Document:

EXHIBIT
      4.5

     

     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    WARRANT
      AGREEMENT

     

    This
      Warrant Agreement (the “Agreement”), made and entered into as of [_____ __,]
      2006, by and between ADCARE HEALTH SYSTEMS, INC., an Ohio corporation (the
      “Company”), and [•], a [•] corporation, as Warrant Agent (the “Warrant
      Agent”).

     

    WITNESSETH
      THAT:

     

    WHEREAS,
      pursuant to its initial public offering (the “IPO”), the Company will offer [•]
      units ([•] units if the over-allotment option is exercised in full) (“Units”),
      each Unit consisting of two shares of the Company’s [•] par value common stock
      (the “Common Stock”) and two warrants to each purchase one share of Common Stock
      (a “Warrant”).

     

    WHEREAS,
      the Company desires the Warrant Agent to act on behalf of the Company, and
      the
      Warrant Agent is willing to so act, in connection with the issuance,
      registration, transfer, exchange and redemption of the Warrants, the issuance
      of
      Warrant Certificates, the exercise of the Warrants, and the rights of the
      holders thereof.

     

    NOW
      THEREFORE, in consideration of the premises and the mutual agreements
      hereinafter set forth and for the purposes of defining the terms and provisions
      of the Warrants and the certificates representing the Warrants (the “Warrant
      Certificates”) and the respective rights and obligations thereunder of the
      Company, the Registered Holders and the Warrant Agent, the parties hereto agree
      as follows:

     

    	SECTION
            1.  	
            DEFINITIONS.

          

     

    As
      used
      herein, the following terms shall have the following meanings, unless the
      context shall otherwise require:

     

    1.1.  “Corporate
      Office” shall mean the office of the Warrant Agent (or its successor) at which
      at any particular time its principal business shall be administered, which
      office is located at the date hereof at [•].

     

    1.2.  “Exercise
      Date” shall mean the date on which the Warrant Agent shall have
      received both (a)
      the
      Warrant Certificate representing a Warrant, with the exercise form thereon
      duly
      executed by the Registered Holder thereof or his attorney duly authorized in
      writing, and (b)
      payment
      in case, or by official bank or certified check made payable to the Company,
      of
      an amount in lawful money of the United States of America equal to the
      applicable Purchase Price.

     

    1.3.  “Initial
      Warrant Exercise Date” shall mean the date which is the earlier of 90 days
      immediately following the closing date of the Company’s IPO, unless sooner
      waived by the managing underwriter in the IPO.

     

    1.4.  “Purchase
      Price” shall mean the purchase price to be paid upon exercise of each
      Warrant in accordance with the terms hereof, which price shall be equal to
      [75%]
      of the initial offering price of the Unit offered in the IPO subject to
      adjustment from time to time pursuant to the provisions of Section 8
      hereof.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    1.5.  “Registered
      Holder” shall mean the person in whose name any certificate
      representing Warrants shall be registered on the books maintained by the Warrant
      Agent pursuant to Section 6.

     

    1.6.  “Transfer
      Agent” shall mean[•], as the Company’s transfer agent, or its authorized
      successor, as such.

     

    1.7.  “Warrant
      Expiration Date” shall mean 5:00 p.m., Eastern Standard time, on that date which
      is 5 years after the date of the prospectus used in connection with the
      Company’s IPO; provided that if such date shall in the State of Ohio be a
      holiday or a day on which banks are authorized to close, then 5:00 p.m., Eastern
      Standard time, on the next following day which in the State of Ohio is not
      a
      holiday or a day on which banks are authorized to close. Upon notice to the
      Registered Holders, the Company shall have the right to extend the warrant
      expiration date of the Warrants.

     

    	SECTION
            2.  	
            WARRANTS
              AND ISSUANCE OF WARRANT CERTIFICATES.

          

     

    2.1.  A
      Warrant
      shall initially entitle the Registered Holder of the Warrant Certificate
      representing such Warrant to purchase one share of Common Stock upon the
      exercise thereof, in accordance with the terms hereof; subject to modification
      and adjustment as provided in Section 8.

     

    2.2.  Upon
      execution of this Agreement, the Company shall furnish the Warrant Agent with
      a
      sufficient quantity of blank Warrant Certificates and from time to time will
      renew such supply upon the reasonable request of the Warrant Agent. Such blank
      Warrant Certificates shall be properly signed by the Company authorized by
      law
      and in accordance with the Company’s by-laws to sign such Warrant Certificates.
      Upon written order of the Company signed by its President and by another duly
      authorized officer, the Warrant Certificates shall be manually countersigned
      by
      the Warrant Agent and shall not be valid for any purpose unless so
      countersigned, issued and delivered by the Warrant Agent pursuant to this
      Agreement.

     

    2.3.  From
      time
      to time, up to the Warrant Expiration Date, the Transfer Agent shall countersign
      and deliver stock certificates in required whole number denominations
      representing an aggregate of [•] shares of Common Stock ([•] shares if the
      over-allotment option is exercised in full), subject to adjustment as described
      herein, upon the exercise of the Warrants in accordance with this
      Agreement.

     

    2.4.  From
      time
      to time, up to the applicable Warrant Expiration Date, the Warrant Agent shall
      countersign and deliver Warrant Certificates in required whole number
      denominations to the persons entitled thereto in connection with any transfer
      or
      exchange permitted under this Agreement; provided that no Warrant Certificates
      shall be issued except:

     

    	(a)  	
            those
              initially issued hereunder;

          

     

    
      
         

      

      
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    	(b)  	
            those
              issued on or after the Initial Warrant Exercise Date, upon the exercise
              of
              fewer than all Warrants represented by the respective Warrant Certificate,
              to evidence any unexercised Warrants held by the exercising Registered
              Holder;

          

     

    	(c)  	
            those
              issued upon any transfer or exchange pursuant to Section
              6;

          

     

    	(d)  	
            those
              issued in replacement of lost, stolen, destroyed or mutilated Warrant
              Certificates pursuant to Section 7; and

          

     

    	(e)  	
            at
              the option of the Company, in such form as may be approved by its Board
              of
              Directors, to reflect any adjustment or change in the Purchase Price,
              or
              the number of shares of Common Stock purchasable upon exercise of the
              Warrants.

          

     

    	SECTION
            3.  	
            FORM
              AND EXECUTION OF WARRANT CERTIFICATES.

          

     

    3.1.  The
      Warrant Certificates shall be substantially in the form annexed hereto as
      Exhibit A (the provisions of which are hereby incorporated herein) and may
      have
      such letters, numbers or other marks of identification or designation and such
      legends, summaries or endorsements printed, lithographed or engraved thereon
      as
      the Company may deem appropriate and as are not inconsistent with the provisions
      of this Agreement, or as may be required to comply with any law or with any
      rule
      or regulation made pursuant thereto or with any rule or regulation of any stock
      exchange on which the Warrants may be listed, or to conform to usage. The
      Warrant Certificates shall be dated the date of issuance thereof (whether upon
      initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen
      or
      destroyed Warrant Certificates) and issued in registered form. Warrants shall
      be
      numbered serially with the letter W.

     

    3.2.  Warrant
      Certificates shall be properly signed on behalf of the Company by officers
      of
      the Company authorized by law and in accordance with the Company’s by-laws to
      sign such Warrant Certificates. Warrant Certificates shall be manually
      countersigned by the Warrant Agent and shall not be valid for any purpose unless
      so countersigned. In case any officer of the Company who shall have signed
      any
      of the Warrant Certificates shall cease to be such officer of the Company before
      the date of issuance of the Warrant Certificates or before countersignature
      by
      the Warrant Agent, such Warrant Certificate may be issued and delivered with
      the
      same force and effect as though the person who signed such Warrant Certificates
      had not ceased to be such officer of the Company. After countersignature by
      the
      Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent
      to
      the Registered Holder without further action by the Company, except as otherwise
      provided by Section 4 hereof.

     

    	SECTION
            4.  	
            EXERCISE
              AND REDEMPTION

          

     

    4.1.  Each
      Warrant may be exercised by the Registered Holder thereof at any time on or
      after the Initial Exercise Date, but not after the Warrant Expiration Date,
      upon
      the terms and subject to the conditions set forth herein and in the Warrant
      Certificate. A Warrant shall be deemed to have been exercised immediately prior
      to the close of business on the Exercise Date and the person entitled to receive
      the Common Stock deliverable upon such exercise shall be treated for all
      purposes as the holder upon exercise thereof as of the close of business on
      the
      Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
      Agent shall deposit the proceeds received from the exercise of a Warrant and
      shall notify the Company in writing, by mail or by telecopy of the exercise
      of
      the Warrants. Promptly following, and in any event within three (3) days after
      the date of such notice from the Warrant Agent, the Warrant Agent, on behalf
      of
      the Company, shall cause to be issued and delivered by the Transfer Agent,
      to
      the person or persons entitled to receive the same, a certificate or
      certificates for the securities deliverable upon such exercise, (plus a Warrant
      Certificate for any remaining unexercised Warrants of the Registered Holder)
      unless within 24 hours of the receipt of the notice, the Company shall instruct
      the Warrant Agent by telecopy to refrain from causing such issuance of Warrant
      Certificates pending clearance of checks received in payment of the Purchase
      Price pursuant to such Warrants. Upon the exercise of any Warrant and clearance
      of the funds received, the Warrant Agent shall promptly remit the payment
      received for the Warrant to the Company or as the Company may direct in
      writing.

     

    
      
         

      

      
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    	SECTION
            5.  	
            RESERVATION
              OF SHARES; LISTING; PAYMENT OF TAXES;
              ETC.

          

     

    5.1.  The
      Company’s Articles of Incorporation authorize the issuance of [•] shares of
      Common Stock. The Company covenants that it will at all times reserve and keep
      available out of its authorized Common Stock, solely for the purpose of issue
      upon exercise of Warrants, such number of shares of Common Stock as shall be
      issuable upon the exercise of all outstanding Warrants. The Company covenants
      that all shares of Common Stock which shall be issuable upon exercise of the
      Warrants shall, at the time of delivery, be duly and validly issued, fully
      paid,
      nonassessable and free from all taxes, liens and charges with respect to the
      issue thereof (other than those which the Company shall promptly pay or
      discharge).

     

    5.2.  Warrants
      may not be exercised by, or shares of Common Stock issued to, any Registered
      Holder in any state in which such exercise would be unlawful. The Warrant Agent
      will not have any duty or responsibility for determining if the registration
      would be unlawful.

     

    5.3.  The
      Company shall pay all documentary, stamp or similar taxes and other governmental
      charges that may be imposed with respect to the issuance of Warrants, or the
      issuance, or delivery of any shares upon exercise of the Warrants; provided,
      however, that if the shares of Common Stock are to be delivered in a name other
      than the name of the Registered Holder of the Warrant Certificate representing
      any Warrant being exercised, then no such delivery shall be made unless the
      person requesting the same has paid to the Warrant Agent the amount of transfer
      taxes or charges incident thereto, if any.

     

    5.4.  The
      Warrant Agent is hereby irrevocably authorized to requisition the Company’s
      Transfer Agent from time to time for certificates representing shares of Common
      Stock required upon exercise of the Warrants, and the Company will authorize
      the
      Transfer Agent to comply with all such proper requisitions. The Company will
      file with the Warrant Agent a statement setting forth the name and address
      of
      the Transfer Agent of the Company for shares of Common Stock issuable upon
      exercise of the Warrants.

     

    
      
         

      

      
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    	SECTION
            6.  	
            EXCHANGE
              AND REGISTRATION OF TRANSFER.

          

     

    6.1.  Warrant
      Certificates may be exchanged for other Warrant Certificates representing an
      equal aggregate number of Warrants of the same class or may be transferred
      in
      whole or in part. Warrant Certificates to be exchanged shall be surrendered
      to
      the Warrant Agent at the Corporate Office, and upon satisfaction of the terms
      and provisions hereof, the Company shall execute and the Warrant Agent shall
      countersign, issue and deliver in exchange therefore the Warrant Certificate
      or
      Certificates which the Registered Holder making the exchange shall be entitled
      to receive.

     

    6.2.  The
      Warrant Agent shall keep at the Corporate Office books in which, subject to
      such
      reasonable regulations as it may prescribe, it shall register Warrant
      Certificates and the transfer thereof in accordance with its regular practice.
      Upon due presentment for registration or transfer of any Warrant Certificate
      at
      such office, the Company shall execute and the Warrant Agent shall issue and
      deliver to the transferee or transferees a new Warrant Certificate or
      Certificates representing an equal aggregate number of Warrants of the same
      class.

     

    6.3.  With
      respect to all Warrant Certificates presented for registration or transfer,
      or
      for exchange or exercise, the Warrant Agent shall from time to time register
      the
      transfer, exchange or exercise of any outstanding Warrant Certificate upon
      records maintained by the Warrant Agent for such purpose upon surrender of
      such
      Warrant Certificate to the Warrant Agent, accompanied by appropriate instruments
      of transfer in form satisfactory to the Company and the Warrant Agent and duly
      executed by the Registered Holder or a duly authorized attorney.

     

    6.4.  The
      Company may require payment by such holder of a sum sufficient to cover any
      tax
      or other governmental charge that may be imposed in connection
      therewith.

     

    6.5.  All
      Warrant Certificates surrendered for exercise or for exchange in case of
      mutilated Warrant Certificates shall be promptly canceled by the Warrant Agent
      and thereafter retained by the Warrant Agent until termination of this Agreement
      or resignation as Warrant Agent, or, disposed of or destroyed, at the direction
      of the Company, within the retention guidelines prescribed by any Federal,
      State
      or banking regulatory authority.

     

    6.6.  Prior
      to
      due presentment for registration or transfer thereof, the Company and the
      Warrant Agent may deem and treat the Registered Holder of any Warrant
      Certificate as the absolute owner thereof and of each Warrant represented
      thereby (notwithstanding any notations of ownership or writing thereon made
      by
      anyone other than a duly authorized officer of the Company or the Warrant Agent)
      for all purposes and shall not be affected by any notice to the
      contrary.

     

    	SECTION
            7.  	
            LOSS
              OR MUTILATION.

          

     

    7.1.  Upon
      receipt by the Company and the Warrant Agent of evidence satisfactory to them
      of
      the ownership of and loss, theft, destruction or mutilation of any Warrant
      Certificate and (in case of loss, theft or destruction) of indemnity
      satisfactory to them, and (in the case of mutilation) upon surrender and
      cancellation thereof the Company shall execute and the Warrant Agent shall
      (in
      the absence of notice to the Company and/or Warrant Agent that the Warrant
      Certificate has been acquired by a bonafide purchaser) countersign and deliver
      to the Registered Holder in lieu thereof a new Warrant Certificate of like
      tenor
      representing an equal aggregate number of Warrants of that same class.
      Applicants for a substitute Warrant Certificate shall comply with such other
      reasonable regulations and pay such other reasonable charges as the Warrant
      Agent may prescribe.

     

    
      
         

      

      
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    	SECTION
            8.  	
            ADJUSTMENT
              OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
              WARRANTS.

          

     

    8.1.  If
      after
      the date hereof, and subject to the provisions of Section 9.1 below, the number
      of outstanding shares of Common Stock is increased by a stock dividend payable
      in shares of Common Stock, or by a split-up of shares of Common Stock, or other
      similar event, then, on the effective date of such stock dividend, split-up
      or
      similar event, the number of shares of Common Stock issuable on exercise of
      each
      Warrant shall be increased in proportion to such increase in outstanding shares.
      If after the date hereof, and subject to the provisions of Section 9.1, the
      number of outstanding shares of Common Stock is decreased by a consolidation,
      combination, reverse stock split or reclassification of shares of Common Stock
      or other similar event, then, on the effective date of such consolidation,
      combination, reverse stock split, reclassification or similar event, the number
      of shares of Common Stock issuable on exercise of each Warrant shall be
      decreased in proportion to such decrease in outstanding shares. Whenever the
      number of shares of Common Stock purchasable upon the exercise of the Warrants
      is adjusted, the Warrant Price shall be adjusted (to the nearest cent) by
      multiplying such Warrant Price immediately prior to such adjustment by a
      fraction (x) the numerator of which shall be the number of shares of Common
      Stock purchasable upon the exercise of the Warrants immediately prior to such
      adjustment, and (y) the denominator of which shall be the number of shares
      of Common Stock so purchasable immediately thereafter. 

     

    8.2.  In
      case
      of any reclassification, capital reorganization or other change of outstanding
      shares of Common Stock, or in case of any consolidation or merger of the Company
      with or into another corporation (other than a consolidation or merger in which
      the Company is the continuing corporation and which does not result in any
      reclassification, capital reorganization or other change of outstanding shares
      of Common Stock), or in case of any sale or conveyance to another corporation
      of
      the property of the Company as, or substantially as, an entirety (other than
      a
      sale/leaseback, mortgage or other financing transaction), the Company shall
      cause effective provision to be made so that each holder of a Warrant then
      outstanding shall have the right thereafter, by exercising such Warrant, to
      purchase the kind and number of shares of stock or other securities or property
      (including cash) receivable upon such reclassification, capital reorganization
      or other change, consolidation, merger, sale or conveyance by a holder of the
      number of shares of Common Stock that might have been purchased upon exercise
      of
      such Warrant immediately prior to such reclassification, capital reorganization
      or other change, consolidation, merger, sale or conveyance. Any such provision
      shall include provision for adjustments that shall be as nearly equivalent
      as
      may be practicable to the adjustments provided for in this Section 8.2. The
      foregoing provisions shall similarly apply to successive reclassifications,
      capital reorganizations and other changes of outstanding shares of Common Stock
      and to successive consolidations, mergers, sales or conveyances.

     

    
      
         

      

      
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    8.3.  After
      each adjustment of the Purchase Price pursuant to this Section 8, the Company
      will promptly prepare a certificate signed by the President and by the Secretary
      or an Assistant Secretary, of the Company setting forth: 

     

    	(a)  	
            the
              Purchase Price as so adjusted,

          

     

    	(b)  	
            the
              number of shares of Common Stock purchasable upon exercise of each
              Warrant
              after such adjustment, and, if the Company shall have elected to adjust
              the number of Warrants, the number of Warrants to which the Registered
              Holder of each Warrant shall then be entitled, and
              

          

     

    	(c)  	
            a
              brief statement of facts accounting for such adjustment. The Company
              will
              promptly file such certificate with the Warrant Agent and cause a brief
              summary thereof to be sent by ordinary first class mail to each registered
              holder of Warrants at his last address as it shall appear on the registry
              books of the Warrant Agent. No failure to mail such notice nor any
              defect
              therein or in the mailing thereof shall affect the validity thereof
              except
              as to the Registered Holder to whom the Company failed to mail such
              notice, or except as to the Registered Holder whose notice was defective.
              The affidavit of an officer of the Warrant Agent or the Secretary or
              an
              Assistant Secretary of the Company that such notice has been mailed
              shall,
              in the absence of fraud, be prima facie evidence of the facts stated
              therein.

          

     

    8.4.  As
      used
      in this Section 8, the term “Common Stock” shall mean and include the Company’s
      Common Stock authorized on the date of the original issue of the Warrants and
      shall also include any capital stock of any class of the Company thereafter
      authorized which shall not be limited to a fixed sum or percentage in respect
      of
      the rights of the holders thereof to participate in dividends and in the
      distribution of assets upon the voluntary liquidation, dissolution or winding
      up
      of the Company; provided, however, that the shares issuable upon exercise of
      the
      Warrants shall include only shares of such class designated in the Company’s
      Articles of Incorporation as Common Stock on the date of the original issue
      of
      the Warrants or (i),
      in the
      case of any reclassification, change, consolidation, merger, sale or conveyance
      of the character referred to in Section 8.2, hereof, the stock, securities
      or
      property provided for in such section or (ii),
      in the
      case of any reclassification or change in the outstanding shares of Common
      Stock
      issuable upon exercise of the Warrants as a result of a subdivision or
      combination or consisting of a change in par value, or from par value to no
      par
      value, or from no par value to par value, such shares of Common Stock as so
      reclassified or changed.

     

    8.5.  Any
      determination as to whether an adjustment in the Purchase Price in effect
      hereunder is required pursuant to Section 8, or as to the amount of any such
      adjustment, if required, shall be binding upon the holders of the Warrants
      and
      the Company if made in good faith by the Board of Directors of the
      Company.

     

    
      
         

      

      
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    8.6.  The
      Warrant Agent assumes no responsibility for any determination under this Section
      and will act only in accordance with the written directions of the Company
      and
      its counsel.

     

    	SECTION
            9.  	
            FRACTIONAL
              WARRANTS AND FRACTIONAL SHARES.

          

     

    9.1.  If
      the
      number of shares of Common Stock purchasable upon the exercise of each Warrant
      is adjusted pursuant to Section 8 hereof, the Company shall nevertheless not
      be
      required to issue fractions of shares, upon exercise of the Warrants or
      otherwise, or to distribute certificates that evidence fractional shares. With
      respect to any fraction of a share called for upon any exercise hereof, the
      Company shall pay to the Holder an amount in cash equal to such fraction
      multiplied by the current market value of such fractional shares, determined
      as
      follows:

     

    	(a)  	
            If
              the Common Stock is listed on a national securities exchange or admitted
              to unlisted trading privileges on such exchange or listed for trading
              on
              the Nasdaq Stock Market, the current value shall be the last reported
              sale
              price of the Common Stock on such exchange on the last business day
              prior
              to the date of exercise of this Warrant or if no such sale is made
              on such
              day, the average closing bid and asked prices for such day on such
              exchange; or

          

     

    	(b)  	
            If
              the Common Stock is not listed or admitted to unlisted trading privileges,
              the current value shall be the mean of the last reported bid and asked
              prices reported by the National Quotation Bureau, Inc. on the last
              business day prior to the date of the exercise of this Warrant;
              or

          

     

    	(c)  	
            If
              the Common Stock is not so listed or admitted to unlisted trading
              privileges and bid and asked prices are not so reported, the current
              value
              shall be an amount determined in such reasonable manner as may be
              prescribed by the Board of Directors of the
              Company.

          

     

    	SECTION
            10.  	
            WARRANT
              HOLDERS NOT DEEMED STOCKHOLDERS.

          

     

    10.1.  No
      Registered Holder shall, as such, be entitled to vote or to receive dividends
      or
      be deemed the holder of Common Stock that may at any time be issuable upon
      exercise of such Warrants for any purpose whatsoever, nor shall anything
      contained herein be construed to confer upon the Registered Holder, as such,
      any
      of the rights of a stockholder of the Company or any right to vote for the
      election of directors or upon any matter submitted to stockholders at any
      meeting thereof or to give or withhold consent to any corporate action (whether
      upon any recapitalization, issue or reclassification of stock, change of par
      value or change of stock to no par value, consolidation, merger or conveyance
      or
      otherwise), or to receive notice of meetings, or to receive dividends or
      subscription rights, until such Registered Holder shall have exercised such
      Warrants and been issued shares of Common Stock in accordance with the
      provisions hereof.

     

    	SECTION
            11.  	
            RIGHTS
              OF ACTION.

          

     

    
      
         

      

      
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    11.1.  All
      rights of action with respect to this Agreement are vested in the respective
      Registered Holders, and any Registered Holder, without consent of the Warrant
      Agent or of the holder of any other Warrant, may, in his own behalf and for
      his
      own benefit, enforce against the Company his right to exercise his Warrants
      for
      the purchase of shares of Common Stock in the manner provided in the Warrant
      Certificate and this Agreement.

     

    	SECTION
            12.  	
            AGREEMENT
              OF WARRANT HOLDERS.

          

     

    12.1.  Every
      Registered Holder, by his acceptance thereof, consents and agrees with the
      Company, the Warrant Agent and every other holder of a Warrant
      that:

     

    	(a)  	
            The
              Warrants are transferable only on the registry books of the Warrant
              Agent
              by the Registered Holder thereof duly authorized in writing and only
              if
              the Warrant Certificates representing such Warrants are surrendered
              at the
              office of the Warrant Agent, duly endorsed or accompanied by a proper
              instrument of transfer satisfactory to the Warrant Agent and the Company
              in their sole discretion, together with payment of any applicable transfer
              taxes; and

          

     

    	(b)  	
            The
              Company and the Warrant Agent may deem and treat the person in whose
              name
              the Warrant Certificate is registered as the holder and as the absolute,
              true and lawful owner of the Warrants represented thereby for all
              purposes, and neither the Company nor the Warrant Agent shall be affected
              by any notice of knowledge to the contrary, except as otherwise expressly
              provided in Section 6 hereof.

          

     

    	SECTION
            13.  	
            CANCELLATION
              OF WARRANT CERTIFICATES.

          

     

    13.1.  If
      the
      Company shall purchase or acquire any Warrant or Warrants, the Warrant
      Certificate or Warrant Certificates evidencing the same shall thereupon be
      delivered to the Warrant Agent and canceled by it and retired.

     

    	SECTION
            14.  	
            CONCERNING
              THE WARRANT AGENT.

          

     

    14.1.  The
      Warrant Agent shall act hereunder as agent and in a ministerial capacity for
      the
      Company, and its duties shall be determined solely by the provisions hereof.
      The
      Warrant Agent shall not, by issuing and delivering Warrant Certificates or
      by
      any other act hereunder be deemed to make any representations as to the
      validity, value or authorization of the Warrant Certificates or the Warrants
      represented thereby or of any securities or other property delivered upon
      exercise of any Warrant or whether any stock issued upon exercise of any Warrant
      is fully paid and nonassessable. 

     

    14.2.  The
      Warrant Agent shall not at any time be under any duty or responsibility to
      any
      holder of Warrant Certificates to make or cause to be made any adjustment of
      the
      Purchase Price provided in this Agreement, or to determine whether any fact
      exists which may require any such adjustments, or with respect to the nature
      or
      extent of any such adjustment, when made, or with respect to the method employed
      in making the same. It shall not (i)
      be
      liable for any recital or statement of facts contained herein or for any action
      taken, suffered or omitted by it in reliance on any Warrant Certificate or
      other
      document or instrument believed by it in good faith to be genuine and to have
      been signed or presented by the proper party or parties, (ii)
      be
      responsible for any failure on the part of the Company to comply with any of
      its
      covenants and obligations contained in this Agreement or in any Warrant
      Certificate, or (iii)
      be
      liable for any act or omission in connection with this Agreement except for
      its
      own negligence or willful misconduct.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

       

    

    14.3.  The
      Warrant Agent may at any time consult with counsel satisfactory to it (who
      may
      be counsel for the Company) and shall incur no liability or responsibility
      for
      any action taken, suffered or omitted by it in good faith in accordance with
      the
      opinion or advice of such counsel. Any notice, statement, instruction, request,
      direction, order or demand of the Company shall be sufficiently evidenced by
      an
      instrument signed by the President, its Secretary, or Assistant Secretary
      (unless other evidence in respect thereof is herein specifically prescribed).
      The Warrant Agent shall not be liable for any action taken, suffered or omitted
      by it in accordance with such notice, statement, instruction, request,
      direction, order or demand believed by it to be genuine. 

     

    14.4.  The
      Company agrees to pay the Warrant Agent compensation for its services hereunder
      and to reimburse it for its expenses hereunder in accordance with the fees
      listed on Schedule I attached hereto; it further agrees to indemnify the Warrant
      Agent and save it harmless against any and all losses, expenses and liabilities,
      including judgments, costs and counsel fees, for anything done or omitted by
      the
      Warrant Agent in the execution of its duties and powers hereunder except losses,
      expenses and liabilities arising as a result of the Warrant Agent’s negligence
      or willful misconduct.

     

    14.5.  The
      Warrant Agent may resign its duties and be discharged from all further duties
      and liabilities hereunder (except liabilities arising as a result of the Warrant
      Agent’s own negligence or willful misconduct), after giving 60 days’ prior
      written notice to the Company. At least 30 days prior to the date such
      resignation is to become effective, the Warrant Agent shall cause a copy of
      such
      notice of resignation to be mailed to the Registered Holder of each Warrant
      Certificate at the Company’s expense. Upon such resignation, or any inability of
      the Warrant Agent to act as such hereunder, the Company shall appoint a new
      warrant agent in writing. If the Company shall fail to make such appointment
      within a period of 30 days after it has been notified in writing of such
      resignation by the resigning Warrant Agent, then the Registered Holder of any
      Warrant Certificate may apply to any court of competent jurisdiction for the
      appointment of a new warrant agent. Any new Warrant Agent, whether appointed
      by
      the Company or by such a court, shall be a bank or trust company having a
      capital and surplus, as shown by its last published report to its stockholders,
      of not less than $10,000,000 or a stock transfer company. After acceptance
      in
      writing of such appointment by the new warrant agent is received by the Company,
      such new warrant agent shall be vested with the same powers, rights, duties
      and
      responsibilities as if it had been originally named herein as the Warrant Agent,
      without any further assurance, conveyance, act or deed; but, if for any reason
      it shall be necessary or expedient to execute and deliver any further assurance,
      conveyance, act or deed, the same shall be done at the expense of the Company
      and shall be legally and validly executed and delivered by the resigning Warrant
      Agent. Not later than the effective date of any such appointment, the Company
      shall file notice thereof with the resigning Warrant Agent and shall forthwith
      cause a copy of such notice to be mailed to the Registered Holder of each
      Warrant Certificate.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

       

    

    14.6.  Any
      corporation into which the Warrant Agent or any new warrant agent may be
      converted or merged or any corporation resulting from any consolidation to
      which
      the Warrant Agent or any new warrant agent shall be a party or any corporation
      succeeding to the trust business of the Warrant Agent shall be a successor
      warrant agent under this Agreement without any further act, provided that such
      corporation is eligible for appointment as successor to the Warrant Agent under
      the provisions of the preceding paragraph. Any such successor warrant agent
      shall promptly cause notice of its succession as warrant agent to be mailed
      to
      the Company and to the Registered Holder of each Warrant
      Certificate.

     

    14.7.  The
      Warrant Agent, its subsidiaries and affiliates, and any of its or their officers
      or directors, may buy and hold or sell Warrants or other securities of the
      Company and otherwise deal with the Company in the same manner and to the same
      extent and with like effects as though it were not Warrant Agent. Nothing herein
      shall preclude the Warrant Agent from acting in any other capacity for the
      Company or for any other legal entity.

     

    	SECTION
            15.  	
            MODIFICATION
              OF AGREEMENT.

          

     

    15.1.  The
      Warrant Agent and the Company may by supplemental agreement make any changes
      or
      corrections in this Agreement (i)
      that
      they shall deem it appropriate to cure any ambiguity or to correct any defective
      or inconsistent provision or manifest mistake or error herein contained; or
      (ii)
      that
      they may deem necessary or desirable and which shall not adversely affect the
      interests of the Registered Holders; provided, however, that this Agreement
      shall not otherwise be modified, supplemented or altered in any respect except
      with the consent in writing of the Registered Holders representing not less
      than
      two-thirds of the Warrants, other than such changes as are specifically
      prescribed by this Agreement as originally executed.

     

    	SECTION
            16.  	
            NOTICES.

          

     

    16.1.  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 registered or certified mail, postage prepaid as follows: if to the
      Registered Holder of a Warrant Certificate, at the address of such holder as
      shown on the registry books maintained by the Warrant Agent; if to the Company,
      at 5057 Troy Road, Springfield, Ohio 45502-9032, Attention: David Tenwick,
      or at
      such other address as may have been furnished to the Warrant Agent in writing
      by
      the Company; if to the Warrant Agent, at the Corporate Office.

     

    	SECTION
            17.  	
            GOVERNING
              LAW.

          

     

    17.1.  This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Ohio, without reference to principles of conflicts of law.

     

    	SECTION
            18.  	
            BINDING
              EFFECT.

          

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

       

    

    18.1.  This
      Agreement shall be binding upon and inure to the benefit of the Company and,
      the
      Warrant Agent and their respective successors and assigns, and the Registered
      Holders of the Warrant Certificates. Nothing in this Agreement is intended
      or
      shall be construed to confer upon any other person any right, remedy or claim,
      in equity or at law, or to impose upon any other person any duty, liability
      or
      obligation.

     

    	SECTION
            19.  	
            TERMINATION.

          

     

    19.1.  This
      Agreement shall terminate at the close of business on the Warrant Expiration
      Date or such earlier date upon which all Warrants have been exercised, except
      that the obligation of the Warrant Agent to account to the Company for cash
      held
      by it and the provisions of Section 13 hereof shall survive such
      termination.

     

    	SECTION
            20.  	
            COUNTERPARTS.

          

     

    20.1.  This
      Agreement may be executed in several counterparts, which taken together shall
      constitute a single document.

     

    

     

    

     

    [Remainder
      of page intentionally left blank.]

     

    
 

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed as of the date first above written.

     

    
      	 	 	 
	 	ADCARE
              HEALTH
              SYSTEMS, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
              David Tenwick
	 	Title:
              President
	 	 

      	 	 	 
	 	[WARRANT
              AGENT]
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	 
	
               Name:

            	 

              

            
	 	 
	
               Title:

            	 

              

            
	 	 

    

     

     

    
      
         

      

      
        13Exhibit 10.11

                         GULF ISLAND FABRICATION, INC.
               NAMED EXECUTIVE OFFICER and DIRECTOR COMPENSATION
                      For the year ended December 31, 2006

Named Executive Officer Compensation

The following table lists the salary and bonus to be paid to each of the
following executive officers for the year ended December 31, 2006.

                                                                      Annual
                                                                  Compensation
                                                                      Bonus
Name and Principal Position                  Year      Salary      Percentage
------------------------------             -------   ----------- ---------------
Kerry J. Chauvin                             2006    $   405,000  1.00%  (a)
  Chairman of the Board, President
   and Chief Executive Officer

Kirk J. Meche                                2006     $  205,000  0.45%  (a)
  Executive Vice-President-Operations
   President and Chief Executive Officer of
   Gulf Marine Fabricators
    (fabrication subsidiary)

Murphy A. Bourke                             2006     $  198,000  0.40%  (a)
  Executive Vice-President-Marketing

Joseph P. Gallagher, III                     2006     $  175,000  0.40%  (a)
  Vice-President-Finance, Chief
   Financial Officer and Treasurer

William G. Blanchard                         2006     $  140,000  0.10%  (a)
  President and Chief Executive Officer
   of Gulf Island, L.L.C.                                         0.12%  (b)
     (fabrication subsidiary)

(a)  Each executive officer's bonus will be equal to the specified percentage of
     the Company's consolidated income before tax and before deduction of the
     executive bonuses.

(b)  Mr. Blanchard will receive an additional bonus equal to the specified
     percentage of Gulf Island, L.L.C.'s separate income before tax and before
     deduction of this bonus.

Director Compensation

In 2006, each non-employee director, except the Chairman of the Audit Committee
and the Financial Expert, will receive an annual fee of $18,000 for his services
as a director, a fee of $1,500 for each Board or committee meeting attended in
person, and a fee of $1,000 for each board or committee meeting in which the
director participates via telephone conference call. The Chairman of the Audit
Committee and the Financial Expert will receive an annual fee of $20,000 with
the same attendance fees as the other non-employee directors.

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