Exhibit 99.1

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “ Agreement ”), dated as of June 28, 2012, is entered into by and among AdCare Health Systems, Inc., an Ohio corporation with headquarters located at 1145 Hembree Road, Roswell, Georgia  30076 (the “ Company ”), and the individuals and entities listed on Schedule A attached hereto (the “ Schedule of Buyers ”) under the heading “Buyers” (collectively, the “ Buyers ” and each, a “ Buyer ”) who became parties to this Agreement by executing and delivering a signature page in the form of Exhibit A attached hereto (the “ Buyer Signature Page ”).  (The Company and the Buyers are sometimes referred to in this Agreement collectively as the “ Parties ” or singly as a “ Party .”)

RECITALS:

A.                                    The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the United States Securities and Exchange Commission (the “ Commission ”) under the Securities Act.

B.                                      The Company has authorized a new series of 8% subordinated convertible notes of the Company, substantially in the form of Exhibit B attached hereto (the “ Notes ”), which Notes shall be convertible into the Company’s common stock, no par value per share (the “ Common Stock ”), in accordance with the terms of the Notes (as converted, collectively, the “ Conversion Shares ”).  (The Notes and the Conversion Shares are sometimes referred to, collectively, in this Agreement as the “ Securities .”)

C.                                      The Buyers wish to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, an aggregate principal amount of the Notes of up to Eight Million Dollars ($8,000,000) (the “ Maximum Offering Amount ”).

D.                                     Contemporaneously with the execution and delivery of this Agreement, the Parties are executing and delivering a Registration Rights Agreement, substantially in the form of Exhibit C attached hereto (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights with respect to Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

E.                                       The Notes are subordinated debt of the Company.

NOW, THEREFORE , in consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer agree as follows:

1.                                        Sale and Purchase of Notes .

(a)                                   Purchase Price . Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to issue and sell to each Buyer, and each Buyer agrees, severally and not jointly, to purchase from the Company at the applicable Closing(s) (as

defined in Section 1(b)), Note(s) with a principal amount equal to the amount set forth on such Buyer’s Buyer Signature Page. In no event shall the aggregate principal amount of the Notes sold under this Agreement exceed the Maximum Offering Amount.  With respect to each Buyer, the “ Purchase Price ” of the Note(s) to be purchased by such Buyer at the applicable Closing shall be equal to the principal amount set forth on such Buyer’s Buyer Signature Page with respect to such Closing (the “ Purchase Price ”).

(b)                                  Closings . The sale and purchase of the Notes under this Agreement may occur in one or more closings (each, a “ Closing ” and, collectively, the “ Closings ”). Each Closing shall be at the offices of Cantone Research, Inc., the placement agent for the offer and sale of Notes by the Company pursuant to this Agreement (the “ Placement Agent ”), located at 766 Shrewbury Avenue, Tinton Falls, New Jersey  07724, at 10:00 a.m., local time, or at such other time and place, or remotely by facsimile or other electronic transmission, as the Company and the Buyers participating in such Closing shall agree.  Each Closing will be deemed to occur when:  (i) this Agreement and the other Transaction Documents (as defined in Section 3(b)) have been executed and delivered by the Company and each Buyer participating in such Closing; (ii) each of the conditions to such Closing set forth in Sections 6 and 7 have been satisfied or waived; (iii) full payment of the Purchase Price of each Buyer participating in such Closing has been made (or caused to be made) by such Buyer to the Company by wire transfer of immediately available funds against physical delivery by the Company of a duly executed Note(s) being purchased by such Buyer.

(c)                                   Initial Closing .  The first Closing of the sale and purchase of Notes under this Agreement (the “ Initial Closing ”) shall take place on July 2, 2012 (or such other date that is mutually agreed to by the Company and the Buyers participating in the Initial Closing). At the Initial Closing, the Company shall sell to each Buyer participating in the Initial Closing, and each such Buyer, severally and not jointly, shall purchase from the Company, Note(s) with a principal amount equal to the amount set forth on such Buyer’s Buyer Signature Page.

(d)                                  Additional Closings .  At any time after the Initial Closing, to the extent that (i) Buyers already party to this Agreement (at the time determined, the “ Existing Buyers ”) and/or (ii) additional Buyers reasonably acceptable to the Company (each, an “ Additional Buyer ”), agree by execution of a Buyer Signature Page to purchase Notes, the principal amount of which shall be set forth on each such Buyer’s Buyer Signature Page, the Company may, at its option and in its sole discretion, hold one or more additional Closings with respect to the purchase of such Notes (each, an “ Additional Closing ”). Each Additional Closing shall occur on such date as shall be mutually acceptable to the Company and the Buyers participating in such Additional Closing; provided , however , that all Additional Closings shall be held on or before July 31, 2012. At an Additional Closing, the Company shall sell to each Buyer participating in the Additional Closing, and each such Buyer, severally and not jointly, shall purchase from the Company, Note(s) with a principal amount equal to the amount set forth on such Buyer’s Buyer Signature Page. The terms of the transactions consummated at each Additional Closing shall be identical to the terms consummated at the Initial Closing, except for the date of the issuance of the Notes. In connection with any Additional Closing, the Company shall amend the Schedule of Buyers (without any action from any Buyer) to reflect any additional purchase by Existing Buyers, and to add any Additional Buyers and to reflect the applicable dates of Closing of such purchases. Subject to and upon the completion of an Additional Closing, the Additional Buyers

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with respect to such Additional Closing will become a Buyer under this Agreement without any action by any Existing Buyer.

(e)                                   Participation by CAM .  Notwithstanding anything herein to the contrary, if the Company accepts Cantone Asset Management LLC (an affiliate of the Placement Agent, “ CAM ”) as a Buyer with respect to any Closing, then CAM may pay its Purchase Price with respect to such Closing by cancellation of existing debt of the Company held by CAM with a face amount equal to such Purchase Price; provided , however , that CAM’s aggregate Purchase Price with respect to all Closings may not exceed five million dollars ($5,000,000).

2.                                        Buyer’s Representations and Warranties .

Each Buyer, for itself and for no other Buyer, represents and warrants to the Company as of the date hereof and as of the date of each Closing in which such Buyer participates as follows:

(a)                                   No Public Sale or Distribution .  Such Buyer is acquiring the Notes and, upon conversion of the Notes will acquire the Conversion Shares, in each case in the ordinary course of business for such Buyer’s own account for investment purposes only and not with a view towards, or for resale of, the Securities, except pursuant to sales registered or exempted under the Securities Act and applicable state securities laws, and such Buyer does not have a present arrangement to effect any distribution of the Securities to or through any Person (as defined in Section 3(s)); provided , however , that by making the representations in this Agreement, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act and applicable state securities laws.  Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(b)                                  Accredited Investor Status .  Such Buyer is an “accredited investor” as that term is defined in Rule 501 of Regulation D and was not formed or organized for the specific purpose of making an investment in the Company.

(c)                                   Reliance on Exemptions .  Such Buyer understands that the Company is offering and selling the Securities to such Buyer in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth in this Agreement in order to determine the availability of the exemptions and the eligibility of such Buyer to acquire the Securities.

(d)                                  Information .

(i)                                      The Company has, prior to the Closing in which such Buyer participates, provided such Buyer with information regarding the business, operations and financial condition of the Company and has, prior to such Closing, granted to such Buyer the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and

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materials relating to the terms and conditions of the sale and purchase of the Securities hereunder, in order for such Buyer to make an informed decision with respect to its investment in the Securities.  Neither the inquiries nor any other due diligence investigations conducted by such Buyer or such Buyer’s advisors, if any, or such Buyer’s representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in this Agreement and the written information provided by the Company to such Buyer, including, but not limited to, the Company’s Private Placement Memorandum dated June 26, 2012, as supplemented by Supplement No. 1 thereto dated June 28, 2012, with respect to the Securities (together, the “ Memorandum ”).

(ii)                                   Such Buyer understands that such Buyer’s investment in the Securities involves a high degree of risk and represents that such Buyer has reviewed and understands the risk factors described in the Company’s Memorandum and the risk factors set forth in the Commission Documents (as defined in Section 3(k)).  Such Buyer can bear the economic risk of a total loss of such Buyer’s investment in the Securities and has such knowledge and experience in business and financial matters so as to enable such Buyer to understand the risks of and form an investment decision with respect to such Buyer’s investment in the Securities.

(iii)                                Such Buyer has sought the accounting, legal and tax advice as such Buyer has considered necessary to make an informed investment decision with respect to such Buyer’s investment in the Securities.

(e)                                   No Governmental Review .  Such Buyer understands that no United States federal or state agency or any other government or governmental agency or other regulatory authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities or passed on the accuracy or adequacy of any information provided by the Company, including, but not limited to, the Memorandum.

(f)                                     Transfer or Resale .  Such Buyer understands and acknowledges that:

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

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

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compliance with some other exemption under the Securities Act or the rules and regulations of the Commission thereunder;

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

(iv)                               except with respect to a transfer to an Affiliate (as defined by Rule 405 promulgated pursuant to the Securities Act), without the prior written consent of the Company, such Buyer acknowledges and agrees that no Notes may be transferred in increments less than the lesser of (A) $10,000 and (B) the amount then outstanding under the Notes (the “ Minimum Transfer Amount ”).

Notwithstanding the foregoing, the Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and the pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation, this Section 2(f); provided , that in order to make any sale, transfer or assignment of Securities, such Buyer and such Buyer’s pledgee makes the disposition in accordance with or pursuant to a registration statement or an exemption under the Securities Act.

(g)                                  Legends .  Such Buyer understands that the certificates representing the Notes and, unless and until such the time as the resale of the Conversion Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement, the certificates representing the Conversion Shares, except as set forth below, shall bear any legend as required by any state securities or the “blue sky” laws (“ Blue Sky Laws ”) and a restrictive legend in substantially the following form (and a stop-transfer order will be placed against transfer of the Conversion Shares):

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

The legend set forth above shall be removed and the Company shall issue a certificate without the legend to the holder of the Conversion Shares upon which it is stamped or issue to the holder by electronic delivery at the applicable balance account at The Depository Trust Company (“ DTC ”), if, unless otherwise required by state securities laws, (i) the Conversion

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Shares are registered for resale under the Securities Act, or (ii) in connection with a sale, assignment or other transfer, the holder provides the Company with an opinion of counsel, in a form acceptable to the Company, to the effect that the sale, assignment or transfer of the Conversion Shares may be made without registration under the applicable requirements of the Securities Act and that the legend is no longer required.  The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with the issuance.

(h)                                  Validity; Enforcement .  This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as the enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

(i)                                      No Conflicts .  The execution, delivery and performance by such Buyer of this Agreement and the Registration Rights Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not: (i) (if such Buyer is an entity) result in a violation of the organizational documents of such Buyer; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party; or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for the conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform such Buyer’s obligations hereunder.

(j)                                      Prohibited Transactions .  Other than with respect to this Agreement and the transactions contemplated herein, since the time that such Buyer was first contacted by the Company or the Placement Agent regarding the investment in the Securities, neither such Buyer nor any Affiliate of such Buyer which (i) had knowledge of the transactions contemplated hereby; (ii) has or shares discretion relating to such Buyer’s investments or trading or information concerning such Buyer’s investments; and (iii) is subject to such Buyer’s review or input concerning the Affiliate’s investments or trading (collectively, “ Trading Affiliates ”) has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Buyer or Trading Affiliate, effected or agreed to effect any transactions in the securities of the Company, or any transactions involving or relating to securities of the Company, including any derivative securities.  Such Buyer hereby covenants and agrees not to, and shall cause such Buyer’s Trading Affiliates not to, engage, directly or indirectly, in any transactions in the securities of the Company, or any transactions involving or relating to the Company’s securities, during the period from the date hereof until the time as (A) the transactions contemplated by this Agreement are first publicly announced as described in Section 4(h) (provided the Company complies therewith) or (B) this Agreement is terminated in full pursuant to Section 8.

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(k)                                   Organization .  Such Buyer represents and warrants that such Buyer is either an individual or an entity duly organized or formed and validly existing in good standing under the laws of the jurisdiction in which such Buyer is so organized or formed, and has the requisite power and authority to enter into and perform such Buyer’s obligations under the Transaction Documents to which it is a party and otherwise to carry out such Buyer’s obligations hereunder and thereunder.

(l)                                      No General Solicitation .  Such Buyer acknowledges that the Securities were not offered to such Buyer by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisements article, note or other communication published in any newspaper, magazine, website or similar media, or broadcast over television or radio; or (ii) any seminar or meeting to which such Buyer was invited by any of the foregoing means.

(m)                                Residency .  Such Buyer is a resident of the jurisdiction specified as its address on such Buyer’s Buyer Signature Page.

3.                                        Representations and Warranties of the Company .

Except as disclosed in any written information provided or otherwise available to a Buyer before such Buyer’s execution of this Agreement, including, but not limited to, the Memorandum and the Commission Documents (as defined in Section 3(k)), the Company represents and warrants to such Buyer that, as of the date hereof and as of the date of each Closing in which such Buyer participates (except for representations and warranties that speak as of a specific date, which shall be made as of such date):

(a)                                   Organization and Qualification .  Each of the Company and its “ Subsidiaries ” (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns 50% or more of any of the capital stock or similar interest in the entity) are entities duly organized and validly existing in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted.  Each of the Company and its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes the qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  As used in this Agreement, “ Material Adverse Effect ” means any material adverse effect on (i) the business, properties, assets, operations or results of operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole or (ii) on the authority or ability of the Company to perform its obligations under this Agreement or the other Transaction Documents (as defined in Section 3(b)).  The Company has no Subsidiaries which are material which are not set forth in the Commission Documents.

(b)                                  Authorization; Enforcement; Validity .  The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Notes, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)) and each of the other agreements entered into by the Company in connection with

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the transactions contemplated by this Agreement (collectively, the “ Transaction Documents ”) and to issue the Securities in accordance with the terms of the Transaction Documents.  The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby, including, without limitation, the issuance of the Notes, and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Notes, have been duly authorized by the Company’s Board of Directors (the “ Board of Directors ”) and other than (i) the filing of a Form D pursuant to Regulation D under the Securities Act and any required notices or filings under applicable state securities or Blue Sky Laws with respect to the transactions contemplated hereby; (ii) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement; (iii) the filing with the NYSE MKT seeking the NYSE MKT Approval; and (iv) the filing contemplated pursuant to Section 4(h), no further filing, consent or authorization is required by the Company, the Board of Directors or its stockholders.  This Agreement and the other Transaction Documents have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

(c)                                   Issuance of Securities .  The issuance of the Notes is duly authorized and, upon issuance in accordance with the terms hereof, the Notes shall be validly issued and free from all taxes, liens and charges with respect to the issue thereof.  As of each Closing, subject to the provisions of Section 4(j), a number of shares of Common Stock shall have been duly authorized and reserved for issuance which equals or exceeds 120% of the sum of the maximum number of shares of Common Stock issuable upon conversion of the Notes issued at such Closing.  Upon issuance of the Conversion Shares in accordance with the terms of the Notes, the Conversion Shares will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof (excluding encumbrances pursuant to the United States federal and state securities laws), with the holders being entitled to all rights accorded to a holder of Common Stock with respect to such Conversion Shares.  Assuming the accuracy of the representations and warranties set forth in Section 2, the offer and issuance by the Company of the Securities is exempt from registration under the Securities Act.

(d)                                  No Conflicts .  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and, subject to the provisions of Section 4(j), reservation for issuance and issuance of the Conversion Shares) will not: (i) result in a violation of any Articles of Incorporation, Articles of Formation, any Certificate of Designations or other constituent documents of the Company or any of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries, or the Code of Regulations or Bylaws of the Company or any of its Subsidiaries; or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party; or (iii) subject to the receipt of the NYSE MKT Approval,

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result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of the NYSE MKT (the “ Principal Market ”)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  For purposes of this Agreement, “ NYSE MKT Approval ” means the approval by the NYSE MKT of the listing of the Conversion Shares on the NYSE MKT.

(e)                                   Consents .  Except for the filing of a Form D pursuant to Regulation D under the Securities Act, any required filings under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), any required notices or filings under applicable state securities or Blue Sky Laws and the NYSE MKT Approval, neither the Company nor any of its Subsidiaries is required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain or effect pursuant the preceding sentence on or before the Initial Closing will be obtained or effected on or before to the Initial Closing.  The Company and its Subsidiaries are unaware of any facts or circumstances that could reasonably be expected to prevent the Company from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence.  The Company is not in violation of the listing requirements of the Principal Market and has no knowledge of any facts that could reasonably be expected to lead to delisting or suspension of the Common Stock in the foreseeable future.

(f)                                     Acknowledgment Regarding Buyer’s Purchase of Securities .  The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of the Company or any of his Subsidiaries; (ii) an “affiliate” of the Company or any of his Subsidiaries (as defined in Rule 144); or (iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act), except as noted in such Buyer’s filings with the Commission under the Exchange Act.  The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

(g)                                  No General Solicitation; Placement Agent’s Fees .  Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees or brokers’ commissions (other than for Persons engaged by any Buyer or such Buyer’s investment advisor) relating to or arising out of the transactions contemplated hereby.  The Company acknowledges that it has engaged Cantone Research, Inc. as exclusive Placement Agent in connection with the sale of the Securities.  Other than the Placement Agent, neither the Company nor any of its

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Subsidiaries is obligated to pay any placement agent or other agent in connection with the sale of the Securities.  The Company shall pay all stamp, transaction, and other taxes, fees or duties, if any, to which the Transaction Documents, the issuance of the Notes or the issuance of the Conversion Shares may be subject.

(h)                                  No Integrated Offering .  None of the Company, its Subsidiaries, any of their affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the Securities Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require the approval of stockholders of the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.  None of the Company, its Subsidiaries, their affiliates and any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be integrated with other offerings for purposes of any the applicable stockholder approval provisions.

(i)                                      Dilutive Effect .  The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Notes will increase in certain circumstances.  The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes in accordance with this Agreement and the Notes is absolute and unconditional regardless of the dilutive effect that the issuance may have on the ownership interests of other holders of Common Stock or securities convertible into Common Stock.

(j)                                      Application of Takeover Protections; Rights Agreement .  The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under Company’s Articles of Incorporation or the laws of the State of Ohio which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities.  Neither the Company nor the Board of Directors has adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.

(k)                                   Commission Documents; Financial Statements .  During the two years prior to the date of this Agreement, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed since December 31, 2009 and prior to the date of the applicable Closing, and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being referred to in this Agreement as the “ Commission Documents ”).  The Company has made available to each Buyer or such Buyer’s representatives true, correct and complete copies of the Commission Documents not available on the EDGAR system.  Except as set forth in the

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Memorandum:  (i) as of their respective filing dates, the Commission Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to the Commission Documents; and (ii) none of the Commission Documents, at the time they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  As of their respective filing dates, the financial statements of the Company included in the Commission Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto.  The financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (A) as may be otherwise indicated in the financial statements or the notes thereto, or (B) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of his operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

(l)                                      Absence of Certain Changes .  Except as set forth in the Commission Documents or the Memorandum, since December 31, 2011, there has been no material adverse change and no material adverse development in the business, assets, properties, operations, condition (financial or otherwise) or results of operations of the Company or its Subsidiaries, taken as a whole.  Since December 31, 2011, neither the Company nor any of its Subsidiaries has, except as set forth in the Commission Documents: (i) declared or paid any dividends; (ii) sold any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business; or (iii) had capital expenditures, individually or in the aggregate, in excess of $100,000.  Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy or state insolvency law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.  The Company and its Subsidiaries, on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at each Closing, will not be Insolvent.  For purposes of this Section 3(l), “ Insolvent ” means, with respect to any Person (A) the present fair saleable value of the Person’s assets is less than the amount required to pay the Person’s total Indebtedness (as defined in Section 3(s)), (B) the Person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as the debts and liabilities become absolute and matured, (C) the Person intends to incur or believes that it will incur debts that would be beyond its ability to pay as the debts mature or (D) the Person has unreasonably small capital with which to conduct the business in which it is engaged as the business is now conducted and is proposed to be conducted.

(m)                                No Undisclosed Events, Liabilities, Developments or Circumstances .  Since December 31, 2011, no event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the Commission relating to an issuance and sale by the Company of its Common

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Stock and which has not been publicly announced or otherwise disclosed in the Commission Documents or the Memorandum, except for the offering of the Securities under this Agreement.

(n)                                  Conduct of Business; Regulatory Permits .  Neither the Company nor its Subsidiaries is in violation of any term of or in default under any Certificate of Designations of any outstanding series of preferred stock of the Company, the Articles of Incorporation or Code of Regulations or their organizational charter or Articles of Incorporation or Bylaws, respectively.  Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except in each case for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect.  Since the date two years prior to the date of this Agreement, (i) the Common Stock has been designated for quotation or listed on the Principal Market (or its predecessor), (ii) trading in the Common Stock has not been suspended by the Commission or the Principal Market and (iii) the Company has received no communication, written or oral, from the Commission or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market.  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess the certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

(o)                                  Foreign Corrupt Practices .  Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of such Person’s actions for, or on behalf of, the Company or any of its Subsidiaries: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(p)                                  Sarbanes-Oxley Act .  The Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date of this Agreement, except where the noncompliance would not have, individually or in the aggregate, a Material Adverse Effect.

(q)                                  Transactions With Affiliates .  No transaction has occurred between or among the Company or its Subsidiaries and any of its officers or directors, stockholders or any affiliate or affiliates of any the officer or director which is required to be disclosed in the Commission Documents and is not so disclosed.

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(r)                                     Equity Capitalization .  As of June 25, 2012, the authorized capital stock of the Company consisted of (i) 29,000,000 shares of Common Stock, of which as of the date hereof, 13,696,538 shares of Common Stock are issued and outstanding and an additional 8,316,143 shares (excluding the shares reserved for issuance upon conversion of the Notes) are reserved for issuance upon the conversion or exchange of securities issued by the Company or its Subsidiaries that are convertible into or exchangeable for shares of Common Stock, and there are no the convertible or exchangeable securities issued by the Company or its Subsidiaries for which at least 100% of the of shares issuable upon conversion or exchange have not been reserved and (ii) 1,000,000 shares of preferred stock, of which as of the date hereof, no shares of which are issued and outstanding.  All of the outstanding shares of Common Stock have been validly issued and are fully paid and nonassessable.  Except as disclosed in the Commission Documents: (A) no shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (B) other than the Notes and grants made under the Company’s stock incentive plan since March 31, 2012, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries; (C) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (D) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except the Registration Rights Agreement); (E) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions (other than as contemplated by the Notes), and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (F) there are no securities or instruments containing anti- dilution or similar provisions that will be triggered by the issuance of the Securities; (G) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (H) the Company and its Subsidiaries have no liabilities or obligations required to be disclosed in the Commission Documents but not so disclosed in the Commission Documents, other than those incurred in the ordinary course of the Company’s or any Subsidiary’s respective businesses and which, individually or in the aggregate, do not or would not have a Material Adverse Effect.  The Company has furnished or made available to each Buyer upon such Buyer’s request, true, correct and complete copies of the Company’s Articles of Incorporation, as amended and, except as set forth in the Memorandum, as in effect on the date hereof, and the Company’s Code of Regulations, as amended and as in effect on the date hereof, and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders of any such securities.

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(s)                                   Indebtedness and Other Contracts .  Except as disclosed in the Commission Documents, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness, (ii) is a party to any contract, agreement or instrument (except for such contracts, agreements and instruments which are filed as exhibits to the Commission Documents) the violation of which, or default under which, by the other party(ies) to the contract, agreement or instrument would result in a Material Adverse Effect, (iii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, except where the violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect.  For purposes of this Agreement: (x) “ Indebtedness ” of any Person means, without duplication (A) all indebtedness for borrowed money, except for trade payables incurred in the ordinary course of business consistent with past practice and not past due for more than 60 (sixty) days after the date on which the trade payable was created; (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, “capital leases” in accordance with United States generally accepted accounting principles (other than trade payables entered into in the ordinary course of business); (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments; (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of the indebtedness (even though the rights and remedies of the seller or bank under the agreement in the event of default are limited to repossession or sale of the property); (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease; (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of the Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns the assets or property has not assumed or become liable for the payment of the indebtedness; and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring the liability, or the primary effect thereof, is to provide assurance to the obligee of the liability that the liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of the liability will be protected (in whole or in part) against loss with respect thereto; and (z) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(t)                                     Absence of Litigation .  Except as disclosed in the Commission Documents, there is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, the Common Stock

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or any of its Subsidiaries or any of the Company’s or the Company’s Subsidiaries’ officers or directors, whether of a civil or criminal nature or otherwise, that, in each case if determined adversely against the Company, its Subsidiaries or any of the Company’s or the Company’s Subsidiaries’ officers or directors, would result in a Material Adverse Effect.

(u)                                  Insurance .  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against the losses and risks and in the amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when the coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

(v)                                  Employee Relations .

(i)                                      Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has notified the Company or any the Subsidiary that the officer intends to leave the Company or any the Subsidiary or otherwise terminate the officer’s employment with the Company or any the Subsidiary.  No executive officer of the Company or any of its Subsidiaries, to the knowledge of the Company or any of its Subsidiaries, is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and, to the knowledge of the Company or any of its Subsidiaries, the continued employment of each the executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.

(ii)                                   The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(w)                                Title .  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects, except as described in the Commission Documents or which do not materially affect the value of the property and do not interfere with the use made and proposed to be made of the property by the Company and any of its Subsidiaries.  Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with the exceptions as are not material and do not interfere with the use made and proposed to be made of the property and buildings by the Company and its Subsidiaries.

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(x)                                    Intellectual Property Rights .

(i)                                      The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“ Intellectual Property Rights ”) necessary to conduct their respective businesses as now conducted.  None of the Company’s registered, or applied for, material Intellectual Property Rights has expired or terminated or have been abandoned, or are expected to expire or terminate or are expected to be abandoned, within three years from the date of this Agreement.  The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others which, if the subject of an unfavorable decision, ruling or finding would have a Material Adverse Effect.  There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding its Intellectual Property Rights.  Neither the Company nor any of its Subsidiaries is aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings.

(ii)                                   The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

(iii)                                The use by or on behalf of the Company and its Subsidiaries of all information and data, whether in printed or electronic form and whether contained in a database or otherwise, in connection with their business does not, to the knowledge of the Company, infringe or violate the rights of any Person or otherwise violate any applicable law.  The Company has a published privacy policy (the “ Privacy Policy ”) regarding the collection and use of “nonpublic personal information” (as defined in the Privacy Policy in effect on the date hereof) (“ Customer Information ”), that discloses the manner by which it collects, uses and transfers Customer Information.  The Company and its Subsidiaries are and have been in compliance in all material respects with the Privacy Policy since its adoption by the Company.

(y)                                  Environmental Laws .  The Company and its Subsidiaries (i) are in compliance with any and all applicable Environmental Laws (as defined below); (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any the permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.  The term “ Environmental Laws ” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “ Hazardous Materials ”) into the environment, or otherwise relating to the

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manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(z)                                    Subsidiary Rights .  The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or the Subsidiary.

(aa)                             Tax Status .  The Company and each of its Subsidiaries: (i) has made or filed all federal, foreign and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject; (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on the returns, reports and declarations, except those being contested in good faith; and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which the returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any the claim.

(bb)                           Internal Accounting and Disclosure Controls .  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability; (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.  The Company maintains disclosure controls and procedures (as the term is defined in Rule 13a-15 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Commission, including, without limitation, controls and procedures designed in to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure.  In the preparation of its financial statements during the last year, neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant relating to any potential material weakness in any part of the system of internal accounting controls of the Company or any of its Subsidiaries.

(cc)                             Form S-3 Eligibility .  The Company is eligible to register the Conversion Shares for resale by the Buyers using Form S-3 promulgated under the Securities Act.

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(dd)                           Stock Incentive Plans .  Each stock option granted by the Company under the Company’s stock incentive plan was granted in accordance with the terms of the Company’s stock option plan.  No stock option granted under the Company’s stock option plan has been backdated.  The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results.

(ee)                             Off Balance Sheet Arrangements .  There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect.

(ff)                                 Ranking of Notes .  The Notes are subordinated Indebtedness of the Company as set forth therein.

(gg)                           Manipulation of Price .  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, or (ii) other than the Placement Agent, sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities.

(hh)                           Transfer Taxes .  On the date of each Closing, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Securities to be sold to the Buyers participating in such Closing will be, or will have been, fully paid or provided for by the Company, and all laws imposing the taxes will be or will have been complied with.

(ii)                                   No Disagreements with Accountants and Lawyers .  There are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

(jj)                                   U.S. Real Property Holding Corporation .  The Company is not, has never been, and so long as any Securities remain outstanding, shall not become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’s request.

(kk)                             Shell Company Status .  The Company is not, and has not been at any time during the 12 months preceding the date hereof, an issuer identified in Rule 144(i)(1) promulgated under the Securities Act.

(ll)                                   No Additional Agreements .  The Company does not have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

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(mm)                       Judgments .  There are no judgments outstanding against the Company that have not been accrued on the Company’s balance sheet in accordance with GAAP and disclosed in the Commission Documents.

(nn)                           Disclosure .  The Company confirms that neither it nor any other Person acting on its behalf has provided any potential investor in the Securities or their respective agents or counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information, other than the terms of the offering of the Securities, which shall be publicly disclosed pursuant to Section 4(h), and other than information that will be publicly disclosed prior to or concurrently with the disclosures made pursuant to Section 4(h).  The Company understands and confirms that the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  All written disclosure provided to the Buyers regarding the Company, its business and the Offering and related transactions, including, but not limited to, the Memorandum, furnished by or on behalf of the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or information exists with respect to the Company or any Subsidiary or either of its or their respective business, properties, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the Exchange Act constitutes public disclosure).

4.                                        Covenants .

(a)                                   Best Efforts.   Each Party shall use its best efforts to satisfy timely each of the covenants and the conditions to be satisfied by it as provided in Sections 5, 6 and 7.

(b)                                  Form D and Blue Sky .  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after the filing, unless the same is available to the public through the EDGAR system.  The Company, on or before the date of each Closing, shall take the action as the Company shall reasonably determine is necessary to take on or before such Closing in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at such Closing pursuant to this Agreement under applicable Blue Sky Laws (or to obtain an exemption from the qualification), and shall provide evidence of any the action so taken to the Buyers on or prior to such Closing.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable Blue Sky Laws following such Closing.

(c)                                   Reporting Status .  Until the date on which the Holders (as defined in the Registration Rights Agreement) shall have sold all the Conversion Shares and none of the Notes is outstanding (the “ Reporting Period ”), the Company shall timely file all reports required to be filed with the Commission pursuant to the Exchange Act, and the Company shall not terminate its status as a reporting issuer under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit the termination.

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(d)                                  Use of Proceeds .  The Company will use the proceeds from the sale of the Securities for working capital and other general corporate purposes, which may include the acquisition of skilled nursing and assisted living facilities.

(e)                                   Financial Information .  The Company agrees to send the following to each Buyer during the Reporting Period unless the following are filed with the Commission through EDGAR and are available to the public through the EDGAR system: (i) within one (1) Business Day after the filing thereof with the Commission, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the Securities Act, and (ii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.  As used herein, “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

(f)                                     Listing .  The Company shall promptly secure the listing of all of the Registrable Securities upon the Principal Market (subject to official notice of issuance) and shall maintain the listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents on the Principal Market or any Eligible Market (as defined in the Notes).  The Company shall maintain the Common Stock’s authorization for listing on the Principal Market or any Eligible Market.  Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market or any Eligible Market.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f).

(g)                                  Fees .  The Company and each Buyer shall pay all costs and expenses that it incurs in connection with the negotiation, execution, delivery and performance of this Agreement or the other Transaction Documents.

(h)                                  Disclosure of Transactions and Other Material Information .  The Company shall, on or before the fourth Business Day after each Closing, file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the Exchange Act, and attaching (or incorporating by reference) the material Transaction Documents (including, without limitation, the form of this Agreement, the form of the Notes and the form of Registration Rights Agreement) as exhibits to the filing (including all such attachments, each an “ 8-K Filing ”).  From and after an 8-K Filing with Commission with respect to a Closing, no Buyer who participated in such Closing shall be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in such 8-K Filing.  The Company shall not, and shall cause each of its Subsidiaries and each of their respective officers, directors, employees and agents, not to, provide any Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after such 8-K Filing without the express written consent of such Buyer.  In the event of a breach of the foregoing covenant by the Company, any Subsidiary, or its each of respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, such Buyer shall have the right to make a public disclosure, in the

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form of a press release, public advertisement or otherwise, of the material, nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents.  Such Buyer shall provide the Company with two (2) Business Days advance notice prior to making a public disclosure under this Section 4(h). No Buyer shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided , however , that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to the transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations, including the applicable rules and regulations of the Principal Market.  Without the prior written consent of any applicable Buyer, neither the Company nor any of its Subsidiaries or affiliates shall disclose the name of any Buyer (except for CAM) in any filing, announcement, release or otherwise except where the disclosure is required by applicable law and regulations (including the rules and regulations of the Principal Market).

(i)                                      [Intentionally Omitted.]

(j)                                      Reservation of Shares .  So long as any Buyer owns any Notes, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance no less than 120% of the sum of the maximum number of shares of Common Stock issuable (the “ Required Reserved Amount ”) upon conversion of the Notes (without taking into account any limitations on the conversions of the Notes).  If at any time the number of shares of Common Stock authorized and reserved for issuance is not sufficient to meet the Required Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 4(j), in the case of an insufficient number of authorized shares, obtain stockholder approval of an increase in the authorized number of shares, and voting the management shares of the Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Required Reserved Amount.

(k)                                   [Intentionally Omitted.]

(l)                                      Conduct of Business .  For so long as any Buyer owns Notes, the business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where the violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

5.                                        Register; Transfer Agent Instructions .

(a)                                   Register .  The Company shall maintain at its principal executive offices (or the other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Notes, in which the Company shall record the name and address of

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the Person in whose name the Notes have been issued (including the name and address of each transferee), the principal amount of Notes held by the Person and the number of Conversion Shares issuable upon conversion of the Notes held by the Person.  The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

(b)                                  Transfer Agent Instructions .  The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of the Buyers, for the Conversion Shares issuable upon conversion of the Notes in the amounts as specified from time to time by a Buyer to the Company upon conversion of the Notes (the “ Irrevocable Transfer Agent Instructions ”).  The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to Sections 2(f) and 2(g), will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Company to the extent provided in this Agreement and the other Transaction Documents.  If a Buyer effects a sale, assignment or transfer of the Conversion Shares in accordance with Sections 2(f) and 2(g), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in the name and in the denominations as specified by such Buyer to effect the sale, transfer or assignment; provided , that if the sale, assignment or transfer involves Conversion Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue the Conversion Shares to such Buyer, assignee or transferee, as the case may be, without any restrictive legend.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to such Buyer.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that such Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

6.                                        Conditions to the Company’s Obligations to Sell .

The obligation of the Company to issue and sell the Notes to the Buyers at each Closing is subject to the satisfaction, at or before the date of such Closing, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing the Buyers participating in such Closing with prior written notice thereof:

(a)                                   Each Buyer participating in such Closing shall have executed each of the Transaction Documents to which such Buyer is a party and delivered the same to the Company.

(b)                                  Each Buyer participating in such Closing shall have delivered, or caused to be delivered, to the Company such Buyer’s Purchase Price of the Notes being purchased by such Buyer at such Closing by wire transfer of immediately available funds pursuant to the wire transfer instructions provided by the Company.

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(c)                                   The representations and warranties of each Buyer participating in such Closing shall be true and correct in all material respects as of the date when made and as of the date of such Closing as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of the specified date), and such Buyer participating in such Closing shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the date of such Closing.

7.                                        Conditions to Each Buyer’s Obligation to Purchase .

The obligation of each Buyer to purchase the Notes at a Closing is subject to the satisfaction, at or before the date of such Closing, of each of the following conditions, provided that these conditions are for such Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice:

(a)                                   The Company shall have duly executed and delivered to the Placement Agent, as agents for the Buyers, (i) each of the Transaction Documents and (ii) the Notes (in the principal amounts as such Buyer shall request), being purchased by such Buyer at the Closing pursuant to this Agreement.

(b)                                  The Placement Agent, as agent for all of the Buyers, shall have received the opinion of Carlile Patchen & Murphy LLP, the Company’s outside counsel, dated as of the date of such Closing, in form reasonably acceptable to the Placement Agent.

(c)                                   The Common Stock (i) shall be listed on the Principal Market and (ii) shall not have been suspended, as of the date of such Closing, by the Commission or the Principal Market from trading on the Principal Market nor shall suspension by the Commission or the Principal Market have been threatened, as of the date of such Closing, either (A) in writing by the Commission or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market; and the Conversion Shares shall have been accepted for listing on the Principal Market when issued upon conversion of the Notes.

(d)                                  The representations and warranties of the Company shall be true and correct as of the date when made and shall be true and correct in all material respects as of the date of such Closing (except, that any representation or warranty that is qualified by materiality or Material Adverse Effect shall be true and correct in all respects as of the date of such Closing) as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of the specified date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the date of such Closing.  The Placement Agent shall have received a certificate, executed by two duly authorized officers of the Company, including the Chief Executive Officer of the Company, dated as of the date of such Closing, to the foregoing effect.

(e)                                   The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities.

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8.                                        Termination .  In the event that the Initial Closing shall not have occurred by July 2, 2012 due to the Company’s failure to satisfy the conditions set forth in Sections 6 and 7 above, the Buyers participating in the Initial Closing may waive such conditions or shall have the option to terminate this Agreement at the close of business on such date without liability of any Party to any other Party.

9.                                        Miscellaneous .

(a)                                   Governing Law; Jurisdiction; Jury Trial .  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  Each Party irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute under or in connection with this Agreement or with any transaction contemplated hereby or discussed herein, and irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any the court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Each Party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy to the Party at the address for the notices to it under this Agreement and agrees that the service shall constitute good and sufficient service of process and notice thereof.  Nothing contained in this Agreement shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(b)                                  Counterparts .  The Parties may execute this Agreement in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered by each Buyer to the Company, or by the Company to each Buyer; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

(c)                                   Headings .  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

(d)                                  Severability .  If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that such would be valid and enforceable, and the invalidity or unenforceability of the provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the Parties as to its subject matter and the

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prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the Parties.  The Parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

(e)                                   Entire Agreement; Amendments .  This Agreement and the other Transaction Documents supersede all other prior oral or written agreements among the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the other Transaction Documents and the instruments referenced herein and therein contain the entire understanding of the Parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to the matters.  No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least fifty percent (50%) of the Registrable Securities into which the Notes then outstanding are convertible (without regard to any limitation on such conversion) and any amendment or waiver to this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of the Securities.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Securities then outstanding.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration (other than the reimbursement of legal fees) also is offered to all of the parties to the Transaction Documents and holders of outstanding Notes as the case may be.  The Company has not, directly or indirectly, made any agreements with any Buyer relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents.

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

If to the Company:

AdCare Health Systems, Inc.

1145 Hembree Road

Roswell, GA 30076

Telephone:  (678) 869-5116

Facsimile:  (678) 869-5123 and (678) 869-5122

Attention:  Corporate Secretary

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With a copy (for informational purposes only) to:

Rogers & Hardin LLP

2700 International Tower

229 Peachtree Street, N.E.

Atlanta, GA 30303

Telephone:  (404) 420-4646

Facsimile:  (404) 230-0940

Attention:  Lori A. Gelchion

If to the Transfer Agent:

Continental Stock Transfer & Trust, Inc.

17 Battery Place

New York, NY 10004

Telephone:  (212) 845-3287

Facsimile:  (212) 509-5150

Attention:  Mark Zimkind

If to any Buyer, to such Buyer’s address and facsimile number provided to the Company on such Buyer’s Buyer Signature Page (as may be updated by such Buyer from time to time in writing to the Company), with copies to the Placement Agent:

Cantone Research Inc

766 Shrewsbury Ave

Tinton Falls, NJ 07724

Telephone:  732-450-3500

Facsimile:  732-450-3520

Attention:  Anthony Cantone

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

(g)                                  Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns, including any purchasers of the Notes.  The Company shall not assign this Agreement or any rights or obligations under this Agreement without the prior written consent of the holders of at least a majority of the Registrable Securities into which the Notes then outstanding are convertible (without regard to any limitations on such conversion).  Except with respect to an assignment to an Affiliate, no Buyer may assign some or all of such Buyer’s rights hereunder without the written consent of the Company, unless such Buyer assigns Notes having an aggregate principal balance greater

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than or equal to the applicable Minimum Transfer Amount, in which event the assignee shall be deemed to be a Buyer hereunder with respect to the assigned rights.

(h)                                  No Third Party Beneficiaries .  This Agreement is intended for the benefit of the Parties and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

(i)                                      Survival .  Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closings and the delivery and conversion of the Securities, as applicable.

(j)                                      Further Assurances .  Each Party shall do and perform, or cause to be done and performed, all the further acts and things, and shall execute and deliver all the other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(k)                                   Indemnification .  In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any the Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (iii) any cause of action, suit or claim brought or made against the Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (A) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (C) any disclosure made by such Buyer pursuant to Section 4(h), or (D) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.  Notwithstanding anything in this Agreement or in the Registration Rights Agreement to the contrary, if the Company shall

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have any indemnification obligations with respect to any Indemnified Liabilities that resulted primarily from the willful misconduct or gross negligence of one or more Indemnitees, then the Company shall not be obligated to indemnify the Indemnitee for the Indemnified Liabilities.

(l)                                      [Intentionally Omitted.]

(m)                                Remedies .  Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which the holders have been granted at any time under any other agreement or contract and all of the rights which the holders have under any law.  Any Person having any rights under any provision of this Agreement shall be entitled to enforce the rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law.  Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to such Buyer.  The Company therefore agrees that each Buyer shall be entitled to seek temporary and permanent injunctive relief in any the case without the necessity of proving actual damages and without posting a bond or other security.

(n)                                  Rescission and Withdrawal Right .  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever a Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in such Buyer’s sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to his future actions and rights

(o)                                  Payment Set Aside .  To the extent that the Company makes a payment or payments to a Buyer hereunder or pursuant to any of the other Transaction Documents or a Buyer enforces or exercises such Buyer’s rights hereunder or thereunder, and the payment or payments or the proceeds of the enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any the restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if the payment had not been made or the enforcement or setoff had not occurred.

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IN WITNESS WHEREOF , each Buyer and the Company have caused their respective signature pages to this Securities Purchase Agreement to be duly executed as of the date first written above.

[Additional Signature Pages Follow.]

Exhibit 99.2

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”), dated as of June 28, 2012, is entered into by and among AdCare Health Systems, Inc., an Ohio corporation with headquarters located at 1145 Hembree Road, Roswell, Georgia  30076 (the “ Company ”), and the individuals and entities listed on Schedule A attached hereto (the “ Schedule of Buyers ”) under the heading “Buyers” (collectively, the “ Buyers ” and each, a “ Buyer ”) who became parties to this Agreement by executing and delivering a signature page in the form of Exhibit A attached hereto (the “ Buyer Signature Page ”).

WHEREAS:

A.                                 In connection with the Securities Purchase Agreement by and among the Company and the Buyers as of even date herewith (the “ Securities Purchase Agreement ”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to each Buyer a new series of 8% subordinated convertible notes of the Company (the “ Notes ”), which shall be convertible into the Company’s common stock, no par value per share (the “ Common Stock ”) (as converted, collectively, the “ Conversion Shares ”) in accordance with the terms of the Notes.

B.                                   In accordance with the terms of the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, (the “ Securities Act ”).

NOW, THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Buyers hereby agree as follows:

1.                                        Definitions .

For purposes of this Agreement, the following terms shall have the meanings specified:

“ Filing Deadline ” means September 14, 2012.

“ Holder ” means any Person owning or having the right to acquire, through conversion of the Notes or otherwise, Registrable Securities, including initially each Buyer and thereafter any permitted assignee thereof.

“ Other Stockholders ” shall mean Persons who, by virtue of agreements with the Company other than this Agreement, are entitled to include their securities in certain registrations hereunder.

“ Registrable Securities ” means the Conversion Shares and any other shares of Common Stock issuable pursuant to the terms of the Notes, and any shares of capital stock issued or issuable from time to time (with any adjustments) in replacement of, in exchange for or otherwise in respect of the Conversion Shares.

“ Registration Date ” means the one hundred twentieth (120 th ) calendar day following the Filing Deadline.

“ Registration Period ” has the meaning set forth in Section 2(c).

“ Registration Statement ” means a registration statement or statements prepared in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act (“ Rule 415 ”) or any successor rule providing for the offering of securities on a continuous or delayed basis.

“ Rule 144 ” means Rule 144 as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

Capitalized terms used herein and not otherwise defined shall have the respective meanings specified in the Securities Purchase Agreement.

2.                                        Registration .

(a)                                   Filing of Registration Statement .  On or before the Filing Deadline, the Company shall prepare and file with the Commission a Registration Statement on Form S-3 as a “shelf” registration statement under Rule 415 covering the resale of a number of shares of Registrable Securities equal to one hundred twenty percent (120%) of the number of shares of Common Stock issuable upon conversion of the Notes (such number to be determined without regard to any restriction on such conversion).  Such Registration Statement shall state, to the extent permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of additional shares of Common Stock as may become issuable upon the conversion of the Notes in order to prevent dilution resulting from stock splits, stock dividends or similar events.

(b)                                  Alternative Registration Statement .  Notwithstanding the foregoing Section 2(a), if on the date the Registration Statement contemplated by Section 2(a) is filed with the Commission, the Company does not meet the eligibility requirements for filing a Registration Statement on Form S-3, then in such case the Company shall instead prepare and file with the Commission a Registration Statement meeting the foregoing requirements on Form S-1.

(c)                                   Effectiveness .  The Company shall use commercially reasonable efforts to cause the Registration Statement to become effective no later than the Registration Date.  The Company shall use commercially reasonable efforts to: (i) respond promptly to any and all comments made by the staff of the Commission with respect to the Registration Statement; and (ii) submit promptly to the Commission after the Company learns that no review of the Registration Statement will be made by the staff of the Commission or that the staff of the Commission has no further comments on the Registration Statement, as the case may be, a request for acceleration of the effectiveness of such Registration Statement to a time and date not later than two (2) Business Days after the submission of such request.  The Company shall use commercially reasonable efforts to maintain the effectiveness of each Registration Statement filed pursuant to this Agreement until the earliest to occur of: (A) the date on which all of the Registrable Securities eligible for resale thereunder have been publicly sold pursuant to either the Registration Statement or Rule 144; (B) the date on which all of the Registrable Securities remaining to be sold under such Registration Statement (in the reasonable opinion of counsel to the Company) may be immediately sold to the public under Rule 144 without volume limitations; and (C) the date that is eighteen (18) months from the date of the

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Initial Closing (the period beginning on the date of the Initial Closing and ending on the earliest to occur of (A), (B) or (C) above being referred to herein as the “ Registration Period ”).

(d)                                  Allocation of Conversion Shares . The initial number of Conversion Shares included in any Registration Statement and each increase in the number thereof included therein shall be allocated pro rata among the Holders based on the aggregate number of Registrable Securities issuable to each Holder at the time the Registration Statement covering such initial number of Registrable Securities or increase thereof is declared effective by the Commission (such number to be determined using the Conversion Price in effect at such time and without regard to any restriction on the ability of a Holder to convert such Holder’s Note as of such date).  In the event that a Holder sells or otherwise transfers any of such Holder’s Registrable Securities, each transferee shall be allocated the portion of the then remaining number of Registrable Securities included in such Registration Statement allocable to the transferor.

(e)                                   Registration of Other Securities .  The Company may include any securities held by Other Stockholders on any Registration Statement filed by the Company on behalf of the Holders pursuant to the terms hereof.

3.                                        Obligations of the Company .

In the case of a Registration Statement effected by the Company pursuant to Section 2, the Company will use its commercially reasonable efforts to:

(a)                                   prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act or to maintain the effectiveness of such Registration Statement during the Registration Period, or as may be reasonably requested by a Holder in order to incorporate information concerning such Holder or such Holder’s intended method of distribution;

(b)                                  so long as a Registration Statement is effective covering the resale of the applicable Registrable Securities owned by a Holder, furnish to each Holder such number of copies of the prospectus included in such Registration Statement, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Holder may reasonably request;

(c)                                   notify each Holder immediately after becoming aware of the occurrence of any event (but shall not, without the prior written consent of such Holder, disclose to such Holder any facts or circumstances constituting material non-public information) as a result of which the prospectus included in such Registration Statement, as then in effect, contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and as promptly as practicable prepare and file with the Commission and furnish to each Holder a copy of a supplement or an amendment to such prospectus as may be necessary so that such prospectus does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

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(d)                                  prevent the issuance of any stop order or other order suspending the effectiveness of such Registration Statement;

(e)                                   notify each Holder promptly after the date that such Registration Statement, or any successor registration statement, becomes effective of such effectiveness; and

(f)                                     permit each Holder to review such Registration Statement and all amendments and supplements thereto within a reasonable period of time prior to the filing thereof with the Commission.

4.                                        Obligations of Each Holder .

In connection with the registration of Registrable Securities pursuant to a Registration Statement, each Holder shall:

(a)                                   timely furnish to the Company (i) a completed Stockholder Questionnaire in such form as shall be reasonably requested by the Company and (ii) such information in writing regarding itself and the intended method of disposition of such Registrable Securities as the Company shall reasonably request in order to effect the registration thereof;

(b)                                  upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 3(c) or 3(d), immediately discontinue any sale or other disposition of such Registrable Securities pursuant to such Registration Statement until the filing of an amendment or supplement as described in Section 3(c) or withdrawal of the stop order referred to in Section 3(d), and use commercially reasonable efforts to maintain the confidentiality of such notice and its contents;

(c)                                   to the extent required by applicable law, deliver a prospectus to the purchaser of such Registrable Securities;

(d)                                  notify the Company when it has sold all of the Registrable Securities held by it; and

(e)                                   notify the Company in the event that any information supplied by such Holder in writing for inclusion in such Registration Statement or related prospectus is untrue or omits to state a material fact required to be stated therein or necessary to make such information not misleading in light of the circumstances then existing; immediately discontinue any sale or other disposition of such Registrable Securities pursuant to such Registration Statement until the filing of an amendment or supplement to such prospectus as may be necessary so that such prospectus does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and use commercially reasonable efforts to assist the Company as may be appropriate to make such amendment or supplement effective for such purpose.

5.                                        Indemnification .

In the event that any Registrable Securities are included in a Registration Statement under this Agreement:

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(a)                                   To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, the officers, directors, employees, agents and representatives of such Holder, and each Person, if any, who controls such Holder within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), against any losses, claims, damages, liabilities or reasonable out-of-pocket expenses (whether joint or several) (collectively, including reasonable legal expenses or other expenses reasonably incurred in connection with investigating or defending same, “ Losses ”), insofar as any such Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement under which such Registrable Securities were registered, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  Subject to the provisions of Section 5(c), the Company will reimburse such Holder, and each such officer, director, employee, agent, representative or controlling Person, for any reasonable legal expenses or other out-of-pocket expenses as reasonably incurred by any such entity or Person in connection with investigating or defending any Loss; provided , however , that the foregoing indemnity shall not apply to amounts paid in settlement of any Loss if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be obligated to indemnify any Person for any Loss to the extent that such Loss arises out of or is based upon (A) any disclosure or any omission or alleged omission (to state a material fact required to be stated therein or necessary to make statements therein not misleading) that is based upon or in conformity with written information furnished (or not furnished, in the case of an omission) by such Person expressly for use in such Registration Statement or (B) a failure of such Person to deliver or cause to be delivered the final prospectus contained in the Registration Statement and made available by the Company, if such delivery is required by applicable law.

(b)                                  To the extent permitted by law, each Holder who is named in such Registration Statement as a selling stockholder, acting severally and not jointly, shall indemnify and hold harmless the Company, the officers, directors, employees, agents and representatives of the Company, and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any Losses to the extent (and only to the extent) that any such Losses arise out of or are based upon (i) any disclosure or any omission or alleged omission (to state a material fact required to be stated therein or necessary to make statements therein not misleading) that is based upon or in conformity with written information furnished (or not furnished, in the case of an omission) by such Person expressly for use in such Registration Statement, or (ii) a failure of such Holder to deliver or cause to be delivered the final prospectus contained in the Registration Statement and made available by the Company, if such delivery is required under applicable law. Subject to the provisions of Section 5(c), such Holder will reimburse any legal or other expenses as reasonably incurred by the Company and any such officer, director, employee, agent, representative, or controlling Person, in connection with investigating or defending any such Loss; provided , however , that the foregoing indemnity shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld).

(c)                                   Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5, promptly

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deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and to assume the defense thereof with counsel selected by the indemnifying party and reasonably acceptable to the indemnified party.  The indemnified party shall not have the right to retain its own counsel unless representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party within a reasonable time of the delivery of notice of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 5 with respect to such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 5 or with respect to any other action unless the indemnifying party is materially prejudiced as a result of not receiving such notice.

(d)                                  In the event that the indemnity provided in Sections 5(a) or 5(b) of this Section 5 is unavailable or insufficient to hold harmless an indemnified party for any reason, the Company and each Holder agree, severally and not jointly, to contribute to the aggregate Losses to which the Company or such Holder may be subject in such proportion as is appropriate to reflect the relative fault of the Company and such Holder in connection with the statements or omissions which resulted in such Losses.  Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or by such Holder.  The Company and each Holder agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above.  Notwithstanding the provisions of this Section 5(d), no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.  For purposes of this Section 5, each Person who controls a Holder within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee, agent or representative of such Holder shall have the same rights to contribution as such Holder, and each Person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee, agent or representative of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this Section 5(d).

(e)                                   The obligations of the Company and each Holder under this Section 5 shall survive the conversion of the Notes in full, the completion of any offering or sale of Registrable Securities pursuant to a Registration Statement under this Agreement, or otherwise.

6.                                        Reports .

With a view to making available to each Holder the benefits of Rule 144 and any other similar rule or regulation of the Commission that may at any time permit such Holder to sell securities of the Company to the public without registration, the Company agrees to use its commercially reasonable efforts to:

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(a)                                   make and keep public information available, as those terms are understood and defined in Rule 144;

(b)                                  file with the Commission in a timely manner all reports and other documents required of the Company under the Exchange Act; and

(c)                                   furnish to such Holder, so long as such Holder owns any Registrable Securities, promptly upon written request (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144 and the Exchange Act, (ii) to the extent not publicly available through the Commission’s EDGAR database, a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company with the Commission, and (iii) such other information as may be reasonably requested by such Holder in connection with such Holder’s compliance with any rule or regulation of the Commission which permits the selling of any such securities without registration.

7.                                        Miscellaneous .

(a)                                   Expenses of Registration .  All reasonable expenses, other than underwriting discounts and commissions and fees and expenses of counsel and other advisors to each Holder, incurred in connection with the registrations, filings or qualifications described herein, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees and the fees and disbursements of counsel for the Company shall be borne by the Company.

(b)                                  Amendment; Waiver .  Except as expressly provided herein, neither this Agreement nor any term hereof may be amended or waived except pursuant to a written instrument executed by the Company and the Holders of at least a majority of the Registrable Securities into which all of the Notes then outstanding are convertible (without regard to any limitation on such conversion or exercise). Any amendment or waiver effected in accordance with this Section shall be binding upon each Holder, each future Holder and the Company.  The failure of any party to exercise any right or remedy under this Agreement or otherwise, or the delay by any party in exercising such right or remedy, shall not operate as a waiver thereof.

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

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If to the Company :

AdCare Health Systems, Inc.

1145 Hembree Road

Roswell, GA 30076

Telephone:  (678) 869-5116

Facsimile:  (678) 869-5123 and (678) 869-5122

Attention:  Corporate Secretary

with a copy (which shall not constitute notice)  to:

Atlanta, GA 30303

If to a Holder, to such Holder’s address and facsimile number provided to the Company on such Holder’s Buyer Signature Page (or as may be updated by such Holder from time to time in writing to the Company).

(d)                                  Execution of this Agreement .  In connection with any Additional Closing pursuant to the Securities Purchase Agreement, the Company shall amend the Schedule of Buyers without any action from any Holder to reflect any additional purchase of Notes. Subject to and upon the completion of an Additional Closing, each of the Additional Buyers with respect to such Additional Closing who executes and delivers to the Company a Buyer Signature Page will become a Buyer and Holder under this Agreement without any further action from any other Holder.

(e)                                   Assignment .  Upon the transfer of any Note or Registrable Securities by a Holder, the rights of such Holder hereunder with respect to such securities so transferred shall be assigned automatically to the transferee thereof, and such transferee shall thereupon be deemed to be a “ Holder ” for purposes of this Agreement, as long as: (i) the Company is, within a reasonable period of time following such transfer, furnished with written notice of the name and address of such transferee, (ii) the transferee agrees in writing with the Company to be bound by all of the provisions hereof, and (iii) such transfer is made in accordance with the applicable requirements of the Securities Purchase Agreement and the Notes.

(f)                                     Counterparts .  This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall be deemed one and the same instrument.  This Agreement, once executed by a party, may be delivered to any other party hereto by facsimile transmission.

(g)                                  Governing Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York.

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(h)                                  Holder of Record .  A Person is deemed to be a Holder whenever such Person owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the record owner of such Registrable Securities.

(i)                                      Entire Agreement . This Agreement and the other Transaction Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein.  This Agreement and the other Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

(j)                                      Headings .  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(k)                                   Third Party Beneficiaries .  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

[Signature Pages Follow]

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IN WITNESS WHEREOF , the undersigned have executed this Registration Rights Agreement as of the date first-above written.

[Additional Signature Pages Follow]

Exhibit 99.3

[FORM OF SUBORDINATED CONVERTIBLE NOTE]

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

ADCARE HEALTH SYSTEMS, INC.

8% SUBORDINATED CONVERTIBLE NOTE

This 8% SUBORDINATED CONVERTIBLE NOTE (including all 8% Subordinated Convertible Notes issued in exchange, transfer or replacement hereof, this “ Note ”) is one of a series of 8% Subordinated Convertible Notes issued or to be issued by AdCare Health Systems, Inc., an Ohio corporation (the “ Company ”), pursuant to that certain Securities Purchase Agreement, dated June 28, 2012, between the Company and the buyers signatory thereto (the “ Securities Purchase Agreement ”) (collectively, the “ Notes ”).  Certain capitalized terms used herein are defined in Section 25.

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

1.             Payments of Principal .  On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal and accrued and unpaid Interest thereon.  Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal or accrued and unpaid Interest thereon.

2.             Interest; Interest Rate; Default Interest Rate .  Interest on this Note shall: (i) accrue daily on the outstanding Principal commencing on the Issuance Date, (ii) be computed on the basis of a 360-day year of twelve 30-day months, and (iii) be payable in cash in arrears on each of March 31, June 30, September 30 and December 31 of each year during which this

Note remains outstanding and the Maturity Date (each, an “ Interest Payment Date ”), with the first Interest Payment Date being September 30, 2012.  Interest hereunder shall be paid to the record holder of this Note.  Absent an Event of Default (as defined in Section 4), Interest on the outstanding Principal shall accrue at the rate of 8.00% per annum (the “ Interest Rate ”).  During the existence and continuance of an Event of Default, the outstanding Principal shall accrue Interest at a rate of 18.00% per annum (the “ Default Rate ”); provided , however , that if such Event of Default is subsequently cured, then the rate of Interest on the Note will be reduced from the Default Rate to the Interest Rate on the date of such cure.

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

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

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

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

(ii)           “ Conversion Price ” is $4.17.

(c)           Mechanics of Conversion .

(i)            Optional Conversion .  To convert any Conversion Amount into Conversion Shares on any date (a “ Conversion Date ”), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or before 5:00 p.m., Atlanta Time, on such date, a copy of an executed notice of conversion in the form attached as Exhibit I (the “ Conversion Notice ”) to the Company and (B) surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or provide an indemnification undertaking acceptable to the Company with respect to this Note in the case of its loss, theft or destruction).  On or before the second (2nd) Business Day following the date of receipt of a Conversion Notice, the Company shall

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transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the “ Transfer Agent ”).  On or before the third (3rd) Trading Day following the date of receipt of a Conversion Notice, the Company shall: (1) (x) provided that the Transfer Agent is participating in the Depository Trust Company’s (“ DTC ”) Fast Automated Securities Transfer Program and provided that the Registration Condition is satisfied, credit such aggregate number of Conversion Shares to which the Holder shall be entitled to the Holder’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or if the Registration Condition is not satisfied, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of Conversion Shares to which the Holder shall be entitled.  Notwithstanding anything herein to the contrary, the Company shall not be obligated to issue any Conversion Shares until this Note is physically surrendered to the Company, or the Holder notifies the Company that this Note has been lost, stolen or destroyed and provides an indemnification undertaking acceptable to the Company to indemnify the Company from any loss incurred by it in connection therewith.  If the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than four (4) Trading Days after receipt of this Note and at its own expense, issue and deliver to the Holder a new Note (in accordance with Section 15(d)) representing the outstanding Principal not converted.  The Person or Persons entitled to receive the Conversion Shares issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such Conversion Shares.

(ii)           Company’s Failure to Timely Convert .  If the Company shall fail to issue a certificate to the Holder or credit the Holder’s balance account with DTC for the number of Conversion Shares which the Company is obligated to issue to the Holder upon conversion of any Conversion Amount on or prior to the date which is three (3) Trading Days after the Conversion Date (a “ Conversion Failure ”), then the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued before the date of such notice pursuant to this Section 3(c)(ii) or otherwise.  In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of the facsimile (or otherwise delivered) copy of a Conversion Notice, the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Company is obligated to issue to the Holder upon conversion of any Conversion Amount or on any date of the Company’s obligation to deliver Conversion Shares as contemplated pursuant to clause (y) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a “ Buy-In ”), then the Company shall, within three (3) Trading Days after the Holder’s request and in the Holder’s discretion, either (x) pay cash to the Holder in an amount equal to the Holder’s

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total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate and the applicable portion of the Note will be deemed to have been converted, or (y) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (I) such number of shares of Common Stock, times (II) the Closing Bid Price on the Conversion Date.

(iii)          Registration; Book-Entry .  The Company shall maintain a register (the “ Register ”) for the recordation of the names and addresses of the Holders of the Notes and the principal amount of the Notes held by such Holders (the “ Registered Notes ”).  The entries in the Register shall be conclusive and binding for all purposes, absent manifest error.  The Company and the Holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest hereunder, notwithstanding notice to the contrary.  Subject to compliance with any requirements of applicable federal and state securities laws and regulations and the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement:  (A) a Holder may assign or sell a Registered Note in whole or in part only by registration of such assignment or sale on the Register; and (B) upon its receipt of a request to assign or sell all or part of any Registered Note by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 15.

(iv)          Pro Rata Conversion; Disputes .  In the event that the Company receives a Conversion Notice from more than one Holder of the Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each Holder of the Notes electing to have Notes converted on such date a pro rata amount of such Holder’s portion of its Notes submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such Holder relative to the aggregate principal amount of all the Notes submitted for conversion on such date.  In the event of a dispute as to the number of Conversion Shares issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of Conversion Shares not in dispute and resolve such dispute in accordance with Section 20.

(v)           Company Optional Redemption .

(1)           General .  If at any time from and after the Six-Month Anniversary Date, (A) the arithmetic average of the Weighted Average Price of the Common Stock for any twenty (20) Trading Days within a period of thirty (30) consecutive Trading Days following the Six-Month Anniversary Date (the “ Company Redemption Measuring Period ”) equals or exceeds 200% of the

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Conversion Price (subject to appropriate adjustments pursuant to Section 6), and (B) the average daily trading volume of the Common Stock during such twenty (20) Trading Days of the Company Redemption Measuring Period exceeds 50,000 shares on any Eligible Market, then the Company shall have the right, for a period of ninety (90) days commencing on the first (1 st )Trading Day after such Company Redemption Measuring Period (the “ Company Redemption Period ”) to redeem all or any portion of the outstanding Principal under this Note (the “ Company Optional Redemption Amount ”) as designated in the Company Optional Redemption Notice (as defined below) (a “ Company Optional Redemption ”).  The portion of this Note subject to redemption under this Section shall be redeemed by the Company in cash at a price equal to the sum of (i) 100% of the outstanding Principal being redeemed plus (ii) any accrued and unpaid Interest on such outstanding Principal (the “ Company Optional Redemption Price ”).  The Company may exercise its right to require redemption under this Section by delivering within the Company Redemption Period a written notice by facsimile and overnight courier to all, but not less than all, of the Holders of the Notes (the “ Company Optional Redemption Notice ,” and the date the Company sends such notice is referred to as the “ Company Optional Redemption Notice Date ”).  Each Company Optional Redemption Notice shall be irrevocable.  The Company Optional Redemption Notice shall state (x) the date on which the Company Optional Redemption shall occur (the “ Company Optional Redemption Date ”), which date shall not be less than twenty (20) Trading Days nor more than sixty (60) Trading Days following the Company Optional Redemption Notice Date provided that, in no event shall the Company Optional Redemption Date occur later than the last day of Company Redemption Period, and (y) the aggregate outstanding Principal of the Notes which the Company has elected to be subject to Company Optional Redemption from the Holder and all of the other Holders of the Notes pursuant to this Section 3(c)(v)(1) (and analogous provisions under the other Notes) on the Company Optional Redemption Date.  The Company may not effect a Company Optional Redemption until a minimum of five (5) consecutive Trading Days have elapsed after any prior Company Optional Redemption Date.  Notwithstanding anything to the contrary in this Section 3(c)(v)(1), until the Company Optional Redemption Price is paid, in full, the Company Optional Redemption Amount may be converted, in whole or in part, by the Holders into Conversion Shares pursuant to Section 3.  If the Holder so elects, any or all of the Principal converted by the Holder after the Company Optional Redemption Notice Date shall reduce the Company Optional Redemption Amount of this Note required to be redeemed on the Company Optional Redemption Date.  Redemptions made pursuant to this Section 3(a)(v)(1) shall be made in accordance with Section 9.

(2)           Pro Rata Redemption Requirement .  If the Company elects to cause a Company Optional Redemption pursuant to Section 3(c)(v)(1), then it must simultaneously take the same action in the same proportion with respect to the other Notes.  If the Company elects to cause a Company Optional Redemption pursuant to Section 3(c)(v)(1) (or analogous provisions under the other Notes) with respect to less than all of the Principal of the Notes then

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outstanding, then the Company shall require redemption of Principal from each of the Holders of the Notes equal to the product of (i) the aggregate Principal of Notes which the Company has elected to cause to be redeemed pursuant to Section 3(c)(v)(1), multiplied by (ii) the fraction, the numerator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by such Holder of outstanding Notes and the denominator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by all Holders holding outstanding Notes (such fraction with respect to each Holder is referred to as its “ Company Redemption Allocation Percentage ,” and such amount with respect to each Holder is referred to as its “ Pro Rata Company Redemption Amount ”); provided , however , that in the event that any Holder’s Pro Rata Company Redemption Amount exceeds the outstanding Principal amount of such Holder’s Note, then such excess Pro Rata Company Redemption Amount shall be allocated amongst the remaining Holders of Notes in accordance with the foregoing formula.  In the event that the initial Holder of any Notes shall sell or otherwise transfer any of such Holder’s Notes, the transferee shall be allocated a pro rata portion of such Holder’s Company Redemption Allocation Percentage and Pro Rata Company Redemption Amount.

(d)           Limitations on Conversions; Beneficial Ownership .

(i)            Notwithstanding anything in this Note to the contrary, the Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder’s Affiliates) would (A) beneficially own in excess of 4.99% (the “ Maximum Percentage ”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion, or (B) control in excess of the Maximum Percentage of the total voting power of the Company’s securities outstanding immediately after giving effect to such conversion.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”).  For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer

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Agent setting forth the number of shares of Common Stock outstanding.  For any reason at any time, upon the written request of the Holder, the Company shall within two (2) Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (x) any such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (y) any such increase or decrease will apply only to the Holder and not to any other Holder of Notes.

(ii)           The Company shall not be obligated to issue any Conversion Shares upon conversion of this Note if the issuance of such shares would exceed the aggregate number of shares of Common Stock which the Company may issue upon conversion of the Notes without breaching the Company’s obligations under the rules or regulations of the Principal Market or any other Eligible Market on which the Conversion Stock is then quoted or listed (the “ Exchange Cap ”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the Principal Market (or such Eligible Market, as applicable) for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Required Holders.  Unless such approval or written opinion is obtained, no Holder of the Notes shall be issued in the aggregate upon conversion of Notes, Conversion Shares in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by such Holder of outstanding Notes and the denominator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by all Holders of outstanding Notes (with respect to each Holder, the “ Exchange Cap Allocation ”).  In the event that any Holder shall sell or otherwise transfer any of such Holder’s Notes, the transferee shall be allocated a pro rata portion of such Holder’s Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee.  In the event that any Holder of Notes shall convert all of such Holder’s Notes into a number of Conversion Shares which, in the aggregate, is less than such Holder’s Exchange Cap Allocation, then the difference between such Holder’s Exchange Cap Allocation and the number of Conversion Shares actually issued to such Holder shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Notes on a pro rata basis in proportion to the aggregate Outstanding Principal amount of the Notes then held by each such Holder.

4.             Rights Upon Event of Default .

(a)           Event of Default .  Unless otherwise waived by the written consent of the Required Holders, each of the following events shall constitute an “ Event of Default ”:

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(i)            the suspension from trading or failure of the Common Stock to be listed on any Eligible Market for a period of five (5) consecutive Trading Days or for more than an aggregate of fifteen (15) Trading Days in any 365-day period;

(ii)           the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Conversion Shares within ten (10) Trading Days after the applicable Conversion Date or (B) notice, written or oral, to any Holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock complies with the provisions of the Notes, other than pursuant to Section 3(d);

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

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

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

(vi)          any Event of Default (as defined in the other Notes) occurs with respect to any other Notes.

(b)           Redemption Right .  Upon the occurrence and during the continuance of an Event of Default with respect to this Note or any of the other Notes, the Company shall within two (2) Business Days deliver written notice thereof via facsimile and overnight courier (an “ Event of Default Notice ”) to the Holder.  Subject to Section 11(c), at any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Required Holders may require the Company to redeem all or any portion of this Note (and a pro rata portion of all of the other Notes) by delivering written notice thereof (the “ Event of Default Redemption Notice ”) to the Company, which Event of Default Redemption Notice shall indicate the Conversion Amount of this Note (and the pro rata portion of all of the other Notes) the Required Holders are electing to require the Company to redeem.  The portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the Conversion Amount to be redeemed as specified in the Event of Default Redemption Notice (the “ Event of Default Redemption Price ”).  Redemptions required by this Section 4(b) shall be made in accordance

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with the provisions of Section 9 and Section 11(c).  To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

5.             Rights Upon Change of Control .  No sooner than twenty (20) days nor later than ten (10) days prior to the consummation of a Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “ Change of Control Notice ”).  At any time during the period commencing on the earlier to occur of (x) any definitive written agreement by the Company, which upon consummation of the transaction contemplated thereby would reasonably be expected to result in a Change of Control, and (y) the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change of Control, the Required Holders may require the Company to redeem all or any portion of this Note (and a pro rata portion of all of the other Notes) by delivering written notice thereof (“ Change of Control Redemption Notice ”) to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount of this Note (and the pro rata portion of all of the other Notes) the Required Holders are electing to require the Company to redeem.  The portion of this Note subject to redemption pursuant to this Section 5 shall be redeemed by the Company in cash at a price equal to 110% of the Conversion Amount to be redeemed as specified in the Change of Control Redemption Notice (the “ Change of Control Redemption Price ”).  Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 9 and Section 11(c) and shall have priority to payments to stockholders in connection with a Change of Control.  To the extent redemptions required by this Section 5 are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments.  Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 5 (together with any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3 and, if so converted, the Holder shall not be entitled to receive the Change of Control Redemption Price with respect to such Conversion Amount.

6.             Conversion Price Adjustments .

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

(b)           Voluntary Decrease .  Subject to the applicable restrictions in this Note, the Company may at any time during the term of this Note reduce the then current Conversion Price to any amount and for any period of time deemed appropriate by the Company’s Board of Directors.

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

8.             Reservation of Authorized Shares .

(a)           Reservation .  The Company shall initially reserve out of its authorized and unissued Common Stock a number of Conversion Shares for each of the Notes equal to 120% of the Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date (assuming the Notes are convertible on such date).  So long as any of the Notes are outstanding, the Company shall take all action reasonably necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, 120% of the number of the Conversion Shares as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding; provided that at no time shall the number of Conversion Shares so reserved be less than the number of Conversion Shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the “ Required Reserve Amount ”).  The initial number of Conversion Shares reserved for conversions of the Notes and each increase in the number of Conversion Shares so reserved shall be allocated pro rata among the Holders of the Notes based on the Original Principal Amount of the Notes purchased by each Holder or increase in the number of reserved Conversion Shares, as the case may be (the “ Authorized Share Allocation ”).  In the event that the initial Holder of any Notes shall sell or otherwise transfer any of such Holder’s Notes, each transferee shall be allocated a pro rata portion of such Holder’s Authorized Share Allocation.  Any Conversion Shares reserved and allocated to any Person that ceases to hold any Notes shall be allocated to the remaining Holders of the Notes, pro rata based on the Principal amount of the Notes then held by such Holders.

(b)           Insufficient Authorized Shares .  If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of Conversion Shares equal to the Required Reserve Amount (an “ Authorized Share Failure ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than ninety (90) days after the occurrence of such Authorized Share Failure, the Company shall either (i) hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock or (ii) obtain such approval by written consent and take all action necessary to rectify the Authorized Share Failure.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause the Company’s Board of Directors to recommend to the stockholders that they approve such proposal.  In connection with such written consent, the

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Company shall provide each stockholder with an information statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause the Company’s Board of Directors to recommend to the stockholders that they approve such proposal.

9.             Redemptions .

(a)           Mechanics .  The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company’s receipt of the Required Holders’ Event of Default Redemption Notice.  If the Required Holders have submitted a Change of Control Redemption Notice in accordance with Section 5, then the Company shall deliver the applicable Change of Control Redemption Price to the Holder (i) concurrently with the consummation of such Change of Control if such notice is received at least three (3) Business Days prior to the consummation of such Change of Control and (ii) within five (5) Business Days after the Company’s receipt of such notice otherwise.  In the event of a redemption of a Conversion Amount which is less than all of the outstanding Principal of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 15(d)) representing the outstanding Principal which has not been redeemed.  In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price has not been paid.  Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 15(d)) to the Holder representing such Conversion Amount to be redeemed and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided.

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

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

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11.           Subordination .

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

(b)           Rank; Future Subordinated Debt .  This Note will rank pari passu with all of the other Notes and with all existing and future subordinated debt of the Company, including, without limitation, the Company’s outstanding Subordinated Convertible Notes due October 26, 2013 and Subordinated Convertible Notes due March 31, 2014.

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

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

12.           [ Intentionally Omitted .]

13.           Vote to Issue, or Change the Terms of, Notes .  Except as otherwise provided herein, this Note may not be amended without the written consent of the Required Holders and the Company.

14.           Transfer .  This Note has been issued subject to certain investment representations of the initial Holder set forth in the Securities Purchase Agreement.  This Note and any Conversion Shares issued upon conversion of this Note may not be offered, sold,

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assigned or transferred by the Holder unless in compliance with, and subject to, the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement.

15.           Reissuance of this Note .

(a)           Transfer .  If the Holder seeks to transfer this Note subject to and in compliance with Sections 2(f) and 2(g) of the Securities Purchase Agreement, then the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 15(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 15(d)) to the Holder representing the outstanding Principal not being transferred.

(b)           Lost, Stolen or Mutilated Note .  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 15(d)) representing the outstanding Principal.

(c)           Note Exchangeable for Different Denominations .  This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 15(d) and in Principal amounts of at least $10,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

(d)           Issuance of New Notes .  Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 15(a) or Section 15(c), the Principal designated by the Holder which, when added to the Principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest on the Principal from the Issuance Date.

16.           Remedies and Injunctive Relief .  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note at law or in equity (including a decree of specific performance and/or other injunctive relief). Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be

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inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

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

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

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

20.           Dispute Resolution .  In the case of a dispute as to the determination of the Closing Bid Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile (a) the disputed determination of the Closing Bid Price or the Weighted Average Price to an independent, reputable investment bank or financial advisor selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to the Company’s independent, outside accountant.  The Company shall cause the investment bank, financial advisor or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s, financial advisor’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.  Each of the Company and the Holder shall pay 50% of the fees and expenses of such investment bank, financial advisor or accountant, as the case may be, incurred pursuant to this Section 20.

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21.           Notices; Payments .

(a)           Notices .  Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the Securities Purchase Agreement and shall include in reasonable detail a description of any action for which the Company is required to provide notice to the Holder and the reason therefor.  Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

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

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

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

24.           Governing Law .  This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the

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jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

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

(b)           “ Bloomberg ” means Bloomberg Financial Markets.

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

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

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Directors immediately after such transaction is approved by a majority of those individuals who are members of the Company’s Board of Directors immediately prior to such transaction.

(e)           “ Closing Bid Price ” means, for any security as of any date, the last closing bid price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price then the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported by OTC Markets, Inc.  If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 20.  All such determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

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

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

(h)           “ Fundamental Transaction ” means that (A) the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, or (ii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iii) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase

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agreement or other business combination), or (iv) reorganize, recapitalize or reclassify the Voting Stock of the Company or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the Company.

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

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

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

(l)            “ Maturity Date ” means July 31, 2015.

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

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

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

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

(q)           “ Redemption Notices ” means, collectively, the Event of Default Redemption Notices, the Change of Control Redemption Notices, and the Company Option Redemption Notice, and each of the foregoing, individually, a “ Redemption Notice .”

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

(s)           “ Registration Condition ” means that the resale of the Conversion Shares shall have been registered under the Securities Act of 1933, as amended, and that such registration continues to be effective and available for such resale.

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

(u)           “ Six-Month Anniversary Date ” means the six-month anniversary of the Issuance Date.

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

(w)          “ Voting Stock ” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

(x)            “ Weighted Average Price ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its “ Volume at Price ” functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01

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a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume- weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by OTC Markets, Inc.  If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 20.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

[Signature Page Follows]

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IN WITNESS WHEREOF , the Company has caused this 8% Subordinated Convertible Promissory Note to be duly executed as of the Issuance Date set out above.