Document:

Exhibit 10.15

 

PLEDGE AND SECURITY AGREEMENT

 

This PLEDGE AND SECURITY AGREEMENT (this “Agreement”) is made this 31st day of May, 2013, between ADCARE HEALTH SYSTEMS, INC., an Ohio corporation (“Grantor”), and KEYBANK NATIONAL ASSOCIATION, a national banking association, as lender (“Lender”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Secured Loan Agreement dated as of December 28, 2012, as amended by that certain First Amendment to Secured Loan Agreement and Payment Guaranty dated as of even date herewith (the “First Amendment”; as such loan agreement may be further amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, collectively, the “Loan Agreement”) among Lender, Woodland Hills HC Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, APH&R Property Holdings, LLC, Woodland Hills HC Nursing, LLC, Northridge HC&R Nursing, LLC, and APH&R Nursing, LLC (collectively, the “Borrower”), Lender has made, and is willing to make, certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof, and

 

WHEREAS, in order to induce Lender to enter into the First Amendment, Grantor has agreed to grant a continuing security interest in and to the Collateral (as hereinafter defined) in order to secure the prompt and complete payment, observance and performance of (a) the obligations of Grantor arising from this Agreement and that certain Payment Guaranty from Grantor in favor of Lender dated as of December 28, 2012 (as may be amended, restated, supplemented or otherwise modified from time to time (the “Guaranty”) (including, without limitation, any interest, fees or expenses that accrue after the filing of an insolvency proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any insolvency proceeding), plus (b) the “Obligations” as defined in the Loan Agreement, plus (c) reasonable attorneys fees actually incurred and expenses if the obligations represented thereunder are collected by law, through an attorney-at-law, or under advice therefrom (clauses (a), (b) and (c) being hereinafter referred to as the “Secured Obligations”), by the granting of the security interests contemplated by this Agreement, and

 

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                      Defined Terms. All capitalized terms used herein (including, without limitation, in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Loan Agreement.  In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

 

 

(a)                                 “Event of Default” as used in this Agreement means an “Event of Default as defined in the Loan Agreement.

 

(b)                                 “Investment Related Property” means investment property (as that term is defined in the UCC) owned by Grantor with respect to the Collateral.

 

(c)                                  “UCC” shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Ohio provided, that to the extent that the UCC is used to define any term herein and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Ohio the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

 

2.                                      Grant of Security.  Grantor hereby unconditionally grants, assigns and pledges to Lender, a continuing security interest (hereinafter referred to as the “Security Interest”), in Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the “Collateral”):

 

(a)                                 that certain Secured Promissory Note dated as of December 28, 2012, as amended, by CHP Acquisition Company, LLC (“CHP”) in favor of Grantor, including all liens, security agreements, leases, pledge agreements and other contracts securing or otherwise relating to the foregoing (including, but not limited to, the lien and security interest created by that certain Pledge and Security Agreement dated as of December 28, 2012 by CHP in favor of Grantor);

 

(b)                                 all of the proceeds of any of the foregoing, money, or other tangible or intangible property resulting from the sale, or other disposition of any of the foregoing, the portion thereof or interest therein, and the proceeds thereof, (the “Proceeds”).

 

3.                                      Security for Obligations.  This Agreement and the Security Interest created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantor, to Lender, but for the fact that they are unenforceable or not allowable due to the existence of any insolvency proceeding involving Grantor.

 

4.                                      Grantor Remains Liable.  Anything herein to the contrary notwithstanding, (a) Grantor shall remain liable under and in accordance with the contracts and agreements included in the Collateral to those parties to whom Grantor has contracted, to perform all of the duties and obligations of Grantor thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Lender of any of the rights hereunder shall not release Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c)

 

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Lender shall not have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder; provided, however, that if following an Event of Default Lender becomes the owner of the Collateral, Lender shall thenceforth be responsible for complying with such duties as may arise thereafter as are to be performed by virtue of owning such Collateral.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Loan Agreement, or other Loan Documents, Grantor shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of its business, subject to and upon the terms hereof and of the Loan Agreement and the other Loan Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that so long as no Event of Default then exists and notwithstanding anything to the contrary contained in this Agreement, the Loan Agreement or any other Loan Document, Grantor may receive (and make request for if not timely paid) and retain all fees, distributions, returns of capital, member loan repayments and other payments payable to Grantor with respect to the Collateral.  Following the occurrence of an Event of Default Lender shall notify Grantor of Lender’s exercise of remedies pursuant to Section 12 hereof.

 

5.                                      Representations and Warranties.  Grantor hereby represents and warrants as follows:

 

(a)                                 The exact legal name of Grantor is set forth on the signature page of this Agreement.

 

(b)                                 This Agreement creates a valid security interest in the Collateral of Grantor, to the extent a security interest therein can be created under the UCC, securing the payment of the Secured Obligations.  Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the UCC, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of the financing statement listing Grantor as a debtor, and Lender, as secured party, in the office of the Secretary of State of Ohio (“Ohio SOS”).  Upon the making of such filing, Lender shall have a first priority perfected security interest in the Collateral of Grantor to the extent such security interest can be perfected by the filing of a financing statement.

 

(c)                                  All actions necessary or desirable to create, perfect, establish the first priority of, or otherwise protect, Lender’s liens in the Collateral, and the proceeds thereof, have been duly taken, (A) upon the execution and delivery of this Agreement; (B) upon the taking of possession by Lender of any certificates constituting the Collateral, to the extent the Collateral is represented by certificates, together with undated powers endorsed in blank by Grantor; (C) upon the execution and delivery of any allonges to any notes constituting the Collateral; and (D) upon the filing of the financing statement in the Ohio SOS with respect to the Collateral that is not represented by certificates; and (iv) if and to the extent that any of the Collateral is represented by certificates, Grantor has delivered to and deposited with Lender all certificates representing the Collateral, and undated powers endorsed in blank with respect to such certificates.

 

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(d)                                 Other than as expressly set forth in the Loan Agreement, no consent, approval, authorization, or other order or other action by, and no notice to or filing with, any governmental authority or any other Person is required (i) for the grant of a Security Interest by Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by Grantor, or (ii) for the exercise by Lender of the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally.

 

6.                                      Covenants.  Grantor, covenants and agrees with Lender that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 17 hereof:

 

(a)                                 Possession of Collateral.  In the event that any Collateral, including proceeds, is evidenced by or consists of Investment Related Property, and if and to the extent that perfection or priority of Lender’s Security Interest is dependent on or enhanced by possession, Grantor, immediately upon the request of Lender and in accordance with Section 8 hereof, shall execute such other documents as shall be requested by Lender or, if applicable, endorse and deliver physical possession of such Investment Related Property to Lender, together with such undated powers endorsed in blank as shall be requested by Lender;

 

(b)                                 Transfers and Other Liens.  So long as this Agreement remains in effect, Grantor shall not (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, negative pledge, charge, restriction or other security interest of any kind upon any of the Collateral whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, (iii) create or permit to exist any lien  or encumbrance upon or with respect to any of the Collateral of Grantor except for Permitted Exceptions, or (iv) transfer any of the Collateral or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute Lender’s consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Loan Documents.

 

7.                                      Relation to Loan Agreement.  In the event of any conflict between any provision in this Agreement and a provision in the Loan Agreement, such provision of the Loan Agreement shall control.

 

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8.                                      Further Assurances.

 

(a)                                 Grantor agrees that from time to time, at its own expense, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Lender may reasonably request, in order to perfect and protect any Security Interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

 

(b)                                 Grantor authorizes the filing of such financing or continuation statements, or amendments thereto, and Grantor will execute and deliver to Lender such other instruments or notices, as may be necessary or as Lender may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.

 

(c)                                  Grantor also hereby ratifies its authorization for Lender to have filed in any jurisdiction any financing statements filed prior to the date hereof.

 

(d)                                 Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Lender, subject to Grantor’s rights under Section 9-509(d)(2) of the UCC.

 

9.                                      Lender Appointed Attorney-in-Fact.  Grantor hereby irrevocably appoints Lender its attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under the Loan Agreement, to take any action and to execute any instrument which Lender may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:  to file any claims or take any action or institute any proceedings which Lender may deem necessary or desirable for the collection of any of the Collateral of Grantor or otherwise to enforce the rights of Lender with respect to any of the Collateral.

 

To the extent permitted by law, Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated.

 

10.                               Lender May Perform.  If Grantor fails to perform any agreement contained herein, Lender may itself perform, or cause performance of, such agreement, and the reasonable expenses of Lender incurred in connection therewith shall be payable, by Grantor.

 

11.                               Lender’s Duties.  The powers conferred on Lender hereunder are solely to protect Lender’s interest in the Collateral, and shall not impose any duty upon Lender to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Lender accords its own property.

 

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12.                               Remedies.  Upon the occurrence and during the continuance of an Event of Default:

 

(a)                                 Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the UCC or any other applicable law.  Without limiting the generality of the foregoing, Grantor expressly agrees that, in any such event, Lender without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC or any other applicable law), may take immediate possession of all or any portion of the Collateral and without notice except as specified below, sell the Collateral or any part thereof in one or more components at public or private sale, at any of Lender’s offices or elsewhere, for cash, on credit, and upon such other terms as Lender may deem commercially reasonable.  Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the UCC.  Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

(b)                                 Any cash held by Lender as Collateral and all cash proceeds received by Lender in respect of any sale of, collection from or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Loan Agreement.  In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, Grantor shall remain liable for any such deficiency.

 

(c)                                  Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that if an Event of Default shall occur, if and to the extent that either of the following remedies applies to the Collateral under applicable law, Lender shall have the right to an immediate writ of possession without notice of a hearing, the right to the appointment of a receiver for the Collateral, and Grantor hereby consents to such rights and such appointment and hereby waives any objection Grantor may have thereto or the right to have a bond or other security posted by Lender.

 

13.                               Remedies Cumulative.  Each right, power, and remedy of Lender as provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Lender, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Lender of any or all such other rights, powers, or remedies.

 

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14.                               Indemnity and Expenses.

 

(a)                                 Grantor agrees to indemnify Lender from and against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement) or any other Loan Document to which Grantor is a party, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction.  This provision shall survive the termination of this Agreement and the Loan Agreement and the repayment of the Secured Obligations.

 

(b)                                 Grantor shall, upon demand, pay to Lender all expenses which Lender may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the other Loan Documents, (iii) the exercise or enforcement of any of the rights of Lender hereunder or (iv) the failure by Grantor to perform or observe any of the provisions hereof.

 

15.                               Merger, Amendments; Etc.  THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of any provision of this Agreement, and no consent to any departure by Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Lender and Grantor.

 

16.                               Addresses for Notices.  All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Lender at its address specified in the Loan Agreement, and to Grantor at the address specified in the Loan Agreement for Borrower or, as to any party, at such other address as shall be designated by such party in a written notice to the other party, all of which to be given in accordance with a method for giving notice as prescribed in the Loan Agreement.

 

17.                               Continuing Security Interest: Assignments under Loan Agreement.  This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the Obligations have been paid in full in cash in accordance with the provisions of the Loan Agreement, (b) be binding upon Grantor, and its successors and assigns, and (c) inure to the benefit of, and be enforceable by, Lender, and its successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), Lender may, in accordance with the provisions of the Loan Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Loan Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lender herein or otherwise.  Upon payment in full in cash of the Obligations in accordance with the provisions of the Loan Agreement and the expiration or termination of the Loan, the Security Interest granted

 

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hereby shall automatically terminate without further action or documentation required and this Agreement all rights to the Collateral shall revert to Grantor or any other Person entitled thereto.  At such time, Lender will authorize the filing of appropriate termination statements to terminate such Security Interests.  No transfer or renewal, extension, assignment, or termination of this Agreement or of the Loan Agreement, any other Loan Document, or any other instrument or document executed and delivered by Grantor to Lender nor any additional Loans or other loans made by Lender to Borrower, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantor, by Lender, nor any other act of Lender shall release Grantor from any obligation, except a release or discharge executed in writing by Lender in accordance with the provisions of the Loan Agreement.  Lender shall not by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Lender and then only to the extent therein set forth.  A waiver by Lender of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Lender would otherwise have had on any other occasion.

 

18.                               GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE.

 

THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF OHIO AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).  GRANTOR AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF OHIO OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON GRANTOR BY MAIL AT THE ADDRESS SPECIFIED IN §16 HEREIN.  GRANTOR HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

 

19.                               Miscellaneous.

 

(a)                                 This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.

 

(b)                                 Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the

 

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remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.

 

(c)                                  Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof.

 

(d)                                 The pronouns used herein shall include, when appropriate, either gender or both singular and plural, and the grammatical construction of sentences shall conform thereto.

 

[EXECUTION ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through their duly authorized officers under seal, as of the day and year first above written.

 

	
GRANTOR:
    	
ADCARE   HEALTH SYSTEMS, INC., an Ohio corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Ronald W. Fleming
    
	
 
    	
Name:
    	
Ronald   W. Fleming
    
	
 
    	
Title:
    	
Chief   Financial Officer
    
	
 
    	
 
    
	
 
    	
 
    	
[CORPORATE SEAL]
    
				

 

[Signatures continued on following page]

 

Schedule 1

 

ADCARE  PLEDGE & SECURITY AGREEMENT

 

 

	
LENDER:
    	
KEYBANK   NATIONAL ASSOCIATION, as Lender 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Amy L. MacLearie
    
	
 
    	
Name:
    	
Amy   L. MacLearie
    
	
 
    	
Title:
    	
AVP   — Senior Closing Officer
    
	
 
    	
 
    
	
 
    	
 
    	
[BANK SEAL]
    
				

 

Schedule 2

 

ADCARE PLEDGE & SECURITY AGREEMENTExhibit 10.16

 

SEPARATION AND RELEASE AGREEMENT

 

This Separation and Release Agreement (the “Agreement”) is entered into between AdCare Health Systems, Inc. (the “Company” or “AdCare”) and Martin D. Brew (“Employee” or “Brew”) (the Company and Employee will be collectively referred to hereinafter as the “Parties” and individually as a “Party”).

 

WHEREAS, Employee was employed by the Company as its Chief Financial Officer until April 16, 2013;

 

WHEREAS, the Company allowed Employee to resign as Senior Vice President and Chief Financial Officer and all other corporate officer positions at the Company and its subsidiaries while remaining employed with the Company for a limited period of time, and Employee did resign from such positions effective April 15, 2013, and the Company accepted such resignation in lieu of terminating Employee for cause; and the Employee and the Company have reached agreement on the timing and other terms and conditions of the Employee’s resignation of his current positions with the Company and its subsidiaries;

 

WHEREAS, Employee and the Company have agreed that Employee will remain employed by the Company, for a limited period of time, as Vice President, to assist the Company in its transition of his duties and responsibilities to a new Chief Financial Officer (the “Transition Period”), and that Employee’s employment with the Company will terminate no earlier than June 4, 2013 (except as provided in Paragraph 3) and no later than November 30, 2013, but in the Company’s sole discretion as to the precise date (the date after June 4, 2013 and before November 30, 2013 as of which the Company gives Employee notice that the termination of his employment will be effective is referred to herein as the “Termination Date”) unless earlier terminated for Cause or Employee’s death;

 

WHEREAS, the Parties seek to fully and finally settle all existing claims, whether or not now known, arising out of Employee’s employment and termination of employment, on the terms set forth herein; and,

 

NOW THEREFORE, in consideration of Employee’s continued employment with the Company through at least June 4, 2013 (except as provided in Paragraph 3), and the severance payments and additional compensation described below, the Parties agree as follows:

 

1.                              Duties During Transition Period. During the Transition Period, Employee shall report to the Company’s Chief Executive Officer. The Employee shall devote such time, attention and energy to the business of the Company and performance of those duties assigned to him by the Chief Executive Officer as are necessary to properly perform such duties. The Company reserves the right to change the Employee’s position, duties, and the person to whom the Employee reports during the Transition Period, but any such change shall not effect any other provision of this Agreement. The Employee will be expected to carry out his duties, and to comply with all terms and conditions regarding the nature and manner of carrying out his duties as may be established from time to time by the Company and/or as set forth in the Company’s Employee Handbook or Manual. Employee may perform his duties and responsibilities from a remote location and will not be required to maintain specific office hours at either the Company’s Roswell or Buckhead facilities during the Transition Period. Employee will record

 

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all time spent performing services for the Company during the Transition Period and such time records will be submitted to the Company on a weekly basis. Employee will receive additional compensation of $120 per hour over and above his salary for the performance of such services during the Transition Period. Employee may take a vacation during the Transition Period in accord with the Company’s vacation policy if properly noticed.

 

2.                                     Compensation During Transition Period. From June 1, 2013 through the Termination Date, Employee shall be paid a salary of $20,833.33 per month, payable in bi-weekly installments on the date of the Company’s regular pay periods. Should the Termination Date occur mid-month, Employee shall be entitled only to the pro rata portion of his salary for those days worked in the month through and including the Termination Date. The Company shall reimburse any business expenses incurred by the Employee through the Termination Date that are eligible for reimbursement under Company policies, but have not yet been reimbursed, provided that the Employee submits those expenses with all required documentation and substantiation, within thirty (30) days following his Termination Date.

 

3.                                      Termination of Employment During Transition Period. From April 16, 2013 through and including June 4, 2013, Employee’s employment with the Company may only be terminated for “Cause,” meaning the Employee’s fraud, dishonesty or willful misconduct in his performance of his duties hereunder, or the Employee’s conviction for a crime of moral turpitude, or a material breach by Employee of this Agreement. From June 4, 2013, through and including November 30, 2013, the Company may terminate Employee’s employment in its sole discretion at any time, for any reason or no reason, and Employee’s employment with the Company during this period will be considered “at will.” The Termination Date for purposes of calculation of the start date of the severance payments set forth in Paragraph 5 of this Agreement shall be the date (not earlier than June 4, 2013 or later than November 30, 2013) as of which the Company gives Employee notice that the termination of his employment will be effective and as of which the Employee has a termination of employment that constitute a “separation from service” within the meaning of Section 409A of the Internal Revenue Code. To the extent practicable, the Company will provide Employee two weeks’ prior notice before the Termination Date.

 

4.                                      Stock Options and Benefits During Transition Period. The Company and Employee acknowledge that Employee is a participant in the AdCare Health Systems, Inc. 2011 Stock Incentive Plan (“Stock Plan”) and that Employee and Company entered into certain agreements related to the Stock Plan: AdCare Health Systems, Inc. Incentive Stock Option Agreement Under the 2011 Stock Incentive Plan dated June 3, 2011; the AdCare Health Systems, Inc. Incentive Stock Option Agreement Under the 2011 Stock Incentive Plan dated March 16, 2012; and the AdCare Health Systems, Inc. Non-Statutory Stock Option Agreement Under the 2011 Stock Incentive Plan dated March 16, 2011 (collectively, the “Stock Option Agreements”). The Company and Employee acknowledge and agree that subject to the provisions of Section 7 of each of the Stock Option Agreements, Employee may exercise any options which vest as of the Termination Date under the Stock Plan and the Stock Option Agreements at any time within 30 days of the Termination Date. Employee further agrees that, notwithstanding anything to the contrary in the Stock Plan or any Stock Option Agreement, Employee may not exercise any options granted thereunder until the first Trading Day (as hereinafter defined) which occurs immediately after the first date on which the Company has filed with the Securities and Exchange Commission both of (a) the Company’s Annual Report on

 

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Form 10-K for the year ended December 31, 2012 and (b) the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Option Exercise Date”). The Company further agrees that it will cause the Termination Date to be no more than 30 days prior to the Option Exercise Date. In addition, because he will no longer be regularly scheduled to work on a full-time basis, Employee understands and acknowledges that during the Transition Period his continuing eligibility for any and all other Company benefits shall be determined based upon his less than full-time status. Consequently, Employee may be entitled to lesser or even no such benefits during the Transition Period with such determinations based upon the applicable provisions of each benefit program. For purposes of this Agreement, “Trading Day” means a day on which the NYSE MKT LLC is open and available for trading of equity securities.

 

5.                                      Severance Pay. If the Company receives the Release attached hereto as Exhibit A (the “Release”), executed by Employee, upon the Termination Date and the seven (7)-day period within which Employee may revoke Employee’s acceptance of the Release, as explained in the Release has expired (and provided Employee has not exercised such right of revocation), and if Employee assists the Company during the Transition Period, and has not died or been terminated for “Cause,” the Company, beginning the first pay period after the Termination Date, shall pay to Employee the gross amount of Twenty Thousand Eight Hundred Thirty-Three Dollars and Thirty-Three Cents ($20,833.33) per month through the month of November 2013 and $2,688.17 for the period from December 1, 2013 through and including December 4, 2013(the “Severance Pay”), less applicable taxes and other lawful withholdings, which shall be payable in accordance with the Company’s normal payroll schedule and practices, in equal bi-weekly installments (except if the Termination Date occurs on a date other than the first of the month, Employee will receive only a pro rata amount of severance pay equal to the percentage of the month remaining after the Termination Date). Notwithstanding the foregoing, if the seven (7) day revocation period for the Release expires after the first pay date after the Termination Date, the first payment shall be made on the day after the expiration of the revocation period.

 

6.                                      Consideration. Employee acknowledges that the consideration set forth herein exceeds that to which Employee would otherwise be entitled. Irrespective of whether Employee signs this Agreement, Employee will be paid all compensation earned through the Termination Date and will retain any rights Employee may otherwise have to medical, dental, and vision benefits continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act or other applicable law (which rights will be explained in greater detail in a separate notice provided to Employee).

 

7.                                      Waiver and Release. For valuable consideration from the Company, receipt of which is hereby acknowledged, Employee waives, releases, and forever discharges the Company and its current and former parents, subsidiaries, divisions, affiliates, shareholders, officers, directors, attorneys, agents, employees, successors, and assigns (collectively referred to as the “Company Releasees”) from any and all rights, causes of action, claims or demands, whether express or implied, known or unknown, that arise on or before the date that Employee executes this Agreement, which Employee has or may have against the Company and/or the Company Releasees, including, but not limited to, any rights, causes of action, claims, or demands relating to or arising out of the following:

 

(a)                                anti-discrimination, anti-harassment, and anti-retaliation laws, such as the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, and Executive

 

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Order 11141, which prohibit employment discrimination based on age; Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Equal Pay Act, and Executive Order 11246, which prohibit discrimination based on race, color, national origin, religion, or sex; the Genetic Information Nondiscrimination Act, which prohibits discrimination on the basis of genetic information; the Americans With Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discrimination based on disability; and any other federal, state, or local laws prohibiting employment or wage discrimination;

 

(b)                                other employment laws, such as the Worker Adjustment and Retraining Notification Act, which requires that advance notice be given of certain workforce reductions; the Employee Retirement Income Security Act of 1974, which, among other things, protects employee benefits; the Family and Medical Leave Act, which requires employers to provide leaves of absence under certain circumstances; state laws which regulate wage and hour matters, including all forms of compensation, vacation pay, sick pay, compensatory time, overtime, commissions, bonuses, and meal and break periods; state family, medical, and military leave laws, which require employers to provide leaves of absence under certain circumstances; the Sarbanes Oxley Act; and any other federal, state, or local laws relating to employment; and

 

(c)                                  tort, contract, and quasi-contract claims, such as claims for wrongful discharge, physical or personal injury, intentional or negligent infliction of emotional distress, fraud, fraud in the inducement, negligent misrepresentation, defamation, invasion of privacy, interference with contract or with prospective economic advantage, breach of express or implied contract, unjust enrichment, promissory estoppel, breach of covenants of good faith and fair dealing, negligent hiring, negligent supervision, negligent retention, and similar or related claims;

 

(d)                                 the Employment Agreement between AdCare and Employee with an effective date of July 1, 2012 (the “Employment Agreement”); and,

 

(e)                                  all remedies of any type, including, but not limited to, damages and injunctive relief, in any action that may be brought on Employee’s behalf against the Company and/or the Company Releasees by any government agency or other entity or person.

 

Employee understands that Employee is releasing claims about which Employee may not know anything at the time Employee executes this Agreement. Employee acknowledges that it is Employee’s intent to release such unknown claims, even though Employee recognizes that someday Employee might learn new facts relating to Employee’s employment or learn that some or all of the facts Employee currently believes to be true are untrue, and even though Employee might then regret having signed this Agreement. Nevertheless, Employee acknowledges Employee’s awareness of that risk and agrees that this Agreement shall remain effective in all respects in any such case. Employee expressly waives all rights Employee might have under any laws intended to protect Employee from waiving unknown claims.

 

8.                                     Excluded Claims. Notwithstanding anything to the contrary, the waiver and release contained in this Agreement shall exclude any rights or claims that (a) may arise after the date on which Employee executes this Agreement; (b) cannot be released under applicable law (such as worker’s compensation and unemployment compensation claims); (c) arise under this Agreement; or, (d) arise under the Stock Plan or Stock Option Agreements. In addition, the Parties agree that this Agreement shall not adversely affect, alter, or extinguish any vested right

 

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that Employee may have with respect to any pension or other retirement benefits to which Employee is or will be entitled by virtue of Employee’s employment with the Company, and nothing in this Agreement shall prohibit Employee from enforcing such rights. Moreover, nothing in this Agreement shall prevent or preclude Employee from challenging in good faith the breach or validity of this Agreement, nor does it impose any conditions precedent, penalties, or costs for doing so, unless specifically authorized by applicable law. Also excluded from the release and waiver contained in this Agreement are any rights of indemnification and advancement of expenses that the Employee has pursuant to the Articles of Incorporation, as amended, the Code of Regulations, or applicable law. The Company agrees that the Employee’s rights in respect to indemnification and advancement of expenses shall be governed by the Articles of Incorporation and the Code of Regulations of the Company as currently in effect.

 

9.                                     No Other Claims. Except to the extent previously disclosed by Employee in writing to the Company, Employee represents and warrants that Employee has (a) filed no claims, lawsuits, charges, grievances, or causes of action of any kind against the Company and/or the Company Releasees and, to the best of Employee’s knowledge, Employee possesses no claims (including Fair Labor Standards Act [“FLSA”] and worker’s compensation claims); (b) received any and all compensation (including overtime compensation), meal periods, and rest periods to which Employee may have been entitled, and Employee is not currently aware of any facts or circumstances constituting a violation by the Company and/or the Company Releasees of the FLSA or other applicable wage, hour, meal period, and/or rest period laws; and (c) not suffered any work-related injury or illness within the twelve (12) months preceding Employee’s execution of this Agreement, and Employee is not currently aware of any facts or circumstances that would give rise to a worker’s compensation claim against the Company and/or the Company Releasees.

 

10.                               Further Releases Upon Termination Date. Employee agrees that as a condition to his right to receive the Severance Pay, and in consideration of the Severance Pay, he shall be required to enter into the Release attached hereto as Exhibit “A” on the Termination Date.

 

11.                              Wage Deduction Orders. Employee represents and warrants that Employee is not subject to any wage garnishment or deduction orders that would require payment to a third party of any portion of the Severance Pay. Any exceptions to the representation and warranty contained in this Paragraph must be described in writing and attached to the executed copy of this Agreement that Employee submits to the Company. Such disclosure shall not disqualify Employee from receiving Separation Pay under this Agreement; provided, however, that the amount of Severance Pay described in Paragraph 5 shall be reduced in accordance with any such wage garnishment or deduction order as required by applicable law.

 

12.                               Duty to Cooperate. Employee agrees that with at least ten days prior notice from the Company, where reasonably possible, after the Termination Date and for a period of twelve months thereafter, Employee will remain reasonably available to the Company as needed to consult with the Company and to assist in the smooth transition of Employee’s duties to one or more other employees of the Company. Employee will be paid $120.00 per hour and reimbursed his reasonable expenses for any consultation sought by the Company after the Termination Date, which may include Employee’s cooperation and assistance in the defense of the Company’s interests in pending or threatened litigation and any other administrative and regulatory proceedings which currently exist or which may arise in the future and involve the conduct of the

 

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Company’s business activities during the period of Employee’s employment with the Company. Employee shall not, however, be paid any compensation for testifying in any deposition, arbitration, trial or administrative proceeding. Employee’s obligations under this Paragraph with respect to the defense of the Company’s interests shall survive the Termination Date and the termination of this Agreement.

 

13.                              Non-Disparagement. Employee will refrain from making negative or disparaging remarks about the Company or the Company Releasees. Employee will not provide information or issue statements regarding the Company or the Company Releasees, or take any other action, that would cause the Company or the Company Releasees embarrassment or humiliation or otherwise cause or contribute to them being held in disrepute. Nothing in this Agreement shall be deemed to preclude Employee from providing truthful testimony or information pursuant to subpoena, court order, or similar legal process, or from providing truthful information to government or regulatory agencies.

 

14.                               Representations Regarding Disclosure Of Concerns. Employee represents and warrants that he is unaware of any conduct of the Company or its directors, officers or employees that would violate any state or federal law. Moreover, Employee represents and warrants that he has previously disclosed all items of concern with respect to the financial accounting practices of the Company, occurring during his tenure as the Company’s CFO, to the independent counsel for the Audit Committee of the Company’s Board of Directors.

 

15.                               Waiver of Future Employment With the Company. Employee agrees not to apply for employment, or seek reinstatement, with the Company (or any Company Releasee), and further agrees that the Company (and Company Releasees) has no obligation to hire or rehire Employee at any time after the Termination Date. Employee forever releases, waives, and relinquishes any right or claim to be hired by, or to reinstatement with, the Company (or any Company Releasee) after the Termination Date. Employee agrees that this Agreement is a lawful, non-discriminatory, and non-retaliatory basis upon which the Company (or any Company Releasee) may refuse to hire or rehire Employee.

 

16.                               Non-Admission of Liability. The Parties agree that nothing contained in this Agreement is to be construed as an admission of liability, fault, or improper action on the part of either of the Parties.

 

17.                               Return of Company Property. Employee represents and warrants that Employee, upon the Termination Date, will return all property belonging to the Company, including, but not limited to, all keys, access cards, office equipment, computers, cellular telephones, notebooks, documents, records, files, written materials, electronic information, credit cards bearing the Company’s name, and other Company property (originals or copies in whatever form) in Employee’s possession or under Employee’s control, with the exception of this Agreement and compensation and benefits-related documents concerning Employee upon the Termination Date.

 

18.                              Confidentiality. Employee represents and warrants that Employee has not communicated any aspect of the terms or substance of any negotiations leading up to this Agreement (the “Separation Negotiations”) to anyone other than Employee’s immediate family, Employee’s attorneys, and/or Employee’s financial advisor. Employee agrees that Employee will keep the terms and substance of the separation negotiations and this Agreement confidential,

 

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and that Employee will not disclose such information to anyone outside of Employee’s immediate family, Employee’s attorneys, and/or Employee’s financial advisor, except as may be required by law. If Employee advises anyone in Employee’s immediate family and/or Employee’s financial advisor about the separation negotiations or this Agreement, Employee agrees to advise that person of the confidentiality of the Separation Negotiations and this Agreement and to instruct that person not to disclose the terms, conditions, or substance of them to anyone. If Employee is asked about the Separation Negotiations or this Agreement, Employee agrees to limit any response to the following statement only: “The matter has been resolved.”

 

19.                              Consultation With Legal Counsel. The Company hereby advises Employee to consult with an attorney prior to signing this Agreement.

 

20.                               Review and Revocation Periods. Employee acknowledges that Employee has been given at least twenty-one (21) days to consider this Agreement from the date that it was first given to Employee. Employee agrees that changes in the terms of this Agreement, whether material or immaterial, do not restart the running of the twenty-one (21)-day consideration period. Employee shall have seven (7) days from the date that Employee executes the Agreement to revoke Employee’s acceptance of the Agreement by delivering written notice of revocation within the seven (7)-day period to the following Company contact:

 

Boyd Gentry

Chief Executive Officer

AdCare Health Systems, Inc.

Two Buckhead Plaza

3050 Peachtree Road NW

Atlanta, GA 30305

 

If Employee does not revoke acceptance, this Agreement will become effective and irrevocable by Employee on the eighth day after Employee has executed it.

 

21.                              Choice of Law. This Agreement is made and entered into in Georgia and, to the extent the interpretation of this Agreement is not governed by applicable federal law, shall be interpreted and enforced under and shall be governed by the laws of that state.

 

22.                               Severability. Should any provision of this Agreement be held to be illegal, void or unenforceable, such provision shall be of no force and effect. The illegality or unenforceability of any such provision, however, shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement.

 

23.                               Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

 

24.                               Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employee, the Company, and the Company Releasees, and their respective representatives, predecessors, heirs, successors, and assigns.

 

25.                               Entire Agreement. This Agreement contains the complete understanding between the Parties as to the subject matter contained herein, and no other promises or agreements shall

 

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be binding unless signed by both an authorized representative of the Company and Employee. In signing this Agreement, the Parties are not relying on any fact, statement, or assumption not set forth in this Agreement. As of April 15, 2013, the Employment Agreement is terminated and the Company has no liability thereunder, provided, however, that Section 6 of the Employment Agreement shall survive its termination in accordance with its terms.

 

26.                               Recitals. The recitals set forth at the beginning of this Agreement are incorporated into the provisions of this Agreement.

 

27.                               Representation and Warranty of Understanding. By signing below, Employee represents and warrants that Employee: (a) has carefully read and understands the terms of this Agreement; (b) is entering into the Agreement knowingly, voluntarily and of Employee’s own free will; (c) understands its terms and significance and intends to abide by its provisions without exception; (d) has not made any false statements or representations in connection with this Agreement; and (e) has not transferred or assigned to any person or entity not a party to this Agreement any claim or right released hereunder, and Employee agrees to indemnify the Company and hold it harmless against any claim (including claims for attorneys fees or costs actually incurred, regardless of whether litigation has commenced) based on or arising out of any alleged assignment or transfer of a claim by Employee.

 

 

	
Agreed to this 31 day of May, 2013.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Martin Brew
    	
 
    
	
MARTIN P. BREW
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
5/31/13
    	
 
    
	
DATE
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
ADCARE HEALTH SYSTEMS, INC.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
BY:
    	
/s/ Boyd P. Gentry
    	
 
    
	
ITS:
    	
President & CEO
    	
 
    
	
DATE:
    	
5/31/13
    	
 
    

 

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