Document:

Exhibit 10.1

EXHIBIT 10.1

ASSISTED LIVING CONCEPTS, INC.

2010 TANDEM STOCK OPTION/STOCK APPRECIATION RIGHTS AWARD AGREEMENT

Employee: [EMPLOYEE NAME]

Number of Stock Options/SARs: [NUMBER OF OPTIONS/SARS]

Grant Date: March 3, 2010

Exercise Price: $31.71

This Tandem Stock Option/Stock Appreciation Rights Award Agreement (the “Award Agreement”) is
entered into as of March 3, 2010, between Assisted Living Concepts, Inc. (“ALC”) and Employee
pursuant to the Assisted Living Concepts, Inc. 2006 Omnibus Incentive Compensation Plan (the
“Plan”). In consideration of the mutual promises and covenants made in this Award Agreement and
the mutual benefits to be derived from this Award Agreement, ALC and the Employee agree as follows:

THIS AWARD IS SUBJECT TO ALL TERMS AND CONDITIONS OF THE PLAN AND THIS AWARD AGREEMENT,
INCLUDING, WITHOUT LIMITATION, THE DISPUTE RESOLUTION PROVISIONS SET FORTH IN SECTION 17 OF THIS
AWARD AGREEMENT. BY SIGNING YOUR NAME BELOW, YOU WILL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS
AND CONDITIONS OF THIS AWARD AGREEMENT.

1. Definitions. Capitalized terms used in this Award Agreement that are not defined in
this Award Agreement have the meanings as used or defined in the Plan. As used in this Award
Agreement, the following terms have the meanings set forth below:

“Business Day” means a day that is not a Saturday, a Sunday or a day on which banking
institutions are legally permitted to be closed in the City of New York.

“Committee” means the Compensation/Nominating/Governance Committee of the Board of Directors
of ALC (the “Board”), or such other committee of the Board as may be designated by the Board from
time to time to administer the Plan.

“Common Stock” means Class A common stock of ALC, par value $0.01 per share.

“Determination Date” means the date during the first quarter of 2011, as determined by the
Committee, on which the Committee determines whether Performance Criteria with respect to the
Performance Period have been achieved.

“Fair Market Value” means the mean between the high and low market prices per Share as
reported on the New York Stock Exchange (or other relevant exchange) on the applicable date or, in
the event there shall be no public market for the Shares on the applicable date, the fair market
value of the Shares as determined in good faith by the Committee.

“Performance Period” means the period from January 1, 2010 through December 31, 2010.

“Share” means a share of Common Stock.

2. Grant of Award. This Award Agreement sets forth the terms and conditions of an award
(the “Award”) under the Plan to the Employee as of the Grant Date of:

a. Stock Options. The right and option (the “Stock Options”) to purchase up to
[NUMBER OF OPTIONS/SARS] Shares at the Exercise Price per Share. Each Stock Option is a
Nonqualified Stock Option. Unless earlier terminated pursuant to the terms of this Award
Agreement, the Stock Options shall expire on the fifth anniversary of the Grant Date.

b. Stock Appreciation Rights. Each Stock Option includes a stock appreciation
right (“SAR”) at the price per Share equal to the Exercise Price. The SAR constitutes an
unfunded and unsecured promise of ALC to deliver (or cause to be delivered) to Employee a whole
number of Shares, cash or a combination of Shares and Cash at the time such SAR vests and is
exercised, as provided herein, equal in value to the excess, if any, of the Fair Market Value
per Share over
the Exercise Price per Share of the SAR. Fractional shares will not be delivered and the number
of Shares to be delivered upon any exercise by you of SARs subject to this Award shall be
rounded down to the nearest whole Share. The Committee has sole discretion to deliver such
value in Shares, cash, or a combination of Shares and cash. Until such delivery, Employee has
only the rights of a general unsecured creditor and no rights as a stockholder of ALC. Unless
earlier terminated pursuant to the terms of this Award Agreement, the SARs shall expire on the
fifth anniversary of the Grant Date.

 

 

 

ASSISTED LIVING CONCEPTS, INC.

c. Tandem Stock Option/Stock Appreciation Rights. An SAR with respect to a Share
shall vest, become exercisable, and terminate at the same times and under the same terms as the
Stock Option such Share is subject to. The exercise of a Stock Option with respect to any Share
shall cause the related SAR to automatically terminate and the exercise of an SAR with respect
to any Share shall cause the related Stock Option to automatically terminate. Only one Stock
Option or one SAR, and not both, may be exercised with respect to any Share that is subject to a
Stock Option under this Award Agreement. The tandem Stock Option and SAR rights with respect to
a Share are referred to in this Award Agreement as the “Stock Option/SAR.”

d. Award Subject to Both Time- and Performance-Based Vesting. The Award is subject
to both time-based and performance-based vesting. Except as otherwise provided in any
individual employment agreement between you and ALC or any of its Affiliates (an “Employment
Agreement”):

(i) Time-Based Vesting. Two elevenths (2/11) of the Award (the “Time-Based
Award”) shall become exercisable as follows: one-third of the Shares covered thereby
(rounded up to the next whole Share) on March 3, 2011, an additional one-third of such
Shares (rounded up to the next whole Share) on March 3, 2012, and the remainder of such
Shares on March 3, 2013, subject in each case to the prior termination of the Stock
Option/SAR.

(ii) Performance-Based Vesting. the vesting of your rights with respect to nine
elevenths (9/11) of the Award (the “Performance-Based Award”) is contingent on the
attainment of performance goals set forth on Exhibit A to this Award Agreement (the
“Performance Criteria”). Accordingly, unless otherwise provided in your Employment
Agreement, your rights with respect to the Performance-Based Award will not become vested
on the Determination Date unless the Committee determines that the Performance Criteria
with respect to the Performance Period have been attained. Furthermore, pursuant to
Section 6 and except as otherwise provided in your Employment Agreement, in order for any
of your rights with respect to the Performance-Based Award to become vested on the
Determination Date, you must be employed by ALC or an Affiliate on the Determination Date.
If, on the Determination Date, the Committee determines in its sole discretion that any
of your rights with respect to the Performance-Based Award remain unvested, your rights
with respect to such Stock Options/SARs shall immediately terminate, and you will be
entitled to no further payments or benefits with respect thereto. If the Committee
determines that the threshold level Performance Criteria specified in Exhibit A has been
attained for the Performance Period, the Committee will then determine the whole number of
Stock Options/SARs that vest on the Determination Date, up to the maximum number listed on
the first page of this Award Agreement, using the formula set forth in Exhibit A. Unless
earlier terminated, any Stock Options/SARs included in the the Performance-Based Award
that the Committee determines to be vested as of the Determination Date shall become
exercisable as follows: one-third of the Shares covered thereby (rounded up to the next
whole Share) on March 3, 2011, an additional one-third of such Shares (rounded up to the
next whole Share) on March 3, 2012, and the remainder of such Shares on March 3, 2013,
subject in each case to the prior termination of the Stock Option/SAR.

e. Exercisability Upon Death, Disability or Change of Control. Notwithstanding the
foregoing, the Stock Options/SARs, to the extent outstanding, shall become immediately vested
and fully exercisable upon (a) a Change of Control or (b) a Termination of Employment due to
death or Disability. For purposes of this Award Agreement, Disability means (1) “Disability” as
defined in your Employment Agreement, or (2) if there is no such employment or similar agreement
or it does not define “Disability,” permanent and total disability as determined under ALC’s
long-term disability plan applicable to Employee. For purposes of this Award Agreement,
Termination of Employment means the termination of Employee’s employment with, or performance of
services for, ALC and any of its Subsidiaries or Affiliates. A participant employed by, or
performing services for, a Subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the Subsidiary or Affiliate ceases to be such a Subsidiary or
an Affiliate, as the case may be, and the participant does not immediately thereafter become an
employee of, or service-provider for, ALC or another Subsidiary or Affiliate. Temporary
absences from employment because of illness, vacation or leave of absence and transfers among
ALC and its Subsidiaries and Affiliates shall not be considered Terminations of Employment.

 

 

 

ASSISTED LIVING CONCEPTS, INC.

f. Suspension or Termination of Stock Options/SARs. If at any time (including
after a notice of exercise has been delivered) the Committee, including any administrator
authorized pursuant to Section 3(e) of the Plan (any such person, an “Authorized Officer”),
reasonably believes that Employee has committed an act of misconduct as described in this
Section, the Committee or Authorized Officer may suspend the Employee’s right to exercise any
Stock Option/SAR pending a determination of whether an act of misconduct has been committed. If
the Committee or an Authorized Officer determines Employee has committed an act of embezzlement,
fraud, dishonesty, nonpayment of any obligation owed to ALC, breach of fiduciary duty or
deliberate disregard of ALC rules resulting in loss, damage or injury to ALC, or if Employee
makes an unauthorized disclosure of any ALC trade secret or confidential information, engages in
any conduct constituting unfair competition, or induces a customer to breach a contract with
ALC, neither Employee nor his or her estate shall be entitled to exercise any Stock Option/SAR
whatsoever. In addition, if Employee is designated an “executive officer” by the Board and if
the Committee determines that Employee engaged in an act of embezzlement, fraud or breach of
fiduciary duty during Employee’s employment that contributed to an obligation to restate ALC’s
financial statements (“Contributing Misconduct”), Employee shall be required to repay ALC, in
cash and upon demand, the Option Proceeds (as defined below) resulting from the sale or other
disposition (including to ALC) of Shares issued or issuable upon exercise of a Stock Option or
SAR if the sale or disposition was effected during the twelve-month period following the first
public issuance or filing with the Securities and Exchange Commission of the financial
statements required to be restated. The term “Option Proceeds” means, with respect to any sale
or other disposition (including to ALC) of Shares issued or issuable upon exercise of a Stock
Option or SAR, an amount determined appropriate by the Committee to reflect the effect of the
restatement on ALC’s stock price, up to the amount equal to the number of Shares sold or
disposed of multiplied by the difference between the market value per Share at the time of such
sale or disposition and the exercise price. The return of Option Proceeds is in addition to and
separate from any other relief available to ALC due to the executive officer’s Contributing
Misconduct. Any determination by the Committee with respect to the foregoing shall be final,
conclusive and binding on all interested parties.

3. The Plan. This Award is made pursuant to the Plan, all the terms of which are hereby
incorporated in this Award Agreement. In the event of any conflict between the terms of the Plan
and the terms of this Award Agreement, the terms of this Award Agreement shall govern;
provided, however, that, notwithstanding the foregoing, it is understood that the
provisions of Section 6(i)(vi)(D) of the Plan, including but not limited to the concept of
“negative discretion,” shall not be applicable to the Stock Options/SARs. In the event of any
conflict between the terms of this Award Agreement and the terms of any Employment Agreement, the
terms of your Employment Agreement will govern.

4. Exercise of the Stock Options.

a. Stock Options as to which the Employee is vested, which have become exercisable, and which
have not terminated may be exercised by delivery to the Secretary of ALC of a written or
electronic notice, complying with the applicable procedures established by the Committee or ALC,
stating the number of whole Shares to be purchased pursuant to this Award Agreement and the date
on which the Employee wants to exercise the Stock Option and accompanied by payment of the full
purchase price of the Shares to be purchased.

b. The full purchase price of the Stock Option (the Exercise Price multiplied by the number of
Stock Options exercised) shall be paid in cash, by wire transfer, or by certified check or bank
draft payable to the order of ALC, by exchange of Shares of unrestricted Common Stock of ALC
already owned by the Employee and having an aggregate Fair Market Value equal to the full
purchase price, or by any other procedure approved by the Committee, or by a combination of the
foregoing.

c. Employees who are not Executive Officers (as such term is defined the by Securities and
Exchange Commission) may also give notice and make payment through a brokerage firm pursuant to
an arrangement approved by ALC in advance.

 

 

 

ASSISTED LIVING CONCEPTS, INC.

5. Exercise of Stock Appreciation Rights. SARs as to which the Employee is vested, which
have become exercisable, and which have not terminated may be exercised by delivery to the
Secretary of ALC of a written or electronic notice, complying with the applicable procedures
established by the Committee or ALC, stating the whole number of SARs that are thereby exercised.
Upon exercise, ALC shall deliver to Employee or Employee’s legal representative, at the absolute
discretion of the Committee, either (i) the number of Shares (rounded down to the nearest whole
Share) (the “Number of Equivalent Shares”) equal to (x) (A) the excess, if any, of the Fair Market
Value per Share on the exercise date over the Exercise Price per Share of the SAR, multiplied by
(B) the number of SARs being exercised pursuant to such notice, divided by (y) the Fair Market
Value per Share on the exercise date, (ii) cash equal to the Fair Market Value per Share on the
exercise date multiplied by the Number of Equivalent Shares, or (iii) any combination of cash and
Shares with an aggregate value equal to the Fair Market Value per Share on the exercise date
multiplied by the Number of Equivalent Shares.

6. Expiration of Stock Options/SARs. Unless the Committee determines otherwise and except
as otherwise provided in Section 7 or in your Employment Agreement, unexercised Options/SARs expire
(i) automatically on the date of your Termination of Employment for Cause (as defined in your
Employment Agreement or, if your Employment Agreement does not contain a definition of Cause, as
determined according to Section 7(e) hereof) or (ii) 90 days after the effective date of your
Termination of Employment for any reason other than Cause; provided that any portion of the
Stock Options/SARs that is not vested as of such effective date ceases vesting and terminates
immediately; and provided further that all Options/SARs will automatically expire on the
fifth anniversary of this Award Agreement.

7. Termination of Employment.

a. If the Employee incurs a Termination of Employment due to Disability, the Stock Options/SARs,
to the extent outstanding at the time of such Termination of Employment, shall become
immediately vested and fully exercisable and may be exercised by the Employee at any time prior
to the first to occur of (i) one year after such Termination of Employment or (ii) the
expiration date of the Stock Options/SARs, and shall thereafter expire.

b. If the Employee incurs a Termination of Employment due to death, the Stock Options/SARs, to
the extent outstanding at the time of such Termination of Employment, shall become immediately
vested and fully exercisable and may be exercised by the Employee’s estate or by a person who
acquired the right to exercise such Stock Options/SARs by bequest or inheritance or otherwise by
reason of the death of the Employee at any time prior to the first to occur of (i) one year
after such Termination of Employment or (ii) the expiration date of the Stock Options/SARs, and
shall thereafter expire.

c. If the Employee incurs a Termination of Employment due to retirement at or after age 65, the
portion of the Stock Options/SARs, if any, which is exercisable at the time of such Termination
of Employment may be exercised at any time prior to the first to occur of (i) three years after
such Termination of Employment or (ii) the expiration date of the Stock Options/SARs, and shall
thereafter expire. Any portion of the Stock Options/SARs that is not exercisable at the time of
such Termination of Employment due to retirement at or after age 65 shall expire as of such
Termination of Employment.

d. If the Employee incurs a voluntary Termination of Employment by the Employee (other than
retirement at or after age 65), the portion of the Stock Options/SARs, if any, which is
exercisable at the time of such Termination of Employment may be exercised at any time prior to
the first to occur of (i) 30 days after such Termination of Employment or (ii) the expiration
date of the Stock Options/SARs, and shall thereafter expire. Any portion of the Stock
Option/SAR that is not exercisable at the time of such Termination of Employment shall expire as
of such Termination of Employment.

 

 

 

ASSISTED LIVING CONCEPTS, INC.

e. If the Employee incurs a Termination of Employment by ALC without Cause, the portion of
the Stock Options/SARs, if any, which is exercisable at the time of such Termination of
Employment may be exercised at any time prior to the first to occur of (i) 90 days after such
Termination of Employment or (ii) the expiration date of the
Stock Option/SAR, and shall thereafter expire. Any portion of the Stock Options/SARs that is
not exercisable at the time of such Termination of Employment shall expire as of such
Termination of Employment. For purposes of this Award Agreement, Cause means, unless otherwise
provided by the Committee, (1) “Cause” as defined in any Employment Agreement, or (2) if there
is no such Employment Agreement or if it does not define Cause: (A) conviction of Employee for
committing a felony under federal law or the law of the state in which such action occurred, (B)
dishonesty in the course of fulfilling Employee’s employment duties, (C) willful and deliberate
failure on the part of Employee to perform his or her employment duties in any material respect,
or (D) prior to a Change in Control, such other events as shall be determined by the Committee.
The Committee shall, unless otherwise provided in any employment or similar agreement between
Employee and ALC, have the sole discretion to determine whether “Cause” exists, and its
determination shall be final.

8. Voting Rights; Dividend Equivalents. Prior to the date on which your rights with
respect to Options/SARs have become vested and you exercise such Options/SARs, you shall not be
entitled to exercise any voting rights with respect to such Options/SARs or any Shares with respect
thereto, and shall not be entitled to receive dividends or other distributions with respect
thereto.

9. Non-Transferability of Options/SARs. Unless otherwise provided by the Committee in its
discretion, Options/SARs may not be sold, assigned, alienated, transferred, pledged, attached or
otherwise encumbered except as provided in Section 9(a) of the Plan. Any purported sale,
assignment, alienation, transfer, pledge, attachment or other encumbrance of Options/SARs in
violation of the provisions of this Section 9 and Section 9(a) of the Plan shall be void.

10. Adjustment in the Event of Change in Stock. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares of Common Stock
outstanding), such as a stock split or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of ALC, any
reorganization (whether or not such reorganization comes within the definition of such term in
Section 368 of the Code), or any partial or complete liquidation of ALC, the number and kind of
shares subject to the Stock Option/SAR and/or the exercise price per share shall be adjusted by the
Board or Committee as the Board or Committee may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to the Stock Options/SARs shall
always be a whole number. The determination of the Board or Committee regarding any adjustment
will be final and conclusive.

11. Payment of Transfer Taxes, Fees and Other Expenses. ALC agrees to pay any and all
original issue taxes and stock transfer taxes that may be imposed on the issuance of Shares
acquired pursuant to exercise of the Stock Options/SARs, together with any and all other fees and
expenses necessarily incurred by ALC in connection therewith.

12. Other Restrictions on Exercisability. The exercise of the Stock Options/SARs and the
delivery of share certificates upon such exercise shall be subject to the requirement that, if at
any time the Committee shall determine that (a) the listing, registration or qualification of the
shares of Common Stock subject or related thereto upon any securities exchange or under any state
or federal law or (b) the consent or approval of any government regulatory body is, in the case or
(a) or (b), necessary or desirable as a condition of, or in connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then in any such event such exercise shall not be
effective unless such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.

13. Taxes and Withholdings. No later than the date of exercise of the Stock Options/SARs
granted hereunder, the Employee shall pay to ALC or make arrangements satisfactory to the Committee
regarding payment of any federal, state and local taxes, and any non-U.S. taxes applicable to the
Employee, of any kind required by law to be withheld upon the exercise of such Stock Options/SARs.
In the event that there is withholding tax liability in connection with the exercise of
Options/SARs, you may satisfy, in whole or in part, any withholding tax liability by having ALC
withhold from the number of Shares you would be entitled to receive pursuant to the exercise of the
Options/SARs, a number of Shares having a Fair Market Value equal to such withholding tax
liability. ALC shall, to the extent permitted or required by law, have the right to deduct from
any payment of any kind otherwise due to the Employee federal, state, local and applicable non-U.S.
taxes of any kind required by law to be withheld upon the exercise of such Stock Options/SARs.

 

 

 

ASSISTED LIVING CONCEPTS, INC.

14. Consents and Legends.

a. Consents. Your rights in respect of the Options/SARs that are subject to this
Award are conditioned on the receipt to the full satisfaction of the Committee of any required
consents that the Committee may reasonably determine to be necessary or advisable (including,
without limitation, your consenting to ALC’s supplying to any third-party record keeper of the
Plan such personal information as ALC or the Committee deems advisable to administer the Plan).

b. Legends. ALC may affix to certificates for Shares issued pursuant to this Award
Agreement any legend that ALC or the Committee determines to be necessary or advisable
(including to reflect any restrictions to which you may be subject under any applicable
securities laws). ALC may advise the transfer agent to place a stop order against any legended
Shares.

15. Successors and Assigns of ALC. The terms and conditions of this Award Agreement shall
be binding upon and shall inure to the benefit of ALC and its successors and assigns.

16. Committee Discretion. Subject to the terms of your Employment Agreement, the Committee
shall have full and plenary discretion with respect to any actions to be taken or determinations to
be made in connection with this Award Agreement, and its determinations shall be final, binding and
conclusive.

17. Dispute Resolution.

a. Jurisdiction and Venue. Notwithstanding any provision in your Employment
Agreement, you and ALC irrevocably submit to the exclusive jurisdiction of (i) the United States
District Court for the Eastern District of Wisconsin and (ii) the courts of the State of Wisconsin
for the purposes of any suit, action or other proceeding arising out of this Award Agreement or the
Plan. You and ALC agree to commence any such action, suit or proceeding either in the United
States District Court for the Eastern District of Wisconsin or, if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the courts of the State
of Wisconsin. You and ALC further agree that service of any process, summons, notice or document
by U.S. registered mail to the other party’s address set forth below shall be effective service of
process for any action, suit or proceeding in Wisconsin with respect to any matters to which you
have submitted to jurisdiction in this Section 17(a). You and ALC irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit or proceeding arising out of this
Award Agreement or the Plan in (A) the United States District Court for the Eastern District of
Wisconsin or (B) the courts of the State of Wisconsin, and hereby and thereby further irrevocably
and unconditionally waive and agree not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient forum.

b. Waiver of Jury Trial. You and ALC hereby waive, to the fullest extent permitted
by applicable law, any right either of you may have to a trial by jury in respect to any
litigation directly or indirectly arising out of, under or in connection with this Award
Agreement or the Plan.

c. Confidentiality. You hereby agree to keep confidential the existence of, and
any information concerning, a dispute described in this Section 17, except that you may disclose
information concerning such dispute to the court that is considering such dispute or to your
legal counsel or other advisors (provided that such counsel or other advisors agree not to
disclose any such information other than as necessary to the prosecution or defense of the
dispute).

18. Notice. All notices, requests, demands and other communications required or permitted
to be given under the terms of this Award Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or overnight courier or three Business Days after they have
been mailed by U.S. registered mail, return receipt requested, postage prepaid, addressed to the
other party as set forth below:

 

 

 

ASSISTED LIVING CONCEPTS, INC.

	 	 	 	 	 
	 

	 	If to ALC:
	 	Assisted Living Concepts, Inc.
	 

	 	 	 	W140 N8981 Lilly Road
	 

	 	 	 	Menomonee Falls, WI 53051
	 

	 	 	 	Attention: Corporate Secretary
	 
	 	 	 	 
	 

	 	If to Employee:
	 	Address contained in payroll records

The parties may change the address to which notices under this Award Agreement shall be sent
by providing written notice to the other in the manner specified above.

19. Headings. Headings are given to the Sections and subsections of this Award Agreement
solely as a convenience to facilitate reference. Such headings shall not be deemed in any way
material or relevant to the construction or interpretation of this Award Agreement or any provision
thereof.

20. Amendment of this Award Agreement. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Award Agreement
prospectively or retroactively; provided, however, that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would materially and
adversely impair your rights under this Award Agreement shall not to that extent be effective
without your consent (it being understood, notwithstanding the foregoing proviso, that this Award
Agreement and the Options/SARs shall be subject to the provisions of Section 7(c) of the Plan).

21. Counterparts. This Award Agreement may be signed in counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument.

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

ASSISTED LIVING CONCEPTS, INC. EMPLOYEE

By:                                                                                      

Title:                                          [EMPLOYEE NAME]exv10w3

Exhibit 10.3

May 25, 2010

Via Hand Delivery

Raymond L. Tyler

1400 Vintage Circle,

Franklin, Tennessee 37064

     Re: Termination of Employment

Dear Ray:

     This letter will confirm the terms of the agreement (the “Agreement”) between Raymond L. Tyler
(“Tyler”) and Advocat Inc. and/or any of its wholly-owned subsidiaries (collectively the
“Company”). Capitalized terms used in this letter but not defined herein shall have the meaning
ascribed to them in the Employment Agreement between Tyler and the Company dated March 31, 2006 as
amended March 9, 2009 (“Employment Agreement”).

     1. Tyler has submitted, and the Company has accepted, a notice of termination of employment
with the Company pursuant to the Constructive Discharge provisions effective as of the close of
business on May 25, 2010 (“Date of Termination”). In return for the agreements set forth herein,
the Company will pay Tyler a lump sum payment of $308,000 as provided in the Employment Agreement,
payable pursuant to Section 409A(a)(2)(B)(i) of the Internal Revenue Code (“Section 409A”), on the
six month anniversary of the Date of Termination. The foregoing sum shall be offset by any
amounts that Tyler may owe the Company at the time of termination. The Company shall also pay Tyler
in a lump sum on his Date of Termination an amount equal to his accrued but unused vacation time.
For a period of eighteen months after his Date of Termination, if requested by Tyler, the Company
shall continue to pay his disability insurance premium and if Tyler elects to continue COBRA
benefits, the Company shall reimburse Tyler for the cost of such health insurance
benefits.

     Tyler’s outstanding stock options and stock appreciation rights (“SARs”) shall be deemed
vested, and the options and SARs shall remain exercisable until December 31, 2010. In addition,
pursuant to the requirements of Section 409A, the amount of Tyler’s bonus for 2008 and 2009 that he
deferred under the 2008 Stock Purchase Plan for Key Personnel plus accrued dividends will be paid
to Tyler on October 14, 2011, and the Company will report 50% of such amount to the IRS for tax
year 2010, with respect to which there shall be an additional tax of 20%.

     2. Tyler will return any Company property in his possession, custody, or control including,
without limitation, all records, memoranda, etc. relating to the business of the Company whether
made by Tyler or otherwise coming into his possession. Tyler acknowledges that all such property
is confidential and will remain the property of the Company.

     3. On behalf of Tyler and his heirs, representatives, and assigns, Tyler discharges and
releases the Company and its affiliates and agents (collectively the “Released Parties”) from all
claims, obligations, and demands that Tyler had, has, or may have arising out of or related to

 

 

his employment and/or the termination of his employment. Without limiting the generality of the
foregoing, Tyler discharges and releases any claims, causes of action, liabilities, covenants,
agreements, obligations, damages, and/or demands of every nature, character, and description under
Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with
Disabilities Act, the Family and Medical Leave Act, the Tennessee Human Rights Act, the Civil
Rights Act of 1991, the Age Discrimination in Employment Act, the Older Worker Benefit Protection
Act, the Employee Retirement Income Security Act of 1974 (except with respect to benefits to which
Tyler has a vested entitlement), and all other federal, state, and local laws including any laws
regarding wrongful discharge, breach of contract, retaliation, infliction of emotional distress
(collectively, the “Released Claims”).

     4. Tyler agrees and understands that the effect of this Agreement is to waive and release any
and all claims, causes of action, liabilities, covenants, agreements, obligations, damages and/or
demands of every nature, character, and description, without limitation in law, equity, or
otherwise, that Tyler had, has, or may have, whether known or unknown, against any of the Released
Parties for any liability, whether vicarious, derivative, direct, or indirect. The foregoing
includes, without limitation, any claims for damages (actual or punitive), back wages, future
wages, commission payments, bonuses, reinstatement, past and future employee benefits (except to
which there is vested entitlement) including contributions to the Company’s employee benefit plans,
compensatory damages, penalties, equitable relief, attorneys’ fees, costs of court, interest, and
any and all other loss, expense, or detriment of whatever kind arising out of or related in any way
to your employment by the Company and/or the termination of such employment. However, Tyler does
not by virtue of this Agreement waive or release any claims that arise after his signature below.

     5. Tyler will not initiate, or cause to be initiated, any lawsuit based on the Released
Claims. Except as prohibited by law, Tyler will indemnify the Company and all other Released
Parties for any sum of money that any of them may hereafter be compelled to pay Tyler, his heirs,
representatives, or assigns and any of the Company’s legal fees and/or costs associated therewith
on account Tyler bringing or allowing to be brought on his behalf legal action based upon the
Released Claims. Furthermore, Tyler understands and agrees that this Agreement does not constitute
any admission by the Company of any liability or of any violation of any federal, state, or local
laws.

     6. Tyler and the Company will treat the terms, conditions, amount, and circumstances relating
to this Agreement as confidential, except as disclosure may be required by applicable law. Tyler
may disclose the terms of this Agreement to his tax advisor or counsel, provided that they agree to
maintain the confidentiality of this Agreement. If Tyler is required to make any disclosure
required by law, Tyler agrees to inform the Company immediately and prior to any such disclosure.
Obligations under this paragraph shall terminate to the extent that information contained herein is
made public by the Company in the course of its compliance with public disclosure obligations.

     7. Tyler shall have a period of up to 21 calendar days in which to consider entering into this
Agreement. Tyler acknowledges that he has had the opportunity to read and review this Agreement
and seek legal advice. Tyler freely and voluntarily, and without coercion, agrees to

Page 2 of 4

 

and understands the significance and consequences of the terms of this Agreement. Tyler agrees not
to sign this Agreement prior to the Date of Termination. Following the date of Tyler’s signature
below, Tyler shall have a period of 7 calendar days within which to revoke his acceptance of this
Agreement, in which case this Agreement shall be null and void. If Tyler does not exercise his
right to revoke this Agreement within 7 calendar days of Tyler’s signature, this Agreement shall be
held in full force and effect as of the 8th calendar day (the “Effective Date”) and each
party shall be obligated to comply with its requirements. The parties agree that any changes made
to this Agreement (whether material or immaterial) as a result of the negotiation of the parties do
not restart the running of the 21-day period noted above.

     8. Tyler and the Company will not engage in any conduct, verbal or otherwise, that would
disparage or harm the reputation of the other. Such conduct shall include, without limitation, any
negative statements made verbally or in writing by Tyler or the Company about the other.

     9. Tyler will at all times maintain strict confidentiality of, and will not 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. Tyler 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. Tyler will also use his best efforts to
prevent the disclosure of this information by others.

     10. For a period of Twelve (12) months following the termination of his employment, Tyler 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 Tyler in the absence of his relationship to the Company.

     11. For a period of Twelve (12) months following the termination of his employment, Tyler will
not (and Tyler will not assist others to) directly or indirectly, hire any employee of the Company
or solicit or encourage any such employee to leave the employ of the Company.

     12. In his letter dated April 23, 2010, Tyler indicated that he believed that certain of the
non-compete provisions of Section IX(C) of Tyler’s Employment Agreement would not apply since his
termination of employment is pursuant to a Constructive Discharge. The Company acknowledges that
the provisions of the second sentence of Section IX(C) of Tyler’s Employment Agreement do not apply
to his termination as Tyler’s termination is pursuant to a Constructive Discharge. However, Tyler
and the Company confirm and agree that all other confidentiality, non-solicit, non-hire and related
provisions will continue to apply according to their terms. Specifically, Sections IX(A), (B),
(D) and (E), as well as the first and the last sentence in Section IX (C) shall survive this
Agreement and continue to apply according to their terms.

     13. As part of his employment, Tyler acknowledges and agrees that he has obtained knowledge,
information, and expertise regarding the operations of the Company that may be useful to the
Company in prosecuting, defending and otherwise managing current and future litigation matters by
or against the Company. Therefore, Tyler will, with reasonable notice after

Page 3 of 4

 

the Date of Termination, 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.

     14. In response to inquiries from his prospective employers, Tyler agrees that the Company may
provide his dates of employment with the Company, job titles while employed by the Company, and
final salary. Tyler agrees to advise any prospective employers to contact the Human Resources
Department of the Company with regard to any references or other inquiries.

     15. Tyler acknowledges that his breach or threatened or attempted breach of any provision of
this Agreement would cause irreparable harm to the Company not compensable in monetary damages.
Notwithstanding the parties’ agreement to arbitrate disputes, Tyler consents to the issuance of a
temporary restraining order and preliminary injunction by a court of competent jurisdiction to
prohibit and enjoin any breach of a provision of this Agreement.

     16. Except with respect to the release of claims provided for above, the provisions of this
Agreement shall be severable, and the invalidity of any provisions or portion thereof shall not
affect the validity of the other provisions. To the extent that a court of competent jurisdiction
deems any provision of this Agreement unenforceable (except the release of claims), such court
shall modify the terms of the Agreement by adding, deleting, or changing in its discretion any
language necessary to make such provision enforceable to the maximum extent permitted by law, and
the parties expressly agree to be bound by any such provision as reformed by such court. If this
Agreement is not enforceable in whole or in part after such severance or reformation, the Company
shall have a contractual right of restitution, recoupment, and set-off to recover from Tyler any
consideration paid to him under this Agreement.

     17. This Agreement constitutes the entire agreement between the parties with respect to its
subject matter and, except as expressly set forth above, supersedes all previous agreements and
understandings between the parties. This Agreement may not be modified except in a writing signed
by both parties. This Agreement shall be governed by and construed in accordance with the laws of
the State of Tennessee and without regard to any rule of construction under which an agreement may
be construed against the drafter or any rule regarding conflicts of law. Any dispute among the
parties 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.

     Tyler has carefully read this Agreement. Tyler hereby accepts and agrees to all of the terms
and conditions of this Agreement.

	 	 	 	 	 	 	 

	Advocat Inc.	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ William R. Council III	 	/s/ Raymond L. Tyler	 	 
	 

By: William R. Council, III	 	 

Raymond L. Tyler	 	 
	Title:

	 	President
	 	Date: May 25, 2010	 	 
	Date:

	 	May 25, 2010	 	 	 	 

Page 4 of 4

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