Exhibit 10.42

 

EMPLOYMENT AGREEMENT

 

between

 

AdCare Health Systems, Inc. (the “Company”)

 

and

 

Martin D. Brew (the “Officer”)

 

This Employment Agreement (“Agreement”) is entered into August 6, 2012, to be
effective July 1, 2012 (the “Effective Date”).

 

Background

 

The Company employs the Officer as of the Effective Date as Senior Vice
President, Chief Financial Officer and Treasurer of the Company and desire to
enter into this Agreement to reflect the terms and conditions of the Officer’s
employment.

 

Statement of Agreement

 

For good and valuable consideration (including the respective obligations of the
parties hereunder), the receipt and adequacy of which are hereby acknowledged,
the parties hereto agree as of the Effective Date as follows:

 

Section 1.                                            Employment.  For the
purposes and upon the terms and conditions hereinafter set forth, the Company
agrees to employ the Officer and the Officer accepts such employment.  The
Officer’s employment shall be based in the Atlanta, Georgia greater metropolitan
area, subject to business travel as necessary.  The Company shall provide the
Officer with an office that is initially based in Atlanta, Georgia at its Two
Buckhead Plaza, 3050 Peachtree Road location.

 

Section 2.                                            Duties.  The Officer shall
be employed by the Company or one of its wholly owned subsidiaries during the
Employment Term (as defined in Section 5(a)).  The Officer shall be employed by
the Company as of the Effective Date, as Senior Vice President, Chief Financial
Officer and Treasurer of the Company.  The Officer shall report as of the
Effective Date to the Chief Executive Officer.  The Company reserves the right
to change the Officer’s job position(s) or the position to which the Officer
reports, but any such change shall not affect any other provision of this
Agreement, including without limitation, the provisions of Section 3(a).  The
Officer shall devote such time, attention and energy to the business of the
Company and the performance of his duties hereunder as are necessary to properly
perform his duties hereunder.  The Officer represents that his entry into, and
performance of services under, this Agreement does not violate the terms of any
other agreement.  The Officer also represents and warrants that he is bound by
no agreement that would in any way restrict his ability to perform his duties
for the Company.  The Officer will be expected to carry out his duties with the
highest degree of ethical and moral standards and to comply with all terms and
conditions regarding the nature and manner in carrying out his duties as may be
established from time to time by the Company and set forth in its employee
handbook or manual.

 

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Section 3.                                            Compensation.

 

(a)                                  Salary.  As of the Effective Date, the
Officer shall be paid a salary of $235,000 per year (the “Annual Salary”),
payable in installments on the date of the Company’s regular pay periods or such
other installments as the Officer and the Company from time to time mutually
agree upon.  Effective January 1, 2013, the Officer’s Annual Salary shall be
increased to $250,000 per year provided that he is actively employed in good
standing with the Company as of that date.  Thereafter, the Annual Salary shall
be reviewed at least annually by the Compensation Committee of the Board of
Directors of the Company (the “Compensation Committee”) for possible increases,
and if so increased, the increased amount shall thereafter be deemed to be the
“Annual Salary” for all purposes under this Agreement.

 

(b)                                 Bonus.  The Officer shall be eligible to
earn an annual bonus each year.  The target amount of the annual bonus, based on
reasonably expected performance, shall be seventy-five percent (75%) of the
Executive’s Annual Salary as of December 31st of the year for which the bonus is
awarded (the “Target Bonus”).  The performance criteria for earning the bonus
and the formula for determining the amount of the bonus shall be established by
the CEO and Compensation Committee under the Company’s management incentive plan
for executive officers.  The criteria and the formula for each year will be
provided to the Officer no later than the ninetieth (90th) day of that year. 
The bonus earned shall be paid in the following year as soon as feasible
following the end of the year, but not later than March 30th of the following
year.  The bonus for any year will be earned and accrued and payable only if the
Officer is employed by the Company on the last day of the year for which the
bonus is earned.

 

(c)                                  Equity Compensation.  The Officer shall be
eligible to receive grants of equity compensation at the discretion of the CEO
and Compensation Committee.

 

Section 4.                                            Officer Benefits;
Vacation.  During the Employment Term, the Officer shall be entitled to
participate in life insurance, hospitalization medical insurance, retirement,
and other benefits as are presently or may hereafter be provided to other
executive officers of the Company and paid vacation in accordance with the
Company’s vacation policy for executive officers.  In addition to the benefits
generally available to executive officers of the Company, the Company agrees to
continue to pay the Officer at the rate of 100% of his Annual Salary for a
period of three (3) months after the date of “Disability” and at the rate of 60%
of his Annual Salary as of the date of Disability for an additional twenty-one
(21) months.  For purposes of this Agreement, the term “Disability” means the
inability of the Officer to perform his duties for medical reasons for a period
of ninety (90) days in any three hundred sixty-five (365) day period.  In the
event there is a question as to whether or not the Officer is subject to a
Disability, the Board of Directors of the Company will select a qualified
physician who will make the determination which will be binding on both the
Officer and the Company.

 

Section 5.                                            Term of Employment.

 

(a)                                  The term of this Agreement shall begin on
the Effective Date and remain in effect thereafter while the Officer is employed
by the Company (the “Employment Term”).

 

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(b)                                 The Company and the Officer shall at all
times have the right to terminate the Officer’s employment, in the case of the
Company with or without Cause, and in the case of the Officer with or without
Good Reason, and in either case subject to the terms of this Agreement.  Upon
termination of the Officer’s employment, the Officer shall have no obligation or
duty to further serve the Company in any capacity (other than to comply with the
obligations set forth in Section 6 below), nor shall the Company be under any
obligation or duty to employ the Officer or provide the benefits specified in
Section 4 or make any of the payments provided for in Sections 3 or 4 (except to
the extent any such benefits are required to be provided by this Agreement, the
applicable plan or law, or any such payments under Sections 3 or 4 have accrued
prior to and remain unpaid and owing to the Officer as of the effective date of
such termination).  For purposes of this Agreement, the following terms shall
have the following meanings:  Resignation for “Good Reason” means the Officer’s
resignation within ninety (90) days following the Company’s failure to cure a
material breach of this Agreement within thirty (30) days after the Officer
gives the Company written notice of such breach within ninety (90) days of the
occurrence of such breach.  “Cause” means the Officer’s fraud, dishonesty,
willful misconduct, or gross negligence in his performance of his duties
hereunder, or the Officer’s conviction for a crime of moral turpitude, or
material breach by the Officer of this Agreement which the Officer fails to cure
within thirty (30) days after the Company gives the Officer written notice of
such breach.

 

(c)                                  If the Officer resigns his employment for
Good Reason or the Company terminates the Officer’s employment without Cause
(other than due to the Officer’s Disability) the Officer or his successors and
assigns shall receive the severance pay and benefits hereafter provided.  The
severance pay shall be an amount equal to one (1) times Annual Salary payable in
substantially equal installments at least monthly for twelve (12) months after
the termination date, plus if such termination occurs within three (3) months
before or twenty-four (24) months after the occurrence of a “Change in Control,”
an additional half times Annual Salary plus Target Bonus payable in
substantially equal installments at least monthly for six (6) months beginning
immediately after twelve (12) months following the termination date.  For
purposes of this Agreement, “Change in Control” means one or more sales or
dispositions, within a twelve (12) month period, of assets representing a
majority of the value of the assets of the Company or the acquisition (whether
by purchase or through a merger or otherwise) of common stock of the Company
immediately following which the holders of common stock of the Company
immediately prior to such acquisition cease to own directly or indirectly common
stock of the Company or its legal successor representing more than fifty percent
(50%) of the voting power of the common stock of the Company or its legal
successor.

 

For the period for which severance pay is paid, i.e., twelve (12) or twenty-four
(24) months following termination of employment (the “Severance Period”), the
Officer and his family shall be entitled to continue to be covered under all
employee benefit plans of the Company under which executive officers of the
Company are covered and at the same cost and under the same terms and conditions
as apply to executive officers, provided, however, that if the Company is unable
under applicable law or the insurer will not permit the Officer to be covered
under any such plan, the Company shall pay to the Officer an amount each month
during the Severance Period equal to the Company’s cost of coverage for
similarly situated executive officers.  For purposes of this Agreement,
termination of employment and similar terms means a termination of employment
constituting a “separation from service” within the meaning of Code

 

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Section 409A.  Notwithstanding the foregoing, to the extent necessary to avoid
the Officer incurring a tax under Code Section 409A, any amount that is
otherwise due within six (6) months following termination of employment shall be
delayed until six months after termination of employment.  The provisions
contained in this Section shall survive the termination of the Officer’s
employment.

 

Section 6.                                            Certain Officer
Covenants.  The Officer expressly covenants and agrees to and with the Company
as hereinafter set forth in this Section 6.

 

(a)                                  Non-Competition.  During the Employment
Term, and in the event that the Officer’s employment is voluntarily terminated
by the Officer other than for Good Reason or is terminated by the Company for
Cause, then for a period of twelve (12) months after the date of termination,
the Officer shall not within the Area, directly or indirectly, acting alone or
with others, on behalf of a competitor of the Company undertake to perform
executive management responsibilities similar to those the Officer provides for
the Company during the last twenty-four (24) months of his employment with the
Company.  For purposes of this Agreement “Area” shall be defined as any state in
which any skilled nursing facility or business office owned or operated by the
Company as of the date of the termination of this Agreement.  The foregoing
restrictions shall not, however, prohibit the Officer from performing services
for a division or business unit of a competitor of the Company if such division
or business unit does not provide goods or services competitive with those
offered by the Company.  Notwithstanding anything herein to the contrary, the
provisions of this Section shall not prohibit the Officer from acquiring less
than 1% of the securities of any corporation which competes with the Company and
whose shares are regularly traded on a nationally recognized stock exchange or
over-the-counter market.

 

(b)                                 Prohibition Against Hiring Employees. 
During the Employment Term and for a period of twelve (12) months after the date
of termination, regardless of the reason for termination, the Officer shall not
directly or indirectly solicit for employment, or directly or indirectly assist
others in soliciting for employment, any person employed by the Company whom the
Officer managed or supervised, or with whom the Officer worked directly, during
the then last twelve (12) months of the Officer’s termination of employment,
whether or not such person is a full-time or part-time employee of the Company.

 

(c)                                  Confidential Information.  The Officer
shall receive and hold all Confidential Information and Trade Secrets in trust
for the Company and in the strictest confidence.  Except to the extent required
in the performance of his duties hereunder, the Officer shall not at any time
while he is employed by the Company or after termination of his employment,
directly or indirectly, use, disclose, disseminate or otherwise publish
“Confidential Information” or Trade Secrets.  For purposes of this Agreement,
the term “Confidential Information” means data and information relating to the
business of the Company (whether constituting a Trade Secret or not) which is or
has been disclosed to the Officer or of which the Officer became aware as a
consequence of or through his relationship with Company and which has value to
the Company and is not generally known to the Company’s competitors. 
Confidential Information shall include, without limitation, trade secrets,
methods of operation, names of customers, price lists, financial information,
personnel data and similar information, but shall not include any data or
information which has been voluntarily disclosed to the public by the Company
(except where such disclosure has been made by the Officer without

 

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authorization) or that has been independently developed and disclosed by others,
or otherwise has entered the public domain through lawful means.  “Trade
Secrets” means information of the Company, without regard to form, including,
but not limited to, technical or nontechnical data, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product or service plans or lists of actual or
potential customers or suppliers which is not commonly known by or available to
the public and which information (i) derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.  The restrictions on
use and disclosure of Confidential Information shall survive following the
Officer’s termination of employment for so long as the information remains
Confidential Information as defined by this Agreement.  The restrictions on use
and disclosure of Trade Secrets shall survive following the Officer’s
termination of employment for so long as the information is a trade secret under
applicable law.

 

(d)                                 Return of Information.  Upon termination of
the Officer’s employment for whatever reason, the Officer shall return to or
leave with the Company, without making or retaining copies thereof, all
documents, records, notebooks and similar repositories containing Confidential
Information.

 

(e)                                  Reasonableness of Covenants.  The Officer
has carefully considered the nature and extent of the restrictions upon him and
the rights and remedies conferred upon the Company under this Section 6, and
hereby acknowledges and agrees that, in light of his position, the information
to which he will be privy, and the nature of the business, the restrictions are
reasonable in time and territory, are designed to eliminate unfair competition
to the Company, are fully required to protect the Company’s legitimate
interests, and do not confer a benefit upon the Company disproportionate to any
detriment to the Officer.

 

If the Officer breaches any of the agreements contained in this Section 6, then,
in addition to any other rights or remedies which the Company may have, the
Company shall have the right to an accounting and repayment of all profits or
other benefits directly realized as a result of any such breach, to collect any
damages caused by such breach in addition to those specifically listed herein,
and to enforce any legal or equitable remedy (including injunctive relief) that
it may have against the Officer to prevent further injury to the Company
resulting from such breach.

 

The Officer acknowledges that any breach of the agreements contained in this
Section could cause irreparable harm to the Company.  The Officer acknowledges
that damages in the event of Officer’s breach of this Agreement will be
difficult, if not impossible, to ascertain and therefore it is agreed that the
Company, in addition to, and without limiting any other remedy or right it may
have under this Agreement or the law, will have the right to an injunction
enjoining any such breach.  The Officer agrees to reimburse the Company for all
costs and expenses, including reasonable attorney’s fees, incurred by the
Company because of any breach of this provision, but only in the event that the
Officer fails to cure such breach, within ten (10) days after being provided
written notice thereof by the Company.

 

All covenants and provisions contained in Section 6 shall survive the
termination of the Officer’s employment, regardless of the reason of such
termination.

 

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The Officer acknowledges that the Company recommends that the Officer review
this Agreement with his own legal counsel prior to signing this Agreement and
the Officer confirms that the Officer has had ample opportunity to do so.

 

Section 7.                                            Notices.  Any notice or
other communication required or desired to be given hereunder shall be in
writing and shall be deemed duly given when personally delivered or when
deposited in the United States mail, first class postage prepaid, properly
addressed to the parties at their respective addresses below or such addresses
as shall be given by notice of any party.

 

The Company:

Chief Executive Officer

 

AdCare Health Systems, Inc.

 

Two Buckhead Plaza

 

3050 Peachtree Road NW

 

Suite 355

 

Atlanta, GA 30305

 

 

The Officer:

The most recent address that the Company has on file.

 

Section 8.                                            Actions by the Company. 
Any determination, consent, waiver, agreement, or other action under or with
respect to this Agreement and its implementation of or by the Company shall not
be deemed made, taken or effected hereunder unless made, taken or effected in a
writing signed by a duly authorized officer of the Company.

 

Section 9.                                            Waiver; Remedies
Cumulative.  No waiver of any right or option hereunder by any party shall
operate as a waiver of any other right or option, or the same right or option as
respects any subsequent occasion for its exercise, or of any legal remedy.  No
waiver by any party of any breach of this Agreement or of any agreement or
covenant contained herein shall be held to constitute a waiver of any other
breach or a continuation of the same breach.  All remedies provided by this
Agreement are in addition to all other remedies by it or the law provided.

 

Section 10.                                      Assignment.  This Agreement
shall be binding upon and inure to the benefit of the legal successors of the
Company.  Neither this Agreement nor any rights hereunder shall be assignable
and any such purported assignment by his shall be void and of no force or
effect; provided, however, that in the event of the Officer’s death, any amounts
that are unpaid and owing to the Officer or rights that are exercisable by the
Officer shall be paid to or exercisable by his estate.

 

Section 11.                                      Applicable Law.  This Agreement
shall be governed and construed in accordance with the laws of the State of
Georgia.  Any action for breach or to enforce the terms of this Agreement, or in
any way arising out of or related to Officer’s employment with the company or
this Agreement, including without limitation the covenants and provisions
contained in Section 6, shall be brought in the Superior Court of Fulton County,
Georgia or in a federal court sitting in Atlanta, Georgia, and the parties
hereto each consent to jurisdiction and venue in such courts.

 

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Section 12.                                      Indemnification.  The Company
shall indemnify the Officer for his actions and omissions as an officer and
provide for advancement of expenses in connection therewith to the maximum
extent permitted by its state of incorporation, but not for the Officer’s gross
negligence or willful misconduct.  The Company shall maintain, during the
Employment Term and for at least three (3) years thereafter, an adequate
officer’s liability policy covering the Officer for actions and omissions during
the Employment Term.

 

Section 13.                                      Severability and Judicial
Modification.  The parties agree that each provision of this Agreement is
separate, distinct and severable from the other remaining provisions of this
Agreement, and that the invalidity or unenforceability of any Agreement
provision shall not effect the validity and unenforceability of any other
provision or provisions of this Agreement.  Further, if any provision of this
Agreement is ruled invalid or unenforceable by a court of competent jurisdiction
because of the conflict between such provision and any applicable law or public
policy, it is the intent of the parties that such provision shall be modified by
the Court to the extent appropriate to render the provision reasonable valid and
enforceable.  If any court of competent jurisdiction shall at any time deem the
duration of the restrictions of Section 6, the “Area” as defined in Section 6,
or any provisions of Section 6 unenforceable, the duration of the applicable
restrictions set forth in Section 6 shall be deemed to be the longest duration
permissible by law under the circumstances, the “Area” shall be deemed to
comprise the largest territory permissible by law under the circumstances, and
the remainder of the Agreement shall nevertheless stand.  The court in each case
shall reduce the aforementioned provisions to permissible duration or territory.

 

Section 14.                                      Miscellaneous.  This Agreement
constitutes the entire understanding between the parties concerning the
Officer’s employment with the Company and supersedes any and all previous
agreements between the Officer and the Company concerning such employment. 
Except for judicial modification as set forth in Section 13, this Agreement
cannot be amended or modified in any respect, unless such amendment or
modification is evidenced by a written instrument signed by both the Company and
the Officer.  The captions of the various sections of this Agreement are not a
part of the context hereof, are inserted merely for convenience in locating the
different provisions hereof and shall be ignored in construing this Agreement.

 

The parties have executed multiple counterparts of this Agreement, each of which
shall be deemed to be an original, as of the date set forth at the beginning
hereof.

 

 

THE COMPANY:

 

THE OFFICER:

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

MARTIN D. BREW

 

 

 

 

 

 

 

By:

/s/ Boyd P. Gentry,

 

/s/ Martin D. Brew

 

Boyd P. Gentry,

 

Martin D. Brew

 

President and CEO

 

 

 

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