Exhibit

EX-99.A(1)II 3 exhibita1ii.htm EXHIBIT 99.A(1)II Exhibit

Exhibit (a)(1)(ii)

LETTER OF TRANSMITTAL

To Purchase for Cash Any and All

10% Convertible Subordinated Notes Due April 30, 2017

ADCARE HEALTH SYSTEMS, INC.

Pursuant to the Offer to Purchase dated December 8, 2016

THE OFFER (AS DEFINED BELOW) WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, AT THE END OF MONDAY, JANUARY 9, 2017, UNLESS EXTENDED AS DESCRIBED HEREIN (SUCH DATE AND TIME, AS THE SAME MAY BE EXTENDED, THE “EXPIRATION TIME”) OR EARLIER TERMINATED. REGISTERED HOLDERS (EACH, A “HOLDER” AND, COLLECTIVELY, THE “HOLDERS”) OF THE CONVERTIBLE NOTES (AS DEFINED BELOW) MUST VALIDLY TENDER (AND NOT VALIDLY WITHDRAW) THEIR CONVERTIBLE NOTES AT OR PRIOR TO THE EXPIRATION TIME IN ORDER TO BE ELIGIBLE TO RECEIVE THE PURCHASE PRICE (AS DEFINED BELOW). TENDERED CONVERTIBLE NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION TIME.

Completed Letters of Transmittal, the original Convertible Notes to be tendered (or a completed Affidavit of Lost Note and Indemnification Agreement with respect thereto, a form of which is attached to this Letter of Transmittal) and any other documents required in connection with tender of the Convertible Notes should be delivered to AdCare Health Systems, Inc. at 454 Satellite Blvd. NW, Suite 100, Suwanee, Georgia 30024, Attention: Corporate Secretary. Any requests for information concerning the Offer, for assistance in connection with the Offer, or for additional copies of the Offer to Purchase or related materials, should be directed to AdCare at the address above or (678) 869-5116.

DELIVERY OF THIS LETTER OF TRANSMITTAL, THE ORIGINAL CONVERTIBLE NOTES TO BE TENDERED OR ANY OTHER DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF ANY OF THE FOREGOING BY FACSIMILE OR EMAIL TRANSMISSION, WILL NOT CONSTITUTE A VALID DELIVERY.

This document relates to the offer (the “Offer”) by AdCare Health Systems, Inc. a Georgia corporation (“AdCare”), to purchase for cash any and all of its outstanding 10% Convertible Subordinated Notes Due April 30, 2017 (the “Convertible Notes”) at a purchase price equal to $1,000 per $1,000 principal amount of Convertible Notes purchased (the “Purchase Price”), plus accrued and unpaid interest on such Convertible Notes, if any, up to, but not including, the Payment Date (as defined in the Offer to Purchase) (“Accrued Interest”), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 8, 2016 (as the same may be amended or supplemented, the “Offer to Purchase”), and this Letter of Transmittal (as the same may be amended or supplemented, the “Letter of Transmittal”). Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Offer to Purchase.

IF YOU DESIRE TO ACCEPT THE OFFER, YOU MUST VALIDLY TENDER (AND NOT VALIDLY WITHDRAW) YOUR CONVERTIBLE NOTES TO ADCARE PRIOR TO THE EXPIRATION TIME.

This Letter of Transmittal must be completed, and its instructions followed, by a Holder desiring to tender Convertible Notes.

Tenders of Convertible Notes may be withdrawn at any time prior to the Expiration Time. For a withdrawal of a tender of Convertible Notes to be effective, AdCare must receive a written notice of withdrawal prior to the Expiration Time, by mail, courier or hand delivery. Any such notice of withdrawal must: (i) specify the name of the Holder who tendered the Convertible Notes to be withdrawn; (ii) contain the identification number of such Convertible Notes (which is set forth on the face of each Convertible Note); (iii) contain a statement that such Holder is withdrawing the election to tender such Holder’s Convertible Notes; and (iv) be signed by the Holder in the same manner as the original signature on such Holder’s Letter of Transmittal, including any required signature guarantee(s), or be accompanied by evidence satisfactory to AdCare that the person withdrawing the tender has succeeded to the beneficial ownership of the Convertible Notes.

For a description of the procedures to follow in order to tender or withdraw the Convertible Notes, see “Procedures for Tendering and Withdrawing Convertible Notes” in the Offer to Purchase and the instructions to this Letter of Transmittal.

In order to properly complete this Letter of Transmittal, a Holder of Convertible Notes must:

• complete the box below entitled “Convertible Notes To Be Tendered”;


•	if appropriate, check and complete the boxes entitled “Special Issuance Instructions” and “Special Delivery Instructions”;


•	sign the Letter of Transmittal by completing the box entitled “Please Sign Here”; and


•	complete an Internal Revenue Service (“IRS”) Form W-9 (or, if applicable, an appropriate IRS Form W-8).

To tender your Convertible Note pursuant to the Offer, you must deliver to AdCare Health Systems, Inc. at 454 Satellite Blvd. NW, Suite 100, Suwanee, Georgia 30024, Attention: Corporate Secretary, by mail, courier or hand delivery, prior to the Expiration Time: (i) this Letter of Transmittal, properly completed, dated and signed (including signatures guaranteed if required), pursuant to the instructions provided in this Letter of Transmittal; (ii) the original Convertible Notes to be tendered (or a properly completed, signed and dated Affidavit of Lost Note and Indemnification Agreement with respect thereto); and (iii) any other documents required by the Letter of Transmittal or the Affidavit of Lost Note and Indemnification Agreement.

Delivery of the Transmittal Letter without the original Convertible Notes to be tendered (or a completed, signed and dated Affidavit of Lost Note and Indemnification Agreement with respect thereto) will not constitute valid delivery.

PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS, AND THE OFFER TO PURCHASE CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL. The instructions included with this Letter of Transmittal must be followed.

AdCare expressly reserves the right, in its sole discretion but subject to applicable law, to: (i) waive any and all of the conditions of the Offer prior to the Expiration Time; (ii) extend the Expiration Time of the Offer; (iii) amend the terms of the Offer; or (iv) if any of the conditions to the Offer are not satisfied, terminate the Offer and not accept for payment any Convertible Notes tendered in the Offer.

THE OFFER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), NOR HAS THE SEC PASSED UPON THE FAIRNESS OR MERITS OF THE OFFER OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THE OFFER TO PURCHASE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THE OFFER TO PURCHASE OR IN THIS LETTER OF TRANSMITTAL AND OTHER MATERIALS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ADCARE OR ANY OTHER PERSON.

[Letter of Transmittal Continues on Following Pages]



CONVERTIBLE NOTES TO BE TENDERED (To Be Completed by All Tendering Holders)
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOX BELOW
If a Holder elects to tender a Convertible Note pursuant to the Offer, then such Holder must tender the entire principal amount of such Convertible Note. Holders may not elect to tender only a portion of the principal balance of a Convertible Note. No partial tenders of a Convertible Note will be accepted. Complete the following with respect to each Convertible Note to be tendered pursuant to the Offer:
	Name of Holder	Identification No. of Convertible Note	Date of Issuance of Convertible Note




NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

[To Be Completed by All Tendering Holders]

Ladies and Gentlemen:

Upon the terms and subject to the conditions of the Offer to Purchase, the undersigned hereby tenders to AdCare the entire principal amount of each of the Convertible Notes identified in the box above entitled “Convertible Notes To Be Tendered.”

Subject to, and effective upon, the acceptance for purchase of, and payment for, the entire principal amount of the Convertible Notes tendered herewith, the undersigned hereby:


•	sells, assigns and transfers to, or upon the order of, AdCare, all right, title and interest in and to all of the Convertible Notes tendered hereby;


•	waives any and all other rights, other than rights under federal securities laws, with respect to such Convertible Notes (including, without limitation, any existing or past defaults and their consequences in respect of such Convertible);

•

releases and discharges AdCare from any and all claims, other than claims under federal securities laws, the undersigned may have now, or may have in the future arising out of, or related to, such Convertible Notes, including, without limitation, any claims that the undersigned is entitled to receive additional principal or interest payments with respect to such Convertible Notes, or to convert the Convertible Notes into shares of AdCare’s common stock; and


•	irrevocably constitutes and appoints AdCare as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Convertible Notes, with full powers of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to:


◦	Transfer to AdCare ownership of such Convertible Notes on the account books maintained by AdCare, together with all accompanying evidences of transfer and authenticity;


◦	present such Convertible Notes for transfer on any other relevant security register; and


◦	receive all benefits or otherwise exercise all rights of beneficial ownership of such Convertible Notes (except the right to receive the Purchase Price and any Accrued Interest for any tendered Convertible Notes that are purchased by AdCare);

all in accordance with the terms and subject to the conditions of the Offer, as described in the Offer to Purchase.

The undersigned acknowledges and agrees that a tender of Convertible Notes pursuant to any one of the procedures described in the Offer to Purchase under the caption “Procedures for Tendering and Withdrawing Convertible Notes” and in the instructions to this Letter of Transmittal will, upon AdCare’s acceptance of such Convertible Notes, constitute a binding agreement between the undersigned and AdCare upon the terms and subject to the conditions of the Offer to Purchase.

The Offer is subject to the conditions set forth in the Offer to Purchase under the caption “Conditions to the Offer.” The undersigned recognizes that as a result of these conditions (which may be waived, in whole

or in part, by AdCare, subject to applicable law) as more particularly set forth in the Offer to Purchase, AdCare may not be required to accept for payment any of the Convertible Notes tendered by this Letter of Transmittal and, in such event, the Convertible Notes not accepted for payment will remain outstanding. If the Convertible Notes tendered hereby are not accepted for payment, or such tender is withdrawn by the Holder, or the Offer is terminated, then the Convertible Notes tendered by the undersigned will be returned to the undersigned as promptly as practicable.

The undersigned hereby represents and warrants that:


•	the undersigned has full power and authority to tender, sell, assign and transfer the Convertible Notes tendered hereby;


•	when such tendered Convertible Notes are accepted for purchase and paid for by AdCare pursuant to the Offer, AdCare will acquire good title thereto, free and clear of all liens, charges, claims, encumbrances, interests and restrictions of any kind; and


•	the undersigned will, upon request, execute and deliver any additional documents deemed by AdCare to be necessary or desirable to complete the sale, assignment and transfer of the Convertible Notes tendered hereby.

No authority conferred or agreed to be conferred by this Letter of Transmittal shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned and any subsequent transferees of the Convertible Notes.

In consideration for the purchase of the Convertible Notes pursuant to the Offer, the undersigned hereby waives, releases, forever discharges and agrees not to sue AdCare or its former, current or future directors, officers, employees, agents, subsidiaries, affiliates, stockholders, predecessors, successors, assigns or other representatives as to any and all claims, demands, causes of action and liabilities of any kind and under any theory whatsoever, whether known or unknown (excluding any liability arising under U.S. federal securities laws in connection with the Offer), by reason of any act, omission, transaction or occurrence, that the undersigned ever had, now has or hereafter may have against AdCare or its former, current or future directors, officers, employees, agents, subsidiaries, affiliates, stockholders, predecessors, successors, assigns or other representatives as a result of or in any manner related to:


•	the undersigned’s purchase, ownership or disposition of the Convertible Notes pursuant to the Offer; and


•	any decline in the value thereof up to and including the Payment Date, and thereafter, to the extent the Holder retains Convertible Notes.

Without limiting the generality or effect of the foregoing, upon the purchase of Convertible Notes pursuant to the Offer, AdCare shall obtain all rights relating to the undersigned’s ownership of Convertible Notes (including, without limitation, the right to all interest payable on the Convertible Notes) and any and all claims relating thereto.

Unless otherwise indicated herein under “Special Issuance Instructions,” the undersigned hereby requests that any Convertible Notes not accepted for purchase be returned to the undersigned. Unless otherwise indicated herein under “Special Payment Instructions,” the undersigned hereby requests that any

checks for payment to be made in respect of the Convertible Notes tendered hereby be issued to the order of, and delivered to, the undersigned.

In the event that the “Special Issuance Instructions” box is completed, the undersigned hereby requests that any Convertible Notes not accepted for purchase be delivered to the person(s) at the address(es) therein indicated. The undersigned recognizes that AdCare has no obligation pursuant to the “Special Issuance Instructions” box to transfer any Convertible Notes from the names of the registered Holder(s) thereof if AdCare does not accept for purchase such Convertible Notes so tendered. In the event that the “Special Payment Instructions” box is completed, the undersigned hereby requests that checks for payment to be made in respect of the Convertible Notes tendered hereby be issued to the order of, and be delivered to, the person(s) at the address(es) therein indicated, subject to provision for payment of any applicable taxes being made.

[Letter of Transmittal Continues on Following Pages]

PLEASE SIGN HERE

(To Be Completed By All Tendering Holders)

This Letter of Transmittal must be signed by the registered Holder(s) exactly as their name(s) appear(s) on the Convertible Note(s) being tendered hereby. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under “Capacity” and submit evidence satisfactory to AdCare of such person’s authority to act. See Instruction 1 below.

X ________________________________________________________________________________

X ___________________________________________________________________________________

Signature(s) of Holder(s) or Authorized Signatory

Dated: ______________________

Name(s): ___________________________________________________________________________

Capacity (full title): ___________________________________________________________________

Address: ___________________________________________________________________________

__________________________________________________________________________________

(Zip Code)

Area Code and Telephone No.: ( ) __________________________________________________

MEDALLION SIGNATURE GUARANTEE

(If required — see Instructions 1 and 2 below)

(Name of Eligible Institution Guaranteeing Signature(s))

___________________________________________________________________________________

(Address (including zip code) and Telephone Number (including area code) of Firm)

___________________________________________________________________________________

(Authorized Signature)

___________________________________________________________________________________

(Printed Name)

___________________________________________________________________________________

(Title)

Dated: ______________________

SPECIAL ISSUANCE INSTRUCTIONS

(See Instructions 1, 2, 4 and 7 below)

To be completed ONLY if Convertible Notes not accepted for purchase are to be returned to an address different from that shown in the box above entitled “Please Sign Here” within this Letter of Transmittal.

Name(s): ___________________________________________________________________________

Address:____________________________________________________________________________

Telephone Number: ___________________________________________________________________

(Tax Identification or Social Security Number)

SPECIAL DELIVERY INSTRUCTIONS

(See Instructions 1, 2, 4 and 7)

Name:______________________________________________________________________________

(Please Print)

Address:____________________________________________________________________________

(Zip Code)

(Taxpayer Identification or Social Security Number)

[Letter of Transmittal continues on Following Pages]

INSTRUCTIONS TO LETTER OF TRANSMITTAL

(Forming part of the terms and conditions of the Offer)

1.Signatures on Letter of Transmittal. This Letter of Transmittal must be signed by the registered Holder(s) exactly as their name(s) appear(s) on the Convertibles Notes being tendered hereby.

If any of the Convertible Notes tendered hereby are registered in the name of two or more Holders, all such Holders must sign this Letter of Transmittal. If any of the Convertible Notes tendered hereby are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Convertible Notes.

If this Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to AdCare of such person’s authority to so act must be submitted.

When this Letter of Transmittal is signed by the registered Holders of the Convertible Notes tendered hereby, no separate instruments of transfer are required unless payment is to be made to a person other than the registered Holders, in which case signatures on such instruments must be guaranteed by an Eligible Institution (as defined below).

2.Signature Guarantees. All signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or FINRA, or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being an “Eligible Institution”) unless: (i) this Letter of Transmittal is signed by the registered Holder(s) tendered hereby; or (ii) such Convertible Notes are tendered for the account of an Eligible Institution.

3.Delivery of Original Convertible Note (or an Affidavit of Lost Note and Indemnification Agreement). To tender your Convertible Note in the Offer, you must, prior to the Expiration Time: (i) properly complete, date, sign and deliver the Transmittal Letter by mail, courier service or hand delivery to AdCare Health Systems, Inc. at 454 Satellite Blvd. NW, Suite 100, Suwanee, Georgia 30024, Attention: Corporate Secretary, pursuant to the instructions provided in the Transmittal Form; and (ii) deliver to AdCare at the foregoing address and in the foregoing manner the original Convertible Note to be tendered (or a completed, signed and dated Affidavit of Lost Note and Indemnification Agreement, a form of which is attached to the Letter of Transmittal). Delivery of the Transmittal Letter without the original Convertible Notes to be tendered (or a completed, signed and dated Affidavit of Lost Note and Indemnification Agreement with respect thereto) will not constitute valid delivery.

4.Transfer Taxes. Except as set forth in this Instruction 4, AdCare will pay or cause to be paid any transfer taxes with respect to the transfer and sale of Convertible Notes to it, or to its order, pursuant to the Offer. If payment is to be made to, or if tendered Convertible Notes are registered in the name of any person(s) other than the person(s) signing this Letter of Transmittal, the amount of any transfer taxes (whether imposed on the Holder(s) or such other person(s) payable on account of the transfer to such other person(s)) will be deducted from the payment (and any remaining amount of transfer taxes will be billed directly to the Holder(s) or such other person(s)) unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted.

5.Questions or Requests for Assistance or Additional Copies. Any questions or requests for assistance concerning the Offer or requests for additional copies of the Offer to Purchase or this Letter of Transmittal may be directed to AdCare Health Systems, Inc. at 454 Satellite Blvd. NW, Suite 100, Suwanee, Georgia 30024, Attention: Corporate Secretary, or (678) 869-5116.

6.No Partial Tenders. A convertible Note may be tendered in the Offer only with respect to the entire principal amount thereof. No partial tenders of a Convertible Note will be accepted. The tendering Holder should complete the box above entitled “Convertible Notes To Be Tendered” with respect to each Convertible Note to be tendered by such Holder. The entire principal amount of the Convertible Notes identified in such box will be deemed to have been tendered.

7. Special Issuance and Special Payment Instructions. Tendering Holders should indicate in the applicable box or boxes the name and address to which Convertible Notes not accepted for purchase or checks for payment of the Purchase Price and Accrued Interest are to be sent or issued, if different from the name and address of the Holder signing this Letter of Transmittal. In the case of payment to a different name, the taxpayer identification or social security number of the person named must also be indicated and an appropriate IRS form for such recipient must be completed. If no instructions are given, Convertible Notes not accepted for purchase will be returned, and checks for payment of the Purchase Price and Accrued Interest will be sent, to the Holder of the Convertible Notes tendered. The undersigned recognizes that AdCare has no obligation pursuant to either of the special instructions boxes if AdCare does not accept for purchase any of the Convertible Notes so tendered or if provision for payment of any applicable transfer taxes is not made.

8.Waiver of Conditions. Subject to applicable law, AdCare reserves the right, in its sole discretion, to amend or waive any or all of the conditions to the Offer on or prior to the Expiration Time.

9.Taxpayer Identification Number: IRS Form W-9 and Form W-8. To prevent backup withholding, each Holder tendering Convertible Notes that is a U.S. person must provide such Holder’s correct taxpayer identification number by completing the enclosed IRS Form W-9, certifying that: (i) the taxpayer identification number provided is correct (or that such Holder is awaiting a taxpayer identification number); (ii)(a) such Holder is exempt from backup withholding, (b) the Holder has not been notified by the IRS that such Holder is subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified the Holder that such Holder is no longer subject to backup withholding; and (iii) the Holder is a U.S. person.

If the Holder tendering Convertible Notes does not have a taxpayer identification number, such Holder should consult the enclosed IRS Form W-9 for instructions on applying for a taxpayer identification number, write “Applied For” in the space for the taxpayer identification number in Part I of the IRS Form W-9, sign and date the IRS Form W-9 and sign and date the Certificate of Awaiting Taxpayer Identification Number. If the Holder tendering Convertible Notes does not provide such Holder’s taxpayer identification number to AdCare prior to payment, backup withholding will apply at a rate of 28%. Note: Writing “Applied For” on the form means that the Holder tendering Convertible Notes has already applied for a taxpayer identification number or that such Holder intends to apply for one in the near future.

If the Convertible Notes are registered in more than one name or are not in the name of the actual owner, consult the instructions on the enclosed IRS Form W-9 for information on which taxpayer identification number to report.

Certain Holders tendering Convertible Notes (including, among others, certain non-U.S. individuals) are not subject to these backup withholding and reporting requirements. To prevent possible erroneous backup withholding, an exempt Holder tendering Convertible Notes that is a U.S. person must enter its correct taxpayer identification number in Part I of the IRS Form W-9 and sign and date the form. See the enclosed IRS Form W-9 for additional instructions. In order for a Holder that is not a U.S. person to qualify as exempt from backup withholding, such person must submit a completed IRS Form W-8BEN (or other appropriate IRS Form W-8), signed under penalty of perjury attesting to such exempt status. Such form (and additional IRS forms) may be obtained from the IRS at its Internet website: www.irs.gov.

If AdCare is not provided with the correct taxpayer identification number or an adequate basis for an exemption, the Holder may be subject to backup withholding of a portion of the reportable payments made with respect to the Convertible Notes and penalties imposed by the IRS. Failure to comply truthfully with the backup withholding requirements also may result in the imposition of criminal and/or civil fines and penalties. Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability of a person subject to backup withholding will be reduced by the amount withheld. If withholding results in an over-payment of taxes, a refund may be obtained if the appropriate information is provided to the IRS in a timely manner.

AdCare reserves the right in its sole discretion to take whatever steps are necessary to comply with its obligation regarding backup withholding.

For a general discussion of the U.S. federal income tax consequences of the Offer, Holders should review the section of the Offer to Purchase entitled “Material U.S. Federal Income Tax Consequences.”

10. Irregularities. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of Convertible Notes pursuant to the procedures described in this Offer to Purchase and the Letter of Transmittal and the form and validity of all documents will be determined by AdCare in its sole discretion. AdCare reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of or payment for which may, upon the advice of counsel for AdCare, be unlawful. AdCare also reserves the absolute right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular Convertible Notes, subject to applicable law. Any determination by AdCare as to the validity, form, eligibility and acceptance of Convertible Notes for payment, or any interpretation by AdCare as to the terms and conditions of the Offer, is subject to applicable law and, if challenged by Holders or otherwise, to the judgment of a court of competent jurisdiction. AdCare is not obligated and does not intend to accept any alternative, conditional or contingent tenders. Unless waived, any irregularities in connection with tenders must be cured within such time as AdCare shall determine. None of AdCare or any of its affiliates or assigns or any other person will be under any duty to give notification of any defects or irregularities in such tenders or will incur any liability to a Holder for failure to give such notification. Tenders of Convertible Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Convertible Notes received by AdCare that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by AdCare to the tendering Holders, unless otherwise provided in the Letter of Transmittal, as promptly as practical following the Expiration Time.

[End of Letter of Transmittal]

AFFIDAVIT OF LOST NOTE

AND INDEMNIFICATION AGREEMENT

TO BE COMPLETED ONLY IF YOU ARE NOT ABLE TO SUBMIT YOUR ORIGINAL CONVERTIBLE NOTE TO BE TENDERED ALONG WITH YOUR LETTER OF TRANSMITTAL. MUST BE COMPLETED, SIGNED AND NOTARIZED. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION, AGENT OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, SUCH PERSON MUST SET FORTH HIS OR HER FULL TITLE BELOW UNDER “CAPACITY” AND SUBMIT EVIDENCE SATISFACTORY TO ADCARE OF SUCH PERSON’S AUTHORITY TO ACT.

The undersigned hereby represents, warrants and agrees as follows:


1.	The following described instrument of AdCare Health Systems, Inc., a Georgia corporation (“AdCare”), was lost or stolen:

10% Convertible Subordinated Note Due April 30, 2017 (No. _________), in the original principal amount of $__________, dated _______________, 2015 (the “Convertible Note”), and registered in the name of _________________________ (“Holder”).


2.	That the sole and unconditional record owner of the Convertible Note is Holder.


3.	That the Convertible Note was neither endorsed nor assigned by Holder or, to Holder’s knowledge, by anyone else.

That neither the Convertible Note, nor any interest therein has been sold, assigned, endorsed, transferred, deposited under any agreement, hypothecated, pledged, or disposed of in any manner by or on behalf of Holder; that neither Holder nor anyone on Holder’s behalf has signed any power of attorney, any stock power or any other assignment or authorization respecting the Convertible Note; and that no person, firm or corporation has any right, title, claim, equity or interest in, to or respecting the Convertible Note, except Holder as the sole owner.

That this Affidavit of Lost Note and Indemnification Agreement (the “Affidavit”) is made for the purpose of inducing AdCare to accept the Holder’s tender of the Convertible Note in connection with AdCare’s offer (the “Offer”) to purchase for cash any and all of its outstanding 10% Convertible Subordinated Notes Due April 30, 2017 at a purchase price equal to $1,000 per $1,000 principal amount thereof, plus accrued and unpaid interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 8, 2016 (as the same may be amended or supplemented).


6.	Holder hereby agrees to immediately surrender the Convertible Note to AdCare for cancellation without consideration should it at any time come into the possession or control of Holder.


7.	To induce AdCare to accept this Affidavit in place of the lost Convertible Note in connection with Holder’s acceptance of the Offer, Holder and its successors and assigns shall at all times indemnify

and hold harmless AdCare and its directors, officers, agents, successors and assigns from and against any and all claims, actions and suits, whether groundless or otherwise, and from and against any and all losses, damages, judgments, costs, charges, counsel fees, payments, expenses and liabilities whatsoever, which any of such indemnitees at any time shall or may sustain or incur (i) by reason of any claim which may be made in respect of the Convertible Note, or (ii) by reason of any payment, transfer, exchange, delivery or other act which any indemnitee hereunder may make or do in respect of the Convertible Note, whether made or done through accident, oversight or neglect, or whether made or done upon presentation thereof without contesting, inquiring into or litigating the propriety of such payment, transfer, exchange, delivery or other act.


8.	It is understood and agreed that in case the Convertible Note shall be recovered by anyone, then this Affidavit may be immediately enforced. This Affidavit shall be deemed a continuing obligation and successive recoveries may be had thereon for the various matters in respect of which any indemnitee shall from time to time become entitled to be indemnified.


9.	This Affidavit shall be governed by the laws of the State of Georgia as such laws are applied to contracts between Georgia residents entered into and to be performed entirely in Georgia.

[Signature Page to Affidavit of Lost Note and Indemnification Agreement Follows]

IN WITNESS WHEREOF, Holder has executed, or caused to be executed, this Affidavit of Lost Note and Indemnification Agreement as of the date set forth below.

HOLDER:

(Signature of Holder or Authorized Signatory)

Dated:_________________

(Printed Name)

(Capacity, full title)

(Address)

(Telephone No.)

State of ___________________________

County of __________________________

Signed before me this ____ day of __________, 201__, by _______________________________

(Holder/Signer Name)

Personally Known __________