Document:

exv10w7

Exhibit 10.7

EMPLOYMENT AGREEMENT 

     This Agreement made effective as of June 28, 2010 by and between Advocat Inc., a Delaware
corporation (the “Company”), and William David Houghton (the “Executive”).

     In consideration of the mutual covenants contained in this Agreement, the parties hereby agree
as follows:

SECTION I

EMPLOYMENT

     The Company agrees to employ the Executive and the Executive agrees to be employed by the
Company for the Period of Employment as provided in Section III.A. below and upon the terms and
conditions provided in the Agreement.

SECTION II

POSITION AND RESPONSIBILITIES

     During the Period of Employment, the Executive agrees to serve as Chief Information Officer of
the Company and to be responsible for the typical management responsibilities expected of an
officer holding such positions and such other responsibilities as may be assigned to Executive from
time to time by the Chief Executive Officer and Board of Directors of the Company.

SECTION III

TERMS AND DUTIES

     A. Period of Employment

          The period of Executive’s employment under this Agreement will commence as of the date hereof
and shall continue through March 31, 2012, subject to extension or termination as provided in this
Agreement (“Period of Employment”). On March 31, 2012 and each March 31 thereafter, the period of
Employee’s employment shall be extended for additional one (1) year period, unless either party
gives notice thirty (30) days in advance of the expiration of the then current period of employment
of such party’s intent not to extend the Period of Employment.

     B. Duties

          During the Period of Employment, the Executive shall devote all of his business time,
attention and skill to the business and affairs of the Company and its subsidiaries. The Executive
will perform faithfully the duties which may be assigned to him from time to time by the Chief
Executive Officer and the Board of Directors.

 

 

SECTION IV

COMPENSATION AND BENEFITS

     A. Compensation

          For all services rendered by the Executive in any capacity during the Period of Employment,
the Executive shall be compensated as follows:

          1. Base Salary

               The Company shall pay the Executive a base salary (“Base Salary”) as follows: Two Hundred
Thousand ($200,000) per annum.

               Base Salary shall be payable according to the customary payroll practices of the Company but
in no event less frequently than once each month. The base salary shall be reviewed annually and
shall be subject to increase according to the policies and practices adopted by the Company from
time to time.

     B. Annual Incentive Awards

          The Company will pay the Executive annual incentive compensation awards as may be granted by
the Board or a Compensation Committee to the Executive under any executive bonus or incentive plan
in effect from time to time.

     C. Additional Benefits

          The Executive will be entitled to participate in all compensation or employee benefit plans or
programs and receive all benefits and perquisites for which any salaried employees are eligible
under any existing or future plan or program established by the Company for salaried employees.
The Executive will participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group hospitalization,
health, dental care, life or other insurance, tax qualified pension, car allowance, savings, thrift
and profit sharing plans, termination pay programs, sick leave plans, travel or accident insurance,
disability insurance, and contingent compensation plans including capital accumulation programs,
Restricted Stock programs, stock purchase programs and stock option plans. Nothing in this
Agreement will preclude the Company from amending or terminating any of the plans or programs
applicable to salaried or senior executives as long as such amendment or termination is applicable
to all salaried employees or senior executives. The Executive will be entitled to an annual
four-week paid vacation.

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SECTION V

BUSINESS EXPENSES

     The Company will reimburse the Executive for all reasonable travel and other expenses incurred
by the Executive in connection with the performance of his duties and obligations under this
Agreement.

SECTION VI

DISABILITY

     A. In the event of disability of the Executive during the Period of Employment, the Company
will continue to pay the Executive according to the compensation provisions of this Agreement
during the period of his disability, until such time as Executive’s long term disability insurance
benefits are available. However, in the event the Executive is disabled for a continuous period of
six (6) months after the Executive first becomes disabled, the Company may terminate the employment
of the Executive. In this case, normal compensation will cease except for earned but unpaid Base
Salary and Incentive Compensation Awards which would be payable on a pro-rated basis for the year
in which the disability occurred. In the event of such termination, all unvested stock options
held by Executive shall be deemed fully vested on the date of such termination.

     B. During the period the Executive is receiving payments of either regular compensation or
disability insurance described in this Agreement and as long as he is physically and mentally able
to do so, the Executive will furnish information and assistance to the Company and from time to
time will make himself available to the Company to undertake assignments consistent with his prior
position with the Company and his physical and mental health. If the Company fails to make a
payment or provide a benefit required as part of the Agreement, the Executive’s obligation to
fulfill information and assistance will end.

     C. The term “disability” will have the same meaning as under any disability insurance provided
pursuant to this Agreement or otherwise.

SECTION VII

DEATH

     In the event of the death of the Executive during the Period of Employment, the Company’s
obligation to make payments under this Agreement shall cease as of the date of death, except for
earned but unpaid Base Salary and Incentive Compensation Awards which will
be paid on a pro-rated basis for that year. The Executive’s designated beneficiary will be
entitled to receive the proceeds of any life or other insurance or other death benefit programs
provided in this Agreement.

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SECTION VIII

EFFECT OF TERMINATION OF EMPLOYMENT

     A. If the Executive’s employment terminates due to either a Without Cause Termination or a
Constructive Discharge, as defined later in this Agreement, the Company will pay the Executive in a
lump sum an amount equal to 50% of his Base Salary as in effect at the time of the termination upon
such Termination or Constructive Discharge or, if necessary to comply with Code Section
409A(a)(2)(B)(i), on the six (6) month anniversary of such Termination or Constructive Discharge.
Earned but unpaid Base Salary and Incentive Compensation Awards will be paid in a lump sum upon
such Termination or Constructive Discharge. The benefits and perquisites described in this
Agreement as in effect at the date of termination of employment will be continued for six (6)
months. If the Executive’s employment terminates due to either a Without Cause Termination or a
Constructive Discharge, or pursuant to Section XI, all unvested options, SARS or restricted stock
grants (“Options”) granted to the Executive under the Company’s 2010 Long-Term Incentive Plan or
other stock option program or plan (the “Plan”) shall be deemed vested, and the Company shall cause
the Options to remain exercisable until the later of (i) the fifteenth (15th) day of the
third (3rd) month following the date on which the Options would have expired or (ii)
December 31 of the calendar year in which the Option would have expired.

     B. If the Executive’s employment terminates due to a Termination for Cause, earned but unpaid
Base Salary will be paid on a pro-rated basis for the year in which the termination occurs. No
other payments will be made or benefits provided by the Company.

     C. Upon termination of the Executive’s employment other than for reasons due to death,
disability, or pursuant to Paragraph A of this Section or Section XI, the Period of Employment and
the Company’s obligation to make payments under this Agreement will cease as of the date of the
termination except as expressly defined in this Agreement.

     D. For this Agreement, the following terms have the following meanings:

          1. “Termination for Cause” means termination of the Executive’s employment by the Company’s
Board of Directors acting in good faith by the Company by written notice to the Executive
specifying the event relied upon for such termination, due to the Executive’s serious, willful
misconduct with respect to his duties under this Agreement, including but not limited to conviction
for a felony or perpetration of a common law fraud, which has resulted or is likely to result in
material economic damage to the Company.

          2. “Constructive Discharge” means termination of the Executive’s employment by the Executive
due to a failure of the Company to fulfill its obligations under this Agreement in any material
respect including any reduction of the Executive’s Base Salary or
 other compensation other than reductions applicable to all employees of the Company or failure to
appoint or reappoint the Executive to the position specified in Section II hereof, or other
material change by the Company in the functions, duties or responsibilities of the position which
would reduce the ranking or level, responsibility, importance or scope of the position. The
Executive will provide the Company a written notice which describes the circumstances being

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relied on for the termination with respect to the Agreement within ninety (90) days after the event
giving rise to the notice. The Company will have thirty (30) days to remedy the situation prior to
the Termination for Constructive Dismissal.

          3. “Without Cause Termination” means termination of the Executive’s employment by the Company
other than due to death, disability, Termination for Cause or pursuant to Section XI.

     E. Stock Option Repurchase.

          If the Executive’s employment terminates due to either a Without Cause Termination or a
Constructive Discharge or pursuant to Section XI, Executive may require the Company to repurchase
any Options for an amount equal to the difference between the fair market value of a share of the
Company’s common stock on the date of termination and the per share exercise price set forth in the
Options, times the number of shares (whether vested or unvested) granted to the Executive under the
Options.

SECTION IX

OTHER DUTIES OF THE EXECUTIVE DURING

AND AFTER THE PERIOD OF EMPLOYMENT

     A. The Executive will, with reasonable notice during or after the Period of Employment,
furnish information as may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is or may become a
party.

     B. The Executive recognizes and acknowledges that all information pertaining to the affairs,
business, clients, customers or other relationships of the Company, as hereinafter defined, is
confidential and is a unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive’s duties under this Agreement. The
Executive will not during the Period of Employment or after except to the extent reasonably
necessary in performance of the duties under this Agreement, give to any person, firm, association,
corporation or governmental agency any information concerning the affairs, business, clients,
customers or other relationships of the Company except as required by law. The Executive will not
make use of this type of information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best efforts to prevent the
disclosure of this information by others. All records, memoranda, etc. relating to the business of
the Company whether made by the Executive or otherwise coming into his possession are confidential
and will remain the property of the Company.

     C. During the Period of Employment and for a twelve (12) month period thereafter, the
Executive will not use his status with the Company to obtain loans, goods or services from another
organization on terms that would not be available to him in the absence of his relationship to the
Company. During the Period of Employment and for a twelve (12) month period following termination
of the Period of Employment, other than termination due to a Without Cause Termination, a
Constructive Discharge or termination pursuant to Section XI: the

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Executive will not make any statements or perform any acts intended to advance the interest of
any existing or prospective competitors of the Company in any way that will injure the interest of
the Company; the Executive without prior express written approval by the Board of Directors of the
Company will not directly or indirectly own or hold any proprietary interest in or be employed by
or receive compensation from any party engaged in the same or any similar business in the same
geographic areas the Company does business; and the Executive without express prior written
approval from the Board of Directors, will not solicit any members of the then current clients of
the Company or discuss with any employee of the Company information or operation of any business
intended to compete with the Company. For the purposes of the Agreement, proprietary interest
means legal or equitable ownership, whether through stock holdings or otherwise, of a debt or
equity interest (including options, warrants, rights and convertible interests) in a business firm
or entity, or ownership of more than 5% of any class of equity interest in a publicly-held company.
The Executive acknowledges that the covenants contained herein are reasonable as to geographic and
temporal scope. For a twelve (12) month period after termination of the Period of Employment for
any reason, the Executive will not directly or indirectly hire any employee of the Company or
solicit or encourage any such employee to leave the employ of the Company.

     D. The Executive acknowledges that his breach or threatened or attempted breach of any
provision of this Section IX would cause irreparable harm to the Company not compensable in
monetary damages. Accordingly, the Company shall be entitled, in addition to all other applicable
remedies, to equitable relief in any court of competent jurisdiction to prevent or otherwise
restrain or terminate any actual or threatened breach, default or violation by the Executive of any
provision contained in this Section IX or to enforce any such provision.

     E. The Executive shall not be bound by the provisions of Section IX in the event of the
default by the Company in its obligations under this Agreement which are to be performed upon or
after termination of this Agreement.

SECTION X

INDEMNIFICATION, LITIGATION

     The Company will indemnify the Executive to the fullest extent permitted by the laws of the
state of incorporation in effect at that time, or certificate of incorporation and by-laws of the
Company whichever affords the greater protection to the Executive. The Executive will be entitled
to any insurance proceeds related to any award, or any fees or expenses incurred in connection with
any action, suit or proceeding to which he may be made a party by reason of being a director or
officer of the Company.

SECTION XI

CHANGE IN CONTROL

     In the event there is a Change in Control of the ownership of the Company and within the six
(6) month period following such event, the Company terminates the Executive for any reason other
than other than due to death, disability or Termination for Cause, or the Executive elects to
resign upon written notice to the Company, the Company shall pay to the Executive on such

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termination or resignation or, if necessary to comply with Code Section 409A(a)(2)(B)(i), on
the six (6) month anniversary of the Executive’s termination or resignation in a lump sum an amount
equal to 100% of his Base Salary as in effect at the time of such resignation. In addition, earned
but unpaid Base Salary and Incentive Compensation Awards will be paid on a pro-rated basis for the
year in which termination or resignation occurs. Any options, SARS or restricted stock grants
granted to the Executive prior to termination pursuant to the Plan, but subject to vesting
restrictions, will be fully vested upon a Change in Control whether or not the Executive resigns.
The benefits and perquisites described in this Agreement as in effect at the date of termination of
employment will also be continued for twelve (12) months from the effective date of termination
pursuant to Change of Control.

     A “Change in Control” shall be deemed to have occurred if (i) a tender offer shall be made and
consummated for the ownership of more than 50% of the outstanding voting securities of the Company,
(ii) the Company shall be merged or consolidated with another corporation and as a result of such
merger or consolidation less than 75% of the outstanding voting securities of the surviving or
resulting corporation shall be owned in the aggregate by the former shareholders of the Company, as
the same shall have existed immediately prior to such merger or consolidation, (iii) the Company
shall sell all or substantially all of its assets to another corporation which is not a
wholly-owned subsidiary, (iv) a person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on the date hereof) of the Securities and Exchange Act of 1934 (“Exchange
Act”)), shall acquire more than 50% of the outstanding voting securities of the Company (whether
directly, indirectly, beneficially or of record) ) or (v) the individuals who, as of the date
hereof, constitute the Board of the Company (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by or on behalf of a
person or group other than the Board. For purposes hereof, ownership of voting securities shall
take into account and shall include ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act.

SECTION XII

PROCEDURES FOR DETERMINING

THE APPLICATION OF CODE SECTION 409A

     The Executive and the Company shall cooperate to determine the application of Code Section
409A for purposes of Sections VIII and XI of this Agreement. If the Executive and the Company are
unable to agree on the application of Code Section 409A within ten (10) business days after the
Executive’s separation from service with the Company, then the application of Code Section 409A for
purposes of Sections VIII and XI of this Agreement shall be determined by an accounting firm of
recognized national standing acceptable to the Executive and the Company. The accounting firm
shall be instructed to use every reasonable effort to make its

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determination within ten (10) business days after it is retained. The parties will cooperate
fully with the accounting firm. The costs and expenses for the services of the accounting firm
shall be borne equally by the Executive and the Company.

SECTION XIII

WITHHOLDING TAXES

     The Company may directly or indirectly withhold from any payments under this Agreement all
federal, state, city or other taxes that shall be required pursuant to any law or governmental
regulation.

SECTION XIV

EFFECTIVE PRIOR AGREEMENTS

     This Agreement contains the entire understanding between the Company and the Executive with
respect to the subject matter and supersedes any prior employment or severance agreements between
the Company and its affiliates, and the Executive.

SECTION XV

CONSOLIDATION, MERGER OR SALE OF ASSETS

     Nothing in this Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, another corporation which assumes
this Agreement and all obligations and undertakings of the Company hereunder. Upon such a
Consolidation, Merger or Sale of Assets, the term “the Company” as used will mean the other
corporation and this Agreement shall continue in full force and effect. This Section XV is not
intended to modify or limit the rights of the Executive hereunder, including without limitation,
the rights of Executive under Section XI.

SECTION XVI

MODIFICATION

     This Agreement may not be modified or amended except in writing signed by the parties. No
term or condition of this Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term or condition waived
and will not constitute a waiver for the future or act on anything other than that which is
specifically waived.

SECTION XVII

GOVERNING LAW; ARBITRATION

     This Agreement has been executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement shall be governed by the laws of that state.

     With the exception of the Company’s right to seek injunctive relief and damages in court to
restrain and remedy violations of Article IX of this Agreement, any dispute among the parties

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hereto shall be settled by arbitration in Nashville, Tennessee, in accordance with the rules
then obtaining of the American Arbitration Association and judgment upon the award rendered may be
entered in any court having jurisdiction thereof.

SECTION XVIII

NOTICES

     All notices, requests, consents and other communications hereunder shall be in writing and
shall be deemed to have been made when delivered or mailed first-class postage prepaid by
registered mail, return receipt requested, or if delivered by hand, overnight delivery service or
confirmed facsimile transmission, to the following:

          (a) If to the Company, at 1621 Galleria Boulevard, Brentwood, TN 37027-2926, Attention:
President or Chief Executive Officer, or at such other address as may have been furnished to the
Executive by the Company in writing; or

          (b) If to the Executive, at 440 Tinnan Avenue, Franklin, TN 37067, or such other address as
may have been furnished to the Company by the Executive in writing.

SECTION XIX

BINDING AGREEMENT

     This Agreement shall be binding on the parties’ successors, heirs and assigns.

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

	 	 	 	 	 
	 	ADVOCAT INC.

 	 
	 	By:  	/s/ William R. Council, III
 	 
	 	 	William R. Council, III 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 
	 	EXECUTIVE:

 	 
	 	/s/ William David Houghton
 	 
	 	William David Houghton 	 
	 	 	 
	 

9exv10w8

Exhibit 10.8

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

     This amendment is made effective as of March 9, 2011 by and between Advocat Inc., a
Delaware corporation (the “Company”), and William David Houghton (the “Executive”).

     The Company and the Executive are parties to that certain employment agreement dated June 28,
2010 (the “Employment Agreement”). In exchange for continued employment with the Company, the
Executive has agreed to amend the Employment Agreement as set forth herein.

     The parties therefore agree as follows:

     1. Section VIII(A) of the Employment Agreement is hereby amended and restated as follows:

A. If the Executive’s employment terminates due to either a Without Cause Termination or a
Constructive Discharge, as defined later in this Agreement, the Company will pay the Executive in a
lump sum an amount equal to 100% of his Base Salary as in effect at the time of the termination
upon such Termination or Constructive Discharge or, if necessary to comply with Code Section
409A(a)(2)(B)(i), on the six (6) month anniversary of such Termination or Constructive Discharge.
Earned but unpaid Base Salary and Incentive Compensation Awards will be paid in a lump sum upon
such Termination or Constructive Discharge. The benefits and perquisites described in this
Agreement as in effect at the date of termination of employment will be continued for twelve (12)
months. If the Executive’s employment terminates due to either a Without Cause Termination or a
Constructive Discharge, or pursuant to Section XI, all unvested options, SARS or restricted stock
grants (“Options”) granted to the Executive under the Company’s 2010 Long-Term Incentive Plan or
other stock option program or plan (the “Plan”) shall be deemed vested, and the Company shall cause
the Options to remain exercisable until the later of (i) the fifteenth (15th) day of the third
(3rd) month following the date on which the Options would have expired or (ii) December 31 of the
calendar year in which the Option would have expired.

     2. Except as otherwise provided herein, the Employment Agreement continues in full force and
effect.

[Signature page follows.]

 

 

     IN WITNESS WHEREOF, the undersigned have executed this amendment as of the date first above
written.

	 	 	 	 	 
	 	ADVOCAT INC.

 	 
	 	By:  	/s/ William R. Council, III
 	 
	 	 	William R. Council, III 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 
	 	EXECUTIVE:

 	 
	 	/s/ David Houghton
 	 
	 	David Houghton 	 
	 	 	 
	 

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