AGREEMENT OF SALE By and among ADCARE HEALTH SYSTEMS, INC., an Ohio corporation and its subsidiaries identified on the signature page hereto (collectively, Seller) and CHP ACQUISITION COMPANY LLC an Ohio limited liability company (Buyer) Dated as of October 11, 2012

11.3.                     Employee Benefits.  Seller shall offer and provide, as appropriate, group health plan continuation coverage pursuant to the requirements of Section 601, et seq. of the Employee Retirement Income Security Act of 1974 (“ERISA”) and Section 4980B of the Internal Revenue Code (“COBRA”) to all of the employees of the Facilities to whom it is required to offer the same under applicable law.  Seller acknowledges and agrees that Buyer is not assuming any of Seller’s obligations to its employees under COBRA or otherwise.  As of the Closing Date, all Hired Employees who participate as of the Closing Date in group health insurance coverage sponsored by Seller shall be eligible (subject to the terms and conditions of Buyer’s health and welfare plans) for participation in a group health plan (as defined for purposes of Internal Revenue Code Section 4980B) established and maintained by Buyer for the general benefit of its employees but shall be subject to all such deductibles as if they become new members on the Closing Date unless (x) they are under a waiting period with Seller at the Closing Date, in which case they shall be required to complete their waiting period while under Buyer’s group health plan or in accordance with the terms of Buyer’s benefit plan, or (y) they were subject to a pre-existing condition exclusion while under Seller’s group-health plan, in which case they shall be subject to the same exclusion while in Buyer’s group health plan or in accordance with the terms of Buyer’s benefit plans, which exclusion shall, if applicable, be subject to the same time limitation while said employees are in Buyer’s employ as was applicable thereto while said employees were in Seller’s employ, with the time limit calculated from the date the same commenced while said employees were in Seller’s employ.

11.4.                     Compliance With WARN Act.  Seller and Buyer acknowledge and agree that the provisions of this Article XI are designed solely to ensure that Seller is not required to give notice to the employees of the Facilities of the “closure” thereof under the Worker Adjustment and Retraining Act (the “WARN Act”) or any other comparable state laws.  Nothing in this Article X shall create any rights in favor of any Person not a party hereto, including the Facilities Employees, or constitute an employment agreement or condition of employment for any employee of Seller or any Affiliate of Seller.

ARTICLE XII
ACCOUNTS RECEIVABLE

12.1.                     Accounts Receivable.  Seller shall retain whatever right, title and interest it may have in and to all outstanding accounts receivable with respect to the Facilities which relate to the period prior to the Closing Date, including, but not limited to, any accounts receivable arising from rate adjustments which relate to the period prior to the Closing Date even if such adjustments occur after the Closing Date (“Seller’s A/Rs”).  Seller acknowledges that Buyer owns all accounts receivable arising from services provided by or at the Facilities on or after the Closing Date (“Buyer’s A/Rs”).

12.2.                     Receipts by Buyer.  In furtherance and not in limitation of the requirements set forth in Section 12.1, payments received by Buyer on or after the Closing Date from third-party payors, including, but not limited to, Medicaid, VA, managed care and health insurance, shall be handled as follows:

(a)                                 If such payments either specifically indicate on the accompanying remittance advice, or if the parties agree that they relate to the period prior to the Closing Date,

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they shall be forwarded by Buyer to Seller, along with the applicable remittance advice, within seven (7) Business Days after receipt thereof; and

(b)                                 If such payments indicate on the accompanying remittance advice, or if the parties agree that they relate to the period on or after the Closing Date, they shall be retained by Buyer.

12.3.                     Receipts by Seller.  Payments received by Seller on or after the Closing Date from third-party payors, including, but not limited to, Medicaid, VA, managed care and health insurance, shall be handled as follows:

(a)                                 If such payments either specifically indicate on the accompanying remittance advice, or if the parties agree that they relate to the period on or after the Closing Date, they shall be forwarded by Seller to Buyer, along with the applicable remittance advice, within seven (7) Business Days after receipt thereof; and

(b)                                 If such payments indicate on the accompanying remittance advice, or if the parties agree that they relate to the period prior to the Closing Date, they shall be retained by Seller.

12.4.                     Other Receipts.  If the remittance advice indicates or the parties agree that any payment relates to periods both prior to and on or after the Closing Date, the party receiving the payment shall forward the amount relating to the other party’s operation, along with the applicable remittance advice, within seven (7) Business Days after receipt thereof.  If the remittance advice does not indicate the period to which a payment relates or whether it is for Seller or Buyer, or if there is no accompanying remittance advice, or the payment is not otherwise identifiable using commercially reasonable efforts, and if the parties do not otherwise agree as to how to apply such payment, then 100% of such payments received within the first one hundred eighty (180) days after the Closing Date shall be deemed to have been collected in respect of Seller’s A/R due from the payee in respect of services provided prior to the Closing Date.  All such payments received in excess of the amount of Seller’s A/R due from said payee and all such payments received after the 180th day after the Closing Date shall be deemed to have been collected in respect of Buyer’s A/R from said payee.  All such payments received by Buyer but which are deemed to be due Seller under this Section 12.4 shall be forwarded by Buyer to Seller within seven (7) Business Days after receipt thereof, and all such payments received by Seller but which are deemed to be due Buyer under this Section 12.4 shall be forwarded by Seller to Buyer within seven (7) Business Days after receipt thereof.  All such payments received by Seller which are deemed to have been collected in respect to Seller’s A/R shall be retained by Seller and all such payments received by Buyer which are deemed to have been collected in respect to Buyer’s A/R shall be retained by Buyer.

12.5.                     Accounting for Accounts Receivable.

(a)                                 As soon as reasonably possible but not later than twenty (20) Business Days after the Closing Date, Seller shall provide Buyer with a schedule of Seller’s A/Rs listing by patient the amounts due as of the Closing Date and the respective payees.

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(b)                                 For a period of six (6) months following the Closing Date, Buyer shall provide Seller with (i) an accounting by the 20th day of each month setting forth all amounts received by Buyer during the preceding month with respect to Seller’s A/Rs which are listed on the schedule provided by Seller pursuant to Section 12.5(a), and (ii) copies of all remittance advices relating to such amounts received and any other reasonable supporting documentation as may be required for Seller to determine the Seller’s A/Rs that has been paid.  Buyer shall deliver such accounting to Seller at Seller’s record address in this Agreement.

(c)                                  For a period of six (6) months following the Closing Date or until Seller receives payment of all accounts receivable attributed to the operation of the Facility prior to the Closing Date, whichever is sooner, Seller shall provide Buyer (no less frequently than monthly) with (i) an accounting setting forth all amounts received by Seller with respect to Buyer’s A/Rs using the same type of schedule as that provided by Seller pursuant to Section 12.5(a), and (ii) copies of all remittance advices relating to such amounts received and any other reasonable supporting documentation as may be required for Buyer to determine the Buyer’s A/Rs that have been paid.  Seller shall deliver such accounting to Buyer at the following address:  Easton Town Center, 4100 Regent St., Suite F., Columbus, Ohio 43219, Attention:  Roger C. Vincent, President.

(d)                                 For a period of one (1) year following the Closing Date, Buyer and Seller shall, upon reasonable notice and during normal business hours, have the right to inspect all cash receipts of the other party in order to confirm the other party’s compliance with the obligations imposed on it under this Article XII.  Notwithstanding the foregoing, if such information can be transmitted through electronic mail, then Buyer and Seller may satisfy their obligations under this Section 12.5 in that manner.

ARTICLE XIII
REPRESENTATIONS AND WARRANTIES

13.1.                     Seller’s Representations.  To induce Buyer to enter into this Agreement, Seller (jointly and severally) hereby represents and warrants to Buyer as of the date of this Agreement and re-states as of the Closing Date, as follows:

(a)                                 Seller has been duly organized and is validly existing, is in good standing in Ohio, its state of formation, and is qualified to do business and is in good standing in each of the states in which it owns property or does business.  Seller has full power and authority and possesses all material governmental Approvals necessary to enable it to own, license, possess, lease or otherwise hold its properties and assets and to carry on the Business and to operate the Facilities as presently conducted.

(b)                                 Seller has the full right, power and authority to execute this Agreement and to consummate the sale of Assets and the other transactions contemplated by this Agreement.  The Person executing this Agreement on behalf of Seller is authorized to do so. Seller has duly executed and delivered this Agreement, and this Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms.  The execution and delivery by Seller of this Agreement and the other documents contemplated hereby do not, and the consummation of transactions contemplated by this Agreement and

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compliance by Seller with the terms hereof, do not, and will not, conflict with, or result in any violation of or default under (with or without notice or lapse of time, or both), or result in the creation of any lien or encumbrance upon any of the assets or properties of Seller under, any provision of (i) the organizational documents of Seller, (ii) any Contract to which Seller is a party or by which any of its assets or properties is bound, or (iii) any judgment, writ, order or decree or Law that is applicable to Seller or its assets or properties.  No Consent of, or registration, declaration or filing with (A) any Governmental Authority, or (B) any other Person, is required to be obtained or made by or with respect to Seller, in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby.

(c)                                  Seller has good and marketable title to the Property free and clear of all liens and encumbrances except for the Permitted Encumbrances and the Vandalia HUD Loan.  Seller has neither created, nor authorized any other party to create, any lien or encumbrances on the Property, other than the Permitted Encumbrances.  To Seller’s knowledge, there are no pending real estate assessment protests or proceedings with respect to the Property.  Seller has title to all Personal Property and the execution and delivery to Buyer of the Bill of Sale shall vest title to all the Personal Property in Buyer, free and clear of liens and encumbrances.  No Person has the right to purchase all or any of the Assets or any interest in Seller (except for the securities of ADK).

(d)                                 The Assets are sufficient to permit the conduct of the Business immediately following the Closing in substantially the same manner as currently conducted.

(e)                                  Except as set forth on Exhibit L attached hereto, there are no Approvals or Consents necessary or required to own, operate or use the Facilities or to operate the Business (“Required Permits”).  Seller has a current certificate of occupancy and it and/or Seller’s agents have all the other Required Permits necessary or required for the ownership and operation of the Facilities and the Business.  All Required Permits are in full force and effect and are not subject to any claim, default, condition, sanction or penalty.  Seller has delivered to Buyer true, correct and complete copies of the most recent Required Permits necessary or required for the ownership and operation of the Facilities and the Business.

(f)                                   Except as described on Exhibit M attached hereto, there are no deficiencies described in any survey of the Facilities conducted by any Governmental Authority that has not been corrected or otherwise remedied.

(g)                                 No taking by power of eminent domain or condemnation proceeding has been instituted or threatened for the permanent or temporary taking or condemnation of all or any portion of the Property.

(h)                                 No labor has been performed or materials furnished at the request or direction of Seller that could result in a materialman’s or mechanic’s lien filed against the Property except as shall be fully paid or released prior to Closing.  All real estate taxes on the Property that have become due and payable prior to Closing have been or will be paid by Closing.

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(i)                                    Except as set forth in Exhibit N, as of the date hereof, there are no actions, suits, material labor disputes or arbitrations, legal or administrative proceedings or investigations pending against Seller, the Business or the Facilities, and to the Knowledge of Seller, no actions, suits, material labor disputes or arbitrations, legal or administrative proceedings or investigations are contemplated or threatened against Seller in connection with the Facilities, nor is any basis known by Seller to exist for any such action or for any governmental investigations relating to the Business or the Facilities.  Except as set forth on Exhibit O, there are no pending actions against Seller or relating to the Assets or the Business and no such actions have been commenced within the last three (3) years.

(j)                                    Seller has complied in all material respects with each, and is not in violation of any, Law, to which it or the Facilities or the Business is subject, and has not failed to obtain any permit, or other governmental authorization or inspection necessary to the ownership or use of the Assets or to the conduct of the Business, including, the Federal Medicaid Statutes. Except as set forth on Exhibit M, Seller has not received any notice of any violations of any Law, nor does Seller have Knowledge of any such violations, including, without limitation, violations of: state licensing requirements for operation of the Facilities as nursing facilities, safety, handicapped accessibility, ADA, health, environmental, fire, zoning or subdivision laws, ordinances, codes and regulations.  To Seller’s knowledge, the Improvements are not presently in violation of any applicable building codes or other applicable laws.

(k)                                 All environmental and property condition reports that are in Seller’s possession have been delivered to Buyer and Seller has not received any notice of litigation, condemnation or violation of governmental or environmental requirements relating to the Property.  Seller has received no notice that hazardous or toxic substances, materials or wastes, pollutants or contaminants (including, without limitation, petroleum and petroleum products, asbestos and PCBs) have been released, spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied, dumped or allowed to escape or threaten to release on, at, under or from the Property, and to Seller’s knowledge, the Property is in material compliance with all Environmental Laws, and there have been no environmental proceedings with respect to the Property.  As used herein, “Environmental Law” means all federal, state, or local laws, ordinances, requirements and regulations relating to waste disposal or protecting the environment, including without limitation.  (i) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§ 9601, et seq.), as amended (“CERCLA”); (ii) the Solid Waste Disposal Act (42 U.S.C. §§ 6901, et seq.), as amended; (iii) the Clean Air Act (42 U.S.C. §§ 7401, et seq.), as amended; (iv) the Clean Water Act (33 U.S.C. § 1251), as amended; (v) the Hazardous Materials Transportation Act (49 U.S.C. §§ 1801, et seq.), as amended; (vi) the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136, et seq.), as amended; (vii) the Safe Drinking Water Act (41 U.S.C. § 300f, et seq.), as amended; (viii) the Federal Water Pollution Control Act (33 U.S.C. § 1251, et seq.) and (ix) the Toxic Substances Control Act (15 U.S.C. § 2601, et seq.).

(l)                                    Within the last three (3) years, Seller has not made or pursued any claim under any insurance contracts, binders or policies relating to the Assets or the Business (the “Insurance Policies”)except as otherwise listed within Exhibit O. Seller has not received from any insurance company which carries insurance on any of the Facilities or the Business, or any board of fire underwriters, any notice of any defect or inadequacy in connection with the

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Facilities or the Business, or its operation, or request for the performance of any repairs, alterations or other work, and Seller has no knowledge of any such defect or inadequacy which might increase the premium or cause the cancellation of any of the Insurance Policies.

(m)                             [Intentionally Omitted]

(n)                                 Seller is a “United States person” within the meaning of Sections 1445(f)(3) and 7701(a)(30) of the Internal Revenue Code of 1986, as amended.

(o)                                 The Resident roll attached hereto as Exhibit P is a complete and accurate schedule of all the Residents as of the date hereof.  Seller has not accepted any advance payment of more than thirty (30) days from any Resident.

(p)                                 Attached as Exhibit Q is a copy of the audited balance sheet of Seller as of December 31, 2011 (the “Balance Sheet”), the audited statement of income and cash flows of Seller for the fiscal year ended December 31, 2011, and the unaudited statement of income and cash flows of Seller for the period ended September 31, 2102 (the financial statements described in this sentence, collectively, the “Financial Statements”).

(i)                                    The Financial Statements have been prepared, in all material respects, in conformity with accounting principles generally accepted in the United States of America, consistently applied (so-called “GAAP”) (except in each case as described in the notes thereto and, in the case of the unaudited financial statements, subject to normal year-end audit adjustments) and reflects the financial condition, results of operations, cash flows and changes in partners’ equity of Seller and as of the respective dates thereof and for the respective periods indicated.  Since December 31, 2011, there have been no changes in Seller’s methods of accounting for tax or financial statement purposes.  Other than as set forth in the Financial Statements or arising in the ordinary course of business since such date, there are no other material Obligations of Seller.

(ii)                                Since December 31, 2011, to the date of this Agreement, Seller has caused the Business to be conducted in the ordinary course and in substantially the same manner as previously conducted.  From the date of the Balance Sheet to the date of this Agreement and except as disclosed on Exhibit Q, Seller has not taken any action that, if taken after the date of this Agreement without the consent of Buyer, would constitute a breach of Section 14.2.

(q)                                 Seller, has not received any notification as of the date of this Agreement from any party to a Contract that such party intends to terminate, discontinue or not proceed with such Contract or otherwise received any notification as of the date of this Agreement of any possible disruption to the Business as a result of the execution of this Agreement or the sale of the Assets.

(r)                                  Seller has complied with and performed all of its Obligations required to be performed under all material Service Contracts relating to or in connection with the Facilities, or the Business or to which Seller is a party or by which it or the Assets are bound (whether as an original party or as an assignee or successor) as of the date hereof, and is not in default in any material respect under any Service Contract, undertaking, commitment or other Obligation; and no event has occurred which, with or without the giving of notice, lapse of time or both, would

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constitute a default thereunder in any material respect.  No party has failed to comply with or perform the Obligations required to be performed under any material Contract to which Seller is a party (whether as an original party or as an assignee or successor) as of the date hereof, and no event has occurred which, with or without the giving of notice, lapse of time or both, would constitute a default by such party thereunder. Except as set forth on Exhibit B, all Service Contracts are valid, binding and in full force and effect and are enforceable by Seller in accordance with their terms.  In addition, except as disclosed on Exhibit B, there are no facts or circumstances which make a default by any party to any material contract or obligation likely to occur subsequent to the date hereof.

(s)                                   Seller has not (i) made a general assignment for the benefit of its creditors, (ii) instituted, or been the subject of, any proceeding to be adjudicated bankrupt or insolvent or consented to the institution of bankruptcy or insolvency proceedings against it, (iii) filed a petition, answer or consent seeking reorganization or relief under any applicable Federal or state bankruptcy law or consented to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or other similar official of it or of any part of its property, or (iv) admitted in writing its inability to pay its debts generally as they become due.

(t)                                    Seller is not an employee benefit plan as defined in Section 3 (3) of the Employee Retirement Income Act of 1974, as amended (“ERISA”), which is subject to Title I of ERISA, nor a plan as defined in Section in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (each of the foregoing hereinafter referred to collectively as a “Plan”), and none of the Assets constitute “plan assets” as defined in Department of Labor Regulation Section 2510.3-101.

(u)                                 In connection with the Facilities and the Business, Seller and each employee or individual or entity furnishing healthcare related services under arrangement (collectively, the “Health Care Providers”), to the extent required, is, to the Knowledge of the Seller, licensed under the applicable Laws of their state and, to the Knowledge of the Seller, each Health Care Provider has complied with all Laws, relating to the rendering of health care services.  To the Knowledge of the Seller, no Health Care Provider has:

(i)                                    had his or her professional license, Drug Enforcement Agency number or Medicare or Medicaid provider status, or participation in any other healthcare plan of a third-party payor suspended, relinquished, terminated or revoked;

(ii)                                been reprimanded, sanctioned or disciplined by any licensing board or any Federal, state or local society, agency, regulatory body, Governmental Authority, hospital, third-party payor or specialty board;

(iii)                            had a final judgment or settlement entered against him or her in connection with a malpractice or similar action; or

(iv)                             has engaged in, undertaken or accused, charged or convicted of criminal conduct or act.

(v)                                 Neither Seller nor any of its respective partners, officers, directors, employees, agents or Affiliates has offered, paid, or agreed to pay to any Person, including any

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governmental official, or solicited, received or agreed to receive from any such Person, directly or indirectly, any money or anything of value for the purpose or with the intent of obtaining or maintaining business for Seller or any Affiliate or otherwise affecting the business, operations, prospects, properties, or condition (financial or otherwise) of Seller, and which is or was in violation of any Law, or not properly and correctly recorded or disclosed on the books and records of Seller.  Seller has not engaged in any transaction, maintained any bank account or used any other funds except for transactions, bank accounts and funds which have been and are properly and correctly reflected in the normally maintained books and records of Seller.

(w)                               To Seller’s knowledge, Seller is in compliance in all material respects with all Laws respecting employment and employment practices, terms and conditions of employment, compensation, wages and hours, health and safety, labor relations and plant closings, including all applicable foreign laws, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Equal Pay Act, the Fair Labor Standards Act, the National Labor Relations Act, Occupational Safety and Health Act, Title VII of the Civil Rights Act of 1964, as amended, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act, and ERISA.  Seller is not a party to any collective bargaining agreement or labor contract.

(x)                                 In connection with the Facilities, Seller participates in the Medicaid Waiver Program (the “Program”).  With respect to the Facilities, Seller does not participate in the Medicare Program. A list of and copy of its existing Medicaid Waiver contract and reimbursement agreements and all business and provider numbers pertaining to Seller or, if such contracts do not exist, other documentation evidencing such participation (collectively, the “Program Agreement”) is set forth on Exhibit R attached hereto.  Seller is in material compliance with all of the terms, conditions and provisions of the Program Agreements.  Seller is in compliance with rules and policies respecting the Program Agreement and third-party payor contract, including all certification, billing, reimbursement and documentation requirements, and there is no threatened or pending revocation, suspension, termination, probation, restriction, limitation or non-renewal affecting the Program Agreement or third-party payor contracts.

(y)                                 In connection with the Facilities, no notice of suspension, cross-recoupment, sanction or any other material offsets against future reimbursements under or pursuant to the Program has been received by Seller, nor is there any basis therefor.  With respect to the Program, there are no pending appeals, adjustments, challenges, audits, litigation, notices of intent to recoup past or present reimbursements for any material amounts.  Seller has not been subject to or threatened with any loss as a result of any utilization review denials with respect to the Program or any third-party payors during the past twelve (12) months, nor has Seller received notice of any pending, threatened or possible decertification or other loss of participation in, any of the Program.

(z)                                  Seller has filed all material Tax Returns that it was required to file for any taxable period beginning before the Closing Date for which the statutory period of limitations for the assessment of Tax has not yet expired and all material Taxes owed by Seller for such taxable periods (whether or not shown as due on such Tax Returns) have been paid.  Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor for all periods for which the statutory period of

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limitations for the assessment of such Tax has not yet expired and all IRS Tax Returns required with respect thereto have been properly completed and timely filed.  If at the Closing Date all or any part of the Assets is or has been affected by any one or more assessments which are or may become payable in annual installments of which the first installment is then a charge or lien, or has been paid, for the purpose of this Agreement all of the unpaid installments of any such assessment, including those that are due and payable after the Closing Date, Seller acknowledges that it shall be deemed to be due and payable and shall be paid and discharged by Seller at the Closing Date.

(aa)                          To Knowledge of Seller, except as set forth in those certain Environmental Phase I Assessments previously delivered to Buyer or to be delivered to Buyer during the Study Period, there currently is no lead paint, mold, asbestos, or material containing asbestos present in the common areas, or elsewhere on, in or under the Property.

(bb)                          The Property is not designated as historical, and there is no historical designation pending.

(cc)                            Seller has not made any commitments or representations to the applicable Governmental Authorities, any adjoining or surrounding property owners, any civic association, any utility, or any other Person that would in any manner be binding upon Buyer or upon the Property.  Seller has received no notice which would refute that no such commitments or representations were made by any of Seller’s predecessors in title.

(dd)                          Seller has received no notice that the heating, ventilation, air-conditioning, electrical, plumbing, water, fire alarm and structural systems or components of the Property are not in good working order and condition or are not in compliance with applicable requirements.

(ee)                            To Seller’s knowledge, the parking spaces on the Property are all the parking spaces required by Law with respect to the Property and the Facilities and such spaces comply with applicable Laws.  There are no contracts or other arrangements allowing persons who are not affiliated with the Facilities any parking rights at the Property and no Person other than the employees at the Facilities and visitors to the Facilities has the right to park on the Property.

(ff)                              No representation or warranty by Seller in this Agreement, any Exhibit attached hereto or in any list, certificate, document or written statement delivered by Seller to Buyer pursuant hereto, to the Knowledge of Seller, contains any untrue statement of fact or omits to state any material fact necessary to make any statement herein or therein, in the light of the circumstances under which it was made, not misleading.  Except as described in the Exhibits hereto or to be delivered, all documents and agreements described in such Exhibits are valid and effective in accordance with their respective terms and there is not under any of such documents or agreements, or any obligation, covenant or condition contained therein, any existing default by Seller or any other party, or event which with notice, lapse of time, or both constitute a default.

(gg)                          AS-IS.             SOLEY WITH RESPECT TO THE PROPERTY, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER HAS NOT MADE, AND BUYER HAS NOT RELIED UPON, ANY INFORMATION, PROMISE,

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REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING THE PROPERTY, WHETHER OR NOT MADE BY SELLER, INCLUDING, WITHOUT LIMITATION, ANY INFORMATION, PROMISE, REPRESENTATION OR WARRANTY REGARDING THE PHYSICAL CONDITION OR VALUE OF THE PROPERTY, TITLE TO OR THE BOUNDARIES OF ANY OF THE LAND OR THE FACILITIES, PEST CONTROL MATTERS, SOIL CONDITIONS, THE PRESENCE, EXISTENCE OR ABSENCE OF HAZARDOUS SUBSTANCES, TOXIC SUBSTANCES OR OTHER ENVIRONMENTAL MATTERS, COMPLIANCE WITH BUILDING, HEALTH, SAFETY, LAND USE AND ZONING LAWS, REGULATIONS AND ORDERS, STRUCTURAL AND OTHER ENGINEERING CHARACTERISTICS, TRAFFIC PATTERNS, MARKET DATA, ECONOMIC CONDITIONS OR PROJECTIONS, AND ANY OTHER INFORMATION PERTAINING TO ANY OF THE PROPERTY OR THE MARKET AND PHYSICAL ENVIRONMENTS IN WHICH THEY MAY BE LOCATED AND SELLER EXPRESSLY DISCLAIMS ALL WARRANTIES RELEVANT TO THE PROPERTY, EITHER EXPRESS OR IMPLIED, INCLUDING MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND SUITABILITY FOR ITS INTENDED USE.  BUYER ACKNOWLEDGES THAT (A) BUYER IS A SOPHISTICATED OWNER AND OPERATOR OF FACILITIES SIMILAR TO THE FACILITIES, (B) BUYER HAS ENTERED INTO THIS AGREEMENT WITH THE INTENTION OF MAKING AND RELYING UPON ITS OWN INVESTIGATION OR THAT OF THIRD PARTIES WITH RESPECT TO THE PHYSICAL, ENVIRONMENTAL, ECONOMIC AND LEGAL CONDITION OF THE PROPERTY AND (C) BUYER IS NOT RELYING UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES OF ANY KIND, AND IS ACQUIRING THE PROPERTY IN “AS IS, WHERE IS” CONDITION, EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES THAT ANY ESTIMATES OF FUTURE PROFITABILITY OF THE PROPERTY (OR ANY OF THEM) MADE BY BUYER, BASED ON INFORMATION (INCLUDING RESULTS OF PAST PERFORMANCE) PROVIDED TO BUYER BY SELLER ARE INHERENTLY UNCERTAIN AND ARE SUBJECT TO A VARIETY OF VARIABLES WHICH ARE DIFFICULT, IF NOT IMPOSSIBLE, TO PREDICT.

13.2.                     Buyer’s Representations.  To induce Seller to enter into this Agreement, Buyer hereby represents and warrants to Seller as of the date of this Agreement and the Closing Date, as follows:

(a)                                 Buyer has been duly organized and is validly existing as a limited liability company in the State of Ohio, is in good standing in the state of its organization and it, or any assignee of Buyer that will acquire title to any of the Assets, will be qualified to do business, and will be in good standing, in the State of Ohio at the time of Closing.  Buyer has the full right and authority to consummate or cause to be consummated the sale of the Assets, and to make or cause to be made the transfers and assignments contemplated herein.  The person signing this Agreement on behalf of Buyer is authorized to do so.

(b)                                 To the Knowledge of Buyer, there is no agreement to which Buyer is a party or which is binding upon Buyer which is in conflict with this Agreement.

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(c)                                  There is no action or proceeding pending, or, to the Knowledge of Buyer, threatened against Buyer which would challenge or have a Material Adverse Effect upon Buyer’s ability to perform its obligations under this Agreement.

13.3.                     Survival of Representations and Warranties.  All representations, warranties, covenants and agreements made by each party in this Agreement, in any Exhibit attached hereto or in any list, certificate, document or written statement furnished or delivered by any such party pursuant hereto shall survive the Closing, and shall remain in full force notwithstanding any investigation conducted before or after the Closing, or the decision of any party to complete the Closing until September 1, 2014; provided, however, that: (i) the representations and warranties set forth in Sections 13.1(j), (k), (t), (u), (w), (x), (z), and (aa) shall survive until expiration of the relevant statute of limitations; (ii) the representations and warranties set forth in Sections 13.1(a), (b) and (c) shall survive indefinitely; and (iii) if at the expiration of the appropriate period any claim or assessment for indemnification has been asserted but not fully determined, or any audit or other proceeding with respect to any Tax matter has been initiated, such period will be extended as to such claim, assessment, audit or other proceeding until it is finally determined or concluded, and each party hereto shall be entitled to rely upon the representations and warranties of the other party set forth in this Agreement.

ARTICLE XIV
INTERIM OPERATIONS AND UNDERTAKINGS

14.1.                     Conduct of Business Pending Closing.  From the date of this Agreement until the Closing Date, Seller shall:

(a)                                 Maintain the Business and the Facilities in existence and in good standing and in material compliance with all Laws;

(b)                                 Maintain the general character of the Facilities and the Business and conduct the Business in the ordinary and usual manner;

(c)                                  Maintain all licenses and permits necessary for the ownership and operation of the Facilities in full force and effect, and will timely file all reports, statements, renewal applications and other filings, and will timely pay all fees and charges in connection therewith that are required to keep such permits in full force and effect;

(d)                                 Maintain the Property in good repair and condition subject to ordinary wear and tear;

(e)                                  Maintain in full force and effect substantially the same public liability and casualty insurance coverage and other Insurance Policies now in effect with respect to the Property and the Business;

(f)                                   Make all necessary repairs to, and replacement of, the Assets as are reasonably necessary for the continued operation of the Business and the Facilities;

(g)                                 Comply in all material respects with all Environmental Laws applicable to the Property;

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(h)                                 Continue to perform all Obligations under all Service Contracts;

(i)                                    Maintain adequate food and medical supplies and other Inventory at the Facilities as required by the State of Ohio and Federal laws, standards rules and regulations; and

(j)                                    Provide for and/or cure deficiencies and all violations which may be cited by the State of Ohio or any other Governmental Authority having jurisdiction over the Facilities.

14.2.                     Prohibited Actions Pending Closing.  Unless otherwise expressly provided for herein or approved by Buyer in writing, from the date of this Agreement until the Closing Date, Seller shall not:

(a)                                 Induce, solicit or entice any Residents to transfer or discontinue any relationships with Seller prior to the Closing Date or Buyer after the Closing Date;

(b)                                 Remove any Personal Property necessary for the operation of the Business from the Facilities unless the same is replaced by property of substantially equal or greater value, or unless the removal is authorized pursuant to the provisions of this Agreement;

(c)                                  Interfere with or disrupt Buyer’s relationship with any employee or Resident of Seller;

(d)                                 Accept any advance payment for more than thirty (30) days of any rent or Residents’ occupancy fees under any Lease or occupancy agreement; or waive, reduce or forgive any rent or occupancy fees required to be paid under any occupancy agreement, or grant any lease or other concessions or free rent periods under any occupancy agreement;

(e)                                  After the expiration of the Study Period, renew, extend, terminate, modify or waive any term or condition of any of the Service Contracts or Resident occupancy agreement, nor, after the expiration of the Study Period, enter into any new Contracts relating to the Facilities or the Business, if such Contracts would survive the Closing;

(f)                                   Make any capital improvements to the Property in excess of $10,000;

(g)                                 Make any commitments or representations to any applicable Governmental Authority, any adjoining or surrounding property owners, any civic association, any utility or any other person or entity that would in any manner be binding upon Buyer or upon the Property or the Business;

(h)                                 Sell or otherwise dispose of, or agree to sell or dispose of any of the Assets, except in the ordinary course of business as permitted by this Agreement; and

(i)                                    Take any action prior to the Closing Date which would breach any of the representations and warranties contained in this Agreement or otherwise take any action outside of the ordinary course of business of Seller.

14.3.                     Notice.  From the date of this Agreement to the Closing Date, promptly (but in any event within two (2) Business Days) after Seller’s discovery or receipt of notice of (A) any

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default under any Contract, (B) any violation or non-compliance with any applicable Law, (C) any threatened or pending action by any Governmental Authority, (D) any claim made by any Governmental Authority or third-party relating to any Environmental Laws, or (E) any other matter or event that has or could have a Material Adverse Effect upon the Assets or the Business, Seller shall deliver to Buyer a copy of all non-privileged correspondence, notice or legal pleading in connection therewith, together with a certificate of the chief executive officer of Seller specifying the nature and period of the existence thereof and what actions Seller has taken and proposes to take with respect thereto.

14.4.                     Access.  From the date of this Agreement until the Closing, Seller shall afford Buyer and its independent certified public accountants, counsel and other representatives, free and full access at all reasonable times to the properties, books and records of the Business and the right to consult with the officers, employees, accountants, counsel and other representatives of the Business in order that Buyer may have full opportunity to make such investigations as it shall reasonably desire to make of the affairs of the Business; provided, however, that any such investigation, including, without limitation, pursuant to Article XV, shall not affect or otherwise diminish or obviate in any way any of the representations and warranties of Seller hereunder.  Seller shall (and Seller shall ensure that its agents shall), upon reasonable notice from Buyer from time to time before Closing, permit Buyer or Buyer’s agents to inspect at Seller’s business office during regular business hours Seller’s and Seller’s agent’s books and records for the Facilities.

ARTICLE XV
FEASIBILITY/DUE DILIGENCE

15.1.                     Study Period.  Buyer, acting in its sole and absolute discretion, shall have a sixty (60) calendar day period after the date hereof (the “Study Period”) which Study Period shall end on or about at 5:00 p.m., Eastern Standard Time on December 12, 2012, during which Buyer may make its own investigation of the Assets and the Business, including, but not limited to, examination of all books of account and records related to the business related to operating the Assets, and property-level diligence such as investigations with regard to zoning, building code and other legal requirements, obtaining such third party reports or studies as Buyer deems necessary, investigation of the status of the receivables, service contracts, Medicare/Medicaid provider agreements and compliance with all applicable regulatory requirements such as state or federal permits, licenses, and healthcare survey matters.  Buyer shall have a continuing right of access, as described in Section 15.1(b), to conduct such studies.  At any time prior to the expiration of the Study Period, Buyer may notify Seller in writing that Buyer has determined, for any or no reason, in its sole discretion that it will not complete the proposed acquisition of the Assets, and is thereby terminating this Agreement.  If Buyer gives such notice to Seller, this Agreement shall automatically terminate and Seller shall instruct the Title Insurer to remit the Deposit, and all interest thereon, to Buyer.  In the event Buyer terminates this Agreement on the basis of any of Seller’s representations proving untrue, or because Seller refuses to cure due diligence deficiencies reasonably identified by Buyer, then (i) the Escrow Agent shall return the Deposit to Buyer together with accrued interest thereon, without any setoff or deduction, and neither party shall have any further obligation to the other hereunder except for Buyer’s and Seller’s obligations under Sections 15.1(c) (relating to damages to property) and 22.1 (relating to broker’s commissions) which shall survive such termination.  If Buyer does not deliver such

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notice to Seller prior to the end of the Study Period, Buyer shall be deemed to have elected to proceed under this Agreement and to consummate the transaction contemplated hereunder.

(a)                                 From and after the date of this Agreement, but as soon as possible, during the Study Period and provided that Buyer does not terminate this Agreement pursuant to Section 4.1, Seller shall provide to Buyer or make available to Buyer at the location(s) where such information is stored, any of the Property Information that is in the possession, custody or control of Seller or Seller’s agents.  Seller shall instruct its agents to cooperate with Buyer.  In the event the Property Information is in the possession or control of the management company for the Property or its counsel, Seller shall direct such entities to provide the Property Information or make it available to Buyer.  Seller shall provide to Buyer any further Property Information coming into Seller’s possession or produced by Seller or its property manager after the initial delivery or availability, and shall continue to make available the same during the pendency of this Agreement.

(b)                                 Buyer and its agents may at any time (after giving Seller reasonable written notice) enter onto the Property during the Study Period and, while thereon, make surveys, tests, investigations and appraisals, take measurements, test borings, other tests of surface and subsurface conditions and soil tests, make structural, mechanical, architectural, zoning, land use, market and engineering studies, and make any other inspections of the Property and other Assets deemed appropriate by Buyer, all at Buyer’s expense.

(c)                                  To expedite work on items requiring substantial lead time, Seller has provided Buyer with copies of each policy of title insurance covering the Assets and declaration pages and certificates of insurance coverage for each property/casualty and general liability/professional liability policy maintained by Seller in connection with the Business and the Assets.

(d)                                 If Buyer exercises its rights under Section 15.1(b) to enter onto the Property, Buyer shall keep the Property free and clear of any liens or claims resulting therefrom, and defend, indemnify and hold harmless Seller against and from any liability or expense actually incurred by Seller for loss or damage to property and/or injuries to or death of Persons proximately caused by the actions of Buyer other than those caused in whole or in part as the result of acts or omissions by or on behalf of Seller.  If Closing does not occur for any reason, Buyer shall restore any portion of the Property damaged by such exercise to its condition immediately before such exercise.  If Buyer exercises this right of entry, it shall not unreasonably disturb any Resident in its use and enjoyment of the Facilities.  The rights and obligations of the parties under this Section 15.1(c) shall survive Closing or any earlier termination of this Agreement.

15.2.                     Special Assessments.  Seller shall provide Buyer, within ten (10) Business Days of receipt, but in no event later than Closing, copies of any notices Seller or its agents receive with respect to any special assessments or proposed increases in the valuation of the Property.  After expiration of the Study Period, Buyer shall have the right to contest, in the name of Seller, any proposed increase in the assessment of the Property, provided that Buyer pays all costs and

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expenses in connection therewith.  Buyer shall promptly advise Seller in writing prior to the filing of any contest and shall provide Seller copies of all relevant documents in connection with such contest.  Seller shall cooperate with Buyer in connection with any such contest.

ARTICLE XVI
CONDITIONS PRECEDENT

16.1.                     Conditions Precedent to Buyer’s Obligations.  All obligations of Buyer under this Agreement are subject to the fulfillment or satisfaction in the sole discretion of Buyer, prior to or at the Closing, of each of the following conditions precedent (any of which may be waived in writing in whole or in part by Buyer):

(a)                                 Seller’s representations and warranties contained in this Agreement, the Exhibits attached hereto and any list, certificate, document or written statement specifically referred to herein or furnished by Seller to Buyer at the Closing shall be true on and as of the date of this Agreement and shall be true in all material respects on and as of the Closing Date with the same effect as though such representations and warranties were made on and as of the Closing Date.

(b)                                 Seller shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement that are required to be performed or complied with by it prior to or at the Closing.

(c)                                  Buyer shall have received all the Seller deliveries described in Section 17.1.  All Assumed Service Contracts shall have been assigned to Buyer and Seller shall have obtained all Consents required therefor.

(d)                                 Buyer shall have received Bill of Sale, the Assignment and Assumption Agreement, and a certificate dated as of the Closing Date and signed by Seller certifying that the conditions specified in this Section 14.1 have been fulfilled and all such other documents required to be delivered by Seller hereunder.

(e)                                  The Property shall not have been and shall not be threatened to be adversely affected as a result of fire, explosion, earthquake, disaster, accident, flood, drought, embargo, riot, civil disturbance, uprising, activity of the armed forces or act of God or public enemy or any other event or circumstance that would have any Material Adverse Affect upon Seller.  There shall not be pending or threatened any strike or any action by any Governmental Authority which would or could have a Material Adverse Effect on the Business.

(f)                                   No suit, action, proceeding, or investigation shall have been instituted or threatened by any Governmental Authority, and no injunction shall have been issued and then outstanding, to restrain, prohibit or otherwise challenge the legality or validity of the transactions contemplated by this Agreement.

(g)                                 Buyer shall have received any and all Consents and Licensure Approvals required or necessary to permit Buyer to purchase the Assets and to operate the Business and the Facility as presently being conducted and to participate (and be entitled to reimbursement) as a

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provider in the Medicare and Medicaid Programs for the number of beds currently certified under such Programs.

(h)                                 On the Closing Date, Buyer’s title company shall be irrevocably committed to deliver to Buyer (or its permitted assignee) an ALTA Form 1970 Owner’s Policy in the amount of not less than the Purchase Price insuring Buyer (or its permitted assignee) as the owner of the Property, and removing all exceptions other than the Permitted Liens, together with such endorsements as Buyer (or its permitted assignee) may require.

(i)                                    There not having occurred any Material Adverse Change in: (A) the physical condition of the Assets (reasonable wear and tear excepted); (B) the economic condition of the Facilities (including any material reduction in the census of Residents prior to Closing); (C) the Assets’ individual or aggregate financial performance between the expiration of the Study Period and Closing and (D) the environmental condition of the Property.  As used herein, a “Material Adverse Change” in the physical condition of the Property or Assets (reasonable wear and tear excepted) or environmental condition of the Property or Assets shall mean a change in the physical condition of the Property or Assets (reasonable wear and tear excepted) or an environmental condition that either (i) costs in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate to cure, or (ii) costs less than Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate to cure, but has not been repaired or remediated by Seller prior to Closing.  Seller shall have the right to extend the Closing for thirty (30) days to complete any required repair or remediation.  In either event, if Buyer elects to close notwithstanding the failure of the condition in this Section 16.1(i) being satisfied, Seller shall escrow an amount to be mutually agreed upon to address such matters post-Closing, which amount shall be deposited with the Escrow Agent and held in accordance with the Escrow Agreement.

(j)                                    Buyer shall have received a certificate in the form attached hereto as Exhibit S, executed by Seller, and such other evidence as Buyer may require that the Property is being acquired in a manner consistent with the Foreign Investment in Property Tax Act, as amended.

16.2.                     Conditions Precedent to Seller’ Obligations.  All obligations of Seller under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent (any of which may be waived in writing in whole or in part by Seller):

(a)                                 The representations and warranties of Buyer contained in this Agreement and in any list, certificate, document or written statement furnished by it to Seller in connection with the negotiation, execution or performance of this Agreement shall be true as of the date of execution of this Agreement and shall be true in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made on and as of the Closing Date.

(b)                                 Buyer shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement that are required to be performed or complied with by it prior to or at the Closing.

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(c)                                  Seller shall have received all the Buyer deliveries described in Section 17.2.

(d)                                 Seller shall have received the Cash Consideration balance of the Purchase Price, the Seller Note, the Pledge Agreement, the fully executed assumption of the Vandalia HUD Loan, the Assignment and Assumption Agreement signed by Buyer and a certificate dated the Closing Date and signed by Buyer certifying that the conditions specified in Section 16.2 have been fulfilled.

(e)                                  No suit, action, proceeding or investigation shall have been instituted or threatened by any Governmental Authority, and no injunction shall have been issued and then be outstanding to restrain, prohibit or otherwise challenge the legality or validity of any of the transactions contemplated by this Agreement.

16.3.                     Waiver of Conditions Precedent .  Except as otherwise provided herein, so long as a party is not in default under this Agreement, if any condition to that party’s obligations to proceed with the Closing has not be satisfied as of the Closing Date, the party having the benefit of such condition may, in its sole discretion, terminate this Agreement by delivering written notice to the other party on or before the Closing Date, or elect to close, notwithstanding the non-satisfaction of such condition.  If the party having the benefit of such condition elects to proceed with the Closing, notwithstanding the non-satisfaction of such condition, then, except as provided in Section 16.1(j), the non-satisfied condition shall be deemed to have been waived by the party having the benefit of said condition.

ARTICLE XVII
DELIVERIES AT CLOSING

17.1.                     Seller’s Deliveries.  At Closing, Seller shall deliver to Buyer:

(a)                                 the Deeds referenced in Section 7.1;

(b)                                 the Bills of Sale referenced in Section 7.2(c);

(c)                                  the Assignment and Assumption Agreement referenced in Section 7.2(e);

(d)                                 a schedule, certified by Seller, of rent or Resident occupancy payment arrearages as of Closing;

(e)                                  a closing statement setting forth the prorations and adjustments to be made pursuant to the provisions of this Agreement;

(f)                                   the FIRPTA Affidavit referenced in Section 16.1(k);

(g)                                 the owner’s affidavit required by the Title Insurer in order to permit the Title Insurer to omit from Buyer’s policy the exceptions for (i) parties in possession, (ii) mechanic’s liens and (iii) any other standard exceptions;

(h)                                 all Records and Property Information;

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(i)                                    any and all keys, locks and safe combinations, training and instruction manuals in Seller’s possession, custody or control relating to the maintenance and operation of the Facilities;

(j)                                    the Resident Trust Funds;

(k)                                 letters addressed to the Residents and to parties under the Assumed Service Contracts, advising them of the transfer of the Facilities to Buyer, the letters to the Residents which shall be in form that meets with the reasonable satisfaction of Seller and Buyer;

(l)                                    evidence of the termination of such Service Contracts not assumed by Buyer;

(m)                             evidence of the authority of the incumbency of any individuals to execute any instruments executed and delivered by Seller at Closing;

(n)                                 a certificate executed by Seller that all of the representations and warranties set forth in Section 13.1 of this Agreement are true and correct in all material respects of the Closing Date; and

(o)                                 such other documents as shall be required to consummate the transactions contemplated herein.

17.2.                     Buyer’s Deliveries.  At Closing, Buyer shall deliver to Seller:

(a)                                 the Purchase Price;

(b)                                 the Seller Note and Pledge Agreement;

(c)                                  the Bills of Sale referenced in Section 17.1 (b);

(d)                                 the Assignment and Assumption Agreement referenced in Section 17.1(c);

(e)                                  the Assumption of the Vandalia HUD Loan;

(f)                                   a certificate executed by Buyer that all of the representations and warranties set forth in Section 13.2 of this Agreement are true and correct in all material respects of the Closing Date; and

(g)                                 such other documents as shall be required to consummate the transactions contemplated herein.

ARTICLE XVIII
CASUALTY AND CONDEMNATION

18.1.                     Casualty.  In the event that the Property is damaged or destroyed by any fire, flood or other casualty after the date of this Agreement or prior to Closing, Seller shall give Buyer prompt written notice of the damage.  If the damage is not material, then Seller shall use its commercially reasonable efforts to commence repairs prior to the Closing. If such repairs

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have not been completed prior to Closing, Buyer shall complete such repairs subsequent to Closing, at Seller’s expense.  The parties shall agree on an amount to be escrowed prior to closing in connection with such repairs.  If the casualty causes material damage, then Buyer may elect by notice to Seller within ten (10) days after Buyer is notified of such damage to either (A) proceed in the same manner as in the case of damage that is not material, (B) to terminate this Agreement or (C) proceed to Closing, provided that Seller shall then assign to Buyer its rights to all insurance proceeds and any other claims or rights with respect to such damage, and any difference between such proceeds and the estimated cost of repair of the damage (as reasonably estimated by Seller’s insurance company) shall be credited to Buyer at the Closing against the Purchase Price.  If Buyer terminates this Agreement pursuant to this Section 18.1, then the Deposit and all interest thereon shall be returned to Buyer and neither party shall have any further obligation to each other except as provided in Sections 15.1(c) (relating to damages to property) and 22.1 (relating to broker’s commissions).  Damage as to any one or more occurrences is “material” if the cost to repair the damage, as reasonably estimated by Seller’s engineer or expert, exceeds Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate.  Buyer shall have the right to participate in the negotiations and settlement of any casualty-related claim in the event Buyer elects or is otherwise obligated to proceed with Closing.

18.2.                     Condemnation.  If before Closing any of the Property is taken by condemnation or if any formal notice of a condemnation is issued to Seller, Seller shall promptly notify Buyer.  If the condemnation is of a significant portion of the Property or would materially and adversely affect Buyer’s ability to use and enjoy the Property, Buyer may, within fifteen (15) days after Seller notifies Buyer of any condemnation, terminate this Agreement by giving Seller written notice thereof, in which event the Deposit shall be returned to Buyer and the parties shall have no further liability to each other hereunder, except for Buyer’s obligations under Sections 15.1(c) (relating to damages to property) and 22.1 (relating to broker’s commissions) which shall survive such termination.  If Seller gives notice to Buyer and Buyer does not terminate this Agreement, the Purchase Price shall not be reduced, but at Closing Seller shall pay to Buyer any award made for such condemnation which is received by Seller before Closing, and assign to Buyer all of Seller’s interest in any award made for condemnation after Closing.  Buyer shall have the right to participate in the negotiations and settlement of any condemnation claim in the event Buyer elects or is otherwise obligated to proceed with Closing.

ARTICLE XIX
DEFAULT

19.1.                     Rights.  On any default, the non-defaulting party may, by notifying the defaulting party, either postpone Closing for as long as is necessary for such default to be cured, but not beyond the Outside Closing Date, or declare such default and exercise its rights under this Section.

19.2.                     Buyer Default.  If Buyer is the defaulting party, Seller shall be entitled, as its sole and exclusive remedy on account of such default, to terminate this Agreement and receive payment of the Deposit as liquidated damages, the parties hereby agreeing that they have considered carefully the loss to Seller that would be a consequence of such default and that such sum is a reasonable estimate of that loss.  Without limiting the foregoing, Seller shall under no

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circumstances have, and Seller hereby waives any right to seek against Buyer or any other person, damages or specific performance of any or all of Buyer’s obligations hereunder.  If Seller terminates this Agreement pursuant to this Section, this Agreement shall automatically terminate and the parties shall have no further obligation to each other, except for Buyer’s and Seller’s obligations under Sections 15.1(c) (relating to damages to property) and 22.1 (relating to broker’s commissions), which shall survive such termination.

19.3.                     Seller Default.  If Seller is the defaulting party, Buyer shall be entitled, after such declaration of default to (a) to seek specific performance and compel Seller to convey the Property as required hereunder, or (b) terminate this Agreement.  If Buyer terminates this Agreement pursuant to this Section, Seller shall pay to Buyer the reasonable out-of-pocket costs it has incurred in connection with this Agreement and the attempted acquisition of the Property, including all third-party costs incurred before, during and after the Study Period as well as its reasonable attorneys’ fees (including fees of both outside and in-house counsel). If the parties determine prior to Closing that Seller has breached a representation set forth in Section 13.1, the parties may close without prejudice to any remedies Buyer may have with respect to same.

ARTICLE XX
FURTHER ASSURANCES AND AGREEMENTS TO MODIFY

20.1.                     Further Assurances and Agreements to Modify Transaction Structure.  From and after the Closing, Seller, on the one hand, and Buyer, on the other hand, agree to execute and deliver such further documents and instruments and to do such other acts and things (including the making of filings), as Buyer or Seller, as the case may be, may reasonably request in order to effectuate the transactions contemplated by this Agreement.  In the event any party shall be involved in litigation, threatened litigation or government inquires with respect to a matter involving Seller, the other parties shall also make available to such first party, at reasonable times and subject to the reasonable requirements of their or its own business, such of their or its personnel as may have information relevant to the matters.  Following the Closing, the parties will cooperate with each other in connection with Tax audits and in the defense of any legal proceedings, consistent with the other provisions for defense of claims provided in Sections 21.4 or 21.5 of this Agreement, and to facilitate the collection of any accounts receivable, to the extent such cooperation does not cause unreasonable expense, unless such expense is borne by the requesting party.

20.2.                     Access to the Records.  From and after the Closing Date, Buyer shall allow Seller and its agents and representatives to have reasonable access to (upon reasonable prior notice and during normal business hours), and to make copies of the Records, to the extent reasonably necessary to enable Seller to among other things investigate and defend malpractice, employee or other claims, to support medical review requests from Medicare, to support Medicare claims appeals, to file or defend cost reports and tax returns, to complete/revise, as needed, any patient assessments which may be required for Seller to seek reimbursement for services rendered prior to the Closing Date, to verify accounts receivable collections due Seller, to file exceptions to the Medicare routine cost limits for the cost reporting periods prior to the Closing Date and to enable Seller to complete, in accordance with Seller’s policies and procedures, any and all post Closing Date accounting, reconciliation and closing procedures, including, but not limited to, a month end close out of all accounts, including but not limited to

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accounts payable and Medicare billing.  Seller agrees not to use or disclose any of the information obtained from Buyer except solely for the purposes described herein and further agrees to maintain this information confidential.  Likewise, from and after the Closing Date, Seller shall allow Buyer and its agents reasonable access to the Records, to the extent Buyer reasonably requires such access in connection with, without limitation, accounting, billing, tax filings or securities filings, Medicare and/or Medicaid filings and appeals.  Buyer agrees not to use or disclose any of the information obtained from Seller except solely for the purposes described herein and further agrees to maintain this information as confidential.

ARTICLE XXI
INDEMNIFICATION

21.1.                     Indemnification by Seller.  Seller shall indemnify, defend and hold Buyer and each of the directors, officers, shareholders, agents and employees of Buyer and any Affiliate thereof harmless at all times from and after the Closing Date against and in respect of any and all damages, losses, liabilities, taxes and deficiencies and penalties and interest thereon and costs and expenses (including attorneys fees and costs) (collectively, “Damages”) resulting from:

(a)                                 any misrepresentation or breach of any representation or warranty or non-fulfillment of any covenant or provision on the part of Seller under this Agreement;

(b)                                 any Obligations of Seller or any Obligation with respect to the Assets or the Business, except for Obligations arising on or after the Closing Date or that are expressly assumed by Buyer hereunder;

(c)                                  any claim or litigation relating to the Excluded Assets;

(d)                                 any claim or litigation relating to any of Seller’s Obligations;

(e)                                  any claims or litigation relating to Seller now pending or threatened or which may hereafter be brought against Buyer based upon events occurring prior to the Closing Date; and

(f)                                   any and all actions, suits, proceedings, claims, demands, assessments, judgment, costs (including reasonable attorneys fees), losses, liabilities and reasonable legal fees and other expenses incurred by Buyer incident to any of the foregoing.

21.2.                     Indemnification by Buyer.  Buyer shall indemnify, defend and hold Seller and each of the directors, officers, shareholders, agents and employees of Seller and any Affiliates thereof harmless at all times from and after the Closing Date against and in respect of any and all Damages resulting from:

(a)                                 any misrepresentation or breach of any representation or warranty or non-fulfillment of any covenant or provision on the part of Buyer under this Agreement;

(b)                                 any Obligations expressly assumed by Buyer hereunder;

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(c)                                  any claims or litigation relating to Buyer which may hereafter be brought against Seller, based upon events occurring on or after the Closing Date and not directly caused by Seller or relating to a matter for which Seller provides indemnification under Section 21.1; and

(d)                                 any and all actions, suits, proceedings, claims, demands, assessments, judgment, costs (including reasonable attorneys fees), losses, liabilities and reasonable legal fees and other expenses incurred by Seller incident to any of the foregoing.

21.3.                     Period of Indemnity.  The aforesaid indemnities under Sections 21.1 and 21.2, shall remain in full force and effect: (a) as they relate to a third-party claim against the indemnified party for a period equal to the applicable statute of limitation for such claim; and (b) as they relate to breaches of representations, warranties or covenants made by Indemnifying Party for the period provided in Section 13.3 provided, however, if at the expiration of the appropriate period any claim or assessment for indemnification has been asserted but not fully determined, or any audit or other proceeding with respect to any tax matter has been initiated, such period will be extended as to such claim, assessment, audit or other proceeding until it is finally determined or concluded.

21.4.                     Notice to the Indemnifying Party.  Within thirty (30) days after the assertion of any claim by a third-party or occurrence of any event which may give rise to a claim for indemnification from a party (the “Indemnifying Party”) under this Article XXI, the other party (the “Indemnified Party”) shall notify the Indemnifying Party in writing of such claim and, with respect to claims by third parties, advise the Indemnifying Party whether the Indemnified Party intends to contest same; provided, however, failure to provide such notice shall not in any way serve to waive or diminish the indemnification rights of the Indemnified Party.  Notwithstanding the foregoing, any inadvertent delay in notifying the Indemnifying Party shall in no case prejudice the rights of the Indemnified Party under this Agreement except to the extent the Indemnifying Party shall actually be prejudiced by such failure.

21.5.                     Rights of Parties to Settle or Defend.  If the Indemnified Party determines not to contest such claim, the Indemnifying Party shall have the right, at its own expense, to contest and defend against such claim.  If the Indemnified Party determines to contest such claim, the Indemnifying Party shall have the right to be represented, at its own expense by its own counsel and accountants, their participation to be subject to the reasonable direction of the Indemnified Party.  In either case, the Indemnified Party shall make available to the Indemnifying Party and its attorneys and accountants, at all reasonable times during normal business hours, all books, records, and other documents in its possession relating to such claim.  The party contesting any such claim shall be furnished all reasonable assistance in connection therewith by the other party.  If the Indemnifying Party fails to undertake the defense of, or settle or pay, any such third-party claim within ten (10) days after the Indemnified Party has given written notice to the Indemnifying Party advising that the Indemnified Party does not intend to contest such claim, or the Indemnifying Party, after having received such notification from the Indemnified Party, fails forthwith to defend, settle or pay such claim, then the Indemnified Party may take any and all necessary action to dispose of such claim, including, without limitation, the settlement or full payment thereof upon such terms as it shall deem appropriate, in its sole discretion, subject to the following with respect to any proposed settlement thereof.

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21.6.                     Settlement Proposals.  In the event the Indemnified Party desires to settle any such third-party claim (whether or not contested by the Indemnifying Party), the Indemnified Party shall advise the Indemnifying Party of the amount it proposes to pay in settlement thereof and the terms of the settlement thereof (the “Proposed Settlement”).  If such Proposed Settlement is unsatisfactory to the Indemnifying Party, it shall have the right, at its own expense, to contest such claim by giving written notice of such election to the Indemnified Party within ten (10) days after the Indemnifying Party has been advised of the Proposed Settlement.  If the Indemnifying Party does not deliver such written notice within ten (10) days after the Indemnifying Party has been advised of the Proposed Settlement, the Indemnified Party may offer the Proposed Settlement to the third-party making such claim.  If the Proposed Settlement is not accepted by the party making such claim, any new Proposed Settlement figure which the Indemnified Party may wish to present to the party making such claim shall first be presented to the Indemnifying Party who shall have the right, subject to the conditions hereinabove set forth in this Section 21.6, to contest such claim.  In all such events, the Indemnifying Party shall indemnify the Indemnified Party and hold it harmless against and from any and all costs of defense, payment or settlement, including reasonable attorneys’ fees incurred in connection therewith.

21.7.                     Reimbursement.  At the time that the Indemnified Party shall suffer a loss because of a breach of any warranty, representation or covenant by the Indemnifying Party or at the time the amount of any liability on the part of the Indemnifying Party under this Article XXI is determined (which in the case of payments to third persons shall be the earlier of: (a) the date of such payments; or (b) the date that a court of competent jurisdiction shall enter a final judgment, order or decree (after exhaustion of appeal rights establishing such liability), the Indemnifying Party shall forthwith, upon notice from the Indemnified Party, pay to the Indemnified Party, the amount of the indemnity claim.  If such amount is not paid forthwith, then the Indemnified Party may, at its option, take legal action against the Indemnifying Party for reimbursement in the amount of its indemnity claim.

21.8.                     Limitations on Indemnification Obligations of Seller.  Seller’s indemnification obligations pursuant to this Article XXI are subject to the following conditions precedent and limitations:

(a)                                 Buyer shall not be entitled to recover under Section 21.1 until the aggregate amount which Buyer would recover under Section 21.1, but for this Section 21.8, exceeds One Hundred Thousand Dollars ($100,000.00) in the aggregate, in which event, subject to the further limitations of this Section, Buyer shall be entitled to recovery for all Damages up to a maximum amount of Three Million Six Hundred Thousand Dollars ($3,600,000.00) including the first One Hundred Thousand Dollars ($100,000.00).  Buyer shall be entitled to offset such Damages up to the maximum amount set forth in the preceding sentence against amounts otherwise due Seller under the Seller Note.  Notwithstanding the foregoing, there shall be no maximum amount for any Damages incurred by Buyer as a result of Seller’s fraud, bad faith or intentional misconduct.

(b)                                 For purposes of Section 21.8, in computing any individual or aggregate amounts of Damages to which Buyer is entitled, the amount of such Damages shall be an

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amount:  (i) net of any tax benefit actually recognized by Buyer; and (ii) net of any cash insurance proceeds actually received by Buyer with respect thereto.

ARTICLE XXII
COMMISSIONS

22.1.                     Commissions.  Seller represents that, in connection with the sale of the Property, it has not used the services of any broker.  Buyer represents that, in connection with the sale of the Property, it has not used the services of any broker.  Subject to the foregoing, each party represents to the other that, in connection with such sale, the party so representing has not dealt with any other real estate broker, agent or finder, and there is no commission or other compensation due on account thereof.  Each party shall indemnify and hold harmless the other against and from any inaccuracy in such party’s representation.  The rights and obligations of the parties under this Section shall survive Closing or any termination of this Agreement before Closing.  Each party shall be responsible for the fees of their respective advisors and consultants.

ARTICLE XXIII
MISCELLANEOUS

23.1.                     Effectiveness.  This Agreement shall become effective on its execution and delivery by each party.

23.2.                     Complete Understanding.  This Agreement represents the complete understanding between the parties as to the sale of the Property, and supersedes all prior written or verbal negotiations or agreements as to the Assets, the condition thereof or any other matter whatsoever, made by any broker, agent, employee or other person representing or purporting to represent either party.

23.3.                     Waiver.  No party shall be deemed to have waived the exercise of any right which it holds under this Agreement unless such waiver is made expressly and in writing.  No delay or omission by any party in exercising any right shall be deemed a waiver of its future exercise.  No waiver made as to any instance involving the exercise of any right shall be deemed a waiver as to any other instance, or any other right.

23.4.                     Applicable Law.  This Agreement shall be given effect and construed by application of the law of the State of Ohio.  Any action arising hereunder shall be brought in the courts of Ohio, except that if it is to be brought in a United States District Court, it shall be brought in the United States District Court for the Southern District of Ohio.

23.5.                     Notices.  Any notice to be provided hereunder to a party or the Title Insurer, as Escrow Agent, shall be in writing, and shall be deemed to have been provided forty-eight (48) hours after being sent as certified or registered mail in the United States mails, postage prepaid, return receipt requested, or the next Business Day after having been deposited with a national courier service, or on having been sent by immediate electronic communication, in each case if receipt is acknowledged or confirmed or delivery is first refused, to the persons and addresses set forth below, as such address may be changed from time to time by notice to the other party.

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If intended for Seller to:

AdCare Health Systems, Inc.

Two Buckhead Plaza

3050 Peachtree Road NW, Suite 355

Atlanta, GA 30305

Attention:  Boyd P. Gentry

with a copy to:

Holt Ney Zatcoff & Wasserman, LLP

100 Galleria Parkway, Suite 1800

Atlanta, Georgia 30339

Attention:  Gregory P. Youra, Esq.

If intended for Buyer to:

CHP Acquisition Company LLC

Easton Town Center

4100 Regent St., Suite F

Columbus, Ohio  43219

Attention:  Roger C. Vincent, President

with a copy to:

Roetzel & Andress, LPA

155 East Broad Street, 12th Floor

Columbus, Ohio 43215

Attention:  Jeffrey Fromson, Esq.

If intended for the Escrow Agent, to:

Hummel Title Agency

2154 East Main Street, Suite 301

Columbus, Ohio  43209

Attention:  Jeffrey D. Meyer, Esq.

23.6.                     Waiver of Jury Trial.  THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

23.7.                     Construction.  All references made in the neuter, masculine or feminine gender shall be deemed to have been made in all such genders; and in the singular or plural number shall be deemed to have been made, respectively, in the plural or singular number as well.

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23.8.                     Exhibits.  Each writing or plat referred to as being attached as an Exhibit is hereby made a part of this Agreement.

23.9.                     Severability.  No determination that any provision of this Agreement is invalid or unenforceable in any instance shall affect the validity or enforceability of any other such provision, or that provision in any circumstance not controlled by such determination.  Each provision shall be valid and enforceable to the fullest extent allowed by, and shall be construed wherever possible as being consistent with, applicable law.

23.10.              Time of essence.  Time shall be of the essence of this Agreement.

23.11.              Counterparts.  This Agreement may be signed in counterparts, all of which when taken together shall constitute the one and same original.

23.12.              Facsimile Signatures.  The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes.  Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

23.13.              Construction.  Each party hereto hereby acknowledges that all parties hereto participated equally in the negotiation and drafting of this Agreement and that, accordingly, no court construing this Agreement shall construe it more stringently against one party than against the other.

23.14.              Headings.  The headings are used herein for convenience of reference only, and shall not be deemed to vary the content of this Agreement.

23.15.              Attorneys’ Fees.  If either party hereto institutes any proceeding, claim or action, at law or in equity, in connection with or arising out of the terms, conditions, covenants and agreements contained in this Agreement, the non-prevailing party in any such action, claim or proceeding shall reimburse the prevailing party for reasonable attorneys’ fees, costs and other expenses incurred in connection with such proceeding or action.

23.16.              Exclusivity.  Until and unless this Agreement is terminated by Buyer, Seller will not solicit any offers or proposals, or enter into letters of intent, negotiations or contracts with any third-party with respect to a transaction relating to the sale, transfer, conveyance, merger or any other transaction of similar import with respect to Seller or any of the Assets.

23.17.              Assignment.                            Buyer shall not assign any of its rights under this Agreement without first obtaining the Seller’s written consent.  Notwithstanding, if Buyer provides Seller with written notice at least four (4) Business Days prior to Closing, Buyer may assign this Agreement to any entity controlled by Buyer as evidenced by documentation reasonably acceptable to Seller.  Subject to the foregoing provisions of this subsection, this Agreement shall be binding on and inure to the benefit of the parties and their respective successors and assigns in interest hereunder.

[Signature Page on Following Page]

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IN WITNESS WHEREOF, each party has executed this Agreement by its duly authorized representatives, the day and year first above written.

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