CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Related Party Transaction Policy
Our Articles of Incorporation and our Bylaws do not restrict any of our directors, officers, stockholders or affiliates from having a pecuniary
interest in an investment or transaction that we have an interest in or from conducting, for their own account, business activities of the type we conduct. However, our Board of Directors recognizes that transactions or relationships between us and
our subsidiaries and our directors, executive officers, immediate family members of our executive officers and directors and greater than 5% beneficial owners of our Common Stock may present a heightened risk of conflicts of interest or the
perception thereof. As a result, the Board of Directors has adopted a written Related Party Transaction Policy (the Policy) to ensure that all related party transactions shall be subject to approval or ratification in accordance with the
procedures set forth in the Policy.
Prior to the entry of any potential related party transaction, such transaction, arrangement or
relationship, together with a summary of all material information concerning such transaction, arrangement or relationship, shall be reported to our Chief Legal Officer and General Counsel for evaluation. If our Chief Legal Officer and General
Counsel determines that the transaction is a related party transaction and is not subject to the exceptions described in the Policy, the Chief Legal Officer and General Counsel will submit the transaction to the Audit Committee for consideration. In
the event our Chief Executive Officer, President, Chief Financial Officer or Chief Legal Officer and General Counsel becomes aware of a related party transaction that has not been previously approved or ratified, the transaction will promptly be
submitted to the Audit Committee or its chair, which will evaluate all available options, including ratification, amendment or termination of the transaction. In determining whether to approve or ratify a related party transaction, the Audit
Committee will take into account, among other factors it deems appropriate, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and
the extent of the related partys interest in the transaction. The Audit Committee will annually review each new or continuing related party transaction to determine if we should enter into or continue such related party transaction. Despite
the existence and application of the Policy, we cannot assure you that the Policy or provisions of law will always be successful in eliminating the influence of conflicts of interest (whether actual or perceived), and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all stockholders.
Related Party Transactions
AdCare Transaction
On September 13, 2017, we and our wholly owned subsidiary entered into a Securities Purchase Agreement (the Purchase
Agreement), with AdCare and AdCare Holding Trust, a Massachusetts business trust (the AdCare Trust). Mr. Hillis, a nominee for director, is a trustee of AdCare Trust, a former director and officer of AdCare and is the sole
designee of the Escrowed Shares (as defined below). See Security Ownership of Certain Beneficial Owners and Management. Patrice Muchowski, Mr. Hillis wife, and Jeffrey W. Hillis and David W. Hillis, Jr., Mr. Hillis
sons, are also trustees of AdCare Trust and, except for the Escrowed Shares, received the consideration described below in connection with the acquisition of AdCare.
On March 1, 2018, we and our subsidiary completed the acquisition of AdCare and its subsidiaries for aggregate consideration of
$85.0 million, subject to adjustments as set forth in the Purchase Agreement, comprised of (i) approximately $67.5 million in cash, excluding expenses and other adjustments, (ii) approximately $4.8 million in shares of our
common stock (or 562,051 shares at an average closing stock price of $8.57) (the Escrowed Shares), (iii) a promissory note in the aggregate principal amount of approximately $9.6 million (the Promissory Note), and
(iv) contingent consideration of up to $3.1 million based on a specified adjusted EBITDA target over the 12 months following closing. The amount outstanding under the Promissory Note at April 13, 2018 was $9.6 million. Interest
due under the Promissory Note begins accruing on April 30, 2018.
29