and the Note, including, without limitation in the definition of the term “Maturity Date” in Section 1.1 of the Loan Agreement and in Section 1 of the Note.

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

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

(a) Each Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the State in which its Facility is located, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement and each of the Documents to which it is a party and to perform and consummate the transactions contemplated hereby and thereby.

(b) Each Owner is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and duly registered to transact business and in good standing in the State in which its Project is located, has all necessary power and authority to carry on its present business, and has full right, power and authority to enter into this Agreement and each of the Documents to which it is a party and to perform and consummate the transactions contemplated hereby and thereby.

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

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

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

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

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

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

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

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

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

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

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

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

Section 18 . Construction .

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

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

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

(e) The Borrower/Guarantor Parties and the Lender, and their respective legal counsel, have participated in the drafting of this Agreement, and accordingly the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Agreement.

Section 19 . Counterparts; Electronic Signatures . This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. An electronic record of this executed Agreement maintained by the Lender shall be deemed to be an original.

Section 20 . Governing Law . This Agreement is prepared and entered into with the intention that the law of the State of Illinois shall govern its construction and enforcement, except that insofar as this Agreement relates to a Document which by its terms is governed by the law of the State of Arkansas or the State of Ohio, this Agreement shall also be governed by the law of the State of Arkansas or the State of Ohio, respectively.

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

IF ANY, FOLLOW THIS PAGE]

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

	BENTON NURSING, LLC,
	PARK HERITAGE NURSING, LLC,
	VALLEY RIVER NURSING, LLC
	HOMESTEAD NURSING, LLC
	WOODLAND MANOR NURSING, LLC
	MOUNTAIN VIEW NURSING, LLC


	By:	/s/ Christopher F. Brogdon
		Christopher F. Brogdon, Manager of Each Borrower


	ADCARE HEALTH SYSTEMS, INC.


	By:	/s/ Christopher F. Brogdon
		Christopher F. Brogdon, Vice Chairman and
		Chief Acquisition Officer

	BENTON PROPERTY HOLDINGS, LLC,
	PARK HERITAGE PROPERTY HOLDINGS, LLC,
	VALLEY RIVER PROPERTY HOLDINGS, LLC
	HOMESTEAD PROPERTY HOLDINGS, LLC
	WOODLAND MANOR PROPERTY HOLDINGS, LLC MT. V PROPERTY HOLDINGS, LLC


	By:	/s/ Christopher F. Brogdon
		Christopher F. Brogdon, Manager of Each Owner

	THE PRIVATEBANK AND TRUST COMPANY


	By:	/s/ Bluma Broner
		Bluma Broner, Managing Director

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